Discover 2014 Annual Report Download - page 88

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Other Expense
The following table represents the components of other expense for the periods presented (dollars in millions):
For the Calendar Years
Ended December 31, For the Fiscal
Year Ended
November 30,
2012
For the One
Month Ended
December 31,
2012
2014 Calendar Year vs.
2013 Calendar Year
increase (decrease)
2013 Calendar Year vs.
2012 Fiscal Year
increase (decrease)
2014 2013 $ % $ %
Employee compensation
and benefits ................... $ 1,242 $ 1,164 $ 1,048 $ 87 $ 78 7 % $ 116 11 %
Marketing and business
development................... 735 717 603 51 18 3 % 114 19 %
Information processing and
communications.............. 346 333 289 25 13 4 % 44 15 %
Professional fees ............... 450 410 432 34 40 10 % (22) (5)%
Premises and equipment.... 92 82 76 8 10 12 % 6 8 %
Other expense.................. 475 488 604 35 (13) (3)% (116) (19)%
Total other expense ....... $ 3,340 $ 3,194 $ 3,052 $ 240 $ 146 5 % $ 142 5 %
Total other expense increased $146 million for the year ended December 31, 2014 as compared to the year
ended December 31, 2013. The increase was primarily driven by higher employee compensation costs due to growth
in overall headcount along with higher professional fees due to consultant expenses related to technology and digital
investments. Higher marketing and business development expenses also contributed to the increase in other expense
mainly due to growth initiatives. The increase in total other expense was partially offset by a decrease in the other
expense line item, which primarily resulted from non-recurring expenses incurred in 2013 related to our purchase of the
Diners Club Italy Licensee and financial assistance to facilitate the purchase of the Slovenian licensee by a European
bank. The decrease in other expense line item was partially offset by the impairment of goodwill related to the Discover
Home Loans business along with fair value adjustment resulting from recording Diners Club Italy as held-for-sale.
Total other expense increased $142 million for the calendar year ended December 31, 2013 as compared to the
fiscal year ended November 30, 2012 primarily due to higher employee compensation costs driven by growth in
overall headcount along with a full year of operating activity of the Home Loan Center assets. Additionally, marketing
and business development costs increased due to growth initiatives. Higher information processing and communications
related expenses also contributed to the increase in other expense mainly related to increased software maintenance,
licenses and technology expenses due to growth initiatives. Other expense decreased primarily due to legal expenses
incurred in 2012 associated with the consent order that Discover Bank entered into with the FDIC and CFPB, for which
there was no equivalent impact in 2013.
Income Tax Expense
The following table reconciles our effective tax rate to the U.S. federal statutory income tax rate:
For the Calendar Years Ended
December 31, For the Fiscal
Year Ended
November 30,
2012
For the One
Month Ended
December 31,
2012
2014 2013
U.S. federal statutory income tax rate ....................................................... 35.0% 35.0% 35.0%35.0%
U.S. state, local and other income taxes, net of U.S. federal income tax
benefits ................................................................................................ 2.8 2.2 2.9 3.2
Other .................................................................................................... (0.7) 0.2 (0.4) (0.1)
Effective income tax rate ...................................................................... 37.1% 37.4% 37.5%38.1%
Income tax expense decreased $103 million, or 7.0%, for the year ended December 31, 2014 as compared to
the year ended December 31, 2013, reflecting a decrease in pretax income. The effective tax rate decreased 0.3% for
the year ended December 31, 2014 from 37.4% for the year ended December 31, 2013 due to favorable adjustments
to unrecognized tax benefits and recognition of tax benefits attributable to prior year tax adjustments.