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 September 30, 1995 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 State 13-4922250 - - ---------------------------------- -------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) American Express Tower, World Financial Center, 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 October 31, 1995 - - ---------------------------------------- ------------------------------- Common Shares (par value $.60 per share) 484,404,630 shares
AMERICAN EXPRESS COMPANY FORM 10-Q INDEX Part I. Financial Information: Consolidated Statement of Income--Three and 1-2 nine months ended September 30, 1995 and 1994 Consolidated Balance Sheet--September 30, 3 1995 and December 31, 1994 Consolidated Statement of Cash Flows--Nine 4 months ended September 30, 1995 and 1994 Notes to Consolidated Financial Statements 5 Management's Discussion and Analysis of 6-15 Financial Condition and Results of Operations Independent Accountants Review Report 16 Part II. Other Information 19
PART I--FINANCIAL INFORMATION AMERICAN EXPRESS COMPANY CONSOLIDATED STATEMENT OF INCOME (dollars in millions, except per share amounts) (Unaudited) Three Months Ended September 30, ------------------- 1995 1994 ------ ------ Revenues: Interest and dividends, net $ 1,166 $ 1,046 Discount revenue 1,116 996 Net card fees 439 435 Travel commissions and fees 316 233 Management and distribution fees 241 200 Other commissions and fees 323 293 Life insurance premiums 218 209 Other 235 192 ------ ------ Total 4,054 3,604 ------ ------ Expenses: Human resources 1,010 958 Provisions for losses and benefits: Annuities and investment certificates 358 295 Credit, banking and other 356 249 Life insurance 209 201 Interest 310 251 Marketing and promotion 261 280 Occupancy and equipment 271 243 Professional services 208 173 Communications 101 92 Other 399 364 ------ ------ Total 3,483 3,106 ------ ------ Pretax income 571 498 Income tax provision 155 129 ------ ------ Net income $ 416 $ 369 ====== ====== Net income per common share $ 0.83 $ 0.71 ====== ====== Weighted average number of common shares outstanding (000's) 496,516 512,579 ======= ======= Cash dividends declared per common share $ 0.225 $ 0.225 ======= ======= See notes to Consolidated Financial Statements. 1
AMERICAN EXPRESS COMPANY CONSOLIDATED STATEMENT OF INCOME (dollars in millions, except per share amounts) (Unaudited) Nine Months Ended September 30, ------------------ 1995 1994 ------ ------ Revenues: Interest and dividends, net $ 3,400 $ 3,078 Discount revenue 3,246 2,885 Net card fees 1,311 1,297 Travel commissions and fees 931 639 Management and distribution fees 673 604 Other commissions and fees 959 828 Life insurance premiums 634 585 Other 638 564 ------ ------ Total 11,792 10,480 ------ ------ Expenses: Human resources 3,000 2,751 Provisions for losses and benefits: Annuities and investment certificates 1,037 867 Credit, banking and other 980 777 Life insurance 607 563 Interest 932 741 Marketing and promotion 755 794 Occupancy and equipment 795 728 Professional services 584 485 Communications 301 272 Other 1,160 1,086 ------ ------ Total 10,151 9,064 ------ ------ Pretax income from continuing operations 1,641 1,416 Income tax provision 462 371 ------ ------ Income from continuing operations 1,179 1,045 Discontinued operations, net of income taxes - 33 ------ ------ Net income $ 1,179 $ 1,078 ====== ====== Income per common share from continuing operations $ 2.34 $ 2.02 Income per common share from discontinued operations - 0.07 ------ ------ Net income per common share $ 2.34 $ 2.09 ====== ====== Weighted average number of common shares outstanding (000's) 499,430 510,672 ======= ======= Cash dividends declared per common share $ 0.675 $ 0.675 ======= ======= See notes to Consolidated Financial Statements. 2
