UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2001
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
-------------------- ---------------------------
Commission file number 1-7657
AMERICAN EXPRESS COMPANY
------------------------
(Exact name of registrant as specified in its charter)
New York 13-4922250
- -------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
World Financial Center, 200 Vesey Street, New York, NY 10285
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 640-2000
------------------------------
None
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--------- --------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 30, 2001
- ---------------------------------------- -----------------------------
Common Shares (par value $.20 per share) 1,323,081,053 shares
AMERICAN EXPRESS COMPANY
FORM 10-Q
INDEX
Page No.
--------
Part I. Financial Information:
Consolidated Statements of Income - Three
months ended March 31, 2001 and 2000 1
Consolidated Balance Sheets - March 31, 2001
and December 31, 2000 2
Consolidated Statements of Cash Flows - Three
months ended March 31, 2001 and 2000 3
Notes to Consolidated Financial Statements 4-9
Review Report of Independent Accountants 10
Management's Discussion and Analysis of
Financial Condition and Results of operations 11-28
Part II. Other Information 29
PART I--FINANCIAL INFORMATION
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
-------------------------------
2001 2000
---------- ---------
Revenues:
Discount revenue $ 1,925 $ 1,805
Interest and dividends, net 611 796
Management and distribution fees 638 688
Net card fees 422 405
Travel commissions and fees 418 438
Other commissions and fees 623 551
Cardmember lending net finance charge revenue 240 293
Life and other insurance premiums 156 138
Other 686 543
---------- ---------
Total 5,719 5,657
---------- ---------
Expenses:
Human resources 1,668 1,635
Provisions for losses and benefits:
Annuities and investment certificates 319 348
Life insurance, international banking and other 198 177
Charge card 249 241
Cardmember lending 287 176
Interest 361 299
Marketing and promotion 338 370
Occupancy and equipment 371 362
Professional services 375 318
Communications 130 127
Other 682 684
---------- ---------
Total 4,978 4,737
---------- ---------
Pretax income 741 920
Income tax provision 203 264
---------- ---------
Net income $ 538 $ 656
========== =========
Earnings Per Common Share:
Basic $ 0.41 $ 0.49
========== =========
Diluted $ 0.40 $ 0.48
========== =========
Average common shares outstanding for
earnings per common share (millions):
Basic 1,323 1,331
========== =========
Diluted 1,344 1,362
========== =========
Cash dividends declared per common share $ 0.08 $ 0.08
========== =========
See notes to Consolidated Financial Statements.
1
AMERICAN EXPRESS COMPANY
CONSOLIDATED BALANCE SHEETS
(millions)
(Unaudited)
March 31, December 31,
Assets 2001 2000
- ------ ----------------- ----------------
Cash and cash equivalents $ 8,064 $ 8,487
Accounts receivable and accrued interest:
Cardmember receivables, less reserves:
2001, $835; 2000, $809 22,355 25,067
Other receivables, less reserves:
2001, $133; 2000, $123 5,211 5,476
Investments 43,668 43,747
Loans:
Cardmember lending, less reserves:
2001, $686; 2000, $650 20,022 19,855
International banking, less reserves:
2001, $149; 2000, $137 5,271 5,207
Other, net 960 1,026
Separate account assets 27,386 32,349
Deferred acquisition costs 3,545 3,574
Land, buildings and equipment - at cost, less
accumulated depreciation: 2001, $2,307;
2000, $2,219 2,569 2,506
Other assets 7,167 7,129
--------- ---------
Total assets $ 146,218 $ 154,423
========= =========
Liabilities and Shareholders' Equity
- ------------------------------------
Customers' deposits $ 13,348 $ 13,870
Travelers Cheques outstanding 5,993 6,127
Accounts payable 7,575 7,495
Insurance and annuity reserves:
Fixed annuities 19,224 19,417
Life and disability policies 4,736 4,681
Investment certificate reserves 7,716 7,348
Short-term debt 31,170 36,030
Long-term debt 4,911 4,711
Separate account liabilities 27,386 32,349
Other liabilities 11,695 10,211
--------- ---------
Total liabilities 133,754 142,239
--------- ---------
Guaranteed preferred beneficial interests in
the company's junior subordinated deferrable
interest debentures 500 500
Shareholders' equity:
Common shares, $.20 par value, authorized
3.6 billion shares; issued and outstanding
1,326 million shares in 2001 and 1,326
million shares in 2000 265 265
Capital surplus 5,477 5,439
Retained earnings 6,172 6,198
Other comprehensive income, net of tax:
Net unrealized securities gains (losses) 271 (145)
Net unrealized derivatives losses (160) -
Foreign currency translation adjustments (61) (73)
--------- ---------
Accumulated other comprehensive income (loss) 50 (218)
--------- ---------
Total shareholders' equity 11,964 11,684
--------- ---------
Total liabilities and shareholders' equity $ 146,218 $ 154,423
========= =========
See notes to Consolidated Financial Statements.
2
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions)
(Unaudited)
Three Months Ended
March 31,
------------------
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 538 $ 656
Adjustments to reconcile net income
to net cash provided by operating activities:
Provisions for losses and benefits 802 611
Depreciation, amortization, deferred taxes and other 201 67
Changes in operating assets and liabilities, net of
effects of acquisitions and dispositions:
Accounts receivable and accrued interest 25 34
Other assets (66) (227)
Accounts payable and other liabilities 343 1,011
Decrease in Travelers Cheques outstanding (133) (182)
Increase in insurance reserves 35 54
--------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,745 2,024
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of investments 1,305 357
Maturity and redemption of investments 1,880 2,163
Purchase of investments (2,768) (2,120)
Net decrease (increase) in Cardmember loans/receivables 1,722 (1,393)
Cardmember loans/receivables sold to trust, net 998 996
Proceeds from repayment of loans 7,884 5,982
Issuance of loans (7,656) (5,828)
Purchase of land, buildings and equipment (175) (175)
Sale of land, buildings and equipment 3 1
Acquisitions, net of cash acquired (154) (12)
--------- ----------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 3,039 (29)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in customers' deposits (550) 560
Sale of annuities and investment certificates 1,967 1,352
Redemption of annuities and investment certificates (1,855) (1,486)
Net (decrease) increase in debt with maturities of three
months or less (3,764) 2,477
Issuance of debt 2,451 1,925
Principal payments on debt (3,336) (6,398)
Issuance of American Express common shares 28 46
Repurchase of American Express common shares (72) (397)
Dividends paid (106) (101)
--------- ----------
NET CASH USED BY FINANCING ACTIVITIES (5,237) (2,022)
--------- ----------
Effect of exchange rate changes on cash 30 (19)
--------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (423) (46)
Cash and cash equivalents at beginning of period 8,487 7,471
--------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,064 $ 7,425
========= ==========
See notes to Consolidated Financial Statements.
3
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements should be read in conjunction with
the financial statements in the Annual Report on Form 10-K of American
Express Company (the company or American Express) for the year ended
December 31, 2000. Significant accounting policies disclosed therein have
not changed, except as disclosed in Note 4. Certain reclassifications of
prior period amounts have been made to conform to the current presentation.
