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 September 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
incorporation or organization) Identification No.)
One Christina Centre, 301 North Walnut Street
Suite 1002, Wilmington, Delaware 19801-2919
(Address of principal executive offices) (Zip Code)
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 November 5, 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 nine months ended
September 30, 2004 and 2003 3
Consolidated Balance Sheets -
September 30, 2004 and December 31, 2003 4
Consolidated Statements of Cash Flows -
Nine months ended September 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 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
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 Nine Months Ended
September 30, September 30,
------------------ -----------------
2004 2003 2004 2003
------ ------ ------ ------
Revenues
Discount revenue earned from purchased
accounts receivable $ 325 $ 352 $ 960 $1,025
Finance charge revenue 97 113 299 364
Interest income from investments 25 16 77 54
Interest income from affiliates 18 7 34 24
Other 12 -- 13 10
------ ------ ------ ------
Total revenues 477 488 1,383 1,477
------ ------ ------ ------
Expenses
Interest expense - other 186 197 543 593
Provision for losses, net of recoveries (1) 162 187 460 521
Interest expense - affiliates 27 13 76 46
Other 9 9 25 29
------ ------ ------ ------
Total expenses 384 406 1,104 1,189
------ ------ ------ ------
Pretax income 93 82 279 288
Income tax provision 28 28 91 99
------ ------ ------ ------
Net income 65 54 188 189
Retained earnings at beginning of period 2,879 2,631 2,756 2,496
------ ------ ------ ------
Retained earnings at end of period $2,944 $2,685 $2,944 $2,685
------ ------ ------ ------
See notes to consolidated financial statements.
(1) Provision for losses are shown net of recoveries of $47 and $43 for the
three-months ended September 30, 2004 and 2003, respectively, and $148 and
$150 for the nine-months ended September 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)
September 30, December 31,
2004 2003
------------- ------------
(Unaudited)
Assets
Cash and cash equivalents $ 1,636 $ 1,528
Investments 3,264 2,593
Charge cardmember receivables, less credit reserves:
2004, $506; 2003, $555 19,377 20,610
Lending receivables, less credit reserves:
2004, $150; 2003, $182 3,856 4,885
Loans and deposits with affiliates 3,579 1,923
Deferred charges and other assets 362 410
------- -------
Total assets $32,074 $31,949
------- -------
Liabilities and Shareholder's Equity
Short-term debt $ 3,877 $10,563
Short-term debt with affiliates 5,348 5,155
Current portion of long-term debt 4,938 1,060
Current portion of long-term debt with affiliates -- 918
Long-term debt 13,647 9,497
Long-term debt with affiliates -- 720
------- -------
Total debt 27,810 27,913
Due to affiliates 865 419
Accrued interest and other liabilities 376 867
------- -------
Total liabilities 29,051 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 2,944 2,756
Other comprehensive (loss) income, net of tax:
Net unrealized securities (losses) gains (14) 11
Net unrealized derivatives losses (70) (179)
Foreign currency translation adjustments 1 --
------- -------
Accumulated other comprehensive loss (83) (168)
------- -------
Total shareholder's equity 3,023 2,750
------- -------
Total liabilities and shareholder's equity $32,074 $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)
Nine Months Ended
September 30,
-----------------
2004 2003
------- -------
Cash Flows from Operating Activities
Net income $ 188 $ 189
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for losses 608 671
Amortization and other 22 --
Changes in operating assets and liabilities:
Deferred tax assets 28 (24)
Due to affiliates 302 291
Other operating assets and liabilities (267) 168
------- -------
Net cash provided by operating activities 881 1,295
------- -------
Cash Flows from Investing Activities
Increase (decrease) in accounts receivable and loans 257 (746)
Recoveries of accounts receivable previously written off 148 150
Purchase of participation interest in seller's interest in
accounts receivable from affiliate (315) (2,051)
Sale of participation interest in seller's interest in accounts
receivable to affiliate -- 106
Sale of net accounts receivable to affiliate 2,003 137
Purchase of net accounts receivable from affiliate (439) (462)
Purchase of investments (2,236) (87)
Sales and maturities of investments 1,517 230
Loans and deposits due from affiliates, net (1,656) 388
Increase (decrease) in due to affiliates 144 (1,256)
------- -------
Net cash used in investing activities (577) (3,591)
------- -------
Cash Flows from Financing Activities
Net increase (decrease) in short-term debt with affiliates
with maturities of ninety days or less 193 (650)
Net decrease in short-term debt - other with
maturities of ninety days or less (5,462) (1,787)
Issuance of debt with affiliates 22 432
Issuance of debt - other 8,983 9,278
Redemption of debt with affiliates (1,660) --
Redemption of debt - other (2,272) (6,191)
------- -------
Net cash (used in) provided by financing activities (196) 1,082
------- -------
Net increase (decrease) in cash and cash equivalents 108 (1,214)
Cash and cash equivalents at beginning of period 1,528 1,924
------- -------
Cash and cash equivalents at end of period $ 1,636 $ 710
------- -------
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.
