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 September 30, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
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Commission file number 1-7657
AMERICAN EXPRESS COMPANY
(Exact name of registrant as specified in its charter)
New York State 13-4922250
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
American Express Tower, World Financial Center, New York, NY 10285
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 640-2000
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None
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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 October 31, 1994
- --------------------------------------- -------------------------------
Common Shares (par value $.60 per share) 506,864,526 shares
AMERICAN EXPRESS COMPANY
FORM 10-Q
INDEX
Part I. Financial Information:
Consolidated Statement of Income--Three and 1-2
nine months ended September 30, 1994 and
1993
Consolidated Balance Sheet--September 30, 3
1994 and December 31, 1993
Consolidated Statement of Cash Flows--Nine 4
months ended September 30, 1994 and 1993
Notes to Consolidated Financial Statements 5-6
Management's Discussion and Analysis of 7-16
Financial Condition and Results of
Operations
Review Report of Independent Auditors 17
Part II. Other Information 18
PART I--FINANCIAL INFORMATION
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENT OF INCOME
(millions, except per share amounts)
(Unaudited)
Three Months Ended
September 30,
--------------------
1994 1993
Net Revenues: ------- -------
Commissions and fees $ 2,157 $ 1,981
Interest and dividends, net 1,046 1,038
Life insurance premiums 209 179
Other 192 171
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Total 3,604 3,369
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Expenses:
Human resources 958 847
Provisions for losses and benefits:
Annuities and investment certificates 295 309
Banking, credit and other 249 291
Life insurance 201 166
Marketing and promotion 280 279
Interest 251 232
Occupancy and equipment 243 240
Professional services 173 141
Communications 92 91
Other 364 357
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Total 3,106 2,953
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Pretax income from continuing operations 498 416
Income tax provision 129 103
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Income from continuing operations 369 313
Discontinued operations, net of
income taxes - 107
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Net income $ 369 $ 420
======= =======
Income per common share
from continuing operations $ 0.71 $ 0.61
Income per common share
from discontinued operations - 0.22
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Net income per common share $ 0.71 $ 0.83
======= =======
Weighted average number of common
shares outstanding (000's) 512,579 503,623
======= =======
Cash dividends declared per
common share $ 0.225 $ 0.25
======= =======
See notes to Consolidated Financial Statements.
1
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENT OF INCOME
(millions, except per share amounts)
(Unaudited)
Nine Months Ended
September 30,
--------------------
1994 1993
Net Revenues: ------- -------
Commissions and fees $ 6,253 $ 5,764
Interest and dividends, net 3,078 2,993
Life insurance premiums 585 522
Other 564 496
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Total 10,480 9,775
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Expenses:
Human resources 2,751 2,461
Provisions for losses and benefits:
Annuities and investment certificates 867 958
Banking, credit and other 777 930
Life insurance 563 445
Marketing and promotion 794 800
Interest 741 653
Occupancy and equipment 728 703
Professional services 485 413
Communications 272 264
Other 1,086 993
Gain on sale of FDC - (779)
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Total 9,064 7,841
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Pretax income from continuing operations 1,416 1,934
Income tax provision 371 620
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Income from continuing operations 1,045 1,314
Discontinued operations, net of
income taxes 33 (235)
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Net income $ 1,078 $ 1,079
======= =======
Income per common share
from continuing operations $ 2.02 $ 2.62
Income (loss) per common share
from discontinued operations 0.07 (0.48)
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Net income per common share $ 2.09 $ 2.14
======= =======
Weighted average number of common
shares outstanding (000's) 510,672 498,862
======= =======
Cash dividends declared per
common share $ 0.70 $ 0.75
======= =======
See notes to Consolidated Financial Statements.
2
AMERICAN EXPRESS COMPANY
CONSOLIDATED BALANCE SHEET
(millions)
(Unaudited)
September 30, December 31,
Assets 1994 1993
- ------ ------------- ------------
Cash and cash equivalents $ 6,959 $ 3,312
Accounts receivable and accrued interest, less
reserves: 1994, $788; 1993, $796 15,743 16,142
Investments 39,495 39,308
Loans and discounts, less reserves:
1994, $515; 1993, $655 14,665 14,796
Land, buildings and equipment--at cost, less
accumulated depreciation: 1994, $1,570;
1993, $1,441 1,905 1,976
Assets held in segregated asset accounts 10,700 8,992
Deferred acquisition costs 2,201 2,025
Other assets 6,527 7,581
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Total assets $ 98,195 $ 94,132
====== ======
Liabilities and Shareholders' Equity
Customers' deposits and credit balances $ 11,226 $ 11,131
Travelers Cheques outstanding 5,753 4,800
Accounts payable 4,378 3,737
Insurance and annuity reserves:
Fixed annuities 19,556 19,149
Life and disability policies 4,591 4,257
Investment certificate reserves 2,726 2,752
Short-term debt 14,338 12,489
Long-term debt 7,986 8,561
Liabilities related to segregated asset accounts 10,700 8,992
Other liabilities 10,080 9,530
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Total liabilities 91,334 85,398
Shareholders' equity:
Preferred shares, $1.66 2/3 par value,
authorized 20,000,000 shares
Convertible Exchangeable Preferred shares,
issued and outstanding 4,000,000 shares,
stated at liquidation value 200 200
$216.75 CAP Preferred shares, issued and
outstanding 122,448.98 shares in 1993,
stated at par value (liquidation value
of $300) - 1
Common shares, $.60 par value, authorized
1,200,000,000 shares; issued and outstanding
507,663,152 shares in 1994 and 489,827,852
shares in 1993 305 294
Capital surplus 3,948 3,784
Net unrealized securities gains (losses) (219) 7
Foreign currency translation adjustment (67) (73)
Deferred compensation (112) (128)
Retained earnings 2,806 4,649
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Total shareholders' equity 6,861 8,734
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Total liabilities and shareholders' equity $ 98,195 $ 94,132
====== ======
See notes to Consolidated Financial Statements.
