UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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/X/ QUARTERLY REPORT PURSUANT TO SECTION 30 OF THE INVESTMENT COMPANY ACT
OF 1940 AND SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005
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. 2-23772
AMERICAN EXPRESS CERTIFICATE COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 41-6009975
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
52 AXP FINANCIAL CENTER
MINNEAPOLIS, MINNESOTA 55474
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (612) 671-3131
--------------------------
None
- -------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate 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 May 10, 2005
- --------------------------------------- ---------------------------
Common Shares (par value $10 per share) 150,000 shares
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1)(a)
AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
AMERICAN EXPRESS CERTIFICATE COMPANY
FORM 10-Q
INDEX
Page No.
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Part I. Financial Information:
Item 1. Financial Statements
Balance Sheets - March 31, 2005 and
December 31, 2004 1
Statements of Income - Three months ended
March 31, 2005 and 2004 2
Statements of Cash Flows - Three months ended
March 31, 2005 and 2004 3
Statements of Comprehensive (Loss) Income-
Three months ended March 31, 2005 and 2004 4
Notes to Financial Statements 5-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-10
Item 4. Controls and Procedures 10
Part II. Other Information
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
Exhibit Index E-1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN EXPRESS CERTIFICATE COMPANY
BALANCE SHEETS
(thousands)
March 31, 2005 December 31, 2004
--------------------- -------------------
(Unaudited)
ASSETS
- ------
Qualified Assets
Cash and cash equivalents $ 31,185 $ 35,212
Investments in unaffiliated issuers 6,460,427 6,078,006
Equity index options, purchased 79,182 116,285
Receivables 54,793 45,861
--------------------- -------------------
Total qualified assets 6,625,587 6,275,364
--------------------- -------------------
Other Assets
Deferred taxes, net 57,782 34,483
Due from American Express Financial Corporation for federal income
taxes 690 --
Due from other affiliates 3,111 1,939
--------------------- -------------------
Total other assets 61,583 36,422
--------------------- -------------------
Total assets $ 6,687,170 $ 6,311,786
===================== ===================
LIABILITIES AND SHAREHOLDER'S EQUITY
- ------------------------------------
Liabilities
Certificate reserves $ 6,282,052 $ 5,835,243
Equity index options, written 44,613 72,819
Amounts due to brokers 35,416 25,541
Due to American Express Financial Corporation for federal
income taxes -- 15,269
Accounts payable and accrued liabilities 27,514 19,845
--------------------- -------------------
Total liabilities 6,389,595 5,968,717
--------------------- -------------------
Shareholder's equity
Common stock 1,500 1,500
Additional paid-in-capital 323,844 323,844
Retained earnings 15,470 3,276
Accumulated other comprehensive (loss) income, net of tax (43,239) 14,449
--------------------- -------------------
Total shareholder's equity 297,575 343,069
--------------------- -------------------
Total liabilities and shareholder's equity $ 6,687,170 $ 6,311,786
===================== ===================
See Notes to Financial Statements.
1
AMERICAN EXPRESS CERTIFICATE COMPANY
STATEMENTS OF INCOME
(thousands)
(Unaudited)
Three Months Ended
March 31,
--------------------------------------
2005 2004
----------------- -----------------
Investment income $ 69,462 $ 59,041
Investment expenses (13,527) (11,627)
----------------- -----------------
Net investment income before provision for
certificate reserves and income tax provision 55,935 47,414
Net provision for certificate reserves (37,460) (28,935)
----------------- -----------------
Net investment income before income tax provision 18,475 18,479
Income tax provision (6,490) (6,360)
----------------- -----------------
Net investment income 11,985 12,119
----------------- -----------------
Net realized gain (loss) on investments before income tax
provision 321 (244)
Income tax (provision) benefit (112) 85
----------------- -----------------
Net realized gain (loss) on investments 209 (159)
----------------- -----------------
Net income $ 12,194 $ 11,960
================= =================
See Notes to Financial Statements.
