American Express 2006 Annual Report Download - page 65

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[ 63 ]
2006 fi nancial review
american express company
Company’s brand, allows the Company to leverage its
significant processing scale, expands merchant coverage
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 volume
and additional higher spending customers; fluctuations
in interest rates, which impact the Company’s borrowing
costs and return on lending products; 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 initiatives being
implemented or considered by the Company, including
cost management, structural and strategic measures
such as vendor, process, facilities and operations
consolidation, outsourcing (including, among others,
technologies operations), relocating certain functions
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 individual
and corporate customers and businesses that accept the
Company’s card products and returns on the Company’s
investment portfolios; bankruptcies, restructurings,
consolidations 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,
vendors and customers under contractual arrangements
with such parties under certain circumstances; a
downturn in the Company’s businesses and/or negative
changes in the Company’s and its subsidiaries’ credit
ratings, 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 a remaining balance of
$176 million for the future purchases of Delta SkyMiles
rewards points; fluctuations in foreign currency
exchange rates; accuracy of estimates for the fair value
of the assets in the Company’s investment portfolio
and, in particular, those investments that are not readily
marketable, including the valuation of the interest-only
strip relating to the Company’s lending securitizations;
the potential negative effect on the Company’s businesses
and infrastructure, including information technology, of
terrorist attacks, natural disasters or other catastrophic
events in the future; political or economic instability in
certain regions or countries, which could affect lending
and other commercial activities, among other businesses,
or restrictions on convertibility of certain currencies;
changes in laws or government regulations; outcomes
and costs associated with litigation and compliance and
regulatory matters; and competitive pressures in all of
the Company’s major businesses. See also “Risk Factors”
in the Company’s 2006 Form 10-K filed with the SEC.