American Express 2011 Annual Report Download - page 47

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AMERICAN EXPRESS COMPANY
2011 FINANCIAL REVIEW
RESULTS OF OPERATIONS FOR THE THREE YEARS
ENDED DECEMBER 31, 2011
GCS reported segment income of $738 million for 2011, a $288
million or 64 percent increase from $450 million in 2010, which
increased $119 million or 36 percent from 2009.
Total Revenues Net of Interest Expense
In 2011, GCS total revenues net of interest expense increased
$498 million or 12 percent to $4.6 billion due to increased
discount revenue, net card fees, and other and higher interest
income, partially offset by higher interest expense.
Discount revenue, net card fees, and other revenues increased
$533 million or 12 percent to $4.9 billion in 2011, primarily
driven by higher cardmember spending and greater travel
commissions and fees, partially offset by greater client incentives.
The 16 percent increase in billed business in 2011 was driven by
the 16 percent increase in average spending per proprietary basic
cards-in-force. Adjusting for the impact of foreign exchange
translation, both billed business and average spending per
proprietary basic cards-in-force both grew 14 percent; volume
increased 14 percent within the United States compared to an
increase of 13 percent outside the United States5.
Interest income increased $2 million or 29 percent to $9
million in 2011 compared to 2010.
Interest expense increased $37 million or 16 percent to $264
million in 2011 compared to 2010 driven by increased funding
requirements due to higher average cardmember receivable
balances.
Total revenues net of interest expense of $4.1 billion in 2010
increased $420 million or 11 percent compared to 2009 due to
increased discount revenue, net card fees, and other and higher
interest income, partially offset by higher interest expense.
Provisions for Losses
Provisions for losses decreased $81 million or 52 percent to $76
million in 2011 compared to 2010, driven by improved credit
performance within the underlying portfolio. The charge card
net loss ratio (as a percentage of charge volume) was 0.06 percent
in 2011 versus 0.11 percent in prior year. Provisions for losses
decreased $20 million or 11 percent to $157 million in 2010
5Refer to footnote 1 on page 21 under Consolidated Results of Operations for
the Three Years Ended December 31, 2011 relating to changes in foreign
exchange rates.
compared to 2009, principally reflecting lower reserve
requirements driven by improved cardmember loan and charge
credit trends.
Expenses
During 2011, GCS expenses increased $227 million or 7 percent
to $3.5 billion, due to higher marketing, promotion, rewards and
cardmember services expense and increased salaries and
employee benefits and other operating expenses. Expenses in
2011, 2010 and 2009 included $37 million, $32 million and $101
million, respectively, of reengineering costs, primarily reflecting
the Company’s reengineering initiatives in 2011, 2010 and 2009.
Expenses in 2010 of $3.2 billion increased $192 million or 6
percent, due to higher marketing, promotion, rewards and
cardmember services expense and increased salaries and
employee benefits and other operating expenses.
Marketing, promotion, rewards and cardmember services
expenses increased $108 million or 25 percent to $547 million in
2011 compared to 2010, primarily reflecting higher volume-
related reward costs. Marketing, promotion, rewards and
cardmember services expenses increased $108 million or 33
percent to $439 million in 2010 compared to 2009, reflecting
higher rewards costs and greater marketing and promotion
expenses.
Salaries and employee benefits and other operating expenses
increased $119 million or 4 percent to $2.9 billion in 2011
compared to 2010, primarily driven by increased salary and
benefit costs. Salaries and employee benefits and other operating
expenses increased $84 million or 3 percent to $2.8 billion in
2010 compared to 2009, as higher travel volume-driven
personnel costs, greater incentive-based sales-force costs, as well
as increased technology development expenditures and other
business-building investments were partially offset by the lower
reengineering-related costs.
Income Taxes
The effective tax rate was 31 percent in 2011 versus 38 percent in
2010 and 30 percent in 2009. The higher 2010 rate reflects the
impact of increasing the valuation allowance against deferred tax
assets associated with certain non-U.S. travel operations.
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