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, 1999
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 July 31, 1999
- ---------------------------------------- -----------------------------
Common Shares (par value $.60 per share) 449,281,998 shares
AMERICAN EXPRESS COMPANY
FORM 10-Q
INDEX
Part I. Financial Information:
Consolidated Statements of Income - Three
months ended June 30, 1999 and 1998 1
Consolidated Statements of Income - Six months
ended June 30, 1999 and 1998 2
Consolidated Balance Sheets - June 30, 1999
and December 31, 1998 3
Consolidated Statements of Cash Flows - Six
months ended June 30, 1999 and 1998 4
Notes to Consolidated Financial Statements 5-7
Review Report of Independent Accountants 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-25
Part II. Other Information 26
PART I--FINANCIAL INFORMATION
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions, except per share amounts)
(Unaudited)
Three Months Ended
June 30,
----------
1999 1998
Revenues: ---- ----
Discount revenue $1,662 $1,525
Interest and dividends, net 844 811
Management and distribution fees 553 482
Net card fees 393 398
Travel commissions and fees 469 403
Other commissions and fees 428 416
Cardmember lending net finance charge
revenue 309 330
Life and other insurance premiums 127 115
Other 513 281
----- -----
Total 5,298 4,761
----- -----
Expenses:
Human resources 1,499 1,327
Provisions for losses and benefits:
Annuities and investment certificates 346 350
Life insurance, international banking,
and other 164 150
Charge card 249 236
Cardmember lending 137 187
Interest 255 250
Occupancy and equipment 316 304
Marketing and promotion 354 301
Professional services 317 264
Communications 131 114
Other 635 478
----- -----
Total 4,403 3,961
----- -----
Pretax income 895 800
Income tax provision 249 222
---- ----
Net income $646 $578
==== ====
Earnings Per Common Share:
Basic $1.44 $1.27
==== ====
Diluted $1.41 $1.24
==== ====
Average common shares outstanding for
earnings per common share (millions):
Basic 447.4 456.3
===== =====
Diluted 457.1 465.3
===== =====
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 STATEMENTS OF INCOME
(dollars in millions, except per share amounts)
(Unaudited)
Six Months Ended
June 30,
--------
1999 1998
Revenues: ---- ----
Discount revenue $3,175 $2,955
Interest and dividends, net 1,639 1,621
Management and distribution fees 1,075 900
Net card fees 796 796
Travel commissions and fees 895 754
Other commissions and fees 845 825
Cardmember lending net finance charge
revenue 656 647
Life and other insurance premiums 251 228
Other 937 556
------ -----
Total 10,269 9,282
------ -----
Expenses:
Human resources 2,930 2,561
Provisions for losses and benefits:
Annuities and investment certificates 679 720
Life insurance, international banking,
and other 321 515
Charge card 431 454
Cardmember lending 372 405
Interest 489 476
Occupancy and equipment 624 588
Marketing and promotion 650 566
Professional services 598 494
Communications 252 223
Other 1,236 867
------ -----
Total 8,582 7,869
------ -----
Pretax income 1,687 1,413
Income tax provision 466 376
------ -----
Net income $1,221 $1,037
====== =====
Earnings Per Common Share:
Basic $2.73 $2.26
====== =====
Diluted $2.67 $2.22
====== =====
Average common shares outstanding for
earnings per common share (millions):
Basic 447.5 458.4
====== =====
Diluted 456.5 467.4
====== =====
Cash dividends declared per
common share $0.45 $0.45
===== =====
See notes to Consolidated Financial Statements.
2
AMERICAN EXPRESS COMPANY
CONSOLIDATED BALANCE SHEETS
(millions)
(Unaudited)
June 30, December 31,
Assets 1999 1998
- ------ ---- ----
Cash and cash equivalents $6,096 $4,092
Accounts receivable and accrued interest:
Cardmember receivables, less reserves:
1999, $643; 1998, $524 19,430 19,176
Other receivables, less reserves:
1999, $86; 1998, $75 3,514 3,048
Investments 42,247 41,299
Loans:
Cardmember lending, less reserves:
1999, $530; 1998, $593 13,912 14,721
International banking, less reserves:
1999, $217; 1998, $214 5,012 5,404
Other, net 965 929
Separate account assets 30,061 27,349
Deferred acquisition costs 3,059 2,990
Land, buildings and equipment--at cost, less
accumulated depreciation: 1999, $2,123;
1998, $2,067 1,795 1,637
Other assets 6,361 6,288
------- -------
Total assets $132,452 $126,933
======= =======
Liabilities and Shareholders' Equity
Customers' deposits $9,062 $10,398
Travelers Cheques outstanding 6,325 5,823
Accounts payable 6,895 5,373
Insurance and annuity reserves:
Fixed annuities 20,938 21,172
Life and disability policies 4,365 4,261
Investment certificate reserves 5,462 4,854
Short-term debt 24,785 22,605
Long-term debt 6,505 7,019
Separate account liabilities 30,061 27,349
Other liabilities 7,792 7,881
------- -------
Total liabilities 122,190 116,735
======= =======
Guaranteed preferred beneficial interests in
the Company's junior subordinated deferrable
interest debentures 500 500
Shareholders' equity:
Common shares, $.60 par value, authorized
1.2 billion shares; issued and outstanding
449.0 million shares in 1999 and 450.5
million shares in 1998 269 270
Capital surplus 5,044 4,809
Retained earnings 4,559 4,148
Other comprehensive income, net of tax:
Net unrealized securities (losses) gains (11) 583
Foreign currency translation adjustments (99) (112)
------- -------
Accumulated other comprehensive income (110) 471
------- -------
Total shareholders' equity 9,762 9,698
Total liabilities and shareholders' equity ------- -------
$132,452 $126,933
======= =======
See notes to Consolidated Financial Statements.
