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, 1998
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, 1998
- --------------------------------------- -----------------------------
Common Shares (par value $.60 per share) 461,145,964 shares
AMERICAN EXPRESS COMPANY
FORM 10-Q
INDEX
Part I. Financial Information:
Consolidated Statements of Income - Three 1
months ended March 31, 1998 and 1997
Consolidated Balance Sheets - March 31, 1998 2
and December 31, 1997
Consolidated Statements of Cash Flows - Three 3
months ended March 31, 1998 and 1997
Notes to Consolidated Financial Statements 4-6
Management's Discussion and Analysis of 7-19
Financial Condition and Results of Operations
Review Report of Independent Accountants 20
Part II. Other Information 21
PART I--FINANCIAL INFORMATION
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
--------------------
1998 1997
---- ----
Net Revenues:
Discount revenue $1,429 $1,306
Interest and dividends, net 810 776
Net card fees 398 405
Travel commissions and fees 351 336
Other commissions and fees 409 345
Cardmember lending net finance charge
revenue 317 288
Management and distribution fees 418 331
Life and other insurance premiums 113 106
Other 276 271
------ ------
Total 4,521 4,164
------ ------
Expenses:
Human resources 1,219 1,127
Provisions for losses and benefits:
Annuities and investment certificates 370 347
International banking, life insurance
and other 364 132
Charge card 218 190
Cardmember lending 218 211
Interest 226 195
Occupancy and equipment 283 272
Marketing and promotion 265 214
Professional services 245 214
Communications 109 112
Other 390 510
------ ------
Total 3,907 3,524
------ ------
Pretax income 614 640
Income tax provision 154 186
------ ------
Net income $ 460 $ 454
====== ======
Earnings Per Common Share:
Basic $1.00 $0.97
====== ======
Diluted $0.98 $0.94
====== ======
Average common shares outstanding for
earnings per common share (millions):
Basic 460.7 467.9
====== ======
Diluted 469.5 483.0
====== ======
Cash dividends declared per
common share $0.225 $0.225
====== ======
See notes to Consolidated Financial Statements.
1
AMERICAN EXPRESS COMPANY
CONSOLIDATED BALANCE SHEETS
(millions)
(Unaudited)
March 31, December 31,
Assets 1998 1997
- ------ ---------- ------------
Cash and cash equivalents $ 4,342 $ 4,179
Accounts receivable and accrued interest:
Cardmember receivables, less reserves:
1998, $635; 1997, $640 17,838 19,275
Other receivables, less reserves:
1998, $50; 1997, $72 2,256 2,499
Investments 39,876 39,648
Loans:
Cardmember lending, less reserves:
1998, $580; 1997, $576 12,846 13,183
International banking, less reserves:
1998, $294; 1997, $131 5,718 6,062
Other, net 852 864
Separate account assets 26,000 23,215
Deferred acquisition costs 2,919 2,894
Land, buildings and equipment--at cost, less
accumulated depreciation: 1998, $1,902;
1997, $1,838 1,522 1,533
Other assets 6,134 6,651
-------- --------
Total assets $120,303 $120,003
======== ========
Liabilities and Shareholders' Equity
- ------------------------------------
Customers' deposits $ 9,724 $ 9,444
Travelers Cheques outstanding 5,585 5,634
Accounts payable 5,124 4,876
Insurance and annuity reserves:
Fixed annuities 21,934 22,112
Life and disability policies 4,105 4,053
Investment certificate reserves 4,374 4,149
Short-term debt 18,151 20,570
Long-term debt 8,140 7,873
Separate account liabilities 26,000 23,215
Other liabilities 7,741 8,503
-------- --------
Total liabilities 110,878 110,429
Shareholders' equity:
Common shares, $.60 par value, authorized
1.2 billion shares; issued and outstanding
461.9 million shares in 1998 and 466.4
million shares in 1997 277 280
Capital surplus 4,616 4,624
Retained earnings 4,068 4,188
Other comprehensive income, net of tax:
Net unrealized securities gains 562 579
Foreign currency translation adjustments (98) (97)
-------- --------
Accumulated other comprehensive income 464 482
-------- --------
Total shareholders' equity 9,425 9,574
-------- --------
Total liabilities and shareholders' equity $120,303 $120,003
======== ========
See notes to Consolidated Financial Statements.
