UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
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 No. 1-6908
AMERICAN EXPRESS CREDIT CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 11-1988350
(State or other jurisdiction of (I.R.S Employer Identification No.)
incorporation or organization)
One Christina Centre, Wilmington, Delaware 19801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code:(302) 594-3350.
Securities registered pursuant to
Section 12 (b) of the Act:
Name of each exchange
Title of each class on which registered
------------------------------- -------------------------
6 1/8% Senior Debentures due June 15, 2000 New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: None.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL
INSTRUCTION J(1)(a) AND (b) OF FORM 10-K AND HAS THEREFORE OMITTED
CERTAIN ITEMS FROM THIS REPORT IN ACCORDANCE WITH THE REDUCED
DISCLOSURE FORMAT PERMITTED UNDER INSTRUCTION J.
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 by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of the Registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
---
American Express Company, through a wholly-owned subsidiary, owns
all of the outstanding common stock of the Registrant.
Accordingly, there is no market for the Registrant's common stock.
At March 31, 1997, 1,504,938 shares were outstanding.
Documents incorporated by reference: None
PART I
Item 1. BUSINESS.
Introduction
American Express Credit Corporation (including its subsidiaries,
where appropriate, "Credco") was incorporated in Delaware in 1962
and was acquired by American Express Company ("American Express")
in December 1965. On January 1, 1983, Credco became a wholly-owned
subsidiary of American Express Travel Related Services Company,
Inc. (including its subsidiaries, where appropriate, "TRS"), a
wholly-owned subsidiary of American Express.
Credco is primarily engaged in the business of purchasing most
charge Cardmember receivables arising from the use of the American Express
Card, including the American Express-R Gold Card, Platinum Card-R and
Corporate Card issued in the United States, and in designated currencies
outside the United States. Credco also purchases certain revolving
credit receivables arising from the use of the Optima-R Card and interest-
bearing extended payment plan Sign & Travel-R receivables arising
from travel service sales. The American Express Card and the
Optima Card are referred to herein as the "Card".
American Express Card Business
TRS currently issues the Card in 37 currencies. The Card, which is
issued to individual consumers for their personal account or
through a corporate account established by their employer for its
business purposes, permits Cardmembers to charge purchases of goods
and services in the United States and in most countries around the
world at establishments that have agreed to accept the Card. TRS
accepts and processes from each participating establishment the charges
arising from Cardmember purchases at a discount that varies with the type
of participating establishment, the charge volume, the timing and
method of payment to the establishment, the method of submission of
charges, and in certain instances, the average charge amount and
the amount of information provided.
Except in the case of the Optima Card, a family of revolving credit
cards which is marketed in the United States and several other countries,
the charge Card is primarily designed as a method of payment and not as a
means of financing purchases of goods and services and carries no pre-set
spending limit. Charges are approved based on a Cardmember's account
history, credit record and personal resources. Except in the case of the
Optima Card and certain extended payment plans, payment of the full amount
billed each month is due from the Cardmember upon receipt of the bill, and
no finance charges are assessed. Charge Card accounts that are past due by
approximately 50 days are subject, in most cases, to a delinquency
assessment and, if not brought to current status, subject to cancellation.
The American Express charge Card and consumer lending businesses are
subject to extensive regulation in the United States under a number
of federal laws and regulations, including the Equal Credit
Opportunity Act, which generally prohibits discrimination in the
granting and handling of credit; the Fair Credit Reporting Act,
which, among other things, regulates use by creditors of consumer credit
reports and credit prescreening practices and requires certain disclosures
when an application for credit is rejected; the Truth in Lending Act,
which, among other things, requires extensive disclosure of the terms upon
which credit is granted; the Fair Credit Billing Act, which, among other
things, regulates the manner in which billing inquiries are handled and
specifies certain billing requirements; and the Fair Credit and
Charge Card Disclosure Act, which mandates certain disclosures on
credit and charge card applications. Federal legislation also
regulates abusive debt collection practices. In addition, a number of
1
states and foreign countries have similar consumer credit
protection and disclosure laws. These laws and regulations have
not had, and are not expected to have, a material adverse effect on
the charge Card and consumer lending business, either in the United States
or on a worldwide basis.
General Nature of Credco's Business
Credco purchases certain Cardmember receivables arising from the
use of the Card throughout the world pursuant to agreements (the
"Receivables Agreements") with TRS. Net income primarily depends
on the volume of receivables arising from the use of the Card
purchased by Credco, the discount rates applicable thereto, the
relationship of total discount to Credco's interest expense and
the collectibility of the receivables purchased. The average life
and collectibility of accounts receivable generated by the use of
the Card are affected by factors such as general economic
conditions, overall levels of consumer debt and the number of new
Cards issued.
Credco purchases Cardmember receivables without recourse. Amounts
resulting from unauthorized charges (for example, those made with a
lost or stolen Card) are excluded from the definition of
"receivables" under the Receivables Agreements and are not eligible
for purchase by Credco. If the unauthorized nature of the charge
is discovered after purchase by Credco, TRS repurchases the charge
from Credco.
Credco generally purchases non-interest-bearing charge Cardmember
receivables at face amount less a specified discount agreed upon
from time to time and interest-bearing revolving credit Cardmember
receivables at face amount. The Receivables Agreements generally
require that non-interest-bearing receivables be purchased at
discount rates which yield to Credco earnings of not less than 1.25
times its fixed charges on an annual basis. The Receivables Agreements
also provide that consideration will be given from time to time to
revising the discount rate applicable to purchases of new
receivables to reflect changes in money market rates or significant
changes in the collectibility of receivables. New groups of
Cardmember receivables are generally purchased net of reserve
balances applicable thereto.
Extended payment plan receivables are primarily funded by
subsidiaries of TRS other than Credco; however, Credco purchases
certain extended payment plan receivables. At December 31, 1996
and 1995, extended payment plan receivables owned by Credco totaled
$1.8 billion and $1.7 billion, respectively, representing 10.4
percent and 10.1 percent, respectively, of all interests in
receivables owned by Credco. These extended payment plan
receivables consist of certain interest-bearing extended payment
plan receivables comprised principally of Optima and Sign & Travel
accounts arising from travel service sales and non-interest-bearing
deferred merchandise receivables arising from direct mail
merchandise sales by TRS.
Credco, through a subsidiary, Credco Receivables Corp. ("CRC"),
purchases gross participation interests in the seller's interest in
both non-interest-bearing and interest-bearing Cardmember
receivables owned by two master trusts formed by TRS as part of its
asset securitization program. The gross participation interests
represent undivided interests in the receivables originated by TRS
and by American Express Centurion Bank, a subsidiary of TRS. See
note 3 in "Notes to Consolidated Financial Statements" appearing
herein.
The Card issuers, at their expense and as agents for Credco,
perform accounting, clerical and other services necessary to bill
and collect all Cardmember receivables owned by Credco. The
Receivables Agreements provide that, without prior written consent
of Credco, the credit standards used to determine whether a Card is
to be issued to an applicant may not be materially reduced and that
the policy as to the cancellation of Cards for credit reasons may
not be materially liberalized.