3
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions)
(Unaudited)
Six Months Ended
June 30,
--------
1999 1998
---- ----
Cash Flows from Operating Activities
Net income $1,221 $1,037
Adjustments to reconcile net income to
net cash provided by operating activities:
Provisions for losses and benefits 1,137 1,427
Depreciation, amortization, deferred taxes and other 144 9
Changes in operating assets and liabilities, net of
effects of acquisitions and dispositions:
Accounts receivable and accrued interest (499) (142)
Other assets 86 151
Accounts payable and other liabilities 1,779 697
Increase in Travelers Cheques outstanding 504 666
Increase in insurance reserves 86 78
----- -----
Net cash provided by operating activities 4,458 3,923
----- -----
Cash Flows from Investing Activities
Sale of investments 1,390 1,074
Maturity and redemption of investments 3,367 3,431
Purchase of investments (6,534) (5,400)
Net increase in Cardmember receivables (981) (386)
Sale of Cardmember receivables/loans to Trust 2,492 1,995
Proceeds from repayment of loans 10,684 14,071
Issuance of loans (12,529) (14,991)
Purchase of land, buildings and equipment (332) (133)
Sale of land, buildings and equipment 8 10
Acquisitions, net of cash acquired (27) (313)
----- -----
Net cash provided by investing activities (2,462) (642)
----- -----
Cash Flows from Financing Activities
Net (decrease) increase in customers' deposits (1,283) 132
Sale of annuities and investment certificates 2,790 2,647
Redemption of annuities and investment certificates (2,521) (2,884)
Net (decrease) in debt with maturities of three
months or less (2,214) (2,542)
Issuance of debt 10,007 3,768
Principal payments on debt (6,093) (3,794)
Issuance of American Express common shares 137 88
Repurchase of American Express common shares (634) (1,130)
Dividends paid (202) (209)
----- -----
Net cash used by financing activities (13) (3,924)
----- -----
Effect of exchange rate changes on cash 21 (35)
----- -----
Net increase (decrease) in cash and cash equivalents 2,004 (678)
Cash and cash equivalents at beginning of period 4,092 4,179
----- -----
Cash and cash equivalents at end of period $6,096 $3,501
===== =====
See notes to Consolidated Financial Statements.
4
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,
1998. Significant accounting policies disclosed therein have not changed.
Certain reclassifications of prior period amounts have been made to conform to
the current presentation.
Cardmember Lending Net Finance Charge Revenue is presented net of interest
expense of $156 million and $163 million for the second quarter of 1999 and
1998, respectively, and $312 million and $324 million for the six months ended
June 30, 1999 and 1998, respectively. Interest and Dividends is presented net
of interest expense of $110 million and $151 million for the second quarter of
1999 and 1998, respectively, and $231 million and $294 million for the six
months ended June 30, 1999 and 1998, 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 Development
In March 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." The SOP, which has been
adopted prospectively as of January 1, 1999, requires the capitalization of
certain costs incurred after the date of adoption to develop or obtain
software for internal use. The Company's policy had been to expense such costs
as incurred. The amounts capitalized will be amortized straight line over a
five-year period. See the consolidated section of Management's Discussion and
Analysis of Financial Condition and Results of Operations for further
information.
5
3. Investment Securities
The following is a summary of investments at June 30, 1999 and
December 31, 1998:
June 30, December 31,
1999 1998
(in millions) ---- ----
Held to Maturity, at amortized cost
(fair value: 1999, $9,948; 1998, $11,144) $9,731 $10,526
Available for Sale, at fair value
(cost: 1999, $28,160; 1998, $25,895) 28,127 26,764
Investment mortgage loans
(fair value: 1999, $3,953; 1998, $4,089) 3,941 3,840
Trading 448 169
------ ------
Total $42,247 $41,299
======= =======
4. Comprehensive Income
Comprehensive income is defined as the aggregate change in shareholders'
equity, excluding changes in ownership interests. For the Company, it is the
sum of net income and changes in (i) unrealized gains or losses on
available-for-sale securities and (ii) foreign currency translation
adjustments. The components of comprehensive income, net of related tax, for
the three and six months ended June 30, 1999 and 1998 were as follows:
Three Months Ended Six Months Ended
June 30, June 30,
------- --------
(in millions) 1999 1998 1999 1998
---- ---- ---- ----
Net income $646 $578 $1,221 $1,037
Change in:
Net unrealized securities
(losses) gains (384) 5 (594) (12)
Foreign currency translation
adjustments 1 - 13 (2)
---- ---- ---- -----
Total $263 $583 $640 $1,023
==== ==== ==== ======
5. Taxes and Interest
Net income taxes paid during the six months ended June 30, 1999 and 1998 were
approximately $225 million and $415 million, respectively. Interest paid
during the six months ended June 30, 1999 and 1998 was approximately $1.2
billion and $1.1 billion, respectively.
6
6. Earnings per Share
The computations of basic and diluted earnings per common share (EPS) for the
three and six months ended June 30, 1999 and 1998 are as follows:
(in millions, except per Three Months Ended Six Months Ended
share amounts) June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
Numerator: Net income $646 $578 $1,221 $1,037
Denominator:
Denominator for basic EPS -
weighted-average shares 447.4 456.3 447.5 458.4
Effect of dilutive securities:
Stock Options and Restricted
Stock Awards 9.7 8.9 9.0 8.9
Other - 0.1 - 0.1
----- ----- ----- -----
Potentially dilutive
common shares 9.7 9.0 9.0 9.0
----- ----- ----- -----
Denominator for diluted EPS 457.1 465.3 456.5 467.4
----- ----- ----- -----
Basic EPS $1.44 $1.27 $2.73 $2.26
----- ----- ----- -----
Diluted EPS $1.41 $1.24 $2.67 $2.22
----- ----- ----- -----
7. Segment Information
Results for the Company's operating segments, based on management's internal
reporting structure, are as follows:
Revenues Three Months Ended Six Months Ended
June 30, June 30,
------- -------
(in millions) 1999 1998 1999 1998
---- ---- ---- ----
Travel Related Services $3,678 $3,270 $7,099 $6,353
American Express
Financial Advisors 1,394 1,282 2,739 2,503
American Express Bank/
Travelers Cheque 259 251 506 508
Corporate and Other (33) (42) (75) (82)
----- ----- ------ -----
Total $5,298 $4,761 $10,269 $9,282
===== ===== ====== =====
Net Income Three Months Ended Six Months Ended
June 30, June 30,
------- -------
(in millions) 1999 1998 1999 1998
---- ---- ---- ----
Travel Related Services $411 $360 $774 $676
American Express
Financial Advisors 242 212 456 398
American Express Bank/
Travelers Cheque 38 47 79 (36)
Corporate and Other (45) (41) (88) (1)
--- --- ----- -----
Total $646 $578 $1,221 $1,037
=== === ===== =====
7
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, 1999 and the related
consolidated statements of income for the three and six-month periods
ended June 30, 1999 and 1998 and consolidated statements of cash flows for
the six-month periods ended June 30, 1999 and 1998. 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,
1998, 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 4, 1999, 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,
1998 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, 1999
8
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, 1999
- ----------------------------------------------------------------------
The Company's consolidated net income rose 12 percent and 18 percent while
diluted earnings per share increased 14 percent and 20 percent in the three
and six-month periods ended June 30, 1999, respectively. The Company's return
on equity was 25.3 percent.