3
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(millions)
(Unaudited)
Nine Months Ended
September 30,
-----------------
1994 1993
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Cash Flows from Operating Activities
Income from continuing operations $1,045 $ 1,314
Adjustments to reconcile income from continuing operations
to net cash provided by operating activities:
Provisions for losses and benefits 1,061 1,245
Depreciation, amortization, deferred taxes and other 188 434
Changes in operating assets and liabilities, net of effects of
acquisitions/dispositions:
Accounts receivable and accrued interest (529) (341)
Other assets 855 (820)
Accounts payable and other liabilities 552 245
Increase in Travelers Cheques outstanding 953 546
Increase in insurance reserves 352 301
Gain on sale of FDC - (779)
Net cash flows (used) provided by operating activities of
discontinued operations (3,656) 1,669
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Net cash provided by operating activities 821 3,814
----- -----
Cash Flows from Investing Activities
Proceeds from FDC public offerings, net of
cash sold in 1993 - 871
Sale of investments 3,678 2,186
Maturity and redemption of investments 5,802 5,754
Purchase of investments (10,480) (10,194)
Net increase in Cardmember receivables (887) (563)
Cardmember accounts receivable sold to Trust 900 600
Proceeds from repayment of loans 15,731 13,317
Issuance of loans (15,309) (13,490)
Purchase of land, buildings and equipment (193) (235)
Sale of land, buildings and equipment 87 55
Acquisitions/dispositions, net of cash acquired/sold (375) 132
Net cash flows (used) provided by investing activities of
discontinued operations (36) 49
----- -----
Net cash used by investing activities (1,082) (1,518)
----- -----
Cash Flows from Financing Activities
Net (decrease) increase in customers' deposits and credit
balances (95) 914
Sale of investment and annuity certificates 4,281 4,044
Redemption of investment and annuity certificates (3,993) (2,760)
Net increase (decrease) in debt with maturities of
3 months or less 5,948 (492)
Issuance of debt 3,220 9,614
Principal payments on debt (8,018) (7,845)
Issuance of American Express common shares 173 215
Repurchase of American Express common shares (137) -
Cash infusion to Lehman Brothers (904) -
Dividends paid (386) (393)
Net cash flows provided (used) by financing activities of
discontinued operations 3,737 (966)
----- -----
Net cash provided by financing activities 3,826 2,331
Net change in cash and cash equivalents of
discontinued operations 45 752
Effect of exchange rate changes on cash 127 (49)
----- -----
Net increase in cash and cash equivalents 3,647 3,826
Cash and cash equivalents at beginning of period 3,312 3,408
----- -----
Cash and cash equivalents at end of period $6,959 $ 7,234
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See notes to Consolidated Financial Statements.
4
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
1. The consolidated financial statements should be read in conjunction
with the financial statements presented in the Annual Report on Form
10-K of American Express Company (the Company or American Express) for
the year ended December 31, 1993. Certain prior year's amounts have
been reclassified to conform to the current year's presentation.
Significant accounting policies disclosed therein have not changed,
except as disclosed in Note 4.
The consolidated financial statements are unaudited; however, in the
opinion of management, they include all normal recurring adjustments
necessary for a fair presentation of the consolidated financial
position of the Company at September 30, 1994 and December 31, 1993,
the consolidated results of its operations for the three and nine
months ended September 30, 1994 and 1993 and cash flows for the nine
months ended September 30, 1994 and 1993. Results of operations
reported for interim periods are not necessarily indicative of results
for the entire year.
2. Interest and dividends, net, reflects gross interest and dividends, net
of $240 million and $207 million of interest expense for the quarters
ended September 30, 1994 and September 30, 1993, respectively, and
$668 million and $643 million for the nine months ended September 30,
1994 and September 30, 1993, respectively, related to the Company's
international banking operations and Travel Related Services' consumer
lending activities.