2
American Express, as the parent of TRS, has agreed with Credco that
it will take all necessary steps to assure performance of certain
of TRS' obligations under the Receivables Agreement between TRS and
Credco. The Receivables Agreements may be terminated at any time
by the parties thereto, generally upon little or no notice.
Alternatively, such parties may agree to reduce the required 1.25
fixed charge coverage ratio, which could result in lower discount
rates and, consequently, lower revenues and net income of Credco.
The obligations of Credco are not guaranteed under the Receivables
Agreement or otherwise by American Express or the Card issuers.
Volume of Business
The following table shows the volume of Cardmember receivables
purchased by Credco, net of Cardmember receivables sold to
affiliates, during each of the years indicated, together with
receivables owned by Credco at the end of such years (millions):
Volume of Cardmember Cardmember Receivables Owned
Receivables Purchased at December 31,
Year Domestic Foreign Total Domestic Foreign Total
---- -------- ------- ----- -------- ------- -----
1996 $ 100,512 $ 35,299 $135,811 $ 13,530 $ 3,829 $ 17,359
1995 91,299 30,638 121,937 13,179 3,260 16,439
1994 83,851 25,639 109,490 11,273 2,747 14,020
1993 80,202 14,635 94,837 10,758 2,210 12,968
1992 81,311 13,041 94,352 10,412 1,287 11,699
The card business has not experienced significant seasonal
fluctuation, although Card billed business tends to be moderately
higher in the fourth quarter than in other calendar quarters.
TRS' asset securitization program disclosed above reduced the
volume of domestic Cardmember receivables purchased in 1996, 1995
and 1994 and the amount owned by Credco at December 31, 1996, 1995
and 1994.
In July 1993, Credco began purchasing certain foreign currency
Cardmember receivables which had been sold to an affiliate during
the period from December 1991 through June 1993. In December 1993,
Credco repurchased participation interests in a portion of its
foreign receivables which had previously been sold to an affiliate
during the period from December 1991 through November 1993. These
transactions increased the volume of foreign Cardmember receivables
purchased in 1993 and subsequent years and the amount owned by
Credco at December 31, 1993 and subsequent dates.
The average life of Cardmember receivables owned by Credco for each
of the five years ending December 31, 1996 (based upon the ratio of
the average amount of both billed and unbilled receivables owned by
Credco at the end of each month during the years indicated to the
volume of Cardmember receivables purchased by Credco, net of
Cardmember receivables sold to affiliates) was 43 days.
3
The following table shows the aging of billed, non-interest-bearing
charge Cardmember receivables:
December 31,
1996 1995
--------------------------------------------------------------------
Current 76.7% 77.3%
30 to 59 days 17.2 16.5
60 to 89 days 2.6 2.5
90 days and over 3.5 3.7
Loss Experience
Credco generally writes off against its reserve for doubtful
accounts the total balance in an account for which any portion
remains unpaid 12 months from the date of original billing for non-
interest-bearing charge Card receivables and after six contractual
payments are past due for interest-bearing revolving credit
receivables. Accounts are written off earlier if deemed uncollectible.
The following table sets forth Credco's write-offs, net of
recoveries, expressed in millions and as a percentage of the volume
of Cardmember receivables purchased by Credco, net of Cardmember
receivables sold to affiliates, in each of the years indicated:
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Write-offs, net of recoveries $630 $508 $444 $529 $663
% of net Cardmember
receivables purchased .46% .42% .41% .57% .70%
Sources of Funds
Credco's business is financed by short-term borrowings consisting
principally of commercial paper, borrowings under bank lines of
credit and issuances of medium and long-term debt, as well as
through operations. The weighted average interest costs on an
annual basis of all borrowings, after giving effect to commitment
fees under lines of credit and the impact of interest rate swaps,
during the following years were:
Weighted Average
Year Interest Cost
---- -------------
1996 5.67%
1995 6.30
1994 5.06
1993 4.61
1992 5.80
4
From time to time, American Express and certain of its subsidiaries
purchase Credco's commercial paper at prevailing rates, enter into
variable rate note agreements at interest rates generally above the
13-week treasury bill rate and provide lines of credit. The
largest amount of borrowings from American Express or its
subsidiaries at any month end during the five years ended December
31, 1996 was $4.0 billion. At December 31, 1996, the amount
borrowed was $2.2 billion. See notes 4 and 5 in "Notes to
Consolidated Financial Statements" appearing herein for information
about Credco's debt, including Credco's lines of credit from
various banks and long-term debt.
Foreign Operations
See notes 2, 7 and 10 in "Notes to Consolidated Financial
Statements" appearing herein for information about Credco's foreign
exchange risks and operations in different geographical regions.
Employees
At December 31, 1996 Credco had 30 employees.
Item 2. PROPERTIES.
Credco neither owns nor leases any material physical properties.
Item 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings to which Credco or
its subsidiaries is a party or of which any of their property is
the subject. Credco knows of no such proceedings being
contemplated by government authorities or other parties.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Omitted pursuant to General Instruction J(2) (c) to Form 10-K.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
American Express, through a wholly-owned subsidiary, TRS, owns all
of the outstanding common stock of Credco. Therefore, there is no
market for Credco's common stock.
Credco paid dividends of $150 million to TRS in both December, 1996
and 1995.
For information about limitations on Credco's ability to pay
dividends, see note 6 in "Notes to Consolidated Financial
Statements" appearing herein.
5
Item 6. SELECTED FINANCIAL DATA.
The following summary of certain consolidated financial information
of Credco was derived from audited financial statements for the
five years ended December 31, 1996.
(dollars in millions) 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Income Statement Data
Revenues 2,166 1,988 1,401 1,282 1,605
Interest expense 1,117 1,054 736 599 728
Provision for doubtful
accounts, net of
recoveries 712 625 443 475 661
Income tax provision 115 105 75 64 70
Extraordinary charges,
net of taxes - - - 22 -
Net income 215 197 139 115 138
Balance Sheet Data
Accounts receivable 17,359 16,439 14,020 12,968 11,699
Reserve for doubtful
accounts (638) (624) (498) (542) (603)
Total assets 20,165 20,192 16,868 14,943 13,631
Short-term debt 14,537 14,202 11,525 9,738 7,581
Current portion of
long-term debt 211 409 405 692 969
Long-term debt 2,469 2,673 2,282 1,776 2,303
Shareholder's equity 1,845 1,780 1,733 1,662 1,672
Cash dividends 150 150 100 125 250
6
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Liquidity and Capital Resources
Credco's receivables portfolio consists of charge card receivables
and revolving credit receivables purchased without recourse
from TRS throughout the world and participation interests purchased
without recourse in the seller's interest in both non-interest-
bearing and interest-bearing Cardmember receivables owned by two
master trusts formed by TRS as part of its asset securitization
program. At December 31, 1996 and 1995, respectively, Credco owned
$15.6 billion and $14.8 billion of charge card receivables and
participations in charge card receivables, representing 89.6
percent and 89.9 percent of the total receivables owned, and $1.8
billion and $1.7 billion of revolving credit receivables,
representing 10.4 percent and 10.1 percent of the total receivables
owned.