The year-ago six-month results included several first quarter items: a $138
million ($213 million pretax) credit loss provision at American Express Bank
relating to its Asia/Pacific portfolio and income in the Corporate and Other
segment of $78 million ($106 million pretax) comprising a gain from the sale
of First Data Corporation shares and a preferred stock dividend based on
Lehman Brothers earnings. Excluding these items, six-month income and diluted
earnings per share increased 11 percent and 14 percent, respectively.
Consolidated revenues grew 11 percent for the three and six months ended June
30, 1999. Revenues, net of American Express Financial Advisors' (AEFA)
provisions for losses and benefits, were up 12 percent for the three and six
months ended June 30, 1999, reflecting an increase in worldwide billed
business and Cardmember loans, higher travel commissions and fees, greater
management and distribution fees and wider investment margins at AEFA. The
growth in travel commissions and fees resulted from acquisitions during the
latter part of 1998, which increased revenues and expenses but did not have a
material effect on net income. Consolidated expenses rose, primarily due to
higher expenses related to human resources and marketing and promotion
expenses to support business building initiatives and acquisitions, partially
offset by lower loss provisions.
These results were in line with or exceeded the Company's long-term targets
of achieving, on average and over time: 12-15 percent earnings per share growth,
at least 8 percent revenue growth and a return on equity of 18-20 percent.
Due to a change in accounting rules, the Company is required to capitalize
software costs rather than expense them as incurred, which had been the
Company's practice. For the three and six-month periods ended June 30,
1999, this amounted to benefits of $67 million and $126 million (net of
amortization), respectively. Of these amounts, $51 million and $98 million
related to Travel Related Services and $12 million and $22 million to
American Express Financial Advisors for the three and six-month periods
ended June 30, 1999, respectively. These benefits were offset by increased
investment spending and therefore had no effect on net income.
Consolidated Liquidity and Capital Resources
- --------------------------------------------
In the first half of 1999, the Company repurchased 5.0 million common shares
at an average price of $119.88 per share under its repurchase program.
9
In the third quarter of 1999 the Company entered into an agreement under
which a third party will purchase up to 7 million Company common shares in
the open market over a period of up to eight months. During the term of the
agreement the Company will periodically issue shares to or receive shares
from the third party so that the value of the shares held by the third
party equals the original purchase price for the shares. At maturity in
five years, the Company is required to deliver to the third party an amount
equal to such original purchase price. The Company may elect to settle this
amount (i) physically, by paying cash against delivery of the shares held
by the third party or (ii) on a net cash or net share basis. The Company
may also prepay outstanding amounts at any time prior to the end of the
five-year term. The foregoing is separate from the Company's previously
authorized share repurchase program.
Year 2000
- ---------
The Company began addressing the Year 2000 (Y2K) issue in 1995 and has
established a plan for resolution, which involves the remediation,
decommissioning and replacement of relevant systems, including mainframe,
mid-range and desktop computers, application software, operating systems,
systems software, data back-up archival and retrieval services, telephone and
other communications systems, and hardware peripherals and facilities
dependent on embedded technology. The Y2K compliance effort is divided into
two initiatives. The first, known as "Millenniax," relates to mainframe and
other technological systems maintained by the American Express Technologies
organization (AET). The second, known as "Business T," relates to the
technological assets that are owned, managed or maintained by the Company's
individual business and staff units. Our plans for remediation of the Y2K
issue include the following program phases: (i) employee awareness and
mobilization, (ii) inventory collection and assessment, (iii) impact analysis,
(iv) remediation/decommission, (v) testing and (vi) implementation. With
respect to the Millenniax systems and Business T assets, all of the program
phases referred to above are at least 99 percent complete.
The Company's cumulative costs since inception of the Y2K initiatives were
$471 million through June 30, 1999 and are estimated to be in the range of $46
- - $72 million for the remainder through 2000.* These costs, which are expensed
as incurred, relate to both Millenniax and Business T, and have not had, nor
are they expected to have, a material adverse impact on the Company's results
of operations or financial condition.* Y2K costs related to Millenniax
represent 6 percent and 1 percent of the AET budget for the years 1999 and 2000,
respectively.*
The Company's major businesses are heavily dependent upon internal computer
systems, and all have significant interaction with systems of third parties,
both domestically and internationally. The Company is working with key
external parties, including merchants, clients, counterparties, vendors,
exchanges, utilities, suppliers, agents and regulatory agencies to mitigate
the potential risks to us of Y2K. As part of our overall compliance program,
the Company is actively communicating with third parties through face-to-face
meetings and correspondence, on an ongoing basis, to ascertain their state of
readiness. Although numerous third parties have indicated to us in writing
that they are addressing their Y2K issues on a timely basis, the readiness of
third parties overall varies across the spectrum. The failure of external
parties to resolve their own Y2K issues in a timely manner could result in a
material financial risk to the Company.*
10
At this point, with remediation and testing of individual internal systems
substantially complete, the Company's primary focus is on performing
additional targeted integration testing of systems that support our most
critical business functions, independent validation of such testing and
completing Y2K contingency plans for all critical systems and, to a lesser
extent, certain non-critical systems. A substantial portion of the
integrated testing and related validation has been completed, with the
remainder scheduled to be completed during the third quarter of 1999.*
The contingency planning effort is a full-scale initiative that includes both
internal and external experts under the guidance of a Company-wide steering
committee. Our contingency plans, which are based in part on an assessment of
the magnitude and probability of potential risks, primarily focus on proactive
steps to prevent Y2K-related failures from occurring, or if they should occur,
detecting them quickly, minimizing their impact and expediting their repair.
The Y2K contingency plans supplement disaster recovery and business continuity
plans already in place, and include measures such as selecting alternative
suppliers and channels of distribution, setting up manual back-up processes,
creating command centers, establishing additional roll-over management
procedures and scheduling the availability of key personnel.