Cardmember Lending Net Finance Charge Revenue is presented net of interest
expense of $277 million and $231 million for the first quarter of 2001 and
2000, respectively. Interest and Dividends is presented net of interest
expense of $139 million and $133 million for the first quarter of 2001 and
2000, respectively, related primarily to the company's international
banking operations.
At March 31, 2001 and December 31, 2000, cash and cash equivalents
included $1.4 billion and $1.2 billion, respectively, segregated in
special bank accounts for the benefit of customers.
The interim financial information in this report has not been audited. In
the opinion of management, all adjustments necessary for a fair
presentation of the consolidated financial position and the consolidated
results of operations for the interim periods have been made. All
adjustments made were of a normal, recurring nature. Results of operations
reported for interim periods are not necessarily indicative of results for
the entire year.
2. INVESTMENT SECURITIES
The following is a summary of investments at March 31, 2001 and
December 31, 2000. Pursuant to the adoption of Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," as amended (SFAS No. 133), the company elected to
reclassify its held-to-maturity investments to available-for-sale as of
January 1, 2001.
March 31, December 31,
(in millions) 2001 2000
--------------- ---------------
Held to Maturity, at amortized cost
(fair value: 2001, $0; 2000,
$8,486) $ - $8,404
Available for Sale, at fair value
(cost: 2001, $38,995; 2000,
$31,301) 39,378 31,052
Investment mortgage loans (fair
value: 2001, $4,241; 2000, $4,178) 4,096 4,097
Trading 194 194
--------------- ---------------
Total $43,668 $43,747
=============== ===============
4
3. COMPREHENSIVE INCOME
Comprehensive income is defined as the aggregate change in shareholders'
equity, excluding changes in ownership interests. For the company, it is
the sum of net income and changes in (i) unrealized gains or losses on
available-for-sale securities, (ii) unrealized gains or losses on
derivatives (pursuant to SFAS No. 133) and (iii) foreign currency
translation adjustments. The components of comprehensive income, net of
related tax, for the three months ended March 31, 2001 and 2000 were as
follows:
Three Months Ended
March 31,
-------------------------
(in millions) 2001 2000
-------------------------
Net income $ 538 $ 656
Change in:
Net unrealized securities
gains/losses 416 (70)
Net unrealized derivative
gains/losses (160)* -
Foreign currency translation
Adjustments 12 7
-------------------------
Total $ 806 $ 593
=========================
* Includes transition effect of $120 million in net unrealized losses,
$40 million of which was reclassified to earnings during the three months
ended March 31, 2001.
4. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Effective January 1, 2001, the company adopted SFAS No. 133, which
establishes the accounting and reporting standards for derivative instruments
and hedging activities. It requires that an entity recognize all derivatives
as either assets or liabilities on the balance sheet and measure those
instruments at fair value. Changes in the fair value of a derivative are
recorded in earnings or directly to equity, depending on the instrument's
designated use. Those derivative instruments that are designated and qualify
as hedging instruments are further classified as either a cash flow hedge, a
fair value hedge, or a hedge of a net investment in a foreign operation,
based upon the exposure being hedged. The cumulative effect of adopting SFAS
No. 133 to the company's results of operations was immaterial.
For derivative instruments that are designated and qualify as a cash flow
hedge, the effective portion of the gain or loss on the derivative instrument
is reported as a component of other comprehensive income and reclassified
into earnings when the hedged transaction affects earnings. The ineffective
portion of the gain or loss on the derivative instrument is recognized
currently in earnings. For derivative instruments that are designated and
qualify as a fair value hedge, the gain or loss on the derivative instrument
as well as the offsetting loss or gain on the hedged item attributable to the
hedged risk are recognized in current earnings during the period of the
change in fair values. For derivative instruments that are
5
designated and qualify as a hedge of a net investment in a foreign currency,
the effective portion of the gain or loss on the derivative is reported in
other comprehensive income as part of the cumulative translation adjustment.
For derivative instruments not designated as hedging instruments, the gain or
loss is recognized currently in earnings.
CASH FLOW HEDGES
The company uses interest rate products, primarily swaps to manage funding
costs related to Travel Related Services' (TRS) Charge Card business, as well
as AEFA's investment certificate business. For its Charge Card products, TRS
uses interest rate swaps to achieve a targeted mix of fixed and floating rate
funding. These interest rate swaps are used to protect the company from the
interest rate risk that arises from short-term funding. AEFA uses interest
rate products to hedge the risk of rising interest rates on investment
certificates which reset at shorter intervals than the average maturity of
the investment portfolio.
The company estimates that the results of operations for the last nine months
of 2001 will be affected by derivatives representing $254 million of the
net pretax losses recorded in other comprehensive income as of March 31,
2001. This effect will occur at the same time as the company realizes the
benefits of lower market rates of interest on its funding activities.
Similarly, as of January 1, 2001, the amount of net pretax losses that were
estimated to affect earnings during 2001 was $182 million.
Currently, the longest period of time over which the company is hedging
exposure to the variability in future cash flows is 5 years and relates to
funding of foreign currency denominated receivables.
FAIR VALUE HEDGES
The company uses equity derivatives to hedge against the change in fair
value of some of its investments in public companies. Changes in the fair
value of the derivatives are recorded in earnings along with related
designated changes in the spot price of the underlying shares. Changes in the
time value elements of these derivatives are considered as hedge
ineffectiveness.
The company also uses interest rate swaps to hedge its firm commitments to
transfer, at a fixed rate, receivables to trusts established in connection
with its asset securitizations.
During the three months ended March 31, 2001, the company recognized a
pretax net loss of $4 million primarily related to the time value element of
its fair value hedging instruments. This amount is included in Other Expenses
in the Consolidated Statements of Income.
HEDGE OF NET INVESTMENT IN FOREIGN OPERATIONS
The company designates foreign currency derivatives as hedges of net
investments in certain foreign operations. For these hedges unrealized gains
and losses are recorded in the cumulative translation adjustment account
included in other comprehensive income, whereas the related amounts due to or
from counterparties are included in other liabilities or other assets.
6
During the three months ended March 31, 2001, the change in the net
unrealized amount was immaterial.
DERIVATIVES NOT DESIGNATED AS HEDGES UNDER SFAS NO. 133
The company has economic hedges that either do not qualify or are not
designated for hedge accounting treatment under SFAS No. 133. In addition,
AEB enters into derivative contracts both to meet the needs of its clients
and, to a limited extent, for trading purposes, including taking proprietary
positions. For the period ended March 31, 2001, the net effect on earnings of
accounting for the net changes in fair value of the following undesignated
derivatives under SFAS No. 133 compared with prior rules was immaterial.
o Foreign currency transaction exposures are economically hedged, where
practical and economical, through foreign currency contracts. Foreign
currency contracts involve the purchase and sale of a designated currency
at an agreed upon rate for settlement on a specified date. Such foreign
currency forward contracts entered into by the company generally mature
within one year. In addition, for selected major overseas markets, the
company uses foreign currency forward contracts with maturities generally
not exceeding one year to hedge future earnings.
o AEFA uses interest rate caps, swaps and floors to protect the margin
between the interest rates earned on investments and the interest rates
credited to holders of certain investment certificates and fixed
annuities.
o Certain of AEFA's annuity and investment certificate products have returns
tied to the performance of equity markets. These elements are considered
derivatives under SFAS No. 133. AEFA manages this equity market risk, by
entering into options and futures.
o Certain of the company's equity investments are in the form of warrants.