2
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions)
(Unaudited)
Three Months Ended
March 31,
--------------------
1998 1997
---- ----
Cash Flows from Operating Activities
Net income $ 460 $ 454
Adjustments to reconcile net income to
net cash provided by operating activities:
Provisions for losses and benefits 835 560
Depreciation, amortization, deferred taxes and
other (63) 94
Changes in operating assets and liabilities, net
of effects of acquisitions and dispositions:
Accounts receivable and accrued interest 242 258
Other assets 58 38
Accounts payable and other liabilities (55) (39)
Decrease in Travelers Cheques outstanding (60) (70)
Increase in insurance reserves 37 34
------ ------
Net cash provided by operating activities 1,454 1,329
------ ------
Cash Flows from Investing Activities
Sale of investments 462 548
Maturity and redemption of investments 1,827 1,714
Purchase of investments (2,499) (2,529)
Net decrease in Cardmember receivables 1,200 745
Proceeds from repayment of loans 5,584 6,133
Issuance of loans (5,353) (6,990)
Purchase of land, buildings and equipment (67) (55)
Sale of land, buildings and equipment 7 65
Acquisitions, net of cash acquired (44) -
------ ------
Net cash provided (used) by investing activities 1,117 (369)
------ ------
Cash Flows from Financing Activities
Net increase in customers' deposits 407 1,223
Sale of annuities and investment certificates 1,337 1,349
Redemption of annuities and investment
certificates (1,348) (1,239)
Net decrease in debt with maturities of
3 months or less (2,218) (249)
Issuance of debt 1,788 2,151
Principal payments on debt (1,710) (3,369)
Issuance of American Express common shares 25 70
Repurchase of American Express common shares (494) (285)
Dividends paid (105) (106)
------ ------
Net cash used by financing activities (2,318) (455)
Effect of exchange rate changes on cash (90) (12)
------ ------
Net increase in cash and cash equivalents 163 493
Cash and cash equivalents at beginning of period 4,179 2,677
------ ------
Cash and cash equivalents at end of period $4,342 $3,170
====== ======
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, 1997. Significant accounting policies disclosed therein
have not changed.
Cardmember Lending Net Finance Charge Revenue is presented net of
interest expense of $161 million and $143 million for the first quarter
of 1998 and 1997, respectively. Interest and Dividends is presented net
of interest expense of $143 million and $140 million for the first
quarter of 1998 and 1997, respectively, related primarily to the
Company's international banking operations.
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.Accounting Developments
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income"
and No. 131, "Disclosures about Segments of an Enterprise and Related
Information."
Comprehensive Income
--------------------
SFAS No. 130 requires the display of comprehensive income and its
components. 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 and (ii) foreign
currency translation adjustments. The components of comprehensive
income, net of related tax, for the three month periods ended March 31,
1998 and 1997 were as follows:
(in millions) 1998 1997
---- ----
Net income $460 $454
Change in:
Unrealized gains (losses)
on securities (17) (214)
Foreign currency translation
adjustments (2) 1
---- ----
Total $441 $241
==== ====
4
Segment Information
-------------------
SFAS No. 131 redefines operating segments based on management's internal
reporting structure. Accordingly, the Travelers Cheque operation, which
was previously included in the Travel Related Services (TRS) segment,
is now reported in the same segment as American Express Bank (the Bank).
Prior year amounts have been reclassified as set forth below, to conform
with the requirements of SFAS No. 131.