<TABLE> <CAPTION> AMERICAN EXPRESS COMPANY CONSOLIDATED BALANCE SHEET (millions) (Unaudited) September 30, December 31, Assets 1995 1994 - - ------ ------------- ------------ <S> <C> <C> Cash and cash equivalents $ 4,577 $ 3,433 Accounts receivable and accrued interest, less reserves: 1995, $798; 1994, $807 18,480 17,147 Investments 43,075 40,108 Loans and discounts, less reserves: 1995, $569; 1994, $545 15,498 14,722 Land, buildings and equipment--at cost, less accumulated depreciation: 1995, $1,759; 1994, $1,563 1,827 1,840 Assets held in segregated asset accounts 14,120 10,881 Deferred acquisition costs 2,421 2,280 Other assets 6,314 6,595 ------- ------- Total assets $ 106,312 $ 97,006 ======= ======= Liabilities and Shareholders' Equity - - ------------------------------------ Customers' deposits and credit balances $ 9,556 $ 10,013 Travelers Cheques outstanding 6,707 5,271 Accounts payable 4,375 4,228 Insurance and annuity reserves: Fixed annuities 21,292 20,163 Life and disability policies 5,106 4,686 Investment certificate reserves 3,651 2,866 Short-term debt 17,163 14,810 Long-term debt 6,284 7,162 Liabilities related to segregated asset accounts 14,120 10,881 Other liabilities 10,616 10,493 ------- ------- Total liabilities 98,870 90,573 Shareholders' equity: Preferred shares, $1.66 2/3 par value, authorized 20,000,000 shares Convertible Exchangeable Preferred shares, issued and outstanding 4,000,000 shares, stated at liquidation value 200 200 Common shares, $.60 par value, authorized 1,200,000,000 shares; issued and outstanding 486,361,984 shares in 1995 and 495,865,678 shares in 1994 292 298 Capital surplus 3,764 3,651 Net unrealized securities gains/(losses) 197 (389) Foreign currency translation adjustment (68) (77) Retained earnings 3,057 2,750 ------- ------- Total shareholders' equity 7,442 6,433 ------- ------- Total liabilities and shareholders' equity $ 106,312 $ 97,006 ======= ======= </TABLE> See notes to Consolidated Financial Statements. 3
<TABLE> <CAPTION> AMERICAN EXPRESS COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS (millions) (Unaudited) Nine Months Ended September 30, ----------------- 1995 1994 ---- ---- <S> <C> <C> Cash Flows from Operating Activities Income from continuing operations $1,179 $1,045 Adjustments to reconcile income from continuing operations to net cash provided by operating activities: Provisions for losses and benefits 1,463 1,061 Depreciation, amortization, deferred taxes and other 237 188 Changes in operating assets and liabilities, net of effects of acquisitions/dispositions: Accounts receivable and accrued interest (410) (529) Other assets (32) 855 Accounts payable and other liabilities (352) 552 Increase in Travelers Cheques outstanding 1,438 953 Increase in insurance reserves 364 352 Net cash flows used by operating activities of discontinued operations - (3,656) ------ ------ Net cash provided by operating activities 3,887 821 ------ ------ Cash Flows from Investing Activities Sale of investments 2,015 3,678 Maturity and redemption of investments 3,538 5,802 Purchase of investments (7,200) (10,480) Net increase in Cardmember receivables (2,009) (887) Cardmember accounts receivable sold to Trust - 900 Proceeds from repayment of loans 15,963 15,731 Issuance of loans (16,869) (15,309) Purchase of land, buildings and equipment (224) (193) Sale of land, buildings and equipment 19 87 (Acquisitions) dispositions, net of cash acquired/sold (7) (375) Net cash flows used by investing activities of discontinued operations - (36) ------ ------ Net cash used by investing activities (4,774) (1,082) ------ ------ Cash Flows from Financing Activities Net decrease in customers' deposits and credit balances (604) (95) Sale of annuities and investment certificates 4,907 4,281 Redemption of annuities and investment certificates (3,166) (3,993) Net (decrease) increase in debt with maturities of 3 months or less (4,732) 5,948 Issuance of debt 15,412 3,220 Principal payments on debt (9,064) (8,018) Issuance of American Express common shares 245 173 Repurchase of American Express common shares (665) (137) Cash infusion to Lehman Brothers - (904) Dividends paid (344) (386) Net cash flows provided by financing activities of discontinued operations - 3,737 ------ ------ Net cash provided by financing activities 1,989 3,826 Net change in cash and cash equivalents of discontinued operations - 45 Effect of exchange rate changes on cash 42 127 ------ ------ Net increase in cash and cash equivalents 1,144 3,647 Cash and cash equivalents at beginning of period 3,433 3,312 ------ ------ Cash and cash equivalents at end of period $4,577 $6,959 ====== ====== </TABLE> See notes to Consolidated Financial Statements. 4
