FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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 No. 1-7657
American Express Company
(Exact name of registrant as specified in its charter)
New York 13-4922250
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
World Financial Center
200 Vesey Street
New York, New York 10285
(Address of principal executive offices) (Zip code)
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Registrant's telephone number, including area code: (212) 640-2000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Shares (par value $.60 per Share) New York Stock Exchange
Boston Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
Common shares of the registrant outstanding at March 25, 1998 were 465,067,374. The aggregate market value, as of March 25, 1998, of voting shares held by non-affiliates of the registrant was approximately $44.2 billion. (Aggregate market value estimated solely for the purposes of this report. This shall not be construed as an admission for the purposes of determining affiliate status.)
TABLE OF CONTENTS
Form 10-K
Item Number
Part I Page
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1. Business
Travel Related Services ......................................... 1
American Express Financial Advisors ............................. 12
American Express Bank ........................................... 19
Corporate and Other ............................................. 27
Foreign Operations .............................................. 28
Important Factors Regarding Forward-Looking Statements .......... 29
Industry Segment Information and Classes of Similar Services .... 32
Executive Officers of the Company ............................... 32
Employees ....................................................... 35
2. Properties ......................................................... 35
3. Legal Proceedings .................................................. 36
4. Submission of Matters to a Vote of Security Holders ................ 37
Part II
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5. Market for Company's Common Equity and Related Stockholder Matters.. 37
6. Selected Financial Data ............................................ 37
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ....................................... 37
7A. Quantitative and Qualitative Disclosures About Market Risk ......... 38
8. Financial Statements and Supplementary Data ........................ 38
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ............................................ 38
Part III
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10. Directors and Executive Officers of the Company ..................... 38
11. Executive Compensation .............................................. 38
12. Security Ownership of Certain Beneficial Owners and Management ...... 38
13. Certain Relationships and Related Transactions ...................... 38
Part IV
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14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .... 39
Signatures ....................................................... 40
Index to Financial Statements .................................... F-1
Consent of Independent Auditors .................................. F-2
Exhibit Index .................................................... E-1
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PART I
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ITEM 1. BUSINESS
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American Express Company (including its subsidiaries, unless the context indicates otherwise, the "Company") was founded in 1850 as a joint stock association and was incorporated under the laws of the State of New York in 1965. The Company is primarily engaged in the business of providing travel related services, financial advisory services and international banking services throughout the world.*
American Express Travel Related Services Company, Inc. (including its subsidiaries, unless the context indicates otherwise, "TRS") provides a variety of products and services, including, among others, the American Express(R) Card, the Optima(R) Card and other consumer and corporate lending products, the American Express(R) Travelers Cheque (the "Travelers Cheque" or the "Cheque") and other stored value products, business expense management products and services, corporate and consumer travel products and services, magazine publishing, and merchant transaction processing, point of sale and back office products and services. TRS offers products and services in approximately 160 countries. In certain countries, partly owned affiliates and independent operators offer some of these products and services under licenses from TRS.
TRS' business as a whole has not experienced significant seasonal fluctuation, although Travelers Cheque sales and Travelers Cheques outstanding tend to be greatest each year in the summer months, peaking in the third quarter, and Card billed business tends to be moderately higher in the fourth quarter than in other quarters.
In the third quarter of 1997, management of the Travelers Cheque unit was moved from TRS' Stored Value Group to the Chief Executive Officer of American Express Bank, the head of the Company's international banking business. The Company believes this will align better its travelers check business with American Express Bank's strengths in the overseas markets, and improve its ability to take advantage of synergies that can be realized by closer cooperation between the Travelers Cheque unit and American Express Bank. In accordance with Statement of Financial Accounting Standards ("FAS") No. 131, which redefines how operating segments are determined and is effective for fiscal years beginning after December 15, 1997, the Company's Travelers Cheque operation, which historically has been included in this Travel Related Services segment, will be reported in the same segment with American Express Bank commencing in the first quarter of 1998.
* Various forward-looking statements are made in this 10-K Annual Report, which generally include the words "believe," "expect," "anticipate," "optimistic," "intend," "aim," "will," and similar expressions. Certain factors that may cause actual results to differ materially from these forward-looking statements, as well as affect the Company's ability to achieve its goals referred to herein, are discussed on pages 29-31.
TRS places significant importance on its trademarks and service marks and diligently protects its intellectual property rights around the world.
CONSUMER CARD SERVICES GROUP
TRS offers individual consumers charge cards such as the American Express(R) Card, the American Express(R) Gold Card and the Platinum Card(R), revolving credit cards such as the Optima(R) Card and the American Express Credit Card, and a variety of cards sponsored by and co-branded with other corporations and institutions (collectively, "Card" or "Cards"). Cards are currently issued in 45 currencies (including cards issued by independent operators) and permit Cardmembers to charge purchases of goods or services in the United States and in most countries around the world at establishments that have agreed to accept them, and to access cash through automated teller machines at approximately 180,000 locations worldwide.
Charge Cards, which are marketed in the United States and many other countries and carry no pre-set spending limit, are primarily designed as a method of payment and not as a means of financing purchases of goods or services. Charges are approved based on a variety of factors including a Cardmember's account history, credit record and personal resources. Except in the case of extended payment plans (such as Sign & Travel(R) and the Special Purchase(SM) Accounts), Charge Cards require payment by the Cardmember of the full amount billed each month, and no finance charges are assessed. Charge Card accounts that are past due are subject, in most cases, to a delinquency assessment and, if not brought to current status, subject to cancellation.
The Optima Card comprises a family of revolving credit cards marketed in the United States and other countries. TRS makes a variety of Optima Cards with different payment terms, grace periods and rate structures available to customers. TRS also issues revolving credit cards which do not carry the Optima brand, primarily outside the United States.
American Express Centurion Bank ("Centurion Bank") issues the Optima Card in the United States and owns most of the receivables arising from the use of these Cards. In addition, Centurion Bank extends lines of credit in association with certain Charge Cards and offers unsecured loans to Cardmembers in connection with their Sign & Travel Account and Special Purchase Account. The Sign & Travel Account gives qualified United States Cardmembers the option of extended payments for airline, cruise and certain travel charges that are purchased with the Charge Card. The Special Purchase Account offers qualified United States Cardmembers the option of extending payment for certain charges on the Charge Card in excess of a specified amount. In several markets outside the United States, other subsidiaries of TRS engage in consumer lending activities, subject to local regulations.
Centurion Bank's deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") up to $100,000 per depositor. Centurion Bank is a Utah-chartered industrial loan
company regulated, supervised and regularly examined by the Utah Department of Financial Institutions and the FDIC.
Cardmembers generally are charged an annual fee, which varies based on the type of card, the number of cards for each account, the currency in which the card is denominated and the country of residence of the Cardmember. Many Optima Cards are offered with no annual fee. Each Cardmember must meet standards and criteria for creditworthiness which are applied through a variety of means both at the time of initial solicitation or application and on an ongoing basis during the Card relationship. The Company uses sophisticated credit models and techniques in its risk management operations.
Cardmembers have access to a variety of special services and programs, depending on the type of card they have, including: the Membership Rewards(R) Program, Global Assist(R) Hotline, Buyer's Assurance Protection Plan, Car Rental Loss and Damage Insurance Plan, Travel Accident Insurance Plan and Purchase Protection Plan. Gold Card Cardmembers in the United States have access to certain additional services, including a Year End Summary of Charges Report. The Platinum Card, offered to certain Cardmembers in the United States and certain other countries, provides access to additional and enhanced travel, financial, insurance, personal assistance and other services. Under the Express Cash program, enrolled Cardmembers can obtain cash or American Express Travelers Cheques 24 hours a day from automated teller machines at participating financial institutions worldwide. Personal, Gold and Platinum Cardmembers receive the Customer Relationship Statement, which is used to communicate special offers for products and services of both merchants and the Company.
American Express Credit Corporation and its subsidiaries ("Credco") purchase most Charge Card receivables arising from the use of cards issued in the United States and in designated currencies outside the United States. Credco finances the purchase of receivables principally through the issuance of commercial paper and the sale of medium- and long-term notes. Centurion Bank finances its revolving credit receivables through the sale of short- and medium-term notes and certificates. TRS and Centurion Bank also fund receivables through asset securitization programs. The cost of funding Cardmember receivables is a major expense of Card operations.
The Charge Card and consumer lending businesses are subject to extensive regulation in the United States under a number of federal laws and regulations, including the Equal Credit Opportunity Act, which generally prohibits discrimination in the granting and handling of credit; the Fair Credit Reporting Act, which, among other things, regulates use by creditors of consumer credit reports and credit prescreening practices and requires certain disclosures when an application for credit is rejected; the Truth in Lending Act, which, among other things, requires extensive disclosure of the terms upon which credit is granted; the Fair Credit Billing Act, which, among other things, regulates the manner in which billing inquiries are handled and specifies certain billing requirements; and the Fair Credit and Charge Card Disclosure Act, which mandates certain disclosures on credit and charge card applications. Federal legislation also regulates abusive debt collection practices. In addition, a number of states and
foreign countries have similar consumer credit protection and disclosure laws. The application of federal and state bankruptcy and debtor relief laws affect the Company to the extent such laws result in amounts owed being classified as delinquent and/or charged off as uncollectible. The laws and regulations discussed above have not had, and are not expected to have, a material adverse effect on the Charge Card and consumer lending businesses either in the United States or on a worldwide basis. Centurion Bank is subject to a variety of state and federal laws and regulations applicable to FDIC-insured, state-chartered financial institutions. Changes in such laws and regulations or judicial interpretation thereof could impact the manner in which Centurion Bank conducts its business.
In 1997, TRS introduced a number of new revolving credit card products and features to meet the needs of specific customer segments and to increase consumer loans outstanding, with a particular focus on international markets (see TRS International below). TRS plans to continue to offer additional revolving credit products. At the same time, TRS will seek to deepen its relationships with existing Cardmembers, and enhance its focus on the importance of the Charge Card to the overall franchise and brand strength. TRS is continuing to make a significant investment in its card processing system to allow faster introduction of products.
Over the past few years, TRS has expanded its Membership Rewards program (formerly the Membership Miles(R) travel rewards program) to include a broader range of travel rewards and retail merchandise and gourmet gifts. Membership Rewards is an important part of TRS' strategy to increase Cardmember spending and loyalty. Membership Rewards is one of the industry's most popular rewards programs with nearly seven million enrollees worldwide. Enrollees now represent a significant portion of Cardmember spending. TRS makes payments to merchants pursuant to contractual arrangements when Cardmembers redeem their Membership Rewards points and establishes reserves in connection with estimated future redemptions. Due to higher charge volumes and reward redemption rates, the cost of Membership Rewards has increased over the past several years. In 1997, TRS took initial steps to reduce the overall cost of the program, and will continue to look for ways to operate it more efficiently.
In May 1996, to increase the attractiveness of the American Express network through additional charge volume, merchant coverage and American Express-branded cards outstanding, the Company invited banks and other qualified institutions in the United States and abroad to issue cards that would bear an American Express logo and would be accepted at all merchant locations that accept the American Express Card. In 1997, the Company established a separate internal organization to manage its network business, bringing increased focus and resources to this area. During 1997, TRS signed 10 agreements with new partners outside the United States, adding to the 17 network arrangements already in place (see TRS International below). However, because of rules and policies of VISA USA, Inc. and MasterCard International, Incorporated ("MasterCard") in the United States calling for expulsion of members who issue American Express-branded cards, no banks in the United States have been willing to forfeit membership in both VISA USA, Inc. and MasterCard to
issue cards on the American Express network. These rules and policies are currently under investigation by the Antitrust Division of the United States Department of Justice.
TRS encounters substantial and increasingly intense competition worldwide with respect to the Card business. As a Card issuer, TRS is faced with competition from other financial institutions (such as MBNA, Citicorp and Bank of America) that are members of VISA International Service Association, Inc. or VISA USA, Inc. (collectively, "VISA") and/or MasterCard and that issue general purpose cards, primarily under revolving credit plans, on one or both of those systems. As a network, TRS also encounters intense competition from card systems like VISA, MasterCard, Diners Club(R), Morgan Stanley Dean Witters' NOVUS(SM) Network and JCB. TRS encounters some very limited competition from businesses that issue their own cards or otherwise extend credit to their customers, such as retailers and airline associations, although these products are not generally substitutes for TRS' Card products due to their limited acceptance. Numerous United States banks issuing credit cards under revolving credit plans charge annual fees in addition to interest charges where permitted by state law. However, the issuer of the Discover Card on the NOVUS Network, as well as many issuers of VISA cards and MasterCard cards, generally charge no annual fees.
Competing card issuers offer a variety of products and services to attract cardholders including premium cards with enhanced services or lines of credit, airline frequent flyer program mileage credits and other reward or rebate programs, "teaser" promotional rates for both card acquisition and balance transfers, and co-branded arrangements with partners that offer benefits to cardholders. Recent industry trends include mergers and consolidations among banking and financial services companies, which have resulted in some issuers becoming larger, with greater resources, economies of scale and potential brand recognition to compete; and the increased use of debit cards for point of sale purchases as many banks have replaced ATM cards with general purpose debit cards bearing either the VISA or MasterCard logo.
The principal competitive factors that affect the Card business are (i) the quality of the services and products, including rewards programs, provided to Cardmembers and participating establishments; (ii) the number, spending characteristics and credit performance of Cardmembers; (iii) the quantity and quality of the establishments that will accept a card; (iv) the cost of cards to Cardmembers and of card acceptance to participating establishments; (v) the terms of payment available to Cardmembers and participating establishments; (vi) the nature and quality of expense management data capture and reporting capability; (vii) the number and quality of other payment instruments available to Cardmembers and participating establishments; (viii) the success of targeted marketing and promotional campaigns; and (ix) reputation and brand recognition.
MERCHANT SERVICES
Over the past several years, TRS' Establishment Services Group has focused on expanding the TRS network of merchants and increasing merchant acceptance, both through internal personnel and third party sales agents. In 1997, TRS added significantly more merchants to its network in industries such as supermarkets, cable television, health care, charities and communications -- industries that had traditionally not accepted Cards. The merchant network in the United States can now accommodate about 93 percent of American Express Cardmembers' general purpose plastic spending, up from 91 percent in 1996. TRS' objective is to achieve merchant coverage that is at virtual parity with bankcard networks.
As a merchant processor, TRS accepts and processes from each participating establishment the charges arising from Cardmember purchases at a discount that varies with the type of participating establishment, the charge volume, the timing and method of payment to the establishment, the method of submission of charges and, in certain instances, the average charge amount and the amount of information provided. TRS generally charges higher discount rates to participating establishments than its competitors. As a result, TRS has encountered complaints from some establishments, as well as suppression of the card's use, and continues to devote significant resources to respond to these issues.
TRS focuses on understanding and addressing key factors that influence merchant satisfaction, and on improving communication to merchants of the value of American Express Card acceptance. TRS has adjusted its discount structure in certain industries and locations. In addition, the Establishment Services Group has concentrated on developing products and services that add value and deepen the relationship with merchants to enhance the value of card acceptance to merchants. In 1997 TRS expanded SE Workstation, a software product designed to assist merchants with handling disputed transactions and back-office reconciliation, and launched SE Insight, which tracks Cardmember spending.
On a global basis, the American Express network manages the acquiring relationship with merchants, as well as the issuing side of the business. This "closed loop", which distinguishes the American Express network from the bankcard networks, provides a rich source of information at both ends of the Card transaction and enables TRS to provide targeted marketing opportunities for merchants and special offers to Cardmembers. In this regard, in 1997, TRS began to implement the CustomExtras and Express Rewards programs, which are used to make special offers of merchant products and services to Cardmembers in billing statements and at the point of sale at participating establishments, respectively.
STORED VALUE PRODUCTS
During 1997, TRS continued to develop new "stored value" products and platforms. These include both more traditional magnetic stripe card products as well as "smart cards," which are cards with computer chips that can both store and process data. The Company's mission in this area is to provide an alternative to cash with safe, convenient stored value payment systems that satisfy specific customer needs.
In 1997, TRS entered into a joint venture with Maritz Performance Improvement Company to develop and market corporate incentive reward products to businesses throughout the United States and abroad, including stored value prepaid card products and corporate gift cheques. In addition, TRS completed a stored value processing platform to be used in DisneyQuest, a 100,000 square foot entertainment facility being developed by The Walt Disney Company scheduled to open at Walt Disney World(R) Resort in 1998. In 1997, TRS sold American Express Special Teams, Inc.
The Company is also expanding the scope of its paper-based stored value products in the United States with the relaunch of Money Orders and Official Checks and by renewing its focus on the TravelFunds Direct product, which provides direct delivery of foreign bank notes and Travelers Cheques in selected markets.
The Company's core stored value product continues to be American Express Travelers Cheques, which are sold as a safe and convenient alternative to currency. The Travelers Cheque, a negotiable instrument, has no expiration date and is payable by the issuer in the currency of issuance when presented for the purchase of goods and services or for redemption. Travelers Cheques are issued in ten currencies both directly by the Company and through joint venture companies in which the Company generally holds an equity interest.
American Express Travelers Cheques are sold through a broad network of outlets worldwide, including travel offices of the Company, its affiliates and representatives, travel agents, commercial banks, savings banks, savings and loan associations, credit unions and other financial, travel and commercial businesses. The Company generally compensates selling agents for their sale of Travelers Cheques.
