Discover 2009 Annual Report Download - page 87

Other Income
Other income includes revenues from the sale of merchant portfolios to third-party acquirers, royalty revenues earned
by Diners Club, revenues from the referral of declined applications to certain third-party issuers on the Discover Network,
unrealized gains and losses related to derivative contracts and other miscellaneous revenue items. Other income was
relatively flat for the year ended November 30, 2009 compared to November 30, 2008 despite the inclusion of Diners
Club revenue for a full year, which was largely offset by lower gains on sales of merchant portfolios and lower revenues
from the referral of declined applications to third-party issuers. Other income increased $60.4 million in 2008, primarily
due to the inclusion of Diners Club revenue and reporting an unrealized gain on interest rate swap agreements for the
year ended November 30, 2008 compared to an unrealized loss for the year ended November 30, 2007. These
increases were partially offset by lower gains from sales of merchant portfolios.
Other Expense
The following table represents the components of other expense for the periods presented (dollars in thousands):
For the Years Ended November 30,
2009 vs. 2008
increase
(decrease)
2008 vs. 2007
increase
(decrease)
2009 2008 2007 $ % $ %
Employee compensation and benefits ..................................................... $ 827,683 $ 845,392 $ 850,065 $ (17,709) (2%) $ (4,673) (1%)
Marketing and business development ..................................................... 406,020 530,901 576,263 (124,881) (24%) (45,362) (8%)
Information processing and communications............................................ 289,209 315,943 330,053 (26,734) (8%) (14,110) (4%)
Professional fees ................................................................................. 321,329 349,484 361,409 (28,155) (8%) (11,925) (3%)
Premises and equipment....................................................................... 73,014 80,394 79,442 (7,380) (9%) 952 1%
Other expense .................................................................................... 333,833 293,683 280,982 40,150 14% 12,701 5%
Total other expense .......................................................................... $2,251,088 $2,415,797 $2,478,214 $(164,709) (7%) $(62,417) (3%)
Total other expense decreased $164.7 million, or 7%, for the year ended November 30, 2009, as compared to
November 30, 2008. Expenses were lower overall reflecting the impact of cost containment initiatives. Marketing fees
decreased $124.9 million, or 24%, mainly due to a reduction in new account acquisition, which included reductions in
postage, supplies and credit bureau fees. Other expense increased $40.2 million, or 14%, due to the inclusion of a full
year of Diners Club expenses compared to only six months in 2008, a one-time expense related to a reduction in force,
other expenses related to the Morgan Stanley special dividend, increased costs associated with the global expansion
initiative and a charge related to a facility closure, partially offset by lower fraud costs.
Total other expense decreased $62.4 million, or 3%, for the year ended November 30, 2008, as compared to
November 30, 2007. The decrease was primarily driven by lower marketing expenditures, lower information processing
and communications and lower professional fees, partially offset by the inclusion of Diners Club expenses. Marketing fees
decreased $45.4 million, or 8% in the same period due to lower direct marketing activity partially offset by increased
internet and television advertising. Information processing and communications fees declined due to lower depreciation
expense as certain assets became fully depreciated in 2008. Professional fees decreased $11.9 million, or 3%, primarily
due to lower legal fees relating to lower general, regulatory and routine advisory legal fees partially offset by an increase
in collection fees. Employee compensation and benefits expense decreased due to a pension credit as a result of the
announcement of the freezing of benefit accruals under the pension plans in 2008 partially offset by higher compensation
costs.
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