The American Express Company, often abbreviated Amex, AmEx, AX or Amexco, is a global provider of financial services based in New York City, USA. The company is best known for its charge card, credit card, and traveler's cheque businesses.
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 March 31, 2000 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to ---------------- ---------------- Commission file number 1-7657 AMERICAN EXPRESS COMPANY ------------------------ (Exact name of registrant as specified in its charter) New York 13-4922250 -------------- ----------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) World Financial Center, 200 Vesey Street, New York, NY 10285 - ------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 640-2000 -------------- None - ------------------------------------------------------------------------ Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at April 30, 2000 - ----------------------------------------- ----------------------------- Common Shares (par value $.20 per share) 1,335,914,757 shares
AMERICAN EXPRESS COMPANY FORM 10-Q INDEX Page No. Part I. Financial Information: Consolidated Statements of Income - Three months ended March 31, 2000 and 1999 1 Consolidated Balance Sheets - March 31, 2000 and December 31, 1999 2 Consolidated Statements of Cash Flows - Three months ended March 31, 2000 and 1999 3 Notes to Consolidated Financial Statements 4-6 Review Report of Independent Accountants 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 8-23 Part II. Other Information 24
<TABLE> <CAPTION> PART I--FINANCIAL INFORMATION AMERICAN EXPRESS COMPANY CONSOLIDATED STATEMENTS OF INCOME (dollars in millions, except per share amounts) (Unaudited) Three Months Ended March 31, -------------------- 2000 1999 ---- ---- <S> <C> <C> Revenues: Discount revenue $1,805 $1,514 Interest and dividends, net 796 795 Management and distribution fees 688 522 Net card fees 405 403 Travel commissions and fees 438 426 Other commissions and fees 551 417 Cardmember lending net finance charge revenue 293 347 Life and other insurance premiums 138 123 Other 543 424 ----- ----- Total 5,657 4,971 ----- ----- Expenses: Human resources 1,635 1,431 Provisions for losses and benefits: Annuities and investment certificates 348 334 Life insurance, international banking and other 177 157 Charge card 241 182 Cardmember lending 176 235 Interest 299 234 Marketing and promotion 370 297 Occupancy and equipment 362 308 Professional services 318 281 Communications 127 122 Other 684 599 ----- ----- Total 4,737 4,180 ----- ----- Pretax income 920 791 Income tax provision 264 216 ----- ----- Net income $656 $575 === === Earnings Per Common Share: Post stock split basis: Basic $0.49 $0.43 ==== ==== Diluted $0.48 $0.42 Pre stock split basis: ==== ==== Basic $1.48 $1.28 ==== ==== Diluted $1.44 $1.26 ==== ==== Average common shares outstanding for earnings per common share (millions): Post stock split basis: Basic 1,331 1,343 ===== ===== Diluted 1,362 1,369 ===== ===== Pre stock split basis: Basic 444 448 === === Diluted 454 456 === === Cash dividends declared per common share: Post stock split basis $0.08 $0.075 ==== ===== Pre stock split basis $0.225 $0.225 ===== ===== </TABLE> See notes to Consolidated Financial Statements. 1
<TABLE> <CAPTION> AMERICAN EXPRESS COMPANY CONSOLIDATED BALANCE SHEETS (millions) (Unaudited) March 31, December 31, Assets 2000 1999 ---- ---- <S> <C> <C> Cash and cash equivalents $7,425 $7,471 Accounts receivable and accrued interest: Cardmember receivables, less reserves: 2000, $755; 1999, $728 22,223 22,541 Other receivables, less reserves: 2000, $86; 1999, $78 3,979 3,926 Investments 42,534 43,052 Loans: Cardmember lending, less reserves: 2000, $544; 1999, $581 17,628 17,666 International banking, less reserves: 2000, $170; 1999, $169 4,898 4,928 Other, net 969 988 Separate account assets 38,431 35,895 Deferred acquisition costs 3,294 3,235 Land, buildings and equipment--at cost, less accumulated depreciation: 2000, $2,174; 1999,$2,109 2,084 1,996 Other assets 7,197 6,819 Total assets ------- ------- $150,662 $148,517 ======= ======= Liabilities and Shareholders' Equity Customers' deposits $11,936 $12,197 Travelers Cheques outstanding 6,029 6,213 Accounts payable 8,414 7,309 Insurance and annuity reserves: Fixed annuities 20,212 20,552 Life and disability policies 4,516 4,459 Investment certificate reserves 6,237 5,951 Short-term debt 29,342 30,627 Long-term debt 5,170 5,995 Separate account liabilities 38,431 35,895 Other liabilities 9,622 8,724 ------- ------- Total liabilities 139,909 137,922 ------- ------- Guaranteed preferred beneficial interests in the company's junior subordinated deferrable interest debentures 500 500 Shareholders' equity: Common shares, $.20 par value, authorized 3.6 billion shares; issued and outstanding 1,334 million shares in 2000 and 1,341 million shares in 1999 267 268 Capital surplus 5,291 5,196 Retained earnings 5,160 5,033 Other comprehensive income, net of tax: Net unrealized securities losses (366) (296) Foreign currency translation adjustments (99) (106) ------- ------- Accumulated other comprehensive loss (465) (402) ------- ------- Total shareholders' equity 10,253 10,095 ------- ------- Total liabilities and shareholders' equity $150,662 $148,517 ======= ======= </TABLE> See notes to Consolidated Financial Statements. 2