The proceeds from sales of Travelers Cheques issued by the Company are invested predominantly in highly-rated debt securities consisting primarily of intermediate- and long-term state and municipal obligations. The investment of these proceeds is regulated by various state laws.
Although the Company believes it is the leading issuer of travelers checks, its growth in sales of this product has been declining over the past few years. Consumers have a choice of many forms of competitive payment instruments, including other brands of travelers checks, cash, credit and debit cards and national and international automated teller machine networks. The Company expects increasing developments in stored value cards, smart cards and other electronic forms of payment, and plans to offer a range of new stored value and other products in the future to compete in this area. The principal competitive factors affecting the travelers check industry are (i) the availability to the consumer of other forms of payment; (ii) the amount of the fee charged to the consumer; (iii) the acceptability of the checks throughout the world as an alternative to currency; (iv) the compensation paid to, and frequency of settlement by, selling agents; (v) the accessibility of travelers check sales and refunds; (vi) the success of marketing and promotional campaigns; and (vii) the ability to service satisfactorily the check
purchaser if the checks are lost or stolen. Other competitive factors affecting
stored value products generally include (a) the quality and rate of
introduction of stored value products of competitors; (b) the rate of consumer
acceptance of new products; (c) the rate of deployment of card and payment
systems worldwide; (d) the global interoperability of card and payment systems;
(e) the relative ability of an issuer to control fraud; and (f) the development
of governmental regulations relating to stored value products.
CORPORATE SERVICES, SMALL BUSINESS SERVICES AND TRAVEL
TRS, through its Corporate Services Group and Small Business Services Group, is the leading provider to large and small businesses of expense management systems and travel services.
The Corporate Services Group ("CSG") provides Corporate Charge Card expense management services to large and mid-sized companies for travel and entertainment spending. Companies are offered these services through the American Express Corporate Card, which is a charge card issued to individuals through a corporate account established by their employer for business purposes.
CSG integrates the Corporate Card and business travel services in the United States and certain foreign countries to meet the competition for the business traveler and to provide client companies with a customized approach to managing their travel and entertainment budgets. Clients are provided an information package to plan, account for and control travel and entertainment expenses.
TRS continued to achieve substantial growth in Corporate Services in 1997; however, competitors have increased their focus on the Corporate Card business. For a discussion of competition relating to the Card business, see page 5.
CSG also continued to develop new electronic solutions to assist companies in managing costs by leveraging technologies. TRS launched American Express Interactive, or AXI(TM), an interactive business travel product jointly developed with Microsoft Corporation. TRS also partnered with Portable Software Corp. to bring an intranet-based, expense management software product to corporate clients. In 1997, the Company also launched a Corporate Services website for Corporate Cardmembers and travel customers.
TRS also provides American Express Government Card charge card services to United States federal employees who travel on official government business pursuant to an exclusive contract awarded in 1993 by the Federal Government. In February 1998, TRS was one of several successful bidders awarded master contracts for the Government Card, Government Purchasing Card and Government Fleet Card businesses, commencing in November 1998. At such time, each United States Government department will be able to contract for various services from the successful bidders. TRS is partnering with Wright Express, the country's leading provider of fleet cards, to bring such services to the United States Government. While it will no longer have an exclusive contract with the Federal Government, TRS views the new
award as an opportunity to expand its services to the Federal Government Purchasing Card and Fleet Card, which are not currently offered by TRS to the Federal Government. In 1997, TRS began piloting a smart card for the United States Marine Corps to help them improve travel and administrative procedures. The American Express Corporate Card is now the business expense management system used by many of the 50 states in the United States.
TRS also offers products to enhance client company management of non-travel and entertainment business expenses through the Corporate Purchasing Card. This product assists large companies in managing indirect spending including traditional purchasing administration expenses. Employees can use the Purchasing Card to order directly from manufacturers and suppliers, rather than using the traditional system of requisitions, purchase orders and invoices and retail store purchasing. TRS pays the suppliers and submits a single monthly billing statement to the company.
TRS, through its Small Business Services Group, is also a leading provider of expense management and certain other financial services to small businesses (i.e., less than 100 employees). TRS continued to achieve substantial growth in the Small Business Services Group in 1997. TRS has traditionally served the needs of small businesses with a portfolio of charge card products. In addition, TRS offers its customers a Privileged Rates program which includes specifically negotiated rates on services such as car rental, gasoline, hotel and office services. Early in 1998, Federal Express was added as a partner to this program to provide discounts on its shipping services. TRS also maintains a website, the American Express Small Business Exchange, through which it provides small business owners with relevant information, expert advice and customer servicing applications.
A key strategy for TRS is the creation of products to meet better the credit needs of small business owners. In 1997, TRS continued to expand its existing portfolio of revolving lending products with the introduction of the Corporate Optima(R) Platinum Card. TRS also provides access to unsecured lines of credit from $5,000 to $50,000 on a pre-approved basis to existing Charge Card clients. At the beginning of 1997, TRS launched an equipment financing joint venture with AT&T Capital, now owned by Newcourt Credit Group, for the purchase of business equipment by small businesses. In March 1998, TRS also entered into a marketing arrangement with, and purchased a minority investment in, Administaff Inc., which will offer the Company's small business clients human resource services on an outsourced basis.
During 1997, the American Express Tax and Business Services unit ("TBS") was moved from American Express Financial Corporation to the Small Business Services Group. TBS offers tax preparation, tax planning, preparation of non-attest financial statements, bookkeeping, business management, financing assistance, pension administration and other business consulting services to its client base in approximately 56 locations in 20 states.
TRS provides a wide variety of travel services to customers traveling for business and personal purposes and is the leading business travel provider worldwide. Travel services include trip planning, reservations, ticketing and other incidental services. In addition, for business travel accounts, TRS provides corporate travel policy consultation and management
information systems as well as group and incentive travel services. TRS receives commissions and fees for travel bookings and arrangements from airlines, hotels, car rental companies and other travel suppliers, service fees for certain transactions such as re-ticketing, courier services and complex itineraries and management and transaction fees from certain business travel accounts.
TRS' retail travel network of more than 1,700 owned and representative offices is important in supporting the American Express brand and providing customer service throughout the world. TRS continually evaluates this structure to determine the best way to leverage the strength of the travel network. At the same time, TRS is developing ways to better serve the travel consumer, including 1-800-type services, and Internet-based products and services.
More than 30,000 travel agents as well as direct sales by airlines and travel suppliers in the United States and abroad provide vigorous competition. This competition is mainly based on price, service, convenience and proximity to the customer and has increased due to several factors in recent years, including the acquisition of independent agencies by larger travel companies. Travel agency groups and consortia also have increased in size, enabling participating independent agencies to be more competitive in providing travel services to regional and national business travel clients and in other activities. In addition, many companies have established in-house business travel departments.
More recently, airlines have aggressively reduced their distribution expenses, including travel agency commissions, through techniques such as caps on commission fees and decreases in base commission rates. This has caused some independent agencies to go out of business. In response, TRS has accelerated its efforts to rely less on commissions by establishing more service fee-based client relationships. Consolidation of travel agencies is likely to continue as agencies seek to better serve national and multinational business travel clients and negotiate more effectively with the airlines with respect to computer reservation systems and compensation and pricing arrangements. Customers may increasingly seek alternative channels to make travel arrangements, such as on-line vendors or "ticketless" airline services that require booking directly with the airlines. It is also expected that travel agencies will continue to look for expense reduction opportunities.
TRS INTERNATIONAL
The TRS International group is focusing on expanding its proprietary card business and network alliances in key markets, expanding the network of merchants that accept American Express Cards and reducing expenses to enable more re-investment in its businesses.
In 1997, TRS continued to expand its alliances abroad. TRS signed or implemented Independent Operator Agreements with Komercni Banka (Czech Republic), Filanbanco (Ecuador), Banco Comercial Portugues (Portugal-Corporate Card), and Credomatic International Corporation (Central America) establishing them as independent Charge Card issuers and merchant acquirers and servicers in their respective markets. During the year,
Network Card Issuer Agreements were signed or implemented with Credit Saison (Japan), Excel Economico Administradora De Cartoes Ltda. (Brazil), Banco Popular (Puerto Rico), La Caixa (Spain), Sony Card Administradora Ltda. (Brazil) and National Westminster Bank, Plc (United Kingdom), under which these entities issue cards which carry an American Express logo and are accepted worldwide on the American Express merchant network. TRS also introduced a co-branded consumer card with the Air Miles Reward Program in Canada and co-branded Corporate Cards with Banco Bital in Mexico, Credit Lyonnais in France and Qantas Airways in Australia. At the end of 1997, TRS had alliances with banks and other organizations in 18 countries. TRS expects to continue establishing similar types of arrangements outside the United States. In 1997, TRS also had successful launches of its own proprietary charge and revolving credit cards, including a Corporate Card for Small Business in Australia and the Canadian Government Card.
In early 1998, TRS appointed Credit Suisse to be the issuer of American Express Cards in Switzerland, and also agreed to form a joint venture with the Credit Suisse Group which would assume responsibility for a number of credit card operations for all of the credit and charge cards issued by Credit Suisse.
In the fourth quarter of 1997, TRS experienced a slowdown in card billings and travel sales in Southeast Asia as a result of the economic turmoil in that region. While Southeast Asia does not represent a large portion of TRS' total revenues, it is important to the Company's international growth strategies.
OTHER PRODUCTS AND SERVICES
American Express Relationship Services ("AERS") sells products and services which address some of the information, access, security, financial and telecommunications needs of American Express customers. Fee Services offered to Cardmembers include travel, health and credit insurance products, credit card registry, credit bureau monitoring and telecommunication services. In addition, AERS offers merchandise directly to Cardmembers, who may elect to pay in installments with no finance charges. It also markets educational loans to students and parents.
In December of 1997, AERS was assigned responsibility for the Company's enterprise-wide interactive strategy, with a focus on providing internet and interactive capabilities to meet customers' needs. In 1997, the Company made minority investments in USA.net, an e-mail service providing customers with permanent e-mail addresses, and in InfoBeat, the world's largest personalized e-mail publisher. The Company also continued to participate in cross-industry initiatives such as the Secure Electronic Transaction Protocol (SET), a system to help ensure secure commerce on the Internet.
Currently through the Company's website, Cardmembers can access account
information, pay their American Express Card bills and apply for certain Card
products. Cardmembers may also utilize the Quicken(R) software offered by
Intuit(R) and Microsoft
Money(R), a software offered by Microsoft(R) Corporation, to view their American Express Card account information. TRS anticipates further developments in this area in 1998, which may include, among others, increasing use of card acceptance over the Internet.
TRS also publishes Travel & Leisure(R), Travel & Leisure-Golf(R), Food & Wine(R), Departures(TM) and Your Company(TM) magazines. Various financial products are also offered to Cardmembers through American Express Financial Direct (see page 13 for a discussion of this business).
American Express Financial Corporation ("AEFC") provides a variety of financial products and services to help individuals, businesses and institutions establish and achieve their financial goals. AEFC's products and services include financial planning and advice, insurance and annuities, a variety of investment products, including investment certificates, mutual funds and limited partnerships, investment advisory services, trust and employee plan administration services, personal auto and homeowner's insurance and retail securities brokerage services. At December 31, 1997, American Express Financial Advisors Inc. ("AXP Advisors"), AEFC's principal marketing subsidiary, maintained a nationwide financial planning field force of 8,776 persons.
DISTRIBUTION OF PRODUCTS AND SERVICES
AXP Advisors has three primary financial service distribution channels:
retail, consisting of financial advisors and direct access (via telephone, fax
and the Internet), institutional or workplace, and third party.
AXP Advisors' primary distribution channel is its corps of financial advisors. Through this channel, AXP Advisors offers financial planning and investment advisory services (for which it charges a fee) to individuals and business owners which address six basic areas of financial planning: financial position, protection, investment, income tax, retirement and estate planning, as well as asset allocation. AXP Advisors' financial advisors provide clients with recommendations from the more than 100 products distributed by subsidiaries and affiliates of AEFC as well as products of approved third parties.
First-year financial advisors are compensated primarily by salary; veteran financial advisors receive compensation based largely on sales. The compensation system is structured to encourage advisor retention and product persistency, while adding stability to the financial advisor's income. In attracting and retaining members of the field force, AXP Advisors competes with financial planning firms, insurance companies, securities broker-dealers and other financial institutions. During 1997, AXP Advisors continued a major initiative to improve advisor retention and client satisfaction. In connection with this program, AXP Advisors rolled out the Seminar Solutions program to advisors, a comprehensive series of 15 seminars targeted to various market segments. It also piloted Advisor Link(SM) which consists,
in part, of computer-based tools for advisors, including a new desktop financial planning system, e-mail and access to client data, and plans to implement such tools nationwide in 1998.
The use of a dedicated field force may entail higher initial costs than other forms of marketing, such as direct-response or independent agency distribution. However, AXP Advisors believes that its ability to provide broad-based integrated services on a relationship basis is a competitive advantage. At the same time, AXP Advisors recognizes that it needs to continue its efforts to increase the size of its dedicated field force due to its main competitors' larger sales forces and more developed alternative distribution channels.
To enhance its ability to retain advisors, AXP Advisors is working on plans to add choices to how advisors fit into the organization, with various levels of support, compensation and branding. This includes providing options to the current American Express-branded advisor network, with full support for advisors who choose it and a lower level of support (and higher commissions) for advisors with this preference; creating an independent broker/dealer network; and developing a salaried employee advisor network. AXP Advisors took a step toward implementing this plan when it acquired in March 1998 Securities America, an independent broker-dealer servicing 1,200 financial advisors.
During 1997 the American Express Financial Direct unit ("Financial Direct"), the Company's other financial services retail distribution channel, was moved into the AXP Advisors' organization to more closely align Financial Direct with AXP Advisors' product manufacturing capabilities and to provide Financial Direct's clients with alternative methods to access investment products, such as meeting with a financial advisor. To date, results for Financial Direct have been below the Company's expectations and below scale. Financial Direct uses direct marketing and on-line services to help prospects and clients select appropriate products and services. Products developed by AXP Advisors as well as other businesses of the Company and selected outside vendors are offered through Financial Direct. These products are distributed by American Express Service Corporation and other affiliates, and include payment, credit, insurance and investment products such as no load mutual funds from 12 leading fund families (including the Strategist Funds from American Express referred to below); money market funds; certificates of deposit; annuities; and brokerage services (over the Internet or through telephone or mail). The Financial Direct product line also offers Investment Rewards, which are points based upon the value of new deposits after opening an Investment Management Account that may be redeemed for airline travel and other rewards.
To enhance the institutional distribution channel, during 1997 AXP Advisors continued development of Workplace Financial Services, which provides financial products and services to employees at their places of work. It provides medium and large companies with money management services for defined benefit retirement plans, as well as employee education, 401(k) and other retirement plan services.
In addition to the retail and institutional distribution channels, AXP Advisors has a third-party channel, which distributes financial planning services and investment, insurance
and annuity products through alliances with financial institutions, such as banks and credit unions.
The move to multiple distribution channels has implications for how AXP Advisors services its clients. In order to provide clients with an integrated experience, it will be necessary to build the capability to recognize and service the client's entire relationship with the institution regardless of which channel or channels they have used. This will require, among other things, investment in both technology infrastructure and the service organization. In addition, the distribution of proprietary products outside of the traditional advisor channel will require, among other things, that the organization modify its product systems so they can interface according to industry standards with distributors outside of AXP Advisors.
AXP Advisors does business as a broker-dealer and investment advisor in all 50 states, the District of Columbia and Puerto Rico. AEFC and AXP Advisors are registered as broker-dealers and investment advisors regulated by the Securities and Exchange Commission ("SEC") and are members of the National Association of Securities Dealers, Inc. ("NASD"). AXP Advisors' financial advisors must obtain all required state and NASD licenses.
AXP Advisors has experienced, and believes it will continue to encounter, increased regulatory oversight of the securities and commodities industries at all levels. Among other powers, the SEC, self-regulatory organizations and state securities commissions may conduct administrative proceedings, which may result in censure, fine, the issuance of cease-and-desist orders or suspension or expulsion of a broker-dealer or an investment advisor and its officers or employees.
Competition in the financial services industry focuses primarily on cost, investment performance, yield, convenience, service, reliability, safety, distribution systems, reputation and brand recognition. Competition in this industry is very intense. AEFC competes with a variety of financial institutions such as banks, securities brokers, mutual funds and insurance companies. Some of these institutions are larger and more global than AEFC, and the current trend towards consolidation and globalization in the financial services industry may increase the number of these competitors. Many of these financial institutions also have products and services that increasingly cross over the traditional lines that previously differentiated one type of institution from another, thereby heightening competition in many of AEFC's markets. Reflecting the competitive environment, certain financial institutions have continued to seek to hire AXP Advisors' financial advisors.
AEFC's business does not as a whole experience significant seasonal fluctuations.
INSURANCE AND ANNUITIES
AEFC's insurance business is carried on primarily by IDS Life Insurance Company ("IDS Life"), a stock life insurance company organized under the laws of the State of Minnesota. IDS Life is a wholly-owned subsidiary of AEFC and serves all states except New York. IDS Life is the fifteenth largest life insurance company in the United States, with consolidated assets at December 31, 1997 of $53.0 billion. IDS Life Insurance Company of New York is a wholly-owned subsidiary of IDS Life and serves New York State residents. IDS Life also owns American Enterprise Life Insurance Company ("American Enterprise Life"), which issues fixed and variable dollar annuity contracts for sale through banks, thrift institutions and stock brokerages. American Centurion Life Assurance Company ("American Centurion Life") is an IDS Life subsidiary that offers fixed and variable annuities to American Express Cardmembers and others in New York, as well as fixed and variable annuities for sale through banks, thrift institutions and stock brokerages in New York. IDS Life owns American Partners Life Insurance Company ("American Partners Life"), which offers fixed and variable annuity contracts to American Express Cardmembers and others who reside in states other than New York.
