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, 2004
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, 301 North Walnut Street 19801-2919
Suite 1002, Wilmington, Delaware (Zip Code)
(Address of principal executive offices)
Registrant's telephone number including area code: (302) 594-3350
--------------
None
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND
(b) OF FORM 10-Q AND HAS THEREFORE OMITTED CERTAIN ITEMS FROM THIS REPORT IN
ACCORDANCE WITH THE REDUCED DISCLOSURE FORMAT PERMITTED UNDER GENERAL
INSTRUCTIONS H(2).
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 whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES NO X
---- ----
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 August 6, 2004
- ----- -----------------------------
Common Stock, $.10 par value 1,504,938 shares
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly owned subsidiary of American Express
Travel Related Services Company, Inc.)
FORM 10-Q
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income and Retained Earnings -
Three and six months ended
June 30, 2004 and 2003 3
Consolidated Balance Sheets -
June 30, 2004 and December 31, 2003 4
Consolidated Statements of Cash Flows -
Six months ended June 30, 2004 and 2003 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
Item 4. Controls and Procedures 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Exhibit Index E-1
-2-
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly owned subsidiary of American Express
Travel Related Services Company, Inc.)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF INCOME
AND RETAINED EARNINGS
(Millions)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
- ------------------------------------------------------------------------------------------------
Revenues
Discount revenue earned from purchased
accounts receivable $ 338 $ 355 $ 635 $ 673
Finance charge revenue 100 119 202 251
Interest income from investments 26 20 52 38
Interest income from affiliates 8 8 16 17
Other - 5 1 10
- ------------------------------------------------------------------------------------------------
Total revenues 472 507 906 989
- ------------------------------------------------------------------------------------------------
Expenses
Interest expense - other 182 199 357 396
Provision for losses, net of recoveries (1) 159 178 298 334
Interest expense - affiliates 24 14 49 33
Other 8 11 16 20
- ------------------------------------------------------------------------------------------------
Total expenses 373 402 720 783
- ------------------------------------------------------------------------------------------------
Pretax income 99 105 186 206
Income tax provision 33 36 63 71
- ------------------------------------------------------------------------------------------------
Net income 66 69 123 135
Retained earnings at beginning of period 2,813 2,562 2,756 2,496
- ------------------------------------------------------------------------------------------------
Retained earnings at end of period $2,879 $2,631 $2,879 $2,631
- ------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
(1) Provision for losses are shown net of recoveries of $51 and $50
for the three-months ended June 30, 2004 and 2003, respectively,
and $101 and $107 for the six-months ended June 30, 2004 and
2003, respectively.
-3-
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly owned subsidiary of American Express
Travel Related Services Company, Inc.)
CONSOLIDATED BALANCE SHEETS
(Millions, except share data)
June 30, December 31,
2004 2003
- --------------------------------------------------------------------------------------------------
(Unaudited)
Assets
Cash and cash equivalents $ 559 $ 1,528
Investments 3,309 2,593
Charge cardmember receivables, less credit reserves:
2004, $504; 2003, $555 20,010 20,610
Lending receivables, less credit reserves:
2004, $183; 2003, $182 4,969 4,885
Loans and deposits with affiliates 1,897 1,923
Deferred charges and other assets 481 410
- --------------------------------------------------------------------------------------------------
Total assets $31,225 $31,949
- --------------------------------------------------------------------------------------------------
Liabilities and Shareholder's Equity
Short-term debt $ 8,192 $10,563
Short-term debt with affiliates 5,205 5,155
Current portion of long-term debt 2,931 1,060
Current portion of long-term debt with affiliates 133 918
Long-term debt 9,908 9,497
Long-term debt with affiliates 617 720
-------- --------
Total debt 26,986 27,913
Due to affiliates 648 419
Accrued interest and other liabilities 597 867
- --------------------------------------------------------------------------------------------------
Total liabilities 28,231 29,199
- --------------------------------------------------------------------------------------------------
Shareholder's Equity
Common stock-authorized 3 million
shares of $.10 par value; issued
and outstanding 1.5 million shares 1 1
Capital surplus 161 161
Retained earnings 2,879 2,756
Other comprehensive income (loss), net of tax:
Net unrealized securities (losses) gains (30) 11
