American Express 2010 Annual Report Download - page 61

Expenses
During 2010, GCS expenses increased $182 million or 6 percent
to $3.5 billion, due to higher marketing, promotion, rewards and
cardmember services expense and increased salaries and
employee benefits and other operating expenses. Expenses in
2010, 2009 and 2008, included $32 million, $101 million and
$138 million, respectively, of reengineering costs, primarily
reflecting the Company’s reengineering initiatives in 2010,
2009 and 2008 as previously discussed. Expenses in 2009 of
$3.3 billion decreased $471 million or 12 percent, reflecting a
reduction in salaries and employee benefits and other operating
expenses, as well as lower rewards costs, lower net charges
associated with reengineering initiatives in 2009, and the
Delta-related increase in the Membership Rewards balance
sheet reserve in the fourth quarter of 2008.
Marketing, promotion, rewards and cardmember services
expenses increased $110 million or 33 percent to
$442 million in 2010 compared to 2009, reflecting higher
rewards costs and greater marketing and promotion expenses.
Marketing, promotion, rewards and cardmember services
expenses decreased $45 million or 12 percent to $332 million
in 2009 compared to 2008, primarily reflecting lower rewards
costs in 2009 and the Delta-related increase in the Membership
Rewards balance sheet reserve in the fourth quarter of 2008.
Salaries and employee benefits and other operating expenses
increased $72 million or 2 percent to $3.0 billion in 2010
compared to 2009, as higher travel volume-driven personnel
costs, greater incentive-based sales-force costs, as well as
increased technology development expenditures and other
business-building investments were partially offset by the
lower reengineering-related costs. Salaries and employee
benefits and other operating expenses decreased $426 million
or 13 percent to $3.0 billion in 2009 compared to 2008,
reflecting the benefits from the Company’s reengineering
initiatives, partially offset by lower net charges associated
with these programs during 2009.
Income Taxes
The effective tax rate was 38 percent in 2010 versus 31 percent in
2009 and 26 percent in 2008. The higher 2010 rate reflects the
impact of increasing the valuation allowance against deferred tax
assets associated with certain non-U.S. travel operations.
GLOBAL NETWORK & MERCHANT
SERVICES
SELECTED INCOME STATEMENT DATA
Years Ended December 31,
(Millions) 2010 2009 2008
Revenues
Discount revenue, net card fees and other $ 4,169 $ 3,602 $ 3,863
Interest income 41—
Interest expense (200) (177) (328)
Net interest income 204 178 328
Total revenues net of interest expense 4,373 3,780 4,191
Provisions for losses 61 135 127
Total revenues net of interest expense after
provisions for losses 4,312 3,645 4,064
Expenses
Marketing, promotion, rewards and
cardmember services 755 521 553
Salaries and employee benefits and other
operating expenses 1,908 1,679 1,932
Total 2,663 2,200 2,485
Pretax segment income 1,649 1,445 1,579
Income tax provision 586 508 529
Segment income $ 1,063 $ 937 $ 1,050
SELECTED STATISTICAL INFORMATION
As of or for the Years Ended December 31,
(Billions, except percentages
and where indicated) 2010 2009 2008
Global Card billed business $ 713.3 $ 619.8 $ 683.3
Global Network & Merchant Services:
Total segment assets $ 13.6 $ 12.3
(c)
$ 7.2
(c)
Segment capital (millions) $ 1,922 $ 1,443 $ 1,238
Return on average segment capital
(a)
63.9% 65.7% 98.4%
Return on average tangible segment
capital
(a)
66.7% 67.4% 101.8%
Global Network Services:
(b)
Card billed business $ 91.7 $ 71.8 $ 67.4
Total cards-in-force (millions) 29.0 26.3 24.8
(a) Return on average segment capital is calculated by dividing (i) segment
income ($1.1 billion, $937 million and $1.1 billion for 2010, 2009 and 2008,
respectively) by (ii) average segment capital ($1.7 billion, $1.4 billion and
$1.1 billion for 2010, 2009 and 2008, respectively). Return on average
tangible segment capital is computed in the same manner as return on
average segment capital except the computation of average tangible segment
capital excludes from average segment capital average goodwill and other
intangibles of $70 million, $36 million and $35 million as of December 31,
2010, 2009 and 2008, respectively. The Company believes the return on
average tangible segment capital is a useful measure of the profitability of
its business.
(b) For non-proprietary retail co-brand partners, Global Network Services
metrics exclude cardmember accounts which have no out-of-store spend
activity during the prior 12-month period.
(c) Refer to “U.S. Card Services — Selected Statistical Information”, footnote
(f) on page 52.
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AMERICAN EXPRESS COMPANY
2010 FINANCIAL REVIEW