IDS Life's products include whole life, universal life (fixed and variable), single premium life and term products (including waiver of premium and accidental death benefits), disability income and long-term care insurance. IDS Life is one of the nation's largest issuers of single premium and flexible premium deferred annuities on both a fixed and variable dollar basis. Immediate annuities are offered as well. IDS Life markets variable annuity contracts designed for retirement plans.
IDS Life's fixed deferred annuities guarantee a relatively low annual interest rate during the accumulation period (the time before annuity payments begin). However, the company has the option of paying a higher rate reflective of current market rates. IDS Life also offers a variable annuity, the "Flexible Portfolio Annuity," in which the purchaser may choose between mutual funds, with portfolios of common stocks, bonds, managed assets and/or short-term securities, and IDS Life's "general account" as the underlying investment vehicle. Over the past five years, IDS Life's variable annuity sales have had an increasing impact on total annuity sales.
IDS Life, American Enterprise Life and American Partners Life are subject to comprehensive regulation by the Minnesota Department of Commerce (Insurance Division), the Indiana Department of Insurance, and the Arizona Department of Insurance, respectively. American Centurion Life and IDS Life Insurance Company of New York are regulated by the New York State Department of Insurance. The laws of the other states in which these companies do business also regulate such matters as the licensing of sales personnel and, in some cases, the marketing and contents of insurance policies and annuity contracts. The purpose of such regulation and supervision is primarily to protect the interests of policyholders. Recently there has been an increased focus on the variable annuity business by regulators. Virtually all states mandate participation in insurance guaranty associations, which assess insurance companies in order to fund claims of policyholders of insolvent insurance
companies. On the federal level, there is periodic interest in enacting new regulations relating to various aspects of the insurance industry including taxation of variable annuities and life insurance policies, accounting procedures, as well as the treatment of persons differently because of sex, with respect to terms, conditions, rates or benefits of an insurance contract. New federal regulation in any of these areas could potentially have an adverse effect upon AEFC's insurance subsidiaries.
As a distributor of variable annuity and life insurance contracts, IDS Life is registered as a broker-dealer and is a member of the NASD. As investment manager of various investment companies, IDS Life is registered as an investment advisor under applicable federal requirements.
IDS Property Casualty Insurance Company ("IDS Property Casualty") provides personal auto and homeowner's coverage to clients in 29 states. This insurance is also underwritten by AMEX Assurance Company, a subsidiary of the Company, and reinsured by IDS Property Casualty. IDS Property Casualty is regulated by the Commissioner of Insurance for Wisconsin. AMEX Assurance Company, which also provides certain American Express Card related insurance products, is regulated by the Commissioner of Insurance for Illinois.
The insurance and annuity business is highly competitive, and IDS Life's competitors consist of both stock and mutual insurance companies. Competitive factors applicable to the insurance business include the interest rates credited to its products, the charges deducted from the cash values of such products, the financial strength of the organization and the services provided to policyholders.
INVESTMENT CERTIFICATES
IDS Certificate Company ("IDSC"), a wholly-owned subsidiary of AEFC, issues face-amount investment certificates. IDSC is registered as an investment company under the Investment Company Act of 1940. IDSC currently offers eight types of face-amount certificates. Owners of IDSC certificates are entitled to receive, at maturity, a stated amount of money equal to the aggregate investments in the certificate plus interest at rates declared from time to time by IDSC. In addition, persons owning one type of certificate may have their interest calculated in whole or in part based on any upward movement in a broad-based stock market index. The certificates issued by IDSC are not insured by any government agency. AEFC acts as investment manager for IDSC. IDSC's certificates are sold primarily by AXP Advisors' field force. Certificates are also marketed by American Express Bank Ltd. to its foreign customers.
IDSC is the largest issuer of face-amount certificates in the United States. At December 31, 1997, it had approximately $4 billion in assets. IDSC's certificates compete with many other investments offered by banks, savings and loan associations, credit unions, mutual funds, insurance companies and similar financial institutions, which may be viewed by potential customers as offering a comparable or superior combination of safety and return on investment.
MUTUAL FUNDS
AXP Advisors offers a variety of mutual funds, for which it acts as principal underwriter (distributor of shares). AEFC acts as investment manager and performs various administrative services. The "IDS MUTUAL FUND GROUP" consists of 38 retail mutual funds, with varied investment objectives, and includes, for example, money market, tax-exempt, bond and stock funds. The IDS MUTUAL FUND GROUP, with combined net assets at December 31, 1997 of $71.3 billion, was the fourteenth largest mutual fund organization in the United States and, excluding money market funds, was the eighth largest. The uneven performance in the global financial markets in 1997 impacted the results of many of the funds in the IDS MUTUAL FUND GROUP, and investment results for the year were mixed overall.
For most funds, shares are sold in three classes. Class A shares are sold at net asset value plus any applicable sales charge. The maximum sales charge is five percent of the offering price with reduced sales charges for larger purchases. Class B shares are sold with a rear load. The maximum sales charge is five percent declining to no charge for shares held over six years. Class Y shares are sold to institutional clients with no load. Fifteen of the IDS funds are structured as feeder funds investing in the Preferred Master Trust Group, a group of fifteen master funds, advised by AEFC. A second family of fifteen funds, the no-load Strategist Funds, distributed by American Express Service Corporation, also invests in the Preferred Master Trust Group. This structure provides for potential development of additional channels of distribution.
In addition to full-commission and discount brokerage firms, competitors include other financial institutions, such as banks and insurance companies. Recent growth trends in the market, including the increasing sales of mutual funds to retail investors, have expanded the number of competitors in the industry. Some competitors are larger, more diversified and offer a greater number of products, and may have an advantage in their ability to attract and retain customers on the basis of one-stop shopping. The competitive factors affecting the sale of mutual funds include sales charges ("loads") paid, administrative expenses, services received, investment performance, the variety of products and services offered and the convenience to the investor. The funds compete with other investment products, including funds that have no sales charge (known as "no load" funds), funds distributed through independent brokerage firms and those distributed by other "exclusive" sales forces.
OTHER PRODUCTS AND SERVICES
American Express Asset Management Group Inc. ("AEAMG"), formerly IDS
Advisory Group Inc., a subsidiary of AEFC, is an SEC registered investment
advisor that provides investment management services for pension, profit
sharing, employee savings and endowment funds of large- and medium-sized
businesses and other institutions ("institutional clients"). AEAMG through its
Portfolio Management Division ("PMG") also offers discretionary investment
management services to wealthy individuals and small institutions with account
sizes between $1 million and $10 million. Advisory Capital Strategies Group,
Inc. ("ACSG"), a subsidiary of AEAMG, is registered with the Commodity Futures
Trading
Commission as a Commodity Pool Operator and Commodity Trading Advisor and provides investment management services to private investment vehicles such as limited partnerships or limited liability companies. ACSG acts as general partner to Advisory U.S. Equity Fund I, L.P., a partnership that seeks to achieve superior capital appreciation and is offered privately to qualified eligible participants. This partnership employs various investment strategies, including, among other things, the use of leverage, short selling of securities and investment in options, futures and other derivative instruments. At December 31, 1997, AEAMG managed securities portfolios totaling $18.9 billion for 383 accounts. International or global investment management is offered to United States-based institutional clients by American Express Asset Management International Inc. ("AEAMI"), formerly IDS International, Inc., a United States company with offices in Hong Kong, London and Singapore, and to non-United States based institutional clients by American Express Asset Management Ltd. ("AEAML"), formerly IDS Fund Management Ltd., a U.K. company, with offices in Hong Kong, London and Singapore. At December 31, 1997, AEAMI managed securities portfolios totaling $7.4 billion for 31 accounts; and AEAML managed securities portfolios totaling $1.7 billion for 28 accounts. AEAMI and AEAML are wholly-owned subsidiaries of AEFC. The institutional investment management business is highly competitive and AEAMG and its affiliates must compete against a substantial number of larger firms in seeking to acquire and maintain assets under management. Competitive factors in this business include fees, investment performance and client service.
AXP Advisors also offers investment management services for wealthy individuals and small institutions. IDS Wealth Management Service offers a wrap program marketed to wealthy individuals through AXP Advisors' financial advisors and marketing employees and third-party referrals. American Express Strategic Portfolio Services offers a mutual fund wrap program to wealthy individuals. IDS Wealth Management Service, American Express Strategic Portfolio Services and PMG are operating divisions of AXP Advisors.
American Express Trust Company ("AETC") provides trustee, custodial, recordkeeping and investment management services for pension, profit sharing, 401(k) and other qualified and non-qualified employee benefit plans. AETC, through its personal trust division, offers trust services to individuals and organizations. AETC is trustee of over 365 benefit plans which represent approximately $15 billion in assets and 731,000 participants. AETC has assets under custody in excess of $100 billion and provides non-trusteed, investment management of assets in excess of $5.0 billion. AETC is regulated by the Minnesota Department of Commerce (Banking Division).
AXP Advisors distributes a variety of real estate limited partnership investments issued by other companies. AXP Advisors also distributes from time to time managed futures limited partnerships in which an AEFC subsidiary is a co-general partner.
In 1997, AEFC continued to expand its securities brokerage services. American Enterprise Investment Services Inc., a wholly-owned subsidiary of AEFC, provides securities execution and clearance services for approximately 202,000 retail and institutional clients of AXP Advisors and American Express Service Corporation. American Enterprise Investment
Services holds over $6 billion in assets for clients. American Enterprise Investment Services Inc. is registered as a broker-dealer with the SEC, is a member of the NASD and the Chicago Stock Exchange and is registered with appropriate states.
In 1997 AEFC and American Express Bank Ltd. organized a jointly owned subsidiary. American Express International Deposit Company ("AEIDC"), in the Cayman Islands to accept deposits from foreign clients of American Express Bank Ltd. AEIDC is not regulated as a bank in the Cayman Islands.
During 1997, the American Express Tax and Business Services unit was moved from AEFC to TRS' Small Business Services Group (see page 9 above).
The Company's wholly-owned subsidiary, American Express Bank Ltd. (together with its subsidiaries, where appropriate, "AEB"), offers products that meet the financial service needs of four client groups: corporations, financial institutions, affluent individuals and retail customers. AEB does not directly or indirectly do business in the United States except as an incident to its activities outside the United States. Accordingly, the following discussion relating to AEB generally does not distinguish between United States and non-United States based activities.
AEB's five primary business lines are corporate banking and finance, correspondent banking, private banking, personal financial services and global trading. Corporate banking and finance is provided to corporations principally in emerging markets and includes trade finance and working capital loans. Correspondent banking serves leading local banks primarily in emerging markets and includes transaction payments and a wide range of trade finance products such as letters of credit and payment guarantees, collections, check clearing and bankers acceptances. Private banking focuses on wealthy individuals by providing such customers with investment management, trust and estate planning, deposit instruments and secured lending. Personal financial services provides consumer products in direct response to specific financial needs of retail customers and includes interest-bearing deposits, unsecured lines of credit, installment loans, money market funds, mortgage loans, and mutual fund and life insurance products. Through global trading, AEB provides treasury and capital market products and services, including foreign exchange, foreign exchange options, derivatives and trading, with a focus on emerging markets.
AEB has begun to work more closely with other parts of the Company while building its core capabilities. AXP Advisors has contracted with AEB to manage most of AEB's Worldfolio and Epic mutual funds. AEB also has contracted with IDSC to market IDSC's investment certificates, and has set up a joint venture with AEFC in the Cayman Islands to issue investment certificates. TRS makes Platinum Cards available to AEB's private banking clients. In 1997, AEB began offering credit lines to Gold and Personal Cardmembers in Hong Kong. The Epic mutual funds are also being selectively marketed to TRS Cardmembers
outside the United States, and in selected countries, AEB markets a wide range of other investment, savings and credit products to TRS Cardmembers.
In 1997, AEB made progress in several businesses. It expanded its relationship manager force, which helped boost private banking assets, expanded its origination and distribution business, increased global trading results, and continued to develop cross-selling opportunities in the Personal Financial Services unit with newly launched mortgage, mutual fund and life insurance products, as well as a multi-currency checking account.
In 1994, AEB entered into a 10-year contract with Electronic Data Systems Corporation ("EDS") for the outsourcing of AEB's global systems support and development and data processing functions. Under the contract, EDS is to maintain and operate AEB's existing technology systems and to develop certain, other systems. The major focus of EDS in 1998 will be the remediation of AEB's computer systems for year 2000 compliance. Accordingly, the ability of AEB to become Year 2000 compliant will depend in part upon the efforts of EDS.
AEB has a global network with offices in 37 countries. Its worldwide headquarters is located in New York City. It maintains international banking agencies in New York City and Miami, Florida. Its wholly-owned Edge Act subsidiary, American Express Bank International ("AEBI"), is headquartered in Miami, Florida and has branches in New York City and Miami. In 1998, AEB established a facility office in Redwood City, California.
AEB's business does not as a whole experience significant seasonal fluctuations.
SELECTED FINANCIAL INFORMATION
AEB's prior years' financial information has been restated to reflect the transfer in 1994 of certain international consumer financial services businesses from TRS.
AEB provides banking services to the Company and its subsidiaries. AEB is only one of many international and local banks used by the Company and its other subsidiaries, which constitute only a few of AEB's many customers.
In the third quarter of 1997, management of the Company's Travelers Cheque unit was moved from TRS' Stored Value Group to the Chief Executive Officer of AEB, the head of the Company's international banking business. In accordance with FAS 131, commencing in the first quarter of 1998, the Company's Travelers Cheque operations will be reported in the same segment as American Express Bank. See page 1 above for more detail regarding this change, which information is incorporated herein by reference.
AEB's 1997 total assets of $12.8 billion increased from $12.3 billion in 1996. Liquid assets, consisting of cash and deposits with banks, trading account assets and investments, were $4.4 billion at December 31, 1997 and $4.5 billion at December 31, 1996.
The following table sets forth a summary of financial data for AEB at and for each of the three years in the period ended December 31, 1997 (dollars in millions):
1997 1996 1995
---- ---- ----
Net financial revenues $637 $591 $643
Non-interest expenses 487 463 521
Net income 82 68 77
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Cash and deposits with banks 2,150 1,709 1,992
Investments 2,265 2,835 2,537
Loans, net 6,062 5,760 5,317
Total assets 12,868 12,350 12,324
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Customers' deposits 8,547 8,653 8,480
Shareholder's equity (a) 830 799 837
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Return on average assets (b) 0.64% 0.57% 0.59%
Return on average common equity (b) 10.83% 9.22% 9.99%
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Total loans/deposits from customers 72.45% 67.92% 64.00%
Average common equity/average assets (b) 5.61% 5.82% 5.57%
Risk-based capital ratios:
Tier 1 8.8% 8.8% 8.9%
Total 12.3% 12.5% 13.0%
Leverage ratio 5.3% 5.6% 5.8%
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Average interest rates earned: (c)
Loans (d) 8.59% 8.48% 8.68%
Investments (e) 8.22% 8.57% 8.71%
Deposits with banks 7.07% 7.52% 6.65%
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Total interest-earning assets (e) 8.18% 8.25% 8.15%
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Average interest rates paid: (c)
Deposits from customers 6.04% 6.28% 6.10%
Borrowed funds, including long-term debt 6.98% 6.66% 5.55%
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Total interest-bearing liabilities 6.16% 6.33% 6.00%
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Net interest income/total average
interest-earning assets (e) 2.91% 3.03% 2.88%
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(a) AEB declared and paid a special dividend of $75 million to the Company on January 31, 1996.
(b) Calculated excluding the effect of SFAS No. 115.
(c) Based upon average balances and related interest income and expense, including the effect of interest rate products where appropriate and transactions with related parties.
(d) Interest rates have been calculated based upon average total loans, including those on non-performing status.
(e) On a tax equivalent basis.
The following tables set forth the composition of AEB's loan portfolio at year end for each of the five years in the period ended December 31, 1997 (millions):
By Geographical Region (a) 1997 1996 1995 1994 1993 ----------------------------------------------------------------------------------------------------- Asia/Pacific $2,789 $2,543 $2,151 $2,144 $2,186 Europe 1,055 821 876 903 1,091 Indian Subcontinent 629 833 970 721 850 Latin America 1,082 916 617 589 749 North America 51 67 76 81 283 Middle East 482 580 614 345 368 Africa 105 117 124 207 87 ----------------------------------------------------------------------------------------------------- Total $6,193 $5,877 $5,428 $4,990 $5,614 ===================================================================================================== |
1997
-------------------------------
Due After 1 Due
Due Year After 5
Within 1 Through 5 Years
By Type and Maturity Year Years (b) (b) 1997 1996 1995 1994 1993
------------------------ ------------------------------- ---- ---- ---- ---- ----
Loans to businesses (c) $2,256 $463 $68 $2,787 $2,636 $2,614 $2,328 $2,652
Real estate loans 205 114 174 493 423 501 592 708
Loans to banks and other
financial institutions 1,747 146 33 1,926 1,860 1,240 915 1,083
Equipment financing (d) - - - - 1 43 79 105
Consumer loans 856 65 2 923 869 917 941 912
Loans to governments and
official institutions 33 4 4 41 64 60 81 89
All other loans 19 4 - 23 24 53 54 65
=========================== ====== ====== ====== ====== ====== ====== ====== ======
Total $5,116 $796 $281 $6,193 $5,877 $5,428 $4,990 $5,614
=========================== ====== ====== ====== ====== ====== ====== ====== ======
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(a) Based primarily on the domicile of the borrower.