Three months ended March 31, 1998
American
American Express
Travel Express Bank/
Related Financial Travelers Corporate
(in millions) Services Advisors Cheque and Other Total
-------- --------- --------- --------- -----
Net Revenues $3,083 $1,221 $257 $(40) $4,521
Net Income(Loss) $315 $186 $(83) $42 $460
Three months ended March 31, 1997
American
American Express
Travel Express Bank/
Related Financial Travelers Corporate
(in millions) Services Advisors Cheque and Other Total
-------- --------- --------- --------- -----
Net Revenues $2,864 $1,084 $269 $(53) $4,164
Net Income(Loss) $267 $157 $69 $(39) $454
3. Earnings per Share
The computation of basic and diluted earnings per common share (EPS) for
the three months ended March 31, 1998 and 1997 are as follows:
(in millions, except per share amounts) 1998 1997
---- ----
Numerator for basic and diluted EPS $ 460 $ 454
Denominator:
Denominator for basic EPS -
weighted-average shares 460.7 467.9
Effect of dilutive securities:
Stock Options and Restricted
Stock Awards 8.7 8.8
5% Exchangeable Lehman Brothers
Holdings, Inc. Preferred Shares - 6.2
Other 0.1 0.1
----- -----
Potentially dilutive common shares 8.8 15.1
----- -----
Denominator for diluted EPS 469.5 483.0
===== =====
Basic EPS $1.00 $0.97
===== =====
Diluted EPS $0.98 $0.94
===== =====
5
4.Investment Securities
The following is a summary of investments at March 31, 1998 and
December 31, 1997:
March 31, December 31,
(in millions) 1998 1997
--------- -----------
Held to Maturity, at amortized cost
(fair value: 1998, $11,945; 1997,
$12,429) $11,399 $11,871
Available for Sale, at fair value (cost:
1998, $23,521; 1997, $22,816) 24,408 23,727
Investment mortgage loans (fair value:
1998, $4,070; 1997, $4,026) 3,871 3,831
Trading 198 219
------- -------
$39,876 $39,648
======= =======
5.Taxes and Interest
Net income taxes paid during the three months ended March 31, 1998 and
1997 were approximately $63 million and $213 million, respectively.
Interest paid during the three months ended March 31, 1998 and 1997 was
approximately $636 million and $617 million, respectively.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Consolidated Results Of Operations For The Three Months Ended
March 31, 1998 and 1997
The Company's consolidated net income increased by 1 percent in the
three month period ended March 31, 1998 and diluted earnings per share
by 4 percent. The results reflect significant items: a $213 million
credit loss provision ($138 million after-tax) at American Express
Bank related to exposures in the Asia/Pacific region and income in the
Corporate and Other segment of $106 million ($78 million after-tax) from
sales of common stock of First Data Corporation and receipt of a preferred
stock dividend based on earnings of Lehman Brothers. Excluding these items,
income rose 14 percent and diluted earnings per share by 18 percent.
Consolidated revenues were 9 percent higher for the three months ended
March 31, 1998, as a result of growth in worldwide billed business and
Cardmember loans, wider interest margins in the lending portfolio as well
as higher management and distribution fees. Consolidated expenses rose,
primarily due to provisions for losses and human resource and marketing and
promotion expenses to support business building initiatives.
Consolidated Liquidity and Capital Resources
In the first three months of 1998, the Company repurchased 5.5 million
common shares at an average price of $89.65 per share and canceled 6.6
million common shares under its repurchase program.
Accounting Development
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Positions (SOP) 98-1, "Accounting For the Costs of
Computer Software Developed For or Obtained For Internal Use" which will be
effective for and adopted by the Company beginning on January 1, 1999.
Subsequent to December 31, 1998, certain costs incurred in connection
with developing or obtaining software for internal-use must be capitalized.
The Company currently expenses such costs as incurred. The impact of the
SOP on the Company's future earnings or financial position has not yet been
determined.
