American Express 2010 Annual Report Download - page 56

growth also reflects the benefit in 2009 of a revised, more
restrictive redemption policy for accounts 30 days past due.
Marketing, promotion, rewards and cardmember services
expenses decreased $571 million or 12 percent in 2009 to
$4.3 billion, due to lower rewards costs, reduced marketing
and promotion expenses and the Delta-related charge to the
Membership Reward balance sheet reserve in the fourth quarter
of 2008.
Salaries and employee benefits and other operating expenses
of $3.8 billion in 2010 increased $305 million or 9 percent from
2009, primarily reflecting the higher reengineering-related
costs, and higher technology development expenditures and
other business building investments. Salaries and employee
benefits and other operating expenses of $3.5 billion in 2009
decreased $98 million or 3 percent from 2008, reflecting the
benefits from reengineering activities, lower net charges
associated with these reengineering programs, the favorable
impact in 2008 related to fair value hedge ineffectiveness and
the costs related to the Delta contract extension in the fourth
quarter of 2008.
Income Taxes
The effective tax rate was 36 percent for 2010 compared to
30 percent and 27 percent for 2009 and 2008, respectively. The
rates for each of these years reflect the benefits from the
resolution of certain prior years’ tax items and the
relationship of recurring tax benefits to varying levels of
pretax income.
Cardmember Loan Portfolio Presentation
For periods ended on or prior to December 31, 2009, the
Company’s non-securitized cardmember loan and related debt
performance information on a GAAP basis was referred to as the
“owned” basis presentation. For such periods, the Company also
provided information on a non-GAAP “managed” basis which
should be read only as a supplement to GAAP information.
Unlike the GAAP basis presentation, the managed basis
presentation in such periods assumed there had been no off-
balance sheet securitizations for the Company’s USCS segment
(the Company does not currently securitize its international
cardmember loans), resulting in the inclusion of all securitized
and non-securitized cardmember loans and related debt in the
Company’s performance information.
Under the GAAP basis presentation prior to securitization for
the period ended on or prior to December 31, 2009, revenues and
expenses from cardmember loans and related debt were
reflected in the Company’s income statements in other
commissions and fees, net interest income and provisions for
losses for cardmember loans. At the time of a securitization
transaction, the securitized cardmember loans were removed
from the Company’s balance sheet, and the resulting gain on sale
was reflected in securitization income, net, as well as a reduction
to the provision for losses (credit reserves were no longer
recorded for the cardmember loans once sold). Over the life
of a securitization transaction, the Company recognized the net
cash flow from interest and fee collections on interests sold to
investors (the investors’ interests) after deducting interest paid
on the investors’ certificates, credit losses, contractual service
fees, other expenses and changes in the fair value of the interest-
only strip (referred to as “excess spread”). These amounts, in
addition to servicing fees and the non-credit components of the
gains/(losses) from securitization activities, were reflected in
securitization income, net. The Company also recognized
interest income over the life of the securitization transaction
related to the interest it retained (i.e., the seller’s interest). At the
maturity of a securitization transaction, cardmember loans on
the balance sheet increased, and the impact of the incremental
required loss reserves was recorded in provisions for losses.
Under the managed basis presentation for periods ended on or
prior to December 31, 2009, revenues and expenses related to
securitized cardmember loans and related debt were reflected in
other commissions and fees (included in discount revenue, net
card fees and other), interest income, interest expense and
provisions for losses. In addition, there was no securitization
income, net as this presentation assumed no securitization
transactions had occurred.
Historically, the Company included USCS information on a
managed basis, as that was the manner in which the Company’s
management viewed and managed the business. Management
believed that a full picture of trends in the Company’s
cardmember loans business could only be derived by
evaluating the performance of both securitized and non-
securitized cardmember loans, as the presentation of the
entire cardmember loan portfolio was more representative of
the economics of the aggregate cardmember relationships and
ongoing business performance and related trends over time. The
managed basis presentation also provided investors a more
comprehensive assessment of the information necessary for
the Company and investors to evaluate the Company’s
market share.
The adoption of new GAAP on January 1, 2010 resulted in
accounting for both the Company’s securitized and non-
securitized cardmember loans in the Consolidated Financial
Statements. As a result, the Company’s 2010 GAAP
presentations and managed basis presentations prior to 2010
are generally comparable.
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AMERICAN EXPRESS COMPANY
2010 FINANCIAL REVIEW