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 June 30, 1997
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 State 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 July 31, 1997
- ---------------------------------- ----------------------------
Common Shares (par value $.60 per share) 468,800,970 shares
AMERICAN EXPRESS COMPANY
FORM 10-Q
INDEX
Part I. Financial Information:
Consolidated Statement of Income - Three and
six months ended June 30, 1997 and 1996 1-2
Consolidated Balance Sheet - June 30, 1997
and December 31, 1996 3
Consolidated Statement of Cash Flows - Six
months ended June 30, 1997 and 1996 4
Notes to Consolidated Financial Statements 5
Management's Discussion and Analysis of
Financial Condition and Results of Operations 6-16
Review Report of Independent Accountants 17
Part II. Other Information 18
PART I--FINANCIAL INFORMATION
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENT OF INCOME
(dollars in millions, except per share amounts)
(Unaudited)
Three Months Ended
June 30,
-------------------
1997 1996
-------- --------
Net Revenues:
Discount revenue $ 1,407 $ 1,247
Interest and dividends, net 795 844
Net card fees 403 414
Travel commissions and fees 381 362
Other commissions and fees 355 308
Cardmember lending net finance charge
revenue 304 249
Management and distribution fees 360 296
Life insurance premiums 102 99
Other 315 257
-------- --------
Total 4,422 4,076
-------- --------
Expenses:
Human resources 1,155 1,052
Provisions for losses and benefits:
Annuities and investment certificates 362 346
Life insurance and other 138 131
Charge card 239 248
Cardmember lending 187 126
Interest:
Charge card 174 171
Other 64 138
Occupancy and equipment 286 277
Marketing and promotion 258 262
Professional services 252 195
Communications 112 108
Other 493 386
-------- --------
Total 3,720 3,440
-------- --------
Pretax income 702 636
Income tax provision 182 184
-------- --------
Net income $ 520 $ 452
======== ========
Net income per common share $ 1.08 $ 0.93
======== ========
Average common and common equivalent
shares outstanding 479.5 487.0
======== ========
Cash dividends declared per
common share $ 0.225 $ 0.225
======== ========
See notes to Consolidated Financial Statements.
1
PART I--FINANCIAL INFORMATION
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENT OF INCOME
(dollars in millions, except per share amounts)
(Unaudited)
Six Months Ended
June 30,
------------------
1997 1996
-------- --------
Net Revenues:
Discount revenue $ 2,714 $ 2,388
Interest and dividends, net 1,571 1,682
Net card fees 808 835
Travel commissions and fees 717 687
Other commissions and fees 699 615
Cardmember lending net finance charge
revenue 592 524
Management and distribution fees 691 576
Life insurance premiums 208 196
Other 585 483
-------- --------
Total 8,585 7,986
-------- --------
Expenses:
Human resources 2,282 2,074
Provisions for losses and benefits:
Annuities and investment certificates 709 696
Life insurance and other 269 269
Charge card 429 458
Cardmember lending 398 314
Interest:
Charge card 343 338
Other 90 262
Occupancy and equipment 558 549
Marketing and promotion 472 469
Professional services 466 397
Communications 224 210
Other 1,003 750
-------- --------
Total 7,243 6,786
-------- --------
Pretax income 1,342 1,200
Income tax provision 368 351
-------- --------
Net income $ 974 $ 849
======== ========
Net income per common share $ 2.03 $ 1.73
======== ========
Average common and common equivalent
shares outstanding 480.9 489.0
======== ========
Cash dividends declared per
common share $ 0.45 $ 0.45
======== ========
See notes to Consolidated Financial Statements.