7
Travel Related Services
Results of Operations For The Three Months Ended March 31, 1998 and 1997
Statement of Income
-------------------
(Unaudited)
(Dollars in millions)
Three Months Ended
March 31,
---------------- Percentage
1998 1997 Inc/(Dec)
-----------------------------
Net Revenues:
Discount Revenue $1,429 $1,306 9.4 %
Net Card Fees 398 405 (1.8)
Travel Commissions and Fees 351 336 4.2
Other Revenues 588 529 11.3
Lending:
Finance Charge Revenue 478 431 10.9
Interest Expense 161 143 12.7
------ ------
Net Finance Charge Revenue 317 288 10.0
------ ------
Total Net Revenues 3,083 2,864 7.6
------ ------
Expenses:
Marketing and Promotion 244 195 25.6
Provision for Losses and Claims:
Charge Card 218 190 14.6
Lending 218 211 3.1
Other 13 16 (16.7)
------ ------
Total 449 417 7.6
------ ------
Charge Card Interest Expense 197 169 16.4
Net Discount Expense 140 151 (7.6)
Human Resources 787 731 7.7
Other Operating Expenses 784 784 -
------ ------
Total Expenses 2,601 2,447 6.3
------ ------
Pretax Income 482 417 15.6
Income Tax Provision 167 150 11.2
------ ------
Net Income $ 315 $ 267 18.0
====== ======
The following table, which is presented for analytical purposes only,
presents the impact on the Statement of Income related to TRS'
securitized receivables and loans:
Three Months Ended
March 31,
------------------
1998 1997
------------------
Increase in Other Revenues $ 77 $ 50
Decrease in Lending Finance Charge Revenue (106) (47)
Decrease in Lending Interest Expense 33 17
Decrease in Provision for Losses and Claims:
Charge Card 55 62
Lending 30 11
Decrease in Charge Card Interest Expense 51 58
Increase in Net Discount Expense (140) (151)
---- ----
Pretax Income $ - $ -
==== ====
8
Travel Related Services
Selected Statistical Information
--------------------------------
(Unaudited)
(Amounts in billions, except where indicated)
Three Months Ended
March 31,
----------------- Percentage
1998 1997 Inc/(Dec)
-----------------------------
Total Cards in Force (millions):
United States 29.5 29.6 (0.1)%
Outside the United States 13.8 12.3 11.5
----- -----
Total 43.3 41.9 3.3
===== =====
Basic Cards in Force (millions):
United States 23.3 22.9 1.2
Outside the United States 10.6 9.6 11.2
----- -----
Total 33.9 32.5 4.2
===== =====
Card Billed Business:
United States $38.5 $34.6 11.2
Outside the United States 14.1 13.3 6.3
----- -----
Total $52.6 $47.9 9.8
===== =====
Average Discount Rate* 2.74% 2.75% -
Average Basic Cardmember
Spending (dollars)* $1,600 $1,498 6.8
Average Fee per Card (dollars)* $38 $39 (2.6)
Travel Sales $4.3 $3.9 8.9
Travel Commissions and Fees/Sales** 8.2% 8.6% -
Owned and Managed Charge Card
Receivables:
Total Receivables $22.0 $21.2 3.6
90 Days Past Due as a % of Total 3.4% 3.5% -
Loss Reserves (millions) $967 $921 4.9
% of Receivables 4.4% 4.3% -
% of 90 Days Past Due 131% 124% -
Net Loss Ratio 0.47% 0.50% -
Owned and Managed U.S. Cardmember
Lending:
Total Loans $14.2 $12.9 10.1
Past Due Loans as a % of Total:
30-89 Days 2.5% 2.6% -
90+ Days 1.1% 1.0% -
Loss Reserves (millions):
Beginning Balance $ 589 $ 488 20.8
Provision 221 201 9.9
Net Charge-Offs/Other (219) (156) 40.4
----- -----
Ending Balance $ 591 $ 533 10.9
===== =====
% of Loans 4.2% 4.1% -
% of Past Due 117% 115% -
Average Loans $14.2 $12.8 11.4
Net Write-Off Rate 6.3% 5.1% -
Net Interest Yield 9.6% 8.7% -
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.
9
Travel Related Services
Travel Related Services' (TRS) net income rose 18 percent in the first
quarter of 1998 from a year ago. Results for both periods exclude the
Travelers Cheque business, which is now reported as part of a new segment
with American Express Bank.
Net revenues increased 8 percent from a year earlier, reflecting higher
billed business domestically and in all major international markets, growth
in Cardmember loans and wider interest margins in the lending portfolio.
The improvement in discount revenue resulted from higher billed business,
which reflects a greater number of cards outstanding and higher
spending per basic Cardmember. Discount rates were stable during the
period. However, changes in the mix of billed business, the continued
shift to electronic data capture, volume related pricing discounts, and
selective repricing initiatives probably will result in some discount rate
erosion over time.<F1> Success in building new card relationships through a
diversified product portfolio was evident in the increase in the amount of
cards outstanding. Cardmember spending increased, compared to a year ago,
in part due to the benefits of rewards programs and expanded merchant
coverage; this increase reflects particularly strong growth in domestic
consumer cardmember spending and higher corporate and small business
cardmember spending. Travel commissions and fees rose due to higher sales
partially offset by lower commission rates.
Lending net finance charge revenue, excluding securitizations, rose by 23
percent for the first quarter of 1998 compared with a year ago. This
increase was primarily due to the 11 percent growth in worldwide lending
balances and higher yields on the U.S. portfolio, primarily resulting from
changes in the product mix and a lower proportion of the portfolio on
introductory rates compared with the prior year.