In August 2004, Credco purchased a 99.9% ownership interest in American
Express Capital Australia (AECA), with the remaining 0.1% interest held by
American Express International Inc. (AEII), a wholly owned subsidiary of
American Express Limited (AEL), which is a wholly owned subsidiary of TRS.
AECA was established as part of a change in local funding strategy for
business in Australia.
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 September 30, 2004 and the
consolidated results of its operations and changes in its retained earnings
for the three and nine-months ended September 30, 2004 and 2003 and cash
flows for the nine-month periods ended September 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 investments accounted for in accordance with
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," and other cost method investments are other-than-temporarily
impaired. However, with the issuance of FASB Staff Position (FSP) EITF
03-1-1, the provisions of the consensus relating to the measurement and
recognition of other-than-temporary impairments will be deferred pending
further clarification from the FASB. The remaining provisions of this rule,
which primarily relate to disclosure requirements, are required to be
applied prospectively to all current and future investments accounted for
in accordance with SFAS No. 115 and other cost method investments. Credco
will evaluate the potential impact of EITF 03-1 after the FASB completes
its reassessment.
2. Investment Securities
The following is a summary of investments at September 30, 2004 and
December 31, 2003:
-6-
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly owned subsidiary of American Express
Travel Related Services Company, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, December 31,
(Millions) 2004 2003
------------- ------------
Available-for-Sale, at fair value (cost, September 30, 2004-$3,286;
December 31, 2003-$2,576) $3,264 $2,593
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, 2) unrealized gains or losses on derivatives
and 3) foreign currency translation adjustments. The components of
comprehensive income, net of related tax, for the three and nine months
ended September 30, 2004 and 2003 were as follows:
Three Months Ended Nine Months Ended
(Millions) September 30, September 30,
------------------ -----------------
2004 2003 2004 2003
---- ---- ---- ----
Net income $ 65 $ 54 $188 $189
Change in:
Net unrealized securities (losses) gains 16 -- (25) 12
Net unrealized derivatives (losses) gains (53) 97 109 121
Foreign currency translation adjustments 1 -- 1 --
---- ---- ---- ----
Total comprehensive income $ 29 $151 $273 $322
==== ==== ==== ====
4. Taxes and Interest
Income taxes paid (net of refunds) during the nine-months ended September
30, 2004 and 2003 were $62 million and $146 million, respectively. Interest
paid was $508 million and $650 million for the nine-month periods ended
September 30, 2004 and 2003, respectively.
5. Subsequent Events
In October 2004, American Express announced an agreement to sell the
leasing product line in its small business financing unit, American Express
Business Financial Corporation (AEBF), with a loan portfolio of
approximately $1.5 billion, of which approximately $1.3 billion was owned
by Credco at September 30, 2004.
In October 2004, Credco established two additional 99.9% owned entities,
American Express Euro Funding Limited Partnership (AEELP) and American
Express Sterling Funding Limited Partnership (AESLP), and AESLP in turn
established a wholly owned subsidiary, American Express Funding
(Luxembourg) SARL (SARL), in connection with the implementation of
alternate receivable funding strategies in the United Kingdom and Germany.
These entities were funded with the proceeds of debt securities issued by
Credco in sterling and in euros, in the third and fourth quarters of 2004,
respectively. During October 2004, Credco sold its lending and charge card
portfolios in the United Kingdom and Germany to American Express Services
Europe Limited (AESEL), an indirect wholly owned subsidiary of TRS.
Subsequently, AESEL transferred with recourse receivables of (Pounds
Sterling) 1.3 billion (approximately U.S. $2.5 billion) and (Euro) 485
million (approximately U.S. $619 million) to SARL and AEELP, respectively.
These transfers of receivables with recourse will result in Credco
recording additional loans with affiliates in October 2004.