<TABLE> <CAPTION> AMERICAN EXPRESS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (millions) (Unaudited) Three Months Ended March 31, ----------------------- Cash Flows from Operating Activities 2000 1999 ---- ---- <S> <C> <C> Net income $656 $575 Adjustments to reconcile net income to net cash provided by operating activities: Provisions for losses and benefits 611 576 Depreciation, amortization, deferred taxes and other 67 66 Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: Accounts receivable and accrued interest 34 (410) Other assets (227) (98) Accounts payable and other liabilities 1,697 868 Decrease in Travelers Cheques outstanding (182) (52) Increase in insurance reserves 54 40 ----- ----- Net cash provided by operating activities 2,710 1,565 ----- ----- Cash Flows from Investing Activities Sale of investments 357 341 Maturity and redemption of investments 2,163 2,334 Purchase of investments (2,120) (2,367) Net (increase) decrease in Cardmember receivables (126) 237 Cardmember loans/receivables sold to trust, net 996 - Proceeds from repayment of loans 6,189 5,605 Issuance of loans (7,302) (5,464) Purchase of land, buildings and equipment (175) (198) Sale of land, buildings and equipment 1 7 Acquisitions, net of cash acquired (12) (17) ----- ----- Net cash (used) provided by investing activities (29) 478 ----- ----- Cash Flows from Financing Activities Net decrease in customers' deposits (126) (233) Sale of annuities and investment certificates 1,352 1,282 Redemption of annuities and investment certificates (1,486) (1,196) Net increase (decrease) in debt with maturities of three months or less 2,477 (728) Issuance of debt 1,925 3,544 Principal payments on debt (6,398) (2,991) Issuance of American Express common shares 46 77 Repurchase of American Express common shares (397) (334) Dividends paid (101) (101) ----- ----- Net cash used in financing activities (2,708) (680) ----- ----- Effect of exchange rate changes on cash (19) (17) ----- ----- Net (decrease) increase in cash and cash equivalents (46) 1,346 Cash and cash equivalents at beginning of period 7,471 4,092 ----- ----- Cash and cash equivalents at end of period $7,425 $5,438 ===== ===== </TABLE> See notes to Consolidated Financial Statements. 3
AMERICAN EXPRESS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation The consolidated financial statements should be read in conjunction with the financial statements in the Annual Report on Form 10-K of American Express Company (the company or American Express) for the year ended December 31, 1999. Significant accounting policies disclosed therein have not changed. Certain reclassifications of prior period amounts have been made to conform to the current presentation. Cardmember Lending Net Finance Charge Revenue is presented net of interest expense of $231 million and $156 million for the first quarter of 2000 and 1999, respectively. Interest and Dividends is presented net of interest expense of $133 million and $121 million for the first quarter of 2000 and 1999, respectively, related primarily to the company's international banking operations. The interim financial information in this report has not been audited. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial position and the consolidated results of operations for the interim periods have been made. All adjustments made were of a normal, recurring nature. Results of operations reported for interim periods are not necessarily indicative of results for the entire year. In April 2000, the company's shareholders approved an increase in authorized shares to effectuate a three-for-one stock split for shareholders of record as of April 25, 2000. All of the information in this financial report reflects the effect of the stock split. Additionally, certain information is provided on both a pre stock split and post stock split basis for information purposes. Refer to the "Other Matters" section of the financial review for further information. 2. Investment Securities <TABLE> <CAPTION> The following is a summary of investments at March 31, 2000 and December 31, 1999: March 31, December 31, (in millions) 2000 1999 ---- ---- <S> <C> <C> Held to Maturity, at amortized cost (fair value: 2000, $9,038; 1999, $9,218) $9,056 $9,221 Available for Sale, at fair value (cost: 2000, $29,791; 1999, $30,053) 29,197 29,570 Investment mortgage loans (fair value: 2000, $3,950; 1999, $3,901) 3,966 3,984 Trading 315 277 ------ ------ Total $42,534 $43,052 ====== ====== </TABLE> 4
3. Comprehensive Income Comprehensive income is defined as the aggregate change in shareholders' equity, excluding changes in ownership interests. For the company, it is the sum of net income and changes in (i) unrealized gains or losses on available-for-sale securities and (ii) foreign currency translation adjustments. The components of comprehensive income, net of related tax, for the three months ended March 31, 2000 and 1999 were as follows: <TABLE> <CAPTION> Three Months Ended March 31, ------------------- (in millions) 2000 1999 ---- ---- <S> <C> <C> Net income $656 $575 Change in: Net unrealized securities gains/losses (70) (210) Foreign currency translation adjustments 7 12 --- --- Total $593 $377 === === </TABLE> 4. Taxes and Interest Net income taxes paid during the three months ended March 31, 2000 and 1999 were approximately $68 million and $97 million, respectively. Interest paid during the three months ended March 31, 2000 and 1999 was approximately $855 million and $588 million, respectively. 5. Earnings per Share <TABLE> <CAPTION> The computations of basic and diluted earnings per common share (EPS) for the three months ended March 31, 2000 and 1999 are as follows: (in millions, except per (Post stock split basis)(Pre stock split basis) share amounts) Three Months Ended Three Months Ended March 31, March 31, ------------------ ------------------- 2000 1999 2000 1999 ---- ---- ---- ---- <S> <C> <C> <C> <C> Numerator: Net income $656 $575 $656 $575 Denominator: Denominator for basic EPS - weighted-average shares 1,331 1,343 444 448 Effect of dilutive securities: Stock Options and Restricted Stock Awards 31 26 10 8 ----- ----- --- --- Potentially dilutive common shares 31 26 10 8 ----- ----- --- --- Denominator for diluted EPS 1,362 1,369 454 456 ----- ----- --- --- Basic EPS $0.49 $0.43 $1.48 $1.28 ----- ----- ----- ----- Diluted EPS $0.48 $0.42 $1.44 $1.26 ----- ----- ----- ----- </TABLE> 5
