American Express 2013 Annual Report Download - page 23

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW
TABLE 4: EXPENSES SUMMARY
Years Ended December 31,
(Millions, except percentages) 2013 2012 2011
Change
2013 vs. 2012
Change
2012 vs. 2011
Marketing and promotion $ 3,043 $ 2,890 $ 2,996 $ 153 5% $ (106) (4)%
Card Member rewards 6,457 6,282 6,218 175 3 64 1
Card Member services 767 772 716 (5) (1) 56 8
Total marketing, promotion, rewards and Card Member services 10,267 9,944 9,930 323 3 14 —
Salaries and employee benefits 6,191 6,597 6,252 (406) (6) 345 6
Other, net 6,518 6,573 5,712 (55) (1) 861 15
Total expenses $ 22,976 $ 23,114 $ 21,894 $ (138) (1)% $ 1,220 6%
EXPENSES
Marketing and promotion expenses increased $153 million or 5
percent in 2013 as compared to 2012, and decreased $106 million or 4
percent in 2012 as compared to 2011. The 2013 increase reflects higher
spend on Card Member acquisition marketing. The 2012 decrease
reflects lower loyalty and brand advertising.
Card Member rewards expenses increased $175 million or 3
percent in 2013 as compared to 2012, and $64 million or 1 percent in
2012 as compared to 2011. The 2013 increase reflects higher co-brand
rewards expenses of $283 million, primarily relating to higher
spending volumes, partially offset by a decrease in Membership
Rewards expenses of $108 million. The 2013 decrease in Membership
Rewards expenses resulted primarily from:
폷a $208 million decrease related to the liability for Membership
Rewards points earned by Card Members but not redeemed. This
decrease includes the impact of a $342 million prior year expense
relating to enhancements made to the U.S. URR estimation process
which was partially offset by a net increase in expenses related to
slower average declines in the WAC per point assumption and slower
average growth in the URR as compared to the prior year, and
폷a $100 million increase relating to higher new points earned. The
increase for new points earned in 2013 was lower than the 2012
increase, primarily as a result of a decline in WAC per point during
2013, in relation to 2012.
The 2012 increase reflects higher co-brand rewards expenses of $148
million, primarily relating to higher spending volumes, partially offset
by a decrease in Membership Rewards expenses of $84 million. The
2012 decrease in Membership Rewards expenses resulted primarily
from:
폷a $353 million decrease related to the liability for Membership
Rewards points earned by Card Members but not yet redeemed.
This decrease includes the aforementioned enhancements to the
U.S. URR estimation process of $342 million recognized in 2012
which was more than offset by a $188 million expense relating to
enhancements to the U.S. URR estimation process in 2011 and a net
decrease in expenses related to slower average URR growth and
favorable changes in the WAC per point assumption, and
폷a $269 million increase relating to higher new points earned.
The Company’s Membership Rewards URR for current program
participants was 94 percent (rounded down) at December 31, 2013, an
increase from 94 percent (rounded up) at December 31, 2012 and 92
percent (rounded down) at December 31, 2011. The increases in the
URR reflect greater engagement in the Company’s Membership
Rewards program.
Card Member services expenses decreased $5 million or 1 percent
in 2013 compared to 2012, and increased $56 million or 8 percent in
2012 as compared to 2011. The 2012 increase was driven by increases
in the costs associated with enhanced benefits to U.S. Card Members.
Salaries and employee benefits expenses decreased $406 million or
6 percent in 2013 as compared to 2012, and increased $345 million or
6 percent in 2012 as compared to 2011. The change in both years was
primarily driven by the restructuring charge in the fourth quarter of
2012.
Other, net decreased $55 million or 1 percent in 2013 as compared
to 2012, and increased $861 million or 15 percent in 2012 as compared
to 2011. The 2013 decrease reflects higher Card Member
reimbursements and investment impairments in the prior year. This
decrease was partially offset by higher professional services expenses
in the current year driven by increased investments in technology
development and other investments in the business, as well as higher
occupancy and equipment expenses, primarily reflecting higher data
processing expenses as well as the fourth quarter proposed merchant
litigation settlement. The 2012 increase reflects the absence of the
benefits of the Visa and MasterCard litigation settlement payments
that ceased in the fourth quarter 2011. In addition, the increase
includes higher costs associated with Card Member reimbursements of
$143 million in 2012, as well as impairments of certain cost method
investments.
INCOME TAXES
The effective tax rate on continuing operations was 32.1 percent in
2013 compared to 30.5 percent in 2012 and 29.6 percent in 2011. The
tax rate for 2013 included benefits of $150 million related to the
resolution of certain prior years’ items. The tax rates for 2012 and
2011 included benefits of $146 million and $77 million, respectively,
related to the realization of certain foreign tax credits. The tax rate for
2011 also included a benefit of $102 million related to the resolution
of certain prior years’ tax items.
The tax rates in all years reflect the level of pretax income in
relation to recurring permanent tax benefits and variances in the
geographic mix of business.
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