2
AMERICAN EXPRESS COMPANY
CONSOLIDATED BALANCE SHEET
(millions)
(Unaudited)
June 30, December 31,
Assets 1997 1996
- ------ --------- -----------
Cash and cash equivalents $ 3,472 $ 2,677
Accounts receivable and accrued interest:
Cardmember receivables, less reserves:
1997, $663; 1996, $658 17,436 17,938
Other receivables, less reserves:
1997, $73; 1996, $64 2,529 2,553
Investments 39,185 38,339
Loans:
Cardmember lending, less reserves:
1997, $554; 1996, $482 12,693 12,194
International banking, less reserves:
1997, $130; 1996, $117 6,286 5,760
Other, net 879 564
Separate account assets 21,061 18,535
Deferred acquisition costs 2,777 2,660
Land, buildings and equipment--at cost, less
accumulated depreciation: 1997, $1,891;
1996, $1,852 1,595 1,675
Other assets 6,014 5,617
-------- --------
Total assets $113,927 $108,512
======== ========
Liabilities and Shareholders' Equity
- ------------------------------------
Customers' deposits $ 10,390 $ 9,555
Travelers Cheques outstanding 6,458 5,838
Accounts payable 4,893 4,601
Insurance and annuity reserves:
Fixed annuities 22,183 21,838
Life and disability policies 3,945 3,836
Investment certificate reserves 3,361 3,265
Short-term debt 17,971 18,402
Long-term debt 7,571 6,552
Separate account liabilities 21,061 18,535
Other liabilities 7,270 7,562
-------- -------
Total liabilities 105,103 99,984
Shareholders' equity:
Common shares, $.60 par value, authorized
1.2 billion shares; issued and outstanding
468.9 million shares in 1997 and 472.9
million shares in 1996 281 284
Capital surplus 4,271 4,191
Net unrealized securities gains 409 386
Foreign currency translation adjustment (107) (89)
Retained earnings 3,970 3,756
------- -------
Total shareholders' equity 8,824 8,528
------- -------
Total liabilities and shareholders' equity $113,927 $108,512
======== ========
See notes to Consolidated Financial Statements.
3
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(millions)
(Unaudited)
Six
Months Ended
June 30,
---------------------
1997 1996
---- ----
Cash Flows from Operating Activities
Net income $ 974 $ 849
Adjustments to reconcile net income to
net cash provided by operating activities:
Provisions for losses and benefits 1,145 1,129
Depreciation, amortization, deferred taxes and
other 141 21
Changes in operating assets and liabilities,
net of effects of acquisitions and dispositions:
Accounts receivable and accrued interest 73 645
Other assets (589) 1,017
Accounts payable and other liabilities 22 (30)
Increase in Travelers Cheques outstanding 620 906
Increase in insurance reserves 66 113
------ ------
Net cash provided by operating activities 2,452 4,650
------ ------
Cash Flows from Investing Activities
Sale of investments 903 2,593
Maturity and redemption of investments 2,443 3,364
Purchase of investments (3,921) (4,975)
Net increase in Cardmember receivables (720) (787)
Proceeds from repayment of loans 12,943 11,375
Cardmember loans sold to Trust - 1,000
Issuance of loans (14,455) (12,405)
Purchase of land, buildings and equipment (181) (166)
Sale of land, buildings and equipment 99 112
------ ------
Net cash (used) provided by investing activities (2,889) 111
------ ------
Cash Flows from Financing Activities
Net increase (decrease) in customers' deposits 1,018 (1,222)
Sale of annuities and investment certificates 2,810 2,766
Redemption of annuities and investment (2,512) (3,334)
certificates
Net increase in debt with maturities of
3 months or less 1,919 3,319
Issuance of debt 4,510 7,068
Principal payments on debt (5,812) (10,810)
Issuance of American Express common shares 126 139
Repurchase of American Express common shares (577) (705)
Dividends paid (212) (222)
------- -------
Net cash provided (used) by financing activities 1,270 (3,001)
Effect of exchange rate changes on cash (38) 10
------- -------
Net increase in cash and cash equivalents 795 1,770
Cash and cash equivalents at beginning of period 2,677 3,200
------ ------
Cash and cash equivalents at end of period $3,472 $4,970
====== ======
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 in the Annual Report on Form 10-K of
American Express Company (the Company or American Express) for the year
ended December 31, 1996. Certain prior year's amounts have been
reclassified to conform to the current year's presentation.
Significant accounting policies disclosed therein have not changed.
Index options purchased and written by American Express Financial
Advisors are carried at market value and included in Other Assets.
Gains or losses on these options are recognized currently and
included in Other Expenses.
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 June 30, 1997 and December 31, 1996, the
consolidated results of its operations for the quarter and six months
ended June 30, 1997 and 1996 and cash flows for the six months ended
June 30, 1997 and 1996. Results of operations reported for interim
periods are not necessarily indicative of results for the entire year.
2. Cardmember Lending Net Finance Charge Revenue is presented net of
interest expense of $154 million and $122 million for the second
quarter of 1997 and 1996, respectively, and $297 million and
$251 million for the six months ended June 30, 1997 and 1996,
respectively. Interest and Dividends is presented net of interest
expense of $148 million and $134 million for the second quarter of 1997
and 1996, respectively, and $284 million and $267 million for the six
months ended June 30, 1997 and 1996, respectively, related to the
Company's international banking operations.