As part of Credco's business of funding receivables, Credco makes
variable rate loans to American Express Centurion Bank ("Centurion
Bank") which are secured by Optima receivables owned by Centurion
Bank. At both December 31, 1996 and 1995, $2 billion of such loans
were outstanding. The loan agreements require Centurion Bank to
maintain, as collateral, Optima receivables equal to the
outstanding loan balance plus an amount equal to three times the
receivable reserve applicable to such Optima receivables.
Credco's assets are financed through a combination of short-term
debt, long-term senior notes, equity capital and retained earnings.
Daily funding requirements are met primarily by the sale of
commercial paper. Credco has readily sold the volume of commercial
paper necessary to meet its funding needs as well as to cover the
daily maturities of commercial paper issued. The average amount of
commercial paper outstanding was $14.7 billion for 1996 and $12.1
billion for 1995.
An alternate source of borrowing consists of committed credit line
facilities. The aggregate commitment of these facilities is
generally maintained at 50 percent of short-term debt, net of short-
term investments and cash equivalents. Total committed
credit line facilities at December 31, 1996 and 1995 totaled $6.6
billion and $5.8 billion, respectively. Credco, through its wholly-
owned subsidiary, American Express Overseas Credit Corporation
Limited ("AEOCC"), had no outstanding borrowings at December 31,
1996 and $54 million in outstanding borrowings at December 31,
1995, under these committed lines of credit. In addition, Credco,
through AEOCC, had short-term borrowings under uncommitted lines of
credit totaling $200 million and $342 million at December 31, 1996
and 1995, respectively.
During 1995, Credco issued long-term senior notes of $250 million
at 6 3/4 percent due 2001, $250 million at 6 1/2 percent due 2000
and $300 million at 6 1/8 percent due 2001, the proceeds of which
were used to reduce short-term debt. During 1996, 1995 and 1994,
Credco's average long-term debt outstanding was $2.9 billion, $2.0
billion and $2.6 billion, respectively. At December 31, 1996,
Credco had the ability to issue $1.0 billion of medium and long-
term debt securities under shelf registrations filed with the
Securities and Exchange Commission.
In addition, during 1996, TRS, Credco, AEOCC and American Express
Bank Ltd. established a program for the issuance, exclusively outside
the United States to non-U.S. persons, of debt instruments to be listed
on the Luxembourg Stock Exchange. The maximum aggregate principal
amount of debt instruments outstanding at any one time under the program
will not exceed $3 billion. At December 31, 1996, this program had the
ability to issue $2.7 billion medium and long-term debt securities.
Credco and AEOCC have no debt issued under this program.
7
Credco paid dividends to TRS of $150 million in both December, 1996
and 1995.
See note 7 in "Notes to Consolidated Financial Statements"
appearing herein for a discussion of Credco's use of derivatives.
Results of Operations
Credco purchases Cardmember receivables without recourse from TRS.
Non-interest-bearing charge Cardmember receivables are purchased at face
amount less a specified discount agreed upon from time to time, and
interest-bearing revolving credit Cardmember receivables are generally
purchased at face amount. Non-interest-bearing receivables are purchased
under Receivables Agreements that generally provide that the discount
rate shall not be lower than a rate that yields earnings of at
least 1.25 times fixed charges on an annual basis. The ratio of
earnings to fixed charges was 1.30 in 1996, and 1.29 in both 1995
and 1994. The Receivables Agreements also provide that
consideration will be given from time to time to revising the
discount rate applicable to purchases of new receivables to reflect
changes in money market interest rates or significant changes in
the collectibility of the receivables. Pretax income depends
primarily on the volume of Cardmember receivables purchased, the
discount rates applicable thereto, the relationship of total
discount to Credco's interest expense and the collectibility of
receivables purchased. The average life of Cardmember receivables
was 43 days for each of the years ended December 31, 1996, 1995 and 1994.
Credco's increase in revenues in 1996 is primarily due to an
increase in volume of receivables purchased. Increased interest
income in 1996 was attributable to increased levels of average
investments. Interest expense increased in 1996 reflecting
increased volume offset by a decrease in borrowing rates.
Provision for doubtful accounts in 1996 increased primarily
reflecting volume growth.
The following is a further analysis of the increase (decrease) in
key revenue and expense accounts (millions):
--------------------------------------------------------------
1996 1995 1994
--------------------------------------------------------------
Revenue earned from purchased
accounts receivable-changes
attributable to:
Volume of receivables purchased $ 166 $ 149 $ 186
Discount and interest rates (28) 313 (112)
---------------------------------------------------------------
Total $ 138 $ 462 $ 74
---------------------------------------------------------------
Interest income from affiliates-
changes attributable to:
Volume of average investments
outstanding $ 5 $ 28 $ 3
Interest rates (15) 41 28
---------------------------------------------------------------
Total $ (10) $ 69 $ 31
---------------------------------------------------------------
Interest income from investments-
changes attributable to:
Volume of average investments
outstanding $ 71 $ 17 $ (8)
Interest rates (19) 40 21
---------------------------------------------------------------
Total $ 52 $ 57 $ 13
---------------------------------------------------------------
Interest expense (affiliates)-
changes attributable to:
Volume of average debt outstanding $ 11 $ 15 $ 29
Interest rates (13) 25 19
---------------------------------------------------------------
Total $ (2) $ 40 $ 48
---------------------------------------------------------------
8
Interest expense (other) - changes
attributable to:
Volume of average debt outstanding $ 178 $ 96 $ 37
Interest rates (113) 182 52
---------------------------------------------------------------
Total $ 65 $ 278 $ 89
---------------------------------------------------------------
Provision for doubtful accounts-
changes attributable to:
Volume of receivables purchased $ 91 $ 70 $ 104
Provision rates and volume of
recoveries (4) 112 (136)
---------------------------------------------------------------
Total $ 87 $ 182 $ (32)
---------------------------------------------------------------
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
1. Financial Statements.
See "Index to Financial Statements" at page F-1 hereof.
2. Supplementary Financial Information.
Selected quarterly financial data. See note 11 in
"Notes to Consolidated Financial Statements" appearing
herein.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Omitted pursuant to General Instruction J(2) (c) to Form 10-K.
Item 11. EXECUTIVE COMPENSATION.
Omitted pursuant to General Instruction J(2) (c) to Form 10-K.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Omitted pursuant to General Instruction J(2) (c) to Form 10-K.
9
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Omitted pursuant to General Instruction J(2) (c) to Form 10-K.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON
FORM 8-K.
(a) 1. Financial Statements:
See "Index to Financial Statements" at page F-1 hereof.
2. Financial Statement Schedule:
See "Index to Financial Statements" at page F-1 hereof.
3. Exhibits:
See "Exhibit Index" hereof.
(b) Reports on Form 8-K:
None.
10
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 CREDIT CORPORATION
(Registrant)
DATE March 31, 1997 /s/ Vincent P. Lisanke
-------------------------------------------------------------
Vincent P. Lisanke
President, Chief Executive Officer
and Director
Pursuant to the requirement of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities on the dates indicated.
