American Express 2004 Annual Report Download - page 32

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AMERICAN EXPRESS COMPANY
Consolidated Results of Operations
STATEMENTS OF INCOME
Years Ended December 31, (Millions) 2004 2003 2002
Revenues
Discount revenue $ 10,249 $ 8,781 $ 7,931
Net investment income 3,118 3,063 2,991
Management and
distribution fees 3,023 2,420 2,285
Cardmember lending
net finance charge
revenue 2,224 2,042 1,828
Net card fees 1,909 1,835 1,726
Travel commissions
and fees 1,795 1,507 1,408
Other commissions
and fees 2,284 1,960 1,867
Insurance and annuity
revenues 1,525 1,366 1,218
Securitization income,
net 1,132 1,105 1,049
Other 1,856 1,757 1,504
Total 29,115 25,836 23,807
Expenses
Human resources 7,359 6,303 5,725
Marketing, promotion,
rewards and
cardmember services 5,083 3,901 3,119
Provisions for losses
and benefits:
Annuities and
investment
certificates 1,261 1,306 1,217
Life insurance,
international
banking and other 1,094 1,052 1,040
Charge card 833 853 960
Cardmember lending 1,130 1,218 1,369
Professional services 2,507 2,248 2,021
Occupancy and equipment 1,641 1,529 1,458
Interest 867 905 1,082
Communications 519 517 514
Other 1,870 1,757 1,575
Total 24,164 21,589 20,080
Pretax income before
accounting change 4,951 4,247 3,727
Income tax provision 1,435 1,247 1,056
Income before
accounting change 3,516 3,000 2,671
Cumulative effect of
accounting change,
net of tax (71) (13) —
Net income $ 3,445 $ 2,987 $ 2,671
Management believes the 2004 financial results illustrate
the benefits of the strong business momentum achieved
through business-building investments over the past
few years. The strong growth reflects record levels of
cardmember spending on American Express cards,
along with higher average cardmember lending bal-
ances, strong travel sales and higher client asset levels.
The Company’s 2004 consolidated income before
accounting change rose 17 percent to $3.5 billion and
EPS before accounting change rose 19 percent to
$2.74. The Company’s 2004 consolidated net income of
$3.4 billion rose 15 percent from 2003 and EPS of
$2.68 increased 17 percent from 2003. On a trailing
12-month basis, return on average shareholders’ equity
was 22.0 percent.
Net income and EPS for 2004 reflect the $109 million
($71 million after-tax) or $0.06 per diluted share impact
of the Company’s adoption of Statement of Position
03-1, “Accounting and Reporting by Insurance Enter-
prises for Certain Nontraditional Long-Duration Con-
tracts and for Separate Accounts” (SOP 03-1). SOP 03-1
requires insurance enterprises to establish liabilities for
benefits that may become payable under variable
annuity death benefit guarantees or other insurance or
annuity contract provisions. Prior to the adoption of
SOP 03-1, these costs were expensed when payable.
See Notes 1 and 11 to the Consolidated Financial State-
ments for further discussion regarding the Company’s
adoption of SOP 03-1. In addition, 2004 results include
a $117 million ($76 million after-tax) net gain on the
fourth quarter sale of the equipment leasing product
line in TRS’ small business financing unit and $102 mil-
lion ($66 million after-tax) aggregate restructuring
charges recorded in the fourth quarter in connection
with several Company initiatives. These items are dis-
cussed in more detail below.
The Company’s 2003 consolidated income before
accounting change increased 12 percent to $3.0 billion
and EPS before accounting change rose 15 percent to
$2.31. The Company’s 2003 consolidated net income of
$3.0 billion rose 12 percent from 2002 and EPS of $2.30
increased 14 percent from 2002. Net income and EPS
for 2003 reflect the impact of the Company’s adoption
of Financial Accounting Standards Board (FASB) Inter-
pretation No. 46, “Consolidation of Variable Interest
Entities,” revised December 2003 (FIN 46), which
addressed the consolidation of variable interest entities
(VIEs). See Note 5 to the Consolidated Financial State-
ments for further discussion regarding the Company’s
interests in VIEs.
Both the Company’s revenues and expenses are affected
by changes in the relative values of non-U.S. currencies
to the U.S. dollar. The currency rate changes increased
AXP
AR.04
30
Financial Review