Net unrealized derivatives losses (17) (179)
- --------------------------------------------------------------------------------------------------
Accumulated other comprehensive loss (47) (168)
- --------------------------------------------------------------------------------------------------
Total shareholder's equity 2,994 2,750
- --------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $31,225 $31,949
- --------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
-4-
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly owned subsidiary of American Express
Travel Related Services Company, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions)
(Unaudited)
Six Months Ended
June 30,
2004 2003
- ------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net income $ 123 $ 135
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for losses 399 441
Amortization and other 7 -
Changes in operating assets and liabilities:
Deferred tax assets (14) (9)
Due to affiliates 356 456
Other operating assets and liabilities (146) 173
- ------------------------------------------------------------------------------------------------
Net cash provided by operating activities 725 1,196
- ------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Decrease (increase) in accounts receivable and loans 300 (361)
Recoveries of accounts receivable previously written off 101 107
Purchase of participation interest in seller's interest in
accounts receivable from affiliate - (1,041)
Sale of participation interest in seller's interest in accounts
receivable to affiliate - 106
Sale of net accounts receivable to affiliate - 137
Purchase of net accounts receivable from affiliate (284) (463)
Purchase of investments (2,237) (87)
Sales and maturities of investments 1,452 153
Loans and deposits due from affiliates, net 26 283
Decrease in due to affiliates (127) (1,577)
- ------------------------------------------------------------------------------------------------
Net cash used in investing activities (769) (2,743)
- ------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Net increase (decrease) in short-term debt with affiliates
with maturities of ninety days or less 50 (610)
Net decrease in short-term debt - other with
maturities of ninety days or less (1,178) (392)
Issuance of debt with affiliates 22 409
Issuance of debt - other 3,240 7,451
Redemption of debt with affiliates (910) -
Redemption of debt - other (2,149) (5,437)
- ------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (925) 1,421
- ------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (969) (126)
Cash and cash equivalents at beginning of period 1,528 1,924
- ------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 559 $ 1,798
- ------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
-5-
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly owned subsidiary of American Express
Travel Related Services Company, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 Credit Corporation, including its subsidiaries where appropriate
(Credco), for the year ended December 31, 2003. Significant accounting
policies disclosed therein have not changed. 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), Credco Receivables Corporation (CRC), Credco
Finance, Inc. together with its subsidiaries (CFI), American Express Canada
Credit Corporation (AECCC) and American Express Canada Finance Limited
(AECFL), are wholly owned subsidiaries of Credco.
The interim consolidated financial statements are unaudited; however, in
the opinion of management, they include all adjustments (consisting of
normal recurring adjustments) necessary for a fair presentation of the
consolidated financial position of Credco at June 30, 2004 and the
consolidated results of its operations and changes in its retained earnings
for the three and six-months ended June 30, 2004 and 2003 and cash flows
for the six-month periods ended June 30, 2004 and 2003. Results of
operations reported for interim periods are not necessarily indicative of
results for the entire year. Certain prior year amounts have been
reclassified to conform to the current year presentation.
Recently Issued Accounting Standards
In November 2003, the Financial Accounting Standards Board (FASB) ratified
a consensus on the disclosure provisions of Emerging Issues Task Force
(EITF) Issue 03-1, "The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments." Credco adopted the disclosure
provisions of this rule at December 31, 2003. In March 2004, the FASB
reached a consensus regarding the application of a three-step impairment
model to determine whether cost method investments are
other-than-temporarily impaired. The provisions of this rule are required
to be applied prospectively to all current and future investments accounted
for in accordance with Statement of Financial Accounting Standards (SFAS)
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," and other cost method investments for reporting periods
beginning after June 15, 2004. Credco does not expect EITF Issue 03-1 to
have a material impact on Credco's results of operations at the time of
adoption.