Our Y2K contingency plans have been developed generally in accordance with
guidelines established by the Federal Financial Institutions Examination
Council. This effort is divided into four phases: (i) establishing
organizational planning guidelines, (ii) completing a business impact
analysis, (iii) developing the contingency plans and (iv) validating and
verifying the contingency plans. The first three of these phases have
essentially been completed, and have identified and assessed the need for,
and developed, Y2K contingency plans for the Company's most critical core
business functions. Such functions include, but are not limited to, credit
authorization, Cardmember billing, merchant payment, client investments,
funds transfer, securities settlement and travel reservations. These
contingency plans also address third party systems that the Company's
businesses interface with and rely upon, such as international
telecommunications networks and utilities, global financial payment and
clearing systems, and airline and other travel systems. The final phase of
our contingency planning, which will include validation and verification of
the contingency plans, will take place during the third quarter of 1999.*
The Company will continue to refine its contingency planning activities
throughout 1999 as additional information related to our exposures is
gathered.* To the extent that there are Y2K failures that affect major
internal processes or third party systems that the Company relies upon,
including but not limited to those described above, such failures could
have a material impact on the Company and its businesses or subsidiaries
through business interruption or shutdown, financial loss, reputational
damage and legal liability to third parties.* At this point it appears that
some of the major industries in certain countries outside the United
States, such as telecommunications and utilities, have made less progress
in the Y2K compliance effort and, as a result, may present a somewhat
greater exposure to the Company.*
For additional information relating to the Y2K issue, see pages 22 and 23 of
the Company's 1998 annual report to shareholders, which is incorporated by
reference in the Company's 1998 10-K report.
* Statements in this Y2K discussion marked with an asterisk are forward-looking
statements which are subject to risks and uncertainties. Important factors that
could cause results to differ materially from these forward-looking statements
include, among other things, the ability of the Company
11
to successfully identify all systems containing two-digit codes, the
nature and amount of programming and other resources required to fix and test
the affected systems, the costs of labor and consultants related to such
efforts as well as those involving the development and implementation of
contingency plans, the continued availability of such personnel, the ability
of third parties that interface with the Company to successfully address their
Y2K issues, and the ability of the Company to assess potential internal and
external Y2K exposures and develop effective contingency plans in connection
therewith.
12
Travel Related Services
Results of Operations For The Three and Six Months Ended June 30, 1999 and 1998
Statement of Income
-------------------
(Unaudited)
(Dollars in millions)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- Percentage ---------------------- Percentage
1999 1998 Inc/(Dec) 1999 1998 Inc/(Dec)
----------------------------------------- ------------------------------------
Net Revenues:
Discount Revenue $ 1,662 $ 1,525 9.0 % $ 3,175 $ 2,955 7.5 %
Net Card Fees 393 398 (1.4) 796 796 -
Travel Commissions and Fees 469 403 16.2 895 754 18.7
Other Revenues 845 614 37.8 1,577 1,201 31.2
Lending:
Finance Charge Revenue 465 493 (5.6) 968 971 (0.3)
Interest Expense 156 163 (4.3) 312 324 (3.7)
----------------------------- ----------------------------
Net Finance Charge Revenue 309 330 (6.3) 656 647 1.4
----------------------------- ----------------------------
Total Net Revenues 3,678 3,270 12.5 7,099 6,353 11.7
----------------------------- ----------------------------
Expenses:
Marketing and Promotion 325 275 18.4 595 519 14.7
Provision for Losses and Claims:
Charge Card 249 236 5.2 431 454 (5.1)
Lending 137 187 (26.6) 372 405 (8.2)
Other 14 11 17.4 27 24 11.9
----------------------------- ----------------------------
Total 400 434 (8.1) 830 883 (6.0)
----------------------------- ----------------------------
Charge Card Interest Expense 198 203 (2.3) 381 399 (4.6)
Net Discount Expense 131 170 (23.1) 273 310 (11.8)
Human Resources 968 843 14.9 1,880 1,630 15.4
Other Operating Expenses 1,028 799 28.7 1,958 1,584 23.6
----------------------------- ----------------------------
Total Expenses 3,050 2,724 12.0 5,917 5,325 11.1
----------------------------- ----------------------------
Pretax Income 628 546 15.0 1,182 1,028 15.0
Income Tax Provision 217 186 16.8 408 352 15.9
----------------------------- ----------------------------
Net Income $ 411 $ 360 14.0 $ 774 $ 676 14.5
============================= ============================
The following table, which is presented for analytical purposes only,
presents the effect on the above Statement of Income related to TRS'
securitized receivables. It includes pretax gains of $99 million ($64
million after-tax) and $36 million ($23 million after-tax) in the second
quarter of 1999 and 1998, respectively, related to the securitization of
U.S. lending receivables, which were recognized in accordance with
Statement of Financial Accounting Standards No. 125. These gains were
invested in additional Marketing and Promotion expenses in both years and
other business building initiatives in 1999 and had no material effect on
Net Income or Total Expenses in any period.
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- ----------------------------
1999 1998 1999 1998
----------------------------- ----------------------------
Increase in Net Card Fees - $ 5 - $ 5
Increase in Other Revenues $ 176 78 $ 267 155
Decrease in Lending Finance Charge Revenue (219) (102) (368) (208)
Decrease in Lending Interest Expense 52 34 96 67
Increase in Marketing and Promotion Expense (58) (36) (58) (36)
Decrease in Provision for Losses and Claims:
Charge Card 39 71 90 125
Lending 123 64 170 94
Decrease in Charge Card Interest Expense 59 56 117 108
Increase in Net Discount Expense (131) (170) (273) (310)
Increase in Other Operating Expenses (41) - (41) -
----------------------------- ----------------------------
Pretax Income $ - $ - $ - $ -
============================= ============================
13
Travel Related Services
Selected Statistical Information
--------------------------------
(Unaudited)
(Amounts in billions, except where indicated)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- Percentage ---------------------------- Percentage
1999 1998 Inc/(Dec) 1999 1998 Inc/(Dec)
-------------------------------------- -------------------------------------------
Total Cards in Force (millions):
United States 28.7 29.6 (3.0)% 28.7 29.6 (3.0)%
Outside the United States 15.2 14.2 6.8 15.2 14.2 6.8
========================= =========================
Total 43.9 43.8 0.2 43.9 43.8 0.2
========================= =========================
Basic Cards in Force (millions):
United States 22.5 23.3 (3.6) 22.5 23.3 (3.6)
Outside the United States 11.7 11.0 6.1 11.7 11.0 6.1
========================= =========================
Total 34.2 34.3 (0.4) 34.2 34.3 (0.4)
========================= =========================
Card Billed Business:
United States $ 46.0 $ 41.4 11.0 $ 87.6 $ 79.9 9.6
Outside the United States 16.4 15.4 7.3 31.6 29.5 7.3
========================= =========================
Total $ 62.4 $ 56.8 10.0 $ 119.2 $ 109.4 9.0
========================= =========================
Average Discount Rate* 2.73% 2.72% - 2.73% 2.73% -
Average Basic Cardmember
Spending (dollars)* $ 1,933 $ 1,717 12.6 $ 3,714 $ 3,313 12.1
Average Fee per Card (dollars)* $ 38 $ 38 - $ 39 $ 38 2.6
Travel Sales $ 6.0 $ 4.9 22.3 $ 11.4 $ 9.2 23.7
Travel Commissions and Fees/Sales** 7.8% 8.2% - 7.9% 8.2% -
Owned and Managed Charge Card
Receivables:
Total Receivables $ 24.6 $ 23.4 5.3 $ 24.6 $ 23.4 5.3
90 Days Past Due as a % of Total 2.6% 3.1% - 2.6% 3.1% -
Loss Reserves (millions) $ 932 $ 1,015 (8.2) $ 932 $ 1,015 (8.2)
% of Receivables 3.8% 4.3% - 3.8% 4.3% -
% of 90 Days Past Due 148% 142% - 148% 142% -
Net Loss Ratio 0.39% 0.46% - 0.41% 0.46% -
Owned and Managed U.S. Cardmember
Lending:
Total Loans $ 18.3 $ 14.8 23.2 $ 18.3 $ 14.8 23.2
Past Due Loans as a % of Total:
30-89 Days 1.8% 2.3% - 1.8% 2.3% -
90+ Days 0.9% 1.1% - 0.9% 1.1% -
Loss Reserves (millions):
Beginning Balance $ 623 $ 591 5.5 $ 619 $ 589 5.1
Provision 209 219 (4.4) 453 440 3.0
Net Charge-Offs/Other (230) (233) (0.8) (470) (452) 4.1
========================= =========================
Ending Balance $ 602 $ 577 4.3 $ 602 $ 577 4.3
========================= =========================
% of Loans 3.3% 3.9% - 3.3% 3.9% -
% of Past Due 124% 115% - 124% 115% -
Average Loans $ 17.4 $ 14.5 20.5 $ 17.1 $ 14.3 18.9
Net Write-Off Rate 5.3% 6.6% - 5.6% 6.5% -
Net Interest Yield 9.3% 9.5% - 9.3% 9.5% -
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.
