American Express 2007 Annual Report Download - page 64

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2007 FINANCIAL REVIEW
AMERICAN EXPRESS COMPANY
debtor-in-possession financing under the Bankruptcy Code. At
December 31, 2006, the remaining principal balance under this
facility was $176 million. Delta received final approval for its
reorganization plan and emerged from bankruptcy on April 30,
2007, and repaid the entire principal and interest outstanding
at that time.
OTHER REPORTING MATTERS
ACCOUNTING DEVELOPMENTS
See the Recently Issued Accounting Standards section of Note
1 to the Consolidated Financial Statements.
GLOSSARY OF SELECTED TERMINOLOGY
Asset securitizations — Asset securitization involves the
transfer and sale of receivables or loans to a special purpose
entity created for the securitization activity, typically a trust.
The trust, in turn, issues securities, commonly referred to as
asset-backed securities, that are secured by the transferred
receivables or loans. The trust uses the proceeds from the sale
of such securities to pay the purchase price for the underlying
receivables or loans.
Average discount rate — This calculation is designed to
approximate merchant pricing. It represents the percentage of
billed business (both proprietary and Global Network Services)
retained by the Company from merchants it acquires, prior to
payments to third parties unrelated to merchant acceptance.
Basic cards-in-force — Proprietary basic consumer cards-in-force
includes basic cards issued to the primary account owner and
does not include additional supplemental cards issued on that
account. Proprietary basic small business and corporate cards-in-
force include basic and supplemental cards issued to employee
cardmembers. Non-proprietary basic cards-in-force includes all
cards that are issued and outstanding under network partnership
agreements.
Billed business — Represents the dollar amount of charges on
all American Express cards; also referred to as spend or charge
volume. Proprietary billed business includes charges made
on the Company’s proprietary cards-in-force, cash advances
on proprietary cards and certain insurance fees charged on
proprietary cards. Non-proprietary billed business represents
the charges through the Company’s global network on cards
issued by the Company’s network partners.
Card acquisition — Primarily represents the issuance of new
cards to either new or existing cardmembers through marketing
and promotion efforts.
Cardmember — The individual holder of an issued American
Express branded charge or credit card.
Cardmember lending finance revenue — Represents the revenue
earned on outstanding cardmember loans. Cardmember lending
finance charges are assessed using the average daily balance
method. They are recognized based upon the principal amount
outstanding in accordance with the terms of the applicable
account agreement until the outstanding balance is paid or
written-off.
Cardmember loans — Represents the outstanding amount due
from cardmembers for charges made on their American Express
credit cards, as well as any interest charges and card-related
fees. Cardmember loans also include balances with extended
payment terms on certain charge card products.
Cardmember receivables — Represents the outstanding amount
due from cardmembers for charges made on their American
Express charge cards as well as any card-related fees.
Charge cards — Represents cards that carry no pre-set spending
limits and are primarily designed as a method of payment and
not as a means of financing purchases. Cardmembers generally
must pay the full amount billed each month. No finance charges
are assessed on charge cards.
Credit cards — Represents cards that have a range of revolving
payment terms, grace periods, and rate and fee structures.
Discount revenue — Represents revenue earned from fees
charged to merchants with whom the Company has entered
into a card acceptance agreement for processing cardmember
transactions. The discount fee generally is deducted from the
Company’s payment reimbursing the merchant for cardmember
purchases. Such amounts are reduced by contra-revenue such as
payments to third-party card issuing partners, cash-back reward
costs, and corporate incentive payments.
Interest-only strip — Interest-only strips are generated from
U.S. Card Services’ securitization activity and are a form of
retained interest held by the Company in the securitization.
This financial instrument represents the present value of
estimated future “excess spread” expected to be generated by
the securitized assets over the estimated life of those assets.
Excess spread is the net positive cash flow from interest and fee
collections allocated to the third-party investors’ interests in the
securitization after deducting the interest paid on the investor
certificates, credit losses, contractual servicing fees, and other
expenses.
Merchant acquisition — Represents the signing of merchants to
accept American Express-branded charge and credit cards.
Net card fees — Represents the card membership fees earned
during the period. These fees are recognized as revenue over
the covered card membership period (typically one year), net
of provision for projected refunds for cancellation of card
membership. Beginning prospectively as of July 1, 2006, certain
card acquisition-related costs were reclassified from other, net
expenses to a reduction in net card fees over the membership
period covered by the card fee.
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