2
AMERICAN EXPRESS CERTIFICATE COMPANY
STATEMENTS OF CASH FLOWS
(thousands)
(Unaudited)
Three Months Ended
March 31,
----------------------------------------
2005 2004
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 12,194 $ 11,960
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Interest added to certificate loans (104) (132)
Amortization of premiums, accretion of discounts, net 3,858 4,938
Deferred taxes, net 7,765 2,242
Net realized (gain) loss on investments before income tax provision (321) 244
Changes in other operating assets and liabilities:
Equity index options purchased and written, net 8,897 (2,617)
Due to American Express Financial Corporation- federal income
taxes (15,281) --
Dividends and interest receivable (3,670) (2,917)
Other assets and liabilities, net 5,428 (16,804)
------------------ ------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 18,766 (3,086)
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Available-for-Sale investments:
Sales 40,103 25,544
Maturities and redemptions 173,392 170,714
Purchases (692,776) (350,172)
Other investments:
Sales 8,631 70,362
Maturities and redemptions 20,133 32,904
Purchases (24,170) (98,142)
Certificate loans:
Payments 383 536
Fundings (406) (406)
Changes in amounts due to and from brokers, net 4,613 16,813
------------------ ------------------
NET CASH USED IN INVESTING ACTIVITIES (470,097) (131,847)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments from certificate owners 1,129,017 649,787
Net provision for certificate reserves 37,460 28,935
Certificate maturities and cash surrenders (719,173) (510,145)
Return of capital to American Express Financial Corporation -- (10,000)
------------------ ------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 447,304 158,577
------------------ ------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (4,027) 23,644
Cash and cash equivalents beginning of period 35,212 25,099
------------------ ------------------
CASH AND CASH EQUIVALENTS END OF PERIOD $ 31,185 $ 48,743
================== ==================
See Notes to Financial Statements.
3
AMERICAN EXPRESS CERTIFICATE COMPANY
STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(thousands)
(Unaudited)
Three Months Ended
March 31,
---------------------------------------
2005 2004
------------------ ------------------
Net income $ 12,194 $ 11,960
------------------ ------------------
OTHER COMPREHENSIVE (LOSS) INCOME
Unrealized (losses) gains on Available-for-Sale securities:
Unrealized holding (losses) gains arising during period (88,135) 44,647
Income tax benefit (expense) 30,848 (15,626)
------------------ ------------------
Net unrealized holding (losses) gains arising during period (57,287) 29,021
------------------ ------------------
Reclassification adjustment for gains included in net income (226) (202)
Income tax expense 79 71
------------------ ------------------
Net reclassification adjustment for gains included in net income (147) (131)
------------------ ------------------
Net unrealized (losses) gains on Available-for-Sale securities (57,434) 28,890
------------------ ------------------
Unrealized losses on interest rate swaps:
Unrealized holding losses arising during the period (515) (245)
Income tax benefit 180 86
------------------ ------------------
Net unrealized holding losses arising during period (335) (159)
------------------ ------------------
Reclassification adjustment for losses included in net income 124 1,640
Income tax benefit (43) (574)
------------------ ------------------
Net reclassification adjustment for losses included in net income 81 1,066
------------------ ------------------
Net unrealized (losses) gains on interest rate swaps (254) 907
------------------ ------------------
NET OTHER COMPREHENSIVE (LOSS) INCOME (57,688) 29,797
------------------ ------------------
TOTAL COMPREHENSIVE (LOSS) INCOME $ (45,494) $ 41,757
================== ==================
See Notes to Financial Statements.
4
AMERICAN EXPRESS CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying Financial Statements should be read in conjunction with the
financial statements in the Annual Report on Form 10-K of American Express
Certificate Company (AECC) for the year ended December 31, 2004. Certain
reclassifications of prior period amounts have been made to conform to the
current presentation.
The interim financial information in this report has not been audited. In
the opinion of management, all adjustments necessary for a fair presentation
of the financial position and results of operations for the interim periods
have been made. All adjustments made were of a normal, recurring nature.
Results of operations reported for interim periods are not necessarily
indicative of results for the entire year.
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 Issue
03-1, "The Meaning of Other-Than-Temporary Impairment and its Application to
Certain Investments" (EITF 03-1). AECC complied with the disclosure
provisions of this rule in its Annual Report on Form 10-K for the year ended
December 31, 2003 and 2004. 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 "Effective Date
of Paragraphs 10-20 of EITF 03-1," on September 30, 2004, 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. The Company
will evaluate the potential impact of EITF 03-1 after the FASB completes its
reassessment.