3. On May 31, 1994, the Company completed the spin-off of Lehman Brothers
Holdings Inc. (Lehman Brothers) through a dividend to its common
shareholders of all of the Lehman Brothers common stock held by
American Express on that date. See Consolidated Financial Condition,
which is incorporated herein by reference. As a result of this
transaction, Lehman Brothers' results are reported as a discontinued
operation in the Consolidated Financial Statements through May 31,
1994. For the period ended December 31, 1993, the assets and
liabilities of Lehman Brothers have been reported in the Consolidated
Balance Sheet as net assets of discontinued operations and are included
in Other Assets.
4. As of January 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". Under SFAS No. 115, debt
securities for which the Company has both the positive intent and the
ability to hold to maturity are carried at amortized cost. Other debt
securities and all marketable equity securities are classified as
either Available for Sale or Trading and are carried at fair value.
Unrealized holding gains and losses on securities classified as
Available for Sale are reported as a separate component of
Shareholders' Equity. Unrealized holding gains and losses on
securities classified as Trading are recognized in earnings.
5
The following is a summary of investments at September 30, 1994
(in millions):
Held to Maturity, at amortized cost $22,197
(fair value $21,997)
Available for Sale, at fair value 14,424
(cost $14,775)
Trading 349
Mortgage loans 2,525
------
$39,495
======
The change in unrealized securities losses to $219 million (after-tax)
at September 30, 1994 from $147 million (after-tax) at June 30, 1994,
is the result of changes in the fair values of investments classified
as Available for Sale. The majority of the decline was in mortgage-
backed securities, primarily due to rising interest rates.
5. Net income taxes paid during the nine months ended September 30, 1994
and 1993 were approximately $131 million and $519 million,
respectively. Interest paid during the nine months ended September 30,
1994 and 1993 was approximately $1.1 billion and $1.3 billion,
respectively.
6. In the first quarter of 1993, the Company reduced its 54 percent
ownership of First Data Corporation (FDC) to 22 percent through a
public offering of FDC shares. The Company recognized a gain from the
sale of $433 million ($779 million pretax), which is included in the
Consolidated Statement of Income for the nine months ended September
30, 1993. The Company's ownership of FDC was reduced to 21 percent in
the second quarter of 1994 due to the Company's contribution of FDC
shares to the American Express Foundation.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Consolidated Financial Condition
On April 29, 1994, the Company's Board of Directors declared a dividend to
its common shareholders of all of the Lehman Brothers Holdings Inc. (Lehman
Brothers) common stock held by American Express on the dividend
distribution date. The dividend was distributed on May 31, 1994 to
shareholders of record on May 20, 1994 and represented approximately
98.2 million shares of Lehman Brothers common stock. Shareholders of
American Express received one share of Lehman Brothers common stock for
each five common shares of American Express that they held on the record
date. Prior to the distribution, the Company added approximately
$1.1 billion of additional equity capital to Lehman Brothers representing:
The Company's purchase of approximately $903.8 million of Lehman
Brothers common stock, which was included in the dividend to
American Express common shareholders. The Company sold
approximately $11.1 million of Lehman Brothers common stock from
its holdings to certain Lehman Brothers executive officers; and
The Company's purchase of $200 million of Lehman Brothers
cumulative voting preferred stock which is being held for
investment purposes.
In addition, approximately $57 million of Lehman Brothers common stock was
acquired by Lehman Brothers employees through an existing employee
ownership plan, and approximately $89.2 million of the common stock was
acquired by Nippon Life Insurance Company (Nippon Life). The Company also
purchased 928 shares and Nippon Life purchased 72 shares of Lehman Brothers
redeemable voting preferred stock for a nominal dollar amount. The
redeemable voting preferred stock entitles its holders to receive an
aggregate annual dividend of 50 percent of Lehman Brothers net income over
$400 million for each of the next eight years, with a maximum of
$50 million in any one year. In addition, the Company and Nippon Life will
be entitled to receive 92.8 percent and 7.2 percent, respectively, of
certain contingent revenue and earnings related payouts from Travelers
Corporation (Travelers), which were assigned by Lehman Brothers to American
Express and Nippon Life in connection with the spin-off transaction. The
Travelers participations will yield a maximum of $50 million pretax
annually for three years, depending on the revenues of Smith Barney (of
which the first installment was received in the first quarter), plus 10
percent of after-tax profits of Smith Barney in excess of $250 million per
year over a five-year period.
As a result of this transaction, Lehman Brothers' results are reported as a
discontinued operation in the Consolidated Financial Statements through the
spin-off date. The assets and liabilities of Lehman Brothers have been
reported in the Consolidated Balance Sheet as net assets of discontinued
operations; accordingly $1.5 billion is included in Other Assets at December
31, 1993.
7
In the second quarter of 1994, the Company reduced its quarterly dividend
to $0.225 per common share, representing an adjustment to its previous
$0.25 per share quarterly dividend rate, to reflect the Lehman Brothers
spin-off.
During the second quarter of 1994, the Company purchased four million of
its common shares in the open market in order to offset any dilution
resulting from the 1994 conversions of American Express Company 9%
Convertible Notes Series A-G, convertible prior to April 1, 1994 at
$17.755. Of the $160 million in Notes originally issued, $58 million was
outstanding at December 31, 1993 and was converted into approximately
3.3 million shares during the first quarter.
