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2008 financial review
american express company
expenses increased $420 million or 14 percent to $3.4 billion
in 2008, due to higher other operating expenses and greater
salaries and employee benefits expense, which reflected the
impacts of the CPS acquisition, as well as the costs related to the
Company’s reengineering initiatives in 2008 and the pension-
related gain in 2007. Salaries and employee benefits and
other operating expenses increased $211 million or 8 percent
to $3.0 billion in 2007, due to higher salaries and benefits in
part due to the acquisition of Harbor Payments 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
higher occupancy and equipment expenses. These items were
partially offset by the pension-related gain in 2007 and the
reclassification of certain card acquisition related costs effective
July 1, 2006.
Income Taxes
The effective tax rate was 27 percent in 2008 versus 28 percent
in 2007 and 33 percent in 2006. The rates for each of these years
reflect tax benefits related to the resolution of certain prior years’
tax items.
global network &
merchant services
selected income statement data
Years Ended December 31,
(Millions) 2008 2007 2006
Revenues
Discount revenue, fees and other $3,875 $3,549 $3,059
Interest income 53 5
Interest expense (222) (312) (280)
Net interest income 227 315 285
Total revenues net of interest expense 4,102 3,864 3,344
Provisions for losses 127 103 63
Total revenues net of interest expense
after provisions for losses 3,975 3,761 3,281
Expenses
Marketing and promotion 553 595 518
Salaries and employee benefits and
other operating expenses 1,932 1,606 1,575
Total 2,485 2,201 2,093
Pretax segment income 1,490 1,560 1,188
Income tax provision 495 538 409
Segment income $ 995 $1,022 $ 779
selected statistical information(a)
Years Ended December 31,
(Billions, except percentages
and where indicated) 2008 2007 2006
Global Card billed business(b) $683.3 $647.3 $561.5
Global Network &
Merchant Services:
Total segment assets $ 7.0 $ 6.5 $ 4.4
Segment capital (millions) (c) $1,451 $1,170 $1,272
Return on average segment capital(d) 75.4% 90.7% 60.3%
Return on average tangible
segment capital(d) 77.4% 93.4% 64.1%
Global Network Services:
Card billed business $ 67.4 $ 52.9 $ 35.4
Total cards-in-force (millions) 24.8 20.3 15.0
(a) See Glossary of Selected Terminology for the definitions of certain key
terms and related information.
(b) 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.
(c) Segment capital represents capital allocated to a segment based upon
specific business operational needs, risk measures, and regulatory capital
requirements.
(d) Return on average segment capital is calculated by dividing (i) segment
income ($1.0 billion, $1.0 billion, and $779 million for 2008, 2007, and
2006, respectively) by (ii) average segment capital ($1.3 billion, $1.1 billion,
and $1.3 billion for 2008, 2007, and 2006, respectively). Return on average
tangible segment capital is computed in the same manner as return on average
segment capital except the computation of average tangible segment capital
excludes average goodwill and other intangibles of $35 million, $33 million,
and $78 million at December 31, 2008, 2007, and 2006, respectively. The
Company believes the return on average tangible segment capital is a useful
measure of the profitability of its business growth.
results of operations for the three
years ended december 31, 2008
Global Network & Merchant Services reported segment income
of $995 million in 2008, a $27 million or 3 percent decrease
from $1.0 billion in 2007, which increased $243 million or
31 percent from 2006.
Total Revenues Net of Interest Expense
Global Network & Merchant Services’ total revenues net of
interest expense increased $238 million or 6 percent to $4.1
billion in 2008, due to increased discount revenue, fees and
other revenues offset by lower interest expense credit. Discount
revenue, fees and other revenues increased $326 million or
9 percent to $3.9 billion in 2008 reflecting growth in merchant-
related revenues, due to the 6 percent increase in global card
billed business and higher GNS-related revenues. Interest
expense credit decreased $90 million or 29 percent to
$222 million in 2008 due to a lower rate-driven interest credit,
primarily in the United States, related to internal transfer
pricing, which recognizes the merchant services’ accounts
payable-related funding benefit. Total revenues net of interest
55