The provisions for losses rose from a year ago, reflecting higher volumes
overall and increased loss rates in the consumer lending portfolio.
Marketing and promotion expenses grew primarily due to higher media and
merchant related advertising costs. Human resource expenses increased as a
result of higher average employee levels, merit increases and greater
contract programmer costs for technology related projects. Other operating
expenses were unchanged, reflecting higher costs for loyalty programs and
Cardmember service related volume, offset by the benefits of ongoing cost
containment efforts.
_______________________________
<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.
10
Travel Related Services
Liquidity and Capital Resources
Selected Balance Sheet Information
----------------------------------
(Unaudited)
(Dollars in billions, except percentages)
March 31, December 31, Percentage March 31, Percentage
1998 1997 Inc/(Dec) 1997 Inc/(Dec)
--------- ------------ ---------- --------- ----------
Accounts Receivable, net $19.1 $20.5 (6.9)% $17.7 7.7%
U.S. Cardmember Loans $12.2 $12.6 (2.8) $11.9 2.5
Total Assets $39.3 $40.7 (3.5) $35.1 11.9
Short-term debt $18.6 $20.9 (11.0) $17.3 8.1
Long-term debt $6.3 $6.0 4.7 $4.8 30.3
Total Liabilities $34.5 $36.1 (4.4) $30.6 12.6
Total Shareholder's Equity $4.8 $4.6 3.3 $4.5 6.9
Return on Average Equity* 25.7% 25.1% - 23.6% -
Return on Average Assets* 3.1% 3.0% - 2.9% -
* Excluding the effect of SFAS No. 115 and the fourth quarter 1996
restructuring charge of $125 million after-tax.
In February 1998, American Express Credit Corporation (Credco), a wholly
owned subsidiary of TRS, issued $150 million 1.125% Cash Exchangeable Notes
due February, 2003. These Notes are exchangeable for an amount in cash
which is linked to the price of the common stock of the Company.
11
American Express Financial Advisors
Results of Operations For The Three Months Ended March 31, 1998 and 1997
Statement of Income
-------------------
(Unaudited)
(Amounts in millions, except percentages and where indicated)
Three Months Ended
March 31,
---------------- Percentage
1998 1997 Inc/(Dec)
----------------------------
Revenues:
Investment Income $ 613 $ 570 7.6%
Management and Distribution Fees 418 331 26.2
Other Revenues 190 183 4.0
----- -----
Total Revenues 1,221 1,084 12.7
Expenses: ----- -----
Provision for Losses and Benefits:
Annuities 297 305 (2.8)
Insurance 117 104 12.9
Investment Certificates 73 42 74.2
----- -----
Total 487 451 8.0
Human Resources 336 300 12.3
Other Operating Expenses 127 97 30.6
----- -----
Total Expenses 950 848 12.1
----- -----
Pretax Income 271 236 14.8
Income Tax Provision 85 79 7.8
----- -----
Net Income $ 186 $ 157 18.3
===== =====
Selected Statistical Information
--------------------------------
(Unaudited)
Three Months Ended
March 31,
---------------- Percentage
1998 1997 Inc/(Dec)
----------------------------
Revenues, Net of Provisions $734 $633 16.0%
Investments (billions) $31.1 $28.9 7.8
Client Contract Reserves (billions) $30.3 $29.1 4.1
Shareholder's Equity (billions) $3.8 $3.1 22.6
Return on Average Equity* 22.1% 20.8% -
Life Insurance in force (billions) $76.1 $69.2 9.9
Deferred Annuities in force (billions) $43.1 $38.0 13.6
Assets Owned, Managed or Administered
(billions):
Assets managed for institutions $ 42.3 $ 36.4 16.3
Assets owned, managed or administered
for individuals:
Owned Assets:
Separate Account Assets 26.0 18.4 41.2
Other Owned Assets 37.0 34.9 6.3
------ ------
Total Owned Assets 63.0 53.3 18.3
Managed Assets 80.2 60.0 33.6
Administered Assets 9.9 4.9 #
------ ------
Total $195.4 $154.6 26.4
====== ======
12
American Express Financial Advisors
Selected Statistical Information (continued)
--------------------------------
(Unaudited)
Three Months Ended
March 31,
---------------- Percentage
1998 1997 Inc/(Dec)
----------------------------
Market Appreciation (Depreciation) During
the Period:
Owned Assets:
Separate Account Assets $2,610 ($544) - %
Other Owned Assets $18 ($244) -
Total Managed Assets $8,844 ($1,624) -
Sales of Selected Products:
Mutual Funds $5,095 $4,029 26.5
Annuities $651 $870 (25.2)
Investment Certificates $458 $190 #
Life and Other Insurance Products $83 $103 (19.2)
