American Express 2001 Annual Report Download - page 38

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FINANCIAL REVIEW
in 2001, after a 17 percent increase in 2000. The slower growth in worldwide billings during 2001 was due primarily to significantly
lower corporate card spending in the travel and entertainment sector, particularly after the attacks on September 11th. U.S. billed
business increased 1 percent reflecting 6 percent growth within the consumer card business on 12 percent higher transaction vol-
ume,a 2 percent increase within small business services and an 11 percent decline within Corporate Services. Excluding the impact
of foreign exchange translation, total billed business outside the U.S. rose approximately 3 percent on growth in Europe and Asia,
offset by declines in Canada and Latin America. U.S. non-travel and entertainment related volume categories (which represented
approximately 60 percent of U.S. billed business during 2001) grew 9 percent versus last year. U.S. travel and entertainment vol-
ume declined 9 percent. Worldwide airline related volume declined 15 percent on high single digit declines in both the average air-
line charge and transaction volumes. In 2000, growth in billed business was due to higher average spending per basic Cardmember
and growth in cards-in-force. U.S. cards-in-force rose 4 percent and 11 percent in 2001 and 2000, respectively. The smaller increase
during 2001 reflected more selective consumer card and small business acquisition activities as the year progressed, in light of
weakening economic conditions. International cards-in-force increased 12 percent and 14 percent in 2001 and 2000, respectively,
due to growth in proprietary card products, as well as network card growth.
Discount revenue fell 1 percent in 2001 as slight billed business growth was offset by a lower discount rate. The decline in the dis-
count rate from last year reflects the cumulative impact of stronger than average growth in the lower rate retail and other “every-
day spend” merchant categories (eg., supermarkets,discounters, etc.), as well as significantly weaker T&E spending during the year.
Conversely, discount revenue rose 15 percent in 2000 due to higher worldwide billed business.
Net card fees increased slightly in 2001 and 2000, reflecting growth in cards-in-force. Lending net finance charge revenue rose 32
percent and 23 percent in 2001 and 2000, respectively, from higher worldwide lending balances and, in 2001, wider net interest
margins. The wider margins were due to a decrease in the proportion of the portfolio on introductory rates and the benefit of lower
funding costs, partially offset by the evolving mix of products toward more lower-rate offerings. In 2000, the higher volume was
partly offset by a narrowing of net interest margins in the U.S. portfolio, as a greater portion of the portfolio was on lower intro-
ductory rates, and relatively more products were offered with fixed and lower rates.
Travel commissions and fees declined 16 percent in 2001 as a result of a 24 percent contraction in travel sales due to the effects of
the September 11th terrorist attacks and the weaker corporate travel environment throughout the year. Travel commissions and
fees increased only slightly in 2000, reflecting the impact of the sale of an international leisure travel business. The increases in
other revenues in 2001 and 2000 include the effect of higher card related fee income and larger insurance premiums.
Marketing and promotion expense declined 15 percent in 2001 as certain marketing efforts were rationalized in light of the weaker
business environment. Marketing and promotion expense increased in 2000 reflecting higher media, card acquisition and
merchant-related advertising costs.
The worldwide Charge Card provision increased in both years due to higher volumes and, in 2001, generally weaker economic and
business conditions. The worldwide lending provision rose in both 2001 and 2000, reflecting portfolio growth and the natural mat-
uration process for loans added over the past several years. In 2001, the increase was also due to generally weaker economic and
business conditions, as unemployment and bankruptcies increased. Charge Card interest expense rose in 2001 and 2000 as a result
of higher borrowing rates which, in 2001, were partly offset by lower billed business volumes.
In 2001, human resources expenses decreased as a result of a lower average number of employees, reflecting ongoing reengineer-
ing efforts throughout the year, lower levels of incentive compensation, and reduced contract programmer expenses. Conversely,
in 2000 human resources expense rose due to a higher average number of employees and merit increases. In 2001, other operat-
ing expenses rose due to Cardmember loyalty programs, business growth and lower gains than the prior year, partially offset by
reegineering activities and other cost containment efforts. Similarly, in 2000, other operating expenses rose due to increased Card-
member loyalty programs and business growth as well as greater investment spending, partially offset by gains related to the sale
of an international leisure travel business and an investment in an internet company.