American Express 2010 Annual Report Download - page 62

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RESULTS OF OPERATIONS FOR THE THREE YEARS
ENDED DECEMBER 31, 2010
GNMS reported segment income of $1.1 billion in 2010, a
$126 million or 13 percent increase from $937 million in
2009, which decreased $113 million or 11 percent from 2008.
Total Revenues Net of Interest Expense
GNMS total revenues net of interest expense increased
$593 million or 16 percent to $4.4 billion in 2010 compared
to 2009, due to increased discount revenue, net card fees and
other and increased interest expense credit.
Discount revenue, fees and other increased $567 million or
16 percent to $4.2 billion in 2010 compared to 2009, primarily
due to an increase in merchant-related revenues, driven by a
15 percent increase in global card billed business, as well as
higher volume driven GNS-related revenues.
Interest expense credit increased $23 million or 13 percent to
$200 million in 2010 compared to 2009, due to a higher funding-
driven interest credit related to internal transfer pricing, which
recognizes the merchant services’ accounts payable-related
funding benefit.
Total revenues net of interest expense of $3.8 billion in 2009
decreased $411 million or 10 percent compared to 2008 due to
decreased discount revenue, net card fees and other and
decreased interest expense credit.
Provisions for Losses
Provisions for losses decreased $74 million or 55 percent to
$61 million in 2010 compared to 2009, primarily due to lower
merchant-related debit balances. Provisions for losses in 2009
increased $8 million or 6 percent to $135 million compared to
2008, primarily driven by the higher provisions in GNS.
Expenses
During 2010, GNMS expenses increased $463 million or
21 percent to $2.7 billion compared to 2009 due to higher
salaries and employee benefits and other operating expenses
and an increase in marketing and promotion expenses. Expenses
in 2009 of $2.2 billion were $285 million or 11 percent lower
than 2008, due to lower salaries and employee benefits and
other operating expenses and a decrease in marketing and
promotion expenses.
Marketing and promotion expenses increased $234 million or
45 percent to $755 million in 2010 compared to 2009, reflecting
higher network, merchant-related and brand marketing
investments. Marketing and promotion expenses decreased
6 percent in 2009 to $521 million compared to 2008,
reflecting lower brand and merchant-related marketing costs.
Salaries and employee benefits and other operating expenses
increased $229 million or 14 percent to $1.9 billion in 2010
compared to 2009, primarily due to greater third party merchant
sales-force commissions, higher technology development
expenditures, and other business building investments.
Salaries and employee benefits and other operating expenses
decreased $253 million or 13 percent to $1.7 billion in 2009
compared to 2008, primarily reflecting the benefits from the
Company’s reengineering initiatives.
Income Taxes
The effective tax rate was 36 percent in 2010, 35 percent in 2009
and 34 percent in 2008.
CORPORATE & OTHER
Corporate & Other had net expense of $292 million and net
income of $107 million and $68 million in 2010, 2009 and 2008,
respectively. Results in 2010, 2009 and 2008 reflected
$372 million, $372 million and $186 million of after-tax
income related to the MasterCard litigation settlement,
respectively, and $172 million of after-tax income for all three
years related to the Visa litigation settlement. Reengineering
costs after-tax of $2 million, $35 million and $108 million, for
2010, 2009 and 2008, respectively, primarily related to the
Company’s reengineering initiatives previously discussed.
Net expense in 2010 reflected higher incentive compensation
and benefit reinstatement-related expenses, and various
investments in the Global Prepaid business and Enterprise
Growth initiatives.
Net income in 2009 reflected $135 million of after-tax income
related to the ICBC sale, a $135 million benefit representing the
correction of an error related to the accounting for cumulative
translation adjustments associated with a net investment in
foreign subsidiaries and a $45 million benefit resulting from
the change in fair value of certain forward exchange contracts.
Net income in 2008 reflected a $19 million after-tax charge
primarily relating to AEB operations retained by the Company
in the first quarter of 2008.
EXPOSURE TO AIRLINE INDUSTRY
The Company has multiple co-brand relationships and rewards
partners, of which relationships with airlines are one of the most
important and valuable. Refer to Note 22 to the Consolidated
Financial Statements for further discussion of these
relationships. Refer also to Note 8 for further discussion of
prepaid miles acquired from certain airlines.
60
AMERICAN EXPRESS COMPANY
2010 FINANCIAL REVIEW