3. The following is a summary of investments:
June 30, December 31,
(In millions) 1997 1996
--------- -------------
Held to Maturity, at amortized cost
(fair value: 1997, $12,784; 1996,
$13,439) $12,468 $13,063
Available for Sale, at fair value (cost:
1997, $21,635; 1996, $20,366)
22,280 20,978
Investment mortgage loans (fair value:
1997, $3,872; 1996, $3,827) 3,777 3,712
Trading 660 586
---------- ------------
$39,185 $38,339
========== ============
4. Net income taxes paid during the six months ended June 30, 1997 and
1996 were approximately $471 million and $234 million, respectively.
Interest paid during the six months ended June 30, 1997 and 1996 was
approximately $1.2 billion in each period.
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Consolidated Results Of Operations For The Three and Six Months Ended
June 30, 1997 and 1996
The Company's consolidated net income rose 15 percent in the three and six
month periods ended June 30, 1997; net income per share increased 16
percent and 17 percent for the three and six month periods ended June 30,
1997, respectively. These results continue to be in line with the
Company's long-term targets of 12-15 percent annual earnings per share
growth, with at least 8 percent coming from higher revenues and a return
on equity of 18-20 percent on average and over time. Consolidated
revenues rose 8.5 percent and 7.5 percent for the three and six months
ended June 30, 1997, respectively, as a result of growth in worldwide
billed business and Cardmember loans outstanding as well as higher
management and distribution fees. Partially offsetting these increases
were declines in card fees and investment income. Consolidated expenses
were higher, primarily due to human resource and operating expenses to
support business expansion and loyalty programs.
Consolidated Liquidity and Capital Resources
In October 1996, the Company's Board of Directors authorized the Company
to repurchase up to 40 million common shares over the next two to three
years, subject to market conditions. This authorization is in addition to
two previous repurchase plans, beginning in 1994, under which the Company
repurchased a total of 60 million common shares. These plans are
primarily designed to allow the Company to systematically purchase shares
to offset the issuance of new shares as part of employee compensation
plans. Since inception of the initial plan in 1994, the Company has
repurchased 69.5 million common shares and canceled 64.2 million common
shares under the repurchase programs at an average price of $42.58 per
share. In the first half of 1997, the Company repurchased 8.9 million
common shares and canceled 15.4 million common shares under the repurchase
programs at an average price of $67.33 per share.
In June 1997, the Parent Company issued $500 million of 6.75% Notes due
June 23, 2004. The proceeds from these issuances were used for general
corporate purposes.
Accounting Development
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
which is effective and will be adopted by the Company at December 31,
1997. No material effect on the earnings per share of the Company is
expected.
6
Travel Related Services
Results of Operations For The Three and Six Months Ended June 30, 1997 and 1996
Statement of Income
-------------------
(Unaudited)
(Amounts in millions, except percentages)
Three Months Six Months
Ended Ended
June 30, June 30,
--------------- Percentage ---------------- Percentage
1997 1996 Inc/(Dec) 1997 1996 Inc/(Dec)
-------------------------- --------------------------
Net Revenues:
Discount Revenue $1,407 $1,247 12.9 % $2,714 $2,388 13.6 %
Net Card Fees 403 414 (2.6) 808 835 (3.3)
Travel Commissions and Fees 381 362 4.9 717 687 4.4
Interest and Dividends 143 211 (32.2) 275 401 (31.5)
Other Revenues 509 451 13.0 1,011 876 15.5
------------- -------------
2,843 2,685 5.9 5,525 5,187 6.5
------------- -------------
Lending:
Finance Charge Revenue 458 371 23.4 889 775 14.6
Interest Expense 154 122 26.0 297 251 18.0
------------- -------------
Net Finance Charge
Revenue 304 249 22.1 592 524 12.9
------------- -------------
