American Express 2012 Annual Report Download - page 51

AMERICAN EXPRESS COMPANY
2012 FINANCIAL REVIEW
RESULTS OF OPERATIONS FOR THE THREE YEARS
ENDED DECEMBER 31, 2012
GCS segment income decreased $94 million or 13 percent in
2012 as compared to the prior year. GCS segment income
increased $288 million or 64 percent in 2011 as compared to the
prior year.
Total Revenues Net of Interest Expense
Total revenues net of interest expense increased $124 million or
3 percent in 2012 as compared to the prior year, primarily due to
higher discount revenue, net card fees and other revenues.
Discount revenue, net card fees, and other revenues increased
$115 million or 2 percent in 2012 as compared to the prior year,
primarily due to higher discount revenue resulting from an
increased level of cardmember spending, partially offset by lower
travel commissions and fees and other revenues. Billed business
increased 8 percent in 2012 as compared to the prior year,
primarily driven by an 8 percent increase in average spending per
proprietary basic cards-in-force. Billed business volume
increased 11 percent within the United States and 3 percent
outside the United States. Assuming no changes in foreign
exchange rates, billed business volume increased 7 percent
outside the United States.4
Net interest expense decreased $9 million or 4 percent in 2012
as compared to the prior year, primarily driven by a lower cost of
funds, partially offset by increased funding requirements due to
higher average cardmember receivable balances.
Total revenues net of interest expense increased $498 million
or 12 percent in 2011 as compared to the prior year, primarily
due to higher discount revenue, net card fees, and other revenues
and higher interest income, partially offset by higher interest
expense.
Provisions for Losses
Provisions for losses increased $60 million or 79 percent in 2012
as compared to the prior year, reflecting a change in estimate for
certain credit reserves that resulted in higher reserve releases in
2011. Provisions for losses decreased $81 million or 52 percent in
2011 as compared to the prior year, driven by improved credit
performance within the underlying cardmember receivable
portfolio and reserve releases. Refer to the GCS Selected
Statistical Information table for the charge card net loss ratio as a
percentage of charge volume.
4Refer to footnote 1 on page 25 relating to changes in foreign exchange rates.
Expenses
Expenses increased $179 million or 5 percent in 2012 as
compared to the prior year, due to higher salaries and employee
benefits and other operating expenses and higher marketing,
promotion, rewards and cardmember services expenses.
Expenses in 2012, 2011 and 2010 included $172 million, $37
million and $32 million, respectively, of net reengineering
charges. Expenses increased $227 million or 7 percent in 2011 as
compared to the prior year, due to higher marketing, promotion,
rewards and cardmember services expenses and increased salaries
and employee benefits and other operating expenses.
Marketing, promotion, rewards and cardmember services
expenses increased $32 million or 6 percent in 2012 as compared
to the prior year, primarily due to a $25 million charge related to
a change in the U.S. Membership Rewards URR estimation
process. Marketing, promotion, rewards and cardmember
services expenses increased $108 million or 25 percent in 2011 as
compared to the prior year, primarily reflecting higher volume-
related rewards costs.
Salaries and employee benefits and other operating expenses
increased $147 million or 5 percent in 2012 as compared to the
prior year, primarily driven by higher restructuring charges and
other operating expenses. Salaries and employee benefits and
other operating expenses increased $119 million or 4 percent in
2011 as compared to the prior year, primarily driven by
increased salary and employee benefits costs.
Income Taxes
The tax rates for 2012 and 2011 reflected the allocated share of
tax benefits related to the realization of certain foreign tax
credits. The tax rate for 2012 also reflected the impact of a
valuation allowance primarily from the restructuring charges
associated with certain non-U.S. travel operations. In addition,
the tax rate for 2010 reflected an increase in the valuation
allowance against deferred tax assets.
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