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 June 30, 1997 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.) 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 July 31, 1997 - ---------------------------------- ---------------------------- Common Shares (par value $.60 per share) 468,800,970 shares
AMERICAN EXPRESS COMPANY FORM 10-Q INDEX Part I. Financial Information: Consolidated Statement of Income - Three and six months ended June 30, 1997 and 1996 1-2 Consolidated Balance Sheet - June 30, 1997 and December 31, 1996 3 Consolidated Statement of Cash Flows - Six months ended June 30, 1997 and 1996 4 Notes to Consolidated Financial Statements 5 Management's Discussion and Analysis of Financial Condition and Results of Operations 6-16 Review Report of Independent Accountants 17 Part II. Other Information 18
<TABLE> <CAPTION> PART I--FINANCIAL INFORMATION AMERICAN EXPRESS COMPANY CONSOLIDATED STATEMENT OF INCOME (dollars in millions, except per share amounts) (Unaudited) Three Months Ended June 30, ------------------- 1997 1996 -------- -------- <S> <C> <C> Net Revenues: Discount revenue $ 1,407 $ 1,247 Interest and dividends, net 795 844 Net card fees 403 414 Travel commissions and fees 381 362 Other commissions and fees 355 308 Cardmember lending net finance charge revenue 304 249 Management and distribution fees 360 296 Life insurance premiums 102 99 Other 315 257 -------- -------- Total 4,422 4,076 -------- -------- Expenses: Human resources 1,155 1,052 Provisions for losses and benefits: Annuities and investment certificates 362 346 Life insurance and other 138 131 Charge card 239 248 Cardmember lending 187 126 Interest: Charge card 174 171 Other 64 138 Occupancy and equipment 286 277 Marketing and promotion 258 262 Professional services 252 195 Communications 112 108 Other 493 386 -------- -------- Total 3,720 3,440 -------- -------- Pretax income 702 636 Income tax provision 182 184 -------- -------- Net income $ 520 $ 452 ======== ======== Net income per common share $ 1.08 $ 0.93 ======== ======== Average common and common equivalent shares outstanding 479.5 487.0 ======== ======== Cash dividends declared per common share $ 0.225 $ 0.225 ======== ======== </TABLE> See notes to Consolidated Financial Statements. 1
<TABLE> <CAPTION> PART I--FINANCIAL INFORMATION AMERICAN EXPRESS COMPANY CONSOLIDATED STATEMENT OF INCOME (dollars in millions, except per share amounts) (Unaudited) Six Months Ended June 30, ------------------ 1997 1996 -------- -------- <S> <C> <C> Net Revenues: Discount revenue $ 2,714 $ 2,388 Interest and dividends, net 1,571 1,682 Net card fees 808 835 Travel commissions and fees 717 687 Other commissions and fees 699 615 Cardmember lending net finance charge revenue 592 524 Management and distribution fees 691 576 Life insurance premiums 208 196 Other 585 483 -------- -------- Total 8,585 7,986 -------- -------- Expenses: Human resources 2,282 2,074 Provisions for losses and benefits: Annuities and investment certificates 709 696 Life insurance and other 269 269 Charge card 429 458 Cardmember lending 398 314 Interest: Charge card 343 338 Other 90 262 Occupancy and equipment 558 549 Marketing and promotion 472 469 Professional services 466 397 Communications 224 210 Other 1,003 750 -------- -------- Total 7,243 6,786 -------- -------- Pretax income 1,342 1,200 Income tax provision 368 351 -------- -------- Net income $ 974 $ 849 ======== ======== Net income per common share $ 2.03 $ 1.73 ======== ======== Average common and common equivalent shares outstanding 480.9 489.0 ======== ======== Cash dividends declared per common share $ 0.45 $ 0.45 ======== ======== </TABLE> See notes to Consolidated Financial Statements. 2
<TABLE> <CAPTION> AMERICAN EXPRESS COMPANY CONSOLIDATED BALANCE SHEET (millions) (Unaudited) June 30, December 31, Assets 1997 1996 - ------ --------- ----------- <S> <C> <C> Cash and cash equivalents $ 3,472 $ 2,677 Accounts receivable and accrued interest: Cardmember receivables, less reserves: 1997, $663; 1996, $658 17,436 17,938 Other receivables, less reserves: 1997, $73; 1996, $64 2,529 2,553 Investments 39,185 38,339 Loans: Cardmember lending, less reserves: 1997, $554; 1996, $482 12,693 12,194 International banking, less reserves: 1997, $130; 1996, $117 6,286 5,760 Other, net 879 564 Separate account assets 21,061 18,535 Deferred acquisition costs 2,777 