American Express 2007 Annual Report Download - page 38

[ 36 ]
2007 FINANCIAL REVIEW
AMERICAN EXPRESS COMPANY
and cardmember receivables of $288 million and $96
million, respectively, and included $54 million relating to a
reduction in the fair market value of the Company’s retained
subordinated interest in securitized cardmember loans;
•฀$211 million ($131 million after-tax) of incremental
business-building costs;
•฀$81 million ($41 million after-tax) third quarter 2007 initial
charge related to the sale of certain AEIDC securities and
the reclassification of the AEIDC investment portfolio from
Available-for-Sale to the Trading investment category as a
result of the related AEB sale agreement’s impact on the
holding period for these investments;
•฀$74 million ($46 million after-tax) of Visa litigation-related
costs; and
•฀A $50 million ($31 million after-tax) contribution to the
American Express Charitable Fund.
Also included in the 2007 results, were $66 million ($43 million
after-tax) of reengineering costs related to the Company’s
business travel, prepaid services, international payments
business and technology areas.
Results from continuing operations for 2006 included:
•฀$177 million ($155 million after-tax) of gains related to the
sales of the Company’s card and merchant-related activities
in Brazil, Malaysia, and Indonesia;
•฀$68 million ($42 million after-tax) of gains related to a
rebalancing program in the fourth quarter of 2006 to better
align the maturity profile of the Travelers Cheque and Gift
Card investment portfolio with its business liquidity needs;
•฀$174 million ($113 million after-tax) of charges associated
with certain adjustments made to the Membership Rewards
reserve models in the U.S. and outside the U.S.; and
•฀A $72 million ($47 million after-tax) reduction in
cardmember lending finance revenue, and securitization
income, net related to higher than anticipated cardmember
completion of consumer debt repayment programs and
certain associated payment waivers.
Also included in the 2006 results, were $152 million ($99
million after-tax) of reengineering costs related to business
travel, operations, finance and technology areas and 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 $112 million ($73 million after-tax) benefit from the
recovery of September 11, 2001-related insurance claims;
and
•฀A $49 million ($32 million after-tax) provision to reflect the
estimated costs related to Hurricane Katrina.
Also included in the 2005 results were $273 million ($174
million after-tax) of reengineering costs related to business
travel, operations, finance and technology areas and an increase
in the provisions for losses related to increased bankruptcy
filings resulting from the change in bankruptcy legislation.
Revenues Net of Interest Expense
Consolidated revenues net of interest expense for 2007 of
$27.7 billion were up $2.6 billion or 10 percent from 2006
primarily due to increased interest income, higher discount
revenue, greater net card fees, and higher securitization income,
net, partially offset by increased interest expense and lower
other revenues in 2007. Consolidated revenues net of interest
expense of $25.2 billion for 2006 were $2.7 billion or 12
percent higher than 2005 due to increased discount revenue,
greater interest income, higher other revenues, and increased
securitization income, net, partially offset by greater interest
expense. Consolidated revenues net of interest expense in 2006
also included a $72 million reduction in cardmember lending
finance revenue 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 2007 rose $1.6 billion or 12 percent
as compared to 2006 to $14.6 billion as a result of a 15 percent
increase in worldwide billed business. The slower growth in
discount revenue compared to billed business growth reflected
the relatively faster growth in billed business related to GNS
where the Company shares the discount revenue with third-
party card issuing partners, and higher cash-back rewards
costs and corporate incentive payments which are reported
as reductions to revenue (contra-revenue). The 15 percent
increase in worldwide billed business in 2007 reflected increases
in average spending per proprietary basic card, growth in basic
cards-in-force and a 49 percent increase in billed business
related to GNS from 2006. The average discount rate was
2.56 percent, 2.57 percent, and 2.58 percent for 2007, 2006,
and 2005, respectively. Over time, selective repricing initiatives,
changes in the mix of business, and volume-related pricing
36