American Express 2007 Annual Report Download - page 62

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[ 60 ]
2007 FINANCIAL REVIEW
AMERICAN EXPRESS COMPANY
Human resources and other operating expenses of $3.0
billion increased $211 million or 8 percent in 2007 due to
higher human resources in part due to the acquisition of Harbor
Payments Inc. on December 31, 2006 and the acquisition of
a travel services business in 2007, increased other operating
expenses, which reflected a $38 million gain during 2006
related to the sale of the Company’s card-related activities
in Brazil, Malaysia, and Indonesia, and was reported as a
reduction to human resources and other operating expenses,
and higher occupancy and equipment expenses. These items
were partially offset by the previously discussed pension-related
gain of $19 million during 2007 and reclassification of certain
card acquisition related costs effective July 1, 2006.
Provisions for Losses
Provisions for losses increased $50 million or 44 percent to
$163 million in 2007 compared to 2006, due to higher volumes
and loss rates. Provisions for losses decreased $67 million or 37
percent to $113 million in 2006 compared to 2005 due to lower
loss rates.
Income Taxes
The effective tax rate was 28 percent in 2007 versus 33 percent
in 2006 and 28 percent in 2005. The effective tax rate in 2007
reflected $18 million of tax benefits previously discussed.
The effective tax rate was higher in 2006 as compared to
2005 primarily due to tax benefits realized in 2005 from the
resolution of IRS audits of previous years’ tax returns.
GLOBAL NETWORK & MERCHANT SERVICES
SELECTED INCOME STATEMENT DATA
Years Ended December 31,
(Millions) 2007 2006 2005
Revenues
Discount revenue, fees and other $3,550 $3,063 $2,681
Interest expense
Cardmember lending (126) (98) (66)
Other (188) (183) (145)
Revenues net of interest expense 3,864 3,344 2,892
Expenses
Marketing and promotion 595 518 604
Human resources and other
operating expenses 1,665 1,549 1,340
Tota l 2,260 2,067 1,944
Provisions for losses 44 89 66
Pretax segment income 1,560 1,188 882
Income tax provision 538 409 309
Segment income $1,022 $779 $ 573
SELECTED STATISTICAL INFORMATION
Years Ended December 31,
(Billions, except percentages
and where indicated) 2007 2006 2005
Global Card billed business(a) $ 647.3 $561.5 $484.4
Global Network &
Merchant Services:
Total segment assets $ 6.5 $ 4.4 $ 4.5
Segment capital(b) $ 1.2 $ 1.3 $ 1.3
Return on segment capital(c) 90.7% 60.3% 49.2%
Global Network Services(d):
Card billed business $ 52.9 $ 35.4 $ 24.0
Total cards-in-force (millions)(e) 20.3 15.0 10.8
(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) Segment capital includes an allocation to goodwill of $27 million as of the
years ended December 31, 2007 and 2006, respectively, and $104 million as
of the year ended December 31, 2005.
(c) 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.
(d) Billed business and cards-in-force reflect the transfer, effective January 1,
2006, to Global Commercial Services segment of corporate card accounts
in certain emerging markets that had been managed within Global Network
Services.
(e) Cards-in-force for 2006 reflect the transfer of 1.3 million proprietary cards-
in-force in Brazil, and approximately 200,000 proprietary cards-in-force
in Malaysia and Indonesia, from the International Card Services and the
Global Commercial Services segments during the second quarter of 2006
and the third quarter of 2006, respectively.
RESULTS OF OPERATIONS FOR THE THREE YEARS
ENDED DECEMBER 31, 2007
Global Network & Merchant Services reported segment
income of $1.0 billion in 2007, a $243 million or 31 percent
increase from $779 million in 2006, which increased $206
million or 36 percent from 2005.
Revenues Net of Interest Expense
Global Network & Merchant Services’ revenues net of interest
expense increased $520 million or 16 percent and $452 million
or 16 percent to $3.9 billion and $3.3 billion in 2007 and 2006,
respectively, due to increased discount revenue, fees and other
revenues. These increases reflected growth in merchant-related
revenues, primarily generated from the increases in global card
billed business of 15 percent and 16 percent in 2007 and 2006,
respectively, higher Global Network Services-related revenues,
and the completion of independent operator agreements in
Brazil, Malaysia, and Indonesia in 2006.
Expenses
During 2007, Global Network & Merchant Services’ expenses
increased $193 million or 9 percent to $2.3 billion due to
increased human resources and other operating expenses and
60