2. Investment Securities
The following is a summary of investments at June 30, 2004 and December 31,
2003:
June 30, December 31,
(Millions) 2004 2003
------- ------------
Available-for-Sale, at fair value (cost June 30, 2004-$3,354;
December 31, 2003-$2,576) $ 3,309 $ 2,593
------- ------------
-6-
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly owned subsidiary of American Express
Travel Related Services Company, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Comprehensive Income
Comprehensive income is defined as the aggregate change in shareholder's
equity, excluding changes in ownership interests. For Credco, it is the sum
of net income and changes in 1) unrealized gains or losses on
available-for-sale securities and 2) unrealized gains or losses on
derivatives. The components of comprehensive income, net of related tax,
for the three and six months ended June 30, 2004 and 2003 were as follows:
Three Months Ended Six Months Ended
(Millions) June 30, June 30,
-------------------- -----------------
2004 2003 2004 2003
---- ---- ---- ----
Net income $ 66 $ 69 $123 $135
Change in:
Net unrealized securities (losses) gains (54) 21 (41) 12
Net unrealized derivatives (losses) gains 188 (16) 162 24
---- ---- ---- ----
Total $200 $ 74 $244 $171
==== ==== ==== ====
4. Taxes and Interest
Income taxes paid (net of refunds) during the six-months ended June 30,
2004 and 2003 were $27 million and $85 million, respectively. Interest paid
was $352 million and $405 million for the six-month periods ended June 30,
2004 and 2003, respectively.
-7-
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly owned subsidiary of American Express
Travel Related Services Company, Inc.)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
Financing Activities
The portfolio for American Express Credit Corporation, including its
subsidiaries where appropriate (Credco), consists principally of charge
cardmember and lending receivables purchased without recourse from Card Issuers
throughout the world and participation interests purchased without recourse in
the seller's interest in both non-interest-bearing and interest-bearing
cardmember receivables. These participation interests are owned by two master
trusts operated by American Express Travel Related Services Company, Inc. (TRS)
as part of its asset securitization programs. At June 30, 2004 and December 31,
2003, respectively, Credco owned $20.5 billion and $21.2 billion of charge
cardmember receivables and participation in charge cardmember receivables,
representing approximately 80 percent and 81 percent, respectively, of the total
receivables owned. Lending receivables, representing approximately 20 percent
and 19 percent of the total receivables owned, were $5.2 billion and $5.1
billion at June 30, 2004 and December 31, 2003, respectively.
In the six months ended June 30, 2004, $2.5 billion of investor certificates
previously issued by the American Express Credit Account Master Trust (the
Master Trust) matured. In connection with these maturities, $207.5 million of
Class C certificates, previously issued by the Master Trust, which were held by
Credco Receivables Corp. (CRC), a wholly owned subsidiary of Credco, matured. In
addition, in June 2004, CRC sold $1.2 billion of previously issued Class C
certificates to American Express Receivables Financing Corporation II, a wholly
owned subsidiary of TRS. Additionally, in July 2004, $47.5 million of Class C
certificates, previously issued by the Master Trust, which were held by CRC as
investments, matured.
Credco's assets are financed through a combination of short-term debt,
medium-term notes, long-term senior notes and equity capital. 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. During the
six months ended June 30, 2004, Credco continued to have uninterrupted access to
the commercial paper and capital markets to fund its business operations.
As part of Credco's ongoing funding activities, during the six months ended June
30, 2004, Credco issued $2.6 billion of floating rate medium-term notes with
maturities of one to three years. The proceeds from these issuances were used
for financing Credco's operations, including the purchase of receivables, the
repayment of short-term senior debt previously incurred primarily to finance the
purchase of receivables and for investment in short-term and medium-term
financial assets.