6. Segment Information <TABLE> <CAPTION> The following tables present first quarter results for the company's operating segments, based on management's internal reporting structure. Net revenues (managed basis) exclude the effect of securitizations at TRS, and provisions for losses and benefits for annuities, insurance and investment certificate products of AEFA: Net Revenues Three Months Ended (managed basis) March 31, ------------------ (in millions) 2000 1999 ---- ---- <S> <C> <C> Travel Related Services $4,044 $3,434 American Express Financial Advisors 1,019 885 American Express Bank/ Travelers Cheque 251 247 Corporate and Other (55) (42) ----- ----- Total $5,259 $4,524 ===== ===== <CAPTION> Revenues (GAAP basis) Three Months Ended March 31, ------------------ (in millions) 2000 1999 ---- ---- <S> <C> <C> Travel Related Services $3,955 $3,421 American Express Financial Advisors 1,506 1,345 American Express Bank/ Travelers Cheque 251 247 Corporate and Other (55) (42) ----- ----- Total $5,657 $4,971 ===== ===== <CAPTION> Net Income Three Months Ended March 31, ------------------ (in millions) 2000 1999 ---- ---- <S> <C> <C> Travel Related Services $416 $363 American Express Financial Advisors 245 214 American Express Bank/ Travelers Cheque 40 41 Corporate and Other (45) (43) --- --- Total $656 $575 === === </TABLE> 6
INDEPENDENT ACCOUNTANTS' REVIEW REPORT The Shareholders and Board of Directors American Express Company We have reviewed the accompanying consolidated balance sheet of American Express Company (the "Company") as of March 31, 2000 and the related consolidated statements of income and cash flows for the three-month periods ended March 31, 2000 and 1999. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, which will be performed for the full year with the objective of expressing an opinion regarding the consolidated financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of the Company as of December 31, 1999, and the related consolidated statements of income, shareholders' equity, and cash flows for the year then ended (not presented herein), and in our report dated February 3, 2000, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1999 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/Ernst & Young LLP New York, New York May 15, 2000 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Consolidated Results of Operations for the Three Months Ended March 31, 2000 The company's consolidated net income and diluted earnings per share both rose 14 percent in the three-month period ended March 31, 2000 from a year ago. The company's return on equity was 25.4 percent. Consolidated net revenues on a managed basis grew 16 percent for the three months ended March 31, 2000, reflecting an increase in worldwide billed business and Cardmember loans at Travel Related Services (TRS) and greater management and distribution fees at American Express Financial Advisors (AEFA). Consolidated expenses rose due to greater marketing and promotion and interest costs, larger provisions for losses, and higher human resource and operating expenses. The increases were principally due to greater volume and business building initiatives. These results met the company's long-term targets of 12-15 percent earnings per share growth, at least 8 percent revenue growth and a return on equity of 18-20 percent. This financial review is presented on the basis used by management to evaluate operations. It differs in two respects from the accompanying financial statements, which are prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP). First, results are presented as if there had been no asset securitizations at TRS. This format is generally termed on a "managed basis." Second, revenues are shown net of AEFA's provisions for annuities, insurance and investment certificate products, which are essentially spread businesses. Consolidated Liquidity and Capital Resources In the first three months of 2000, the company repurchased 8.5 million common shares at an average price of $48.61 per share under its repurchase program. In the first quarter 2000, the company entered into an agreement under which a third party will purchase up to 3 million company common shares in the open market over a period of up to eight months. During the term of the agreement the company will periodically issue shares to or receive shares from the third party so that the value of the shares held by the third party equals the original purchase price for the shares. At maturity in five years, the company is required to deliver to the third party an amount equal to such original purchase price. The company may elect to settle this amount (i) physically, by paying cash against delivery of the shares held by the third party or (ii) on a net cash or net share basis. The company may also prepay outstanding amounts at any time prior to the end of the five-year term. The foregoing is in addition to a similar agreement entered into in August 1999 under which a third party purchased 7 million of the company's common shares at an average purchase price of approximately $146 per share. During the first quarter 2000, settlements under the August 1999 agreement resulted in the company receiving 113,480 shares. These 8