2. INVESTMENTS IN UNAFFILIATED ISSUERS
Investments in unaffiliated issuers at March 31, 2005 and December 31, 2004
were:
March 31, December 31,
2005 2004
---------------------- ----------------------
(Thousands)
Available-for-Sale securities, at fair value
(amortized cost: 2005, $6,057,570; 2004, $5,581,950) $ 5,991,048 $ 5,603,789
First mortgage loans on real estate and other loans, at cost
(fair value: 2005, $473,680; 2004, $482,544) 456,741 461,211
Certificate loans - secured by certificate reserves, at cost,
which approximates fair value 12,638 13,006
---------------------- ----------------------
Total $ 6,460,427 $ 6,078,006
====================== ======================
5
AMERICAN EXPRESS CERTIFICATE COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Gross realized gains and losses on sales and losses recognized for
other-than-temporary impairments of securities classified as
Available-for-Sale, using the specific identification method, were as
follows for the three months ended March 31, 2005 and 2004:
Three Months Ended
March 31,
------------------------------------------------
2005 2004
----------------------- -----------------------
(Thousands)
Gross realized gains on sales $ 583 $ 1,119
Gross realized losses on sales $(343) $ (717)
Realized losses recognized for other-than-temporary impairments $ (13) $ (200)
3. TAXES AND CERTIFICATE MATURITIES AND SURRENDERS THROUGH LOAN REDUCTIONS
Net income taxes paid during the three months ended March 31, 2005 and 2004
were $14.6 million and $19.5 million, respectively. Certificate maturities
and surrenders through loan reductions during the three months ended March
31, 2005 and 2004 were $0.5 million and $1.1 million, respectively.
4. COMMITMENTS AND CONTINGENCIES
Commitments to fund first mortgage loans on real estate at March 31, 2005
and March 31, 2004 were $10.0 million and $4.7 million, respectively. AECC
holds the mortgage document, which gives it the right to take possession of
the property if the borrower fails to perform according to the terms of the
agreements. AECC employs policies and procedures designed to ensure the
creditworthiness of the borrowers and that funds will be available on the
funding date. AECC's investments in first mortgage loans on real estate are
restricted to 80 percent or less of the market value of the real estate at
the time of the loan funding.
AECC believes that it is not a party to, nor are any of its properties the
subject of, any pending legal, arbitration, or regulatory proceedings that
would have a material adverse effect on its financial condition, results of
operations or liquidity. However, it is possible that the outcome of any
such proceedings could have a material impact on results of operations in
any particular reporting period as the proceedings are resolved.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
American Express Certificate Company (AECC) is a wholly owned subsidiary of
American Express Financial Corporation (AEFC), which is a wholly owned
subsidiary of American Express Company. AECC is registered as an investment
company under the Investment Company Act of 1940 ("the 1940 Act") and is in
the business of issuing face-amount investment certificates. Face-amount
investment certificates issued by AECC entitle the certificate owner to
receive at maturity a stated amount of money and interest or credits
declared from time to time by AECC, at its discretion. The certificates
issued by AECC are not insured by any government agency. AECC's certificates
are sold primarily by American Express Financial Advisors Inc. (AEFAI), and
American Express Bank Ltd. (AEBL), both affiliates of AECC. AEFAI is
registered as a broker-dealer in all 50 states, the District of Columbia and
Puerto Rico. AEFC acts as investment adviser for AECC.
On February 1, 2005, American Express Company announced plans to pursue a
tax-free spin-off of the common stock of American Express Financial
Corporation through a special dividend to American Express common
shareholders. The final transaction, which is subject to certain conditions
including receipt of a favorable tax ruling and approval by American Express
Company's Board of Directors, is expected to close in the third quarter of
2005.
AECC follows United States generally accepted accounting principles (GAAP).
Certain reclassifications of prior period amounts have been made to conform
to the current presentation.
Certain of the statements below are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. See the
"Forward-Looking Statements" section below.
Management's narrative analysis of the results of operations is presented in
lieu of management's discussion and analysis of financial condition and
results of operations, pursuant to General Instructions H(1)(a) of Form
10-Q.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
In 2005, net investment income before provision for certificate reserves and
income tax provision increased $8.5 million, or 18.0 percent, reflecting
higher levels of invested assets. Invested assets increased in part as a
result of marketing promotions for the Flexible Savings 7 and 11 month
certificates which ended March 1, 2005.