The commercial paper market represents the primary source of short-term funding
for Credco. Credco's commercial paper is a widely recognized name among
short-term investors and is a principal source of debt. At June 30, 2004 and
December 31, 2003, respectively, Credco had $7.5 billion and $8.8 billion of
commercial paper outstanding, net of cash equivalents. The outstanding amount,
net of cash equivalents, decreased $1.3 billion or 18 percent from December 31,
2003. Average commercial paper outstanding, net of cash equivalents, was $8.5
billion and $8.0 billion for the six months ended June 30, 2004 and 2003,
respectively. Credco currently manages the level of commercial paper
outstanding, net of cash equivalents, such that the ratio of its committed bank
credit facility to total short-term debt, which consists mainly of commercial
paper, is not less than 100%. Committed bank line coverage of net short-term
debt was 109% at June 30, 2004.
Medium- and long-term debt is raised through the offering of debt securities
principally in the U.S. capital markets. Medium-term debt is generally defined
as any debt with an original maturity greater than 12 months but
-8-
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly owned subsidiary of American Express
Travel Related Services Company, Inc.)
less than 36 months. Long-term debt is generally defined as any debt with an
original maturity greater than 36 months. At June 30, 2004 and December 31,
2003, Credco had an aggregate of $11.7 billion and $9.4 billion, respectively,
of medium-term notes outstanding at fixed and floating rates with maturities of
one to three years, a portion of which can be extended by the holders up to an
additional four years.
As of June 30, 2004, Credco had the ability to issue approximately $7.2 billion
of debt securities and warrants to purchase debt securities available for
issuance under a shelf registration statement filed with the Securities and
Exchange Commission (SEC). In addition, Credco had the ability to issue $5.5
billion of debt under a Euro Medium-Term Note program for the issuance of debt
outside the United States to non-U.S. persons at June 30, 2004. This program was
established by Credco; TRS; American Express Overseas Credit Corporation Limited
(AEOCC), a wholly owned subsidiary of Credco; American Express Centurion Bank
(Centurion Bank), a wholly owned subsidiary of TRS; and American Express Bank
Ltd., a wholly owned indirect subsidiary of American Express Company (American
Express). The maximum aggregate principal amount of debt instruments outstanding
at any one time under the program will not exceed $6.0 billion.
As part of its receivables funding activities, Credco regularly reviews funding
sources and strategies in international markets. As noted below, in June 2004,
Credco borrowed $1.47 billion under its bank credit facilities as part of a
change in local funding strategy for business in Canada. In July 2004, Credco
entered into a 5-year multi-bank credit facility for Australian $3.25 billion
(approximately U.S. $2.3 billion), which may be used to provide a potential
alternate funding source for business in Australia.
Liquidity Portfolio
In the fourth quarter of 2003, Credco began a program to develop a liquidity
portfolio to provide back-up liquidity primarily for the commercial paper
program. These funds are invested in two to three year U.S. Treasury securities.
At June 30, 2004, Credco held $3.0 billion in U.S. Treasury notes under this
program.
The invested amounts of the liquidity portfolio provide back-up liquidity,
primarily for Credco's commercial paper program. U.S. Treasury securities are
the highest credit quality and most liquid of investment instruments available.
Credco can easily sell these securities or enter into sale/repurchase agreements
to immediately raise cash proceeds to meet liquidity needs.
From time to time, Credco may increase its liquidity portfolio in order to
pre-refund maturing debt obligations or when financial market conditions are
favorable. These levels are monitored and adjusted when necessary to maintain
short-term liquidity needs in response to seasonal or changing business
conditions.
Committed Bank Credit Facilities
An alternate source of borrowing consists of committed credit line facilities.