In August 1994, the Company mandatorily redeemed 122,448.98 CAP Preferred
shares issued to subsidiaries of Berkshire Hathaway Inc. in 1991, through
the issuance to such subsidiaries of 13,997,141 common shares in accordance
with the terms of the preferred shares. The number of common shares issued
was adjusted to reflect the spin-off of Lehman Brothers.
During the third quarter of 1994, the Company's Board of Directors approved
a plan to purchase up to 20 million of the Company's common shares subject
to market conditions. The plan aims to reduce the number of outstanding
common shares and common share equivalents to slightly less than
500 million shares by year end, and to target the number of shares at that
level. This repurchase program will also permit the Company to offset any
issuance of new shares as part of employee compensation plans. The Company
will also fund Company contributions to other employee plans through share
purchases in the open market or with cash instead of through the issuance
of new shares. As of November 10, 1994, approximately 5.1 million shares
were repurchased under this plan. In November 1994, in connection with the
share buyback program, the Company sold 4 million put options with
maturities ranging from approximately one to twelve months.
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", as of January 1, 1994. See Note 4 which is incorporated
herein by reference. At September 30, 1994, approximately 37 percent, or
$14.4 billion, of the Company's securities were classified as Available for
Sale. This does not mean that the Company expects to sell these
securities, but that under SFAS No. 115 positive intent criteria, these
securities are available to meet possible liquidity needs should there be
significant changes in market interest rates, customer demand, funding
sources and terms, or foreign currency risk.
The following sections discuss changes during the nine months ended
September 30, 1994 in the financial condition of each of the Company's
business segments. Except where indicated otherwise, comparisons of
September 30, 1994 balance sheet amounts are made with comparable amounts
at December 31, 1993.
Travel Related Services (TRS)
TRS' total assets were $42.8 billion at September 30, 1994 and
$38.8 billion at December 31, 1993. The increase in total assets reflects
seasonal growth in the Travelers Cheque portfolio, higher lending
8
receivables and increased liquidity. Accounts receivable and accrued
interest totaled $15.4 billion at September 30, 1994 and $15.7 billion
at December 31, 1993. In the third quarter of 1994, TRS sold certain
Cardmember receivables to a subsidiary, which transferred such receivables
to a trust. The trust issued $900 million of trust certificates in a public
offering, in three series of $300 million due September 15, 1998, September 17,
2001, and September 15, 2004, respectively. The net impact of the transaction
on TRS' results is immaterial. Loans and discounts were $8.8 billion at
September 30, 1994 and $8.2 billion at December 31, 1993. TRS' prior year's
assets have been restated to reflect the transfer of certain international
consumer financial services businesses to American Express Bank.
IDS Financial Services (IDS)
IDS' total owned assets increased to $39.2 billion at September 30, 1994
from $37.4 billion at December 31, 1993. This growth primarily reflects an
increase in assets held in segregated asset accounts, reflecting strong net
sales, partially offset by market depreciation. Assets held in segregated
accounts totaled $10.7 billion and $9.0 billion at September 30, 1994 and
December 31, 1993, respectively. These assets, primarily investments
carried at market value, are held for the exclusive benefit of variable
annuity and variable life insurance contract holders. IDS earns investment
management and administration fees from the related funds.
Assets under management increased to $65.2 billion at September 30, 1994
from $62.3 billion at December 31, 1993, reflecting strong net sales,
partially offset by market depreciation.
During the first quarter of 1994, IDS Financial Corporation issued and sold
$70 million of 6.5% Medium-Term Notes due 2004 and $50 million of 6.625%
Medium-Term Notes due 2006. The Notes were sold in private placements to
institutional investors. The proceeds from these issuances were used for
general corporate purposes.
American Express Bank (the Bank)
The Bank's assets totaled $14.2 billion and $14.1 billion at September 30,
1994 and December 31, 1993, respectively. The Bank's prior year's assets
have been restated to reflect the transfer of certain international
consumer financial services businesses from TRS.
Total loans were $5.4 billion at September 30, 1994 and $5.6 billion at
year-end 1993. The reserve for credit losses was $118 million at September
30, 1994, compared with $126 million at December 31, 1993. The Bank's
credit loss reserve coverage was 2.2 percent of total loans at both
September 30, 1994 and December 31, 1993. Total loan write-offs, net of
recoveries, were $17 million during the first nine months of 1994, compared
with $40 million during the first nine months of 1993. Nonperforming loans
totaled $33 million at September 30, 1994 and $43 million at December 31,
1993, while other nonperforming assets totaled $57 million at September 30,
1994, compared with $89 million at year-end 1993. The decline in
nonperforming loans and other nonperforming assets primarily reflects
write-offs and the sale of a foreclosed property, respectively.