agreements, which partially offset the company's exposure from its stock option program, are separate from the company's previously authorized share repurchase program. Other Matters In January 2000, the company's Board of Directors voted for a three-for-one split of the company's common stock, subject to shareholder approval of an increase in authorized shares. At the company's annual meeting on April 24, 2000, the company's shareholders approved such increase in shares to effectuate the stock split for shareholders of record as of April 25, 2000. All of the information in this financial report reflects the effect of the stock split. Additionally, certain data is provided on both a pre stock split and post stock split basis for informational purposes. 9
<TABLE> <CAPTION> Travel Related Services Results of Operations for the Three Months Ended March 31, 2000 and 1999 Statements of Income -------------------- (Unaudited, Managed Basis) (Dollars in millions) Three Months Ended March 31, ------------------ Percentage 2000 1999 Inc/(Dec) ---- ---- ---------- <S> <C> <C> <C> Net Revenues: Discount Revenue $1,805 $1,514 19.3 % Net Card Fees 405 403 0.5 Travel Commissions and Fees 438 426 2.7 Other Revenues 841 639 31.6 Lending: Finance Charge Revenue 887 652 36.1 Interest Expense 332 200 66.5 ----- ----- Net Finance Charge Revenue 555 452 22.6 ----- ----- Total Net Revenues 4,044 3,434 17.7 ----- ----- Expenses: Marketing and Promotion 318 270 17.6 Provision for Losses and Claims: Charge Card 278 233 19.5 Lending 335 282 18.9 Other 21 14 50.9 ----- ----- Total 634 529 20.0 ----- ----- Charge Card Interest Expense 314 241 29.6 Human Resources 998 912 9.5 Other Operating Expenses 1,144 928 23.4 ----- ----- Total Expenses 3,408 2,880 18.3 ----- ----- Pretax Income 636 554 14.7 Income Tax Provision 220 191 14.7 ----- ----- Net Income $416 $363 14.7 ===== ===== </TABLE> 10
<TABLE> <CAPTION> Travel Related Services Selected Statistical Information -------------------------------- (Unaudited) (Amounts in billions, except where indicated) Three Months Ended March 31, ------------------- Percentage 2000 1999 Inc/(Dec) ---- ---- ---------- <S> <C> <C> <C> Total Cards in Force (millions): United States 31.4 27.9 12.2 % Outside the United States 16.5 15.0 10.5 ---- ---- Total 47.9 42.9 11.6 ==== ==== Basic Cards in Force (millions): United States 24.5 21.8 12.2 Outside the United States 12.6 11.5 9.9 ---- ---- Total 37.1 33.3 11.4 ==== ==== Card Billed Business: United States $50.6 $41.6 21.6 Outside the United States 17.7 15.2 16.7 ---- ---- Total $68.3 $56.8 20.3 ==== ==== Average Discount Rate (A) 2.72% 2.73% - Average Basic Cardmember Spending (dollars) (A) $1,980 $1,781 11.2 Average Fee per Card - Managed (dollars) (A) $37 $40 (7.5) Non-Amex Brand (B): Cards in Force (millions) 0.6 0.2 # Billed Business $0.5 $0.2 # Travel Sales $5.5 $5.3 3.4 Travel Commissions and Fees/Sales (C) 8.0% 8.0% - Managed Charge Card Receivables: Total Receivables $26.8 $23.5 14.1 90 Days Past Due as a % of Total 2.6% 3.0% - Loss Reserves (millions) $894 $876 2.1 % of Receivables 3.3% 3.7% - % of 90 Days Past Due 129% 126% - Net Loss Ratio 0.34% 0.43% - Managed U.S. Cardmember Lending: Total Loans $24.2 $16.7 44.6 Past Due Loans as a % of Total: 30-89 Days 1.8% 2.1% - 90+ Days 0.8% 1.0% - Loss Reserves (millions): Beginning Balance $672 $619 8.4 Provision 285 244 17.0 Net Charge-Offs/Other (268) (240) 11.5 ---- ---- Ending Balance $689 $623 10.6 ==== ==== % of Loans 2.8% 3.7% - % of Past Due 109% 121% - Average Loans $23.6 $16.7 41.6 Net Write-Off Rate 4.6% 5.9% - Net Interest Yield 7.8% 9.4% - (A) Computed from proprietary card activities only. (B) This data relates to Visa and Eurocards issued in connection with joint venture activities. (C) Computed from information provided herein. # Denotes variance of more than 100%. </TABLE> 11
Travel Related Services Travel Related Services' (TRS) net income rose 15 percent in the first quarter of 2000 from a year ago. Net revenues increased 18 percent for the same period, reflecting higher billed business as well as strong growth in Cardmember loans. The improvement in discount revenue from a year ago is the result of higher billed business, reflecting higher average spending per Cardmember and an increase of five million cards in force, up 12 percent from a year ago. The higher average spending was driven by several factors, including rewards programs and expanded merchant coverage. The growth in billed business continued to be primarily the result of increases in retail and "everyday spend" categories; the rate of growth in airline billings also improved from recent quarters. The increase in cards in force reflects more proactive consumer card and small business services activities over the past year, including the successful launch of Blue and co-branded Costco cards. The net interest yield on Cardmember loans decreased from year-ago levels, but increased slightly from the fourth quarter of 1999. The year-over-year decline reflects a greater number of Cardmembers on introductory rates and a broader mix of lower-rate products. Other revenues increased, reflecting higher fee income. The provision for losses on the charge card and lending portfolios grew as a result of higher volume, partly offset by a continued improvement in credit quality in the lending portfolio. Charge Card interest expense rose due to higher volumes and rates. Human resources expenses rose as a result of a higher average number of employees and merit increases. Other operating expenses increased on higher costs related to business growth, Cardmember loyalty programs and various business building initiatives. Results for the current quarter include a gain on an investment in an Internet company that TRS was required to write-up when that company was acquired by a third party. This gain was offset by increased spending on Internet initiatives and therefore had no material impact on net income or total expenses. 12