Some of these warrants are deemed to be derivative financial instruments.
5. TAXES AND INTEREST
Net income taxes paid during the three months ended March 31, 2001 and 2000
were approximately $63 million and $68 million, respectively. Interest paid
during the three months ended March 31, 2001 and 2000 was approximately
$757 million and $855 million, respectively.
7
6. EARNINGS PER SHARE
The computations of basic and diluted earnings per common share (EPS) for
the three months ended March 31, 2001 and 2000 are as follows:
(in millions, except per Three Months Ended
share amounts) March 31,
-----------------------------
2001 2000
-----------------------------
Numerator: Net income $ 538 $ 656
Denominator:
Denominator for basic EPS -
weighted-average shares 1,323 1,331
Effect of dilutive securities:
Stock Options and Restricted
Stock Awards 21 31
------------------------------
Potentially dilutive
common shares 21 31
------------------------------
Denominator for diluted EPS 1,344 1,362
------------------------------
Basic EPS $ 0.41 $ 0.49
------------------------------
Diluted EPS $ 0.40 $ 0.48
------------------------------
7. SEGMENT INFORMATION
The following tables present first quarter results for the company's
operating segments. Net revenues (managed basis) exclude the effect of
securitizations at TRS, and include provisions for losses and benefits for
annuities, insurance and investment certificate products of AEFA:
Net Revenues Three Months Ended
(managed basis) March 31,
-----------------------
(in millions) 2001 2000
-----------------------
Travel Related Services $ 4,465 $ 4,127
American Express
Financial Advisors 806 1,019
American Express Bank 158 150
Corporate and Other (48) (37)
-----------------------
Total $ 5,381 $ 5,259
=======================
REVENUES (GAAP BASIS) Three Months Ended
March 31,
--------------------------------
(in millions) 2001 2000
--------------------------------
Travel Related Services $ 4,326 $ 4,038
American Express
Financial Advisors 1,283 1,506
American Express Bank 158 150
Corporate and Other (48) (37)
--------------------------------
Total $ 5,719 $ 5,657
================================
8
NET INCOME Three Months Ended
March 31,
-------------------------------
(in millions) 2001 2000
-------------------------------
Travel Related Services $ 522 $ 448
American Express
Financial Advisors 51 245
American Express Bank 9 7
Corporate and Other (44) (44)
--------------------------------
Total $ 538 $ 656
================================
9
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Shareholders and Board of Directors
American Express Company
We have reviewed the accompanying consolidated balance sheet of American
Express Company (the "Company") as of March 31, 2001 and the related
consolidated statements of income and cash flows for the three-month periods
ended March 31, 2001 and 2000. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data, and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with auditing standards generally accepted in the
United States, which will be performed for the full year with the objective
of expressing an opinion regarding the consolidated financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements referred
to above for them to be in conformity with accounting principles generally
accepted in the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of the Company as
of December 31, 2000, and the related consolidated statements of income,
shareholders' equity, and cash flows for the year then ended (not presented
herein), and in our report dated February 8, 2001, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated balance sheet as of
December 31, 2000 is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
/s/Ernst & Young LLP
New York, New York
May 14, 2001
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001
The company's consolidated net income declined 18 percent and diluted earnings
per share (EPS) fell 17 percent in the three-month period ended March 31, 2001
from a year ago. The company's return on equity was 23.5 percent.
Consolidated net revenues on a managed basis grew 2 percent for the three months
ended March 31, 2001, reflecting the impact of a weaker economy and equity
market declines, as well as a pre-tax loss of $182 million from the write-down
and sale of high-yield securities at AEFA. Excluding the high-yield losses, the
company's net income would have been flat, EPS would have been 2 percent higher
and net revenues would have grown 5 percent for the three months ended March 31,
2001. The growth in revenues reflects greater cards in force, higher billed
business, and larger loan balances, partially offset by lower management and
distribution fees and lower spreads on AEFA's investment portfolio. Consolidated
expenses rose due to greater interest costs, larger provisions for losses, and
higher human resource and operating expenses, which include the effect of a $67
million expense increase due to an adjustment of Deferred Acquisition Costs
(DACs) for variable insurance and annuity products. These increases were
partially offset by reengineering activities and expense control initiatives.
The company believes it is on track to achieve its reengineering goal of
achieving at least $500 million of expense savings during 2001. However, as
previously announced, the company expects that earnings per share growth for the
full year is unlikely to meet its earlier target of 12% growth due to the
weakened economy and equity markets.
This financial review is presented on the basis used by management to evaluate
operations. It differs in two respects from the accompanying financial
statements, which are prepared in accordance with U.S. Generally Accepted
Accounting Principles (GAAP). First, results are presented as if there had been
no asset securitizations at TRS. This format is generally termed on a "managed
basis." Second, revenues are shown net of AEFA's provisions for annuities,
insurance and investment certificate products, which are essentially spread
businesses.
CONSOLIDATED LIQUIDITY AND CAPITAL RESOURCES
In 1999 and 2000, the company entered into agreements under which a third party
purchased 29 million company common shares at an average purchase price of
$50.41. During the term of the agreements, the company will periodically issue
shares to or receive shares from the third party so that the value of the shares
held by the third party equals the original purchase price for the shares. At
maturity in five years, the company is required to deliver to the third party an
amount equal to such original purchase price. The company may elect to settle
this amount (i) physically, by paying cash against delivery of the shares held
by the third
11
party or (ii) on a net cash or net share basis. The company may also prepary
outstanding amounts at any time prior to the end of the five-year term. These
agreements, which partially offset the company's exposure from its stock option
program, are separate from the company's previously authorized share repurchase
program. During the first quarter of 2001, net settlements under the agreements
resulted in the company issuing 8.6 million shares. In the first quarter of
2001, the company elected to prepay $350 million of the aggregate outstanding
amount, which resulted in 7.8 million shares being delivered to the company.
In the first three months of 2001, the company repurchased 1.5 million common
shares at an average price of $47.22 per share under its share repurchase
program. This is in addition to the 7.8 million shares delivered to the company
during the quarter as a result of the prepayment, discussed above, resulting in
a total of 9.3 million shares repurchased during the quarter.