In 2005, provision for certificate reserves increased $8.5 million or 29.5
percent due to higher average reserves and higher interest crediting rates.
Certificate reserves increased as a result of marketing promotions for
certificates noted above, which ended March 1, 2005.
7
For the three months ended March 31, 2005, $0.7 million of total investment
gains were partially offset by $0.4 million of investment losses. Included
in these total investment gains and losses are $0.6 million of gross
realized gains and $0.3 million of gross realized losses from sales of
securities classified as Available-for-Sale.
For the three months ended March 31, 2004, $1.2 million of gross realized
gains from sales of investments were partially offset by $1.4 million of
investment losses. Included in these total investment gains and losses are
$1.1 million of gross realized gains and $0.7 million of gross realized
losses from sales of Available-for-Sale securities, as well as $0.2 million
of other-than-temporary impairment losses on investments classified as
Available-for-Sale.
IMPACT OF MARKET VOLATILITY ON RESULTS OF OPERATIONS
AECC primarily invests in mortgage and asset-backed securities, and
intermediate term corporate debt securities to provide its certificate
owners with a competitive rate of return on their certificate while managing
risk. AECC does not invest in securities to generate short-term trading
profits for its own account.
AECC is exposed to risk associated with fluctuating interest payments from
certain certificate products tied to the London Interbank Offering Rate
(LIBOR). As such, certificate product interest crediting rates reset at
shorter intervals than the changes in the investment portfolio yield related
to new investments and reinvestments. Therefore, AECC's spreads may be
negatively impacted by increases in the general level of interest rates.
AECC may hedge the risk of rising interest rates by entering into pay-fixed,
receive-variable (LIBOR-based) interest rate swaps that convert fluctuating
crediting rate payments to fixed payments, effectively protecting AECC from
unfavorable interest rate movements. The interest rate swaps are treated as
cash flow hedges per Statement of Financial Accounting Standards (SFAS) No.
133, "Accounting for Derivative Instruments and Hedging Activities".
AECC is also exposed to risk associated with fluctuations in the equity
market from three series of its certificate products. Such amounts credited
to certificate product owners' accounts are tied to the relative change in a
major stock market index between the beginning and end of the certificates'
terms. AECC purchases and writes equity index call options on a major stock
market index in order to meet such obligations.
In accordance with an informal agreement established with the Commissioner
of Commerce for the State of Minnesota, AECC has agreed to maintain a
minimum Capital-to-Assets Ratio of 5.0 percent. The ratio of shareholder's
equity, excluding accumulated other comprehensive income (loss) net of tax,
to total assets less certificate loans and net unrealized gains (losses) on
securities classified as Available-for-Sale (the Capital-to-Assets Ratio) at
March 31, 2005 and December 31, 2004, was 5.1 percent and 5.2 percent,
respectively. In addition, AECC is required to maintain cash and "qualified
investments" meeting the standards of Section 28(b) of the 1940 Act, as
modified by an order of the SEC. The amortized cost of such investments must
be at least equal to AECC's net liabilities on all outstanding face-amount
certificates plus $250,000. As a condition to its reliance on the SEC order,
AECC has agreed to maintain an amount of unappropriated retained earnings
and capital equal to at least 5.0 percent of net certificate reserves. As of
March 31, 2005 and December 31, 2004 this ratio was 5.4 percent and 5.6
percent, respectively.
8
LIQUIDITY AND CAPITAL RESOURCES
AECC's principal sources of cash are receipts from sales of face-amount
certificate products and cash flows from investments. AECC's principal uses
of cash are payments to certificate product owners for matured and
surrendered certificates, purchases of investments, and return of capital or
dividend payments to AEFC.
Cash received from sales of certificates totaled $1.1 billion and $0.6
billion for the three months ended March 31, 2005 and 2004, respectively.
Certificate maturities and cash surrenders totaled $0.7 billion and $0.5
billion for the three months ended March 31, 2005 and 2004, respectively.