2,660 Land, buildings and equipment--at cost, less accumulated depreciation: 1997, $1,891; 1996, $1,852 1,595 1,675 Other assets 6,014 5,617 -------- -------- Total assets $113,927 $108,512 ======== ======== Liabilities and Shareholders' Equity - ------------------------------------ Customers' deposits $ 10,390 $ 9,555 Travelers Cheques outstanding 6,458 5,838 Accounts payable 4,893 4,601 Insurance and annuity reserves: Fixed annuities 22,183 21,838 Life and disability policies 3,945 3,836 Investment certificate reserves 3,361 3,265 Short-term debt 17,971 18,402 Long-term debt 7,571 6,552 Separate account liabilities 21,061 18,535 Other liabilities 7,270 7,562 -------- ------- Total liabilities 105,103 99,984 Shareholders' equity: Common shares, $.60 par value, authorized 1.2 billion shares; issued and outstanding 468.9 million shares in 1997 and 472.9 million shares in 1996 281 284 Capital surplus 4,271 4,191 Net unrealized securities gains 409 386 Foreign currency translation adjustment (107) (89) Retained earnings 3,970 3,756 ------- ------- Total shareholders' equity 8,824 8,528 ------- ------- Total liabilities and shareholders' equity $113,927 $108,512 ======== ======== </TABLE> See notes to Consolidated Financial Statements. 3
<TABLE> <CAPTION> AMERICAN EXPRESS COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS (millions) (Unaudited) Six Months Ended June 30, --------------------- 1997 1996 ---- ---- <S> <C> <C> Cash Flows from Operating Activities Net income $ 974 $ 849 Adjustments to reconcile net income to net cash provided by operating activities: Provisions for losses and benefits 1,145 1,129 Depreciation, amortization, deferred taxes and other 141 21 Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: Accounts receivable and accrued interest 73 645 Other assets (589) 1,017 Accounts payable and other liabilities 22 (30) Increase in Travelers Cheques outstanding 620 906 Increase in insurance reserves 66 113 ------ ------ Net cash provided by operating activities 2,452 4,650 ------ ------ Cash Flows from Investing Activities Sale of investments 903 2,593 Maturity and redemption of investments 2,443 3,364 Purchase of investments (3,921) (4,975) Net increase in Cardmember receivables (720) (787) Proceeds from repayment of loans 12,943 11,375 Cardmember loans sold to Trust - 1,000 Issuance of loans (14,455) (12,405) Purchase of land, buildings and equipment (181) (166) Sale of land, buildings and equipment 99 112 ------ ------ Net cash (used) provided by investing activities (2,889) 111 ------ ------ Cash Flows from Financing Activities Net increase (decrease) in customers' deposits 1,018 (1,222) Sale of annuities and investment certificates 2,810 2,766 Redemption of annuities and investment (2,512) (3,334) certificates Net increase in debt with maturities of 3 months or less 1,919 3,319 Issuance of debt 4,510 7,068 Principal payments on debt (5,812) (10,810) Issuance of American Express common shares 126 139 Repurchase of American Express common shares (577) (705) Dividends paid (212) (222) ------- ------- Net cash provided (used) by financing activities 1,270 (3,001) Effect of exchange rate changes on cash (38) 10 ------- ------- Net increase in cash and cash equivalents 795 1,770 Cash and cash equivalents at beginning of period 2,677 3,200 ------ ------ Cash and cash equivalents at end of period $3,472 $4,970 ====== ====== </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 in the Annual Report on Form 10-K of American Express Company (the Company or American Express) for the year ended December 31, 1996. Certain prior year's amounts have been reclassified to conform to the current year's presentation. Significant accounting policies disclosed therein have not changed. Index options purchased and written by American Express Financial Advisors are carried at market value and included in Other Assets. Gains or losses on these options are recognized currently and included in Other Expenses. 