American Express 2006 Annual Report Download - page 40

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2006 fi nancial review
american express company
• $154 million ($100 million after-tax) of reengineering
costs; and
• a $72 million ($47 million after-tax) reduction in
cardmember lending finance charge revenues, net
of interest, and securitization income, net related
to higher than anticipated cardmember completion
of consumer debt repayment programs and certain
associated payment waivers.
In addition, 2006 results included a favorable impact
from lower early credit write-offs, primarily related to
bankruptcy legislation enacted in October 2005 and
lower than expected costs associated with Hurricane
Katrina that were provided for in 2005, partially offset
by a higher provision for losses in Taiwan due primarily
to the impact of industry-wide credit issues.
Results from continuing operations for 2005 included:
• tax benefits of $239 million resulting from the
resolution of previous years’ tax items and the
finalization of state tax returns;
• a $113 million ($73 million after-tax) benefit
from the recovery of September 11, 2001-related
insurance claims;
• $286 million ($186 million after-tax) of
reengineering costs; and
• a $49 million ($32 million after-tax) provision
to reflect the estimated costs related to
Hurricane Katrina.
In addition, 2005 results included an increase in the
provision for losses related to increased bankruptcy
filings resulting from the change in bankruptcy
legislation.
Results from continuing operations for 2004 included:
• a $115 million ($75 million after-tax) charge
reflecting a reconciliation of securitization-related
cardmember loans for balances accumulated over the
prior five-year period as a result of a computational
error;
• $99 million ($64 million after-tax) of restructuring
charges;
• a $117 million ($76 million after-tax) net gain on
the sale of the equipment leasing product line; and
• a $60 million ($39 million after-tax) benefit for a
reduction in merchant-related reserves.
Net Revenues
Consolidated net revenues for 2006 and 2005 were $27.1
billion and $24.1 billion, respectively, up 13 percent
and 10 percent from 2005 and 2004, respectively. Net
revenues increased primarily due to higher discount
revenue, increased cardmember lending finance charge
revenue, net of interest, greater securitization income, net,
and also, higher other revenues in 2006. Consolidated
net revenues in 2006 included a $72 million reduction
in cardmember lending finance charge revenue, net of
interest and securitization income, net related to higher
than anticipated cardmember completion of consumer
debt repayment programs and certain associated
payment waivers as well as a reclassification of certain
card acquisition-related costs, beginning prospectively
July 1, 2006, from other expenses to a reduction in net
card fees.
Discount revenue for 2006 rose 13 percent as
compared to 2005 to $13.0 billion as a result of a 16
percent increase in worldwide billed business, partially
offset by a lower average discount rate, relatively faster
growth in billed business related to Global Network
Services (GNS), and higher cash-back rewards costs.
Selective repricing initiatives, continued changes in the
mix of business and volume-related pricing discounts
will likely continue to result in some erosion of the
average discount rate over time. The 16 percent increase
in worldwide billed business in 2006 reflected increases
in average spending per proprietary basic card, growth in
basic cards-in-force, and a 48 percent increase in billed
business related to GNS from 2005.
U.S. billed business and billed business outside the
U.S. were up 15 percent and 19 percent, respectively,
in 2006, due to increases in average spending per
proprietary basic card and growth in basic cards-in-
force. The growth in the billed business both within
the U.S. and outside the U.S. reflected increases within
the Company’s consumer card business, small business
spending and Corporate Services volumes.