American Express 2010 Annual Report Download - page 24

REENGINEERING INITIATIVES
On January 19, 2011, the Company announced that it was
undertaking various reengineering initiatives resulting in
charges aggregating approximately $113 million pretax
(approximately $74 million after-tax), which were recorded in
the fourth quarter of 2010. The charges for the reengineering
initiatives include a fourth quarter restructuring charge in the
amount of approximately $98 million pretax (approximately
$63 million after-tax) relating to employee severance
obligations and other employee-related costs.
The $98 million restructuring charge is pursuant to a plan,
approved by the Company’s management in December 2010,
that resulted in a consolidation of facilities within the Company’s
global servicing network due to reduced service volumes as a
greater number of routine transactions have migrated to online
and mobile channels. In addition, the Company expects to
record further restructuring charges in one or more quarterly
periods during 2011 relating to these restructuring activities in
the aggregate amount of approximately $60 million to
$80 million pretax (approximately $38 million to $51 million
after-tax). The total expected additional charges include
approximately $25 million to $35 million in costs associated
with additional employee compensation and approximately
$35 million to $45 million in other costs principally relating
to the termination of certain real property leases.
The reengineering activities, in total, are expected to result in
the elimination of approximately 3,500 jobs (including
approximately 3,200 jobs relating to the above noted
restructuring charge). However, overall staffing levels are
expected to decrease only by approximately 550 positions on
a net basis (including 400 positions related to specific
restructuring activities), as new employees are hired at the
locations to which work is being transferred.
Substantially all of these reengineering activities are expected
to be completed by the end of the fourth quarter of 2011.
The Company also announced that it expects the
reengineering charges recorded in the fourth quarter of 2010
and to be recorded during 2011 to result in annualized cost
savings to the Company of approximately $70 million pretax,
starting in 2012. The Company announced that it intends to
reinvest a portion of such savings into new servicing capabilities
and other business building initiatives.
During 2008 and 2009, the Company undertook major
reengineering initiatives that were expected to produce
significant cost benefits in 2009. These initiatives included
reducing staffing levels resulting in lower compensation
expenses and reducing certain operating costs for marketing
and other business building initiatives. As the Company has
previously disclosed, benefits related to better than initially
forecasted credit and business trends for 2009 were utilized
to increase spending on marketing and other business-building
initiatives during the second half of 2009, reducing the expected
reengineering benefits.
ACQUISITIONS
During the course of the year, the Company purchased Accertify
(November 10, 2010) and Revolution Money (January 15,
2010) for a total consideration of $151 million and
$305 million, respectively. Accertify is an on-line fraud
solution provider and Revolution Money is a provider of
secure person-to-person payment services through an
internet-based platform. These acquisitions did not have a
significant impact on either the Company’s consolidated
results of operations or the segments in which they are
reflected for the year ended December 31, 2010.
On March 28, 2008, the Company purchased Corporate
Payment Services (CPS), General Electric Company’s
commercial card and corporate purchasing business unit.
The following table summarizes the assets acquired and
liabilities assumed for these acquisitions as of the
acquisition dates:
(Millions) Accertify
Revolution
Money
Corporate
Payment
Services
Goodwill $ 131 $ 184 $ 818
Definite-lived intangible assets 15 119 232
Other assets 11 7 1,259
Total assets 157 310 2,309
Total liabilities 6 5 65
Net assets acquired $ 151 $ 305 $ 2,244
Reportable operating segment GNMS
Corporate
& Other GCS
(a)
(a) An insignificant portion of the receivables and intangible assets are also
allocated to the USCS reportable operating segment.
On December 16, 2010, the Company announced an agreement
to acquire Loyalty Partner, a leading marketing services
company known for the loyalty programs it operates in
Germany, Poland and India. The purchase, which has received
regulatory approval, is expected to close in the first quarter of
2011. The transaction, which values Loyalty Partner at
approximately $660 million (subject to currency movement
and other adjustments), consists of an upfront cash purchase
price of approximately $566 million and an additional
$94 million equity interest that the Company will acquire
over the next five years at a value based on
business performance.
DISCONTINUED OPERATIONS
For the applicable periods, the operating results, assets and
liabilities, and cash flows of American Express International
Deposit Company (AEIDC), which was sold to Standard
Chartered in the third quarter of 2009, have been removed
from the Corporate & Other segment and reported separately
within the discontinued operations captions on the Company’s
Consolidated Financial Statements. Refer to Note 2 to the
Consolidated Financial Statements for further discussion of
the Company’s discontinued operations.
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AMERICAN EXPRESS COMPANY
2010 FINANCIAL REVIEW