9
American Express Bank Ltd.'s (AEBL) risk-based capital ratios were
6.7 percent for Tier 1 Capital and 13.0 percent for Total Capital at
September 30, 1994, compared with 6.3 percent and 10.2 percent,
respectively, at year-end 1993. AEBL's leverage ratio was 4.2 percent at
September 30, 1994 and 4.4 percent at December 31, 1993. The increase in
the Total Capital ratio at September 30, 1994 was primarily due to the
issuance and sale outside the United States of $250 million of Floating
Rate Subordinated Notes due 2004. The proceeds of this issuance were
used for general corporate purposes.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1994 and 1993
The Company reported consolidated net income of $369 million in the third
quarter of 1994, compared with income from continuing operations of
$313 million last year. Including discontinued operations, third quarter
1993 results were $420 million. Consolidated net revenues totaled
$3.6 billion in the third quarter of 1994, compared with $3.4 billion a
year ago.
The Company's effective tax rate was 26 percent in the third quarter of
1994, compared with 25 percent a year ago. Both years' rates were reduced
by tax-advantaged investment income.
In October 1994, the Company announced a series of decisions that represent
a continuation of a reengineering program launched in 1992 to provide
better customer value at significantly lower costs. The decision will
result in significant staff reductions throughout the Company over the next
several years. Costs related to these initiatives are not expected to have
a material impact on current or future earnings. Future savings generated
by these actions will be reinvested in the business and help facilitate the
achievement of the Company's business objectives.
Nine Months Ended September 30, 1994 and 1993
The Company reported consolidated income from continuing operations of
$1.0 billion for the first nine months of 1994, compared with $1.3 billion
last year, including the 1993 gain of $433 million ($779 million pretax) on
the sale of First Data Corporation (FDC) stock. Including Lehman Brothers,
which is reflected as a discontinued operation through May 31, 1994, the
spin-off date, net income totaled $1.1 billion for the first nine months of
1994 and 1993. Consolidated net revenues for the first nine months of 1994
were $10.5 billion, compared with $9.8 billion last year.
The Company's effective tax rate was 26 percent in the first nine months of
1994, compared with 32 percent a year ago. This year's rate was reduced by
tax-advantaged investment income, while the prior year's rate reflects tax-
advantaged investment income, partially offset by the tax effects of the
FDC gain.
10
Travel Related Services
Three Months Ended September 30, 1994 and 1993
TRS reported net income of $264 million in the third quarter of 1994,
compared with $234 million last year. Pretax income totaled $364 million,
compared with $311 million a year ago. TRS' prior year's results have been
restated to reflect the transfer of certain international consumer
financial services businesses to the Bank.
Worldwide Card billed business increased 15 percent to $35.5 billion in the
third quarter of 1994 from $30.8 billion last year, reflecting higher
spending per Cardmember and an increase in the number of Cards outstanding.
U.S. Card billed business was $25.2 billion, compared with $22.5 billion a
year ago. Non-U.S. Card billed business totaled $10.3 billion, compared
with $8.3 billion last year.
Worldwide Cards in force totaled 35.6 million, compared with 34.2 million a
year ago. U.S. Cards in force totaled 24.7 million, compared with
23.6 million last year. Non-U.S. Cards in force were 10.9 million at
September 30, 1994, compared with 10.6 million a year ago. Basic Cards in
force totaled 26.1 million, compared with 24.9 million last year. The
increase in worldwide Cards in force reflects the addition of approximately
1.1 million Cards issued to U.S. Government employees beginning late in
1993. The number of service establishments increased 8.8 percent to
3.8 million from 3.5 million last year.
Travelers Cheque sales totaled $8.4 billion in the third quarter of 1994,
compared with $8.0 billion last year. Average Travelers Cheques
outstanding totaled $5.9 billion, compared with $5.5 billion a year ago.
Net revenues (total revenues net of lending interest expense) increased
9.0 percent to $2.6 billion, reflecting the increase in worldwide Card
billed business and growth in Business Travel sales. Discount revenue
increased to $996 million from $897 million last year. Net Card fees
totaled $435 million, compared with $433 million a year ago, reflecting a
change in the mix of Card products. Lending finance charge revenue
increased to $317 million from $295 million a year ago. Lending net
finance charge revenue increased 1.3 percent to $237 million. Interest and
dividend revenue increased to $206 million from $196 million last year.
Other revenues increased 15.9 percent to $727 million primarily due to
increased travel sales.
Total expenses, excluding lending interest expense, increased 7.8 percent
to $2.2 billion for the third quarter of 1994, compared with $2.1 billion
in the third quarter of 1993, reflecting business travel acquisitions and
growth, as well as investments in certain business initiatives. The
provision for losses and claims declined 2.3 percent to $365 million from
$374 million a year ago. The worldwide charge Card provision declined to
$153 million in the third quarter of 1994 from $156 million last year,
reflecting continued improvement in Card credit experience, partially
offset by an increase in billed business. The worldwide lending provision
was $81 million, compared to $98 million a year ago, reflecting a continued
decline in write-offs. Interest expense, excluding lending interest
expense which is included in net revenues above, totaled $208 million in
the third quarter of 1994, down from $210 million last year. Worldwide
charge Card interest expense totaled $164 million, compared with
$173 million last year. Human resources expense increased to $651 million
in the third quarter of 1994 from $556 million a year ago, primarily
reflecting growth in the Business Travel and Corporate Card businesses.