-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 generally purchased without recourse from
Card Issuers throughout the world and participation interests purchased without
recourse in the seller's interest in non-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 September 30, 2004 and December 31,
2003, respectively, Credco owned $19.9 billion and $21.2 billion of charge
cardmember receivables and participation in charge cardmember receivables,
representing approximately 83 percent and 81 percent, respectively, of the total
receivables owned. Lending receivables, representing approximately 17 percent
and 19 percent of the total receivables owned, were $4.0 billion and $5.1
billion at September 30, 2004 and December 31, 2003, respectively.
In the nine months ended September 30, 2004, $3.0 billion of investor
certificates previously issued by the American Express Credit Account Master
Trust (the Master Trust) and $0.3 billion of investor certificates issued by the
American Express Master Trust (the Trust) matured. In connection with these
maturities, $17.5 million of Class B certificates, issued by the Trust, and
$255.0 million of Class C certificates, issued by the Master Trust, matured.
These certificates were held by Credco Receivables Corp. (CRC), a wholly owned
subsidiary of Credco. At the time of the maturity of the Class B certificates,
CRC purchased $324.6 million gross seller's interest in charge cardmember
receivables ($315.1 million, net of reserves) from American Express Receivables
Financing Corporation (RFC), a wholly owned subsidiary of TRS. 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 connection with the October 2004 maturity of $810.8 million of
investor certificates previously issued by the Trust, $60.8 million of Class B
certificates, previously issued by the 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. Funding
requirements are met primarily by the sale of commercial paper, the issuance of
medium-term notes and borrowings under committed bank credit facilities. 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 nine months ended September 30, 2004, Credco continued to have
uninterrupted access to the commercial paper and capital markets to fund its
business operations.
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 September 30, 2004
and December 31, 2003, respectively, Credco had $2.0 billion and $8.8 billion of
commercial paper outstanding, net of cash equivalents. The outstanding amount,
net of cash equivalents, decreased $6.8 billion or 77% from December 31,
2003 as a result of a change in Credco's funding strategy in certain local
markets. Average commercial paper outstanding, net of cash equivalents, was $6.9
billion and $9.8 billion for the nine months ended September 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 316% at September 30, 2004.
-8-
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly owned subsidiary of American Express
Travel Related Services Company, Inc.)
Medium- and long-term debt is raised through the offering of debt securities in
the U.S. and European capital markets and borrowings under committed credit
facilities. Medium-term debt is generally defined as any debt with an original
maturity greater than 12 months but less than 36 months. Long-term debt is
generally defined as any debt with an original maturity greater than 36 months.
At September 30, 2004 and December 31, 2003, Credco had an aggregate of $12.8
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. Credco's
outstanding long term debt at September 30, 2004 and December 31, 2003 was $5.8
billion and $2.8 billion, respectively.
As of September 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 the first quarter of 2004, Credco issued $2.6
billion of floating rate medium-term notes under the shelf registration.
In addition, 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) have established a program for the issuance, outside the United States,
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 $6.0 billion. In the third quarter of 2004, Credco
issued (Pounds Sterling) 1.25 billion (approximately U.S. $2.2 billion) of
fixed-rate debt instruments with maturities of three to five years under this
program. The proceeds from these issuances were used for financing Credco's
operations, including the purchase of receivables and the repayment of
previously issued debt. At September 30, 2004, $2.7 billion was outstanding
under this program, including $500 million issued by TRS. Subsequently, in
October 2004, Credco issued a (Euro) 375 million (approximately U.S. $461
million) fixed-rate debt instrument with a maturity of five years under this
program, the proceeds of which were used for financing operations, including
the purchase of receivables and the repayment of previously issued debt.
As part of its receivables funding activities, Credco regularly reviews funding
sources and strategies in international markets. As previously reported, in June
2004, Credco, through a Canadian subsidiary, borrowed Canadian $2.0 billion
(approximately U.S. $1.47 billion) under its bank credit facilities as part of a
change in local funding strategy for its business in Canada. To date, most of
the loan proceeds have been used to fund loans to Amex Bank of Canada, an
indirect wholly owned subsidiary of TRS, and it is anticipated that eventually
all of the proceeds will be so utilized.
In August 2004, Credco established a new 99.9% owned entity, American Express
Capital Australia (AECA). In September 2004, Credco borrowed Australian $2.7
billion (approximately U.S. $1.9 billion) to provide an alternate funding source
for business in Australia. At the same time, Credco sold its Australian lending
portfolio, net of reserves, of $980 million and charge card portfolio of $1,023
million to American Express Australia Limited (AEAL), which is an indirect
wholly owned subsidiary of TRS and the issuer of charge and credit cards in
Australia. Subsequently, AEAL transferred with recourse these receivables to
AECA and will transfer with recourse new receivables originated by AEAL in the
future to AECA. The transfer of receivables with recourse to AECA resulted in
Credco recording a loan with affiliate of $1,942 million in its consolidated
balance sheet at September 30, 2004.