DATE March 31, 1997 /s/ Vincent P. Lisanke
-------------------------------------------------------------
Vincent P. Lisanke
President, Chief Executive
Officer and Director
(principal executive and
principal accounting officer)
DATE March 31, 1997 /s/ Richard K. Goeltz
-------------------------------------------------------------
Richard K. Goeltz
Chairman of the Board
and Director (principal
financial officer)
DATE March 31, 1997 /s/ Jay B. Stevelman
-------------------------------------------------------------
Jay B. Stevelman
Treasurer and Director
11
AMERICAN EXPRESS CREDIT CORPORATION
INDEX TO FINANCIAL STATEMENTS
COVERED BY REPORT OF INDEPENDENT AUDITORS
(Item 14(a))
Page Number
-----------
Financial Statements
Report of independent auditors............ F - 2
Consolidated statements of income for each
of the three years ended December 31, 1996,
1995 and 1994............................. F - 3
Consolidated balance sheets at December
31, 1996 and 1995......................... F - 4
Consolidated statements of cash flows for each
of the three years ended December 31, 1996,
1995 and 1994............................... F - 5
Consolidated statements of shareholder's
equity for each of the three years ended
December 31, 1996, 1995 and 1994........... F - 6
Notes to consolidated financial statements. F - 7 to F - 15
Schedule:
II - Valuation and qualifying accounts for
the three years ended December 31, 1996 F - 16
All other schedules are omitted since the required information
is not present or not present in amounts sufficient to require
submission of the schedule, or because the information required is
included in the consolidated financial statements or notes thereto.
F-1
REPORT OF INDEPENDENT AUDITORS
--------------------------------------------------------------------
The Board of Directors
American Express Credit Corporation
We have audited the accompanying consolidated balance sheets of
American Express Credit Corporation as of December 31, 1996 and
1995, and the related consolidated statements of income,
shareholder's equity and cash flows for each of the three years in
the period ended December 31, 1996. Our audits also included the
financial statement schedule listed in the Index at Item 14 (a).
These financial statements and schedule are the responsibility of
American Express Credit Corporation's management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of American Express Credit Corporation at December 31,
1996 and 1995, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ Ernst & Young LLP
New York, New York
February 7, 1997
F-2
AMERICAN EXPRESS CREDIT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(millions)
----------------------------------------------------------------
Year Ended December 31, 1996 1995 1994
----------------------------------------------------------------
Revenues
Revenue earned from purchased
accounts receivable $1,813 $1,675 $1,213
Interest income from affiliates 160 170 101
Interest income from investments 189 137 80
Other income 4 6 7
----------------------------------------------------------------
Total 2,166 1,988 1,401
----------------------------------------------------------------
Expenses
Interest expense - affiliates 134 136 96
Interest expense - other 983 918 640
Provision for doubtful
accounts, net of recoveries
of $186, $176 and $177 712 625 443
Other expenses 7 7 8
----------------------------------------------------------------
Total 1,836 1,686 1,187
----------------------------------------------------------------
Income before taxes 330 302 214
Income tax provision 115 105 75
----------------------------------------------------------------
Net income $ 215 $ 197 $ 139
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
See notes to consolidated financial statements.
F-3
AMERICAN EXPRESS CREDIT CORPORATION
CONSOLIDATED BALANCE SHEETS
(millions)
----------------------------------------------------------------
December 31, 1996 1995
----------------------------------------------------------------
Assets
Cash and cash equivalents $ 267 $ 1,190
Accounts receivable 17,359 16,439
Less reserve for doubtful accounts 638 624
----------------------------------------------------------------
16,721 15,815
Loans and deposits with affiliates 2,850 2,850
Deferred charges and other assets 327 337
----------------------------------------------------------------
Total assets $20,165 $20,192
----------------------------------------------------------------
----------------------------------------------------------------
Liabilities and shareholder's equity
Short-term debt with affiliates $ 1,275 $ 1,087
Short-term debt - other 13,262 13,115
Current portion of long-term debt 211 409
Long-term debt with affiliate 910 910
Long-term debt - other 1,559 1,763
-------- -------
Total debt 17,217 17,284
Due to affiliates 858 882
Accrued interest and other
liabilities 145 130
----------------------------------------------------------------
Total liabilities 18,220 18,296
----------------------------------------------------------------
Deferred discount revenue 100 116
----------------------------------------------------------------
Shareholder's equity
Common stock-authorized 3,000,000
shares of $.10 par value; issued
and outstanding 1,504,938 shares 1 1
Capital surplus 161 161
Retained earnings 1,683 1,618
----------------------------------------------------------------
Total shareholder's equity 1,845 1,780
----------------------------------------------------------------
----------------------------------------------------------------
Total liabilities and
shareholder's equity $20,165 $20,192
----------------------------------------------------------------
----------------------------------------------------------------
See notes to consolidated financial statements.
F-4
AMERICAN EXPRESS CREDIT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions)
- -----------------------------------------------------------------------
Year Ended December 31, 1996 1995 1994
- -----------------------------------------------------------------------
Cash Flows From Operating Activities:
Net Income $ 215 $ 197 $ 139
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for doubtful accounts,
net of recoveries 712 625 443
Amortization of deferred underwriting
fees and bond discount / premium 1 - 2
(Decrease) increase in deferred
discount revenue (16) 21 48
(Increase) decrease in deferred tax
assets (11) (56) 38
Increase in interest receivable
and operating assets (6) (5) (23)
(Decrease) increase in accrued interest
and other liabilities (18) 3 24
Increase (decrease) in due to affiliates 79 (27) (10)
- -------------------------------------------------------------------------
Net cash and cash equivalents provided
by operating activities 956 758 661
- -------------------------------------------------------------------------
Cash Flows From Investing Activities:
Increase in accounts receivable (3,194) (3,047) (2,434)
Sale of net accounts receivable to an
affiliate 2,294 - 1,192
Sale of participation interest in
seller's interest in accounts
receivable to an affiliate 1,304 - 920
Purchase of participation interest in
seller's interest in accounts
receivable from an affiliate (2,178) - (1,170)
Purchase of net secured receivables from
an affiliate - - (85)
Recoveries of accounts receivable
previously written off 186 176 177
Loans and deposits with affiliates - (200) (650)
(Decrease) increase in due to affiliates
from purchased receivables (57) 182 (487)
- --------------------------------------------------------------------------
Net cash and cash equivalents used in
investing activities (1,645) (2,889) (2,537)
- --------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net increase (decrease) in short-term
debt with affiliates with maturities
less than ninety days 188 (40) 539
Net increase (decrease) in short-term
debt - other with maturities less than
ninety days 4,469 (5,178) 4,699
Proceeds from issuance of debt 9,684 20,039 2,633
Redemption of debt (14,425) (11,810) (5,692)
Dividends paid to TRS (150) (150) (100)
- --------------------------------------------------------------------------
Net cash and cash equivalents (used in)
provided by financing activities (234) 2,861 2,079
- --------------------------------------------------------------------------
Net (decrease) increase in cash and cash
equivalents (923) 730 203
- --------------------------------------------------------------------------
Cash and cash equivalents at beginning
of year 1,190 460 257
- --------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 267 $ 1,190 $ 460
- --------------------------------------------------------------------------
See notes to consolidated financial statements.