14
Travel Related Services
- -----------------------
Travel Related Services' (TRS) net income rose 14 percent and 15 percent for
the three and six-month periods ended June 30, 1999, respectively, compared
with a year ago. Net revenues increased 12 percent in both periods, reflecting
higher billed business in the United States and internationally, growth in
Cardmember loans and higher travel commissions and fees. In the second quarter
of 1999 and 1998, TRS recognized pretax gains of $99 million ($64 million
after-tax) and $36 million ($23 million after-tax), respectively, from the
securitization of U.S. receivables. These gains were invested in marketing and
promotion related to card acquisition and, in 1999, Internet activities and
other business building initiatives as well and, therefore, had no material
impact on net income or total expense in either period.
The improvement in discount revenue in the three and six-month periods ended
June 30, 1999 compared with a year ago resulted from higher billed business.
The growth in billed business reflects higher spending per Cardmember in each
period, which rose due to several factors, including the benefits of rewards
programs and expanded merchant coverage. Billed business increased, despite a
general tightening of corporate travel and entertainment expenses and the
cancellation of 1.6 million U.S. Government cards in the fourth quarter of
1998, representing approximately $3.5 billion in annualized spending, due to
the Company's decision to withdraw from this business. Excluding the loss of
the Government card business, total cards in force rose 1.7 million, with
about one million of these cards added in the current quarter; in addition,
domestic billed business for the current quarter grew 14% from a year ago
excluding the loss of this business. The growth in billed business continued
to be primarily the result of increases in retail and "everyday spend"
categories; airline billings were relatively flat. The increase in travel
commissions and fees in each period was driven by acquisitions during the
latter half of 1998, which increased revenues and expenses but did not have a
material effect on earnings. Other revenues also increased for the three and
six months ended June 30, 1999, as a result of a higher level of securitized
receivables, acquisitions, core business growth and higher lending assessments
and fees. Lending net finance charge revenue, excluding securitizations, rose
19 percent and 18 percent for the three and six months ended June 30, 1999,
respectively, compared with a year ago. This increase is primarily due to a 24
percent growth in managed worldwide lending balances, partially offset by
lower net interest yields.
Marketing and promotion expenses rose for the three and six months ended June
30, 1999 as a result of business building initiatives. The provision for
losses on the charge card portfolio grew for the three months ended June 30,
1999, but fell for the six-month period ended June 30, 1999. The increase for
the current quarter is due to higher volume, partly offset by a continued
improvement in credit quality; the decline for the six-month period is due to
improved loss rates. The provision for the lending portfolio fell for the
three and six months ended June 30, 1999 as a result of securitizing a portion
of the loan portfolio in the current quarter and improved loss rates, which
more than offset the effect of higher loan volumes. Human resource costs rose
in both periods, mainly due to a higher average number of employees, resulting
from acquisitions and increased business volumes, merit increases and greater
contract programmer costs for technology related projects. Other operating
expenses also grew in both periods, in part from the cost of Cardmember
loyalty programs, business growth and investment spending.
15
Travel Related Services
Liquidity and Capital Resources
Selected Balance Sheet Information
----------------------------------
(Unaudited)
(Dollars in billions, except percentages)
June 30, December 31, Percentage June 30, Percentage
1999 1998 Inc/(Dec) 1998 Inc/(Dec)
-------------------- ------------------- ---------------- -------------------- -------------
Accounts Receivable, net $ 21.7 $ 21.3 1.8 % $ 19.4 11.7 %
U.S. Cardmember Loans $ 12.8 $ 13.7 (7.1) $ 11.8 7.9
Total Assets $ 46.9 $ 44.7 5.0 $ 38.9 20.7
Short-term Debt $ 25.8 $ 22.9 12.8 $ 18.1 43.0
Long-term Debt $ 4.8 $ 5.1 (6.1) $ 5.9 (19.0)
Total Liabilities $ 41.6 $ 39.8 4.7 $ 33.9 22.8
Total Shareholder's Equity $ 5.3 $ 4.9 7.7 $ 5.0 6.4
Return on Average Equity* 28.8% 27.8% - 26.5% -
Return on Average Assets* 3.3% 3.3% - 3.2% -
* Computed based on the past twelve months of net income and excludes the
effect of SFAS No. 115.
In January 1999, TRS issued and sold, exclusively outside the United States
and to non-U.S. persons, $500 million 5.625% Fixed Rate Notes. These notes are
listed on the Luxembourg Stock Exchange and will mature in 2004.