Number of Financial Advisors** 9,838 8,426 16.8
Fees from Financial Plans (thousands) $17,521 $13,336 31.4
Product Sales Generated from Financial
Plans as a Percentage of Total Sales 65.1% 64.6% -
# Denotes variances of more than 100%.
* Excluding the effect of SFAS No. 115.
** Includes 1,105 advisors from the acquisition of Securities America
in the first quarter of 1998.
American Express Financial Advisors' (AEFA) revenue and earnings growth for
the three month period ended March 31, 1998 was due to higher management
fees from increased managed asset levels, including separate account
assets, and greater distribution fees driven by record mutual fund sales
and higher asset levels. Managed assets rose due to both market
appreciation and net sales since the prior year.
The increase in investment income reflects higher asset levels and slightly
greater yields compared with the prior year. Other revenues benefited from
higher life insurance premiums.
The provision for annuities declined due to flat in force levels and lower
accrual rates. The provision for insurance benefits rose, reflecting
greater policies in force and unfavorable claims experience in life
insurance. The greater provision for investment certificates was a result
of higher sales and accrual rates.
Human resources expenses rose as a result of volume-driven growth in
advisors' compensation. The rise in other operating expenses reflects
increased spending on systems technology, advertising and other costs
related to higher business volumes.
The lower effective tax rate is due to tax credits from low income housing
investments.
13
American Express Financial Advisors
Liquidity and Capital Resources
Selected Balance Sheet Information
----------------------------------
(Unaudited)
(Amounts in billions, except percentages)
March 31, December 31, Percentage March 31, Percentage
1998 1997 Inc/(Dec) 1997 Inc/(Dec)
--------- ------------ ---------- -------- ---------
Investments $31.1 $30.7 1.3% $28.9 7.8%
Separate Account Assets $26.0 $23.2 12.0 $18.4 41.2
Total Assets $63.0 $59.8 5.4 $53.3 18.3
Client Contract Reserves $30.3 $30.2 0.3 $29.1 4.1
Total Liabilities $59.2 $56.1 5.6 $50.1 18.1
Total Shareholder's Equity $3.8 $3.7 2.8 $3.1 22.6
Return on Average Equity* 22.1% 21.8% - 20.8% -
* Excluding the effect of SFAS No. 115.
AEFA's total assets rose from year-end primarily as a result of market
appreciation in separate account assets.
14
American Express Bank/Travelers Cheque
Results of Operations For The Three Months Ended March 31, 1998 and 1997
Statement of Income
-------------------
(Unaudited)
(Amounts in millions, except percentages)
Three Months Ended
March 31,
------------------ Percentage
1998 1997 Inc/(Dec)
-----------------------------
Net Revenues:
Interest Income $210 $218 (3.8)%
Interest Expense 139 136 2.0
---- ----
Net Interest Income 71 82 (13.4)
Travelers Cheque Investment Income 80 81 (1.5)
Foreign Exchange Income 48 19 #
Commissions, Fees and Other Revenues 58 87 (33.5)
---- ----
Total Net Revenues 257 269 (4.5)
---- ----
Expenses:
Human Resources 74 73 1.1
Other Operating Expenses 124 121 2.3
Provision for Losses 233 10 #
---- ----
Total Expenses 431 204 #
---- ----
Pretax Income/(Loss) (174) 65 -
Income Tax Benefit (91) (4) #
---- ----
Net Income/(Loss) $(83) $ 69 -
==== ====
Selected Statistical Information
--------------------------------
Three Months Ended
March 31,
----------------- Percentage
1998 1997 Inc/(Dec)
-----------------------------
American Express Bank:
Assets Managed / Administered * $5.1 $4.8 6.3%
Assets of Non-Consolidated Joint
Ventures $2.6 $1.3 98.6
Travelers Cheque:
Sales $4.8 $5.1 (5.8)
Average Outstanding $5.7 $5.8 (1.8)
Average Investments $5.4 $5.4 0.7
Tax equivalent yield 9.2% 9.3% -
# Denotes variance of more than 100%.
* Includes assets managed by American Express Financial Advisors.