Total Net Revenues 3,147 2,934 7.3 6,117 5,711 7.1
------------- -------------
Expenses:
Marketing and Promotion 244 252 (3.2) 446 452 (1.3)
Provision for Losses and Claims:
Charge Card 239 248 (3.6) 429 458 (6.2)
Lending 187 126 48.3 398 314 26.7
Other 21 26 (18.0) 45 50 (11.0)
------------- -------------
Total 447 400 11.8 872 822 6.1
------------- -------------
Interest Expense:
Charge Card 174 171 2.0 343 338 1.7
Other 52 114 (54.4) 87 210 (58.5)
------------- -------------
Total 226 285 (20.6) 430 548 (21.4)
Net Discount Expense 165 125 31.8 317 251 26.1
Human Resources 783 721 8.6 1,533 1,426 7.5
Other Operating Expenses 789 692 14.0 1,577 1,337 17.9
------------- -------------
Total Expenses 2,654 2,475 7.2 5,175 4,836 7.0
------------- -------------
Pretax Income 493 459 7.4 942 875 7.7
Income Tax Provision 138 137 1.0 272 266 2.3
------------- -------------
Net Income $ 355 $ 322 10.1 $ 670 $ 609 10.1
============= =============
The impact on the Statement of Income related to TRS' securitized receivables
and loans was as follows:
Decrease Net Card Fees $ (1) - $ (1) -
Increase Other Revenues 43 $ 42 95 $ 73
Decrease Lending Finance
Charge Revenue (47) (32) (95) (32)
Decrease Lending Interest Expense 17 8 34 8
Decrease Provision for Losses
and Claims:
Charge Card 74 54 136 108
Lending 16 12 27 12
Decrease Interest Expense:
Charge Card 63 41 121 82
Increase Net Discount Expense (165) (125) (317) (251)
--------------- --------------
Pretax Income $ 0 $ 0 $ 0 $ 0
=============== ==============
7
Travel Related Services
Selected Statistical Information
--------------------------------
(Unaudited)
(Amounts in billions, except percentages and where indicated)
Three Months Ended Six Months Ended
June 30, June 30,
---------------- Percentage ---------------- Percentage
1997 1996 Inc/(Dec) 1997 1996 Inc/(Dec)
-------------------------- --------------------------
Total Cards in Force (millions):
United States 29.7 27.5 7.8 % 29.7 27.5 7.8 %
Outside the United States 12.6 11.8 6.8 12.6 11.8 6.8
-------------- ---------------
Total 42.3 39.3 7.5 42.3 39.3 7.5
============== ===============
Basic Cards in Force (millions):
United States 23.2 20.9 10.6 23.2 20.9 10.6
Outside the United States 9.7 9.3 5.1 9.7 9.3 5.1
-------------- ---------------
Total 32.9 30.2 8.9 32.9 30.2 8.9
============== ===============
Card Billed Business:
United States $37.2 $32.6 14.1 $71.8 $62.2 15.2
Outside the United States 14.7 13.2 11.7 28.0 25.1 12.0
-------------- ---------------
Total $51.9 $45.8 13.4 $99.8 $87.3 14.3
============== ===============
Average Discount Rate* 2.74% 2.74% - 2.74% 2.76% -
Average Basic Cardmember
Spending (dollars)* $1,602 $1,545 3.7 $3,103 $2,967 4.6
Average Fee per Card (dollars)* $39 $43 (9.3) $39 $44 (11.4)
Travel Sales $4.5 $4.0 10.5 $8.4 $7.6 9.8
Travel Commissions and
Fees/Sales** 8.5% 9.1% - 8.5% 9.0% -
Travelers Cheque Sales $6.6 $6.7 (0.8) $11.7 $12.0 (2.0)
Average Travelers Cheques
Outstanding $6.0 $6.1 (2.2) $5.9 $5.9 (0.8)
Owned and Managed Charge Card
Receivables:
Total Receivables $22.2 $20.6 7.9 $22.2 $20.6 7.9
90 Days Past Due as a %
of Total 3.3% 3.7% - 3.3% 3.7% -
Loss Reserves (millions) $976 $1,054 (7.4) $976 $1,054 (7.4)
% of Receivables 4.4% 5.1% - 4.4% 5.1% -
% of 90 Days Past Due 134% 138% - 134% 138% -
Net Loss Ratio 0.50% 0.51% - 0.50% 0.51% -
Owned and Managed U.S. Cardmember
Lending:
Total Loans $13.2 $10.5 25.3 $13.2 $10.5 25.3
Past Due Loans as a % of Total:
30-89 Days 2.5% 2.3% - 2.5% 2.3% -
90+ Days 1.1% 0.9% - 1.1% 0.9% -
Loss Reserves (millions):
Beginning Balance $533 $483 10.2 $488 $443 10.0
Provision 198 119 66.1 399 289 38.1
Net Charge-Offs/Other (197) (134) 46.6 (353) (264) 33.6
-------------- ---------------
Ending Balance $534 $468 14.1 $534 $468 14.1
============== ===============
% of Loans 4.1% 4.5% - 4.1% 4.5% -
% of Past Due 113% 135% - 113% 135% -
Average Loans $13.2 $10.5 25.7 $13.0 $10.3 25.8
Net Write-Off Rate 6.0% 5.2% - 5.5% 5.2% -
Net Interest Yield 8.7% 8.9% - 8.7% 9.2% -
Note: Owned and managed Cardmember receivables and loans include securitized
assets not reflected in the consolidated balance sheet.