AMERICAN EXPRESS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The consolidated financial statements should be read in conjunction with the financial statements presented in the Annual Report on Form 10-K of American Express Company (the Company or American Express) for the year ended December 31, 1994. Certain prior year's amounts have been reclassified to conform to the current year's presentation. Significant accounting policies disclosed therein have not changed. The consolidated financial statements are unaudited; however, in the opinion of management, they include all normal recurring adjustments necessary for a fair presentation of the consolidated financial position of the Company at September 30, 1995 and December 31, 1994, the consolidated results of its operations for the three and nine months ended September 30, 1995 and 1994 and cash flows for the nine months ended September 30, 1995 and 1994. Results of operations reported for interim periods are not necessarily indicative of results for the entire year. 2. Interest and dividends, net, reflects gross interest and dividends, net of $266 million and $240 million of interest expense for the three months ended September 30, 1995 and 1994, respectively, and $818 million and $668 million for the nine months ended September 30, 1995 and 1994, respectively, related to the Company's international banking operations and Travel Related Services' consumer lending activities. 3. On May 31, 1994, the Company completed the spin-off of Lehman Brothers Holdings Inc. (Lehman Brothers) through a dividend to its common shareholders of all of the Lehman Brothers common stock held by American Express on that date. As a result of this transaction, Lehman Brothers' results are reported as a discontinued operation in the Consolidated Statement of Income through May 31, 1994. Cash dividends declared per share for the nine months ended September 30, 1994 have been adjusted to reflect the Lehman Brothers' spin-off. 4. The following is a summary of investments: September 30, December 31, (In millions) 1995 1994 ------------- ------------ Held to Maturity, at amortized cost (fair value: 1995, $22,681; 1994, $21,387) $22,004 $21,909 Available for Sale, at fair value (cost: 1995, $17,645; 1994, $15,912) 17,956 15,293 Trading 153 225 Investment mortgage loans 2,962 2,681 ------------- ------------ $43,075 $40,108 ============= ============ 5. As of January 1, 1995, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 114, ``Accounting by Creditors for Impairment of a Loan,'' as amended by SFAS No. 118, ``Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures.'' The adoption of the new rules did not have a material impact on the Company's results of operations or financial condition. 6. Net income taxes paid during the nine months ended September 30, 1995 and 1994 were approximately $475 million and $131 million, respectively. Interest paid during the nine months ended September 30, 1995 and 1994 was approximately $1.8 billion and $1.3 billion, respectively. 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Consolidated Results Of Operations For The Three and Nine Months Ended September 30, 1995 and 1994 The Company's consolidated net income increased 13 percent in the third quarter of 1995 compared with a year ago. Third quarter net income per share increased 17 percent compared with last year. The Company's consolidated net income increased 13 percent in the first nine months of 1995, compared with income from continuing operations during the same period last year. Net income increased 9.4 percent compared with last year, which included the results of Lehman Brothers Holdings Inc. (Lehman Brothers). Net income per share for the first nine months of 1995 increased 16 percent, compared with per share income from continuing operations a year ago. Consolidated Liquidity and Capital Resources On March 27, 1995, the Company's Board of Directors approved a plan to repurchase up to 40 million common shares over the next two to three years, from time to time as market conditions allow. This authorization is in addition to a plan announced in September 1994, whereby the Company was authorized to repurchase up to 20 million common shares. A portion of the share repurchases is being used to offset share issuances under employee compensation plans. The authorized share repurchases were intended to reduce the number of outstanding common shares and common share equivalents to less than 500 million and maintain the number of shares below that level. The number of outstanding common shares and common share equivalents totaled 497 million for the quarter ended September 30, 1995. The repurchase plans will help the Company achieve its goal of building shareholder value while maintaining