AECC, as an issuer of face-amount certificates, is impacted by significant
changes in interest rates as interest crediting rates on certificate
products generally reset at shorter intervals than the change in the yield
on AECC's investment portfolio. The specified maturities of most of AECC's
certificate products range from ten to twenty years. Within that maturity
period, most certificates have interest crediting rate terms ranging from
one to thirty-six months. Interest crediting rates are subject to change and
certificate product owners can surrender their certificates without penalty
at term end. As of March 31, 2005, AECC has investment certificate
obligations totaling $6.3 billion of which $5.1 billion have terms ending in
2005, $1.1 billion have terms ending in 2006 and $0.1 billion have terms
ending in 2007. Contractholders have the right to redeem the investment
certificates earlier and at their discretion subject to a surrender charge.
Redemptions are most likely to occur in periods of dramatic increases in
interest rates. AECC has investments in mortgage and asset-backed
securities, and to a lesser extent, intermediate term corporate debt
securities. AECC may enter into interest rate swap contracts that
effectively lengthen the rate reset interval on certificate products. As a
result of interest rate fluctuations, the amount of interest paid on hedged
liabilities will positively or negatively impact reported earnings. Income
or loss on the derivative instruments that are linked to the hedged
liabilities will generally offset the effect of this impact. The Company
views this strategy as a prudent management of interest rate sensitivity,
such that earnings are not exposed to undue risk presented by changes in
interest rates. Also, on three series of AECC's certificates, interest is
credited to certificate products based upon the relative change in a major
stock market index between the beginning and end of the certificates' terms.
To meet the obligations related to the provisions of these equity market
sensitive certificates, AECC purchases and writes index call options on a
major stock market index and, from time to time, enters into futures
contracts.
AECC's investment program is designed to maintain an investment portfolio
that will produce competitive portfolio yields within risk and liquidity
parameters that are consistent with the need to meet contractual obligations
to investors in AECC's products.
Debt securities and marketable equity securities are classified as
Available-for-Sale and are carried at fair value. The Available-for-Sale
classification does not mean AECC expects to sell these securities, but
rather these securities are available to meet possible liquidity needs
should there be significant changes in market interest rates or certificate
owner redemptions.
Cash used in investing activities was $470.1 million and $131.8 million in
the three months ended March 31, 2005 and 2004, respectively. This change
was primarily due to the increase in purchases of Available-for-Sale
investments partially offset by the decrease in purchases of other
investments and a decrease in the amounts due to and from brokers.
9
Cash provided by financing activities was $447.3 million and $158.6 million
in the three months ended March 31, 2005 and 2004, respectively. The change
primarily resulted from an increase in the payments received from
certificate owners offset by and increase in certificate maturities and cash
surrenders.
Investments include $302.4 million, $335.3 million and $337.0 million of
below investment grade securities (excluding net unrealized appreciation and
depreciation) at March 31, 2005, December 31, 2004 and March 31, 2004,
respectively. These investments represent 4.6 percent, 5.6 percent and 6.7
percent of AECC's investment portfolio at March 31, 2005, December 31, 2004
and March 31, 2004, respectively. These investments may be subject to a
higher degree of risk than the investment grade issues because of the
borrower's generally greater sensitivity to adverse economic conditions,
such as recession or increasing interest rates, and in certain instances,
the lack of an active secondary market. Expected returns on below investment
grade securities reflect consideration of such factors. AECC has identified
certain investments for which a decline in fair value has been determined to
be other than temporary, and has written such securities down to fair value
with a charge to net income.
Generally, investment securities are carried at fair value on the balance
sheet with unrealized gains (losses) recorded in accumulated other
comprehensive income (loss) within equity, net of income tax provisions
(benefits). For the three months ended March 31, 2005 and 2004, AECC
experienced net unrealized losses on Available-for-Sale securities of ($57.3)
million and net unrealized gains of $29.0 million, as reflected in the
Statements of Comprehensive (Loss) Income. As part of its ongoing monitoring
process, management has determined that the net unrealized losses that arose
during the first quarter 2005 are primarily attributable to changes in
interest rates. Additionally, AECC has the ability and intent to hold these
securities for a time sufficient to recover its amortized cost and has,
therefore, concluded that none of these securities are other-than-
temporarily impaired at March 31, 2005.
OTHER REPORTING MATTERS
ACCOUNTING DEVELOPMENTS
See "Recently Issued Accounting Standards" section of Note 1 to Financial
Statements.