Credco, American Express, Centurion Bank and American Express Bank, FSB, a
wholly owned subsidiary of TRS, maintain bank credit facilities of $10.75
billion, of which $9.28 billion was available as of June 30, 2004, including
$6.70 billion allocated to Credco and $1.96 billion allocated to American
Express. As contemplated, in June 2004, Credco borrowed $1.47 billion under
these facilities as part of a change in local funding strategy for business in
Canada. Credco has the right to borrow up to a maximum amount of $10.1 billion
(including amounts outstanding) under these facilities, with a commensurate
reduction in the amount available to American Express. The remainder of the
credit lines is allocated to Centurion Bank and American Express Bank, FSB.
These facilities expire as follows (billions): 2005, $3.75; 2006, $2.20; 2007,
$1.05 and 2009, $3.75. Credco's committed bank line coverage of its net
short-term debt was 109% at June 30, 2004. The availability of credit lines is
subject to Credco's maintenance of a 1.25 ratio of earnings to fixed charges.
For the six-month period ended June 30, 2004, this ratio was 1.46.
-9-
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly owned subsidiary of American Express
Travel Related Services Company, Inc.)
Committed bank credit facilities do not contain material adverse change clauses,
which may preclude borrowing under the credit facilities. The facilities may not
be terminated should there be a change in Credco's credit rating.
Results of Operations for the Six Months Ended June 30, 2004 and 2003
Credco's decrease in discount revenue earned on purchased accounts receivable is
attributable to lower discount rates, partially offset by an increase in the
volume of receivables purchased. Finance charge revenue decreased as a result of
lower gross yields and volume of receivables purchased. Interest income
increased due to an increase in volume of investments outstanding. Interest
expense decreased as a result of lower interest rates, partially offset by an
increase in the volume of average debt outstanding. Provision for losses
decreased reflecting a decrease in the provision rates, partially offset by an
increase in volume of receivables purchased. The following is an analysis of the
changes attributable to the increase (decrease) in key revenue and expense
accounts for the six-month period ended June 30, 2004, compared with the
six-month period ended June 30, 2003:
(Millions)
Discount revenue earned on purchased accounts receivable:
Volume of receivables purchased $ 168
Discount rates (206)
-----
Total $ (38)
=====
Finance charge revenue:
Volume of receivables purchased $ (19)
Gross yields (30)
-----
Total $ (49)
=====
Interest income from investments:
Volume of average investments outstanding $ 19
Interest rates (5)
-----
Total $ 14
=====
Interest income from affiliates:
Volume of average investments outstanding $ 1
Interest rates (2)
-----
Total $ (1)
=====
Interest expense other:
Volume of average debt outstanding $ 99
Interest rates (138)
-----
Total $ (39)
=====
Provision for losses:
Volume of receivables purchased $ 117
Provision rates and volume of recoveries (153)
-----
Total $ (36)
=====
Interest expense affiliates:
Volume of average debt outstanding $ 8
Interest rates 8
-----
Total $ 16
=====
-10-
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly owned subsidiary of American Express
Travel Related Services Company, Inc.)
Credco primarily purchases cardmember receivables without recourse from TRS.
During the six-month periods ended June 30, 2004 and 2003, Credco purchased $120
billion and $95 billion, respectively, of charge cardmember and lending
receivables. Non-interest-bearing charge cardmember receivables are purchased at
face amount less a specified discount agreed upon from time to time, and
interest-bearing lending 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 for the six-month periods ended June 30, 2004
and 2003 was 1.46 and 1.48, respectively. The ratio of earnings to fixed charges
for American Express, the parent of TRS, for the six-month periods ended June
30, 2004 and 2003 was 3.96 and 3.35, respectively. 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 charge cardmember
and lending receivables purchased, the discount rates applicable thereto, the
relationship of total discount to Credco's interest expense and the
collectibility of receivables purchased.