F-5
AMERICAN EXPRESS CREDIT CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
Years ended December 31, 1996, 1995 and 1994
(millions)
---------------------------------------------
Total
Shareholder's Common Capital Retained
Equity Stock Surplus Earnings
---------------------------------------------
Balances at
January 1, 1994 $ 1,662 $ 1 $ 129 $ 1,532
Net income 139 139
Dividends to TRS (100) (100)
Contributions from TRS 32 - 32 -
-------- ------- ------- --------
Balances at
December 31, 1994 1,733 1 161 1,571
Net income 197 197
Dividends to TRS (150) - - (150)
-------- ------- ------- -------
Balances at
December 31, 1995 1,780 1 161 1,618
-------- ------- ------- -------
Net income 215 215
Dividends to TRS (150) - - (150)
-------- ------ ------ -------
Balances at
December 31, 1996 $ 1,845 $ 1 $ 161 $ 1,683
======== ====== ====== =======
See notes to consolidated financial statements.
F-6
AMERICAN EXPRESS CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
American Express Credit Corporation together with its subsidiaries
("Credco") is a wholly-owned subsidiary of American Express Travel
Related Services Company, Inc. ("TRS"), which is a wholly-owned
subsidiary of American Express Company ("American Express").
American Express Overseas Credit Corporation Limited together with
its subsidiaries ("AEOCC") and Credco Receivables Corp. ("CRC")
are wholly-owned subsidiaries of Credco.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Credco and all its subsidiaries. All significant
intercompany transactions have been eliminated.
Use of Estimates and Assumptions
Credco's financial statements include amounts determined using
estimates and assumptions. For example, estimates and assumptions
are used in determining the reserves related to accounts
receivable. While these estimates are based on the best judgment
of management, actual results could differ from these estimates.
Revenue Earned from Purchased Accounts Receivable
A portion of discount revenue earned on purchases of non-interest-
bearing Cardmember receivables equal to the provision for doubtful
accounts is recognized as revenue at the time of purchase; the
remaining portion is deferred and recorded as revenue ratably over
the period that the receivables are outstanding.
Finance charge income on interest-bearing extended payment plan
receivables is recognized as it is earned. Credco ceases accruing
this income after six contractual payments are past due, or
earlier, if deemed uncollectible. Accruals that cease generally
are not resumed.
Reserve for Doubtful Accounts
The reserve for doubtful accounts is based on historical
collection experience and evaluation of the current status of existing
receivable balances. Credco generally writes off against its
reserve for doubtful accounts the total balance in an account for
which any portion remains unpaid twelve months from the date of
original billing for non-interest-bearing Cardmember receivables
and after six contractual payments are past due for interest-
bearing Cardmember receivables. Accounts are written off earlier
if deemed uncollectible.
Fair Values of Financial Instruments
The fair values of financial instruments are estimates based upon
current market conditions and perceived risks at December 31, 1996
and 1995 and require varying degrees of management judgment. The
fair values of the financial instruments presented may not be indicative
of their future fair values.
F-7
The fair values of long-term debt and derivative instruments are
included in the related footnotes. For all other financial
instruments, the carrying amounts in the consolidated balance
sheets approximate the fair values.
Interest Rate Transactions
Credco enters into various interest rate agreements as a means of
managing its interest rate exposure. Interest rates charged on
consumer lending receivables are linked to a floating base rate and
generally reprice monthly. Credco generally enters into interest
rate agreements paying a rate that reprices when the base rate of
the underlying receivables changes. These interest rate agreements
which modify the terms of an underlying debt obligation are
accounted for by recording interest expense using the revised
interest rate with any fees or other payments amortized as yield
adjustments. It is Credco's normal practice not to terminate, sell
or dispose of interest rate agreements or the underlying debt to
which the agreements are designated prior to maturity. In the
event Credco terminates, sells or disposes of an agreement prior to
maturity, the gain or loss would be deferred and recognized as an
adjustment of yield over the remaining life of the underlying debt.
Foreign Currency
Foreign currency assets and liabilities are translated into their
U.S. dollar equivalents based on rates of exchange prevailing at
the end of each year. Revenue and expense accounts are translated
at exchange rates prevailing during the year. Credco enters into
various foreign exchange contracts as a means of managing foreign
exchange exposure.
Cash and Cash Equivalents
Credco has defined cash and cash equivalents as cash and short-term
investments with a maturity of ninety days or less at the time of
purchase. At December 31, 1996 and 1995, included in cash and cash
equivalents was $100 million and $420 million, respectively, of
overnight securities purchased to resell.
3. Accounts Receivable
At December 31, 1996 and 1995, respectively, Credco owned $15.6
billion and $14.8 billion of charge card receivables and
participations in charge card receivables, representing 89.6
percent and 89.9 percent, respectively, of the total receivables
owned. In connection with TRS' securitization program for U.S.
consumer Cardmember receivables, CRC purchases from American
Express Receivables Financing Corporation ("RFC"), a subsidiary of
TRS, a participation interest in RFC's seller's interest in the
receivables owned by the American Express Master Trust, which was
formed in 1992 to securitize U.S. consumer Cardmember receivables.
In September 1996, the American Express Master Trust issued an
additional $1.25 billion of accounts receivable trust certificates
to the public. At that time, CRC sold to RFC, at face amount less
applicable reserve, $1.3 billion of its gross participation
interest. The gross participation interests represent undivided
interests in the receivables conveyed to the American Express
Master Trust by RFC. At December 31, 1996 and 1995 Credco owned
approximately $3.4 billion and $2.3 billion, respectively, of
participation interests in receivables owned by the trust,
representing 19.3 percent and 14.1 percent, respectively, of its
total accounts receivable.
F-8
Credco owned extended payment plan receivables totaling $1.8
billion and $1.7 billion, including revolving credit loans
purchased directly from American Express Centurion Bank ("Centurion
Bank"), a subsidiary of TRS, at December 31, 1996 and 1995,
representing 10.4 percent and 10.1 percent, respectively, of its
total interests in accounts receivable. The extended payment plan
receivables owned at December 31, 1996 include $104 million of
participation interest owned by CRC. This represents a
participation interest in the seller's interest in revolving credit
receivables that have been conveyed to the American Express Credit
Account Master Trust, formed by Centurion Bank during the second
quarter of 1996 to securitize revolving credit loans.
Statement of Financial Accounting Standards (SFAS) No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," is effective January 1, 1997.
With respect to existing securitizations, the new rule is not
expected to have a material effect on Credco's results of operations
or financial condition. The consequences of additional securitizations
could be material depending on their level.
4. Short-term Debt
At December 31, short-term debt consisted of (millions) :
------------------------------------------------------------
1996 1995
------------------------------------------------------------
Commercial paper $ 12,966 $ 12,633
Borrowings from affiliates 1,275 1,087
Borrowings under lines of credit 200 396
Borrowing agreements with bank
trust departments and others 96 86
------------------------------------------------------------
Total short-term debt $ 14,537 $ 14,202
------------------------------------------------------------
Credco has various facilities available to obtain short-term
credit, including the issuance of commercial paper and agreements
with banks.
Credco had unused committed credit lines totaling $6.6 billion and
$5.8 billion at December 31, 1996 and 1995, respectively. Credco
pays fees to the financial institutions that provide these credit
line facilities. The fair value of the unused lines of credit is
not significant at December 31, 1996 and 1995.