Travel Related Services The preceding statements of income and related discussion present TRS results on a managed basis, as if there had been no securitization transactions. On a GAAP reporting basis, TRS recognized a pretax gain of $36 million ($23 million after-tax) in the first quarter of 2000 related to the securitization of U.S. receivables. This gain was invested in additional card acquisition activities in the first quarter of 2000 and thus had no material effect on net income, total net revenues or total expenses. The following tables reconcile TRS' income statements from a managed basis to a GAAP basis. These tables are not complete statements of income, as they include only those income statement items that are affected by securitizations. <TABLE> <CAPTION> (Dollars in millions) Three Months Ended Three Months Ended March 31, 2000 March 31, 1999 ------------------------------- --------------------------------- Managed Securitization GAAP Managed Securitization GAAP Basis Effect Basis Basis Effect Basis ------- -------------- ----- ----- -------------- ----- <S> <C> <C> <C> <C> <C> <C> Net Revenues: Other Revenues $841 $173 $1,014 $639 $92 $731 Lending Net Finance Charge Revenue 555 (262) 293 452 (105) 347 Total Net Revenues 4,044 (89) 3,955 3,434 (13) 3,421 Expenses: Marketing and Promotion 318 21 339 270 - 270 Provision for Losses and Claims: Charge Card 278 (37) 241 233 (51) 182 Lending 335 (160) 175 282 (47) 235 Charge Card Interest Expense 314 (54) 260 241 (58) 183 Net Discount Expense - 126 126 - 143 143 Other Operating Expenses 1,144 15 1,159 928 - 928 Total Expenses 3,408 (89) 3,319 2,880 (13) 2,867 Pretax Income $636 $- $636 $554 $- $554 --------------------------------------------------------------------- </TABLE> 13
<TABLE> <CAPTION> Travel Related Services Liquidity and Capital Resources Selected Balance Sheet Information ---------------------------------- (Unaudited, GAAP Basis) (Dollars in billions, except percentages) March 31, December 31, Percentage March 31, Percentage 2000 1999 Inc/(Dec) 1999 Inc/(Dec) ---- ---- ---------- ---- --------- <S> <C> <C> <C> <C> <C> Accounts Receivable, net $25.1 $25.3 (1.0)% $20.8 20.6 % U.S. Cardmember Loans $15.9 $16.1 (0.8) $13.7 16.0 Total Assets $54.6 $56.3 (2.9) $45.3 20.6 Short-term Debt $30.4 $31.4 (3.2) $22.7 34.2 Long-term Debt $3.6 $4.4 (18.7) $5.5 (35.6) Total Liabilities $49.0 $50.9 (3.6) $40.2 22.1 Total Shareholder's Equity $5.6 $5.4 3.4 $5.1 8.8 Return on Average Equity* 30.5% 30.1% - 28.4% - Return on Average Assets* 3.2% 3.2% - 3.3% - * Computed based on the past twelve months of net income and excludes the effect of SFAS No. 115. </TABLE> In the first quarter of 2000, the American Express Credit Account Master Trust (the Trust) securitized $1 billion of loans through the public issuance of investor certificates. The securitized assets consist of loans arising in a portfolio of designated consumer American Express credit card, Optima Line of Credit and Sign & Travel/Special Purchase Account revolving credit accounts or features and, in the future, may include other charge or credit accounts or features or products. In May 2000, the Trust securitized an additional $1 billion of loans. In the first quarter of 2000, American Express Credit Corporation (Credco), a wholly-owned subsidiary of TRS, called $150 million 1.125% Cash Exchangeable Notes due 2003. These notes were exchangeable for an amount in cash which was linked to the price of the common shares of American Express. Credco had entered into agreements to fully hedge its obligations. Accordingly, the related hedging agreements were called at the same time. 14
<TABLE> <CAPTION> American Express Financial Advisors Results of Operations for the Three Months Ended March 31, 2000 and 1999 Statements of Income -------------------- (Unaudited) (Dollars in millions) Three Months Ended March 31, ----------------- Percentage 2000 1999 Inc/(Dec) ---- ---- ---------- <S> <C> <C> <C> Net Revenues: Investment Income $572 $595 (3.9)% Management and Distribution Fees 688 522 31.7 Other Revenues 246 228 8.2 ----- ----- Total Revenues 1,506 1,345 12.0 Provision for Losses and Benefits: Annuities 259 270 (4.3) Insurance 139 126 10.4 Investment Certificates 89 64 40.6 ----- ----- Total 487 460 6.0 ----- ----- Net Revenues 1,019 885 15.1 ----- ----- Expenses: Human Resources 498 416 19.7 Other Operating Expenses 166 157 5.5 ----- ----- Total Expenses 664 573 15.8 ----- ----- Pretax Income 355 312 13.8 Income Tax Provision 110 98 12.3 ----- ----- Net Income $245 $214 14.5 ===== ===== </TABLE> 15