* Computed excluding Cards issued by strategic alliance partners and
independent operators as well as business billed on those Cards.
** Computed from information provided herein.
8
Travel Related Services
Travel Related Services' (TRS) net income rose 10 percent for the three
and six month periods ended June 30, 1997. Net revenues increased
7 percent in both periods, primarily due to higher worldwide billed
business and Cardmember loans outstanding. The growth in revenues also
includes a benefit from increased recognition of recoveries on abandoned
property related to the Travelers Cheque business, which was largely
offset by higher investment spending on business building initiatives.
Excluding the effect of securitizing a portion of the card portfolios and
a reduction in investments related to the consolidation of certain legal
entities within the consumer lending business, revenues rose 9 percent in
the three and six months ended June 30, 1997.
The improvement in discount revenue resulted from higher billed business,
which reflects a greater number of cards outstanding and spending per
Cardmember, and stable average discount rates. The average discount rate
for the second quarter remained flat from the prior year and declined by
two basis points for the six month period ended June 30, 1997 compared
with the same period in the prior year. Changes in the mix of
billed business, the continued shift to electronic data capture, volume
related pricing discounts, and selective repricing initiatives will
probably result in some discount rate erosion over time.<F1> Cardmember
spending increased in part due to the benefits of rewards programs and
expanded merchant coverage. The growth in cards is largely attributable
to the introduction of new consumer and small business credit card
products, consistent with the Company's strategy of building its lending
portfolio through the issuance of low- and no-fee credit cards. This
strategy and a decline in consumer charge cards outstanding led to a 3
percent decrease in net card fees in both periods. Interest and dividends
fell primarily as a result of a reduction in investments related to the
consolidation of certain legal entities within the consumer lending
business; this amalgamation resulted in a decrease in both interest and
dividends and other interest expense by approximately $38 million and $74
million in the three and six months ended June 30, 1997, respectively.
Lending net finance charge revenue, excluding the second quarter 1996 loan
securitization, rose by 23 percent and 19 percent for the three and six
months ended June 30, 1997, respectively. This increase was primarily due
to a 26 percent growth in worldwide lending balances. The expansion in
balances was partially offset by lower net interest yields on the U.S.
portfolio, due to changes in the product mix and a slightly higher
proportion of the portfolio being subject to introductory rates.
The charge card provision for losses declined primarily in the small
business card and Latin American portfolios. The lending provision for
losses rose, reflecting both higher outstanding loans and loss rates.
Human resource expense increased due to more employees, merit increases
and growth in contract programmer costs for technology related projects.
Other operating expenses rose due to the cost of Cardmember loyalty
programs and business growth.
_______________________
<F1> This is a forward looking statement which is subject to risks and
uncertainties. Important factors that could cause results to differ
materially from the forward looking statement include, among other things,
unanticipated changes in TRS' mix of business and competitive pressures.
9
Travel Related Services
Liquidity and Capital Resources
Selected Balance Sheet Information
----------------------------------
(Unaudited)
(Amounts in billions, except percentages)
June 30, December 31, Percentage June 30, Percentage
1997 1996 Inc/(Dec) 1996 Inc/(Dec)
-------- ------------ ----------- -------- ----------
Accounts Receivable, net $18.9 $19.5 (3.1)% $18.3 3.2 %
Investments $6.7 $6.5 3.8 $9.0 (25.8)
U.S. Cardmember Lending
Balances $12.2 $11.7 3.6 $9.5 28.0
Total Assets $44.7 $43.1 3.9 $44.3 0.9
Travelers Cheques
Outstanding $6.5 $5.8 10.6 $6.6 (2.2)
Short-term debt $18.4 $18.4 0.1 $16.7 10.6
Long-term debt $5.6 $5.0 10.7 $5.2 6.8
Total Liabilities $39.7 $38.4 3.5 $39.4 0.8
Total Shareholder's Equity $5.0 $4.7 7.0 $4.9 1.6
Return on Average Equity* 27.0% 25.6% - 24.8% -
Return on Average Assets* 3.0% 2.8% - 2.6% -
* Excluding the effect of SFAS #115 and the fourth quarter 1996
restructuring charge of $125 million after-tax.