At December 31, 1996 and 1995, Credco, through AEOCC, had short-
term borrowings under uncommitted lines of credit totaling $200
million and $342 million, respectively. In addition, there were no
outstanding borrowings under committed lines of credit at December
31, 1996 and $54 million at December 31, 1995.
Credco's annual weighted average short-term interest rate was 5.57
percent, 6.16 percent and 4.74 percent for the years ended December
31, 1996, 1995 and 1994, respectively. These rates include the
cost of maintaining credit line facilities for the periods and the
impact of interest rate swaps. At December 31, 1996, $300 million
of short-term debt outstanding was modified by interest rate swaps,
resulting in a year-end weighted average effective interest rate of
5.64%.
Credco paid $913 million, $942 million and $508 million of interest
on short-term debt obligations in 1996, 1995 and 1994,
respectively.
F-9
5. Long-term Debt
- ------------------------------------------------------------------------------
1996
- ------------------------------------------------------------------------------
Year-End
Year-End Effective
Notional Stated Rate Interest
December 31, (millions) Outstanding Amount of on Debt Rate With Maturity
Balance Swaps (a,b) Swaps(b) of Swaps
- ------------------------------------------------------------------------------
Senior notes
due 1997-2005 $1,725 $1,650 6.79% 6.25% 1997-2005
Variable rate debt
with American
Express due 2004 910 - 5.36% - -
Medium-term notes
due 1997 36 - 7.17% - -
Other senior notes
due 1999-2017 2 - 7.65% - -
Swiss franc notes
due 1998-2003 10 - 3.45% - -
Japanese yen senior
bonds due 1996 - - - - -
Net unamortized
bond discount (3) - - - -
- -------------------------------------------------------------------------------
Total long-term debt $2,680 $1,650
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1995
- -------------------------------------------------------------------------------
Notional Year-End
December 31, (millions) Outstanding Amount of Stated Rate
Balance Swaps on Debt(b)
- -------------------------------------------------------------------------------
Senior notes
due 1997-2005 $2,008 $1,400 6.98%
Variable rate debt with
American Express due 2004 910 - 5.59%
Medium-term notes due 1997 61 - 7.02%
Other senior notes due 1999-2017 5 - 7.34%
Swiss franc notes due 1998-2003 3 - 4.75%
Japanese yen senior bonds due 1996 98 98 8.00%
Net unamortized bond discount (3) - -
- -------------------------------------------------------------------------------
Total long-term debt $3,082 $1,498
- -------------------------------------------------------------------------------
(a) For the floating rate debt issuance, the stated rate was based on
the rate at December 31, 1996; this rate is not an indication of
future interest rates.
(b) Weighted average rates were determined where appropriate.
The above table includes the current portion of long-term debt of
$211 million and $409 million at December 31, 1996 and 1995,
respectively.
The book value of variable rate long-term debt that reprices within
a year approximates fair value. The fair value of other long-term
debt is based on quoted market price or discounted cash flow. The
aggregate fair value of long-term debt, including the current
portion outstanding at December 31, 1996 and 1995, was $2.7 billion
and $3.1 billion, respectively.
Aggregate annual maturities of long-term debt for the five years
ending December 31, 2001 are as follows (millions): 1997 - $215,
1998 - $4, 1999 - $355, 2000 - $550, 2001 - $550.
Credco paid $217 million in 1996, $218 million in 1995, and $222
million in 1994 of interest on long-term debt obligations.
6. Restrictions as to Dividends and Limitations on Indebtedness
The most restrictive limitation on dividends imposed by the debt
instruments issued by Credco is the requirement that Credco
maintain a minimum consolidated net worth of $50 million. There
are no limitations on the amount of debt that can be issued by
Credco.
7. Derivative Instruments
Credco uses derivative financial instruments for nontrading
purposes to manage its exposure to interest and foreign exchange
rate risks and to manage its funding costs.
There are a number of risks associated with derivatives. Market
risk is the possibility that the value of the derivative financial
instrument will change. Credco is not exposed to market risk
related to derivatives held for nontrading purposes beyond that
inherent in cash market transactions. Credco does not enter into
derivative contracts with embedded options or other features that
would leverage or multiply its market risk.
F-10
Credit risk is the possibility that the counterparty will not
fulfill the terms of the contract. It is monitored through
established approval procedures, including setting concentration
limits by counterparty and country, reviewing credit ratings and
requiring collateral where appropriate. A significant portion of
Credco's transactions are with counterparties rated A or better by
nationally recognized credit rating agencies. Credco also uses
master netting agreements, which allow Credco to settle multiple
contracts with a single counterparty in one net receipt or payment
in the event of counterparty default. At December 31, 1996 and 1995,
the aggregate notional amount of Credco's derivative instruments was
$6.4 billion ($233 million with affiliates) and $4.9 billion ($46
million with an affiliate), respectively. Credit risk approximates the
fair value of contracts in a gain position (asset) and totaled $37
million ($2.2 million with affiliates) at December 31, 1996 and $34
million ($.4 million with an affiliate) at December 31, 1995.
The fair value represents the replacement cost and is determined by
market values, dealer quotes or pricing models.
The following tables detail information regarding Credco's
derivatives (millions):
Notional Carrying Value Fair Value
December 31, 1996 Amount Asset Liability Asset Liability
- ----------------- -------- ----- --------- ----- ---------
Interest rate products $4,386 $ 19 $ 50 $ 25 $ 87
Forward contracts 1,972 14 31 12 30
------- ----- -------- ------ ---------
Total $6,358 $ 33 $ 81 $ 37 $117
------- ----- -------- ----- ---------
Notional Carrying Value Fair Value
December 31, 1995 Amount Asset Liability Asset Liability
- ----------------- -------- ----- --------- ----- ---------
Interest rate products $3,723 $ 19 $ 48 $ 28 $136
Forward contracts 1,185 6 3 6 3
------- ----- --------- ----- ---------
Total $4,908 $ 25 $ 51 $ 34 $139
------ ----- --------- ----- ---------
Interest Rate Products
Credco uses interest rate products to maintain a predetermined mix
of fixed and variable rate debt in order to achieve a desired level
of interest rate exposure to manage funding costs related to its
Cardmember receivables and Cardmember loans. The principal product
used is interest rate swaps, which involve the exchange for a
specified period of time of fixed or floating rate interest
payments based on a notional or contractual amount. Credco also
enters into currency swaps to convert U.S. dollar denominated debt
into other currencies in order to match foreign denominated
receivables with funding of the same currency and to achieve a
desired level of interest rate exposure. Currency swap agreements
are contracts to exchange currency and interest payments for a
specific period of time.
Interest rates charged on Credco's revolving credit receivables are
linked to a floating rate base and generally reprice each month. Credco
generally enters into interest rate swaps paying rates that reprice
when the base rates of the underlying loans change.
As interest rate products manage interest rate exposure, interest
is accrued and reported in accounts receivable and other assets, or
accrued interest and other liabilities, and interest expense, as
appropriate.
Aggregate annual expirations of interest rate swaps are as follows
(notional amount in millions):
1997 - $1,575, 1998 - $846, 1999 - $474, 2000 - $809, 2001 - $682.