appropriate capital levels. Since inception of the initial plan, the Company has repurchased approximately 36.5 million shares at an average price of $34.40 through October 31, 1995. In the second quarter of 1995, in connection with the share repurchase program, the Company sold three million put options with maturities up to twelve months and a weighted average strike price of $35.52 per share. Upon the sale of these put options, the Company received premiums totaling $5.7 million. During the first nine months of 1995, 2.5 million put options expired unexercised. At September 30, 1995, the Company had a total of 4.7 million put options outstanding with a weighted average strike price of $36.29 per share. During the second quarter of 1995, the parent company paid down $700 million of a $945 million Floating Medium-Term Note due 1996 in exchange for an extension and modification of terms on the remaining balance through the year 2000. In addition, the parent company restructured its $1.2 billion multi- purpose credit facility, reducing the cost of the facility and extending the multi-year portion from three years to five years under more favorable terms. The $586 million increase in Net Unrealized Securities Gains/(Losses) was due to declining medium- and long-term interest rates. 6
Travel Related Services Results of Operations For The Three and Nine Months Ended September 30, 1995 and 1994 <TABLE> <CAPTION> Statement of Income (Unaudited) (Amounts in millions, except percentages) Three Months Ended Nine Months Ended September 30, September 30, -------------- Percentage ------------------ Percentage 1995 1994 Inc/(Dec) 1995 1994 Inc/(Dec) ----------------------- ----------------------------- <S> <C> <C> <C> <C> <C> <C> Net Revenues: Discount Revenue $1,116 $996 12.0% 3,246 $2,886 12.5% Net Card Fees 439 435 0.8 1,311 1,297 1.1 Travel Commissions and Fees 316 233 35.4 931 639 45.7 Interest and Dividends 261 206 26.9 761 567 34.2 Other Revenues 570 494 15.5 1,608 1,374 17.1 -------------- --------------- 2,702 2,364 14.3 7,857 6,763 16.2 -------------- --------------- Lending: Finance Charge Revenue 396 317 25.1 1,126 912 23.4 Interest Expense 126 80 57.6 368 212 73.7 -------------- --------------- Net Finance Charge Revenue 270 237 14.2 758 700 8.2 -------------- --------------- Total Net Revenues 2,972 2,601 14.3 8,615 7,463 15.4 -------------- --------------- Expenses: Marketing and Promotion 252 274 (7.9) 731 776 (5.7) Provision for Losses and Claims: Charge Card 207 153 35.6 571 478 19.4 Lending 132 81 62.8 364 258 41.2 Other 137 131 3.9 382 355 7.6 -------------- -------------- Total 476 365 30.3 1,317 1,091 20.7 -------------- -------------- Interest Expense: Charge Card 169 132 28.5 495 392 26.2 Other Interest Expense 114 76 49.0 338 208 62.5 -------------- -------------- Total 283 208 36.0 833 600 38.8 Net Discount Expense * 101 93 9.3 309 228 35.2 Human Resources 700 651 7.5 2,098 1,863 12.6 Other Operating Expenses 752 646 16.3 2,119 1,850 14.5 ------------- -------------- Total Expenses 2,564 2,237 14.6 7,407 6,408 15.6 ------------- -------------- Pretax Income 408 364 12.1 1,208 1,055 14.5 Income Tax Provision 111 100 11.1 349 293 19.1 ------------- -------------- Net Income $297 $264 12.5 $859 $762 12.7 ============= ============== </TABLE> * The impact of Net Discount Expense (related to TRS' securitized receivables) was to: <TABLE> <CAPTION> <S> <C> <C> <C> <C> <C> <C> Increase Net Card Fees - $9 - - $9 - Decrease the Provision for Losses and Claims - Charge Card $40 30 34.2 $124 86 43.7 Decrease Interest Expense - Charge Card 41 29 42.7 122 76 60.4 Increase Other Revenues 20 25 (19.4) 63 57 9.6 ------------ -------------- Total Net Discount Expense $101 $93 9.3 $309 $228 35.2 ============ ============== </TABLE> 7
