American Express 2006 Annual Report Download - page 110

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[ 108 ]
notes to consolidated fi nancial statements
american express company
Net Revenues
The Company allocates discount revenue and certain
other revenues among segments using a transfer
pricing methodology. Segments earn discount revenue
based on the volume of merchant business generated
by cardmembers. Within the U.S. Card Services and
International Card & Global Commercial Services
segments, discount revenue reflects the issuer component
of the overall discount rate; within the Global Network
& Merchant Services segment, discount revenue reflects
the network and merchant component of the overall
discount rate. Net finance charge revenue and net card
fees are directly attributable to the segment in which
they are reported.
Expenses
Marketing, promotion, rewards and cardmember
services expenses are reflected in each segment based on
actual expenses incurred, with the exception of brand
advertising, which is reflected in the Global Network &
Merchant Services segment.
The provision for losses and benefits includes credit-
related expenses and interest credited on investment
certificates directly attributable to the segment in which
they are reported.
Human resources and other operating expenses
reflect expenses incurred directly within each segment.
In addition, expenses related to the Company’s support
services are allocated to each segment based on support
service activities directly attributable to the segment.
Other overhead expenses are allocated to segments
based on each segment’s level of pretax income.
Financing requirements are managed on a consolidated
basis. Funding costs are allocated based on segment
funding requirements.
Capital
Each business segment is allocated capital based on
established business model operating requirements, risk
measures and regulatory capital requirements. Business
model operating requirements include capital needed to
support operations and specific balance sheet items. The
risk measures include considerations for credit, market
and operational risk.
Income taxes
Income tax provision (benef it) is allocated to each business
segment based on the effective tax rates applicable to
various businesses that make up the segment.
Assets
Assets are those that are used or generated exclusively by
each segment.
GEOGRAPHIC OPERATIONS
The following table presents the Company’s net revenues and pretax income in different geographic regions:
(Millions) United States Europe Asia/Pacific All Other Consolidated
2006
Net revenues $18,376$3,564$2,482$2,714$27,136
Pretax income from continuing operations $4,264 $369 $193 $502 $5,328
2005
Net revenues $15,888 $3,274 $2,333 $2,573 $24,068
Pretax income from continuing operations $ 3,337 $ 289 $ 310 $ 312 $ 4,248
2004
Net revenues $14,490 $3,096 $2,142 $2,169 $ 21,897
Pretax income from continuing operations $ 2,784 $ 293 $ 286 $ 468 $ 3,831
The data in the above table are, in part, based upon internal allocations, which necessarily involve management’s
judgment. Therefore, it is not practicable to separate precisely the U.S. and international services.