(b) Loans due after 1 year at fixed (predetermined) interest rates totaled $94 million, while those at floating (adjustable) interest rates totaled $983 million.
(c) Business loans, which accounted for approximately 45 percent of the portfolio as of December 31, 1997, were distributed over 26 commercial and industrial categories.
(d) During 1993, $163 million of equipment finance (aircraft) loans were transferred to other performing assets upon foreclosure (as aircraft assets leased to others). The total value of aircraft assets leased to others at December 31, 1995 was approximately $361 million. In January of 1996, AEB transferred to the Company its aircraft assets leased to others which consisted of aircraft on operating leases as well as loans secured by commercial aircraft. The transfer price of $286 million, which is net of assumed liabilities, was partially financed through a $120 million, three-year note, which was repaid as of December 31, 1997. The remainder was paid in cash.
The following table sets forth AEB's non-performing loans at year end for each of the five years in the period ended December 31, 1997 (millions):
1997 1996 1995 1994 1993
-------------------------------------------------- ---- ---- ---- ---- ----
Loans to businesses $34 $29 $20 $12 $24
Real estate loans 9 5 1 4 19
Equipment financing - - 1 3 -
Loans to banks and other financial institutions 3 - 8 - -
Loans to governments and official institutions - - 1 1 -
Consumer loans 1 1 3 - -
================================================== ==== ==== ==== ==== ====
Total $47 $35 $34 $20 $43
================================================== ==== ==== ==== ==== ====
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In addition to the above, AEB owned real estate totaling $4 million at December 31, 1997, $36 million at December 31, 1996 and $44 million at December 31, 1995, representing balances transferred from non-performing loans as a result of foreclosures. The 1997 decrease as well as the decrease from 1995 to 1996 primarily reflected the sale of foreclosed properties.
Reduced rate loans were immaterial in amount.
The following table sets forth a summary of the credit loss experience of AEB at and for each of the five years in the period ended December 31, 1997 (dollars in millions):
1997 1996 1995 1994 1993
======= ======= ======= ======= =======
Total loans at year end $ 6,193 $ 5,877 $ 5,428 $ 4,990 $ 5,614
======= ======= ======= ======= =======
Reserve for credit losses -
January 1, 117 111 109 126 153
Provision for credit losses (a) 20 23 7 8 44
Translation and other (b) (8) (1) - - (21)
------- ------- ------- ------- -------
Subtotal 129 133 116 134 176
------- ------- ------- ------- -------
Writeoffs:
Real estate loans - 2 - 1 16
Loans to businesses 17 7 3 21 19
Loans to banks and other
financial institutions - 1 1 3 -
Equipment financing - - 1 - -
Loans to governments and
official institutions - - 1 - -
Consumer loans 13 13 9 19 20
All other loans - - - - 6
Recoveries:
Loans to businesses (3) (2) (5) (4) (4)
Loans to banks and other
financial institutions - (1) (3) (3) (1)
Equipment financing - - (1) (2) -
Loans to governments and
official institutions (c) (18) (1) - - -
Consumer loans (11) (3) (1) (10) (6)
All other loans - - - - -
------- ------- ------- ------- -------
Net (recoveries) write-offs (2) 16 5 25 50
------- ------- ------- ------- -------
Reserve for credit losses -
December 31, $ 131 $ 117 $ 111 $ 109 $ 126
======= ======= ======= ======= =======
Reserve for credit losses/
total loans 2.11% 1.99% 2.04% 2.19% 2.24%
======= ======= ======= ======= =======
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(a) The increase in 1996 was primarily due to loan growth, slightly higher consumer and commercial write-offs and lower commercial banking recoveries.
(b) The 1993 amount was primarily due to the transfer of reserves relating to loans reclassified to other performing assets upon foreclosure.
(c) The increase in 1997 was mainly due to a loan recovery from Peru.
Interest income is recognized on the accrual basis. Loans other than certain consumer loans are placed on non-performing status when payments of principal or interest are 90 days past due or if, in management's opinion, the borrower is unlikely to meet its contractual obligations. When loans are placed on non-performing status, all previously accrued but unpaid interest is reversed against current interest income. Cash receipts of interest on non-performing loans are recognized either as interest income or as a reduction of principal, based upon management's judgment as to the ultimate collectibility of principal. A non-performing loan may be returned to performing status when all contractual amounts due are reasonably assured of repayment within a reasonable period and the borrower shows sustained repayment performance, or when the loan has become well secured and is in the process of collection. Consumer loans principally consist of lines of credit and installment loans. These loans are written off against the reserve for credit losses upon reaching specified contractual delinquency stages, or earlier in the event of the borrower's personal bankruptcy or if the loan is otherwise deemed uncollectible. Interest income on these loans generally accrues until the loan is written off.
A reserve for credit losses is maintained to absorb losses inherent in the loan portfolio and in other credit-related on- and off- balance sheet financial instruments. The reserve is established by charging a provision for credit losses against income. The amount charged to income is based upon several factors, including historical credit loss experience in relation to outstanding credits, a continuous assessment of the collectibility of each credit, and management evaluation of exposures in each applicable country as related to current and anticipated economic and political conditions. Management's assessment of the adequacy of the reserve is inherently subjective, as significant estimates are required. Loans determined to be uncollectible, as well as other credit losses, are charged against the reserve, with any subsequent recoveries credited to the reserve.
RISKS
The global nature of AEB's business activities are such that concentrations of credit to particular industries and geographic regions are not unusual. At December 31, 1997, AEB had significant investments in certain on- and off- balance sheet financial instruments, which were primarily represented by deposits with banks, securities, loans, forward contracts, contractual amounts of letters of credit (standby and commercial) and guarantees. The counterparties to these financial instruments were primarily unrelated to AEB, and principally consisted of banks and other financial institutions and various commercial and industrial enterprises operating geographically within the Asia/Pacific region, the Indian Subcontinent, Europe and North America. AEB continuously monitors its credit concentrations and actively manages to reduce the associated risk.
During the second half of 1997 certain countries in Asia began experiencing economic pressures that created liquidity constraints associated with public and private sector debt service. While AEB had no significant change in non-performing loans and other credit exposure in the fourth quarter of 1997, it had exposures throughout the Asia/Pacific region, including in Hong Kong, Indonesia, Korea, Singapore and Thailand, among other countries.
AEB had approximately $2.8 billion outstanding in loans in the entire Asia/Pacific region at year-end. In addition to these loans, there are other banking activities, such as forward contracts, various contingencies and market placements, which added another approximately $1.5 billion to the credit exposures in the region at year-end. AEB is carefully monitoring its credit exposures as well as actions being taken by government entities to address and resolve currency and liquidity issues. Conditions in many countries in the region seem to have stabilized in response to actions taken there. However, the current situation in Indonesia has impacted the ability of some of AEB's customers to perform, which is expected to result in increased reserves at AEB for the first quarter of 1998.
AEB's earnings are sensitive to fluctuations in interest rates, as it is not always possible to match precisely the maturities of interest-related assets and liabilities. However, strict limits have been established for both country and total bank mismatching. On occasion, AEB may decide to mismatch in anticipation of a change in future interest rates in accordance with these guidelines. Term loans extended by AEB include both floating interest rate and fixed interest rate loans.
For a discussion relating to AEB's use of derivative financial instruments, see pages 28 through 30 under the caption "Risk Management," and Note 11 on pages 45 through 48, of the Company's 1997 Annual Report to Shareholders, which portions of such report are incorporated herein by reference.
COMPETITION
The banking services of AEB are subject to vigorous competition in all markets in which AEB operates. Competitors include local and international banks whose assets often exceed those of AEB, other financial institutions (including certain other subsidiaries of the Company) and, in certain cases, governmental agencies. In some countries, AEB may be one of the more substantial financial institutions offering banking services; in no country, however, is AEB dominant.
REGULATION
AEB is a wholly-owned subsidiary of the Company. AEB's global network of offices and subsidiaries is subject to the consolidated supervision and examination of the New York State Banking Department ("NYSBD") pursuant to a voluntary arrangement. In 1998, AEB obtained approval from the NYSBD to create a new holding company structure, pursuant to which AEB would become a wholly-owned subsidiary of American Express Banking Corp ("AEBC"). AEBC is a New York investment company organized in 1998 under Article XII of the New York Banking Law. Once the new holding company structure is put into effect, the NYSBD would become the mandatory supervisory authority of AEBC and the AEB global network pursuant to New York Banking Law. AEBC does not directly engage in banking activities.
AEB's branches, representative offices and subsidiaries are licensed and regulated in the jurisdictions in which they do business and are subject to the same local requirements as other competitors. Within the United States, AEB's New York agency is supervised and regularly examined by the NYSBD. In addition, the Florida Department of Banking and Finance supervises and examines AEB's Miami agency, the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") regulates, supervises and examines AEBI and the California Department of Financial Institutions supervises and examines AEB's California facility office.
Since AEB does not do business in the United States except as an incident to its activities outside the United States, the Company's affiliation with AEB neither causes the Company to be subject to the provisions of the Bank Holding Company Act of 1956 nor requires it to register as a bank holding company under the Federal Reserve Board's Regulation Y. AEB is not a member of the Federal Reserve System, is not subject to supervision by the Federal Deposit Insurance Corporation ("FDIC"), and is not subject to any of the restrictions imposed on grandfathered non-bank banks by the Competitive Equality Banking Act of 1987 other than anti-tie-in rules with respect to transactions involving products and services of certain of its affiliates.
As a matter of policy AEB actively monitors compliance with regulatory capital requirements. These requirements are essentially represented by the Federal Reserve Board's risk-based capital guidelines and complementary leverage constraint. Pursuant to the FDIC Improvement Act of 1991, the Federal Reserve Board, among other federal banking agencies, adopted regulations defining levels of capital adequacy. Under these regulations, a bank is deemed to be well capitalized if it maintains a Tier 1 risk-based capital ratio of at least 6.0 percent, a total risk-based capital ratio of at least 10.0 percent, and a leverage ratio of at least 5.0 percent. Based on AEB's total risk-based capital and leverage ratios, which are set forth on page 21, AEB is considered to be well capitalized at December 31, 1997.
The Balcor Company Holdings, Inc. and its subsidiaries (collectively, "Balcor"), formerly operating as a diversified real estate investment and management company, discontinued new commercial real estate activities in 1990 and began to liquidate its portfolio of real estate loans and properties. The liquidation was substantially completed in 1997. Balcor and its subsidiaries still serve as general partners in numerous public limited partnerships that have not yet been liquidated.
The Year 2000 issue is the result of computer programs having been written using two digits rather than four to define a year. Any programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than 2000. This could result in the failure of major systems or miscalculations, which could have a material impact on the operations of the Company and any of its businesses or subsidiaries, including TRS, AEFC or AEB. All of the Company's major businesses are heavily dependent upon internal computer systems, and many have significant interaction with systems of third parties.
A comprehensive review of the Company's computer systems and business processes has been conducted to identify the major systems that could be affected by the Year 2000 issue. Steps are being taken to resolve any potential problems including modifications to existing software and the purchase of new software. These measures are scheduled to be completed and tested on a timely basis. The Company's goal is to complete internal remediation and testing of each of its critical systems by the end of 1998 and to continue compliance efforts, including the testing of systems on an integrated basis, through 1999.
The costs related to the Year 2000 issue, which are expensed as incurred, are not expected to have a material impact on the Company's results of operations or financial condition. This expectation is subject to uncertainties that could cause actual results to differ materially. Factors that could influence the total costs to be incurred by the Company in connection with the Year 2000 issue include the ability of the Company to successfully identify systems containing two-digit year codes, the nature and amount of programming required to fix the affected programs, the related labor and consulting costs for such remediation, and the ability of third parties that interface with the Company to successfully address their Year 2000 issues.
The Company is evaluating the Year 2000 readiness of merchants, customers and other third parties whose system failures could have an impact on the Company's operations. The potential materiality of any such impact is not known at this time.
On January 1, 1999, certain European countries plan to adopt a single currency (the "euro"). For countries adopting the euro, the exchange rate between their local currency and the euro will be fixed as of June 30, 1998. The Company has carried out an assessment and identified business requirements for the introduction of the euro. The Company is making systems modifications to comply with euro requirements to maintain its competitiveness in the marketplace. The related costs, which are expensed as incurred, are not expected to have a material impact on the Company's earnings.
The Company derives a significant portion of its revenues from the use of the Card, Travelers Cheques and travel services in countries outside the United States and continues to broaden the use of these products and services outside the United States. Political and economic conditions in these countries, including the availability of foreign exchange for the payment by the local card issuer of obligations arising out of local Cardmembers' spending outside such country, for the payment of card bills by Cardmembers who are billed in other than their local currency and for the remittance of the proceeds of Travelers Cheque sales, can have an effect on the Company's revenues. Substantial and sudden devaluation of local Cardmembers' currency can also affect their ability to make payments to the local issuer of the card on account of spending outside the local country. The major portion of AEB's banking revenues is from business conducted in countries outside the United States. Some of the risks attendant to those operations include currency fluctuations and changes in political, economic and legal environments in each such country.
As a result of its foreign operations, the Company is exposed to the possibility that, because of foreign exchange rate fluctuations, assets and liabilities denominated in currencies other than the United States dollar may be realized in amounts greater or lesser than the United States dollar amounts at which they are currently recorded in the Company's Consolidated Financial Statements. Examples of transactions in which this may occur include the purchase by Cardmembers of goods and services in a currency other than the currency in which they are billed; the sale in one currency of a Travelers Cheque denominated in a second currency; foreign exchange positions held by AEB as a consequence of its client-related foreign exchange trading operations; and, in most instances, investments in foreign operations. These risks, unless properly monitored and managed, could have an adverse effect on the Company's operations.
The Company's policy in this area is generally to monitor closely all foreign exchange positions and to minimize foreign exchange gains and losses, for example, by offsetting foreign currency assets with foreign currency liabilities, as in the case of foreign currency loans and receivables, which are financed in the same currency. An additional technique used to manage exposures is the spot and forward purchase or sale of foreign currencies as a hedge of net exposures in those currencies as, for example, in the case of the Cardmember and Travelers Cheque transactions described above. Additionally, Cardmembers may be charged in United States dollars for their spending outside their local country. The Company's investments in foreign operations are hedged by forward exchange contracts or by identifiable transactions, where appropriate.
Various forward-looking statements have been made in this Form 10-K Annual Report. Forward-looking statements may also be made in the Company's other reports filed under the Securities Exchange Act of 1934, in its press releases and in other documents. In addition, from time to time, the Company through its management may make oral forward-looking statements. Forward-looking statements are subject to risks and uncertainties, including those identified below, which could cause actual results to differ materially from such statements. The words "believe", "expect", "anticipate", "optimistic", "intend", "aim", "will" or similar expressions are intended to identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. The Company undertakes no obligation to update publicly or revise any forward-looking statements. Important factors that could cause actual results to differ materially from the Company's forward-looking statements, as well as affect the Company's ability to achieve its financial and other goals, include, but are not limited to, the following:
- The Company's inability to extend the value of the American Express brand, which historically has been associated with the card and travel businesses (e.g., perception of trust, security and quality service), to a broad range of
financial products and services in the financial services industry. This could depend in part on the Company's ability to manage the potential conflicts inherent in its growing multi- channel delivery systems.
- The Company's inability to succeed in its ongoing reengineering efforts and in achieving best-in-class economics, while also maintaining high service levels.
- The Company's inability to successfully create, and increase distribution channels for, financial, travel, card and other products and services.
- The Company's inability to participate in payment and other systems material to its businesses on a fair and competitive basis.
- The Company's inability to successfully invest in, and compete at the leading edge of, technology developments across all businesses, e.g., transaction processing, data management, customer interactions and communications, travel reservations systems, stored value products, risk management systems.
- The Company's inability to adequately remediate all internal computer software and operational systems, and ensure that the software and systems owned or leased by customers, suppliers, vendors and other third-parties that American Express relies upon or interfaces with are adequately remediated, on a timely and cost-effective basis to avoid Year 2000 problems.
- The Company's inability to successfully modify its computer software and business systems to ensure proper and timely accommodation of the European single currency in its business and operations.
- TRS' inability to expand its overall revenues, which depends in part on its ability to increase consumer and/or business spending and borrowing on its credit and charge cards, expand market share and develop new or enhanced products that capture greater share of customers' total spending on American Express Cards or other cards issued on its network.
- TRS' inability to enhance significantly its international operations, which will depend in part on its ability to reduce expenses for re-investment in the international business, expand the proprietary and third party-issued Card businesses and increase its network of merchants.
- TRS' inability to retain Cardmembers in consumer lending products after low introductory rate periods have expired.
- TRS' inability to sustain premium discount rates or increase merchant coverage, both of which will depend in part on its ability to maintain a customer base that appeals to merchants and to develop deeper merchant relationships through creation of new products and services.
- The inability of TRS and AEB to manage credit risk related to consumer debt, business loans and other credit exposures, both in the United States and abroad, including unseasoned balances in TRS' lending portfolios, all of which could be affected by general political and economic conditions, including interest rates and consumer credit trends, the rate of bankruptcies and movements in currency valuations.
