Discover 2009 Annual Report Download - page 139

18. Other Income and Other Expense
Total other income includes the following components (dollars in thousands):
For the Years Ended November 30,
2009 2008 2007
Royalty income ............................................................................................................................................. $ 72,636 $ 27,605 $ —
Gain from sales of merchant contracts .............................................................................................................. 17,511 34,324 38,306
Referral of declined applications...................................................................................................................... 12,954 27,061 35,767
Other income ............................................................................................................................................... 35,701 49,991 4,529
Total other income ..................................................................................................................................... $138,802 $138,981 $78,602
Total other expense includes the following components (dollars in thousands):
For the Years Ended November 30,
2009 2008 2007
Postage ..................................................................................................................................................... $ 92,914 $100,221 $101,033
Fraud losses ............................................................................................................................................... 58,383 74,448 67,363
Supplies..................................................................................................................................................... 23,313 27,200 28,825
Credit bureau inquiry fees ............................................................................................................................ 16,923 19,550 29,106
Other expense ............................................................................................................................................ 142,300 72,264 54,655
Total other expense .................................................................................................................................. $333,833 $293,683 $280,982
Prior to the Distribution, the Company recorded allocations of intercompany expense from Morgan Stanley for certain
corporate functions such as treasury, financial control, human resources, internal audit, legal, investor relations and
various other functions historically provided by Morgan Stanley. Where possible, these allocations were made on a
specific identification basis. Otherwise, such expenses were allocated by Morgan Stanley based on relative percentages
of headcount or some other basis depending on the nature of the cost that was allocated. These intercompany expense
allocations may not be indicative of costs the Company has incurred since the spin-off or will incur in the future to obtain
these same services as an independent entity. The year ended November 30, 2007, included the following amounts
related to intercompany expense allocations from Morgan Stanley prior to the Distribution (dollars in thousands):
For the Year Ended
November 30, 2007
Employee compensation and benefits ...................................................................................................................................... $24,169
Marketing and business development ...................................................................................................................................... 1,169
Information processing and communications............................................................................................................................. 2,339
Professional fees .................................................................................................................................................................. 5,847
Premises and equipment........................................................................................................................................................ 4,288
Other ................................................................................................................................................................................. 1,169
Total Morgan Stanley allocations......................................................................................................................................... $38,981
Additionally, the Company recorded $0.1 million in other income and $2.9 million in other expense for the year
ended November 30, 2007, primarily related to rental expense and sublease rental income recorded as a result of
transactions with the Company’s former parent company, Morgan Stanley.
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