American Express 2006 Annual Report Download - page 61

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2006 fi nancial review
american express company
GLOBAL NETWORK & MERCHANT SERVICES
SELECTED STATISTICAL INFORMATION
Years Ended December 31,
(Billions, except percentages
and where indicated) 2006 2005 2004
Global Card billed business(a) $561.5 $484.4 $416.1
Global Network &
Merchant Services:
Total segment assets $ 4.4 $ 4.5 $ 3.9
Segment capital $ 1.3 $ 1.3 $ 1.1
Return on segment capital(b) 60.3% 49.2% 56.2%
Global Network Services(c):
Card billed business $ 35.4 $ 24.0 $ 17.7
Total cards-in-force (millions)(d) 15.0 10.8 8.8
(a) Global Card billed business includes activities (including cash
advances) related to proprietary cards, cards issued under network
partnership agreements, and certain insurance fees charged on
proprietary cards.
(b) Computed on a trailing 12-month basis using segment income
and equity capital allocated to segments based upon specific
business operational needs, risk measures, and regulatory
capital requirements.
(c) Billed business and cards-in-force reflect the transfer, effective
January 1, 2006, to International Card & Global Commercial
Services’ segment of corporate card accounts in certain emerging
markets that had been managed within Global Network Services.
(d) Cards-in-force for 2006 reflect the transfer of 1.3 million
proprietary cards in Brazil, and approximately 200,000 proprietary
cards-in-force in Malaysia and Indonesia from the International
Card & Global Commercial Services segment during second
quarter 2006 and third quarter 2006, respectively.
RESULTS OF OPERATIONS FOR THE THREE YEARS
ENDED DECEMBER 31, 2006
Net Revenues
Global Network & Merchant Services reported segment
income of $779 million in 2006, a 36 percent increase
from $573 million in 2005, which was 1 percent lower
than in 2004.
In 2006, Global Network & Merchant Services’ net
revenues increased 15 percent to $3.2 billion reflecting
growth in merchant-related fees, primarily generated
from the 16 percent increase in global card billed business
as well as higher network partner-related revenues. Net
revenues of $2.7 billion in 2005 were 9 percent higher
than 2004 as a result of higher discount revenue, fees
and other revenues primarily due to growth in merchant-
related fees generated from strong growth in global card
billed business, 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 overall discount rate.
Expenses
During 2006, Global Network & Merchant Services’
expenses increased 6 percent to $2.0 billion due to
increased human resources and other operating expenses
and provision for losses, offset by lower marketing
and promotion expenses. Expenses in 2006 and 2005
included $8 million and $3 million of reengineering
costs, respectively. Expenses in 2005 of $1.9 billion were
15 percent higher than 2004, primarily due to higher
marketing and promotion expenses, and increased costs
for provision for losses offset by a decrease in human
resources expenses and other operating expenses.
Marketing and promotion expenses decreased 14
percent in 2006 to $518 million, reflecting a reduction in
brand-related advertising costs versus last year when the
“MyLife, MyCard (SM)” campaign was in a particularly
active phase. Provision for losses increased 35 percent
due to higher merchant-related provisions. Human
resources and other operating expenses of $1.4 billion
in 2006 increased 14 percent, reflecting higher business
volumes, greater salary, incentive and benefit costs, and
an adjustment in amortization of an intangible asset
relating to an overseas joint venture. This was partially
offset by a larger interest expense credit that recognizes
the merchant services’ accounts payable-related funding
benefit and the previously discussed merchant-related
Brazil gain.
The effective tax rate was 34 percent in 2006 versus
35 percent in 2005 and 36 percent in 2004.
CORPORATE & OTHER
Corporate & Other had net expense of $212 million,
$67 million, and $178 million in 2006, 2005, and 2004,
respectively. Net expense in 2006 reflected $17 million
($11 million after-tax) of reengineering costs. 2005 items
included a $159 million tax benefit resulting from the
resolution of prior years’ tax items, a $112 million ($73
million after-tax) September 11, 2001-related insurance
recovery, partially offset by $105 million ($68 million
after-tax) of reengineering costs. In addition, the
comparison of 2006 to 2005 and 2004 reflects efforts to
eliminate overhead that was supportive of Ameriprise.
The Company maintained a $200 million equity
investment in the Industrial & Commercial Bank of
China (ICBC), which was accounted for at cost. On
October 27, 2006, ICBC completed an initial public
offering. The Company will continue to be required
to account for its investment at cost for approximately
two years due to contractual sales restrictions, at which
time the Company will make a determination whether
to classify the investment as either Available-for-Sale or
Trading securities.