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 June 30, 1997 and December 31, 1996, the consolidated results of its operations for the quarter and six months ended June 30, 1997 and 1996 and cash flows for the six months ended June 30, 1997 and 1996. Results of operations reported for interim periods are not necessarily indicative of results for the entire year. 2. Cardmember Lending Net Finance Charge Revenue is presented net of interest expense of $154 million and $122 million for the second quarter of 1997 and 1996, respectively, and $297 million and $251 million for the six months ended June 30, 1997 and 1996, respectively. Interest and Dividends is presented net of interest expense of $148 million and $134 million for the second quarter of 1997 and 1996, respectively, and $284 million and $267 million for the six months ended June 30, 1997 and 1996, respectively, related to the Company's international banking operations. 3. The following is a summary of investments: June 30, December 31, (In millions) 1997 1996 --------- ------------- Held to Maturity, at amortized cost (fair value: 1997, $12,784; 1996, $13,439) $12,468 $13,063 Available for Sale, at fair value (cost: 1997, $21,635; 1996, $20,366) 22,280 20,978 Investment mortgage loans (fair value: 1997, $3,872; 1996, $3,827) 3,777 3,712 Trading 660 586 ---------- ------------ $39,185 $38,339 ========== ============ 4. Net income taxes paid during the six months ended June 30, 1997 and 1996 were approximately $471 million and $234 million, respectively. Interest paid during the six months ended June 30, 1997 and 1996 was approximately $1.2 billion in each period. 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Consolidated Results Of Operations For The Three and Six Months Ended June 30, 1997 and 1996 The Company's consolidated net income rose 15 percent in the three and six month periods ended June 30, 1997; net income per share increased 16 percent and 17 percent for the three and six month periods ended June 30, 1997, respectively. These results continue to be in line with the Company's long-term targets of 12-15 percent annual earnings per share growth, with at least 8 percent coming from higher revenues and a return on equity of 18-20 percent on average and over time. Consolidated revenues rose 8.5 percent and 7.5 percent for the three and six months ended June 30, 1997, respectively, as a result of growth in worldwide billed business and Cardmember loans outstanding as well as higher management and distribution fees. Partially offsetting these increases were declines in card fees and investment income. Consolidated expenses were higher, primarily due to human resource and operating expenses to support business expansion and loyalty programs. Consolidated Liquidity and Capital Resources In October 1996, the Company's Board of Directors authorized the Company to repurchase up to 40 million common shares over the next two to three years, subject to market conditions. This authorization is in addition to two previous repurchase plans, beginning in 1994, under which the Company repurchased a total of 60 million common shares. These plans are primarily designed to allow the Company to systematically purchase shares to offset the issuance of new shares as part of employee compensation plans. Since inception of the initial plan in 1994, the Company has repurchased 69.5 million common shares and canceled 64.2 million common shares under the repurchase programs at an average price of $42.58 per share. In the first half of 1997, the Company repurchased 8.9 million common shares and canceled 15.4 million common shares under the repurchase programs at an average price of $67.33 per share. In June 1997, the Parent Company issued $500 million of 6.75% Notes due June 23, 2004. The proceeds from these issuances were used for general corporate purposes. Accounting Development In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" which is effective and will be adopted by the Company at December 31, 1997. No material effect on the earnings per share of the Company is expected. 6
<TABLE> <CAPTION> Travel Related Services Results of Operations For The Three and Six Months Ended June 30, 1997 and 1996 Statement of Income ------------------- (Unaudited) (Amounts in millions, except percentages) Three Months Six Months Ended Ended June 30, June 30, --------------- Percentage ---------------- Percentage 1997 1996 Inc/(Dec) 1997 1996 Inc/(Dec) -------------------------- -------------------------- <S> <C> <C> <C> <C> <C> <C> Net Revenues: Discount Revenue $1,407 $1,247 12.9 % $2,714 $2,388 13.6 % Net Card Fees 403 414 (2.6) 808 835 (3.3) Travel Commissions and Fees 381 362 4.9 717 687 4.4 Interest and Dividends 143 211 (32.2) 275 401 (31.5) Other Revenues 509 451 13.0 1,011 876 