F-11
The following table details information regarding Credco's interest
rate products at December 31, 1996 (millions):
-------------------------------------------------------------------------
Notional Primary Variable Weighted Average Interest Rate
Type Amount Rate Index Fixed Floating
-------------------------------------------------------------------------
Floating
to fixed $2,320 1 month LIBOR and 6.94% 5.71%
1 month Commercial paper
Fixed to
floating $2,066 1 month Commercial paper 6.37% 5.71%
Foreign Currency Products
Credco uses foreign currency products to manage transactions
denominated in foreign currencies.
Foreign currency exposures are hedged, where practical and
economical, through foreign currency forward contracts. Foreign
currency forward contracts involve the purchase or sale of a
designated currency at an agreed upon rate for settlement on a
specified date. As Credco is exposed to transaction risk with
regard to receivables denominated in foreign currencies and since
foreign currency forward contracts reduce that exposure, the
contracts are accounted for as hedges. These foreign currency
forward contracts are marked to the current spot rate with the gain
or loss recorded in income to offset the transaction gain or loss
resulting from the receivables. The receivable or payable with the
counterparty to the foreign currency forward contracts which result
from this process are reported in other assets or liabilities, as
appropriate. The discount or premium on foreign currency forward
contracts is reported in other assets or liabilities, as
appropriate, and amortized to interest expense over the terms of
the contracts.
The following table summarizes Credco's forward contracts by major
currencies as of December 31 (millions):
---------------------------------------------------
1996 1995
---------------------------------------------------
Canadian Dollar $ 334 $ 281
Pound Sterling 578 233
Australian Dollar 307 198
Hong Kong Dollar 199 144
German Mark 218 120
Other 336 209
---------------------------------------------------
Total forward contracts $1,972 $1,185
---------------------------------------------------
Foreign currency forward contracts generally mature within one
year. At December 31, 1996, Credco had no significant unhedged
foreign currency exposures.
F-12
8. Transactions with Affiliates
In 1996, 1995 and 1994, Credco purchased Cardmember receivables
without recourse from TRS and certain of its subsidiaries totaling
approximately $136 billion, $122 billion and $109 billion,
respectively. Agreements for the purchase of non-interest-bearing
receivables generally provide that Credco purchase such receivables
at a discount rate which yields earnings to Credco equal to at
least 1.25 times its fixed charges on an annual basis.
The agreements require TRS, at its expense, to perform accounting,
clerical and other services necessary to bill and collect all
Cardmember receivables owned by Credco. Since settlements under
the agreements occur monthly, an amount due from, or payable to,
such affiliates may arise at the end of the month.
In 1996, as part of TRS' asset securitization program for U.S. consumer
Cardmember receivables, Credco sold back to TRS approximately $2.2 billion
of gross receivables arising under specified U.S. consumer Cardmember
accounts. TRS sold these receivables, together with the right to
receive subsequent receivables arising from such Cardmember
accounts, to its subsidiary, RFC. RFC, in turn, conveyed them to
the American Express Master Trust (the "Trust"). This resulted in
an increase in the gross participation interest in RFC's seller's
interest in the securitized receivables owned by CRC, for which CRC
paid $2.2 billion. In September 1996, the Trust issued $1.25
billion of receivables trust certificates in two series. At the
time of such issuance, CRC sold, at face amount less applicable
reserve, $1.3 billion of its gross participation interest in RFC's
seller's interest back to RFC.
The extended payment plan receivables owned at December 31, 1996
include $104 million of participation interest owned by CRC. This
represents a participation interest in the seller's interest in
revolving credit receivables that have been conveyed to the
American Express Credit Account Master Trust, formed by Centurion
Bank during the second quarter of 1996 to securitize revolving
credit loans.
Other transactions with American Express and its subsidiaries for
the years ended December 31 were as follows (millions):
--------------------------------------------------------------------
1996 1995 1994
--------------------------------------------------------------------
Cash and cash equivalents at December 31 $ 2 $ 9 $ -
Maximum month-end level of cash and
cash equivalents during the year 9 12 20
Secured loans to American Express
Centurion Bank at December 31 2,000 2,000 2,000
Other loans and deposits to an
affiliate at December 31 850 850 650
Maximum month-end level of loans and
deposits to affiliates during the year 2,850 2,850 2,650
Borrowings at December 31 2,185 1,997 2,037
Maximum month-end level of
borrowings during the year 4,024 3,709 2,734
Interest income 160 170 101
Other income 4 6 6
Interest expense 134 136 96
--------------------------------------------------------------------
F-13
At December 31, 1996, 1995 and 1994, Credco held $2 billion of
variable rate secured loans to Centurion Bank. At both December
31, 1996 and 1995, Credco also held variable rate loans to American
Express due in 2004 of $850 million and $650 million at December 31, 1994.
The loans to Centurion Bank are secured by certain interest-bearing
extended payment plan receivables owned by Centurion Bank.
Interest income from these variable rate loans was $160 million,
$169 million, and $101 million for 1996, 1995 and 1994,
respectively.
In 1994, TRS made a noncash contribution to Credco of AEB(CFS)
Limited, a foreign company incorporated to fund certain Optima Card
receivables outside the U.S., for book value.
9. Income Taxes
The taxable income of Credco is included in the consolidated U.S.
federal income tax return of American Express. Under an agreement
with TRS, taxes are recognized on a stand-alone basis. If benefits
for all future tax deductions, foreign tax credits and net
operating losses cannot be recognized on a stand-alone basis, such
benefits are then recognized based upon a share, derived by
formula, of those deductions and credits that are recognizable on a
TRS consolidated reporting basis.
Deferred income tax assets and liabilities result from the
recognition of temporary differences. Temporary differences are
differences between the tax bases of assets and liabilities and
their reported amounts in the financial statements that will result
in differences between income for tax purposes and income for
financial statement purposes in future years. The current and
deferred components of the provision (benefit) for income taxes
consist of the following (millions):
------------------------------------------------------------------
1996 1995 1994
------------------------------------------------------------------
Current $ 126 $ 161 $ 36
Deferred (11) (56) 39
------------------------------------------------------------------
Total income tax provision $ 115 $ 105 $ 75
------------------------------------------------------------------
Credco's net deferred tax assets, which are included in other
assets, consisted of the following (millions):
-----------------------------------------------------------
1996 1995
-----------------------------------------------------------
Gross deferred tax assets:
Reserve for loan losses $ 218 $ 207
-----------------------------------------------------------
Total gross deferred tax assets 218 207
Gross deferred tax liabilities:
Foreign exchange contracts (1) (1)
------------------------------------------------------------
Total gross deferred tax liabilities (1) (1)
------------------------------------------------------------
Net deferred tax assets $ 217 $ 206
F-14
At December 31, 1996 and 1995, no valuation allowances were required.
A federal tax overpayment of $27 million and underpayment of $3
million at December 31, 1996 and 1995, respectively, are included
in due to affiliates.
Income taxes paid to TRS during 1996, 1995 and 1994 were $155
million, $125 million and $55 million, respectively.
The U.S. statutory tax rate and effective tax rate for 1996, 1995
and 1994 was approximately 35 percent.