<TABLE> <CAPTION> Selected Statistical Information (Unaudited) (Amounts in millions, except percentages and where indicated) Three Months Ended Nine Months Ended September 30, September 30, ------------- Percentage ------------ Percentage 1995 1994 Inc/(Dec) 1995 1994 Inc/(Dec) ----------------------- ----------------------- <S> <C> <C> <C> <C> <C> <C> Total Cards in Force: United States 25.9 24.7 5.0% 25.9 24.7 5.0% Outside the United States 11.1 10.9 1.9 11.1 10.9 1.9 --------------- --------------- Total 37.0 35.6 4.0 37.0 35.6 4.0 =============== =============== Basic Cards in Force: United States 19.4 18.1 7.4 19.4 18.1 7.4 Outside the United States 8.6 8.0 7.1 8.6 8.0 7.1 --------------- -------------- Total 28.0 26.1 7.3 28.0 26.1 7.3 =============== ============== Card Billed Business (billions): United States $29.2 $25.2 15.9 $83.9 $73.5 14.2 Outside the United States 11.6 10.3 12.8 34.0 28.4 19.9 --------------- -------------- Total $40.8 $35.5 15.0 $117.9 $101.9 15.8 =============== ============== Travelers Cheque Sales (billions) $8.3 $8.4 (1.6) $20.5 $19.8 3.7 Average Travelers Cheques Outstanding (billions) $6.7 $5.9 13.0 $6.0 $5.3 13.4 Travel Sales (billions) $3.7 $2.5 44.2 $11.0 $7.2 53.4 </TABLE> Travel Related Services' (TRS) net revenues increased for the three and nine months ended September 30, 1995 reflecting an increase in worldwide billed business and higher business travel sales. The increase in worldwide billed business resulted from higher spending per Cardmember, due in part to increased merchant coverage and the benefits of rewards programs, as well as an increase in the number of Cards outstanding. The rate of growth in discount revenue for the three and nine months ended September 30, 1995 is below the growth in worldwide billed business, reflecting a change in the mix of Cardmember spending, as well as increasing electronic merchant data capture in selected international markets. Higher business travel sales resulted from acquisitions and growth. Lending net finance charge revenue for the three and nine months ended September 30, 1995 increased reflecting higher average receivables, which were partially offset by lower net interest spreads. The increase in the worldwide charge Card provision in the third quarter of 1995 was primarily related to higher loss rates in Latin America, which is expected to continue in the fourth quarter. The increase in the worldwide charge Card provision for the nine month period also reflected the increase in billed business, partly offset by a higher level of securitized receivables. The worldwide lending provision for losses for the three and nine months ended September 30, 1995 was higher in part due to portfolio growth, since TRS reserves for losses at the time receivables are recorded. Charge Card interest expense in both periods increased reflecting higher rates and increased volume. The increase in human resources expense for the three and nine months ended September 30, 1995 primarily reflected the impact of business travel acquisitions and growth to support increased business volumes. The rate of growth in human resources expense for the third quarter of 1995 was below the year-to-date growth rate reflecting a reduction in the number of employees beginning in the second quarter. Other operating expenses in both periods increased primarily reflecting business travel acquisitions and growth, as well as continuing investments in certain business initiatives. The decline in the U.S. dollar relative to other currencies increased, to a limited extent, both revenues and expenses in the three and nine months ended September 30, 1995, but had essentially no effect on net income. 8
Travel Related Services Liquidity and Capital Resources <TABLE> <CAPTION> Selected Balance Sheet Information (Unaudited) (Amounts in billions, except percentages) September 30, December 31, Percentage September 30, Percentage 1995 1994 Inc/(Dec) 1994 Inc/(Dec) ----------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Accounts Receivable, net $18.1 $16.8 7.4% $15.4 17.6% Investments $11.9 $10.7 11.0 $10.7 11.7 U.S. Consumer Lending Loan Balances $9.0 $8.1 11.7 $7.6 17.9 Total Assets $47.1 $42.5 10.9 $42.2 11.7 Travelers Cheques Outstanding $6.7 $5.3 27.2 $5.8 16.6 Short-term Debt $16.9 $15.1 11.8 $15.0 13.0 Long-term Debt $3.4 $3.4 0.1 $3.0 11.6 Total Liabilities $42.3 $38.2 10.8 $38.0 11.5 Total Shareholder's Equity $4.8 $4.3 11.5 $4.2 12.9 Return on Average Equity 24.6% 24.0% - 23.9% - </TABLE> TRS' total assets increased from year end reflecting increases in lending and charge Card receivables and time deposits and short-term investments, funded by increases in short-term debt and Travelers Cheques outstanding. The increase in U.S. Consumer Lending loan balances reflected growth in the business as well as a transfer of balances from other business lines. During the first nine months of 1995, TRS issued $200 million 8.125% Eurodollar Notes due 1997, the proceeds of which were used to fund lending receivables in replacement of maturing debt. TRS also issued $250 million 6.75% Senior Notes due 2001 and $250 million 6.5% Senior Notes due 2000, the proceeds of which were used to reduce short-term debt. On October 2, 1995, TRS completed the previously announced sale of AMEX Life Assurance Company (AMEX Life) to GE Capital Corporation. The transaction did not have a material impact on the Company's results of operations. The sale of AMEX Life is consistent with the Company's strategy of focusing on its core businesses. 9