12
TRAVEL RELATED SERVICES
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
Statements of Income
--------------------
(Unaudited, Managed Basis)
(Dollars in millions)
Three Months Ended
March 31,
------------------------------ Percentage
2001 2000 Inc/(Dec)
------------------------------------------
Net Revenues:
Discount Revenue $ 1,925 $ 1,805 6.6 %
Net Card Fees 422 405 4.3
Lending:
Finance Charge Revenue 1,120 887 26.2
Interest Expense 429 332 29.1
---------------------------
Net Finance Charge Revenue 691 555 24.5
Travel Commissions and Fees 418 438 (4.5)
Travelers Cheque Investment Income 98 91 6.8
Other Revenues 911 833 9.5
---------------------------
Total Net Revenues 4,465 4,127 8.2
---------------------------
Expenses:
Marketing and Promotion 296 331 (10.5)
Provision for Losses and Claims:
Charge Card 285 278 2.4
Lending 501 335 49.4
Other 24 29 (18.2)
---------------------------
Total 810 642 26.0
Charge Card Interest Expense 393 314 25.6
Human Resources 1,034 1,016 1.8
Other Operating Expenses 1,195 1,193 0.1
---------------------------
Total Expenses 3,728 3,496 6.7
---------------------------
Pretax Income 737 631 16.8
Income Tax Provision 215 183 17.6
---------------------------
Net Income $ 522 $ 448 16.4
===========================
13
TRAVEL RELATED SERVICES
Selected Statistical Information
(Unaudited)
(Amounts in billions, except percentages and where indicated)
Three Months Ended
March 31,
------------------------- Percentage
2001 2000 Inc/(Dec)
--------------------------------------
Total Cards in Force (millions):
United States 34.2 31.4 9.3 %
Outside the United States 19.0 16.5 14.9
------------------------
Total 53.2 47.9 11.3
========================
Basic Cards in Force (millions):
United States 26.9 24.5 9.8
Outside the United States 14.4 12.6 14.3
------------------------
Total 41.3 37.1 11.3
========================
Card Billed Business:
United States $ 55.6 $ 50.6 9.8
Outside the United States 18.4 17.7 3.8
------------------------
Total $ 74.0 $ 68.3 8.2
========================
Average Discount Rate (A) 2.68% 2.72% -
Average Basic Cardmember
Spending (dollars) (A) $ 1,933 $ 1,980 (2.4)
Average Fee per Card -
Managed (dollars) (A) $ 35 $ 37 (5.4)
Non-Amex Brand (B):
Cards in Force (millions) 0.6 0.6 6.1
Billed Business $ 0.8 $ 0.5 45.0
Travel Sales $ 5.0 $ 5.5 (8.9)
Travel Commissions and Fees/Sales (C) 8.4% 8.0% -
Travelers Cheque:
Sales $ 5.0 $ 5.1 (0.8)
Average Outstanding $ 6.1 $ 6.1 -
Average Investments $ 6.3 $ 6.0 5.8
Tax Equivalent Yield 9.1% 8.9% -
Managed Charge Card Receivables:
Total Receivables $ 26.4 $ 26.8 (1.4)
90 Days Past Due as a % of Total 2.7% 2.6% -
Loss Reserves (millions) $ 1,004 $ 894 12.4
% of Receivables 3.8% 3.3% -
% of 90 Days Past Due 139% 129% -
Net Loss Ratio 0.35% 0.34% -
Managed U.S. Lending:
Total Loans $ 30.2 $ 24.2 24.8
Past Due Loans as a % of Total:
30-89 Days 2.0% 1.8% -
90+ Days 0.9% 0.8% -
Loss Reserves (millions):
Beginning Balance $ 820 $ 672 22.0
Provision 426 285 49.7
Net Charge-Offs/Other (339) (268) 27.1
------------------------
Ending Balance $ 907 $ 689 31.5
========================
% of Loans 3.0% 2.8% -
% of Past Due 103% 109% -
Average Loans $ 28.9 $ 23.6 22.4
Net Write-Off Rate 5.1% 4.6% -
Net Interest Yield 8.3% 7.8% -
(A) Computed from proprietary card activities only.
(B) This data relates to Visa and Eurocards issued in connection
with joint venture activities.
(C) Computed from information provided herein.
14
TRAVEL RELATED SERVICES
Travel Related Services' (TRS) net income rose 16 percent in the first quarter
of 2001 from a year ago. Net revenues increased 8 percent for the same period,
reflecting growth in loans, higher billed business and additional cards in
force.
The improvement in discount revenue from a year ago is the result of higher
billed business, reflecting an 11 percent increase in cards in force, partly
offset by lower average spending per Cardmember and a lower average discount
rate. The growth in billed business, which was slower than in recent periods,
also reflected weaker economic conditions and a slowdown in spending by
corporations. In the U.S., a 9 percent increase in cards in force was due to the
continuation of proactive consumer card and small business services activities,
including those related to the Blue and co-branded Costco card products, as well
as benefits related to the Bank of Hawaii and ShopRite portfolio acquisitions in
the first quarter of 2001. Excluding these portfolio acquisitions, U.S. cards in
force rose 8 percent. Outside the U.S. cards in force rose 15 percent, with
continued growth in proprietary and network cards. Average spending per
Cardmember declined 2 percent reflecting the dilutive effect of multiple
consecutive quarters of particularly strong card growth and weaker economic
conditions. The average discount rate in the first quarter of 2001 was 2.68
percent verses 2.72 percent a year ago and 2.69 percent in the fourth quarter
of 2000. The decline from last year and the fourth quarter of 2000 reflects the
cumulative impact of stronger than average growth in the lower retail and other
"everday spend" merchant categories (e.g. supermarkets, discounters, etc.), as
well as relatively weaker Travel and Entertainment spending in the first quarter
of 2001. The U.S. lending net interest yield increased from year-ago levels, due
to a smaller percentage of loan balances on introductory rates and a benefit
from declining interest rates during the quarter. Other revenues increased
reflecting higher fee income.
The provision for losses on the lending portfolio grew as a result of higher
volumes and an increase in U.S. lending write-off and delinquency rates. Charge
card interest expense rose as a result of a higher effective cost of funds and
higher volumes. Marketing and promotion expenses were lower as certain marketing
efforts were scaled back in light of the weaker business environment. Other
operating expenses were flat, as the cost of Cardmember loyalty programs and
business growth were offset by the benefit of reengineering and cost-control
efforts.
15
TRAVEL RELATED SERVICES
EFFECT OF SECURITIZATIONS
The preceding statements of income and related discussion present TRS results
on a managed basis, as if there had been no securitization transactions. On a
GAAP reporting basis, TRS recognized pretax gains of $42 million ($27 million
after-tax) and $36 million ($23 million after-tax) in the first quarters of 2001
and 2000, respectively, related to the securitization of U.S. receivables. These
gains were invested in card acquisition activities and had no material impact on
Net Income or Total Expenses in either quarter. The following tables reconcile
TRS' income statements from a managed basis to a GAAP basis. These tables are
not complete statements of income, as they include only those income statement
items that are affected by securitizations.