<TABLE> American Express Financial Advisors Selected Statistical Information -------------------------------- (Unaudited) (Dollars in millions, except percentages and where indicated) Three Months Ended March 31, ----------------- Percentage 2000 1999 Inc/(Dec) ---- ---- ---------- <S> <C> <C> <C> Life Insurance in Force (billions) $91.7 $82.9 10.6 Deferred Annuities in Force (billions) $51.0 $44.0 16.0 Assets Owned, Managed or Administered (billions): Assets Managed for Institutions $57.4 $46.8 22.7 Assets Owned, Managed or Administered for Individuals: Owned Assets: Separate Account Assets 38.4 28.2 36.2 Other Owned Assets 39.8 37.4 6.4 ----- ----- Total Owned Assets 78.2 65.6 19.2 Managed Assets 122.7 96.0 27.8 Administered Assets 31.2 18.7 66.8 ----- ----- Total $289.5 $227.1 27.5 ===== ===== Market Appreciation (Depreciation) During the Period: Owned Assets: Separate Account Assets $2,332 $912 # Other Owned Assets $(120) $(204) (41.2) Total Managed Assets $7,020 $3,018 # Cash Sales: Mutual Funds $12,104 $8,483 42.7 Annuities 1,362 793 71.7 Investment Certificates 835 702 18.9 Life and Other Insurance Products 237 158 50.1 Institutional 1,551 743 # Other 573 885 (35.0) ------ ------ Total Cash Sales $16,662 $11,764 41.6 ====== ====== Number of Financial Advisors 11,094 10,372 7.0 Fees from Financial Plans and Advice Services $26.3 $21.3 23.6 Percentage of Total Sales from Financial Plans and Advice Services 66.9% 66.5% - * Excluding the effect of SFAS No. 115. # Denotes variance of more than 100%. Note: Reporting of data related to cash sales and assets owned, managed and administered has been revised to better reflect AEFA's multiple sales channel strategy and broadening of its product portfolio through additional non-proprietary offerings. </TABLE> 16
American Express Financial Advisors American Express Financial Advisors' (AEFA) net income in the first quarter of 2000 increased 15 percent from a year ago. Net revenues and earnings grew due to greater fee revenues. Management fees rose as a result of increased managed asset levels, including separate account assets, and distribution fees grew reflecting greater mutual fund sales and asset levels. The growth in managed assets from last year reflects positive net sales and market appreciation over the past twelve months. Investment income, net of provisions for losses and benefits, decreased due to a lower average yield on invested assets and losses related to the high yield investment portfolio, partly offset by a higher level of invested assets. Other revenues benefited from higher insurance premiums and greater fees from financial planning and advice services. Human resources expenses were higher, largely as a result of a volume-driven increase in advisors' compensation, reflecting growth in sales and asset levels. Other operating expenses increased slightly; such limited growth reflects particularly high levels of spending on business building initiatives (e.g. new advisor platforms) last year, an investment spending plan in 2000 that is more skewed toward coming quarters, and continued control of core operating expense growth. 17
<TABLE> <CAPTION> American Express Financial Advisors Liquidity and Capital Resources Selected Balance Sheet Information ---------------------------------- (Unaudited) (Dollars in billions, except percentages) March 31, December 31, Percentage March 31, Percentage 2000 1999 Inc/(Dec) 1999 Inc/(Dec) ---- ---- --------- ---- --------- <S> <C> <C> <C> <C> <C> Investments $30.3 $30.3 0.3 % $30.6 (1.0)% Separate Account Assets $38.4 $35.9 7.1 $28.2 36.2 Total Assets $78.2 $74.6 4.8 $65.6 19.2 Client Contract Reserves $31.0 $31.0 - $30.5 1.6 Total Liabilities $74.3 $70.7 5.0 $61.6 20.6 Total Shareholder's Equity $3.9 $3.9 0.9 $4.1 (4.9) Return on Average Equity* 23.0% 22.9% - 22.6% - * Computed based on the past twelve months of net income and excludes the effect of SFAS No. 115. </TABLE> Separate account assets and liabilities increased due to higher net sales and market appreciation. 18
<TABLE> <CAPTION> American Express Bank/Travelers Cheque (AEB/TC) Results of Operations for the Three Months Ended March 31, 2000 and 1999 Statements of Income -------------------- (Unaudited) (Dollars in millions) Three Months Ended March 31, ------------------ Percentage 2000 1999 Inc/(Dec) ---- ---- --------- <S> <C> <C> <C> Net Revenues: Interest Income $183 $193 (5.2)% Interest Expense 118 119 (1.3) --- --- Net Interest Income 65 74 (11.5) TC Investment Income 91 79 15.0 Commissions and Fees 54 43 26.7 Foreign Exchange Income & Other Revenue 41 51 (20.8) --- --- Total Net Revenues 251 247 1.7 --- --- Expenses: Human Resources 84 82 2.2 Other Operating Expenses 148 136 9.2 Provision for Losses 16 17 (4.4) --- --- Total Expenses 248 235 5.8 --- --- Pretax Income 3 12 (76.9) Income Tax Benefit (37) (29) 28.4 --- --- Net Income $40 $ 41 (2.9) === === <CAPTION> Selected Statistical Information (Amounts in billions, except percentages) -------------------------------- Three Months Ended March 31, ------------------ Percentage 2000 1999 Inc/(Dec) ---- ---- ---------- <S> <C> <C> <C> American Express Bank: Assets Managed* / Administered $9.4 $6.3 49.7 % Assets of Non-Consolidated Joint Ventures $2.4 $2.6 (8.2) Travelers Cheque: Sales $5.1 $4.6 10.5 Average Outstanding $6.1 $5.8 4.7 Average Investments $6.0 $5.6 6.1 Tax Equivalent Yield 8.9% 8.9% - * Includes assets managed by American Express Financial Advisors. </TABLE> 19
American Express Bank/Travelers Cheque (AEB/TC) AEB/TC reported net income of $40 million for the first quarter of 2000, compared with $41 million a year ago. Net income at American Express Bank was unchanged from year ago levels. Net interest income declined from a year ago, primarily due to the effects of a lower loan portfolio and higher funding costs. Commissions and fees rose due to higher Private Banking, Correspondent Banking and Personal Financial Services fees. Foreign exchange income and other revenue declined, as stable currencies in key markets decreased client related trading activities. Travelers Cheque results fell slightly from a year ago due to higher marketing and promotion spending in the current quarter. 20