Charge Cardmember Receivables
At June 30, 2004 and 2003, Credco owned $20.5 billion and $17.9 billion,
respectively, of charge cardmember receivables and participation in charge
cardmember receivables, representing 80 percent and 78 percent of the total
receivables owned at June 30, 2004 and 2003, respectively. The charge cardmember
receivables owned at June 30, 2004 and 2003 include $4.0 billion and $3.0
billion, respectively, of participation interests owned by CRC. CRC owns a
participation in the seller's interest in charge cardmember receivables that
have been conveyed to the American Express Master Trust (the Trust).
Six months ended June 30, (Millions, except percentages and where indicated) 2004 2003
-------------------------------------------------------------------------------------------------------
Total charge cardmember receivables $20,514 $17,935
90 days past due as a % of total 2.1% 2.4%
Loss reserves $ 504 $ 517
as a % of receivables 2.4% 2.9%
as a % of 90 days past due 117% 119%
Write-offs, net of recoveries $ 221 $ 209
Net loss ratio (1) 0.19% 0.23%
Average life of charge cardmember receivables (in days) (2) 32 33
(1) Credco's write-offs, net of recoveries, expressed as a percentage of the
volume of charge cardmember receivables purchased by Credco in each of the
periods indicated.
(2) Represents the average life of charge cardmember receivables owned by
Credco, 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
periods indicated, to the volume of charge cardmember receivables purchased
by Credco.
-11-
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly owned subsidiary of American Express
Travel Related Services Company, Inc.)
Lending Receivables
Credco owned extended payment plan receivables and loans (lending receivables)
totaling $5.2 billion at June 30, 2004 and 2003, which represents 20 percent and
22 percent, respectively, of all interests in receivables owned by Credco. These
receivables consist of certain interest-bearing and discounted extended payment
plan receivables comprised principally of American Express credit card, Sign &
Travel and Extended Payment Option receivables, lines of credit and loans to
American Express Bank Ltd. customers and interest-bearing equipment financing
installment loans and leases. At June 30, 2004 and 2003, there was no
participation interest in lending receivables owned by CRC. This represents
participation interests in the seller's interest in lending receivables that
have been conveyed to the Master Trust, formed in 1996 to securitize lending
receivables.
Six months ended June 30, (Millions, except percentages) 2004 2003
-------------------------------------------------------------------------------------------------------
Total lending receivables $5,152 $5,174
Past due lending receivables as a % of total:
30-89 days 2.7% 3.0%
90+ days 1.4% 1.5%
Loss reserves $ 183 $ 233
as a % of lending receivables 3.5% 4.5%
as a % of past due 87% 99%
Write-offs, net of recoveries $ 113 $ 173
Net write-off rate (1) 4.32% 6.86%
(1) Credco's write-offs, net of recoveries, expressed as a percentage of the
average amount of lending receivables owned by Credco at the beginning of
the year and at the end of each month in each of the periods indicated.
The following is an analysis of the credit reserves for charge cardmember and
lending receivables (Millions):
2004 2003
---- ----
Balance, January 1 $737 $741
Provision for losses 399 441
Accounts written off (435) (489)
Other (14) 57
---- ----
Balance, June 30 $687 $750
==== ====
Various forward-looking statements have been made in this Quarterly Report on
Form 10-Q. Forward-looking statements may also be made in Credco's other reports
filed with the SEC and in other documents. In addition, from time to time,
Credco through its management may make oral forward-looking statements.
Forward-looking statements are subject to risks and uncertainties, including
those identified below, which could cause actual results to differ materially
from such statements. The words "believe", "expect", "anticipate", "optimistic",
"intend", "evaluate", "plan", "aim", "will", "should", "could", "likely" and
similar expressions are intended to identify forward-looking statements. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date on which they are made. Credco undertakes no
obligation to update publicly or revise any forward-looking statements. Factors
that could cause actual results to differ materially from Credco's
forward-looking statements include, but are not limited to:
o credit trends and the rate of bankruptcies, which can affect
spending on card products and debt payments by individual and
corporate customers;
o Credco's ability to accurately estimate the provision for credit
losses in Credco's outstanding portfolio of charge cardmember and
lending receivables;
o fluctuations in foreign currency exchange rates;
-12-
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly owned subsidiary of American Express
Travel Related Services Company, Inc.)
o negative changes in Credco's credit ratings, which could result
in decreased liquidity and higher borrowing costs;
o the effect of fluctuating interest rates, which could affect
Credco's borrowing costs; and
o the impact on American Express Company's business resulting from
continuing geopolitical uncertainty.