- The inability of AXP Advisors to maintain a growing field force.
- A short-term financial market crash, or a longer term financial market decline or stagnation, which could impact the sale of investment products at AXP Advisors and the market value of AXP Advisors' managed assets, resulting in lower management and distribution fees.
- The impact of changing interest rates, which could affect AXP Advisors' spreads between revenues from owned investments and benefits credited to clients fixed income accounts, TRS' borrowing costs and TRS' and AEB's return on lending products.
- Changes in laws or government regulations that either restrict the businesses of the Company, or allow a wider range of institutions to compete in such businesses, e.g., banks being allowed to sell products competing with AXP Advisors, non-banking institutions selling bank products in competition with AEB; and changes in tax laws affecting the Company's businesses. See also pages 2 through 4, 7, 14 through 16, 18, 19, 26 and 27 of this 10-K Report for a discussion of various regulations affecting the Company.
- Global developments that could affect the Company's operations abroad, such as political or economic instability in key markets of the Company's businesses or restrictions on convertibility of certain currencies. See also pages 10, 11, 25, 26, 28 and 29 of this 10-K Report for a discussion of risks relating to foreign operations.
- Competitive pressures in all of the Company's major businesses, including those competitive issues referred to on pages 4 through 8, 10, 12 through 14, 16 through 18, 26 and 28 in this 10-K Report.
- Unforeseen litigation or compliance costs.
Information with respect to the Company's industry segments, geographical operations and classes of similar services is set forth in Note 15 to the Consolidated Financial Statements of the Company, which appears on pages 52 through 54 of the Company's 1997 Annual Report to Shareholders, which Note is incorporated herein by reference.
All of the executive officers of the Company as of March 30, 1998, none of whom has any family relationship with any other and none of whom became an officer pursuant to any arrangement or understanding with any other person, are listed below. Each of such officers was elected to serve until the next annual election of officers or until his or her successor is elected and qualified. Each officer's age is indicated by the number in parentheses next to his or her name.
HARVEY GOLUB - Chairman and Chief Executive Officer; Chairman, TRS
Mr. Golub (59) has been Chief Executive Officer of the Company since February 1993, Chairman of the Company since August 1993 and Chairman, TRS since November 1991. Prior to February 1997 he had been Chief Executive Officer of TRS since November 1991. Prior to August 1993, he had been President of the Company since July 1991.
KENNETH I. CHENAULT - President and Chief Operating Officer; President and Chief Executive Officer, TRS
Mr. Chenault (46) has been President and Chief Operating Officer of the Company and President and Chief Executive Officer of TRS since February 1997. Prior to February 1997 he had been Vice Chairman of the Company since January 1995. Prior to May 1995, he had also been President, U.S.A. of TRS since August 1993. Prior thereto, he had been President, Consumer Card Group, TRS.
GEORGE L. FARR - Vice Chairman
Mr. Farr (57) has been Vice Chairman of the Company since May 1995. Prior thereto, he had been a director of McKinsey & Company.
RICHARD KARL GOELTZ - Vice Chairman and Chief Financial Officer
Mr. Goeltz (55) has been Vice Chairman and Chief Financial Officer of the Company since September 1996. Prior thereto, he had been Group Chief Financial Officer and a member of the Board of Directors of NatWest Group.
JONATHAN S. LINEN - Vice Chairman
Mr. Linen (54) has been Vice Chairman of the Company since August 1993. Prior thereto, he had been President and Chief Operating Officer of TRS since March 1992.
STEVEN W. ALESIO - President, Small Business Services, TRS
Mr. Alesio (43) has been President, Small Business Services, TRS since February 1996. Prior thereto, he had been President, Government Services, TRS since February 1996. Prior thereto, he had been Executive Vice President, Corporate Card, TRS since November 1993. Prior thereto, he had been Senior Vice President of the Consumer Travel Network, TRS.
ANNE M. BUSQUET - President, American Express Relationship Services, TRS
Mrs. Busquet (48) has been President, American Express Relationship Services, TRS since October 1995. Prior thereto, she had been Executive Vice President, Consumer Card Group since November 1993. Prior thereto, she had been Senior Vice President and General Manager, Merchandise Services.
URSULA F. FAIRBAIRN - Executive Vice President, Human Resources and Quality
Mrs. Fairbairn (55) has been Executive Vice President, Human Resources and Quality of the Company since December 1996. Prior thereto, she had been Senior Vice President, Human Resources of Union Pacific Corporation.
EDWARD P. GILLIGAN - President, Corporate Services, TRS
Mr. Gilligan (38) has been President, Corporate Services, TRS since February 1996. Prior thereto, he had been Executive Vice President, Travel Management Services, TRS since June 1995. Prior thereto, he had been Senior Vice President and General Manager, Eastern Region of Travel Management Services, TRS since June 1992.
JOHN D. HAYES - Executive Vice President, Global Advertising
Mr. Hayes (43) has been Executive Vice President, Global Advertising since May 1995. Prior thereto, he had been President of Lowe & Partners/SMS since January 1991.
DAVID C. HOUSE - President, Establishment Services Worldwide, TRS
Mr. House (48) has been President, Establishment Services Worldwide, TRS since October 1995. Prior thereto, he had been Senior Vice President of Sales and Field Marketing for the United States Establishment
Services Group since January 1993.
DAVID R. HUBERS - President and Chief Executive Officer, American Express Financial Corporation
Mr. Hubers (55) has been President and Chief Executive Officer of American Express Financial Corporation since August 1993. Prior thereto, he had been a Senior Vice President of American Express Financial Corporation.
ALLAN Z. LOREN - Executive Vice President and Chief Information Officer
Mr. Loren (59) has been Executive Vice President and Chief Information Officer of the Company since May 1994. Prior thereto, he had been President and Chief Executive Officer of Galileo International since January 1991.
LOUISE M. PARENT - Executive Vice President and General Counsel
Ms. Parent (47) has been Executive Vice President and General Counsel of the Company since May 1993. Prior thereto, she had been Deputy General Counsel of the Company since January 1992.
PHILLIP J. RIESE - President, Consumer Card Services Group, TRS; Chairman of the Board of American Express Centurion Bank
Mr. Riese (48) has been President, Consumer Card Services Group, TRS since
September 1995. Prior thereto, he had been President, Cardmember Financial
Services Group, TRS since September 1993. He has been Chairman of the Board of
American Express Centurion Bank since August 1993. Prior to September 1993, he
had been Executive Vice President and General Manager of the Charge Card Group,
TRS.
THOMAS O. RYDER - President, TRS International
Mr. Ryder (53) has been President, TRS International since October 1995. Prior thereto, he had been President, Establishment Services Worldwide, TRS since 1993. Prior thereto, he had been Executive Vice President and General Manager of the Establishment Services Division, TRS.
THOMAS SCHICK - Executive Vice President, Corporate Affairs and Communications
Mr. Schick (51) has been Executive Vice President, Corporate Affairs and Communications of the Company since March 1993. Prior thereto, he had been Executive Vice President, TRS since October 1992.
JOHN A. WARD, III - Chairman and Chief Executive Officer, American Express Bank Ltd.
Mr. Ward (51) has been Chairman and Chief Executive Officer, American Express Bank Ltd. since January 1996. Prior thereto, he had been Executive Vice President of Chase Manhattan Bank since September 1993 and Chief Executive Officer of Chase BankCard Services since July 1993. Prior thereto, he had been President of Chase Personal Financial Services.
The Company had approximately 73,620 employees on December 31, 1997.
ITEM 2. PROPERTIES
The Company's headquarters is in a 51-story, 2.2 million square foot building located in lower Manhattan, which also serves as the headquarters for TRS and AEB. This building, which is on land leased from the Battery Park City Authority for a term expiring in 2069, is one of four office buildings in a complex known as the World Financial Center. Lehman Brothers Holdings Inc. is also headquartered at, and owns 52% of, the building.
Other principal locations of TRS include: the American Express Service Centers in Fort Lauderdale, Florida; Phoenix, Arizona; Greensboro, North Carolina and Salt Lake City, Utah; the American Express Canada, Inc. headquarters in Markham, Ontario, Canada, all of which are owned by the Company or its subsidiaries. AEFC's principal locations are its headquarters, the IDS Tower, a portion of which the company leases until 2002, and its Operations Center, which the company owns; both are in Minneapolis, Minnesota. AXP
Advisors also owns Oak Ridge Conference Center, a training facility and conference center, in Chaska, Minnesota.
AEFC has entered into a contract with a developer to construct a 30-story office tower in Minneapolis which should be ready for occupancy in February 2000. At that time, the new tower will become AEFC's headquarters. AEFC's lease term is for 20 years with several options to extend the term. The annual rent is approximately $16 million.
Generally, the Company and its subsidiaries lease the premises they occupy in other locations. Facilities owned or occupied by the Company and its subsidiaries are believed to be adequate for the purposes for which they are used and are well maintained.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are involved in a number of legal and arbitration proceedings concerning matters arising in connection with the conduct of their respective business activities. The Company believes it has meritorious defenses to each of these actions and intends to defend them vigorously. The Company believes that it is not a party to, nor are any of its properties the subject of, any pending legal or arbitration proceedings which would have a material adverse effect on the Company's consolidated financial condition, although it is possible that the outcome of any such proceedings could have a material impact on the Company's net income in any particular period. Certain legal proceedings involving the Company are set forth below.
On December 13, 1996, an action entitled Lesa Benacquisto and Daniel Benacquisto vs. IDS Life Insurance Company ("IDS Life") and American Express Financial Corporation was commenced in Minnesota state court. The action is brought by individuals who replaced an existing IDS Life insurance policy with a new IDS Life policy. The plaintiffs purport to represent a class consisting of all persons who replaced existing IDS Life policies with new IDS Life policies from and after January 1, 1985.
The complaint puts at issue various alleged sales practices and misrepresentations, alleged breaches of fiduciary duties and alleged violations of consumer fraud statutes. Plaintiffs seek damages in an unspecified amount and also seek to establish a claims resolution facility for the determination of individual issues. IDS Life and AEFC filed an answer to the complaint on February 18, 1997, denying the allegations. A second action, entitled Arnold Mork, Isabella Mork, Ronald Melchert and Susan Melchert v. IDS Life Insurance Company and American Express Financial Corporation was commenced in the same court on March 21, 1997. In addition to claims that are included in the Benacquisto lawsuit, the second action includes an allegation of improper replacement of an existing IDS Life annuity contract.
The Company commenced an action, American Express Company v. The United States on September 16, 1997 in the United States Court of Federal Claims 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. The defendant filed an answer on January 16, 1998, and pre-trial discovery proceedings are now underway. If the Company's position is sustained, it would receive interest on $198,649,152 of taxes paid for 1987 that should have been deferred to a subsequent period.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during the last quarter of its fiscal year ended December 31, 1997.
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The principal market for the Company's Common Shares is The New York Stock Exchange. Its Common Shares are also listed on the Boston, Chicago, Pacific, London, Swiss, Dusseldorf, Frankfurt, Paris and Brussels Stock Exchanges. The Company had 53,576 common shareholders of record at December 31, 1997. For price and dividend information with respect to such Common Shares, see Note 18 to the Consolidated Financial Statements on page 55 of the Company's 1997 Annual Report to Shareholders, which Note is incorporated herein by reference.
On December 16, 1997, the Company issued to Nippon Life Insurance Company ("Nippon Life") 4,398,568 common shares in exchange for 9,163,683 shares of Cumulative Convertible Voting Preferred Stock, Series B issued by Lehman Brothers Holdings Inc. ("Series B Shares"). Nippon Life exchanged the Series B Shares for Company common shares pursuant to exchange rights granted by the Company to Nippon Life in 1990. The common shares were issued in a private placement pursuant to Section 4(2) of the Securities Act of 1933.
ITEM 6. SELECTED FINANCIAL DATA
The "Consolidated Five-Year Summary of Selected Financial Data" appearing on page 57 of the Company's 1997 Annual Report to Shareholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information set forth under the heading "Financial Review" appearing on pages 22 through 30 of the Company's 1997 Annual Report to Shareholders is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information set forth under the heading "Risk Management" appearing on pages 28 through 30 of the Company's 1997 Annual Report to Shareholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The "Consolidated Financial Statements", the "Notes to Consolidated Financial Statements" and the "Report of Ernst & Young LLP Independent Auditors" appearing on pages 31 through 56 of the Company's 1997 Annual Report to Shareholders are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
ITEMS 10, 11, 12 and 13. DIRECTORS AND EXECUTIVE OFFICERS OF
THE COMPANY; EXECUTIVE
COMPENSATION; SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT; CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
The Company filed with the SEC, within 120 days after the close of its last fiscal year, a definitive proxy statement dated March 10, 1998 pursuant to Regulation 14A, which involves the election of directors. The following portions of such proxy statement are incorporated herein by reference: pages 2 and 3 under the heading "The Shares Voting," pages 3 through 5 under the headings "Security Ownership of Directors and Executive Officers" and "Security Ownership of Named Executives," pages 7 and 8 under the heading "Directors' Fees and Other Compensation," pages 9 beginning at "Election of Directors" through 24 ending at "Selection of Auditors (excluding the portions under the headings, "Board Compensation Committee Report on Executive Compensation" appearing on pages 11 through 15 and "Performance Graph" appearing on page 20). In addition, the Company has provided, under the caption "Executive Officers of the Company" at pages 32 through 35 above, the information regarding executive officers called for by Item 401(b) of Regulation S-K.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
See Index to Financial Statements on page F-1 hereof.
See Index to Financial Statements on page F-1 hereof.
See Exhibit Index on pages E-1 through E-6 hereof.
(b) Reports on Form 8-K:
1. Form 8-K, dated October 27, 1997, Item 5, reporting the Company's earnings for the quarter ended September 30, 1997.
2. Form 8-K, dated January 26, 1998, Item 5, reporting the Company's earnings for the quarter and year ended December 31, 1997.
3. Form 8-K dated February 4, 1998, Item 5, reporting certain information from a February 4, 1998 speech presented by Harvey Golub, the Company's Chairman and Chief Executive Officer, to the financial community.
4. Form 8-K dated February 10, 1998, Item 5, reporting the Company's adoption of Statement of Financial Accounting Standards No. 128, "Earnings per Share", effective for the quarter and year ended December 31, 1997.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
AMERICAN EXPRESS COMPANY
March 30, 1998 By Richard Karl Goeltz
-----------------------
Richard Karl Goeltz
Vice Chairman and
Chief Financial Officer
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the date indicated.
By /s/Harvey Golub By /s/Charles W. Duncan, Jr
---------------------------- ----------------------------
Harvey Golub Charles W. Duncan, Jr.
Chairman, Chief Executive Director
Officer and Director
By /s/Kenneth I. Chenault By /s/Beverly Sills Greenough
---------------------------- ----------------------------
Kenneth I. Chenault Beverly Sills Greenough
President, Chief Operating Director
Officer and Director
By /s/Richard Karl Goeltz By /s/F. Ross Johnson
---------------------------- ----------------------------
Richard Karl Goeltz F. Ross Johnson
Vice Chairman and Director
Chief Financial Officer
By /s/Daniel T. Henry By /s/Vernon E. Jordan, Jr.
---------------------------- ----------------------------
Daniel T. Henry Vernon E. Jordan, Jr.
Senior Vice President Director
and Comptroller
By /s/Daniel F. Akerson By /s/Jan Leschly
---------------------------- ----------------------------
Daniel F. Akerson Jan Leschly
Director Director
By /s/Anne L. Armstrong By /s/Drew Lewis
---------------------------- ----------------------------
Anne L. Armstrong Drew Lewis
Director Director
By /s/Edwin L. Artzt By /s/Aldo Papone
---------------------------- ----------------------------
Edwin L. Artzt Aldo Papone
Director Director
By /s/William G. Bowen By /s/Frank P. Popoff
---------------------------- ----------------------------
William G. Bowen Frank P. Popoff
Director Director
|
March 30, 1998
AMERICAN EXPRESS COMPANY
INDEX TO FINANCIAL STATEMENTS
COVERED BY REPORT OF INDEPENDENT AUDITORS
(Item 14(a))
Annual
Report to
Shareholders
Form 10-K (Page)
--------- -----------
American Express Company and Subsidiaries:
Data incorporated by reference from attached
1997 Annual Report to Shareholders:
Report of independent auditors 56
Consolidated statements of income for the
three years ended December 31, 1997 31
Consolidated balance sheets at December 31,
1997 and 1996 32
Consolidated statements of cash flows for
the three years ended December 31, 1997 33
Consolidated statements of shareholders' equity
for the three years ended December 31, 1997 34
Notes to consolidated financial statements 35-55
Consent of independent auditors F-2
Schedules:
I-- Condensed financial information of
registrant F-3-6
II-- Valuation and qualifying accounts for the
three years ended December 31, 1997 F-7
|
All other schedules for American Express Company and subsidiaries have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the respective financial statements or notes thereto. The consolidated financial statements of American Express Company (including the report of independent auditors) listed in the above index, which are included in the Annual Report to Shareholders for the year ended December 31, 1997, are hereby incorporated by reference. With the exception of the pages listed in the above index, unless otherwise incorporated by reference elsewhere in this Annual Report on Form 10-K, the 1997 Annual Report to Shareholders is not to be deemed filed as part of this report.
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report on Form 10-K of American Express Company of our report dated February 5, 1998 (hereinafter referred to as our Report), included in the 1997 Annual Report to Shareholders of American Express Company.
