American Express 2007 Annual Report Download - page 112

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN EXPRESS COMPANY
Revenues Net of Interest Expense
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, International Card Services, and 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. Cardmember lending finance 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.
Human resources and other operating expenses reflect
expenses, such as professional services, occupancy and
equipment, and communications, incurred directly within
each segment. In addition, expenses related to the Company’s
support services, such as technology costs, are allocated to each
segment based on support service activities directly attributable
to the segment. Other overhead expenses, such as staff group
support functions, 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.
Provisions for Losses and Benefits
The provisions for losses and benefits include credit-related
expenses and interest credited on investment certificates directly
attributable to the segment in which they are reported.
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 (benefit) is allocated to each business
segment based on the actual effective tax rates applicable to
various businesses that make up the segment.
GEOGRAPHIC OPERATIONS
The following table presents the Company’s revenues net of interest expense and pretax income in different geographic regions:
(Millions) United States Europe Asia/Pacific All Other Consolidated
2007
Revenues net of interest expense $ 19,355 $3,560 $2,259 $2,557 $ 27,731
Pretax income from continuing operations $ 4,749 $ 384 $ 162 $ 271 $ 5,566
2006
Revenues net of interest expense $ 17,393 $3,168 $1,992 $2,601 $ 25,154
Pretax income from continuing operations $ 4,312 $ 292 $ 131 $ 404 $ 5,139
2005
Revenues net of interest expense $ 15,506 $2,824 $1,776 $2,319 $ 22,425
Pretax income from continuing operations $ 3,401 $ 230 $ 103 $ 319 $ 4,053
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.
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