Growth in the U.S. Small Business and Consumer Lending portfolios led to
an increase in Cardmember loans since year end. During 1997 management
responsibility for approximately $300 million of consumer loans sold
through American Express Financial Advisors (AEFA) was transferred to that
unit; therefore, the balances are no longer reported within TRS.
The decline in investments resulted from a change in investment strategy
related to the consolidation of certain legal entities within the U.S.
Consumer Lending business and was offset by a corresponding decrease in
other liabilities.
In May 1997, American Express Credit Corporation (Credco), a wholly owned
subsidiary of TRS, issued and sold, exclusively outside the United States
to non-U.S. persons, $400 million Floating Rate Notes due 2002 which are
listed on the Luxembourg Stock Exchange. Subsequent to June 30, 1997,
Credco issued and sold an additional $400 million of 6.5% Fixed Rate Notes
due 2002 under the same Euro Medium Term Notes program.
In July 1997, $500 million Class A Floating Rate Accounts Receivable Trust
Certificates matured from the charge card securitization portfolio.
10
American Express Financial Advisors
Results of Operations For The Three and Six Months Ended June 30, 1997 and
1996
Statement of Income
-------------------
(Unaudited)
(Amounts in millions, except percentages and where indicated)
Three Months Ended Six Months Ended
June 30, June 30,
----------- Percentage ----------- Percentage
1997 1996 Inc/(Dec) 1997 1996 Inc/(Dec)
-----------------------------------------------
Revenues:
Investment Income $586 $562 4.4 % $1,156 $1,131 2.2 %
Management and Distribution
Fees 360 296 21.5 691 576 20.1
Other Revenues 197 159 23.6 380 313 21.1
------------ ----------------
Total Revenues 1,143 1,017 12.4 2,227 2,020 10.2
------------ ----------------
Expenses:
Provision for Losses and Benefits:
Annuities 304 298 2.3 610 595 2.5
Insurance 113 102 11.3 217 210 3.4
Investment Certificates 58 48 19.6 99 101 (2.2)
------------ ----------------
Total 475 448 6.2 926 906 2.2
Human Resources 294 252 16.7 594 498 19.1
Other Operating Expenses 109 86 26.0 205 188 9.8
------------ ----------------
Total Expenses 878 786 11.8 1,725 1,592 8.4
------------ ----------------
Pretax Income 265 231 14.5 502 428 17.2
Income Tax Provision 82 78 4.3 162 145 11.2
------------ ----------------
Net Income $183 $153 19.7 $340 $283 20.3
============ ================
Selected Statistical Information
--------------------------------
Revenues, Net of Provisions $668 $570 17.2 % $1,301 $1,113 16.8 %
Life Insurance in
Force (billions) $71.0 $63.0 12.6 $71.0 $65.0 12.6
Deferred Annuities in
force (billions) $38.6 $34.2 12.8 $38.6 $34.2 12.8
Assets Owned and/or
Managed (billions):
Assets managed for
institutions $39.3 $34.8 12.9 $39.3 $34.8 12.9
Assets owned and managed for
individuals:
Owned Assets:
Separate Account
Assets 21.1 16.7 26.1 21.1 16.7 26.1
Other Owned Assets 35.2 33.0 6.8 35.2 33.0 6.8
------------- --------------
Total Owned
Assets 56.3 49.7 13.3 56.3 49.7 13.3
Managed Assets 66.7 54.0 23.6 66.7 54.0 23.6
------------- --------------
Total $162.3 $138.5 17.2 $162.3 $138.5 17.2
============= ==============
Market Appreciation (Depreciation)
During the Period:
Owned Assets:
Separate Account Assets $2,260 $390 - $1,716 $848 -
Other Owned Assets $265 $(131) - $21 $(414) -
Total Managed Assets $9,233 $2,254 - $7,609 $3,419 -
Sales of Selected Products:
Mutual Funds $4,091 $3,762 8.8 $8,120 $7,332 10.8
Annuities $947 $1,125 (15.8) $1,817 $2,280 (20.3)
Investment Certificates $285 $186 53.4 $475 $372 47.0
Life and Other Insurance Sales $100 $113 (11.9) $203 $209 (2.8)
Number of Financial Advisors 8,476 7,997 6.0 8,476 7,997 6.0
Fees From Financial
Plans (thousands) $15,227 $11,584 31.4 $28,563 $23,207 23.1
Product Sales Generated from
Financial Plans as a
Percentage of
Total Sales 66.3% 62.9% - 65.4% 63.0% -
11
American Express Financial Advisors
American Express Financial Advisors' (AEFA) revenue and earnings growth
for the three and six month periods ended June 30,1997 was due to
increased management fees from higher managed asset levels, including
separate account assets, and greater distribution fees driven by mutual
fund sales levels. The growth in managed assets was caused by market
appreciation and net sales since the prior year periods. The results for
the first half of 1997 are consistent with a shift in the mix of product
sales from fixed-return to fee generating variable return products. The
increase in investment income reflects higher asset levels, partly offset
by lower investment yields compared with the prior year periods. Other
revenues rose primarily as a result of higher life insurance premiums, and
financial planning and tax preparation fees.