15.5 ------------- ------------- 2,843 2,685 5.9 5,525 5,187 6.5 ------------- ------------- Lending: Finance Charge Revenue 458 371 23.4 889 775 14.6 Interest Expense 154 122 26.0 297 251 18.0 ------------- ------------- Net Finance Charge Revenue 304 249 22.1 592 524 12.9 ------------- ------------- Total Net Revenues 3,147 2,934 7.3 6,117 5,711 7.1 ------------- ------------- Expenses: Marketing and Promotion 244 252 (3.2) 446 452 (1.3) Provision for Losses and Claims: Charge Card 239 248 (3.6) 429 458 (6.2) Lending 187 126 48.3 398 314 26.7 Other 21 26 (18.0) 45 50 (11.0) ------------- ------------- Total 447 400 11.8 872 822 6.1 ------------- ------------- Interest Expense: Charge Card 174 171 2.0 343 338 1.7 Other 52 114 (54.4) 87 210 (58.5) ------------- ------------- Total 226 285 (20.6) 430 548 (21.4) Net Discount Expense 165 125 31.8 317 251 26.1 Human Resources 783 721 8.6 1,533 1,426 7.5 Other Operating Expenses 789 692 14.0 1,577 1,337 17.9 ------------- ------------- Total Expenses 2,654 2,475 7.2 5,175 4,836 7.0 ------------- ------------- Pretax Income 493 459 7.4 942 875 7.7 Income Tax Provision 138 137 1.0 272 266 2.3 ------------- ------------- Net Income $ 355 $ 322 10.1 $ 670 $ 609 10.1 ============= ============= The impact on the Statement of Income related to TRS' securitized receivables and loans was as follows: Decrease Net Card Fees $ (1) - $ (1) - Increase Other Revenues 43 $ 42 95 $ 73 Decrease Lending Finance Charge Revenue (47) (32) (95) (32) Decrease Lending Interest Expense 17 8 34 8 Decrease Provision for Losses and Claims: Charge Card 74 54 136 108 Lending 16 12 27 12 Decrease Interest Expense: Charge Card 63 41 121 82 Increase Net Discount Expense (165) (125) (317) (251) --------------- -------------- Pretax Income $ 0 $ 0 $ 0 $ 0 =============== ============== </TABLE> 7
<TABLE> <CAPTION> Travel Related Services Selected Statistical Information -------------------------------- (Unaudited) (Amounts in billions, except percentages and where indicated) Three Months Ended Six Months Ended June 30, June 30, ---------------- Percentage ---------------- Percentage 1997 1996 Inc/(Dec) 1997 1996 Inc/(Dec) -------------------------- -------------------------- <S> <C> <C> <C> <C> <C> <C> Total Cards in Force (millions): United States 29.7 27.5 7.8 % 29.7 27.5 7.8 % Outside the United States 12.6 11.8 6.8 12.6 11.8 6.8 -------------- --------------- Total 42.3 39.3 7.5 42.3 39.3 7.5 ============== =============== Basic Cards in Force (millions): United States 23.2 20.9 10.6 23.2 20.9 10.6 Outside the United States 9.7 9.3 5.1 9.7 9.3 5.1 -------------- --------------- Total 32.9 30.2 8.9 32.9 30.2 8.9 ============== =============== Card Billed Business: United States $37.2 $32.6 14.1 $71.8 $62.2 15.2 Outside the United States 14.7 13.2 11.7 28.0 25.1 12.0 -------------- --------------- Total $51.9 $45.8 13.4 $99.8 $87.3 14.3 ============== =============== Average Discount Rate* 2.74% 2.74% - 2.74% 2.76% - Average Basic Cardmember Spending (dollars)* $1,602 $1,545 3.7 $3,103 $2,967 4.6 Average Fee per Card (dollars)* $39 $43 (9.3) $39 $44 (11.4) Travel Sales $4.5 $4.0 10.5 $8.4 $7.6 9.8 Travel Commissions and Fees/Sales** 8.5% 9.1% - 8.5% 9.0% - Travelers Cheque Sales $6.6 $6.7 (0.8) $11.7 $12.0 (2.0) Average Travelers Cheques Outstanding $6.0 $6.1 (2.2) $5.9 $5.9 (0.8) Owned and Managed Charge Card Receivables: Total Receivables $22.2 $20.6 7.9 $22.2 $20.6 7.9 90 Days Past Due as a % of Total 3.3% 3.7% - 3.3% 3.7% - Loss Reserves (millions) $976 $1,054 (7.4) $976 $1,054 (7.4) % of Receivables 4.4% 5.1% - 4.4% 5.1% - % of 90 Days Past Due 134% 138% - 134% 138% - Net Loss Ratio 0.50% 0.51% - 0.50% 0.51% - Owned and Managed U.S. Cardmember Lending: Total Loans $13.2 $10.5 25.3 $13.2 $10.5 25.3 Past Due Loans as a % of Total: 30-89 Days 2.5% 2.3% - 2.5% 2.3% - 90+ Days 1.1% 0.9% - 1.1% 0.9% - Loss Reserves (millions): Beginning Balance $533 $483 10.2 $488 $443 10.0 Provision 198 119 66.1 399 289 38.1 Net Charge-Offs/Other (197) (134) 46.6 (353) (264) 33.6 -------------- --------------- Ending Balance $534 $468 14.1 $534 $468 14.1 ============== =============== % of Loans 4.1% 4.5% - 4.1% 4.5% - % of Past Due 113% 135% - 113% 135% - Average Loans $13.2 $10.5 25.7 $13.0 $10.3 25.8 Net Write-Off Rate 6.0% 5.2% - 5.5% 5.2% - Net Interest Yield 8.7% 8.9% - 8.7% 9.2% - </TABLE> Note: Owned and managed Cardmember receivables and loans include securitized assets not reflected in the consolidated balance sheet. * Computed excluding Cards issued by strategic alliance partners and independent operators as well as business billed on those Cards. ** Computed from information provided herein. 8