(Dollars in millions)
Three Months Ended Three Months Ended
March 31, 2001 March 31, 2000
-------------------------------------------- ---------------------------------------------
Managed Securitization GAAP Managed Securitization GAAP
Basis Effect Basis Basis Effect Basis
-------------------------------------------- ---------------------------------------------
Net Revenues:
Lending Net Finance Charge Revenue $ 691 $ (451) $ 240 $ 555 $ (262) $ 293
Other Revenues 911 312 1,223 833 173 1,006
Total Net Revenues 4,465 (139) 4,326 4,127 (89) 4,038
Expenses:
Marketing and Promotion 296 25 321 331 21 352
Provision for Losses and Claims:
Charge Card 285 (36) 249 278 (37) 241
Lending 501 (214) 287 335 (160) 175
Charge Card Interest Expense 393 (44) 349 314 (54) 260
Net Discount Expense - 113 113 - 126 126
Other Operating Expenses 1,195 17 1,212 1,193 15 1,208
Total Expenses 3,728 (139) 3,589 3,496 (89) 3,407
Pretax Income $ 737 $ - $ 737 $ 631 $ - $ 631
--------------------------------------------------------------------------------------------
16
TRAVEL RELATED SERVICES
LIQUIDITY AND CAPITAL RESOURCES
Selected Balance Sheet Information
----------------------------------
(Unaudited, GAAP Basis)
(Dollars in billions, except percentages)
March 31, December 31, Percentage March 31, Percentage
2001 2000 Inc/(Dec) 2000 Inc/(Dec)
---------------- ---------------- ---------------- ---------------- ---------------
Accounts Receivable, net $ 26.9 $ 29.6 (9.1) % $ 25.3 6.5 %
Travelers Cheque Investments $ 6.5 $ 6.5 0.9 $ 6.0 8.1
U.S. Loans $ 17.5 $ 17.4 0.3 $ 15.9 9.7
Total Assets $ 67.5 $ 71.4 (5.5) $ 62.1 8.7
Travelers Cheques Outstanding $ 6.0 $ 6.1 (2.2) $ 6.0 (0.6)
Short-term Debt $ 32.0 $ 36.7 (12.9) $ 30.4 5.3
Long-term Debt $ 3.5 $ 3.3 6.1 $ 3.5 (1.5)
Total Liabilities $ 60.8 $ 64.8 (6.2) $ 56.3 8.0
Total Shareholder's Equity $ 6.7 $ 6.6 1.8 $ 5.8 15.3
Return on Average Equity* 33.0% 33.0% - 31.6% -
Return on Average Assets** 3.1% 3.0% - 3.0% -
* Computed based on the past twelve months of net income and excludes the
effect on Shareholder's Equity of SFAS No. 115 and SFAS No. 133. The
Company adopted SFAS No. 133 on January 1, 2001.
** Computed based on the past twelve months of net income and excludes the
effect on Total Assets of SFAS No. 115 and SFAS No. 133 to the extent that
they directly affect Shareholder's Equity.
In the first quarter of 2001, the American Express Credit Account Master Trust
(the Trust) securitized $1.0 billion of loans through the public issuance of
investor certificates. The securitized assets consist primarily of loans arising
in a portfolio of designated consumer American Express credit card, Optima Line
of Credit and Sign & Travel/Extended Payment Option revolving credit accounts or
features and, in the future, may include other charge or credit accounts or
features or products. In April and May 2001, the Trust securitized an additional
$1.98 billion of loans.
$1.0 billion of investor certificates previously issued by the Trust matured
on May 15, 2001.
17
AMERICAN EXPRESS FINANCIAL ADVISORS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
Statements of Income
--------------------
(Unaudited)
(Dollars in millions)
Three Months Ended
March 31,
-------------------------------- Percentage
2001 2000 Inc/(Dec)
-----------------------------------------------
Net Revenues:
Investment Income $ 368 $ 572 (35.7) %
Management and Distribution Fees 638 688 (7.3)
Other Revenues 277 246 12.3
--------------------------------
Total Revenues 1,283 1,506 (14.8)
Provision for Losses and Benefits:
Annuities 238 259 (8.3)
Insurance 157 139 13.0
Investment Certificates 82 89 (8.0)
--------------------------------
Total 477 487 (2.2)
--------------------------------
Net Revenues 806 1,019 (20.9)
--------------------------------
Expenses:
Human Resources 548 498 10.1
Other Operating Expenses 188 166 12.8
--------------------------------
Total Expenses 736 664 10.8
--------------------------------
Pretax Income 70 355 (80.2)
Income Tax Provision 19 110 (82.3)
--------------------------------
Net Income $ 51 $ 245 (79.2)
================================
18
AMERICAN EXPRESS FINANCIAL ADVISORS
Selected Statistical Information
--------------------------------
(Unaudited)
(Dollars in millions, except percentages and where indicated)
Three Months Ended
March 31,
-------------------------------- Percentage
2001 2000 Inc/(Dec)
-----------------------------------------------
Life Insurance in Force (billions) $ 100.0 $ 91.7 9.0 %
Deferred Annuities in Force (billions) $ 43.4 $ 51.0 (14.9)
Assets Owned, Managed or
Administered (billions):
Assets Managed for Institutions $ 53.7 $ 57.4 (6.3)
Assets Owned, Managed or Administered
for Individuals:
Owned Assets:
Separate Account Assets 27.4 38.4 (28.7)
Other Owned Assets 42.0 39.8 5.6
--------------------------------
Total Owned Assets 69.4 78.2 (11.3)
Managed Assets 99.8 122.7 (18.7)
Administered Assets 30.8 31.2 (1.2)
--------------------------------
Total $ 253.7 $ 289.5 (12.4)
================================
Market Appreciation (Depreciation) During
the Period:
Owned Assets:
Separate Account Assets $ (5,204) $ 2,332 -
Other Owned Assets $ 608 $ (120) -
Total Managed Assets $ (14,453) $ 7,020 -
Cash Sales:
Mutual Funds $ 9,889 $ 12,104 (18.3)
Annuities 1,381 1,362 1.4
Investment Certificates 954 835 14.2
Life and Other Insurance Products 244 237 3.3
Institutional 2,506 1,551 61.6
Other 1,955 573 #
--------------------------------
Total Cash Sales $ 16,929 $ 16,662 1.6
================================
Number of Financial Advisors 12,052 11,094 8.6
Fees from Financial Plans and
Advice Services $ 27.6 $ 26.3 4.9
Percentage of Total Sales from Financial
Plans and Advice Services 73.0% 66.9% -
# Denotes variance of more than 100%.
19
AMERICAN EXPRESS FINANCIAL ADVISORS
American Express Financial Advisors' (AEFA) net income in the first quarter of
2001 decreased 79 percent from a year ago. Net revenues decreased 21 percent.