Our audits included the financial statement schedules of American Express Company listed in Item 14(a). These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statements (Form S-8 No. 2-46918, No. 2-59230, No. 2-64285, No. 2-73954, No. 2-89680, No. 33-01771, No. 33-02980, No. 33-28721, No. 33-33552, No. 33-36422, No. 33-48629, No. 33-62124, No. 33-65008, No. 33-53801, No. 333-12683 and No. 333-41779; Form S-3 No. 2-89469, No. 33-43268, No. 33-50997, No. 333-32525, No. 333-45445, and No. 333-47085) and in the related Prospecti of our Report with respect to the consolidated financial statements and schedules of American Express Company included and incorporated by reference in this Annual Report on Form 10-K for the year ended December 31, 1997.
/s/ Ernst & Young LLP New York, New York March 30, 1998 |
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF THE COMPANY
CONDENSED STATEMENTS OF INCOME
(Parent Company Only)
(millions)
Years Ended
December 31,
-----------------------
1997 1996 1995
---- ---- ----
Revenues $ 236 $ 245 $ 254
----- ----- -----
Expenses:
Interest 224 261 245
Human resources 68 71 85
Other (A) 314 (310) 218
----- ----- -----
Total 606 22 548
----- ----- -----
Pretax (loss) income (370) 223 (294)
Income tax (benefit) provision (193) 43 (132)
----- ----- -----
Net (loss) income before equity in net income
of subsidiaries and affiliates (177) 180 (162)
Equity in net income of subsidiaries
and affiliates 2,168 1,721 1,726
----- ----- -----
Net income $1,991 $1,901 $1,564
===== ===== =====
|
(A) 1996 includes a pretax gain of $480 million ($300 million after-tax)
on the exchange of DECS (Debt Exchangeable for Common Stock) for FDC
common stock.
See Notes to Condensed Financial Information of the Company
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF THE COMPANY
CONDENSED BALANCE SHEETS
(Parent Company Only)
(millions, except share amounts)
ASSETS
------ December 31,
-------------
1997 1996
---- ----
Cash and cash equivalents $ 13 $ 31
Investments 114 239
Equity in net assets of subsidiaries and affiliates 9,731 8,763
Accounts receivable and accrued interest, less
reserves 13 36
Land, buildings and equipment--at cost, less
accumulated depreciation: 1997, $61; 1996,$61 67 69
Due from subsidiaries (net) 1,285 922
Other assets 552 489
------ ------
Total assets $11,775 $10,549
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Accounts payable and other liabilities $ 1,122 $ 1,355
Long-term debt 1,079 666
------ ------
Total liabilities 2,201 2,021
Shareholders' equity:
Common shares, $.60 par value, authorized
1.2 billion shares; issued and outstanding
466.4 million shares in 1997 and 472.9 million
shares in 1996 280 284
Capital surplus 4,624 4,191
Net unrealized securities gains 579 386
Foreign currency translation adjustment (97) (89)
Retained earnings 4,188 3,756
------ ------
Total shareholders' equity 9,574 8,528
------ ------
Total liabilities and shareholders' equity $11,775 $10,549
====== ======
|
See Notes to Condensed Financial Information of the Company
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF THE COMPANY
STATEMENTS OF CASH FLOWS
(Parent Company Only)
(millions)
Years Ended December 31,
------------------------
1997 1996 1995
Cash flows from operating activities:
Net income $ 1,991 $ 1,901 $ 1,564
Adjustments to reconcile net income to cash
provided by operating activities:
Equity in net income of subsidiaries
and affiliates (2,168) (1,721) (1,726)
Dividends received from subsidiaries
and affiliates 1,489 1,426 941
----- ----- -----
(FDC Gain)/Restructuring - (287) -
----- ----- -----
Net cash provided by operating activities 1,312 1,319 779
----- ----- -----
Net cash provided(used) by investing
activities 51 124 (32)
----- ----- -----
Cash flows from financing activities:
Issuance of American Express common shares 168 176 286
Repurchase of American Express common shares (1,259) (1,041) (891)
Dividends paid (423) (436) (458)
Net increase (decrease) in debt 411 (427) (864)
Other (278) 297 1,035
----- ----- -----
Net cash used by financing activities (1,381) (1,431) (892)
----- ----- -----
Net (decrease) increase in cash and cash
equivalents (18) 12 (145)
----- ----- -----
Cash and cash equivalents at beginning of year 31 19 164
----- ------ -----
Cash and cash equivalents at end of year $ 13 $ 31 $ 19
===== ===== =====
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest (net of amounts capitalized) in 1997, 1996, and
1995 was $88 million, $216 million and $190 million, respectively.
Net cash paid for income taxes was $98 million for 1997; net cash received
for income taxes was $296 million for 1996 and $127 million for 1995.
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF THE COMPANY
NOTES TO CONDENSED FINANCIAL INFORMATION OF THE COMPANY
(Parent Company Only)
1. Principles of Consolidation
The accompanying financial statements include the accounts of American Express
Company and on an equity basis its subsidiaries and affiliates. These financial
statements should be read in conjunction with the consolidated financial
statements of the Company. Certain prior year's amounts have been reclassified
to conform to the current year's presentation.
2. Long-term debt consists of (millions):
December 31,
------------
1997 1996
---- ----
8 1/2% Notes due August 15, 2001 $ 299 $ 299
Floating Medium-Term Note due December 31, 2000 88 150
8 5/8% Senior Debentures due 2022 122 132
WFC Series Z Zero Coupon Notes due December 12, 2000 46 42
WFC Series D 11 5/8% Guaranteed Notes due December 12, 2000 - 12
6 3/4% Senior Debentures due June 23, 2004 499 -
Other Fixed and Floating rate notes maturing 1999-2001 25 31
----- -----
$1,079 $ 666
===== =====
|
Aggregate annual maturities of long-term debt for the five years ending December 31, 2002 are as follows (millions): 1998, $4; 1999, $5; 2000, $163; 2001, $305, 2002, $0.
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1997
(millions)
Reserve for credit losses, Reserve for doubtful
loans and discounts accounts receivable
-------------------------- ------------------------------
1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ----
Balance at beginning
of period $ 601 $ 602 $ 545 $ 722 $ 829 $ 807
Additions:
Charges to income 837 658 529 1,153(a) 1,081(a) 1,156(a)
Recoveries of amounts
previously written-off 159 136 134 - - -
Deductions:
Charges for which
reserves were provided (890) (795) (606) (1,163) (1,188) (1,134)
----- ----- ----- ------- ------- -------
Balance at end of period $ 707 $ 601 $ 602 $ 712 $ 722 $ 829
==== ===== ===== ======= ======= =======
|
(a) Before recoveries on accounts previously written-off, which are credited to income (millions): 1997--$237, 1996--$232 and 1995--$219.
The following exhibits are filed as part of this Annual Report or, where indicated, were heretofore filed and are hereby incorporated by reference (*indicates exhibits electronically filed herewith.) Exhibits numbered 10.1 through 10.17 and 10.30 through 10.40 are management contracts or compensatory plans or arrangements.
3.1 Company's Restated Certificate of Incorporation (incorporated by
reference to Exhibit 4.1 of the Company's Registration Statement
on Form S-3, dated July 31, 1997 (Commission File No. 333-32525)).
*3.2 Company's By-Laws, as amended through February 23, 1998.
4 The instruments defining the rights of holders of long-term debt
securities of the Company and its subsidiaries are omitted
pursuant to Section (b)(4)(iii)(A) of Item 601 of Regulation S-K.
The Company hereby agrees to furnish copies of these instruments
to the SEC upon request.
10.1 American Express Company 1979 Long-Term Incentive Plan, as amended
(incorporated by reference to Exhibit 10.2 of the Company's Annual
Report on Form 10-K (Commission File No. 1-7657) for the fiscal
year ended December 31, 1987).
10.2 American Express Company 1989 Long-Term Incentive Plan, as amended
and restated (incorporated by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q (Commission File No.
1-7657) for the quarter ended March 31, 1996).
10.3 American Express Company Deferred Compensation Plan for Directors,
as amended effective July 28, 1997 (incorporated by reference to
Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q
(Commission File No. 1-7657) for the quarter ended June 30, 1997).
10.4 Description of American Express Pay for Performance Deferral
Program (incorporated by reference to Exhibit 10.5 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657)
for the fiscal year ended December 31, 1994).
10.5 American Express Company 1983 Stock Purchase Assistance Plan, as
amended (incorporated by reference to Exhibit 10.6 of the Company's
Annual Report on Form 10-K (Commission File No. 1-7657) for the
fiscal year ended December 31, 1988).
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10.6 Consulting Agreement dated March 3, 1994 between the Company and Aldo
Papone Consulting (incorporated by reference to Exhibit 10.8 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657) for
the fiscal year ended December 31, 1993).
10.7 American Express Company Retirement Plan for Non-Employee
Directors, as amended (incorporated by reference to Exhibit 10.12
of the Company's Annual Report on Form 10-K (Commission File No.
1-7657) for the fiscal year ended December 31, 1988).
10.8 Certificate of Amendment of the American Express Company Retirement
Plan for Non-Employee Directors dated March 21, 1996 (incorporated
by reference to Exhibit 10.11 of the Company's Annual Report on
Form 10-K (Commission File No. 1-7657) for the fiscal year ended
December 31, 1995).
10.9 American Express Key Executive Life Insurance Plan, as amended
(incorporated by reference to Exhibit 10.12 of the Company's Annual
Report on Form 10-K (Commission File No. 1-7657) for the fiscal
year ended December 31, 1991).
10.10 American Express Key Employee Charitable Award Program for
Education (incorporated by reference to Exhibit 10.13 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657)
for the fiscal year ended December 31, 1990).
10.11 American Express Directors' Charitable Award Program (incorporated
by reference to Exhibit 10.14 of the Company's Annual Report on
Form 10-K (Commission File No. 1-7657) for the fiscal year ended
December 31, 1990).
10.12 Description of separate pension arrangement and loan agreement
between the Company and Harvey Golub (incorporated by reference to
Exhibit 10.17 of Company's Annual Report on Form 10-K (Commission
File No. 1-7657) for the fiscal year ended December 31, 1988).
10.13 Shearson Lehman Brothers Capital Partners I Amended and Restated
Agreement of Limited Partnership (incorporated by reference to
Exhibit 10.18 of Company's Annual Report on Form 10-K (Commission
File No. 1-7657) for the fiscal year ended December 31, 1988).
10.14 Shearson Lehman Hutton Capital Partners II, L.P. Amended and
Restated Agreement of Limited Partnership (incorporated by
reference to Exhibit 10.19 of Company's Annual Report on Form 10-K
(Commission File No. 1-7657) for the fiscal year ended December 31,
1988).
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10.15 American Express Company Salary/Bonus Deferral Plan (incorporated
by reference to Exhibit 10.20 of Company's Annual Report on Form
10-K (Commission File No. 1-7657) for the fiscal year ended
December 31, 1988).
10.16 Written description of certain pension arrangements with Jonathan
S. Linen (incorporated by reference to Exhibit 10.14 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657)
for the fiscal year ended December 31, 1991).
10.17 Consulting Agreement dated March 3, 1994 between American Express
Travel Related Services Company, Inc. and Aldo Papone Consulting
(incorporated by reference to Exhibit 10.23 of the Company's Annual
Report on Form 10-K (Commission File No. 1-7657) for the fiscal
year ended December 31, 1993).
10.18 Restated and Amended Agreement of Tenants-In-Common, dated May 27,
1994, by and among the Company, American Express Bank Ltd.,
American Express Travel Related Services Company, Inc., Lehman
Brothers Inc., Lehman Government Securities, Inc. and Lehman
Commercial Paper Incorporated (incorporated by reference to Exhibit
10.1 of Lehman Brothers Holdings Inc.'s Transition Report on Form
10-K (Commission File No. 1-9466) for the transition period from
January 1, 1994 to November 30, 1994).
10.19 Tax Allocation Agreement, dated May 27, 1994, between Lehman
Brothers Holdings Inc. and the Company (incorporated by reference
to Exhibit 10.2 of Lehman Brothers Holdings Inc.'s Transition
Report on Form 10-K (Commission File No. 1-9466) for the transition
period from January 1, 1994 to November 30, 1994).
10.20 Intercompany Agreement, dated May 27, 1994, between the Company and
Lehman Brothers Holdings Inc. (incorporated by reference to Exhibit
10.3 of Lehman Brothers Holdings Inc.'s Transition Report on Form
10-K 1994 (Commission File No. 1-9466) for the transition period
from January 1, 1994 to November 30, 1994).
10.21 Purchase and Exchange Agreement, dated April 28, 1994, between
Lehman Brothers Holdings Inc. and the Company (incorporated by
reference to Exhibit 10.29 of Lehman Brothers Holdings Inc.'s
Transition Report on Form 10-K (Commission File No. 1-9466) for the
transition period from January 1, 1994 to November 30, 1994).
10.22 Registration Rights Agreement, dated as of May 27, 1994, between
the Company and Lehman Brothers Holdings Inc. (incorporated by
reference to Exhibit 10.30 of Lehman Brothers Holdings Inc.'s
Transition Report on Form 10-K (Commission File No. 1-9466) for the
transition period from January 1, 1994 to November 30, 1994).
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10.23 Option Agreement, dated May 27, 1994, by and among the Company,
American Express Bank Ltd., American Express Travel Related
Services Company, Inc., Lehman Brothers Holdings Inc., Lehman
Brothers Inc., Lehman Government Securities, Inc. and Lehman
Commercial Paper Incorporated (incorporated by reference to Exhibit
10.31 of Lehman Brothers Holdings Inc.'s Transition Report on Form
10-K (Commission File No. 1-9466) for the transition period from
January 1, 1994 to November 30, 1994).
*10.24 Letter Agreement, dated January 22, 1997, between the Company and
Nippon Life Insurance Company.
*10.25 Letter, dated July 7, 1997, from the Company to Nippon Life Insurance
Company.
*10.26 Letter Agreement, dated January 30, 1998, between the Company and
Nippon Life Insurance Company.
10.27 1994 Agreement, dated April 28, 1994, between the Company, Lehman
Brothers Holdings Inc. and Nippon Life Insurance Company
(incorporated by reference to Exhibit 10.32 of Lehman Brothers
Holdings Inc.'s Transition Report on Form 10-K (Commission File No.
1-9466) for the transition period from January 1, 1994 to November
30, 1994).
10.28 1990 Agreement, dated as of June 12, 1990, by and between the
Company and Nippon Life Insurance Company (incorporated by
reference to Exhibit 10.25 of Shearson Lehman Brothers Holdings
Inc.'s Annual Report on Form 10-K (Commission File No. 1-9466) for
the fiscal year ended December 31, 1990).
10.29 Asset Purchase Agreement dated as of March 12, 1993 between Smith
Barney, Harris Upham & Co. Incorporated, Primerica Corporation and
Shearson Lehman Brothers Inc. (incorporated by reference to Exhibit
10.16 of Shearson Lehman Brothers Holdings Inc.'s Annual Report on
Form 10-K (Commission File No. 1-9466) for the fiscal year ended
December 31, 1992).
10.30 American Express Company 1993 Directors' Stock Option Plan
(incorporated by reference to Exhibit 28.2 of the Company's
Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the
quarter ended March 31, 1993).
10.31 Description of separate pension arrangement between the Company and
George L. Farr (incorporated by reference to Exhibit 10.33 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657)
for the fiscal year ended December 31, 1995).
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10.32 American Express Senior Executive Severance Plan (incorporated by
reference to Exhibit 10.1 of the Company's Quarterly Report on Form
10-Q (Commission File No. 1-7657) for the quarter ended June 30,
1994).
10.33 Amendment of American Express Senior Executive Severance Plan
(incorporated by reference to Exhibit 10.1 of the Company's
Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the
quarter ended September 30, 1994).
10.34 Amendment of American Express Company Key Executive Life Insurance
Plan (incorporated by reference to Exhibit 10.3 of the Company's
Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the
quarter ended September 30, 1994).
10.35 Amendment of American Express Company Salary/Bonus Deferral Plan
(incorporated by reference to Exhibit 10.4 of the Company's
Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the
quarter ended September 30, 1994).
10.36 Amendment of Long-Term Incentive Awards under the American Express
Company 1979 and 1989 Long-Term Incentive Plans (incorporated by
reference to Exhibit 10.6 of the Company's Quarterly Report on
Form 10-Q (Commission File No. 1-7657) for the quarter ended
September 30, 1994).
*10.37 Amendments of (i) Long-Term Incentive Awards under the American
Express Company 1979 and 1989 Long-Term Incentive Plans, (ii) the
American Express Senior Executive Severance Plan, (iii) the
American Express Supplemental Retirement Plan, (iv) the American
Express Salary/Bonus Deferral Plan, (v) the American Express Key
Executive Life Insurance Plan and (vi) the IDS Current Service
Deferred Compensation Plan.
10.38 IDS Current Service Deferred Compensation Plan (incorporated by
reference to Exhibit 10.42 of the Company's Annual Report on Form
10-K (Commission File No. 1-7657) for the fiscal year ended
December 31, 1994).
10.39 Amended and Restated American Express Supplemental Retirement Plan
(incorporated by reference to Exhibit 10.1 of the Company's
Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the
quarter ended March 31, 1995).
10.40 American Express Directors' Stock Plan (incorporated by reference
to Exhibit 4.4 of the Company's Registration Statement on from S-8,
dated December 9, 1997 (Commission File No. 333-41779)).