Travel Related Services Travel Related Services' (TRS) net income rose 10 percent for the three and six month periods ended June 30, 1997. Net revenues increased 7 percent in both periods, primarily due to higher worldwide billed business and Cardmember loans outstanding. The growth in revenues also includes a benefit from increased recognition of recoveries on abandoned property related to the Travelers Cheque business, which was largely offset by higher investment spending on business building initiatives. Excluding the effect of securitizing a portion of the card portfolios and a reduction in investments related to the consolidation of certain legal entities within the consumer lending business, revenues rose 9 percent in the three and six months ended June 30, 1997. The improvement in discount revenue resulted from higher billed business, which reflects a greater number of cards outstanding and spending per Cardmember, and stable average discount rates. The average discount rate for the second quarter remained flat from the prior year and declined by two basis points for the six month period ended June 30, 1997 compared with the same period in the prior year. Changes in the mix of billed business, the continued shift to electronic data capture, volume related pricing discounts, and selective repricing initiatives will probably result in some discount rate erosion over time.<F1> Cardmember spending increased in part due to the benefits of rewards programs and expanded merchant coverage. The growth in cards is largely attributable to the introduction of new consumer and small business credit card products, consistent with the Company's strategy of building its lending portfolio through the issuance of low- and no-fee credit cards. This strategy and a decline in consumer charge cards outstanding led to a 3 percent decrease in net card fees in both periods. Interest and dividends fell primarily as a result of a reduction in investments related to the consolidation of certain legal entities within the consumer lending business; this amalgamation resulted in a decrease in both interest and dividends and other interest expense by approximately $38 million and $74 million in the three and six months ended June 30, 1997, respectively. Lending net finance charge revenue, excluding the second quarter 1996 loan securitization, rose by 23 percent and 19 percent for the three and six months ended June 30, 1997, respectively. This increase was primarily due to a 26 percent growth in worldwide lending balances. The expansion in balances was partially offset by lower net interest yields on the U.S. portfolio, due to changes in the product mix and a slightly higher proportion of the portfolio being subject to introductory rates. The charge card provision for losses declined primarily in the small business card and Latin American portfolios. The lending provision for losses rose, reflecting both higher outstanding loans and loss rates. Human resource expense increased due to more employees, merit increases and growth in contract programmer costs for technology related projects. Other operating expenses rose due to the cost of Cardmember loyalty programs and business growth. _______________________ <F1> This is a forward looking statement which is subject to risks and uncertainties. Important factors that could cause results to differ materially from the forward looking statement include, among other things, unanticipated changes in TRS' mix of business and competitive pressures. 9