Marketing and promotion expense was $274 million in the third quarter of
1994, compared with $275 million last year.
11
TRS' asset securitization program resulted in net discount expense of
$93 million in the third quarter of 1994 and $55 million in 1993 and
servicing fee revenue of $26 million in 1994 and $12 million in 1993,
reduced the provision for credit losses by $30 million in 1994 and
$21 million in 1993, and reduced interest expense, with no material impact
on net income in the third quarter of 1994 or 1993.
Nine Months Ended September 30, 1994 and 1993
TRS' net income increased 13 percent to $762 million in the first nine
months of 1994, compared with $676 million last year. Pretax income
totaled $1.1 billion, compared with $890 million a year ago.
Worldwide Card billed business increased 13 percent to $101.9 billion in
the first nine months of 1994 from $90.0 billion last year, reflecting
higher spending per Cardmember, growth in Corporate Card billed business
and an increase in the number of Cards outstanding. U.S. Card billed
business was $73.5 billion, compared with $65.3 billion a year ago.
Non-U.S. Card billed business totaled $28.4 billion, compared with
$24.7 billion last year.
Travelers Cheque sales increased to $19.8 billion in the first nine months
of 1994 from $18.8 billion last year. Average Travelers Cheques
outstanding totaled $5.3 billion, compared with $5.1 billion a year ago.
Net revenues increased 7.3 percent to $7.5 billion, reflecting the increase
in worldwide Card billed business and growth in Business Travel sales.
This increase was partially offset by discount rate reductions from SE
repricing implemented throughout 1993. Discount revenue increased
9.3 percent to $2.9 billion from $2.6 billion last year. Net Card fees
totaled $1.3 billion, unchanged from a year ago. Lending finance charge
revenue increased to $912 million from $890 million last year. Lending net
finance charge revenue increased slightly to $700 million from $696 million
last year. Interest and dividend revenue increased to $567 million from
$547 million last year. Other revenues increased 14 percent to
$2.0 billion primarily due to increased travel sales.
Total expenses, excluding lending interest expense, increased 5.6 percent
to $6.4 billion for the first nine months of 1994, compared with
$6.1 billion last year. The provision for losses and claims declined
5.6 percent to $1.1 billion from $1.2 billion a year ago. The worldwide
charge Card provision declined to $478 million in the first nine months of
1994 from $528 million last year, reflecting continued improvement in Card
credit experience, partially offset by an increase in billed business. The
worldwide lending provision was $258 million, compared with $311 million a
year ago, reflecting a continued decline in write-offs. Interest expense,
excluding lending interest expense which is included in net revenues above,
totaled $600 million for the first nine months of 1994, down from
$609 million last year, reflecting lower borrowing rates, partially offset
by increased funding requirements. Worldwide charge Card interest expense
totaled $490 million, compared with $520 million last year. Excluding
interest and the provision for losses, total expenses increased 8.2
percent, in part, reflecting business travel acquisitions and growth and
investments in certain business initiatives. Human resources expense
increased 15 percent to $1.9 billion in the first nine months of 1994 from
$1.6 billion a year ago, primarily reflecting growth in the Business Travel
and Corporate Card businesses. Marketing and promotion expense decreased
slightly to $776 million in the first nine months of 1994 from $785 million
last year. Marketing and promotion expenses for the full year are expected
to be approximately the same as a year ago.
12
In the first nine months of 1994 and 1993, TRS' asset securitization
program resulted in net discount expense of $228 million and $154 million,
respectively, and servicing fee revenue of $57 million and $35 million,
respectively, reduced the provision for credit losses by $86 million and
$65 million, respectively, and reduced interest expense, with no material
impact on net income in the first nine months of 1994 or 1993.
IDS Financial Services
Three Months Ended September 30, 1994 and 1993
IDS' net income increased 19 percent to $114 million in the third quarter of
1994 from $96 million last year. Revenues increased to $822 million in the
third quarter of 1994 from $816 million a year ago. Revenue and earnings
growth benefited primarily from an increase in fees related to higher levels
of assets under management, as well as an increase in life insurance in force.
These benefits were partially offset by lower investment margins. Pretax
income totaled $168 million, compared with $140 million last year.
IDS' financial planning field force totaled 7,847 at September 30, 1994,
compared with 7,655 and 7,554 at December 31, 1993 and September 30, 1993,
respectively. Product sales generated from financial plans were approximately
64 percent of total sales, compared with approximately 58 percent a year ago.
Fees from financial plans were $9.6 million in the third quarter of 1994 and
1993. Mutual fund sales totaled $2.0 billion in the third quarter of 1994,
down 3.6 percent from $2.1 billion last year. Sales of equity mutual funds
and money market mutual funds increased over a year ago, while sales of income
mutual funds decreased. Annuity sales were $1.1 billion in the third quarter
of 1994, up slightly from a year ago. Sales of investment certificates
increased significantly to $324 million in the third quarter of 1994 from
$155 million last year. This increase reflects sales of longer-term
certificates. Life and other insurance sales totaled $78 million in the third
quarter of 1994, down from $81 million a year ago. Life insurance in force
increased 14 percent to $50.9 billion at September 30, 1994 from $46.1 billion
at December 31, 1993 and $44.8 billion at September 30, 1993.
