American Express 2007 Annual Report Download - page 65

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2007 FINANCIAL REVIEW
AMERICAN EXPRESS COMPANY
Net loss ratio — Represents the ratio of charge card write-
offs consisting of principal (resulting from authorized and
unauthorized transactions) and fee components, less recoveries,
on cardmember receivables expressed as a percentage of gross
amounts billed to cardmembers.
Net write-off rate — Represents the amount of cardmember
loans written off consisting of principal (resulting from authorized
transactions), interest, and fee components, less recoveries, as a
percentage of the average loan balance during the period.
Return on average equity — Computed on a trailing 12-month
basis using total shareholders’ equity as included in the
Consolidated Financial Statements prepared in accordance
with GAAP.
Return on segment capital — Computed on a trailing 12-month
basis using segment income and equity capital allocated to
segments based upon specific business operational needs, risk
measures, and regulatory capital requirements.
Securitization income, net — Includes non-credit provision
components of the net gains from securitization activities;
changes in fair value of the interest-only strip; excess spread
related to securitized cardmember loans; and servicing income,
net of related discounts or fees. Excess spread, which is
recognized as earned, 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.
Stored value and prepaid products — Include Travelers Cheques
and other prepaid products such as gift cheques and cards as well
as reloadable Travelers Cheque cards. These products are sold
as safe and convenient alternatives to currency for purchasing
goods and services.
Total cards-in-force — Represents the number of cards that
are issued and outstanding. Total consumer cards-in-force
includes basic cards issued to the primary account owner and
any supplemental cards, which represent additional cards issued
on that account. Total small business and corporate cards-in-
force include basic cards issued to employee cardmembers.
Proprietary cards-in-force represent card products where the
Company owns the cardmember relationship including card
issuance, billing and credit management and strategic plans
such as marketing, promotion, and development of card
products and offerings. Proprietary cards-in-force include co-
brand and affinity cards. For non-proprietary cards-in-force
(except for certain independent operator network partnership
agreements), the Company maintains the responsibility to
acquire and service merchants that accept the Company’s cards
and the cardmember relationship is owned by the Company’s
network partners that issue the cards.
Travel sales — Represents the total dollar amount of travel
transaction volume for airline, hotel, car rental, and other travel
arrangements made for consumers and corporate clients. The
Company earns revenue on these transactions by charging a
transaction or management fee.
FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements, which
are subject to risks and uncertainties. The forward-looking
statements, which address the Company’s expected business
and financial performance, among other matters, contain
words such as “believe,” “expect,” “anticipate,” “optimistic,”
“intend,” “plan,” “aim,” “will,” “may,” “should,” “could,” “would,”
“likely,” and similar expressions. Readers are cautioned not to
place undue reliance on these forward-looking statements,
which speak only as of the date on which they are made. The
Company undertakes no obligation to update or revise any
forward-looking statements.
Factors that could cause actual results to differ materially
from these forward-looking statements include, but are not
limited to, the following: consumer and business spending on
the Company’s credit and charge card products and Travelers
Cheques and other prepaid products and growth in card lending
balances, which depend in part on the economic environment,
and 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, and sustain premium discount
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 business; the Company’s ability
to manage credit risk related to consumer debt, business loans,
merchants and other credit trends, which will depend in part
on the economic environment, the rates of bankruptcies and
unemployment, which can affect spending on card products,
debt payments by individual and corporate customers and
businesses that accept the Company’s card products, and on
the effectiveness of the Company’s credit models; fluctuations
in interest rates (including fluctuations in benchmarks, such as
LIBOR and other benchmark rates, used to price loans and
other indebtedness, as well as credit spreads in the pricing of
loans and other indebtedness), which impact the Company’s
borrowing costs, return on lending products and the value of
the Company’s investments; the Company’s ability to meet its
ROE target range of 33 to 36 percent on average and over time,
which will depend in part on factors such as the Company’s
ability to generate sufficient revenue growth and achieve
sufficient margins, fluctuations in the capital required to
support its businesses, the mix of the Company’s financings, and
fluctuations in the level of the Company’s shareholders’ equity
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