ITEM 4. CONTROLS AND PROCEDURES
AECC's management, with the participation of AECC's Chief Executive Officer
and Chief Financial Officer, has evaluated the effectiveness of AECC'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, AECC's Chief Executive Officer and Chief
Financial Officer have concluded that, as of the end of such period, AECC's
disclosure controls and procedures are effective. There have not been any
changes in AECC'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, AECC's internal control over
financial reporting.
FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements, which are subject to risks
and uncertainties. The words "believe," "expect," "anticipate,"
"optimistic," "intend," "plan," "aim," "will," "may," "should," "could,"
"would," "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. AECC undertakes no obligation to update or
revise any forward-looking statements. Factors that could cause actual
results to differ materially from these forward-looking statements include,
but are not limited to: AECC's ability to successfully implement a business
model that allows for significant net income growth based on revenue growth
that is lower than historical levels, including the ability to improve its
operating expense to revenue ratio both in the short-term and over time,
which will
10
depend in part on the effectiveness of reengineering and other cost control
initiatives, as well as factors impacting AECC's revenues; AECC's ability to
grow its business, over time, which will depend on AECC's ability to manage
its capital needs and the effect of business mix; the ability to increase
investment spending, which will depend in part on the equity markets and
other factors affecting revenues, and the ability to capitalize on such
investments to improve business metrics; the accuracy of certain critical
accounting estimates, including the fair value of the assets in AECC's
investment portfolio (including those investments that are not readily
marketable), fluctuation in the equity and fixed income markets, which can
affect the amount and types of certificate products sold by AECC, potential
deterioration in AECC's high-yield and other investments, which could result
in further losses in AECC's investment portfolio; the ability of AECC to
sell certain high-yield investments at expected values and within
anticipated timeframes and to maintain its high-yield portfolio at certain
levels in the future; and spreads in the certificate businesses; credit
trends and the rate of bankruptcies, which can affect returns on AECC's
investment portfolios; fluctuations in foreign currency exchange rates,
which could affect commercial activities, among other businesses, or
restrictions on convertibility of certain currencies; changes in laws or
government regulations, including tax laws affecting AECC's businesses or
that may affect the sales of the products and services that it offers, and
regulatory activity in the areas of customer privacy, consumer protection,
business continuity and data protection; the adoption of recently issued
accounting rules related to the consolidation of variable interest entities,
including those involving collateralized debt obligations and secured loan
trusts, that AECC invests in, which could affect both AECC's balance sheet
and results of operations; and outcomes and costs associated with litigation
and compliance and regulatory matters. A further description of these and
other risks and uncertainties can be found in AECC's other reports filed
with the SEC.
PART II. OTHER INFORMATION
AMERICAN EXPRESS CERTIFICATE COMPANY
ITEM 1. LEGAL PROCEEDINGS
AECC is a party to litigation and arbitration proceedings in the ordinary
course of business. The outcome of any litigation cannot be predicted with
any certainty. However, in the aggregate, AECC does not consider any
lawsuits in which it is named as a defendant to have a material impact on
AECC's financial position or operating results.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
---------
See Exhibit Index on pages E-1 hereof.
(b) Reports on Form 8-K:
--------------------
Form 8-K, filed February 1, 2005, Item 7, reporting that on February 1,
2005 American Express Company announced plans to pursue a spin-off of
its American Express Financial Advisors unit, of which American Express
Certificate Company is a part.
11
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 CERTIFICATE COMPANY
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(Registrant)
Date: May 10, 2005 By /s/ Paula R. Meyer
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Paula R. Meyer
Chief Executive Officer
Date: May 10, 2005 By /s/ Brian J. McGrane
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Brian J. McGrane
Vice President and Chief Financial
Officer
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EXHIBIT INDEX
The following exhibits are filed as part of this Quarterly Report:
Exhibit Description
- ------- -----------
31.1 Certification of Paula R. Meyer pursuant to Rule 13a-14(a)
promulgated under the Securities Exchange Act of 1934, as amended.
31.2 Certification of Brian J. McGrane pursuant to Rule 13a-14(a)
promulgated under the Securities Exchange Act of 1934, as amended.
32.1 Certification of Paula R. Meyer and Brian J. McGrane pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
E-1