In April and May 1999, the American Express Credit Account Master Trust (the
Trust) securitized an additional $1 billion and $1.5 billion of loans,
respectively, through the issuance of asset backed certificates. The Trust
expects to securitize an additional $1 billion of loans at a closing expected
to occur in August 1999. The securitized assets consist of loans arising in a
portfolio of designated Optima Card, Optima Line of Credit and Sign and
Travel/Special Purchase revolving credit accounts owned by American Express
Centurion Bank, a wholly-owned subsidiary of TRS.
In July 1999, $500 million Class A Fixed Rate Accounts Receivable Trust
Certificates matured from the charge card securitization portfolio.
16
American Express Financial Advisors
Results of Operations For The Three and Six Months Ended June 30, 1999 and 1998
Statement of Income
-------------------
(Unaudited)
(Dollars in millions)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- Percentage -------------------------- Percentage
1999 1998 Inc/(Dec) 1999 1998 Inc/(Dec)
-------------------------------------- -------------------------------------------
Net Revenues:
Investment Income $ 615 $ 603 1.9 % $ 1,210 $ 1,216 (0.5)%
Management and Distribution Fees 553 482 14.6 1,075 900 19.4
Other Revenues 226 197 15.3 454 387 17.4
------------------------- -------------------------
Total Revenues 1,394 1,282 8.7 2,739 2,503 9.4
Provision for Losses and Benefits:
Annuities 273 292 (6.5) 543 589 (7.7)
Insurance 132 125 5.8 258 242 6.4
Investment Certificates 73 58 24.4 136 131 3.9
------------------------- -------------------------
Total 478 475 0.5 937 962 (2.6)
------------------------- -------------------------
Net Revenues 916 807 13.6 1,802 1,541 16.9
------------------------- -------------------------
Expenses:
Human Resources 430 388 11.0 846 738 14.6
Other Operating Expenses 133 110 20.8 291 223 30.8
------------------------- -------------------------
Total Expenses 563 498 13.2 1,137 961 18.3
------------------------- -------------------------
Pretax Income 353 309 14.2 665 580 14.5
Income Tax Provision 111 97 14.3 209 182 14.5
------------------------- -------------------------
Net Income $ 242 $ 212 14.2 $ 456 $ 398 14.5
========================= =========================
17
American Express Financial Advisors
Selected Statistical Information
--------------------------------
(Unaudited)
(Amounts in millions, except percentages and where indicated)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- Percentage ----------------------------- Percentage
1999 1998 Inc/(Dec) 1999 1998 Inc/(Dec)
----------------------------------------- -----------------------------------------
Investments (billions) $ 30.7 $31.0 (1.2) % $30.7 $31.0 (1.2)%
Client Contract Reserves (billions) $ 30.8 $30.2 2.0 $30.8 $30.2 2.0
Shareholder's Equity (billions) $ 4.0 $ 4.0 (0.3) $ 4.0 $ 4.0 (0.3)
Return on Average Equity* 22.8% 22.3% - 22.8% 22.3% -
Life Insurance in Force (billions) $ 84.6 $77.8 8.7 $84.6 $77.8 8.7
Deferred Annuities in Force (billions) $ 44.8 $43.5 3.0 $44.8 $43.5 3.0
Assets Owned, Managed or Administered
(billions):
Assets Managed for Institutions $ 49.9 $44.0 13.3 $49.9 $44.0 13.3
Assets Owned, Managed or Administered
for Individuals:
Owned Assets:
Separate Account Assets 30.1 26.6 13.1 30.1 26.6 13.1
Other Owned Assets 37.8 37.2 1.7 37.8 37.2 1.7
--------------------------- -----------------------------
Total Owned Assets 67.9 63.8 6.5 67.9 63.8 6.5
Managed Assets 96.3 83.0 16.2 96.3 83.0 16.2
Administered Assets 18.3 11.2 62.5 18.3 11.2 62.5
--------------------------- -----------------------------
Total $232.4 $ 202.0 15.1 $ 232.4 $ 202.0 15.1
=========================== =============================
Market Appreciation (Depreciation) During
the Period:
Owned Assets:
Separate Account Assets $1,520 $ 361 # $ 2,432 $ 2,971 (18.1)
Other Owned Assets $ (395) $ 24 - $(599) $ 42 -
Total Managed Assets $5,063 $ 1,045 # $ 7,952 $ 9,889 (19.6)
Sales of Selected Products:
Mutual Funds $6,207 $ 5,474 13.4 $12,239 $10,569 15.8
Annuities $ 750 $ 702 6.8 $ 1,329 $ 1,353 (1.8)
Investment Certificates $ 777 $ 383 # $ 1,438 $ 841 71.0
Life and Other Insurance Products $ 110 $ 104 5.8 $ 202 $ 187 7.9
Number of Financial Advisors 10,489 9,869 6.3 10,489 9,869 6.3
Fees from Financial Plans $ 22.8 $20.9 9.2 $44.1 $38.4 14.7
Product Sales Generated from Financial
Plans as a Percentage of Total Sales 65.2% 64.7% - 65.8% 64.9% -
# Denotes variances of more than 100%.
* Computed based on the past twelve months of net income and excludes the
effect of SFAS No. 115.
18
American Express Financial Advisors
American Express Financial Advisors' (AEFA) net income for the three and
six-month periods ended June 30, 1999 rose 14 percent and 15 percent,
respectively, from a year ago. Net revenues and earnings grew due to higher
fee revenues and wider investment margins. Management fees rose as a result
of increased managed asset levels, including separate account assets, and
distribution fees grew reflecting record mutual fund sales and higher asset
levels. Managed assets rose since last year reflecting positive net sales
and market appreciation. Other revenues benefited from higher insurance
premiums and financial planning fees. Investment income, net of provisions
for losses and benefits, rose due to improved spreads on all product
categories and higher in-force levels of insurance and certificate products.
Human resource expenses rose, largely as a result of a volume-driven increase
in advisors' compensation reflecting growth in sales and asset levels. The
rise in other operating expenses is primarily due to increased costs related
to higher business volumes and investments to build the business.
19
American Express Financial Advisors
Liquidity and Capital Resources
Selected Balance Sheet Information
----------------------------------
(Unaudited)
(Amounts in billions, except percentages)
June 30, December 31, Percentage June 30, Percentage
1999 1998 Inc/(Dec) 1998 Inc/(Dec)
-------------- -------------- ------------- ------------ ---------
Investments $ 30.7 $ 30.9 (0.6)% $ 31.0 (1.2)%
Separate Account Assets $ 30.1 $ 27.3 9.9 $ 26.6 13.1
Total Assets $ 67.9 $ 64.6 5.1 $ 63.8 6.5
Client Contract Reserves $ 30.8 $ 30.3 1.6 $ 30.2 2.0
Total Liabilities $ 63.9 $ 60.6 5.7 $ 59.8 6.9
Total Shareholder's Equity $ 4.0 $ 4.1 (3.3) $ 4.0 (0.3)
Return on Average Equity* 22.8% 22.5% - 22.3% -
* Computed based on the past twelve months of net income and excludes the
effect of SFAS No. 115.