Other Reporting Matters
Accounting Developments
In March 2004, the Financial Accounting Standards Board (FASB) reached a
consensus on Emerging Issues Task Force (EITF) Issue 03-1, "The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments."
EITF Issue 03-1 requires the application of a three-step impairment model to
determine whether cost method investments are other-than-temporarily impaired.
The provisions of this rule are required to be applied prospectively to all
current and future investments accounted for in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," and other cost method investments
for reporting periods beginning after June 15, 2004. Credco does not expect EITF
Issue 03-1 to have a material impact on Credco's results of operations at the
time of adoption.
Item 4. Controls and Procedures
Credco's management, with the participation of Credco's Chief Executive Officer
and Chief Financial Officer, has evaluated the effectiveness of Credco's
disclosure controls and procedures (as such term is defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) as of the end of the period covered by this report. Based on
such evaluation, Credco's Chief Executive Officer and Chief Financial Officer
have concluded that, as of the end of such period, Credco's disclosure controls
and procedures are effective. There have not been any changes in Credco's
internal control over financial reporting (as such term is defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to
which this report relates that have materially affected, or are reasonably
likely to materially affect, Credco's internal control over financial reporting.
-13-
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly owned subsidiary of American Express
Travel Related Services Company, Inc.)
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
12.1 Computation in Support of Ratio of Earnings to Fixed
Charges of American Express Credit Corporation.
12.2 Computation in Support of Ratio of Earnings to Fixed
Charges of American Express Company.
31.1 Certification of Walker C. Tompkins, Jr. pursuant to Rule
13a-14(a) promulgated under the Securities Exchange Act of
1934, as amended.
31.2 Certification of Walter S. Berman pursuant to Rule
13a-14(a) promulgated under the Securities Exchange Act of
1934, as amended.
32.1 Certification of Walker C. Tompkins, Jr. pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 Certification of Walter S. Berman pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
None
-14-
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly owned subsidiary of American Express
Travel Related Services Company, Inc.)
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 CREDIT CORPORATION
(Registrant)
DATE: August 9, 2004 By /s/ Walker C. Tompkins, Jr.
---------------------------------------
Walker C. Tompkins, Jr.
President and Chief Executive Officer
DATE: August 9, 2004 /s/ Erich Komdat
----------------
Erich Komdat
Vice President and Chief Accounting
Officer
-15-
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly owned subsidiary of American Express
Travel Related Services Company, Inc.)
EXHIBIT INDEX
Pursuant to Item 601 of Regulation S-K
Description How Filed
----------- ---------
Exhibit 12.1 Computation in Support of Ratio of Electronically filed herewith.
Earnings to Fixed Charges of American
Express Credit Corporation.
Exhibit 12.2 Computation in Support of Ratio of Electronically filed herewith.
Earnings to Fixed Charges of American Express
Company.
Exhibit 31.1 Certification of Walker C. Tompkins, Jr. pursuant to Electronically filed herewith.
Rule 13a-14(a) promulgated under the Securities
Exchange Act of 1934, as amended.
Exhibit 31.2 Certification of Walter S. Berman pursuant to Rule Electronically filed herewith.
13a-14(a) promulgated under the Securities Exchange
Act of 1934, as amended.
Exhibit 32.1 Certification of Walker C. Tompkins, Jr. pursuant to Electronically filed herewith.
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2 Certification of Walter S. Berman pursuant to 18 Electronically filed herewith.
U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
E-1