American Express 2004 Annual Report Download - page 33

both revenue and expense growth by approximately 2
percentage points in both 2004 and 2003.
The following discussion is presented on a basis pre-
pared in accordance with GAAP unless otherwise noted.
Revenues
Consolidated revenues were $29.1 billion, an increase
of 13 percent from 2003 reflecting 12 percent growth
at TRS, 15 percent growth at AEFA and 3 percent
growth at AEB. Consolidated revenues for 2003 were
9 percent higher than 2002. As discussed in further
detail below, the increase in 2004 was primarily due to
greater discount revenue, higher management and dis-
tribution fees, increased travel and other commissions
and fees, higher cardmember lending net finance
charge revenue and larger insurance and annuity rev-
enues. The increase in 2003 was due to higher discount
revenue, greater cardmember lending net finance
charge revenue, increased insurance and annuity rev-
enues, larger management and distribution fees and
higher other revenues.
During 2004, discount revenue at TRS increased 17 per-
cent to $10.2 billion as compared to a year ago primar-
ily as a result of an 18 percent increase in worldwide
billed business, reflecting a 13 percent increase in aver-
age cardmember spending per proprietary basic card
and 8 percent growth in cards-in-force, offset in part by
a lower discount rate. Similarly, discount revenue rose
11 percent to $8.8 billion during 2003 as a result of a
13 percent increase in billed business, from both
growth in cards-in-force and higher average cardmem-
ber spending per proprietary basic card, partially offset
by a lower discount rate.
Net investment income of $3.1 billion in 2004 rose 2
percent as a 4 percent increase at AEFA was offset by
lower interest income on investment and liquidity
pools held within card funding vehicles at TRS and
lower net interest income at AEB. The increase at AEFA
is primarily due to the benefits of higher levels of
invested assets. Net investment income increased 2
percent to $3.1 billion in 2003 primarily due to higher
levels of invested assets partially offset by lower aver-
age yields at AEFA and lower interest income on invest-
ment and liquidity pools held within card funding
vehicles at TRS.
Management and distribution fees of $3.0 billion
increased 25 percent during 2004 representing a 30 per-
cent increase in management fees and a 19 percent
increase in distribution fees. The management fees
increase is due primarily to higher average assets under
management, primarily reflecting the impact from the
September 30, 2003 acquisition of Threadneedle as well
as strengthening equity markets and net asset inflows.
Distribution fees increased as a result of greater mutual
fund fees, in particular wrap account fees, and increased
brokerage-related activities. Management and distri-
bution fees rose 6 percent in 2003 to $2.4 billion due
primarily to a 2 percent increase in management fees
resulting from higher average assets under management
and a 12 percent increase in distribution fees. Distribu-
tion fees increased during 2003 primarily due to greater
limited partnership product sales and increased
brokerage-related activities.
During 2004, cardmember lending net finance charge
revenue at TRS increased 9 percent to $2.2 billion as the
effect of 15 percent growth in the average balance of
the owned lending portfolio was partially offset by a
lower average yield. The net interest yield on the
worldwide lending portfolio decreased versus last year
reflecting a higher average proportion of the portfolio
on introductory or promotional rates during the year,
lower revolve rates and improved credit quality, which
reduces the proportion of the portfolio at default
interest rates. During 2003, cardmember lending net
finance charge revenue increased 12 percent to $2.0
billion as 13 percent growth in average worldwide
lending balances was partially offset by lower yields.
Net card fees increased 4 percent to $1.9 billion in 2004
primarily reflecting 8 percent growth in cards-in-force
partially offset by a slight decrease in the average annual
fee per card. Net card fees rose 6 percent to $1.8 billion
in 2003 reflecting 6 percent growth in cards-in-force and
the benefit of selected annual fee increases. The average
annual fee per proprietary card-in-force was $34 in 2004
compared to $35 in 2003 and $34 in 2002.
Travel commissions and fees of $1.8 billion for 2004
rose 19 percent primarily as a result of a 25 percent
increase in travel sales, which includes the benefits of
the acquisition of Rosenbluth in the fourth quarter of
2003, partially offset by lower transaction fees related
to growth in on-line transaction activity. Travel com-
missions and fees increased 7 percent to $1.5 billion in
2003 due to higher revenue earned per dollar of sales
coupled with a 3 percent increase in travel sales, pri-
marily due to the acquisition of Rosenbluth.
Other revenues increased 6 percent in 2004 primarily
due to higher fees earned on non-proprietary funds
and greater financial planning and advice services fees
at AEFA. Other revenues increased 17 percent in 2003
primarily due to greater merchant-related revenues at
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Financial Review