Separate account assets and liabilities increased from December 31, 1998,
primarily reflecting market appreciation.
20
American Express Bank/Travelers Cheque (AEB/TC)
Results of Operations For The Three and Six Months Ended June 30, 1999 and 1998
Statement of Income
-------------------
(Unaudited)
(Amounts in millions, except percentages)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- Percentage ----------------------------- Percentage
1999 1998 Inc/(Dec) 1999 1998 Inc/(Dec)
------------------------------------------- -----------------------------------------
Net Revenues:
Interest Income $ 183 $ 218 (16.1)% $ 376 $ 428 (12.1)%
Interest Expense 108 147 (26.2) 228 286 (20.2)
---------------------------- -----------------------------
Net Interest Income 75 71 4.8 148 142 4.2
Travelers Cheque Investment Income 86 80 7.4 166 161 3.2
Foreign Exchange Income 14 35 (58.6) 33 83 (60.5)
Commissions, Fees and Other Revenues 84 65 28.6 159 122 29.6
---------------------------- -----------------------------
Total Net Revenues 259 251 3.0 506 508 (0.6)
---------------------------- -----------------------------
Expenses:
Human Resources 85 79 6.6 166 153 8.5
Other Operating Expenses 150 136 10.3 287 261 9.9
Provision for Losses 18 13 38.7 35 245 (85.9)
---------------------------- -----------------------------
Total Expenses 253 228 10.7 488 659 (26.1)
---------------------------- -----------------------------
Pretax Income/(Loss) 6 23 (73.9) 18 (151) -
Income Tax Benefit (32) (24) 35.5 (61) (115) (47.1)
---------------------------- -----------------------------
Net Income/(Loss) $ 38 $ 47 (18.1) $ 79 $ (36) -
============================ =============================
Selected Statistical Information
--------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- Percentage ----------------------------- Percentage
1999 1998 Inc/(Dec) 1999 1998 Inc/(Dec)
----------------------------------------- -------------------------------------------
American Express Bank:
Assets Managed / Administered * $ 7.0 $ 5.6 25.0 % $ 7.0 $ 5.6 25.0 %
Assets of Non-Consolidated Joint
Ventures $ 2.2 $ 2.7 (20.3) $ 2.2 $ 2.7 (20.3)
Travelers Cheque:
Sales $ 6.1 $ 6.4 (5.7) $10.6 $11.2 (5.1)
Average Outstanding $ 6.1 $ 6.0 1.2 $ 6.0 $ 5.8 2.2
Average Investments $ 5.7 $ 5.7 1.4 $ 5.7 $ 5.6 2.3
Tax equivalent yield 8.8% 9.0% - 8.8% 9.1% -
* Includes assets managed by American Express Financial Advisors.
21
American Express Bank/Travelers Cheque (AEB/TC)
AEB/TC reported net income of $38 million for the second quarter of 1999,
compared with $47 million a year ago. AEB/TC reported net income of $79
million compared with a loss of $36 million for the six-month periods ended
June 30, 1999 and 1998, respectively. The six-month period ended June 30, 1998
included a $138 million ($213 million pretax) credit loss provision related to
AEB's business in the Asia/Pacific region, particularly Indonesia. Travelers
Cheque results were in line with the prior year. Foreign exchange income
declined due to reduced spreads, resulting from increased stability in
currency markets, particularly in Asia. Commissions, fees and other revenues
increased in part due to higher Private Banking and Correspondent Banking fees
and losses in the prior year on Indonesian securities positions. Operating
expenses rose due to costs associated with new consumer product introductions
and realigning business activities in certain countries.
22
American Express Bank/Travelers Cheque (AEB/TC)
Liquidity and Capital Resources
Selected Balance Sheet Information
(Unaudited)
(Amounts in billions, except percentages and where indicated)
June 30, December 31, Percentage June 30, Percentage
1999 1998 Inc/(Dec) 1998 Inc/(Dec)
------------- ------------- ------------- ------------- -------------
Travelers Cheque Investments $ 6.3 $ 6.3 1.0 % $ 6.5 (2.1)%
Total Loans $ 5.2 $ 5.6 (7.0) $ 6.1 (14.9)
Total Nonperforming Loans (millions) $ 210 $ 180 16.3 $ 205 2.1
Other Nonperforming Assets (millions) $ 55 $ 63 (12.9) $ 73 (24.5)
Reserve for Credit Losses (millions)* $ 249 $ 259 (3.7) $ 350 (28.7)
Loan Loss Reserves as a
Percentage of Total Loans 4.1% 3.8% - 4.3% -
Total Assets $ 18.7 $ 18.5 1.1 $ 18.8 (0.5)
Deposits $ 8.0 $ 8.3 (3.4) $ 8.1 (1.6)
Travelers Cheques Outstanding $ 6.3 $ 5.8 8.6 $ 6.3 0.2
Total Liabilities $ 17.7 $ 17.3 2.1 $ 17.7 -
Total Shareholder's Equity (millions) $ 1,048 $ 1,197 (12.4) $ 1,135 (7.7)
Return on Average Assets** 0.86% 0.23% - 0.50% -
Return on Average Common Equity** 18.5% 4.9% - 10.4% -
Risk-Based Capital Ratios:
Tier 1 9.8% 9.8% - 9.2% -
Total 12.1% 12.6% - 12.2% -
Leverage Ratio 5.7% 5.5% - 5.6% -
* Allocation:
Loans $ 216 $ 214 $ 265
Other Assets, primarily derivatives 32 43 84
Other Liabilities 1 2 1
============= ============= =============
Total Credit Loss Reserves $ 249 $ 259 $ 350
============= ============= =============
** Computed based on the past twelve months of net income and excludes the
effect of SFAS No. 115.
AEB had loans outstanding of $5.2 billion at June 30, 1999, down from $5.6
billion at December 31, 1998 and $6.1 billion at June 30, 1998. The reduction
since second quarter 1998 resulted from a $1.1 billion decrease in corporate
and correspondent bank loans and a $260 million increase in consumer and
private banking loans. Since December 31, 1998, corporate and correspondent
bank loans fell by $460 million and consumer and private banking loans rose
by $110 million. During the quarter, AEB securitized approximately $100
million of consumer loans in Hong Kong. As presented in the table below, there
are other banking activities, such as forward contracts, various contingencies
and market placements, which added approximately $7.6 billion to AEB's credit
exposures at June 30, 1999 (compared with $7.2 million at June 30, 1998 and
unchanged from December 31, 1998). Other nonperforming assets declined due to
write-offs related to Indonesia, as anticipated in the provision recorded in
the first quarter of 1998.