These declines reflected a pre-tax loss of $182 million from the write-down and
sale of certain high yield securities, continued weakness in equity markets, and
narrower spreads on the investment portfolio. The weakened equity markets led to
lower asset levels and slower growth in sales of investment products. As a
result, management and distribution fees fell 7 percent. Other revenues rose as
a result of higher insurance premiums and financial planning and advice service
fees. Gross investment income decreased 36 percent due to the negative impact in
the current quarter of deterioration in the high yield bond sector, as well as a
generally lower average yield. Included in investment income is the effect of a
decrease in the value of options hedging outstanding stock market certificates,
which was offset in the certificate provision. Lower annuity product provisions
resulted from a smaller inforce level, which offset a higher accrual rate.
Insurance provisions rose due to higher inforce levels and accrual rates.
Certificate provisions decreased as higher inforce levels and accrual rates were
more than offset by the effect on the stock market certificate product of
substantial appreciation last year and depreciation this year in the S&P 500.
The high yield losses reflect the continued deterioration of the high-yield
portfolio and losses associated with selling certain bonds. The recognition of
these losses followed the quarterly analysis of the portfolio, which reviews
items such as: recent defaults on interest payments, financial data from
issuers, assessments of anticipated future cash flows and the overall trends in
the high-yield sector. Approximately $34 million of the high-yield losses noted
above relates to the early implementation of a new accounting rule involving
certain structured investments. Total losses on these investments for the
remainder of 2001 are expected to be substantially lower than in the first
quarter. Excluding losses in the high-yield sector, earnings in the first
quarter were down 29 percent from a year-ago.
Total expenses increased by $72 million from a year ago due primarily to a $67
million adjustment to the amortization of Deferred Acquisition Costs (DAC)* for
variable insurance and annuity products as a result of the steep decline in
equity markets. This DAC adjustment, coupled with higher costs associated with
the new advisor compensation structure, was partially offset by slower growth in
volume-related compensation and by reengineering and cost-control initiatives.
Human resource expenses rose 10 percent reflecting larger field force
compensation-related expenses due to advisor growth and costs related to the new
advisor platforms, partially reflecting higher relative compensation levels for
advisors introduced in the second quarter of 2000, and a $39 million expense
during the quarter from the DAC amortization adjustment. The total advisor force
of 12,052 increased by 958 from March 31, 2000 but was down 611 from December
31, 2000. The decrease in advisors versus December 31, 2000 reflects reduced
recruiting activities, as the company fine tunes the advisor platform dynamics,
and higher termination rates due to the weaker environment and proactive efforts
to weed out unproductive advisors. In light of current challenging market
conditions, AEFA expects to continue to moderate advisor growth in coming
quarters to ensure overall field force costs are appropriately
20
contained and the business benefits from last year's advisors additions are
maximized. The 13 percent increase in other operating expenses reflects the DAC
amortization adjustment, which added $28 million of expense, costs related to
the implementation of the new advisor platforms, including greater rent and
equipment support costs, partially offset by reengineering activities and
efforts to control core operating expense growth.
* DACS are the costs of acquiring new business, which are deferred and amortized
according to a schedule that reflects a number of factors, the most significant
of which are the anticipated profits and persistency of the product. The
amortization schedule must be adjusted periodically to reflect changes in those
factors.
21
AMERICAN EXPRESS FINANCIAL ADVISORS
LIQUIDITY AND CAPITAL RESOURCES
Selected Balance Sheet Information
----------------------------------
(Unaudited)
(Dollars in billions, except percentages)
March 31, December 31, Percentage March 31, Percentage
2001 2000 Inc/(Dec) 2000 Inc/(Dec)
------------------- ------------------ --------------- ------------------- ---------------
Investments $ 31.2 $ 30.5 2.5 % $ 30.3 3.0 %
Separate Account Assets $ 27.4 $ 32.3 (15.3) $ 38.4 (28.7)
Total Assets $ 69.4 $ 73.6 (5.7) $ 78.2 (11.3)
Client Contract Reserves $ 31.7 $ 31.4 0.7 $ 31.0 2.3
Total Liabilities $ 64.7 $ 69.2 (6.5) $ 74.3 (13.0)
Total Shareholder's Equity $ 4.7 $ 4.4 6.9 $ 3.9 21.6
Return on Average Equity* 17.8% 22.6% - 23.0% -
* Computed based on the past twelve months of net income and excludes the
effect on Shareholder's Equity of SFAS No. 115 and SFAS No. 133. The
Company adopted SFAS No. 133 on January 1, 2001.
Separate account assets and liabilities decreased mainly due to market
depreciation.
22
AMERICAN EXPRESS BANK
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
Statements of Income
--------------------
(Unaudited)
(Dollars in millions)
Three Months Ended
March 31,
---------------------------- Percentage
2001 2000 Inc/(Dec)
-------------------------------------------
Net Revenues:
Interest Income $ 187 $ 183 2.5 %
Interest Expense 122 118 4.1
----------------------------
Net Interest Income 65 65 -
Commissions and Fees 52 52 -
Foreign Exchange Income & Other Revenue 41 33 25.0
----------------------------
Total Net Revenues 158 150 5.3
----------------------------
Expenses:
Human Resources 62 66 (5.5)
Other Operating Expenses 66 68 (4.2)
Provision for Losses 16 8 #
----------------------------
Total Expenses 144 142 1.1
----------------------------
Pretax Income 14 8 83.8
Income Tax Benefit 5 1 #
----------------------------
Net Income $ 9 $ 7 18.9
============================
# Denotes variance of more than 100%.
Selected Statistical Information
--------------------------------
(Amounts in billions, except percentages)
Three Months Ended
March 31,
---------------------------- Percentage
2001 2000 Inc/(Dec)
-------------------------------------------
Assets Managed */ Administered $ 10.7 $ 9.4 14.7 %
Assets of Non-Consolidated Joint
Ventures $ 2.1 $ 2.4 (13.5)
* Includes assets managed by American Express Financial
Advisors.
23
AMERICAN EXPRESS BANK
American Express Bank (AEB) reported net income of $9 million for the first
quarter of 2001, compared with $7 million a year ago. The results reflect strong
performance in Personal Financial Services, higher foreign exchange revenue,
security gains, and lower operating expenses as a result of reengineering
efforts. These were partially offset by higher provisions for losses, which
reflect an increase in non-performing corporate loans and lower revenue from
Corporate Banking as the company continues to shift its focus to Personal
Financial Services and Private Banking.
24
AMERICAN EXPRESS BANK
LIQUIDITY AND CAPITAL RESOURCES
Selected Balance Sheet Information
----------------------------------
(Unaudited)
(Amounts in billions, except percentages and where indicated)
March 31, December 31, Percentage March 31, Percentage
2001 2000 Inc/(Dec) 2000 Inc/(Dec)
------------ ------------ ------------ ------------ ------------
Total Assets $ 12.4 $ 11.4 8.9 % $ 11.4 9.2 %
Total Liabilities $ 11.7 $ 10.7 9.4 $ 10.7 9.1
Total Shareholder's Equity (millions) $ 774 $ 754 2.6 $ 697 11.0
Return on Average Assets* 0.26% 0.26% - 0.19% -
Return on Average Common Equity** 4.6% 4.4% - 3.5% -
Total Loans $ 5.4 $ 5.3 1.4 $ 5.0 8.2
Total Non-performing Loans (millions) $ 187 $ 137 36.6 $ 174 7.4
Other Non-performing Assets (millions) $ 24 $ 24 0.6 $ 31 (22.8)
Reserve for Credit Losses (millions)*** $ 164 $ 153 6.8 $ 189 (13.4)
Loan Loss Reserves as a
Percentage of Total Loans 2.8% 2.6% - 3.4% -
Deposits $ 8.5 $ 8.0 7.5 $ 8.4 2.0
Risk-Based Capital Ratios:
Tier 1 10.7% 10.1% - 10.1% -
Total 11.4% 11.4% - 11.6% -
Leverage Ratio 5.8% 5.9% - 5.6% -
* Computed based on the past twelve
months of net income and excludes
the effect on Shareholder's Equity
of SFAS No. 115 and SFAS No. 133.