10. Geographic Segments
Credco is principally engaged in the business of purchasing
Cardmember receivables arising from the use of the American Express
Card in the United States and foreign locations. The following
presents information about operations in different geographic areas
(millions):
-----------------------------------------------------------------
1996 1995 1994
-----------------------------------------------------------------
Revenues
United States $ 1,855 $ 1,695 $ 1,180
International 311 293 221
-----------------------------------------------------------------
Consolidated $ 2,166 $ 1,988 $ 1,401
-----------------------------------------------------------------
Income before taxes
United States $ 275 $ 244 $ 171
International 55 58 43
-----------------------------------------------------------------
Consolidated $ 330 $ 302 $ 214
-----------------------------------------------------------------
Identifiable assets
United States $ 16,444 $ 17,027 $ 14,174
International 3,721 3,165 2,694
-----------------------------------------------------------------
Consolidated $ 20,165 $ 20,192 $ 16,868
-----------------------------------------------------------------
11. Quarterly Financial Data (Unaudited)
Summarized quarterly financial data is as follows (millions):
---------------------------------------------------------------
Quarter Ended 12/31 9/30 6/30 3/31
---------------------------------------------------------------
1996
---------------------------------------------------------------
Revenues $ 523 $ 540 $ 571 $ 532
Income before taxes 82 89 74 85
Net income 54 58 48 55
---------------------------------------------------------------
1995
---------------------------------------------------------------
Revenues $ 569 $ 480 $ 479 $ 460
Income before taxes 90 69 66 77
Net income 59 45 43 50
---------------------------------------------------------------
F-15
AMERICAN EXPRESS CREDIT CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(millions)
1996 1995 1994
---- ---- ----
Reserve for doubtful accounts:
Balance at beginning of year $ 624 $ 498 $ 542
Additions:
Provision for doubtful accounts
charged to income (1) 898 801 620
Other credits (2) 94 7 75
Foreign translation 2 2 3
Deductions:
Accounts written off 816 684 621
Other charges (3) 164 - 121
------ ------ ------
Balance at end of year $ 638 $ 624 $ 498
====== ====== ======
Reserve for doubtful accounts
as a percentage of Cardmember
receivables owned at year end 3.68% 3.79% 3.55%
====== ====== ======
(1) Before recoveries on accounts previously written off of (millions):
1996-$186, 1995-$176 and 1994-$177.
(2) Reserve balances applicable to new groups of Cardmember
receivables purchased from TRS and certain of its subsidiaries
and participation interests purchased from affiliates.
(3) Reserve balances applicable to certain groups of Cardmember
receivables and participation interests sold to affiliates.
F-16
EXHIBIT INDEX
Pursuant to Item 601 of Regulation S-K
Exhibit No. Description
3(a) Registrant's Certificate Incorporated by
of Incorporation, as amended reference to
Exhibit 3(a) to
Registrant's
Registration
Statement on
Form S-1 dated
February 25, 1972
(File No. 2-43170).
3(b) Registrant's By-Laws, Incorporated by
amended and restated as of reference to
November 24, 1980 Exhibit 3 (b)
to Registrant's
Annual Report
on Form 10-K
for the year ended
December 31, 1985.
(Commission File
No. 1-6908)
4(a) Registrant's Debt Incorporated by
Securities reference to
Indenture dated as of Exhibit 4 (s)
September 1, 1987 to Registrant's
Registration
Statement on
Form S-3 dated
September 2, 1987
(File No. 33-16874).
4(b) Form of Note with optional Incorporated by
redemption provisions reference to
Exhibit 4 (t)
to Registrant's
Registration
Statement on
Form S-3 dated
September 2, 1987
(File No. 33-16874).
4(c) Form of Debenture with Incorporated by
optional redemption and reference to
sinking fund provisions Exhibit 4 (u)
to Registrant's
Registration
Statement on
Form S-3 dated
September 2, 1987
(File No. 33-16874).
4(d) Form of Original Issue Incorporated by
Discount Note with reference to
optional redemption Exhibit 4 (v)
provision to Registrant's
Registration
Statement on
Form S-3 dated
September 2, 1987
(File No. 33-16874).
4(e) Form of Zero Coupon Note Incorporated by
with optional redemption reference to
provisions Exhibit 4 (w)
to Registrant's
Registration
Statement on
Form S-3 dated
September 2, 1987
(File No. 33-16874).
4(f) Form of Variable Rate Note Incorporated by
with optional redemption reference to
and repayment provisions Exhibit 4 (x)
to Registrant's
Registration
Statement on
Form S-3 dated
September 2, 1987
(File No. 33-16874).
4(g) Form of Extendible Note Incorporated by
with optional redemption reference to
and repayment provisions Exhibit 4 (y)
to Registrant's
Registration
Statement on
Form S-3 dated
September 2, 1987
(File No. 33-16874).
4(h) Form of Fixed Rate Medium- Incorporated by
Term Note reference to
Exhibit 4 (z)
to Registrant's
Registration
Statement on
Form S-3 dated
September 2, 1987
(File No. 33-16874).
4(i) Form of Floating Rate Incorporated by
Medium-Term Note reference to
Exhibit 4 (aa)
to Registrant's
Registration
Statement on
Form S-3 dated
September 2, 1987
(File No. 33-16874).
4(j) Form of Warrant Agreement Incorporated by
reference to
Exhibit 4 (bb)
to Registrant's
Registration
Statement on
Form S-3 dated
September 2, 1987
(File No. 33-16874).
4(k) Form of Supplemental Incorporated by
Indenture reference to
Exhibit 4 (cc)
to Registrant's
Registration
Statement on
Form S-3 dated
September 2, 1987
(File No. 33-16874).
4(l) Terms and Conditions of Debt Electronically filed
Instruments to be issued herewith.
outside the U.S.
4(m) The Registrant hereby
agrees to furnish the
Commission, upon request,
with copies of the
instruments defining the
rights of holders of each
issue of long-term debt of
the Registrant for which
the total amount of
securities authorized
thereunder does not exceed
10% of the total assets of
the Registrant
10(a) Receivables Agreement Incorporated by
dated as of January 1, reference to
1983 between the Exhibit 10 (b)
Registrant and American to Registrant's
Express Travel Related Annual Report on
Services Company, Inc. Form 10-K for the year
ended December 31, 1987.
(Commission File
No. 1-6908)
10(b) Secured Loan Agreement Incorporated by
dated as of June 30, 1988 reference to
between the Registrant and Exhibit 10 (b)
American Express Centurion to Registrant's
Bank Annual Report on
Form 10-K for the year
ended December 31, 1988.
(Commission File
No. 1-6908)
10(c) Participation Agreement Incorporated by
dated as of August 3, 1992 reference to
between American Express Exhibit 10(c)
Receivables Financing to Registrant's
Corporation and Credco Annual Report on
Receivables Corp. Form 10-K for the year
ended December 31, 1992.
(Commission File
No. 1-6908)
12.1 Computation in Support of Electronically
Ratio of Earnings to Fixed filed herewith.
Charges of American
Express Credit Corporation
12.2 Computation in Support of Electronically
Ratio of Earnings to Fixed filed herewith.
Charges of American
Express Company
23 Consent of Independent Electronically
Auditors filed herewith.
27 Financial Data Schedule Electronically
filed herewith.