15
American Express Bank/Travelers Cheque
American Express Bank/Travelers Cheque (AEB/TC) reported a net loss of $83
million, compared with net income of $69 million a year ago. This segment
now includes AEB and the Travelers Cheque business, which had been part of
TRS.
The first quarter loss at AEB/TC includes a $233 million provision for
losses, up from $10 million a year ago. $213 million of the increase
relates to AEB's business in the Asia/Pacific region, particularly
Indonesia. Given the persistence of economic uncertainty and increase in
non-performing assets in Indonesia, the Company deemed it appropriate to
record a significant provision.
Net revenues declined as last year's results included $24 million of
increased recognition of recoveries on abandoned property related to the TC
business. These recoveries are included in commissions, fees and other
revenues. Net interest income declined reflecting a slightly smaller
loan portfolio and an increase in non-performing loans. Foreign exchange
trading revenue grew significantly over last year, driven primarily by
Asian operations.
16
American Express Bank/Travelers Cheque
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
1998 1997 Inc/(Dec) 1997 Inc/(Dec)
--------- ------------ ---------- --------- ----------
Travelers Cheque
Investments $5.6 $5.6 (1.4)% $5.6 (0.8)%
Total Loans $6.0 $6.2 (2.9) $6.1 (1.1)
Total Nonperforming
Loans (millions) $149 $47 # $46 #
Other Nonperforming
Assets (millions) $102 $11 # $35 #
Reserve for
Credit Losses (millions)* $359 $137 # $132 #
Loan Loss Reserves as a
Percentage of
Total Loans 4.9% 2.1% - 2.2% -
Total Assets $18.6 $19.7 (5.4) $19.3 (3.7)
Deposits $8.3 $8.5 (2.5) $9.1 (8.4)
Travelers Cheques
Outstanding $5.6 $5.6 (0.9) $5.8 (3.1)
Total Liabilities $17.5 $18.4 (5.1) $18.2 (4.1)
Total Shareholder's
Equity (millions) $1,119 $1,248 (10.3) $1,085 3.1
Return on Average
Assets** 0.61% 1.40% - 1.36% -
Return on Average
Common Equity** 12.5% 28.7% - 27.3% -
Risk-Based Capital Ratios:***
Tier 1 9.0% 8.8% - 8.7% -
Total 12.2% 12.3% - 11.8% -
Leverage Ratio 5.1% 5.3% - 5.6% -
# Denotes variance of more than 100%.
* Allocation:
Loans $294 $131 $131
Other Assets,
primarily derivatives 59 6 1
Other Liabilities 6 - -
------ ------ ------
Total Credit
Loss Reserves $359 $137 $132
====== ====== ======
** Excludes the effect of SFAS No. 115 for all periods presented.
*** 1998 amounts are proforma reflecting regulatory capital actions
taken in April 1998.
AEB/TC total assets declined from year end primarily due to a decrease in
loans and lower unrealized gains on foreign exchange and derivatives
contracts in Asia. As presented in the table below, AEB had approximately
$2.5 billion outstanding in loans in the Asia/Pacific region at March 31,
1998, down from $2.8 billion at December 31, 1997. In addition, there are
other banking activities in the region, such as forward contracts, various
contingencies and market placements, which added approximately $1.2 billion
to AEB's credit exposures at March 31, 1998 (compared with $1.5 billion at
year-end). American Express has taken steps to ensure that AEB remains well
capitalized, as defined by regulatory guidelines. In April 1998, American
Express purchased $225 million of deferred tax assets from AEB, thereby
reducing non-qualifying assets and increasing regulatory capital. American
Express expects to be able to utilize these deferred tax assets over time
within its consolidated tax return and therefore, realize full value.
