American Express 2009 Annual Report Download - page 52

2009 FINANCIAL REVIEW
AMERICAN EXPRESS COMPANY
BUSINESS SEGMENT RESULTS
The Company is a global service company principally engaged
in businesses comprising four reportable operating segments:
U.S. Card Services (USCS), International Card Services (ICS),
Global Commercial Services (GCS) and Global Network &
Merchant Services (GNMS).
The Company considers a combination of factors when
evaluating the composition of its reportable operating
segments, including the results reviewed by the chief
operating decision maker, economic characteristics, products
and services offered, classes of customers, product
distribution channels, geographic considerations (primarily
U.S. versus international), and regulatory environment
considerations. Refer to Note 25 to the Consolidated
Financial Statements for additional discussion of products
and services by segment.
Results of the business segments essentially treat each
segment as a stand-alone business. The management
reporting process that derives these results allocates income
and expense using various methodologies as described below.
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 and promotion expenses are reflected in each
segment based on actual expenses incurred, with the
exception of brand advertising, which is primarily reflected in
the GNMS and USCS segments. 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, such as professional services, occupancy and
equipment and communications, reflect expenses 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 to
segments based on each segment’s relative 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.
U.S. CARD SERVICES
SELECTED INCOME STATEMENT DATA GAAP BASIS
PRESENTATION
Years Ended December 31,
(Millions) 2009 2008 2007
Revenues
Discount revenue, net card fees and
other $ 9,125 $10,357 $10,243
Securitization income, net 400 1,070 1,507
Interest income 3,221 4,736 5,125
Interest expense 855 2,166 2,653
Net interest income 2,366 2,570 2,472
Total revenues net of interest expense 11,891 13,997 14,222
Provisions for losses 3,769 4,389 2,998
Total revenues net of interest expense
after provision for losses 8,122 9,608 11,224
Expenses
Marketing, promotion, rewards and
cardmember services 4,266 4,837 5,140
Salaries and employee benefits and
other operating expenses 3,532 3,630 3,354
Total 7,798 8,467 8,494
Pretax segment income 324 1,141 2,730
Income tax provision 75 289 907
Segment income $ 249 $ 852 $ 1,823
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