American Express 2010 Annual Report Download - page 39

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year of settlement payments from MasterCard in 2009 versus
two quarters in 2008, a $180 million third quarter benefit
related to the accounting for a net investment in the
Company’s consolidated foreign subsidiaries (as discussed
further in Business Segment Results — Corporate & Other
below), a $59 million benefit in the second quarter of 2009
from the completion of certain account reconciliations related to
prior periods, and lower travel and entertainment and other
expenses due to the Company’s reengineering activities. These
were partially offset by a $9 million favorable impact in the
fourth quarter of 2008 related to fair value
hedge ineffectiveness.
Income Taxes
The effective tax rate was 32 percent in 2010 compared to
25 percent in 2009 and 20 percent in 2008. The tax rates in
all years reflect the level of pretax income in relation to recurring
permanent tax benefits.
Discontinued Operations
Loss from discontinued operations, net of tax, was nil, $7 million
and $172 million in 2010, 2009 and 2008, respectively. Loss
from discontinued operations, net of tax, primarily reflected
AEIDC and AEB results from operations, including AEIDC’s
$15 million ($10 million after-tax) and $275 million
($179 million after-tax) of losses related to mark-to-market
adjustments and sales within the AEIDC investment portfolio
in 2009 and 2008, respectively.
CASH FLOWS
Cash Flows from Operating Activities
Cash flows from operating activities primarily include net
income adjusted for (i) non-cash items included in net
income, including the provision for losses, depreciation and
amortization, deferred taxes, and stock-based compensation
and (ii) changes in the balances of operating assets and
liabilities, which can vary significantly in the normal course of
business due to the amount and timing of various payments.
For the year ended December 31, 2010, net cash provided by
operating activities of $9.3 billion increased $3.0 billion
compared to $6.3 billion in 2009. The increase was primarily
due to higher net income in 2010, increases in non-cash
expenses for deferred taxes, acquisition costs and increases in
accounts payable and other liabilities in 2010, partially offset by
lower provisions for losses and an increase in other assets
in 2010.
For the year ended December 31, 2009, net cash provided by
operating activities of $6.3 billion decreased $1.5 billion
compared to $7.8 billion in 2008. The decrease was primarily
due to a decrease in deferred taxes, acquisition costs and other,
fluctuations in the Company’s other receivables, accounts
payable and other liabilities, as well as a reduction in income
from continuing operations, partially offset by changes in
other assets.
Cash Flows from Investing Activities
The Company’s investing activities primarily include funding
cardmember loans and receivables, securitizations of
cardmember loans and receivables, and the Company’s
available-for-sale investment portfolio.
For the year ended December 31, 2010, net cash used in
investing activities of $1.2 billion decreased $5.6 billion
compared to net cash used in investing activities of
$6.8 billion in 2009, primarily due to higher maturity and
redemption of investments and lower purchases of
investments, partially offset by increases in cardmember loans
and receivables.
For the year ended December 31, 2009, net cash used in
investing activities was $6.8 billion, compared to net cash
provided by investing activities of $7.6 billion in 2008. The
year-over-year change was primarily due to lower proceeds
from cardmember loan securitizations, decreased maturities
and redemptions of investments, and an increase in restricted
cash required for related securitization activities.
Cash Flows from Financing Activities
The Company’s financing activities primarily include issuing and
repaying debt, taking customer deposits, paying dividends and
repurchasing its common and preferred shares.
For the year ended December 31, 2010, net cash used in
financing activities of $8.1 billion increased $3.5 billion
compared to $4.6 billion in 2009, due to a reduced level of
growth in customer deposits during 2010 as compared to 2009
and an increase in principal payments of long-term debt,
partially offset by a net increase in short-term borrowings in
2010 and the repayment of preferred shares in 2009.
For the year ended December 31, 2009, net cash used in
financing activities of $4.6 billion decreased $5.8 billion
compared to $10.4 billion in 2008, primarily due to an
increase in customer deposits in 2009 and a reduction in cash
used in financing activities attributable to discontinued
operations from 2008 to 2009.
37
AMERICAN EXPRESS COMPANY
2010 FINANCIAL REVIEW