American Express 2005 Annual Report Download - page 54

The effective tax rate was 19 percent in 2005 versus 30
percent in 2004 and 33 percent in 2003. The effective
tax rate was lower in 2005 as compared to 2004 prima-
rily due to tax benefits of $33 million, resulting from the
resolution of IRS audits of previous years’ returns, in
addition to the positive effect of changes in the
Company’s international funding strategy in 2004.
Global Network & Merchant Services
Selected Income Statement Data
Years Ended December 31, (Millions) 2005 2004 2003
Revenues:
Discount revenue, fees
and other $ 2,842 $ 2,639 $ 2,347
Expenses:
Marketing and
promotion 604 389 289
Provision/(benefit)
for losses 66 (2) 67
Human resources and
other operating
expenses 1,302 1,348 1,225
Total expenses 1,972 1,735 1,581
Pretax segment income 870 904 766
Income tax provision 306 330 280
Segment income $ 564 $ 574 $ 486
Selected Statistical Information
Years Ended December 31,
(Billions, except percentages
and where indicated) 2005 2004 2003
Global Card billed
business $ 484.4 $ 416.1 $ 352.2
Global Network &
Merchant Services:
Total segment assets $ 4.5 $ 3.9 $ 4.2
Segment capital $ 1.3 $ 1.1 $ 1.0
Return on segment capital 48.4% 55.8% 49.0%
Global Network Services:
Card billed business $ 24.0 $ 17.7 $ 13.2
Total cards-in-force
(millions) 10.8 8.8 6.5
Results of Operations for the Three Years Ended
December 31, 2005
Revenues
Global Network & Merchant Services reported segment
income of $564 million in 2005, a 2 percent decrease
from $574 million in 2004, which increased 18 percent
from 2003.
In 2005, Global Network & Merchant Services revenues
increased 8 percent to $2.8 billion due to higher dis-
count revenue, fees and other revenues primarily due to
growth in network-related discount revenue generated
from strong growth in network volumes, partially offset
by a decrease in other revenues as a result of the 2004
sale of the ATM business and the impact of a lower over-
all discount rate. Cards-in-force rose 23 percent in 2005
from 2004 reflecting growth in new partners. Revenues
of $2.6 billion in 2004 were 12 percent higher than
2003 as a result of increased discount revenue and fees.
Expenses
During 2005, Global Network & Merchant Services
expenses increased 14 percent to $2.0 billion reflecting
higher marketing and promotion expenses, increased
costs for provisions for loss offset by a decrease in
human resources expenses and other operating
expenses. Expenses in 2005 included $3 million in
aggregate reengineering charges principally relating to
the restructuring of certain operations. These charges
represent employee severance obligations included
in human resources expense. Expenses in 2004 of
$1.7 billion were 10 percent higher than 2003 primarily
due to greater marketing and promotion, higher human
resources and other operating expenses, partially offset
by decreased costs for provisions for losses.
Marketing and promotion expenses increased 55
percent in 2005 to $604 million reflecting higher
marketing and promotion expenses primarily due to the
ongoing costs of the “MyLife, MyCard” brand advertis-
ing campaign. Provision for losses increased substan-
tially in 2005 primarily due to a $60 million benefit in
2004 resulting from the reduction in merchant-related
reserves. Human resources and other operating
expenses decreased 3 percent to $1.3 billion in 2005
due in part to the third quarter of 2004 sale of the ATM
business and a larger internally allocated interest
expense credit that recognizes the network business’
Financial Review
AXP / AR.2005
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