The provision for annuity benefits increased reflecting higher business in
force, partially offset by a lower accrual rate. The provision for
insurance benefits increased with higher policies in force and unfavorable
claims experience in life insurance. The provision for investment
certificates rose during the second quarter compared with last year
reflecting the impact of a rising stock market on certificate products
tied to a market index. However, for the six month period ended June 30,
1997 the provision for certificates fell slightly compared with the year
ago period, due to lower certificates in force and accrual rates. Human
resources expenses were higher as a result of volume-driven growth in
advisors' compensation and rising home office expenses. The higher home
office costs resulted from growth in the technology and client service
organizations, and recent acquisitions. The increase in other operating
expenses primarily reflects the cost of hedging activities designed to
reduce the effect of stock market volatility on management fees. The
lower effective tax rate in 1997 is due to tax credits from low income
housing investments. These tax benefits are expected to continue in
future periods.
12
American Express Financial Advisors
Liquidity and Capital Resources
American Express Financial Advisors
-----------------------------------
Selected Statistical Information
--------------------------------
(Unaudited)
(Amounts in billions, except percentages)
June 30, December 31, Percentage June 30, Percentage
1997 1996 Inc/(Dec) 1996 Inc/(Dec)
------- ---------- ---------- ------- ---------
Investments $29.3 $28.6 2.5% $27.9 5.2%
Separate Account Assets $21.1 $18.5 13.6 $16.7 26.1
Total Assets $56.3 $52.7 6.9 $49.7 13.3
Client Contract Reserves $29.4 $28.9 1.5 $28.3 3.9
Total Liabilities $53.0 $49.5 7.0 $46.8 13.1
Total Shareholder's Equity $3.4 $3.2 5.4 $2.9 15.4
Return on Average Equity* 21.2% 20.4% - 19.9% -
* Excluding the effect of SFAS #115.
AEFA's total assets rose from year end as a result of net sales, market
appreciation and the transfer of approximately $300 million of consumer
loans to AEFA from TRS.
13
American Express Bank
Results of Operations For The Three and Six Months Ended June 30, 1997 and
1996
Statement of Income
------------------
(Unaudited)
(Amounts in millions, except percentages)
Three Months Ended Six Months Ended
June 30, June 30,
-------------- Percentage ---------- Percentage
1997 1996 Inc/(Dec) 1997 1996 Inc/(Dec)
------------------------- --------------------
Net Revenues:
Interest Income $226 $204 10.6 % $444 $413 7.5 %
Interest Expense 148 134 10.0 284 267 6.1
----------- ------------
Net Interest Income 78 70 11.5 160 146 10.0
Commissions, Fees and
Other Revenues 54 49 10.5 107 99 7.3
Foreign Exchange Income 21 20 2.7 40 40 0.2
----------- ------------
Total Net Revenues 153 139 9.9 307 285 7.7
----------- ------------
Provision for Credit Losses 1 4 (80.7) 3 8 (64.3)
----------- ------------
Expenses:
Human Resources 58 54 9.6 117 110 6.3
Other Operating Expenses 61 59 2.3 122 116 5.5
----------- ------------
Total Expenses 119 113 5.8 239 226 5.9
----------- ------------
Pretax Income 33 22 50.4 65 51 27.6
Income Tax Provision 12 8 59.3 24 18 33.5
----------- ------------
Net Income $21 $14 45.6 $41 $33 24.3
=========== ============
The improvement in American Express Bank's (the Bank) earnings for the
three and six month periods ended June 30, 1997 primarily reflects higher
revenues due to an increase in net interest income on loans and
investments, a rise in correspondent, commercial and consumer fees and
improved global trading results. This increase was partially offset by
growth in operating expenses, primarily in systems technology.