<TABLE> <CAPTION> American Express Bank/Travelers Cheque (AEB/TC) Liquidity and Capital Resources Selected Balance Sheet Information ---------------------------------- (Unaudited) (Amounts in billions, except percentages and where indicated) March 31, December 31, Percentage March 31, Percentage 2000 1999 Inc/(Dec) 1999 Inc/(Dec) ---- ---- --------- ---- --------- <S> <C> <C> <C> <C> <C> Total Assets $19.3 $18.9 2.3% $18.2 6.0% Total Liabilities $18.4 $18.0 2.1 $17.0 7.6 Total Shareholder's Equity (millions) $943 $875 7.8 $1,148 (17.8) Return on Average Assets* 0.81% 0.82% - 0.90% - Return on Average Common Equity* 17.3% 17.5% - 19.7% - American Express Bank: Shareholder's Equity (millions) $697 $691 0.9 $733 (4.9) Total Loans $5.0 $5.1 (1.7) $5.3 (5.1) Total Non-performing Loans (millions) $174 $168 3.7 $209 (16.9) Other Non-performing Assets (millions) $31 $37 (15.4) $64 (51.6) Reserve for Credit Losses (millions)** $189 $189 0.2 $261 (27.7) Loan Loss Reserves as Percentage of Total Loans 3.4% 3.3% - 4.1% - Deposits $8.4 $8.3 0.4 $7.9 6.6 Risk-Based Capital Ratios: Tier 1 10.1% 9.9% - 9.8% - Total 11.6% 12.0% - 12.1% - Leverage Ratio 5.6% 5.6% - 5.4% - Travelers Cheque: Travelers Cheque Investments $6.0 $6.0 0.6 $6.1 (0.9) Travelers Cheques Outstanding $6.0 $6.2 (3.0) $5.8 4.5 * Computed based on the past twelve months of net income and excludes the effect of SFAS No. 115. ** Allocation (Millions): Loans $170 $169 $218 Other Assets, primarily derivatives 15 16 41 Other Liabilities 4 4 2 --- --- --- Total Credit Loss Reserves $189 $189 $261 === === === </TABLE> AEB had loans outstanding of $5.0 billion at March 31, 2000, down from $5.1 billion at December 31, 1999 and $5.3 billion at March 31, 1999. The reduction since first quarter 1999 resulted from a $600 million decrease in corporate and correspondent bank loans, partially offset by an increase in consumer and private banking loans of $270 million ($540 million excluding the effect of asset sales and securitizations in the consumer loan portfolio). Since December 31, 1999, corporate and correspondent bank loans fell by $200 million and consumer and private banking loans rose by $77 million. As of March 31, 2000, consumer and private banking loans comprised 40% of total loans versus 35% at December 31, 1999 and 32% at March 31, 1999. 21
As presented in the table below, there are other banking activities, such as forward contracts, various contingencies and market placements, which added approximately $7.7 billion to AEB's credit exposures at March 31, 2000, compared with $7.6 billion at both March 31, 1999 and December 31, 1999. Of the $7.7 billion of exposures other than loans at March 31, 2000, $5.2 billion were relatively less risky cash and securities related balances. <TABLE> <CAPTION> American Express Bank Exposures By Country and Region (Unaudited) ($ in billions) Net Guarantees 3/31/00 12/31/99 FX and and Total Total Country Loans Derivatives Contingents Other* Exposure** Exposure** --------- ----- ----------- ----------- ------ ---------- ---------- <S> <C> <C> <C> <C> <C> <C> Hong Kong $0.5 - $0.1 $0.1 $0.7 $0.8 Indonesia 0.2 - - 0.1 0.3 0.4 Singapore 0.5 - 0.1 0.1 0.7 0.6 Korea 0.1 - - 0.2 0.4 0.3 Taiwan 0.3 - 0.1 0.1 0.4 0.4 China - - - - - - Japan - - - - 0.1 0.1 Thailand - - - - - - Other - - - 0.2 0.3 0.3 ------ ----------- --------- -------- ---------- ---------- Total Asia/Pacific Region** 1.6 - 0.3 0.9 2.9 2.9 ------ ----------- ---------- -------- ---------- ---------- Chile 0.2 - - 0.1 0.4 0.3 Brazil 0.2 - - 0.1 0.3 0.3 Mexico 0.1 - - - 0.1 0.1 Peru - - - - - - Argentina 0.1 - - - 0.1 0.1 Other 0.2 - 0.1 0.1 0.5 0.5 ------- ----------- ---------- -------- ---------- ---------- Total Latin America** 0.7 - 0.2 0.3 1.3 1.2 ------- ----------- ---------- -------- ---------- ---------- India 0.3 - 0.1 0.3 0.7 0.7 Pakistan 0.1 - - 0.1 0.3 0.3 Other 0.1 - 0.1 0.1 0.2 0.2 ------- ----------- ---------- -------- ----------- --------- Total Subcontinent** 0.4 - 0.2 0.6 1.2 1.2 ------- ----------- ---------- -------- ---------- ---------- Egypt 0.3 - - 0.2 0.5 0.5 Other 0.1 - - - 0.2 0.2 ------- ----------- ---------- -------- ---------- --------- Total Middle East & Africa** 0.4 - 0.1 0.2 0.8 0.8 ------- ----------- ---------- -------- ---------- --------- Total Europe*** 1.4 $0.1 0.7 2.5 4.7 4.7 Total North America** 0.3 0.1 0.2 1.3 1.8 2.0 ------- ----------- ---------- -------- ---------- --------- Total Worldwide** $5.0 $0.3 $1.6 $5.8 $12.7 $12.7 ======= =========== ========== ======== ========== ========= * Includes cash, placements and securities. ** Individual items may not add to totals due to rounding. *** Total exposures at 3/31/00 and 12/31/99 include $10 million and $11 million of exposures to Russia, respectively. </TABLE> Note: Includes cross-border and local exposure and does not net local funding or liabilities against any local exposure. 22
Corporate and Other Corporate and Other reported net expenses of $45 million, compared with $43 million a year ago. Results for both years include a preferred stock dividend based on earnings from Lehman Brothers. That dividend was offset by expenses related to business building initiatives in both years and by Y2K expenses a year ago. 23
