American Express 2005 Annual Report Download - page 58

the Company’s ability to manage its capital needs and
the effect of business mix, acquisitions and rating agency
requirements; consumer and business spending on the
Company’s credit and charge card products and Travel-
ers Cheques and other prepaid products and growth in
card lending balances, which depend in part on the
ability to issue new and enhanced card and prepaid
products, services and rewards programs, and increase
revenues from such products, attract new cardmembers,
reduce cardmember attrition, capture a greater share of
existing cardmembers’ spending, sustain premium dis-
count rates on its card products in light of regulatory and
market pressures, increase merchant coverage, retain
cardmembers after low introductory lending rates have
expired, and expand the Global Network Services busi-
ness; the Company’s ability to introduce new products,
reward program enhancements and service enhance-
ments on a timely basis during 2006; the success of the
Global Network Services business in partnering with
banks in the United States, which will depend in part
on the extent to which such business further enhances
the Company’s brand, allows the Company to leverage
its significant processing scale, expands merchant cov-
erage of the network, provides Global Network Services’
bank partners in the United States the benefits of greater
cardmember loyalty and higher spend per customer,
and merchant benefits such as greater transaction vol-
ume and additional higher spending customers; the
continuation of favorable trends, including increased
travel and entertainment spending, and the overall level
of consumer confidence; the costs and integration of
acquisitions; the success, timeliness and financial
impact (including costs, cost savings and other benefits
including increased revenues), and beneficial effect on
the Company’s operating expense to revenue ratio, both
in the short-term and over time, of reengineering initia-
tives being implemented or considered by the Company,
including cost management, structural and strategic
measures such as vendor, process, facilities and opera-
tions consolidation, outsourcing (including, among oth-
ers, technologies operations), relocating certain func-
tions to lower-cost overseas locations, moving internal
and external functions to the Internet to save costs, and
planned staff reductions relating to certain of such
reengineering actions; the Company’s ability to reinvest
the benefits arising from such reengineering actions
in its businesses; the ability to control and manage
operating, infrastructure, advertising and promotion
expenses as business expands or changes, including the
ability to accurately estimate the provision for the cost
of the Membership Rewards program; the Company’s
ability to manage credit risk related to consumer debt,
business loans, merchant bankruptcies and other credit
trends and the rate of bankruptcies, which can affect
spending on card products, debt payments by indi-
vidual and corporate customers and businesses that
accept the Company’s card products and returns on the
Company’s investment portfolios; bankruptcies,
restructurings or similar events affecting the airline or
any other industry representing a significant portion of
the Company’s billed business, including any potential
negative effect on particular card products and services
and billed business generally that could result from the
actual or perceived weakness of key business partners
in such industries; the triggering of obligations to make
payments to certain co-brand partners, merchants, ven-
dors and customers under contractual arrangements
with such parties under certain circumstances; a down-
turn in the Company’s businesses and/or negative
changes in the Company’s and its subsidiaries’ credit rat-
ings, which could result in contingent payments under
contracts, decreased liquidity and higher borrowing
costs; risks associated with the Company’s agreements
with Delta Air Lines to prepay $300 million for the
future purchases of Delta SkyMiles rewards points; fluc-
tuations in foreign currency exchange rates; fluctuations
in interest rates, which impact the Company’s borrowing
costs and return on lending products; accuracy of esti-
mates for the fair value of the assets in the Company’s
investment portfolio and, in particular, those invest-
ments that are not readily marketable, including the
valuation of the interest-only strip relating to the Com-
pany’s lending securitizations; the potential negative
effect on the Company’s businesses and infrastructure,
including information technology, of terrorist attacks,
disasters or other catastrophic events in the future;
political or economic instability in certain regions or
countries, which could affect lending and other com-
mercial activities, among other businesses, or restric-
tions on convertibility of certain currencies; changes in
laws or government regulations; outcomes and costs
associated with litigation and compliance and regula-
tory matters; competitive pressures in all of the Compa-
ny’s major businesses; and other risks that are previously
disclosed in this report.
Financial Review
AXP / AR.2005
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