10.41 Agreement dated February 27, 1995 between the Company and Berkshire
Hathaway Inc. (incorporated by reference to Exhibit 10.43 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657)
for the fiscal year ended December 31, 1994).
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10.42 Agreement dated July 20, 1995 between the Company and Berkshire
Hathaway Inc. and its subsidiaries (incorporated by reference to
Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q
(Commission File No. 1-7657) for the quarter ended September 30,
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.
*13 Portions of the Company's 1997 Annual Report to Shareholders that are
incorporated herein by reference.
*21 Subsidiaries of the Company.
*23 Consent of Ernst & Young LLP (contained on page F-2 of this Annual
Report on Form 10-K).
*27 Financial Data Schedule.
|
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997 Commission File No. 1-7657
American Express Company
(Exact name of Company as specified in charter)
EXHIBITS
The following exhibits are filed as part of this Annual Report or, where indicated, were heretofore filed and are hereby incorporated by reference (*indicates exhibits electronically filed herewith.) Exhibits numbered 10.1 through 10.17 and 10.30 through 10.40 are management contracts or compensatory plans or arrangements.
3.1 Company's Restated Certificate of Incorporation (incorporated by
reference to Exhibit 4.1 of the Company's Registration Statement
on Form S-3, dated July 31, 1997 (Commission File No. 333-32525)).
*3.2 Company's By-Laws, as amended through February 23, 1998.
4 The instruments defining the rights of holders of long-term debt
securities of the Company and its subsidiaries are omitted
pursuant to Section (b)(4)(iii)(A) of Item 601 of Regulation S-K.
The Company hereby agrees to furnish copies of these instruments
to the SEC upon request.
10.1 American Express Company 1979 Long-Term Incentive Plan, as amended
(incorporated by reference to Exhibit 10.2 of the Company's Annual
Report on Form 10-K (Commission File No. 1-7657) for the fiscal
year ended December 31, 1987).
10.2 American Express Company 1989 Long-Term Incentive Plan, as amended
and restated (incorporated by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q (Commission File No.
1-7657) for the quarter ended March 31, 1996).
10.3 American Express Company Deferred Compensation Plan for Directors,
as amended effective July 28, 1997 (incorporated by reference to
Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q
(Commission File No. 1-7657) for the quarter ended June 30, 1997).
10.4 Description of American Express Pay for Performance Deferral
Program (incorporated by reference to Exhibit 10.5 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657)
for the fiscal year ended December 31, 1994).
10.5 American Express Company 1983 Stock Purchase Assistance Plan, as
amended (incorporated by reference to Exhibit 10.6 of the Company's
Annual Report on Form 10-K (Commission File No. 1-7657) for the
fiscal year ended December 31, 1988).
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10.6 Consulting Agreement dated March 3, 1994 between the Company and Aldo
Papone Consulting (incorporated by reference to Exhibit 10.8 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657) for
the fiscal year ended December 31, 1993).
10.7 American Express Company Retirement Plan for Non-Employee
Directors, as amended (incorporated by reference to Exhibit 10.12
of the Company's Annual Report on Form 10-K (Commission File No.
1-7657) for the fiscal year ended December 31, 1988).
10.8 Certificate of Amendment of the American Express Company Retirement
Plan for Non-Employee Directors dated March 21, 1996 (incorporated
by reference to Exhibit 10.11 of the Company's Annual Report on
Form 10-K (Commission File No. 1-7657) for the fiscal year ended
December 31, 1995).
10.9 American Express Key Executive Life Insurance Plan, as amended
(incorporated by reference to Exhibit 10.12 of the Company's Annual
Report on Form 10-K (Commission File No. 1-7657) for the fiscal
year ended December 31, 1991).
10.10 American Express Key Employee Charitable Award Program for
Education (incorporated by reference to Exhibit 10.13 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657)
for the fiscal year ended December 31, 1990).
10.11 American Express Directors' Charitable Award Program (incorporated
by reference to Exhibit 10.14 of the Company's Annual Report on
Form 10-K (Commission File No. 1-7657) for the fiscal year ended
December 31, 1990).
10.12 Description of separate pension arrangement and loan agreement
between the Company and Harvey Golub (incorporated by reference to
Exhibit 10.17 of Company's Annual Report on Form 10-K (Commission
File No. 1-7657) for the fiscal year ended December 31, 1988).
10.13 Shearson Lehman Brothers Capital Partners I Amended and Restated
Agreement of Limited Partnership (incorporated by reference to
Exhibit 10.18 of Company's Annual Report on Form 10-K (Commission
File No. 1-7657) for the fiscal year ended December 31, 1988).
10.14 Shearson Lehman Hutton Capital Partners II, L.P. Amended and
Restated Agreement of Limited Partnership (incorporated by
reference to Exhibit 10.19 of Company's Annual Report on Form 10-K
(Commission File No. 1-7657) for the fiscal year ended December 31,
1988).
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10.15 American Express Company Salary/Bonus Deferral Plan (incorporated
by reference to Exhibit 10.20 of Company's Annual Report on Form
10-K (Commission File No. 1-7657) for the fiscal year ended
December 31, 1988).
10.16 Written description of certain pension arrangements with Jonathan
S. Linen (incorporated by reference to Exhibit 10.14 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657)
for the fiscal year ended December 31, 1991).
10.17 Consulting Agreement dated March 3, 1994 between American Express
Travel Related Services Company, Inc. and Aldo Papone Consulting
(incorporated by reference to Exhibit 10.23 of the Company's Annual
Report on Form 10-K (Commission File No. 1-7657) for the fiscal
year ended December 31, 1993).
10.18 Restated and Amended Agreement of Tenants-In-Common, dated May 27,
1994, by and among the Company, American Express Bank Ltd.,
American Express Travel Related Services Company, Inc., Lehman
Brothers Inc., Lehman Government Securities, Inc. and Lehman
Commercial Paper Incorporated (incorporated by reference to Exhibit
10.1 of Lehman Brothers Holdings Inc.'s Transition Report on Form
10-K (Commission File No. 1-9466) for the transition period from
January 1, 1994 to November 30, 1994).
10.19 Tax Allocation Agreement, dated May 27, 1994, between Lehman
Brothers Holdings Inc. and the Company (incorporated by reference
to Exhibit 10.2 of Lehman Brothers Holdings Inc.'s Transition
Report on Form 10-K (Commission File No. 1-9466) for the transition
period from January 1, 1994 to November 30, 1994).
10.20 Intercompany Agreement, dated May 27, 1994, between the Company and
Lehman Brothers Holdings Inc. (incorporated by reference to Exhibit
10.3 of Lehman Brothers Holdings Inc.'s Transition Report on Form
10-K 1994 (Commission File No. 1-9466) for the transition period
from January 1, 1994 to November 30, 1994).
10.21 Purchase and Exchange Agreement, dated April 28, 1994, between
Lehman Brothers Holdings Inc. and the Company (incorporated by
reference to Exhibit 10.29 of Lehman Brothers Holdings Inc.'s
Transition Report on Form 10-K (Commission File No. 1-9466) for the
transition period from January 1, 1994 to November 30, 1994).
10.22 Registration Rights Agreement, dated as of May 27, 1994, between
the Company and Lehman Brothers Holdings Inc. (incorporated by
reference to Exhibit 10.30 of Lehman Brothers Holdings Inc.'s
Transition Report on Form 10-K (Commission File No. 1-9466) for the
transition period from January 1, 1994 to November 30, 1994).
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10.23 Option Agreement, dated May 27, 1994, by and among the Company,
American Express Bank Ltd., American Express Travel Related
Services Company, Inc., Lehman Brothers Holdings Inc., Lehman
Brothers Inc., Lehman Government Securities, Inc. and Lehman
Commercial Paper Incorporated (incorporated by reference to Exhibit
10.31 of Lehman Brothers Holdings Inc.'s Transition Report on Form
10-K (Commission File No. 1-9466) for the transition period from
January 1, 1994 to November 30, 1994).
*10.24 Letter Agreement, dated January 22, 1997, between the Company and
Nippon Life Insurance Company.
*10.25 Letter, dated July 7, 1997, from the Company to Nippon Life Insurance
Company.
*10.26 Letter Agreement, dated January 30, 1998, between the Company and
Nippon Life Insurance Company.
10.27 1994 Agreement, dated April 28, 1994, between the Company, Lehman
Brothers Holdings Inc. and Nippon Life Insurance Company
(incorporated by reference to Exhibit 10.32 of Lehman Brothers
Holdings Inc.'s Transition Report on Form 10-K (Commission File No.
1-9466) for the transition period from January 1, 1994 to November
30, 1994).
10.28 1990 Agreement, dated as of June 12, 1990, by and between the
Company and Nippon Life Insurance Company (incorporated by
reference to Exhibit 10.25 of Shearson Lehman Brothers Holdings
Inc.'s Annual Report on Form 10-K (Commission File No. 1-9466) for
the fiscal year ended December 31, 1990).
10.29 Asset Purchase Agreement dated as of March 12, 1993 between Smith
Barney, Harris Upham & Co. Incorporated, Primerica Corporation and
Shearson Lehman Brothers Inc. (incorporated by reference to Exhibit
10.16 of Shearson Lehman Brothers Holdings Inc.'s Annual Report on
Form 10-K (Commission File No. 1-9466) for the fiscal year ended
December 31, 1992).
10.30 American Express Company 1993 Directors' Stock Option Plan
(incorporated by reference to Exhibit 28.2 of the Company's
Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the
quarter ended March 31, 1993).
10.31 Description of separate pension arrangement between the Company and
George L. Farr (incorporated by reference to Exhibit 10.33 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657)
for the fiscal year ended December 31, 1995).
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|
10.32 American Express Senior Executive Severance Plan (incorporated by
reference to Exhibit 10.1 of the Company's Quarterly Report on Form
10-Q (Commission File No. 1-7657) for the quarter ended June 30,
1994).
10.33 Amendment of American Express Senior Executive Severance Plan
(incorporated by reference to Exhibit 10.1 of the Company's
Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the
quarter ended September 30, 1994).
10.34 Amendment of American Express Company Key Executive Life Insurance
Plan (incorporated by reference to Exhibit 10.3 of the Company's
Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the
quarter ended September 30, 1994).
10.35 Amendment of American Express Company Salary/Bonus Deferral Plan
(incorporated by reference to Exhibit 10.4 of the Company's
Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the
quarter ended September 30, 1994).
10.36 Amendment of Long-Term Incentive Awards under the American Express
Company 1979 and 1989 Long-Term Incentive Plans (incorporated by
reference to Exhibit 10.6 of the Company's Quarterly Report on
Form 10-Q (Commission File No. 1-7657) for the quarter ended
September 30, 1994).
*10.37 Amendments of (i) Long-Term Incentive Awards under the American
Express Company 1979 and 1989 Long-Term Incentive Plans, (ii) the
American Express Senior Executive Severance Plan, (iii) the
American Express Supplemental Retirement Plan, (iv) the American
Express Salary/Bonus Deferral Plan, (v) the American Express Key
Executive Life Insurance Plan and (vi) the IDS Current Service
Deferred Compensation Plan.
10.38 IDS Current Service Deferred Compensation Plan (incorporated by
reference to Exhibit 10.42 of the Company's Annual Report on Form
10-K (Commission File No. 1-7657) for the fiscal year ended
December 31, 1994).
10.39 Amended and Restated American Express Supplemental Retirement Plan
(incorporated by reference to Exhibit 10.1 of the Company's
Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the
quarter ended March 31, 1995).
10.40 American Express Directors' Stock Plan (incorporated by reference
to Exhibit 4.4 of the Company's Registration Statement on from S-8,
dated December 9, 1997 (Commission File No. 333-41779)).
10.41 Agreement dated February 27, 1995 between the Company and Berkshire
Hathaway Inc. (incorporated by reference to Exhibit 10.43 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657)
for the fiscal year ended December 31, 1994).
E-5
|
10.42 Agreement dated July 20, 1995 between the Company and Berkshire
Hathaway Inc. and its subsidiaries (incorporated by reference to
Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q
(Commission File No. 1-7657) for the quarter ended September 30,
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.
*13 Portions of the Company's 1997 Annual Report to Shareholders that are
incorporated herein by reference.
*21 Subsidiaries of the Company.
*23 Consent of Ernst & Young LLP (contained on page F-2 of this Annual
Report on Form 10-K).
*27 Financial Data Schedule.
|
Exhibit 3.2
BY-LAWS
OF
AMERICAN EXPRESS COMPANY
(A New York Corporation)
(as amended through February 23, 1998)
BY-LAWS
OF
AMERICAN EXPRESS COMPANY
ARTICLE I
OFFICES
SECTION 1.1 PRINCIPAL OFFICE. The principal office of the corporation within the State of New York shall be located in the City of New York, County of New York.
SECTION 1.2 OTHER OFFICES. The corporation may have such other offices and places of business within and without the State of New York as the business of the corporation may require.
ARTICLE II
SHAREHOLDERS
SECTION 2.1 ANNUAL MEETING. The annual meeting of the shareholders for the election of directors and for the transaction of other business shall be held at the principal office of the corporation within the State of New York, or at such other place either within or without the State of New York as may be fixed by the Board of Directors (hereinafter referred to as the "Board") from time to time. The annual meeting shall be held on such full business day in each year not earlier than March 15 nor later than April 30 and at such hour as shall be fixed by the Board. If the election of directors shall not be held on the date so fixed for the annual meeting, a special meeting of the shareholders for the election of directors shall be called forthwith in the manner provided herein for special meetings, or as may otherwise be provided by law. (B.C.L. Section 602.)<F1>
SECTION 2.2 SPECIAL MEETINGS. Special Meetings of the shareholders may be held for such purpose or purposes (other than for the election of directors, except as provided in Section 2.1) as shall be specified in a call for such meeting made by resolution of the Board or by a majority of the directors then in office or by the Chief Executive Officer, or by the Secretary upon written demand by the holder or holders of a majority of shares of the corporation then outstanding and entitled to vote in the election of directors. Any such demand by shareholders shall be delivered to the Secretary at the principal executive offices of the corporation, and shall set forth (i) the purpose or purposes of the meeting, and a description of each proposed matter to be approved or addressed at such meeting, including the text of any proposed amendments to the certificate of incorporation or these by-laws, (ii) the name and record address of the shareholder or shareholders demanding the special meeting and (iii) the number of shares of each class of stock of the corporation that are beneficially owned by such shareholders. Upon receiving a demand for a special
meeting by shareholders that conforms to the requirements set forth herein, the
Secretary shall call, and in accordance with these by-laws, give notice of the
special meeting, and shall fix a date of any such meeting not less than sixty
(60) days nor more than ninety (90) days after the receipt by the Secretary of
the demand by shareholders. At any such special meeting only such business may
be transacted which is related to the purpose or purposes set forth in the
notice of meeting. (B.C.L. Section 602(c).)
SECTION 2.3 NOTICE OF MEETINGS. Notice of all meetings of shareholders shall be in writing and shall state the place, date and hour of the meeting and such other matters as may be required by law. Notice of any special meeting shall also state the purpose or purposes for which the meeting is called and shall indicate that it is being issued by or at the direction of the person or persons calling the meeting. A copy of the notice of any meeting, shall be given, personally or by mail, not less than ten nor more than sixty days before the date of the meeting, provided that a copy of such notice may be given by third class mail not less than twenty-four nor more than sixty days before the date of the meeting, to each shareholder entitled to vote at such meeting. If mailed, such notice shall be deemed given when deposited in the United States mail, with postage thereon prepaid, directed to the shareholder at his address as it appears on the record of shareholders, or, if he shall have filed with the Secretary of the corporation a written request that notices to him be mailed at some other address, then directed to him at such other address. Notice of any adjourned meeting of the shareholders shall not be required if the time and place to which the meeting is adjourned are announced at the meeting at which the adjournment is taken, but if after the adjournment the Board or Chief Executive Officer fixes a new record date for the adjourned meeting, notice of the adjourned meeting shall be given to each shareholder of record on the new record date. (B.C.L. Section 605.)
SECTION 2.4 QUORUM AND VOTING. Except as otherwise provided by law or the certificate of incorporation, the holders of a majority of the votes of the shares entitled to vote thereat shall constitute a quorum at any meeting of the shareholders for the transaction of any business, but a lesser interest may adjourn any meeting from time to time and from place to place until a quorum is obtained. Any business may be transacted at any adjourned meeting that might have been transacted at the original meeting. When a quorum is once present to organize a meeting of shareholders, it is not broken by the subsequent withdrawal of any shareholders. Directors shall, except as otherwise required by law or the certificate of incorporation or a by-law adopted by the shareholders, be elected by a plurality of the votes cast in favor of or against such action at a meeting of shareholders by the holders of shares entitled to vote in the election. Any other corporate action taken by vote of the shareholders shall, except as otherwise required by law or the certificate of incorporation, be authorized by a majority of the votes cast at a meeting of shareholders by the holders of shares entitled to vote thereon. Every shareholder of record shall be entitled at every meeting of shareholders to one vote for each share standing in his name on the record of shareholders, unless otherwise provided in the certificate of incorporation. Neither treasury shares, nor shares held by any other corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held by the corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares then entitled to vote. (B.C.L. Sections 608, 614.)
SECTION 2.5 PROXIES. Every shareholder entitled to vote at a meeting of
the shareholders may authorize another person to vote for him by proxy executed
in writing (or in such manner permitted by law) by the shareholder or his
attorney-in-fact. No proxy shall be valid after the expiration of eleven
months from the date thereof, unless otherwise provided in the proxy. Every
proxy shall be revocable at the pleasure of the shareholder executing it,
except that a proxy which is entitled "irrevocable proxy" and which states that
it is irrevocable shall be irrevocable when and to the extent permitted by law.