23
American Express Bank
Exposures By Country and Region
(Unaudited)
($ in billions) Net
Guarantees 6/30/99 12/31/98
FX and and Total Total
Country Loans Derivatives Contingents Other* Exposure** Exposure**
------- ----- ----------- ----------- ------ ---------- ----------
Hong Kong $0.6 - $0.2 $0.1 $0.9 $1.1
Indonesia 0.2 - - 0.2 0.4 0.4
Singapore 0.4 - 0.1 0.1 0.5 0.6
Korea 0.1 - 0.1 0.2 0.4 0.3
Taiwan 0.3 - 0.1 0.1 0.5 0.5
China - - - - - -
Japan - - - - 0.1 0.1
Thailand - - - - - -
Other - - - 0.1 0.2 0.1
------- ------- ------- ------- ------- -------
Total Asia/Pacific Region** 1.8 $0.1 0.5 0.8 3.2 3.2
------- ------- ------- ------- ------- -------
Chile 0.3 - - 0.1 0.4 0.4
Brazil 0.3 - - 0.1 0.3 0.4
Mexico 0.1 - - - 0.1 0.1
Peru 0.1 - - - 0.1 0.1
Argentina 0.1 - - - 0.1 0.1
Other 0.2 - 0.1 0.1 0.4 0.4
------- ------- ------- ------- ------- -------
Total Latin America** 1.0 - 0.1 0.2 1.3 1.4
------- ------- ------- ------- ------- -------
India 0.3 - 0.1 0.4 0.8 0.8
Pakistan 0.1 - - 0.1 0.2 0.2
Other 0.1 - 0.1 0.1 0.2 0.2
------- ------- ------- ------- ------- -------
Total Subcontinent** 0.5 - 0.2 0.5 1.2 1.2
------- ------- ------- ------- ------- -------
Egypt 0.4 - - 0.2 0.7 0.7
Other 0.2 - 0.1 - 0.3 0.3
------- ------- ------- ------- ------- -------
Total Middle East & Africa** 0.5 - 0.1 0.3 0.9 1.0
------- ------- ------- ------- ------- -------
Total Europe*** 1.3 0.1 0.7 2.2 4.3 4.4
Total North America** 0.2 - 0.1 1.4 1.8 1.9
------- ------- ------- ------- ------- -------
Total Worldwide** $5.2 $0.2 $1.8 $5.5 $12.8 $13.2
======= ======= ======= ======= ======= =======
* Includes cash, placements and securities.
** Individual items may not add to totals due to rounding.
*** Total exposures at 6/30/99 and 12/31/98 include $12 million and $20 million
of exposures to Russia, respectively.
Note: Includes cross-border and local exposure and does not net local funding
or liabilities against any local exposure.
24
Corporate and Other
Corporate and Other reported net expenses of $45 and $88 million for the three
and six months ended June 30, 1999, compared with net expenses of $41 and $1
million in the same periods last year. The current year six-month results
include a $39 million ($46 million pretax) preferred stock dividend based on
earnings from Lehman Brothers, which was offset by expenses related to the
Year 2000 issue and business building initiatives. The prior year six-month
results included income of $78 million ($106 million pretax) comprising a $39
million ($60 million pretax) gain from sales of common stock of First Data
Corporation and an equivalent Lehman Brothers dividend.
25
PART II. OTHER INFORMATION
AMERICAN EXPRESS COMPANY
Item 1. Legal Proceedings
On March 29, 1999 an action entitled LAMBERT V. AMERICAN EXPRESS FINANCIAL
CORPORATION; AMERICAN EXPRESS FINANCIAL ADVISORS INC.; IDS LIFE INSURANCE
AGENCIES, INC.; IDS LIFE INSURANCE COMPANY; AMERICAN EXPRESS PLAN
COMMITTEE; CAREER DISTRIBUTORS PLAN COMMITTEE AND JOHN/JANE DOES 1-20
("Companies") commenced in U.S. District Court, District of Minnesota,
Fourth Division. The sole named plaintiff purports to represent a class
consisting of financial advisors who were independent contractors from
January 1, 1993 to the present. The complaint alleges class members were
misclassified as independent contractors and seeks retroactive coverage in
all employee health, welfare, retirement and compensation plans, and
payment of FICA and FUTA taxes. The complaint also alleges violation of
ERISA, breach of contract, breach of duty of good faith and fair dealing
and unjust enrichment. The complaint was amended on July 26, 1999, adding
three plaintiffs making new claims for conversion and declaratory judgment.
The defendants filed a motion to dismiss all claims on July 30, 1999. The
Company believes it has meritorious defenses to such action and intends to
pursue them vigorously.
The matter described above was previously reported in the Company's Form
10-Q for the quarterly period ended March 31, 1999.
Item 4. Submission of Matters to a Vote of Security Holders
For information relating to the matters voted upon at the Company's
annual meeting for shareholders held on April 26, 1999, see Item 4 on page
24 of the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999, 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 April 22, 1999, Item 5, reporting the Company's
earnings for the quarter ended March 31, 1999.
Form 8-K, dated April 26, 1999, Item 5, reporting the Company's
chief executive officer succession plans.
Form 8-K, dated July 26, 1999, Item 5, reporting the
Company's earnings for the quarter ended June 30, 1999.
Form 8-K, dated July 29, 1999, Item 5, reporting the
retirement of the Company's vice chairman and chief
financial officer.
Form 8-K, dated August 4, 1999, Item 5, reporting certain
information from presentations to the financial community on
August 4, 1999 by Harvey Golub, the Company's Chairman and
Chief Executive Officer, and other officers of the Company.
26
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 13, 1999 By /s/ Richard Karl Goeltz
----------------------- ------------------------
Richard Karl Goeltz
Vice Chairman and
Chief Financial Officer
Date: August 13, 1999 /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 Letter agreement dated April 12, 1999 with Harvey Golub, the
Company's Chairman and Chief Executive Officer.
10.2 Description of a special grant of a stock option and restricted
stock award to Kenneth I. Chenault, the Company's President and
Chief Operating Officer.
12 Computation in Support of Ratio of Earnings to Fixed Charges.
15 Letter re Unaudited Interim Financial Information.
27 Financial Data Schedule.
E-1