American Express Financial Advisors Results of Operations For The Three and Nine Months Ended September 30, 1995 and 1994 <TABLE> <CAPTION> Statement of Income (Unaudited) (Amounts in millions, except percentages and where indicated) Three Months Ended Nine Months Ended September 30, September 30, ----------------------- Percentage ----------------- Percentage 1995 1994 Inc/(Dec) 1995 1994 Inc/(Dec) ------------------------------------ ------------------------------ <S> <C> C> <C> <C> <C> <C> Revenues: Investment Income $555 $498 11.5% $1,639 $1,498 9.4% Management and Distribution Fees 241 200 20.4 673 604 11.5 Other Income 138 124 10.3 406 348 16.4 -------------------- ------------------ Total Revenues 934 822 13.5 2,718 2,450 10.9 -------------------- ------------------ Expenses: Provision for Losses and Benefits: Annuities 293 256 14.4 855 762 12.2 Insurance 99 95 4.6 296 268 10.5 Investment Certificates 55 30 84.6 150 77 96.2 -------------------- ----------------- Total 447 381 17.4 1,301 1,107 17.5 Human Resources 226 213 6.2 650 620 4.9 Other Operating Expenses 64 60 4.9 214 258 (17.0) -------------------- ----------------- Total Expenses 737 654 12.6 2,165 1,985 9.1 -------------------- ----------------- Pretax Income 197 168 17.1 553 465 18.8 Income Tax Provision 63 54 17.2 183 151 21.1 -------------------- ----------------- Net Income $134 $114 17.0 $370 $314 17.7 ==================== ================== Selected Statistical Information -------------------------------- Life Insurance in Force (billions) $57.6 $50.9 13.1 $57.6 $50.9 13.1 ==================== =================== Assets Owned and/or Managed (billions): Assets managed for institutions $32.3 $26.7 21.0 $32.3 $26.7 21.0 Assets owned and managed for individuals Owned Assets 46.2 39.2 17.8 46.2 39.2 17.8 Managed Assets 46.3 38.5 20.3 46.3 38.5 20.3 -------------------- ------------------- Total $124.8 $104.4 19.5 $124.8 $104.4 19.5 ===================== =================== Sales of Selected Products: Mutual Funds $2,584 $2,021 27.8 $7,236 $6,871 5.3 Annuities $699 $1,088 (35.8) $2,757 $3,256 (15.4) Investment Certificates $363 $324 11.8 $1,379 $695 98.5 Life and Other Insurance Sales $94 $78 19.8 $273 $231 18.3 Fees From Financial Plans (thousands) $9,798 $9,559 2.5 $29,842 $29,357 1.7 Number of Financial Advisors 7,930 7,847 1.1 7,930 7,847 1.1 Product Sales Generated from Financial Plans as a Percentage of Total Sales 65.3% 63.5% - 64.3% 61.5% - </TABLE> 10
American Express Financial Advisors' revenue and earnings growth for the three and nine months ended September 30, 1995 benefited primarily from higher fee revenues due to an increase in managed assets, as well as an increase in life insurance in force. These increases were partially offset by the impact of lower investment margins, and in the nine month period, lower distribution fees. The increase in investment income for the three and nine months ended September 30, 1995 reflected higher asset levels. Management and distribution fees in both periods increased reflecting increased management fee revenue due to a higher asset base. The increase in management fees was partly offset by a decline in distribution fees due to the availability, beginning in 1995's second quarter, of a broader range of rear-load funds. The growth in managed assets reflects strong market appreciation and, to a lesser extent, positive net sales. Other income increased in the three and nine months ended September 30, 1995 primarily due to higher life insurance contract charges and premiums. Provisions for losses and benefits increased in the three and nine months ended September 30, 1995 reflecting increased business in force and higher accrual rates for all products. Human resources expense in both periods increased reflecting an increase in the number of employees and financial advisors compared with last year. Other operating expenses for the nine months ended September 30, 1994 included accelerated amortization of deferred acquisition costs due to surrenders as a result of an annuity exchange plan announced during the first quarter, as well as a higher provision for insurance industry guarantee association assessments. 11