The Company adopted SFAS No. 133 on
January 1, 2001.
** Computed based on the past twelve
months of net income and excludes
the effect on total assets of SFAS
No. 115 and SFAS No. 133 to the
extent that they affect
Shareholder's Equity.
*** Allocation (Millions):
Loans $ 149 $ 137 $ 170
Other Assets, primarily derivatives 12 14 15
Other Liabilities 3 2 4
---------- ---------- ----------
Total Credit Loss Reserves $ 164 $ 153 $ 189
========== ========== ==========
AEB had loans outstanding of $5.4 billion at March 31, 2001, up from $5.3
billion at December 31, 2000 and $5.0 billion at March 31, 2000. The increase
since first quarter 2000 resulted from a $600 million increase in consumer and
private banking loans ($700 million excluding the effect of asset sales and
securitizations in the consumer loan portfolio) and a $60 million increase in
financial institution loans, partially offset by a $400 million decrease in
corporate banking loans. Since December 31, 2000, consumer and private banking
loans increased by $500 million, including the transfer of $200 million of
collateralized loans from Corporate Banking, while corporate banking loans fell
by $300 million and financial institution loans fell by $100 million. As of
March 31, 2001, consumer and private banking loans comprised 50% of total loans
versus 41% at December 31, 2000 and 39% at March 31, 2000.
Total non-performing loans of $187 million at March 31, 2001 were up from $137
million at December 31, 2000 and $174 million at March 31, 2000 as a result of
increases within the Corporate Banking business. This increase since
December 31, 2000 is consistent with AEB's strategy to wind down Corporate
Banking activities while growing the consumer lending business.
25
As presented in the table below, there are banking activities other than loans,
such as forward contracts, various contingencies and market placements, which
added approximately $8.1 billion to AEB's credit exposures at March 31, 2001,
compared with $7.4 billion at December 31, 2000 and $7.7 billion at March 31,
2000. Of the $8.1 billion of additional exposures at March 31, 2001, $5.6
billion were relatively less risky cash and securities related balances.
American Express Bank
Exposures By Country and Region
(Unaudited)
($ in billions)
Net
Guarantees 3/31/01 12/31/00
FX and and Total Total
Country Loans Derivatives Contingents Other* Exposure** Exposure**
- ---------------------------------- -------- --------------- --------------- ---------- ------------- -------------
Hong Kong $ 0.9 $ - $ 0.1 $ 0.1 $ 1.0 $ 0.7
Indonesia 0.1 - - 0.1 0.2 0.3
Singapore 0.5 - 0.1 - 0.6 0.7
Korea 0.1 - - 0.2 0.4 0.4
Taiwan 0.2 - - 0.1 0.3 0.3
China - - - - - -
Japan - - - - 0.1 0.1
Thailand - - - - - -
Other - - - 0.2 0.2 0.2
------ ----------- ------------ ------------ ----------- -----------
Total Asia/Pacific Region** 1.8 0.1 0.3 0.7 2.9 2.9
------ ----------- ------------ ------------ ----------- -----------
Chile 0.2 - - 0.1 0.4 0.3
Brazil 0.2 - - 0.1 0.4 0.3
Mexico 0.1 - - - 0.1 0.1
Peru - - - - 0.1 0.1
Argentina 0.1 - - - 0.1 0.1
Other 0.3 - 0.2 0.1 0.6 0.5
------ ----------- ------------ ------------ ----------- -----------
Total Latin America** 0.9 0.1 0.3 0.3 1.6 1.4
------ ----------- ------------ ------------ ----------- -----------
India 0.3 - 0.1 0.3 0.7 0.7
Pakistan 0.1 - - 0.1 0.2 0.3
Other 0.1 - 0.1 0.1 0.2 0.2
------ ----------- ------------ ------------ ----------- -----------
Total Subcontinent** 0.4 - 0.1 0.5 1.1 1.2
------ ----------- ------------ ------------ ----------- -----------
Egypt 0.2 - - 0.2 0.5 0.5
Other 0.2 - - 0.1 0.3 0.2
------ ----------- ------------ ------------ ----------- -----------
Total Middle East & Africa** 0.4 - 0.1 0.3 0.7 0.7
------ ----------- ------------ ------------ ----------- -----------
Total Europe*** 1.6 0.1 0.4 3.0 5.1 4.5
Total North America** 0.3 - 0.3 1.5 2.1 2.1
-------- ----------- ------------ ------------ ----------- -----------
Total Worldwide** $ 5.4 $ 0.3 $ 1.5 $ 6.2 $ 13.5 $ 12.7
======== =========== ============ ============ ============ ============
* Includes cash, placements and securities.
** Individual items may not add to totals due to rounding.
*** Total exposures at 3/31/01 and 12/31/00 include $2 million and $3 million
of exposures to Russia, respectively.
Note: Includes cross-border and local exposure and does not net local funding or
liabilities against any local exposure.
26
CORPORATE AND OTHER
Corporate and Other reported net expenses of $44 million, which was unchanged
from a year ago. Results for both years include a preferred stock dividend based
on earnings from Lehman Brothers. The dividend was offset by expenses related to
business building initiatives.
