American Express 2005 Annual Report Download - page 52

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Marketing, promotion, rewards and cardmember
services expenses increased 18 percent in 2005 to
$3.9 billion reflecting the Company’s increased
business-building activities and volume-related rewards
expense growth. Total provisions for losses increased 6
percent in 2005 due to strong volume increases within
both charge and lending activities, higher provision
rates, reflecting the impact of the new bankruptcy leg-
islation, and a $38 million provision for the estimated
costs related to Hurricane Katrina. In 2004, a $115
million securitization reconciliation charge was
recorded. Human resources and other operating
expenses of $3.8 billion in 2005 increased 10 percent
from 2004 primarily due to greater interest costs and
higher management incentives, including an additional
year of stock-based compensation expenses, merit
increases, and increased employee benefit costs. In
addition, operating expenses rose reflecting volume-
related costs.
The effective tax rate was 35 percent in 2005 versus
36 percent in 2004 and 2003.
International Card & Global
Commercial Services
Differences between GAAP and Managed
Basis Presentation
The table below provides selected income statement
data of International Card & Global Commercial
Services for 2005, 2004 and 2003 on a GAAP basis.
On a GAAP basis, amounts earned related to the sale
and purchase of foreign currencies for customers as part
of the foreign exchange business are included with other
foreign exchange items that are reflected in other oper-
ating expenses. Management views these foreign
exchange services as a revenue generating activity
and makes operating decisions based upon that infor-
mation. On a managed basis, these revenues are
included in other revenue with a corresponding increase
in other operating expenses. The amount of foreign
exchange services reclassified on a managed basis
increased other revenue and other operating expenses
by $135 million, $172 million and $161 million in
2005, 2004 and 2003, respectively, from the amounts
reported on a GAAP basis.
GAAP Basis
Years Ended December 31,
(Millions) 2005 2004 2003
Revenues:
Discount revenue, net
card fees and other $ 8,354 $ 7,789 $ 6,796
Cardmember lending:
Finance charge
revenue 1,035 907 821
Interest expense 351 267 212
Net finance charge
revenue 684 640 609
Total revenues 9,038 8,429 7,405
Expenses:
Marketing, promotion,
rewards and
cardmember services 1,269 1,130 829
Provision for losses
and benefits 1,023 740 735
Human resources and
other operating
expenses 5,597 5,443 4,767
Total expenses 7,889 7,313 6,331
Pretax segment income 1,149 1,116 1,074
Income tax provision 215 335 359
Segment income $ 934 $ 781 $ 715
Financial Review
AXP / AR.2005
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