American Express Financial Advisors Liquidity and Capital Resources <TABLE> <CAPTION> Selected Balance Sheet Information (Unaudited) (Amounts in billions, except percentages) September 30, December 31, Percentage September 30, Percentage 1995 1994 Inc/(Dec) 1994 Inc/(Dec) -------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Investments $28.0 $25.2 10.9% $24.7 13.6% Assets Held in Segregated Accounts $14.1 $10.9 29.8 $10.7 32.0 Total Assets $46.2 $40.2 15.1 $39.2 17.8 Reserves for Losses and Benefits $27.7 $25.6 8.2 $24.8 11.5 Total Liabilities $43.4 $38.0 14.1 $37.1 17.1 Total Shareholder's Equity $2.8 $2.1 32.8 $2.2 30.4 Return on Average Equity 19.8% 19.3% - 18.7% - </TABLE> American Express Financial Advisors' total assets increased from year end primarily reflecting increases in assets held in segregated asset accounts and investments. These increases reflected strong market appreciation and positive net sales. 12
American Express Bank Results of Operations For The Three and Nine Months Ended September 30, 1995 and 1994 <TABLE> <CAPTION> Statement of Income (Unaudited) (Amounts in millions, except percentages) Three Months Ended Nine Months Ended September 30, September 30, -------------------- Percentage ------------------ Percentage 1995 1994 Inc/(Dec) 1995 1994 Inc/(Dec) -------------------------------- ----------------------------- <S> <C> <C> <C> <C> <C> <C> Net Revenues: Interest Income $221 $249 (11.2%) $693 $719 (3.6%) Interest Expense 140 160 (12.3) 450 455 (1.1) ---------------------- --------------------- Net Interest Income 81 89 (9.2) 243 264 (7.8) Commissions, Fees and Other Revenues 59 57 4.0 180 173 4.5 Foreign Exchange Income 21 17 25.9 61 56 8.1 ---------------------- --------------------- Total Net Revenues 161 163 (1.0) 484 493 (1.7) ---------------------- --------------------- Provision for Credit Losses 1 0 - 5 8 (34.9) ---------------------- --------------------- Expenses: Human Resources 62 62 (1.7) 190 187 1.8 Other Operating Expenses 65 70 (6.2) 206 204 1.1 ---------------------- --------------------- Total Expenses 127 132 (4.1) 396 391 1.5 ---------------------- --------------------- Pretax Income 33 31 8.8 83 94 (12.0) Income Tax Provision 11 11 7.6 26 30 (13.4) ---------------------- --------------------- Net Income $22 $20 9.5 $57 $64 (11.3) ====================== ===================== </TABLE> American Express Bank's (the Bank) results for the three and nine months ended September 30, 1995 reflected growth in foreign exchange income, as well as in commissions, fees and other revenues, offset by lower net interest income. Net interest income in both periods declined due to lower spreads on the investment portfolio, as well as higher short-term funding costs. Commissions, fees and other revenues in both periods increased primarily reflecting growth in correspondent banking fee income. Foreign exchange income in both periods increased reflecting higher client driven trading volumes. Operating expenses for the third quarter of 1995 decreased compared with a year ago reflecting the effect of cost containment. Operating expenses increased in the first nine months of 1995 over the year ago level, in part due to spending related to systems technology, which offset the effect of cost containment. 13
American Express Bank Liquidity and Capital Resources <TABLE> <CAPTION> Selected Balance Sheet Information (Unaudited) (Amounts in billions, except percentages and where indicated) September 30, December 31, Percentage September 30, Percentage 1995 1994 Inc/(Dec) 1994 Inc/(Dec) ------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Investments $2.5 $2.8 (9.5%) $2.9 (13.6%) Total Loans $5.4 $5.0 7.9 $5.4 - Reserve for Credit Losses (millions) $115 $109 5.1 $118 (2.5) Total Assets $12.5 $13.3 (5.9) $14.2 (12.2) Deposits $8.4 $9.1 (7.7) $10.3 (18.2) Total Liabilities $11.7 $12.5 (6.7) $13.4 (13.3) Total Shareholder's Equity $0.8 $0.8 6.7 $0.8 7.5 Reserves as a Percentage of Total Loans 2.1% 2.2% - 2.2% - Total Nonperforming Loans (millions) $32 $20 62.5 $33 (3.8) Other Nonperforming Assets (millions) $43 $56 (22.9) $57 (24.8) Risk-Based Capital Ratios: Tier 1 8.7% 7.5% - 6.7% - Total 13.9% 14.7% - 13.0% - Leverage Ratio 5.6% 4.8% - 4.2% - Return on Average Assets* 0.57% 0.54% - 