American Express 2008 Annual Report Download - page 55

2008 financial review
american express company
in 2007 were $366 million or 9 percent higher than 2006 due to
higher discount revenue, net card fees and other and increased
total interest income, partially offset by higher interest expense.
Provisions for Losses
Provisions for losses increased $218 million or 27 percent to $1.0
billion in 2008 compared to 2007, primarily due to increased
reserve levels due to the challenging economic environment and
loan and business volume growth. Provisions for losses decreased
$40 million or 5 percent to $812 million in 2007 compared to
2006, primarily due to lower write-off and past due rates and
lower provisions related to Taiwan, partially offset by higher
volumes and lending balances.
Expenses
During 2008, International Card Services’ expenses increased
$196 million or 6 percent to $3.6 billion, due to increased
salaries and employee benefits and other operating expenses,
partially offset by lower marketing, promotion, rewards and
cardmember services costs. Expenses in 2008, 2007, and 2006,
included $83 million, $16 million, and $32 million, respectively,
of reengineering costs primarily related to the Company’s
reengineering initiatives in 2008 as previously discussed and
reengineering in the international payments business for
2007 and 2006. Expenses in 2007 of $3.4 billion were $601
million or 21 percent higher than 2006 primarily due to higher
marketing, promotion, rewards and cardmember services
costs and increased salaries and employee benefits and other
operating expenses.
Marketing, promotion, rewards and cardmember services
expenses decreased $113 million or 7 percent to $1.5 billion in
2008, due to the Membership Rewards related charge and the
incremental business-building costs in 2007 noted above, which
more than offset higher marketing and promotion expenses, and
volume-related rewards costs in 2008. Marketing, promotion,
rewards and cardmember services expenses increased $457
million or 41 percent to $1.6 billion in 2007, due to higher
Membership Rewards liability resulting from enhancements
to the method of liability estimation, greater volume-related
rewards costs, and higher marketing and promotion and business
building costs. Salaries and employee benefits and other operating
expenses increased $309 million or 17 percent to $2.1 billion in
2008, primarily due to higher salaries and employee benefits
expense and increased other operating expenses, which reflected
the costs related to the Company’s reengineering initiatives in
2008, as well as greater professional services expense. Salaries and
employee benefits and other operating expenses increased $144
million or 9 percent to $1.8 billion in 2007, and reflected gains of
$114 million during 2006 related to the sales of the Company’s
card-related activities in Brazil, Malaysia, and Indonesia, partially
offset by the reclassification of certain card acquisition related
costs effective July 1, 2006.
Income Taxes
The effective tax rate was negative 129 percent in 2008 versus
negative 149 percent in 2007 and negative 10 percent in 2006.
International Card Services includes a tax benefit of $198 million
and $174 million in 2008 and 2007, respectively. The tax benefit
is likely to continue, since the Company’s internal tax allocation
process provides this segment with the consolidated benefit
related to its ongoing funding activities outside the United
States. Additionally, the tax rates in 2008 and 2007 reflected
various tax benefits related to the resolution of certain prior
years’ tax items.
global commercial
services
selected income statement data
Years Ended December 31,
(Millions) 2008 2007 2006
Revenues
Discount revenue, net card fees
and other $5,081 $4,697 $4,254
Interest income 168 187 120
Interest expense 553 615 474
Net interest income (385) (428) (354)
Total revenues net of interest expense 4,696 4,269 3,900
Provisions for losses 231 163 113
Total revenues net of interest expense
after provisions for losses 4,465 4,106 3,787
Expenses
Marketing, promotion, rewards
and cardmember services 377 387 307
Salaries and employee benefits and
other operating expenses 3,395 2,975 2,764
Total 3,772 3,362 3,071
Pretax segment income 693 744 716
Income tax provision 188 208 239
Segment income $ 505 $ 536 $ 477
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