14
American Express Bank
Liquidity and Capital Resources
Selected Statistical Information
--------------------------------
(Unaudited)
(Amounts in billions, except percentages and where indicated)
June 30, December 31, Percentage June 30, Percentage
1997 1996 Inc/(Dec) 1996 Inc/(Dec)
------- ----------- ---------- -------- ----------
Investments $2.9 $2.8 0.6 % $2.1 35.3 %
Total Loans $6.4 $5.9 9.2 $5.5 17.2
Reserve for Credit
Losses (millions) $130 $117 11.4 $113 14.8
Reserves as a Percentage
of Total Loans 2.0% 2.0% - 2.1% -
Total Nonperforming
Loans (millions) $80 $35 # $38 #
Other Real Estate
Owned (millions) $4 $36 (89.2) $48 (91.9)
Total Assets $13.1 $12.3 6.5 $11.5 14.4
Deposits $9.0 $8.7 4.2 $7.8 15.0
Total Liabilities $12.3 $11.6 6.8 $10.7 14.8
Total Shareholder's
Equity (millions) $814 $799 1.9 $755 7.8
Risk-Based Capital Ratios:
Tier 1 8.4% 8.8% - 9.1% -
Total 11.3% 12.5% - 12.9% -
Leverage Ratio 5.5% 5.6% - 5.8% -
Return on Average Assets* 0.65% 0.55% - 0.49% -
Return on Average
Common Equity* 11.05% 8.89% - 7.83% -
* Excluding the effect of SFAS #115.
# Denotes variance of more than 100%
The Bank's total assets rose from year end primarily due to commercial,
correspondent and consumer loans. Non-performing loans increased from
unsustainably low levels due to changes in classifications; other real
estate owned decreased primarily from a property sale. The loan loss
reserve benefited from an $18 million loan recovery on Peruvian LDC debt
during the first quarter of 1997.
15
Corporate and Other
Corporate and Other reported net expenses of $39 million and $77 million
for the three and six month periods ended June 30, 1997, which was
slightly above the same periods a year ago. The first quarter
of 1996 included a $46 million pretax benefit from a revenue
payout by Travelers Inc. related to the sale of the Shearson Lehman
Brothers Division in 1993 which was also fully offset by costs associated
with the Company's business initiatives. 1996 was the last year the
Company was eligible to receive this revenue payout.
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 June 30, 1997 and the related
consolidated statements of income for the three and six-month periods ended
June 30, 1997 and 1996, and consolidated statement of cash flows for the
six-month periods ended June 30, 1997 and 1996. 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,
1996, 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 7, 1997, 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, 1996
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
August 13, 1997
17
PART II. OTHER INFORMATION
AMERICAN EXPRESS COMPANY
Item 4. Submission of Matters to a Vote of Securities Holders
For information relating to the matters voted upon at the registrant's
annual meeting for shareholders held on April 28, 1997, see Item 4 on page 18
of the registrant's Quarterly Report on Form 10-Q for the quarter ended March
31, 1997, which is incorporated herein by reference.
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 29, 1997, Item 5, relating
to the registrant's earnings for the quarter
ended June 30, 1997.
18
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: August 14, 1997 By /s/ Richard Karl Goeltz
- ---------------------- --------------------------
Richard Karl Goeltz
Vice Chairman and
Chief Financial Officer
Date: August 14, 1997 By /s/ Daniel T. Henry
- ---------------------- ----------------------
Daniel T. Henry
Senior Vice President and
Controller
(Chief Accounting Officer)
19
EXHIBIT INDEX
The following exhibits are filed as part of this Quarterly Report:
Exhibit Description
3.1 Registrant's Restated Certificate of Incorporation (incorporated
by reference to Exhibit 4.1 of the registrant's Form S-3, dated
July 31, 1997 (Commission File No. 333-32525)).
10.1 American Express Directors Stock Plan.
10.2 American Express Company Deferred Compensation Plan for
Directors, as amended effective July 28, 1997.
12 Computation in Support of Ratio of Earnings to Fixed Charges.
15 Letter re Unaudited Interim Financial Information.
27 Financial Data Schedule.
E-1