27
This report contains forward-looking statements, which are subject to risks and
uncertainties. The words "believe", "expect", "anticipate", "optimistic",
"intend", "aim", "will", "should" and similar expressions are intended to
identify such forward-looking statements. Factors that could cause actual
results to differ materially from these forward-looking statements include, but
are not limited to, the following:
Fluctuation in the equity markets, which can affect the amount and types of
investment products sold by AEFA, the market value of its managed assets, and
management and distribution fees received based on those assets; potential
deterioration in the high-yield sector, which could result in further losses in
AEFA's investment portfolio; developments relating to AEFA's new platform
structure for financial advisors, including the ability to increase advisor
productivity, moderate the growth of new advisors and create efficiencies in the
infrastructure; AEFA's ability to effectively manage the economics in selling a
growing volume of non-proprietary products to clients; investment performance in
AEFA's mutual fund business; the success and financial impact of reengineering
initiatives being implemented at the company, including cost management,
structural and strategic measures such as vendor and process consolidation,
outsourcing and using lower cost internal distribution channels; the ability to
control and manage operating, infrastructure, advertising and promotion and
other expenses as business expands or changes, including balancing the need for
longer term investment spending; consumer and business spending on the company's
travel related services products, particularly credit and charge cards and
growth in card lending balances, which depend in part on the ability to issue
new and enhanced card products and increase revenues from such products, attract
new cardholders, capture a greater share of existing cardholders' spending,
sustain premium discount rates, increase merchant coverage, retain Cardmembers
after low introductory lending rates have expired, and expand the global network
services business; successfully expanding the company's on-line and off-line
distribution channels and cross-selling financial, travel, card and other
products and services to its customer base, both in the U.S. and abroad;
effectively leveraging the company's assets, such as its brand, customers and
international presence, in the Internet environment; investing in and competing
at the leading edge of technology across all businesses; increasing competition
in all of the company's major businesses; fluctuations in interest rates, which
impacts the company's borrowing costs, return on lending products and spreads in
the investment and insurance businesses; credit trends and the rate of
bankruptcies, which can affect spending on card products, debt payments by
individual and corporate customers and returns on the company's investment
portfolios; foreign currency exchange rates; political or economic instability
in certain regions or countries, which could affect commercial lending
activities, among other businesses; legal and regulatory developments, such as
in the areas of consumer privacy and data protection; acquisitions; and outcomes
in litigation. A further description of these and other risks and uncertainties
can be found in the company's 10-K Annual Report for the fiscal year ending
December 31, 2000 and other reports filed with the SEC.
28
PART II.--OTHER INFORMATION
AMERICAN EXPRESS COMPANY
Item 1. Legal Proceedings
In August, 2000 an action entitled LESA BENACQUISTO, DANIEL BENACQUISTO,
RICHARD THORESEN, ELIZABETH THORESEN, ARNOLD MORK, ISABELLA MORK, RONALD
MELCHERT AND SUSAN MELCHERT V. AMERICAN EXPRESS FINANCIAL CORPORATION, AMERICAN
EXPRESS FINANCIAL ADVISORS, AMERICAN CENTURION LIFE ASSURANCE COMPANY, AMERICAN
ENTERPRISE LIFE INSURANCE COMPANY, AMERICAN PARTNERS LIFE INSURANCE COMPANY, IDS
LIFE INSURANCE COMPANY AND IDS LIFE INSURANCE COMPANY OF NEW YORK was commenced
in the United States District Court for the District of Minnesota. The complaint
put at issue various alleged sales practices and misrepresentations and
allegations of violations of federal laws.
On September 18, 2000 the District Court, Fourth Judicial District for the
State of Minnesota, County of Hennepin and the United States District Court for
the District of Minnesota entered an order conditionally certifying a class for
settlement purposes, preliminarily approving the class settlement, directing the
issuance of a class notice to the class and scheduling a hearing to determine
the fairness of settlement for March, 2001. On March 6, 2001 these courts heard
oral arguments on plaintiffs' motions for final approval of the class action
settlement. Six motions to intervene were filed together with objections to the
proposed settlement. The Company is awaiting a final order from the court. On
March 23, 2001 proposed findings of fact, conclusions of law and order were
filed with the courts. On April 2, 2001 certain intervenors filed a notice of
appeal with United States Court of Appeals for the Eighth Circuit as a result of
the courts' denial of the motions to intervene at the March 6, 2001 hearing.
The matter described above was previously reported in the Company's Form
10-K for the year ended December 31, 2000.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of shareholders was held on April 23, 2001.
The matters that were voted upon at the meeting, and the number of votes cast
for, against or withheld, as well as the number of abstentions and broker
non-votes, as to each such matter, where applicable, are set forth below.
Votes Votes Votes Broker
For Against Withheld Abstentions Non-Votes
----------- ----------- --------- ----------- ----------
Selection of Ernst & Young LLP
as independent auditors 1,111,130,966 17,187,562 -- 5,904,589 10,470
Shareholder proposal
relating to rotating the location
of the annual meeting of
shareholders 45,301,006 868,732,822 -- 17,372,817 202,826,942
Election of Directors:
D.F. Akerson 1,124,165,813 -- 10,067,774 -- --
E.L. Artzt 1,123,605,353 -- 10,628,234 -- --
W.G. Bowen 1,123,788,006 -- 10,445,581 -- --
K.I. Chenault 1,123,987,310 -- 10,246,277 -- --
B. Sills Greenough 1,122,285,584 -- 11,948,003 -- --
F.R. Johnson 1,121,723,016 -- 12,510,571 -- --
V.E. Jordan, Jr 1,091,663,746 -- 42,569,841 -- --
J. Leschly 1,124,030,131 -- 10,203,456 -- --
R.A. McGinn 1,060,834,467 -- 73,399,120 -- --
F.P. Popoff 1,123,834,747 -- 10,398,840 -- --
29
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on page E-1 hereof.
(b) Reports on Form 8-K:
Form 8-K, dated January 22, 2001, Items 5 and 7, 1) reporting the
Company's earnings for the quarter and year ended December 31, 2000
and including a Fourth Quarter/Full Year Earnings Supplement and
2)providing the September 8, 2000 amendment to the portion of the
agreement dated February 27, 1995 between the Company and Berkshire
Hathaway Inc. relating to the voting of American Express securities
by Berkshire Hathaway indicating that the agreement would remain in
effect after Kenneth Chenault replaced Harvey Golub as Chief
Executive Officer.
Form 8-K, dated February 7, 2001, Items 5 and 9, 1) adjusting
certain preliminary statistical data contained in the 8-K Report
dated January 22, 2001 and 2) reporting information from speeches
presented by Ken Chenault, the Company's Chairman and Chief
Executive Officer and Al Kelly, President of U.S. Consumer and Small
Business Services, to the financial community on February 7, 2001.
Form 8-K, dated April 2, 2001, Item 5, announcing the Company's
expectation of a first quarter earnings decline from a year ago,
reflecting the write-down and sale of high-yield securities.
Form 8-K, dated April 12, 2001, Item 9, announcing the availability
on the Company's website of a Financial Supplement dated April 2001
containing historical financial information about certain
subsidiaries of the Company.
Form 8-K, dated April 23, 2001, Items 5 and 7, reporting the
Company's earnings for the quarter ended March 31, 2001 and
including a First Quarter Earnings Supplement.
Form 8-K, dated April 23, 2001, Item 5, announcing the election of
Kenneth Chenault as the Company's Chairman and Chief Executive
Officer.
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN EXPRESS COMPANY
------------------------
(Registrant)
Date: May 15, 2001 By /s/ Gary L. Crittenden
------------------ ------------------------
Gary L. Crittenden
Executive Vice President and
Chief Financial Officer
(as Duly Authorized Officer and
Principal Financial Officer)
31
EXHIBIT INDEX
The following exhibits are filed as part of this Quarterly Report:
Exhibit Description
------- -----------
12 Computation in Support of Ratio of Earnings to Fixed
Charges.
15 Letter re Unaudited Interim Financial Information.
E-1