American Express 2009 Annual Report Download - page 126

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN EXPRESS COMPANY
Total 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 USCS, ICS and GCS segments, discount revenue
reflects the issuer component of the overall discount rate;
within the GNMS segment, discount revenue reflects the
network and merchant component of the overall discount
rate. Total interest income and net card fees are directly
attributable to the segment in which they are reported.
Provisions for Losses
The provisions for losses 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 GNMS segment. Rewards and
cardmember services expenses are reflected in each segment
based on actual expenses incurred within each segment.
Salaries and employee benefits 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 from Corporate &
Other to the other segments based on each segment’s relative
level of pretax income, with the exception of certain fourth
quarter 2008 severance and other related charges of $133
million from the Company’s fourth quarter restructuring
initiatives for staff group support functions. This presentation
is consistent with how such charges were reported internally.
See further discussion in Note 16 regarding this corporate
initiative. 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.
GEOGRAPHIC OPERATIONS
The following table presents the Company’s total revenues net of interest expense and pretax income in different geographic
regions:
(Millions) United States Europe Asia/Pacific All Other Consolidated
2009
Total revenues net of interest expense $16,582 $3,151 $2,335 $2,455 $24,523
Pretax income from continuing operations $ 2,034 $ 300 $ 200 $ 307 $ 2,841
2008
Total revenues net of interest expense $19,365 $3,755 $2,544 $2,701 $28,365
Pretax income from continuing operations $ 3,110 $ 196 $ 99 $ 176 $ 3,581
2007
Total revenues net of interest expense $19,456 $3,515 $2,231 $2,357 $27,559
Pretax income from continuing operations $ 4,984 $ 301 $ 124 $ 285 $ 5,694
The data in the above table is, in part, based upon internal allocations, which necessarily involve management’s judgment.
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