PART II.--OTHER INFORMATION AMERICAN EXPRESS COMPANY Item 1. Legal Proceedings ITEM 1. LEGAL PROCEEDINGS The Company commenced an action, AMERICAN EXPRESS COMPANY V. THE UNITED STATES, on September 16, 1997 in the United States Court of Federal Claims (the "Court") seeking a refund from the United States of Federal income taxes paid (plus related interest) for the year 1987. The Company contends that the Internal Revenue Service abused its discretion by denying the Company's request to include annual fees from Cardmembers in taxable income ratably over the twelve-month period to which the fees relate rather than in full at the time they are billed. On October 14, 1999, the Company filed a Motion for Summary Judgment; oral arguments occurred on April 12, 2000. Since October 1, 1999, six former female financial advisors at American Express Financial Advisors ("AEFA") have filed charges with the Equal Employment Opportunity Commission ("EEOC"), including class claims on behalf of all women advisors at AEFA, alleging that they and other women were discriminated against in hiring, assignment of work, distribution of leads, training and promotions. Four of the charges were filed with the EEOC in Minnesota and two in New Jersey. The claimants are seeking monetary and injunctive relief. AEFA is responding to all charges. If this matter is not resolved at the EEOC and is filed in Federal Court, AEFA intends to vigorously defend the charges. The matters described above were previously reported in the Company's Form 10-K for the year ended December 31, 1999. Item 4. Submission of Matters to a Vote of Security Holders <TABLE> <CAPTION> The Company's annual meeting of shareholders was held on April 24, 2000. The matters that were voted upon at the meeting, and the number of votes cast for, against or withheld, as well as the number of abstentions and broker non-votes, as to each such matter, where applicable, are set forth below. Votes Votes Votes Broker For Against Withheld Abstentions Non-Votes ----------- ----------- --------- ----------- ---------- <S> <C> <C> <C> <C> <C> Proposal relating to the Amendment of the Certificate of Incorporation 361,946,647 5,547,431 -- 2,048,384 4,698 Proposal relating to the amendment of the American Express Company 1993 Directors' Stock Option Plan 338,140,686 27,805,546 -- 3,600,620 308 Selection of Ernst & Young LLP as independent auditors 336,517,612 842,482 -- 2,187,066 -- Shareholder proposal relating to political contributions 9,740,752 287,811,598 -- 12,223,370 59,771,440 </TABLE> <TABLE> <CAPTION> <S> <C> <C> <C> <C> <C> Election of Directors: D.F. Akerson 366,318,508 -- 3,288,652 -- -- E.L. Artzt 366,105,735 -- 3,411,425 -- -- W.G. Bowen 366,237,910 -- 3,309,250 -- -- K.I. Chenault 366,272,769 -- 3,274,391 -- -- R.L. Crandall 365,973,857 -- 3,573,303 -- -- H. Golub 366,252,966 -- 3,294,194 -- -- B. Sills Greenough 365,795,642 -- 3,751,518 -- -- F.R. Johnson 365,608,103 -- 3,939,057 -- -- V.E. Jordan, Jr 364,917,828 -- 4,629,332 -- -- J. Leschly 366,266,344 -- 3,280,816 -- -- D. Lewis 366,054,755 -- 3,492,405 -- -- R.A. McGinn 366,197,468 -- 3,349,692 -- -- F.P. Popoff 366,183,438 -- 3,363,722 -- -- </TABLE> 24
Item 6. Exhibits and Reports on Form 8-K (a) Exhibits See Exhibit Index on page E-1 hereof. (b) Reports on Form 8-K: Form 8-K, dated January 26, 2000, Item 5, reporting the Company's earnings for the quarter and year ended December 31, 1999 and including a Fourth Quarter/Full Year Earnings Supplement. Form 8-K, dated February 3, 2000, Item 5, reporting certain information from speeches presented by Harvey Golub, the Company's Chairman and Chief Executive Officer and David Hubers, President, AXP Advisors, to the financial community on February 2, 2000. Form 8-K, dated April 26, 2000, Item 5, reporting the Company's earnings for the quarter ended March 31, 2000 and including a First Quarter Earnings Supplement. Form 8-K, dated April 27, 2000, Item 5, announcing the appointment of Gary Crittenden as its executive vice president and chief financial officer. Form 8-K, dated May 3, 2000, Item 5, 1) announcing a leave of absence of Steve Alesio, President of the Small Business Services group, and resulting organizational changes and 2) making publicly available a consolidated five-year and quarterly summary of restated common share statistics to reflect the Company's recent 3-for-1 stock split. 25
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICAN EXPRESS COMPANY ------------------------ (Registrant) Date: May 15, 2000 By /s/ Richard Karl Goeltz ----------------------- ------------------------ Richard Karl Goeltz Vice Chairman and Chief Financial Officer Date: May 15, 2000 /s/ Daniel T. Henry ----------------------- ----------------------- Daniel T. Henry Senior Vice President and Comptroller (Chief Accounting Officer) 26
EXHIBIT INDEX The following exhibits are filed as part of this Quarterly Report: Exhibit Description ------- ----------- 3.1 Company's Certificate of Amendment of the Certificate of Incorporation. 10.1 Amendment of American Express Company 1998 Incentive Compensation Plan Master Agreement dated April 27, 1998. 10.2 Amendment of American Express Company 1989 Long-Term Incentive Compensation Plan Master Agreement dated February 27, 1995. 10.3 Amendment of American Express Company Supplemental Retirement Plan Amended and Restated Effective March 1, 1995. 10.4 Amendment of American Express Key Executive Life Insurance Plan. 10.5 Amendment of American Express Salary/Bonus Deferral Plan. 10.6 American Express Annual Incentive Award Plan. 10.7 Action To Amend IDS Current Service Deferred Compensation Plan. 10.8 Description of Pay for Performance Deferral Program. 10.9 Amendment To The American Express Pay For Performance Deferral Programs. 10.10 American Express Senior Executive Severance Plan Effective January 1, 1994 (as amended and restated through May 1, 2000). 10.11 American Express Company 1993 Directors' Stock Option Plan, as amended. 12 Computation in Support of Ratio of Earnings to Fixed Charges. 15 Letter re Unaudited Interim Financial Information. 27 Financial Data Schedule. E-1