0.56% - Return on Average Common Equity* 9.95% 10.78% - 11.43% - * For the year-to-date period </TABLE> The Bank's total assets declined from year end as modest loan growth was more than offset by declines in cash and cash equivalents and investments reflecting a lower level of client deposits. The increase in nonperforming loans since year end primarily reflects newly classified exposures, partly offset by repayments. The decline in other nonperforming assets primarily reflects the sale of a foreclosed asset. The increase in the Bank's Tier 1 Ratio primarily relates to an increase in retained earnings, a decrease in deferred tax assets and general balance sheet reductions, particularly risk weighted loans. The decline in the Total Capital Ratio from year end reflects the revocation of the convertible feature of subordinated debt and the retirement of a portion of that debt. The increase in the Leverage Ratio is due to an increase in retained earnings and decreases in deferred tax assets and quarterly average assets. 14
Corporate and Other Corporate and Other reported third quarter 1995 net expenses of $37 million, compared with net expenses of $29 million a year ago. Corporate and Other reported net expenses of $107 million in the first nine months of 1995, compared with net expenses of $95 million last year. Results for the first nine months of 1995 included the Company's share of the Travelers Inc. (Travelers) revenue participation in accordance with an agreement related to the 1993 sale of the Shearson Lehman Brothers Division (the 1993 sale) and a gain from the sale of common stock and warrants of Mellon Bank Corporation, which were offset by expenses primarily related to various business building initiatives. Results for the first nine months of 1994 included income from the Company's share of the Travelers revenue participation, as well as a capital gain on the sale of Travelers preferred stock and warrants which were acquired as part of the 1993 sale. These gains were offset by the Company's costs associated with the Lehman Brothers spin-off and certain business building initiatives. 15
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 September 30, 1995, and the related consolidated statements of income for the three-month and nine-month periods ended September 30, 1995 and 1994 and the consolidated statement of cash flows for the nine-month periods ended September 30, 1995 and 1994. 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, 1994, 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 2, 1995, 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, 1994, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. ERNST & YOUNG LLP /s/ Ernst & Young LLP New York, New York November 13, 1995 16
PART II. OTHER INFORMATION AMERICAN EXPRESS COMPANY 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 July 24, 1995, Item 5, reporting the registrant's earnings for the quarter ended June 30, 1995. Form 8-K, dated September 21, 1995, Item 5, announcing the possible sale of American Express Bank. Form 8-K, dated September 27, 1995, Item 5, announcing the resignation of Jeffrey Stiefler as President of American Express Company, effective as of September 30, 1995. Form 8-K, dated October 16, 1995, Item 5, announcing the end of discussions of a possible sale of American Express Bank. Form 8-K, dated October 23, 1995, Item 5, reporting the registrant's earnings for the quarter ended September 30, 1995. 17
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed by the undersigned, thereunto duly authorized. AMERICAN EXPRESS COMPANY ------------------------ (Registrant) Date: November 14, 1995 By /s/ Michael P. Monaco - - ------------------------ ------------------------- Michael P. Monaco Executive Vice President and Chief Financial Officer Date: November 14, 1995 /s/ Daniel T. Henry - - ------------------------ ------------------------- Daniel T.Henry Senior Vice President and Comptroller (Chief Accounting Officer)
EXHIBIT INDEX The following exhibits are filed as part of this Quarterly Report: Exhibit Description 10.1 Agreement between American Express Company and Berkshire Hathaway Inc. and its subsidiaries dated July 20, 1995. 12.1 Computation in Support of Ratio of Earnings to Fixed Charges. 12.2 Computation in Support of Ratio of Earnings to Fixed Charges and Preferred Share Dividends. 15 Letter re Unaudited Interim Financial Information. 27 Financial Data Schedule. E-1