<TABLE> <CAPTION> Travel Related Services Liquidity and Capital Resources Selected Balance Sheet Information ---------------------------------- (Unaudited) (Amounts in billions, except percentages) June 30, December 31, Percentage June 30, Percentage 1997 1996 Inc/(Dec) 1996 Inc/(Dec) -------- ------------ ----------- -------- ---------- <S> <C> <C> <C> <C> <C> Accounts Receivable, net $18.9 $19.5 (3.1)% $18.3 3.2 % Investments $6.7 $6.5 3.8 $9.0 (25.8) U.S. Cardmember Lending Balances $12.2 $11.7 3.6 $9.5 28.0 Total Assets $44.7 $43.1 3.9 $44.3 0.9 Travelers Cheques Outstanding $6.5 $5.8 10.6 $6.6 (2.2) Short-term debt $18.4 $18.4 0.1 $16.7 10.6 Long-term debt $5.6 $5.0 10.7 $5.2 6.8 Total Liabilities $39.7 $38.4 3.5 $39.4 0.8 Total Shareholder's Equity $5.0 $4.7 7.0 $4.9 1.6 Return on Average Equity* 27.0% 25.6% - 24.8% - Return on Average Assets* 3.0% 2.8% - 2.6% - </TABLE> * Excluding the effect of SFAS #115 and the fourth quarter 1996 restructuring charge of $125 million after-tax. Growth in the U.S. Small Business and Consumer Lending portfolios led to an increase in Cardmember loans since year end. During 1997 management responsibility for approximately $300 million of consumer loans sold through American Express Financial Advisors (AEFA) was transferred to that unit; therefore, the balances are no longer reported within TRS. The decline in investments resulted from a change in investment strategy related to the consolidation of certain legal entities within the U.S. Consumer Lending business and was offset by a corresponding decrease in other liabilities. In May 1997, American Express Credit Corporation (Credco), a wholly owned subsidiary of TRS, issued and sold, exclusively outside the United States to non-U.S. persons, $400 million Floating Rate Notes due 2002 which are listed on the Luxembourg Stock Exchange. Subsequent to June 30, 1997, Credco issued and sold an additional $400 million of 6.5% Fixed Rate Notes due 2002 under the same Euro Medium Term Notes program. In July 1997, $500 million Class A Floating Rate Accounts Receivable Trust Certificates matured from the charge card securitization portfolio. 10
<TABLE> <CAPTION> American Express Financial Advisors Results of Operations For The Three and Six Months Ended June 30, 1997 and 1996 Statement of Income ------------------- (Unaudited) (Amounts in millions, except percentages and where indicated) Three Months Ended Six Months Ended June 30, June 30, ----------- Percentage ----------- Percentage 1997 1996 Inc/(Dec) 1997 1996 Inc/(Dec) ----------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Revenues: Investment Income $586 $562 4.4 % $1,156 $1,131 2.2 % Management and Distribution Fees 360 296 21.5 691 576 20.1 Other Revenues 197 159 23.6 380 313 21.1 ------------ ---------------- Total Revenues 1,143 1,017 12.4 2,227 2,020 10.2 ------------ ---------------- Expenses: Provision for Losses and Benefits: Annuities 304 298 2.3 610 595 2.5 Insurance 113 102 11.3 217 210 3.4 Investment Certificates 58 48 19.6 99 101 (2.2) ------------ ---------------- Total 475 448 6.2 926 906 2.2 Human Resources 294 252 16.7 594 498 19.1 Other Operating Expenses 109 86 26.0 205 188 9.8 ------------ ---------------- Total Expenses 878 786 11.8 1,725 1,592 8.4 ------------ ---------------- Pretax Income 265 231 14.5 502 428 17.2 Income Tax Provision 82 78 4.3 162 145 11.2 ------------ ---------------- Net Income $183 $153 19.7 $340 $283 20.3 ============ ================ Selected Statistical Information -------------------------------- Revenues, Net of Provisions $668 $570 17.2 % $1,301 $1,113 16.8 % Life Insurance in Force (billions) $71.0 $63.0 12.6 $71.0 $65.0 12.6 Deferred Annuities in force (billions) $38.6 $34.2 12.8 $38.6 $34.2 12.8 Assets Owned and/or Managed (billions): Assets managed for institutions $39.3 $34.8 12.9 $39.3 $34.8 12.9 Assets owned and managed for individuals: Owned Assets: Separate Account Assets 21.1 16.7 26.1 21.1 16.7 26.1 Other Owned Assets 35.2 33.0 6.8 35.2 33.0 6.8 ------------- -------------- Total Owned Assets 56.3 49.7 13.3 56.3 49.7 13.3 Managed Assets 66.7 54.0 23.6 66.7 54.0 23.6 ------------- -------------- Total $162.3 $138.5 17.2 $162.3 $138.5 17.2 ============= ============== Market Appreciation (Depreciation) During the Period: Owned Assets: Separate Account Assets $2,260 $390 - $1,716 $848 - Other Owned Assets $265 $(131) - $21 $(414) - Total Managed Assets $9,233 $2,254 - $7,609 $3,419 - Sales of Selected Products: Mutual Funds $4,091 $3,762 8.8 $8,120 $7,332 10.8 Annuities $947 $1,125 (15.8) $1,817 $2,280 (20.3) Investment Certificates $285 $186 53.4 $475 $372 47.0 Life and Other Insurance Sales $100 $113 (11.9) $203 $209 (2.8) Number of Financial Advisors 8,476 7,997 6.0 8,476 7,997 6.0 Fees From Financial Plans (thousands) $15,227 $11,584 31.4 $28,563 $23,207 23.1 Product Sales Generated from Financial Plans as a Percentage of Total Sales 66.3% 62.9% - 65.4% 63.0% - </TABLE> 11
