American Express 2012 Annual Report Download - page 25

AMERICAN EXPRESS COMPANY
2012 FINANCIAL REVIEW
Calculation of Net Interest Yield on Cardmember
Loans
Years Ended December 31,
(Millions, except percentages
and where indicated) 2012 2011 2010
Net interest income $ 4,628 $ 4,376 $ 4,650
Exclude:
Interest expense not attributable to the
Company’s cardmember loan portfolio 1,366 1,445 1,537
Interest income not attributable to the
Company’s cardmember loan portfolio (401) (476) (558)
Adjusted net interest income(a) $ 5,593 $ 5,345 $ 5,629
Average loans (billions) $ 61.5 $ 59.1 $ 58.4
Exclude:
Unamortized deferred card fees, net of
direct acquisition costs of cardmember
loans, and other (billions) (0.2) (0.1) (0.1)
Adjusted average loans (billions)(a) $ 61.3 $ 59.0 $ 58.3
Net interest income divided by average
loans 7.5% 7.4% 8.0%
Net interest yield on cardmember loans(a) 9.1% 9.1% 9.7%
(a) Net interest yield on cardmember loans, adjusted net interest income, and
adjusted average loans are non-GAAP measures. The Company believes
adjusted net interest income and adjusted average loans are useful to
investors because they are components of net interest yield on cardmember
loans, which provides a measure of profitability of the Company’s
cardmember loan portfolio.
CONSOLIDATED RESULTS OF OPERATIONS FOR
THE THREE YEARS ENDED DECEMBER 31, 2012
The Company’s consolidated income from continuing
operations decreased $417 million or 9 percent, and diluted EPS
from continuing operations decreased by $0.20, in 2012 as
compared to the prior year. Consolidated income from
continuing operations increased $842 million or 21 percent, and
diluted EPS from continuing operations increased by $0.74, in
2011 as compared to the prior year.
Consolidated net income for 2012, 2011 and 2010 was $4.5
billion, $4.9 billion and $4.1 billion, respectively. Net income
included income from discontinued operations of nil, $36
million and nil for 2012, 2011 and 2010, respectively.
The Company’s total revenues net of interest expense, total
expenses and total provisions for losses increased approximately
5 percent, 6 percent and 79 percent, respectively, in 2012 as
compared to the prior year.
The Company’s total revenues net of interest expense and total
expenses increased by approximately 9 percent and 13 percent,
respectively, while total provisions for losses decreased by 50
percent in 2011 as compared to the prior year.
Results from continuing operations for 2012 included:
폷$461 million ($328 million after-tax) of net charges for costs
related to the Company’s reengineering initiatives, including a
$400 million ($287 million after-tax) restructuring charge in
the fourth quarter;
폷A $342 million ($212 million after-tax) expense reflecting
enhancements to the process that estimates future
redemptions of Membership Rewards points by U.S.
cardmembers;
폷A $153 million ($95 million after-tax) charge related to
cardmember reimbursements in the fourth quarter, in
addition to amounts incurred in prior quarters during the
year; and
폷A $146 million tax benefit related to the realization of certain
foreign tax credits.
Results from continuing operations for 2011 included:
폷$300 million and $280 million ($186 million and $172 million
after-tax) related to the MasterCard and Visa litigation
settlements, respectively;
폷A $188 million ($117 million after-tax) expense reflecting
enhancements to the process that estimates future
redemptions of Membership Rewards points by U.S.
cardmembers;
폷$153 million ($106 million after-tax) of net charges for costs
related to the Company’s reengineering initiatives; and
폷Tax benefits of $102 million and $77 million related to the
favorable resolution of certain prior years’ tax items and the
realization of certain foreign tax credits, respectively.
Results from continuing operations for 2010 included:
폷$600 million and $280 million ($372 million and $172 million
after-tax) related to the MasterCard and Visa litigation
settlements, respectively; and
폷$127 million ($83 million after-tax) of net charges for costs
related to the Company’s reengineering initiatives.
Total Revenues Net of Interest Expense
Consolidated total revenues net of interest expense increased
$1.6 billion or 5 percent in 2012 as compared to the prior year,
reflecting increases of 7 percent in Global Network & Merchant
Services (GNMS), 6 percent in U.S. Card Services (USCS), 3
percent in Global Commercial Services (GCS) and 1 percent in
International Card Services (ICS). The increase in total revenues
net of interest expense primarily reflects higher discount
revenues, higher other revenues and higher net interest income.
Consolidated total revenues net of interest expense increased
$2.4 billion or 9 percent in 2011 as compared to the prior year,
primarily reflecting higher discount revenues, increased other
commissions and fees, greater travel commissions and fees,
higher net card fees, and higher other revenues, partially offset
by lower net interest income.
Discount revenue increased $1.0 billion or 6 percent in 2012 as
compared to the prior year, primarily due to an 8 percent
increase in worldwide billed business volumes, partially offset by
a decline in the average discount rate and higher contra-revenue
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