Investment income decreased to $498 million in the third quarter of 1994
from $527 million last year, reflecting lower yields, partially offset by
higher invested assets. Commissions and fees totaled $200 million in the
third quarter of 1994, up from $188 million a year ago, reflecting
management fees earned on a higher asset base.
Total expenses were $654 million in the third quarter of 1994, compared
with $676 million last year. The provision for annuity benefits, the
largest component of expenses, decreased to $256 million from $270 million
a year ago, reflecting lower accrual rates, partially offset by higher
annuities in force. The provision for insurance benefits increased to
$95 million from $80 million a year ago. The provision for investment
certificates totaled $30 million, up from $29 million last year. Human
resources expense increased to $213 million from $200 million a year ago,
reflecting an increase in the number of employees and financial planners.
Other operating expenses decreased to $60 million in the third quarter of
1994 from $95 million last year, reflecting primarily a lower provision for
insurance industry guarantee association assessments, as well as lower
amortization of deferred acquisition costs.
13
Nine Months Ended September 30, 1994 and 1993
IDS' net income increased 21 percent to $314 million in the first nine months
of 1994 from $260 million last year. Revenues increased 4.3 percent to
$2.5 billion in the first nine months of 1994 from $2.3 billion a year ago.
Revenue and earnings growth benefited primarily from an increase in fees
related to higher levels of assets under management, increased life insurance
in force and wider investment margins compared to year-ago levels. Pretax
income totaled $465 million, compared with $379 million last year.
Total product sales increased during the first nine months of 1994 compared
to last year. Product sales generated from financial plans were
approximately 62 percent of total sales, compared with approximately
57 percent a year ago. Fees from financial plans were $29.4 million in the
first nine months of 1994, compared with $27.4 million last year. Mutual
fund sales totaled $6.9 billion in the first nine months of 1994, up
10 percent from $6.2 billion last year. This increase reflects higher
sales of equity funds. Annuity sales increased 6.7 percent in the first
nine months of 1994 to $3.3 billion from $3.1 billion a year ago,
reflecting increased sales of annuities with variable investment options.
Sales of investment certificates totaled $695 million in the first nine
months of 1994, up from $453 million last year. Life and other insurance
sales totaled $231 million in the first nine months of 1994, up 4.9 percent
from $220 million a year ago, reflecting increased sales of universal life
insurance.
Investment income totaled $1.5 billion in the first nine months of 1994 and
1993, reflecting lower yields offset by higher invested assets.
Commissions and fees totaled $604 million in the first nine months of 1994,
up 14 percent from $530 million a year ago, reflecting management fees
earned on a higher asset base.
Total expenses were $2.0 billion in the first nine months of 1994 and 1993.
The provision for annuity benefits, the largest component of expenses,
decreased to $762 million from $801 million a year ago, reflecting lower
accrual rates, partially offset by higher annuities in force. The
provision for insurance benefits increased to $268 million from
$237 million a year ago, reflecting growth in insurance in force. The
provision for investment certificates totaled $77 million, down from
$97 million last year, reflecting lower investment certificates in force
and lower accrual rates. Human resources expense increased to $620 million
from $560 million a year ago, reflecting an increase in the number of
employees and financial planners, and increased commissionable sales.
Other operating expenses decreased to $258 million in the first nine months
of 1994 from $271 million last year, reflecting a lower provision for
insurance industry guarantee association assessments, partially offset by
increased amortization of deferred acquisition costs and surrenders as a
result of an annuity exchange plan announced during the first quarter of
1994.
American Express Bank
Three Months Ended September 30, 1994 and 1993
The Bank reported net income of $20 million in the third quarter of 1994,
compared with $29 million a year ago. Last year's results included a
$5 million benefit from the change in the U.S. federal income tax rate.
The Bank's results for the third quarter of 1994 reflect lower revenues and
higher operating expenses, primarily reflecting spending related to systems
technology. This decline in results was partially offset by a reduction in
the provision for credit losses. Pretax income totaled $31 million,
14
compared with $37 million last year. The Bank's prior year's results have
been restated to reflect the transfer of certain international consumer
financial services businesses from TRS to the Bank.
Net interest income totaled $89 million in the third quarter of 1994,
compared with $93 million a year ago. Noninterest income, consisting
primarily of commissions, fees and other revenues, decreased to $74 million
in the third quarter of 1994 from $78 million last year. Noninterest
expenses, excluding the provision for credit losses, totaled $132 million
in the third quarter of 1994, compared with $125 million a year ago. No
provision for credit losses was recorded in the third quarter of 1994,
compared with $9.4 million a year ago.