American Express Financial Advisors American Express Financial Advisors' (AEFA) revenue and earnings growth for the three and six month periods ended June 30,1997 was due to increased management fees from higher managed asset levels, including separate account assets, and greater distribution fees driven by mutual fund sales levels. The growth in managed assets was caused by market appreciation and net sales since the prior year periods. The results for the first half of 1997 are consistent with a shift in the mix of product sales from fixed-return to fee generating variable return products. The increase in investment income reflects higher asset levels, partly offset by lower investment yields compared with the prior year periods. Other revenues rose primarily as a result of higher life insurance premiums, and financial planning and tax preparation fees. The provision for annuity benefits increased reflecting higher business in force, partially offset by a lower accrual rate. The provision for insurance benefits increased with higher policies in force and unfavorable claims experience in life insurance. The provision for investment certificates rose during the second quarter compared with last year reflecting the impact of a rising stock market on certificate products tied to a market index. However, for the six month period ended June 30, 1997 the provision for certificates fell slightly compared with the year ago period, due to lower certificates in force and accrual rates. Human resources expenses were higher as a result of volume-driven growth in advisors' compensation and rising home office expenses. The higher home office costs resulted from growth in the technology and client service organizations, and recent acquisitions. The increase in other operating expenses primarily reflects the cost of hedging activities designed to reduce the effect of stock market volatility on management fees. The lower effective tax rate in 1997 is due to tax credits from low income housing investments. These tax benefits are expected to continue in future periods. 12
American Express Financial Advisors Liquidity and Capital Resources American Express Financial Advisors ----------------------------------- Selected Statistical Information -------------------------------- (Unaudited) (Amounts in billions, except percentages) June 30, December 31, Percentage June 30, Percentage 1997 1996 Inc/(Dec) 1996 Inc/(Dec) ------- ---------- ---------- ------- --------- Investments $29.3 $28.6 2.5% $27.9 5.2% Separate Account Assets $21.1 $18.5 13.6 $16.7 26.1 Total Assets $56.3 $52.7 6.9 $49.7 13.3 Client Contract Reserves $29.4 $28.9 1.5 $28.3 3.9 Total Liabilities $53.0 $49.5 7.0 $46.8 13.1 Total Shareholder's Equity $3.4 $3.2 5.4 $2.9 15.4 Return on Average Equity* 21.2% 20.4% - 19.9% - * Excluding the effect of SFAS #115. AEFA's total assets rose from year end as a result of net sales, market appreciation and the transfer of approximately $300 million of consumer loans to AEFA from TRS. 13
<TABLE> <CAPTION> American Express Bank Results of Operations For The Three and Six Months Ended June 30, 1997 and 1996 Statement of Income ------------------ (Unaudited) (Amounts in millions, except percentages) Three Months Ended Six Months Ended June 30, June 30, -------------- Percentage ---------- Percentage 1997 1996 Inc/(Dec) 1997 1996 Inc/(Dec) ------------------------- -------------------- <S> <C> <C> <C> <C> <C> <C> Net Revenues: Interest Income $226 $204 10.6 % $444 $413 7.5 % Interest Expense 148 134 10.0 284 267 6.1 ----------- ------------ Net Interest Income 78 70 11.5 160 146 10.0 Commissions, Fees and Other Revenues 54 49 10.5 107 99 7.3 Foreign Exchange Income 21 20 2.7 40 40 0.2 ----------- ------------ Total Net Revenues 153 139 9.9 307 285 7.7 ----------- ------------ Provision for Credit Losses 1 4 (80.7) 3 8 (64.3) ----------- ------------ Expenses: Human Resources 58 54 9.6 117 110 6.3 Other Operating Expenses 61 59 2.3 122 116 5.5 ----------- ------------ Total Expenses 119 113 5.8 239 226 5.9 ----------- ------------ Pretax Income 33 22 50.4 65 51 27.6 Income Tax Provision 12 8 59.3 24 18 33.5 ----------- ------------ Net Income $21 $14 45.6 $41 $33 24.3 =========== ============ </TABLE> The improvement in American Express Bank's (the Bank) earnings for the three and six month periods ended June 30, 1997 primarily reflects higher revenues due to an increase in net interest income on loans and investments, a rise in correspondent, commercial and consumer fees and improved global trading results. This increase was partially offset by growth in operating expenses, primarily in systems technology. 14