In October 2004, Credco established two additional 99.9% owned entities,
American Express Euro Funding Limited Partnership (AEELP) and American Express
Sterling Funding Limited Partnership (AESLP), and AESLP in turn established a
wholly owned subsidiary, American Express Funding (Luxembourg) SARL (SARL), in
connection with the implementation of alternate receivable funding strategies in
the United Kingdom and Germany. These entities were funded with the proceeds of
debt securities issued by Credco in sterling and in euros, in the third and
fourth quarters of 2004, respectively, as described above. During October 2004,
Credco sold its lending and charge card portfolios in the United Kingdom and
Germany to American Express Services Europe Limited (AESEL), an indirect
wholly owned subsidiary of TRS. Subsequently, AESEL transferred with recourse
receivables of (Pounds Sterling) 1.3 billion (approximately U.S. $2.5
-9-
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly owned subsidiary of American Express
Travel Related Services Company, Inc.)
billion) and (Euro) 485 million (approximately U.S. $619 million) to SARL and
AEELP, respectively. These transfers of receivables with recourse will result in
Credco recording additional loans with affiliates in October 2004.
Liquidity Portfolio
In the fourth quarter of 2003, Credco began a program to develop a liquidity
portfolio to provide back-up liquidity primarily for its short-term and maturing
debt. These funds were invested in U.S. Treasury securities with original
maturities of two to three years. At September 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 for
Credco's commercial paper program and other short-term debt. 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 adjust the size and composition of 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 September 30, 2004,
including $6.70 billion allocated to Credco and $1.96 billion allocated to
American Express. As discussed above, in June 2004, Credco borrowed Canadian
$2.0 billion (approximately U.S. $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. The
availability of credit lines is subject to Credco's maintenance of a 1.25 ratio
of earnings to fixed charges. For the nine-month period ended September 30,
2004, this ratio was 1.45.
In July 2004, Credco entered into a new 5-year multi-bank credit facility for
Australian $3.25 billion (approximately U.S. $2.3 billion). In September 2004,
Credco borrowed Australian $2.7 billion (approximately U.S. $1.9 billion) under
this facility to provide an alternate funding source for business in Australia.
The availability of the Australian credit facility is subject to Credco's
maintenance of a 1.25 ratio of earnings to fixed charges.
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.
Other Sources of Capital
In October 2004, American Express announced an agreement to sell the leasing
product line in its small business financing unit, American Express Business
Financial Corporation (AEBF) with a loan portfolio of approximately $1.5
billion, of which approximately $1.3 billion was owned by Credco at September
30, 2004.
-10-
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly owned subsidiary of American Express
Travel Related Services Company, Inc.)
Results of Operations for the Nine Months Ended September 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 average interest-bearing receivables
outstanding. Interest income increased due to an increase in volume of
investments outstanding. Other income increased as a result of gains on swap
terminations in connection with the change in Credco's funding strategy.
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 due to improved credit
quality, 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 nine-month period ended
September 30, 2004, compared with the nine-month period ended September 30, 2003
(millions):
Discount revenue earned on purchased accounts receivable:
Volume of receivables purchased $ 186
Discount rates (251)
-----
Total $ (65)
=====
Finance charge revenue:
Volume of average interest-bearing receivables outstanding $ (20)
Gross yields (45)
-----
Total $ (65)
=====
Interest income from investments:
Volume of average investments outstanding $ 25
Interest rates (2)
-----
Total $ 23
=====
Interest income from affiliates:
Volume of average investments outstanding $ 2
Interest rates 8
-----
Total $ 10
=====
Interest expense other:
Volume of average debt outstanding $ 113
Interest rates (163)
-----
Total $ (50)
=====
Provision for losses:
Volume of receivables purchased $ 141
Provision rates and volume of recoveries (202)
-----
Total $ (61)
=====
Interest expense affiliates:
Volume of average debt outstanding $ 12
Interest rates 18
-----
Total $ 30
=====
-11-
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 nine-month periods ended September 30, 2004 and 2003, Credco
purchased $180 billion and $148 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 nine-month periods ended
September 30, 2004 and 2003 was 1.45. The ratio of earnings to fixed charges for
American Express, the parent of TRS, for the nine-month periods ended September
30, 2004 and 2003 was 3.87 and 3.37, 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.
