American Express 2010 Annual Report Download - page 38

new GAAP effective January 1, 2010. Interest expense related to
this debt was reported in securitization income, net in prior
periods, but is now reported in long-term debt and other interest
expense. The increase was partially offset by lower average long-
term debt. Interest expense decreased $1.3 billion or 38 percent
to $2.2 billion in 2009 compared to 2008. Interest expense
related to deposits decreased $29 million or 6 percent, primarily
due to a lower cost of funds which more than offset increased
balances. Interest expense related to short-term borrowings
decreased $446 million or 92 percent, due to significantly
lower short-term debt levels and a lower cost of funds.
Interest expense related to long-term debt and other
decreased $873 million or 33 percent, primarily reflecting a
lower cost of funds driven by reduced market rates on variably
priced debt, as well as a lower average balance of long-term
debt outstanding.
Provisions for Losses
Provisions for losses of $2.2 billion in 2010 decreased $3.1 billion
or 58 percent, compared to 2009. Charge card provisions for
losses decreased $262 million or 31 percent, driven by lower
reserve requirements, due to improved credit performance,
partially offset by higher receivables. Cardmember loans
provisions for losses decreased $2.7 billion or 64 percent,
primarily reflecting lower reserve requirements during the
year, due to improving credit performance, partially offset by
an increase related to the inclusion of the 2010 expense for
written-off securitized loans, which in 2009 was reported in
securitization income, net. Other provisions for losses decreased
$105 million or 55 percent primarily reflecting lower merchant-
related debit balances.
Provisions for losses of $5.3 billion in 2009 decreased
$485 million or 8 percent compared to 2008. Charge card
provisions for losses decreased $506 million or 37 percent,
primarily driven by improved credit performance.
Cardmember loans provisions for losses increased $35 million
or 1 percent, primarily due to a higher cardmember reserve level
due to the challenging credit environment, partially offset by a
lower owned-loan balance.
Expenses
Consolidated expenses for 2010 were $19.6 billion, up
$3.2 billion or 20 percent from $16.4 billion in 2009. The
increase in 2010 reflected greater marketing and promotion
expenses, increased cardmember rewards expense, higher
salaries and employee benefits, greater professional services
expenses, higher other, net expenses, and increased
cardmember services expenses, partially offset by lower
occupancy and equipment expense and lower communications
expense. Consolidated expenses for 2009 were $16.4 billion,
down $2.6 billion or 14 percent from $19.0 billion in 2008. The
decrease in 2009 was primarily driven by lower other, net
expenses, reduced salaries and employee benefits expenses,
lower marketing and promotion expense and decreased
cardmember rewards expense, partially offset by greater
cardmember services expense. Consolidated expenses in 2010,
2009 and 2008 also included $127 million, $190 million and
$449 million, respectively, of reengineering costs, of which
$96 million, $185 million and $417 million, respectively,
represent restructuring charges.
Marketing and promotion expenses increased $1.2 billion or
60 percent to $3.1 billion in 2010 from $1.9 billion in 2009, as
improved credit and billings trends led to increased investment
levels in 2010. Marketing and promotion expenses decreased
$516 million or 21 percent to $1.9 billion in 2009 from
$2.4 billion in 2008, due to lower spending levels in the first
three quarters of 2009, partially offset by higher expense in the
fourth quarter of 2009.
Cardmember rewards expenses increased $993 million or
25 percent to $5.0 billion in 2010 from $4.0 billion in 2009,
reflecting higher rewards-related spending volumes and co-
brand expense, and a benefit in the third quarter of 2009
relating to the adoption of a more restrictive redemption
policy for accounts 30 days past due. Cardmember rewards
expenses decreased $353 million or 8 percent to $4.0 billion
in 2009 from $4.4 billion in 2008, reflecting lower rewards-
related spending volumes, partially offset by higher redemption
rates and costs in Membership Rewards and higher costs with
relatively lower declines in co-brand spending volumes.
Salaries and employee benefits expenses increased
$486 million or 10 percent to $5.6 billion in 2010 from
$5.1 billion in 2009, reflecting a 2 percent increase in total
employee count, merit increases for existing employees,
higher benefit-related costs, including the impact of
reinstating certain benefits that were temporarily suspended
during the recession, higher management incentive
compensation expense and greater volume-related sales
incentives, partially offset by lower net reengineering costs in
2010 versus 2009. Salaries and employee benefits expenses
decreased $1.0 billion or 17 percent to $5.1 billion in 2009
from $6.1 billion in 2008, reflecting lower employee levels
and costs related to the Company’s reengineering initiatives,
as well as the restructuring charge in the fourth quarter of 2008.
Professional services expenses in 2010 increased $398 million
or 17 percent compared to 2009, reflecting higher technology
development expenditures, greater legal costs, and higher third-
party merchant sales force commissions, partially offset by lower
credit and collection agency costs. Professional services
expenses in 2009 compared to 2008 remained flat.
Other, net expenses in 2010 increased $218 million or
9 percent to $2.6 billion compared to 2009, reflecting the
$180 million ($113 million after-tax) benefit in the third
quarter of 2009 related to the accounting for a net
investment in the Company’s consolidated foreign
subsidiaries, as well as higher investments in business
building initiatives and higher travel and entertainment costs
in 2010, partially offset by lower postage and telephone-related
costs and a charge of $63 million in 2009 for certain property
exits. Other, net expenses in 2009 decreased $708 million or
23 percent to $2.4 billion compared to 2008, reflecting the full
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AMERICAN EXPRESS COMPANY
2010 FINANCIAL REVIEW