<TABLE> <CAPTION> American Express Bank Liquidity and Capital Resources Selected Statistical Information -------------------------------- (Unaudited) (Amounts in billions, except percentages and where indicated) June 30, December 31, Percentage June 30, Percentage 1997 1996 Inc/(Dec) 1996 Inc/(Dec) ------- ----------- ---------- -------- ---------- <S> <C> <C> <C> <C> <C> Investments $2.9 $2.8 0.6 % $2.1 35.3 % Total Loans $6.4 $5.9 9.2 $5.5 17.2 Reserve for Credit Losses (millions) $130 $117 11.4 $113 14.8 Reserves as a Percentage of Total Loans 2.0% 2.0% - 2.1% - Total Nonperforming Loans (millions) $80 $35 # $38 # Other Real Estate Owned (millions) $4 $36 (89.2) $48 (91.9) Total Assets $13.1 $12.3 6.5 $11.5 14.4 Deposits $9.0 $8.7 4.2 $7.8 15.0 Total Liabilities $12.3 $11.6 6.8 $10.7 14.8 Total Shareholder's Equity (millions) $814 $799 1.9 $755 7.8 Risk-Based Capital Ratios: Tier 1 8.4% 8.8% - 9.1% - Total 11.3% 12.5% - 12.9% - Leverage Ratio 5.5% 5.6% - 5.8% - Return on Average Assets* 0.65% 0.55% - 0.49% - Return on Average Common Equity* 11.05% 8.89% - 7.83% - * Excluding the effect of SFAS #115. # Denotes variance of more than 100% </TABLE> The Bank's total assets rose from year end primarily due to commercial, correspondent and consumer loans. Non-performing loans increased from unsustainably low levels due to changes in classifications; other real estate owned decreased primarily from a property sale. The loan loss reserve benefited from an $18 million loan recovery on Peruvian LDC debt during the first quarter of 1997. 15
Corporate and Other Corporate and Other reported net expenses of $39 million and $77 million for the three and six month periods ended June 30, 1997, which was slightly above the same periods a year ago. The first quarter of 1996 included a $46 million pretax benefit from a revenue payout by Travelers Inc. related to the sale of the Shearson Lehman Brothers Division in 1993 which was also fully offset by costs associated with the Company's business initiatives. 1996 was the last year the Company was eligible to receive this revenue payout. 16
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 June 30, 1997 and the related consolidated statements of income for the three and six-month periods ended June 30, 1997 and 1996, and consolidated statement of cash flows for the six-month periods ended June 30, 1997 and 1996. 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, 1996, 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 7, 1997, 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, 1996 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 August 13, 1997 17
PART II. OTHER INFORMATION AMERICAN EXPRESS COMPANY Item 4. Submission of Matters to a Vote of Securities Holders For information relating to the matters voted upon at the registrant's annual meeting for shareholders held on April 28, 1997, see Item 4 on page 18 of the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, which is incorporated herein by reference. 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 29, 1997, Item 5, relating to the registrant's earnings for the quarter ended June 30, 1997. 18
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: August 14, 1997 By /s/ Richard Karl Goeltz - ---------------------- -------------------------- Richard Karl Goeltz Vice Chairman and Chief Financial Officer Date: August 14, 1997 By /s/ Daniel T. Henry - ---------------------- ---------------------- Daniel T. Henry Senior Vice President and Controller (Chief Accounting Officer) 19
EXHIBIT INDEX The following exhibits are filed as part of this Quarterly Report: Exhibit Description 3.1 Registrant's Restated Certificate of Incorporation (incorporated by reference to Exhibit 4.1 of the registrant's Form S-3, dated July 31, 1997 (Commission File No. 333-32525)). 10.1 American Express Directors Stock Plan. 10.2 American Express Company Deferred Compensation Plan for Directors, as amended effective July 28, 1997. 12 Computation in Support of Ratio of Earnings to Fixed Charges. 15 Letter re Unaudited Interim Financial Information. 27 Financial Data Schedule. E-1