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AMERICAN EXPRESS COMPANY
2011 FINANCIAL REVIEW
BUSINESS SEGMENT RESULTS
The Company is a global service company principally engaged in
businesses comprising four reportable operating segments: U.S.
Card Services (USCS), International Card Services (ICS), Global
Commercial Services (GCS) and Global Network & Merchant
Services (GNMS).
The Company considers a combination of factors when
evaluating the composition of its reportable operating segments,
including the results reviewed by the chief operating decision
maker, economic characteristics, products and services offered,
classes of customers, product distribution channels, geographic
considerations (primarily U.S. versus non-U.S.) and regulatory
environment considerations. Refer to Note 25 to the
Consolidated Financial Statements for additional discussion of
products and services by segment.
Results of the business segments essentially treat each segment
as a stand-alone business. The management reporting process
that derives these results allocates income and expense using
various methodologies as described below.
Beginning in the first quarter of 2011, the Company changed
its segment allocation methodology to better align segment
reporting with the Company’s previously announced
management reorganization, which had been implemented over
the several prior quarters. The reorganization included the
formation of the Enterprise Growth Group, which is reported in
Corporate & Other. The group consists of three core business
units: Online and Mobile, Fee Based Services and Global
Payment Options (formerly known as Global Prepaid). Starting
in the first quarter of 2011, certain business activities such as
LoyaltyEdge and Foreign Exchange Services that were previously
managed and reported in the USCS and GCS operating
segments, respectively, are now managed by Enterprise Growth.
The reorganization also included consolidation of certain
corporate support functions into the Global Services
organization. Greater centralization of activities has led to
modifications in the costs being allocated from Corporate &
Other to the reportable operating segments starting in the first
quarter of 2011. Prior period segment results have been revised
for these changes.
As discussed more fully below, results are presented on a
GAAP basis unless otherwise stated. Refer to “Glossary of
Selected Terminology” for the definitions of certain key terms
and related information appearing in the tables below.
TOTAL REVENUES NET OF INTEREST EXPENSE
The Company allocates discount revenue and certain other
revenues among segments using a transfer pricing methodology.
Segments earn discount revenue based on the volume of
merchant business generated by cardmembers. Within the USCS,
ICS and GCS segments, discount revenue reflects the issuer
component of the overall discount rate; within the GNMS
segment, discount revenue reflects the network and merchant
component of the overall discount rate. Total interest income
and net card fees are directly attributable to the segment in
which they are reported.
PROVISIONS FOR LOSSES
The provisions for losses are directly attributable to the segment
in which they are reported.
EXPENSES
Marketing and promotion expenses are reflected in each segment
based on actual expenses incurred, with the exception of brand
advertising, which is primarily reflected in the GNMS and USCS
segments. Rewards and cardmember services expenses are
reflected in each segment based on actual expenses incurred
within each segment.
Salaries and employee benefits and other operating expenses,
such as professional services, occupancy and equipment and
communications, reflect expenses incurred directly within each
segment. In addition, expenses related to the Company’s support
services, such as technology costs, are allocated to each segment
based on support service activities directly attributable to the
segment. Other overhead expenses, such as staff group support
functions, are allocated to segments based on each segment’s
relative level of pretax income. Financing requirements are
managed on a consolidated basis. Funding costs are allocated
based on segment funding requirements.
CAPITAL
Each business segment is allocated capital based on established
business model operating requirements, risk measures and
regulatory capital requirements. Business model operating
requirements include capital needed to support operations and
specific balance sheet items. The risk measures include
considerations for credit, market and operational risk.
INCOME TAXES
Income tax provision (benefit) is allocated to each business
segment based on the effective tax rates applicable to various
businesses that make up the segment.
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