Nine Months Ended September 30, 1994 and 1993
The Bank's net income totaled $64 million in the first nine months of 1994,
compared with $68 million a year ago. The Bank's results for the first
nine months of 1994 reflect a decline in net interest income, primarily due
to higher short-term funding costs and lower investment income, as well as
higher operating expenses. Partially offsetting this decline was a lower
provision for credit losses. Pretax income totaled $94 million, compared
with $99 million last year.
Net interest income totaled $264 million in the first nine months of 1994,
compared with $274 million a year ago, reflecting higher short-term funding
costs and lower investment income. Noninterest income increased to
$229 million in the first nine months of 1994 from $224 million last year,
primarily reflecting growth in fee income. Noninterest expenses, excluding
the provision for credit losses, totaled $390 million in the first nine
months of 1994, compared with $364 million a year ago. Increased expense
levels primarily reflected spending related to systems technology and
higher human resources expense. The provision for credit losses was
$8.3 million in the first nine months of 1994, compared with $35 million a
year ago, reflecting a lower level of nonperforming loans.
Corporate and Other
Three Months Ended September 30, 1994 and 1993
Corporate and Other reported 1994 third quarter net expenses of
$29 million, compared with $46 million last year. Corporate expenses for
1993 included a $5 million expense from the change in the U.S. federal
income tax rate.
Nine Months Ended September 30, 1994 and 1993
Corporate and Other reported net expenses of $95 million in the first nine
months of 1994, compared with $123 million in 1993, before a $433 million
($779 million pretax) gain from the sale of FDC stock last year.
Results for the first nine months of 1994 include income from the Company's
share of the Travelers revenue participation, in accordance with an
agreement related to the 1993 sale of SLB, as well as a capital gain on the
sale of Travelers preferred stock and warrants which were acquired as part
of the 1993 sale. These gains were offset by the Company's costs
associated with the Lehman Brothers spin-off and certain business building
initiatives.
15
Results for the first nine months of 1993 included the first quarter gain
on the sale of FDC stock mentioned above, which reduced the Company's
ownership in FDC from 54 percent to approximately 22 percent.
16
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 September 30, 1994, the related
consolidated statements of income for the three-month and nine-month periods
ended September 30, 1994 and 1993, and the consolidated statement of cash
flows for the nine-month periods ended September 30, 1994 and 1993. 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 generally accepted auditing standards, 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 generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of the Company as of December 31,
1993, 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 3, 1994, 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, 1993, is
fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
ERNST & YOUNG LLP
/s/Ernst & Young LLP
New York, New York
November 14, 1994
17
PART II. OTHER INFORMATION
AMERICAN EXPRESS COMPANY
Item 1. Legal Proceedings
On June 2, 1994, two former employees of American Express
Bank International ("AEBI"), a wholly-owned subsidiary of American Express
Bank Ltd. ("AEB"), were convicted in a federal district court in Texas of
money laundering, bank fraud and misapplication of funds in connection with
the account of a Mexican client. AEBI was not a party in this case. However,
the United States Attorney's Office and a federal grand jury in the Southern
District of Texas are continuing the investigation, and a subpoena for the
production of documents has been issued to AEBI. AEBI is cooperating in the
investigation. If AEBI were charged with a violation of law, substantial
fines, civil penalties, forfeitures and possibly criminal sanctions could
result. A criminal charge and conviction could also have adverse collateral
consequences for AEB and AEBI, as well as certain of the registrant's other
businesses.
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 July 25, 1994, Item 5, reporting the registrant's
earnings for the quarter ended June 30, 1994.
Form 8-K, dated October 5, 1994, Item 5, reporting a continuation
of the registrant's reengineering program.
Form 8-K, dated October 24, 1994, Item 5, reporting the
registrant's earnings for the quarter ended September 30, 1994.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed by the
undersigned, thereunto duly authorized.
AMERICAN EXPRESS COMPANY
(Registrant)
Date: November 14, 1994 By /s/ Michael P. Monaco
--------------------------
Michael P. Monaco
Executive Vice President,
Chief Financial Officer and
Treasurer
Date: November 14, 1994 /s/ Daniel T. Henry
-------------------------
Daniel T. Henry
Senior Vice President and
Comptroller
(Chief Accounting Officer)
EXHIBIT INDEX
The following exhibits are filed as part of this Quarterly Report:
Exhibit Description
10.1 Amendment of American Express Senior Executive Severance Plan.
10.2 Amendment of American Express Company Executives' Incentive
Compensation Plan.
10.3 Amendment of American Express Company Key Executive Life
Insurance Plan.
10.4 Amendment of American Express Salary/Bonus Deferral Plan.
10.5 Amendment of American Express Supplementary Pension Plan.
10.6 Amendment of Long-Term Incentive Awards under the American
Express Company 1979 and 1989 Long-Term Incentive Plan.
12.1 Computation in Support of Ratio of Earnings to Fixed Charges.
12.2 Computation in Support of Ratio of Earnings to Fixed Charges and
Preferred Share Dividends.
15 Letter re Unaudited Interim Financial Information.
27 Financial Data Schedule.
E-1