17
American Express Bank
Asia/Pacific Region Exposure By Country
---------------------------------------
(Unaudited)
($ in billions)
Net
FX Guarantees 3/31/98 12/31/97
and and Total Total
Country Loans Derivatives Contingents Other* Exposure** Exposure
------- ----- ----------- ----------- ----- -------- --------
Hong Kong $0.9 $ - $ - $0.1 $1.0 $1.0
Indonesia 0.4 0.2 - 0.1 0.8 0.9
Singapore 0.4 - 0.1 - 0.6 0.6
Korea 0.2 0.1 0.1 0.1 0.5 0.7
Taiwan 0.3 - - 0.1 0.4 0.5
China 0.1 - - - 0.1 0.1
Japan - - - 0.1 0.1 0.2
Thailand 0.1 - - - 0.1 0.1
Other 0.1 - - - 0.2 0.2
---- ---- ---- ---- ---- ----
Total Asia** $2.5 $0.3 $0.4 $0.5 $3.7 $4.3
==== ==== ==== ==== ==== ====
* Includes cash, placements and securities.
** Individual items may not add to totals due to rounding.
18
Corporate and Other
Corporate and Other reported net income of $42 million for the three months
ended March 31, 1998, compared with net expense of $39 million last year.
Included in Other Expenses in the current year is income of $106 million
representing: a $60 million gain ($39 million after-tax) from sales of
common stock of First Data Corporation and a $46 million preferred stock
dividend ($39 million after-tax) based on earnings from Lehman Brothers.
19
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, 1998 and the related
consolidated statements of income and cash flows for the three-month periods
ended March 31, 1998 and 1997. 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,
1997, 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 5, 1998, 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, 1997 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, 1998
20
PART II. OTHER INFORMATION
AMERICAN EXPRESS COMPANY
Item 4. Submission of Matters to a Vote of Security Holders
The registrant's annual meeting of shareholders was held on April 27,
1998. 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 392,834,896 773,310 - 1,595,227 -
Ernst & Young LLP as independent
auditors
Proposal relating to the 271,251,264 73,666,428 - 2,893,142 -
adoption of the American
Express Company 1998 Incentive
Compensation Plan
Shareholder proposal 83,064,447 259,982,341 - 4,760,991 47,395,654
relating to cumula-
tive voting
Shareholder proposal relating 9,678,686 329,624,449 - 8,504,644 47,395,654
to executive compensation
Election of Directors:
D.F. Akerson 392,794,404 - 2,409,029 - -
A.L. Armstrong 392,476,933 - 2,726,500 - -
E.L. Artzt 392,636,651 - 2,566,782 - -
W.G. Bowen 392,667,332 - 2,536,101 - -
K.I. Chenault 392,602,758 - 2,600,675 - -
C.W. Duncan, Jr. 392,543,883 - 2,659,550 - -
H. Golub 392,556,261 - 2,647,172 - -
B. Sills Greenough 392,210,445 - 2,992,988 - -
F.R. Johnson 391,794,993 - 3,408,440 - -
V.E. Jordan, Jr. 390,494,196 - 4,709,237 - -
J. Leschly 392,662,318 - 2,541,115 - -
D. Lewis 392,461,391 - 2,742,042 - -
F.P. Popoff 392,686,772 - 2,516,661 - -
21
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 April 16, 1998, Item 5, reporting that the
Company's Travelers Cheque (TC) operation would be reported in
a new segment with American Express Bank (AEB) commencing in
the first quarter of 1998, and including certain financial
information.
Form 8-K, dated April 23, 1998, Item 5, reporting the
Company's earnings for the quarter ended March 31, 1998.
Form 8-K, dated April 29, 1998, Item 5, reporting the
Company's decision not to pursue U.S. Government card
accounts for the Purchase and Travel Card business.
22
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 14, 1998 By /s/ Richard Karl Goeltz
----------------------- ------------------------
Richard Karl Goeltz
Vice Chairman and
Chief Financial Officer
Date: May 14, 1998 /s/ Daniel T. Henry
----------------------- -----------------------
Daniel T. Henry
Senior Vice President and
Comptroller
(Chief Accounting Officer)
23
EXHIBIT INDEX
The following exhibits are filed as part of this Quarterly Report:
Exhibit Description
------- -----------
10.1 American Express 1998 Incentive Compensation Plan
(incorporated by reference to Exhibit 4.4 of the
Company's Form S-8, dated May 14, 1998 (Commission
File No. 333-52699)).
12 Computation in Support of Ratio of Earnings to Fixed
Charges.
15 Letter re Unaudited Interim Financial Information.
27 Financial Data Schedule.
E-1