notes to consolidated financial 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
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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 creditrelated 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 (benefit) 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)
2006 Net revenues Pretax income from continuing operations 2005 Net revenues Pretax income from continuing operations 2004 Net revenues Pretax income from continuing operations
United States
Europe Asia/Pacific
All Other Consolidated
$ 18,376
$3,564
$2,482
$ 2,714
$ 27,136
$ 4,264
$ 369
$ 193
$ 502
$ 5,328
$15,888 $ 3,337
$3,274 $ 289
$2,333 $ 310
$2,573 $ 312
$ 24,068 $ 4,248
$14,490 $ 2,784
$3,096 $ 293
$2,142 $ 286
$2,169 $ 468
$ 21,897 $ 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.