Discover 2010 Annual Report Download - page 75

Results of Operations
The discussion below provides a summary of our results of operations for the years ended November 30, 2010
compared to our results of operations for the years ended November 30, 2009 and 2008 as adjusted. The discussion
also provides information about our loan receivables as of November 30, 2010 as compared to November 30, 2009
and 2008 as adjusted. In certain tables, quantitative information about our loan receivables as of November 30, 2007
and 2006 are also shown on an as adjusted basis. For a reconciliation of GAAP to as adjusted financial data, see
“ – Reconciliations of GAAP to As Adjusted Data.” All information and comparisons are based solely on continuing
operations.
Segments
We manage our business activities in two segments: Direct Banking, and Payment Services. In compiling the segment
results that follow, our Direct Banking segment bears all overhead costs that are not specifically associated with a
particular segment and all costs associated with Discover Network marketing, servicing and infrastructure, with the
exception of an allocation of direct and incremental costs driven by our Payment Services segment.
Direct Banking. Our Direct Banking segment includes Discover card-branded credit cards issued to individuals and
small businesses that are accepted on the Discover Network and other consumer products and services, including student
loans, personal loans, prepaid cards and other consumer lending and deposit products offered through our Discover
Bank subsidiary.
Payment Services. Our Payment Services segment includes the PULSE network, an automated teller machine, debit and
electronic funds transfer network; Diners Club, a global payments network; and our third-party issuing business, which
includes credit, debit and prepaid cards issued on the Discover Network by third parties.
The following table presents segment data (dollars in thousands):
For the Years Ended November 30,
2010 2009 2008
Direct Banking(1)
Interest income.......................................................................................................................................... $6,146,199 $6,434,054 $6,487,904
Interest expense ........................................................................................................................................ 1,582,745 1,605,277 2,311,241
Net interest income................................................................................................................................. 4,563,454 4,828,777 4,176,663
Provision for loan losses ............................................................................................................................. 3,206,705 5,123,030 3,476,644
Other income ........................................................................................................................................... 1,827,414 1,946,270 2,014,584
Other expense .......................................................................................................................................... 2,056,685 2,087,970 2,314,926
Income (loss) before income tax expense.................................................................................................... 1,127,478 (435,953) 399,677
Payment Services(2)
Interest income.......................................................................................................................................... 19 1,098 3,165
Interest expense ........................................................................................................................................ 243 222 83
Net interest income................................................................................................................................. (224) 876 3,082
Provision for loan losses ............................................................................................................................. — — —
Other income ........................................................................................................................................... 267,585 239,794 179,200
Other expense .......................................................................................................................................... 125,980 134,126 100,871
Income before income tax expense ........................................................................................................... 141,381 106,544 81,411
Total income (loss) before income tax expense ............................................................................................. $1,268,859 $ (329,409) $ 481,088
(1) The 2009 and 2008 Direct Banking segment information is presented on an as adjusted basis. No adjustments have been made to the Payment Services segment. See reconciliation in
“ – Reconciliations of GAAP to As Adjusted Data.”
(2) Diners Club was acquired on June 30, 2008.
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