Credco's effective tax rate for the nine month period ended September 30, 2004
was 32.3% compared with 34.3% during the nine month period ended September 30,
2003, reflecting in part the local funding programs introduced in Canada and
Australia.
Charge Cardmember Receivables
At September 30, 2004 and 2003, Credco owned $19.9 billion and $19.1 billion,
respectively, of charge cardmember receivables and participation in charge
cardmember receivables, representing 83 percent and 79 percent of the total
receivables owned at September 30, 2004 and 2003, respectively. The charge
cardmember receivables owned at September 30, 2004 and 2003 include $4.1 billion
and $3.9 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 Trust.
Nine months ended September 30, (Millions, except percentages and where indicated) 2004 2003
- ---------------------------------------------------------------------------------- ------- -------
Total charge cardmember receivables $19,883 $19,059
90 days past due as a % of total 2.2% 2.2%
Loss reserves $ 506 $ 547
as a % of receivables 2.5% 2.9%
as a % of 90 days past due 116% 128%
Write-offs, net of recoveries $ 341 $ 345
Net loss ratio (1) 0.20% 0.24%
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.
Lending Receivables
Credco owned extended payment plan receivables and loans (lending receivables)
totaling $4.0 billion and $5.2 billion, respectively, at September 30, 2004 and
2003, which represents 17 percent and 21 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 September 30, 2004 and 2003, there was no participation interest in lending
receivables owned by CRC. This represents participation interests in the
seller's
-12-
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly owned subsidiary of American Express
Travel Related Services Company, Inc.)
interest in lending receivables that have been conveyed to the Master Trust,
formed in 1996 to securitize lending receivables.
Nine months ended September 30, (Millions, except percentages) 2004 2003
- -------------------------------------------------------------- ------ ------
Total lending receivables $4,006 $5,195
Past due lending receivables as a % of total:
30-89 days 2.6% 3.0%
90+ days 1.3% 1.5%
Loss reserves $ 150 $ 225
as a % of lending receivables 3.7% 4.3%
as a % of past due 97% 97%
Write-offs, net of recoveries $ 163 $ 242
Net write-off rate (1) 4.29% 6.38%
(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 608 671
Accounts written off (652) (738)
Other (37) 98
----- -----
Balance, September 30 $ 656 $ 772
===== =====
Forward-Looking Statements
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;
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.
-13-
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly owned subsidiary of American Express
Travel Related Services Company, Inc.)
Other Reporting Matters
Accounting Developments
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 investments
accounted for in accordance with SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," and other cost method investments
are other-than-temporarily impaired. However, with the issuance of FASB Staff
Position (FSP) EITF 03-1-1, the provisions of the consensus relating to the
measurement and recognition of other-than-temporary impairments will be deferred
pending further clarification from the FASB. The remaining provisions of this
rule, which primarily relate to disclosure requirements, are required to be
applied prospectively to all current and future investments accounted for in
accordance with SFAS No. 115 and other cost method investments. Credco will
evaluate the potential impact of EITF 03-1 after the FASB completes its
reassessment.
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.
-14-
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:
Form 8-K, dated September 2, 2004, Item 2.03, reporting on
indebtedness incurred under a credit agreement obtained for alternate
funding arrangements.
Form 8-K, dated September 9, 2004, Item 2.03, reporting on
indebtedness incurred under a credit agreement obtained for alternate
funding arrangements.
Form 8-K, dated September 23, 2004, Item 2.03, reporting on the terms
and conditions of debt issued outside of the United States.
Form 8-K, dated October 15, 2004, Item 2.03, reporting on the terms
and conditions of debt issued outside of the United States.
-15-
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: November 12, 2004 By /s/ Walker C. Tompkins, Jr.
-------------------------------------
Walker C. Tompkins, Jr.
President and Chief Executive Officer
DATE: November 12, 2004 /s/ Erich Komdat
-------------------------------------
Erich Komdat
Vice President and Chief Accounting
Officer
-16-
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. Electronically filed herewith.
pursuant to Rule 13a-14(a) promulgated
under the Securities Exchange Act of 1934,
as amended.
Exhibit 31.2 Certification of Walter S. Berman pursuant Electronically filed herewith.
to Rule 13a-14(a) promulgated under the
Securities Exchange Act of 1934, as
amended.
Exhibit 32.1 Certification of Walker C. Tompkins, Jr. Electronically filed herewith.
pursuant to 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 Electronically filed herewith.
to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
E-1