(B.C.L. Section 609.)
SECTION 2.6 LIST OF SHAREHOLDERS AT MEETINGS. A list of shareholders as of the record date, certified by the Secretary or by the transfer agent of the corporation, shall be produced at any meeting of shareholders upon the request thereat or prior thereto of any shareholder. If the right to vote at any meeting is challenged, the inspectors of election or person presiding thereat shall require such list of shareholders to be produced as evidence of the right of the persons challenged to vote at such meeting, and all persons who appear from such list to be shareholders entitled to vote thereat may vote at such meeting. (B.C.L. Section 607.)
SECTION 2.7 WAIVER OF NOTICE. Notice of a shareholders' meeting need not be given to any shareholder who submits a signed waiver of notice, in person or by proxy, whether before or after the meeting. The attendance of any shareholder at a meeting, in person or by proxy, without protesting prior to the conclusion of the meeting the lack of notice of such meeting, shall constitute a waiver of notice by him. (B.C.L. Section 606.)
SECTION 2.8 INSPECTORS AT SHAREHOLDERS' MEETINGS. The Board, in advance of any shareholders' meeting, may appoint one or more inspectors to act at the meeting or any adjournment thereof and to perform such duties thereat as are prescribed by law. If inspectors are not so appointed, the person presiding at a shareholders' meeting shall appoint one or more inspectors. In case any person appointed fails to appear or act, the vacancy may be filled by appointment made by the Board in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. (B.C.L. Section 610.)
SECTION 2.9 BUSINESS TO BE TRANSACTED AT SHAREHOLDERS' MEETINGS. No business shall be transacted at any annual meeting of shareholders, except as may be (i) specified in the notice of the meeting given by or at the direction of the Board (including, if so specified, any shareholder proposal submitted pursuant to the rules and regulations of the Securities and Exchange Commission), (ii) otherwise brought before the meeting by or at the direction of the Board or (iii) otherwise brought before the meeting in accordance with the procedure set forth in the following paragraph, by a shareholder of the corporation entitled to vote at such meeting.
For business to be brought by a shareholder before an annual meeting of shareholders pursuant to clause (iii) above, the shareholder must have given written notice thereof to the Secretary of the corporation, such notice to be received at the principal executive offices of the corporation not less than 90 nor more than 120 days prior to the one year anniversary of the date of the annual meeting of shareholders of the previous year; provided, however, that
in the event that the annual meeting of shareholders is called for a date that is not within 30 days before or after such anniversary date, notice by the shareholder must be received at the principal executive offices of the corporation not later than the close of business on the tenth day following the day on which the corporation's notice of the date of the meeting is first given or made to the shareholders or disclosed to the general public (which disclosure may be effected by means of a publicly available filing with the Securities and Exchange Commission), whichever occurs first. A shareholder's notice to the Secretary shall set forth, as to each matter the shareholder proposes to bring before the annual meeting of shareholders, (i) a brief description of the business proposed to be brought before the annual meeting of shareholders and of the reasons for bringing such business before the meeting and, if such business includes a proposal to amend either the certificate of incorporation or these by-laws, the text of the proposed amendment, (ii) the name and record address of the shareholder proposing such business, (iii) the number of shares of each class of stock of the corporation that are beneficially owned by such shareholder, (iv) any material interest of the shareholder in such business and (v) such other information relating to the proposal that is required to be disclosed in solicitations pursuant to the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Securities and Exchange Commission or other applicable law.
Notwithstanding anything in these by-laws to the contrary, no business shall be conducted at an annual meeting of shareholders except in accordance with the procedures set forth in this Section 2.9; provided, however, that nothing in this Section 2.9 shall be deemed to preclude discussion by any shareholder of any business properly brought before the annual meeting of shareholders in accordance with such procedures. The chairman of an annual meeting of shareholders shall, if the facts warrant, determine and declare to the meeting that the business was not properly brought before the meeting in accordance with the provisions of this Section 2.9, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the annual meeting of shareholders shall not be transacted.
ARTICLE III
DIRECTORS
SECTION 3.1 POWERS, NUMBER, QUALIFICATIONS AND TERM OF OFFICE. The business of the corporation shall be managed by its Board, which shall consist of not less than seven persons, each of whom shall be at least twenty-one years of age. Subject to such limitation, the number of directors shall be fixed and may be increased or decreased from time to time by a majority of the entire Board. Directors need not be shareholders. Except as otherwise provided by law or these by-laws, the directors shall be elected at the annual meetings of the shareholders, and each director shall hold office until the next annual meeting of shareholders, and until his successor has been elected and qualified. Newly created directorships resulting from an increase in the number of directors and any vacancies occurring in the Board for any reason, including vacancies occurring by reason of the removal of any of the directors with or without cause, may be filled by vote of a majority of the directors then in office, although less than a quorum exists. No decrease in the number of directors shall shorten the terms of any incumbent director. A director
elected to fill a vacancy shall be elected to hold office for the unexpired term of his predecessor. If the Board has not elected a Chairman of the Board as an officer, it may choose a Chairman of the Board from among its members to preside at its meetings. (B.C.L. Sections 701, 702, 703, 705.)
SECTION 3.2 REGULAR MEETINGS. There shall be regular meetings of the Board, which may be held on such dates and without notice or upon such notice as the Board may from time to time determine. Regular meetings shall be held at the principal office of the corporation within the State of New York or at such other place either within or without the State of New York and at such specific time as may be fixed by the Board from time to time. There shall also be a regular meeting of the Board, which may be held without notice or upon such notice as the Board may from time to time determine, after the annual meeting of the shareholders or any special meeting of the shareholders at which an election of directors is held. (B.C.L. Sections 710, 711.)
SECTION 3.3 SPECIAL MEETINGS. Special meetings of the Board may be held at any place within or without the State of New York at any time when called by the Chairman of the Board or the President or four or more directors. Notice of the time and place of special meetings shall be given to each director by serving such notice upon him personally within the City of New York at least one day prior to the time fixed for such meeting, or by mailing or telegraphing it, prepaid, addressed to him at his post office address, as it appears on the books of the corporation, at least three days prior to the time fixed for such meeting. Neither the call or notice nor any waiver of notice need specify the purpose of any meeting of the Board. (B.C.L. Sections 710, 711.)
SECTION 3.4 WAIVER OF NOTICE. Notice of a meeting need not be given to any director who signs a waiver of notice whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to him. (B.C.L. Section 711(c).)
SECTION 3.5 QUORUM AND VOTING. One-third of the entire Board shall constitute a quorum. A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place. Notice of any adjournment shall be given to the directors who were not present at the time of the adjournment and, unless the time and place of such adjournment are announced at the meeting, to the other directors. The vote of a majority of the directors present at the time of the vote, if a quorum is present at such time, shall be the act of the Board, except where a larger vote is required by law, the certificate of incorporation or these by-laws. (B.C.L. Sections 701, 708, 711(d).)
SECTION 3.6 ACTION BY THE BOARD. Any reference in these by-laws to corporate action to be taken by the Board shall mean such action at a meeting of the Board. However, any action required or permitted to be taken by the Board or any committee thereof may be taken without a meeting if all members of the Board or the committee consent in writing to the adoption of a resolution authorizing the action. The resolution and the written consent thereto by the members of the Board or committee shall be filed with the minutes of the proceedings of the Board or committee. Any one or more members of the Board or any committee thereof may participate in a meeting of such Board or committee by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at the meeting. (B.C.L. Section 708.)
SECTION 3.7 COMMITTEES OF THE BOARD. The Board by resolution adopted by a majority of the entire Board may designate from among its members one or more committees, each consisting of three or more directors. Each such committee shall have all the authority of the Board to the extent provided in such resolution, except as limited by law. No such committee shall exercise its authority in a manner inconsistent with any action, direction, or instruction of the Board.
The Board may appoint a Chairman of any committee (except for the Executive Committee, if one is established, in the case where the Chairman of the Executive Committee has been elected pursuant to Section 4.1 of these by-laws), who shall preside at meetings of their respective committees. The Board may fill any vacancy in any committee and may designate one or more directors as alternate members of such committee, who may replace any absent member or members at any meeting of such committee. Each such committee shall serve at the pleasure of the Board, but in no event beyond its first meeting following the annual meeting of the shareholders.
All acts done and powers conferred by any committee pursuant to the foregoing authorization shall be deemed to be and may be certified as being done or conferred under authority of the Board.
A record of the proceedings of each committee shall be kept and submitted at the next regular meeting of the Board.
At least one-third but not less than two of the members of any committee shall constitute a quorum for the transaction of business, and the vote of a majority of the members present at the time of the vote, if a quorum is present at such time, shall be the act of the committee. If a committee or the Board shall establish regular meetings of any committee, such meetings may be held without notice or upon such notice as the committee may from time to time determine. Notice of the time and place of special meetings of any committee shall be given to each member of the committee in the same manner as in the case of special meetings of the Board. Notice of a meeting need not be given to any member of a committee who signs a waiver of notice whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to him. Except as otherwise provided in these by-laws, each committee shall adopt its own rules of procedure. (B.C.L. Section 712.)
SECTION 3.8 COMPENSATION OF DIRECTORS. The Board shall have authority
to fix the compensation of directors for services in any capacity. (B.C.L.
Section 713(e).)
SECTION 3.9 RESIGNATION AND REMOVAL OF DIRECTORS. Any director may resign at any time by giving written notice thereof to the Chief Executive Officer or to the Board, and such resignation shall take effect at the time therein specified without the necessity of further action. Any director may be removed with or without cause by vote of the shareholders, or with cause by action of the Board. (B.C.L. Section 706.)
SECTION 3.10 THE "ENTIRE BOARD". As used in these by-laws the term "the
entire Board" or "the entire Board of Directors" means the total number of
directors which the corporation would have if there were no vacancies. (B.C.L.
Section 702.)
SECTION 3.11 NOMINATION OF DIRECTORS. Subject to the rights of holders of any class or series of stock having a preference over the common shares as to dividends or upon liquidation, nominations for the election of directors may only be made (i) by the Board or a committee appointed by the Board or (ii) by a shareholder of the corporation entitled to vote at the meeting at which a person is to be nominated in accordance with the procedure set forth in the following paragraph.
A shareholder may nominate a person or persons for election as directors only if the shareholder has given written notice of its intent to make such nomination to the Secretary of the corporation, such notice to be received at the principal executive offices of the corporation (i) with respect to an annual meeting of shareholders, not less than 90 nor more than 120 days prior to the one year anniversary of the date of the annual meeting of shareholders of the previous year; provided, however, that in the event that the annual meeting of shareholders is called for a date that is not within 30 days before or after such anniversary date, notice by the shareholder must be received at the principal executive offices of the corporation not later than the close of business on the tenth day following the day on which the corporation's notice of the date of the meeting is first given or made to the shareholders or disclosed to the general public (which disclosure may be effected by means of a publicly available filing with the Securities and Exchange Commission), whichever occurs first and (ii) with respect to a special meeting of shareholders called for the purpose of electing directors, not later than the close of business on the tenth day following the day on which the corporation's notice of the date of the meeting is first given or made to the shareholders or disclosed to the general public (which disclosure may be effected by means of a publicly available filing with the Securities and Exchange Commission), whichever occurs first. A shareholder's notice to the Secretary shall set forth (i) the name and record address of the shareholder who intends to make such nomination, (ii) the name, age, business and residence addresses and principal occupation of each person to be nominated, (iii) the number of shares of each class of stock of the corporation that are beneficially owned by the shareholder, (iv) a description of all arrangements and understandings between the shareholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such shareholder, (v) such other information relating to the person(s) that is required to be disclosed in solicitations for proxies for election of directors pursuant to the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Securities and Exchange Commission or other applicable law and (vi) the written consent of each proposed nominee to be named as a nominee and to serve as a director of the corporation if elected, together with an undertaking, signed by each proposed nominee, to furnish to the corporation any information it may request upon the advice of counsel for the purpose of determining such proposed nominee's eligibility to serve as a director. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedures and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded.
ARTICLE IV
OFFICERS AND OFFICIALS
SECTION 4.1 OFFICERS. The Board shall elect a Chairman of the Board or a President or both, and a Secretary, a Treasurer and a Comptroller and may elect such other officers, including a Chairman of the Executive Committee and one or more Vice Chairmen of the Board, as the Board shall determine. Each officer shall have such powers and perform such duties as are provided in these by-laws and as may be provided from time to time by the Board or by the Chief Executive Officer. Each officer shall at all times be subject to the control of the Board, and any power or duty assigned to an officer by these by-laws or the Board or the Chief Executive Officer shall be subject to control, withdrawal or limitation by the Board. (B.C.L. Section 715.)
SECTION 4.2 QUALIFICATIONS. Any person may hold two or more offices, except that neither the Chairman nor the President shall be Secretary or Treasurer. The Board may require any officer to give security for the faithful performance of his duties. (B.C.L. Sections 715(e) and (f).)
SECTION 4.3 ELECTION AND TERMINATION. The Board shall elect officers at the meeting of the Board following the annual meeting of the shareholders and may elect additional officers and fill vacancies at any other time. Unless the Board shall otherwise specify, each officer shall hold office until the meeting of the Board following the next annual meeting of the shareholders, and until his successor has been elected and qualified, except as hereinafter provided. The Board may remove any officer or terminate his duties and powers, at any time, with or without cause. Any officer may resign at any time by giving written notice thereof to the Chief Executive Officer or to the Board, or by retiring or by leaving the employ of the corporation (without being employed by a subsidiary or affiliate) and any such action shall take effect as a resignation without necessity of further action. The Chief Executive Officer may suspend any officer until the next meeting of the Board. (B.C.L. Sections 715, 716.)
SECTION 4.4 DELEGATION OF POWERS. Each officer may delegate to any other officer and to any official, employee or agent of the corporation, such portions of his powers as he shall deem appropriate, subject to such limitations and expirations as he shall specify, and may revoke such delegation at any time.
SECTION 4.5 CHAIRMAN OF THE BOARD. The Chairman of the Board may be, but need not be, a person other than the Chief Executive Officer of the corporation. The Chairman of the Board may be, but need not be, an officer or employee of the corporation. The Chairman of the Board shall preside at meetings of the Board of Directors and shall establish agendas for such meetings. In addition, he shall assure that matters of significant interest to shareholders and the investment community are addressed by management. The Chairman of the Board shall be an ex-officio member of each of the standing committees of the Board, except for the Executive Committee, of which he shall be a member.
SECTION 4.6 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall, subject to the direction of the Board, have general and active control of the affairs and business of the corporation and general supervision of its
officers, officials, employees and agents. He shall preside at all meetings of the shareholders. He shall also preside at all meetings of the Board and any committee thereof of which he is a member, unless the Board or such committee shall have chosen another chairman. He shall see that all orders and resolutions of the Board are carried into effect, and in addition he shall have all the powers and perform all the duties generally appertaining to the office of the Chief Executive Officer of a corporation.
The Chief Executive Officer shall designate the person or persons who shall exercise his powers and perform his duties in his absence or disability and the absence or disability of the President.
SECTION 4.7 PRESIDENT. The President may be Chief Executive Officer if so designated by the Board. If not, he shall have such powers and perform such duties as are prescribed by the Chief Executive Officer or by the Board, and, in the absence or disability of the Chief Executive Officer, he shall have the powers and perform the duties of the Chief Executive Officer, except to the extent that the Board shall have otherwise provided.
SECTION 4.8 CHAIRMAN OF THE EXECUTIVE COMMITTEE. The Chairman of the Executive Committee shall be a member of the Executive Committee. He shall preside at meetings of the Executive Committee and shall have such other powers and perform such other duties as are prescribed by the Board or by the Chief Executive Officer.
SECTION 4.9 VICE CHAIRMAN OF THE BOARD. Each Vice Chairman of the Board shall have such powers and perform such duties as are prescribed by the Chief Executive Officer or by the Board.
SECTION 4.10 SECRETARY. The Secretary shall attend all meetings and keep
the minutes of all proceedings of the shareholders, the Board, the Executive
Committee and any other committee unless it shall have chosen another
secretary. He shall give notice of all such meetings and all other notices
required by law or by these by-laws. He shall have custody of the seal of the
corporation and shall have power to affix it to any instrument and to attest
thereto. He shall have charge of the record of shareholders required by law,
which may be kept by any transfer agent or agents under his direction. He
shall maintain the records of directors and officers as required by law. He
shall have charge of all documents and other records, except those for which
some other officer or agent is properly accountable, and shall generally
perform all duties appertaining to the office of secretary of a corporation.
(B.C.L. Sections 605, 624, 718.)
SECTION 4.11 TREASURER. The Treasurer shall have the care and custody of all of the funds, securities and other valuables of the corporation, except to the extent they shall be entrusted to other officers, employees or agents by direction of the Chief Executive Officer or the Board. The Treasurer may hold the funds, securities and other valuables in his care in such vaults or safe deposit facilities, or may deposit them in and entrust them to such bank, trust companies and other depositories, all as he shall determine with the written concurrence of the Chief Executive Officer or his delegate. The Treasurer shall account regularly to the Comptroller for all of his receipts, disbursements and deliveries of funds, securities and other valuables.
The Treasurer or his delegate, jointly with the Chief Executive Officer or his delegate, may designate in writing and certify to any bank, trust company, safe deposit company or other depository the persons (including themselves) who are authorized, singly or jointly as they shall specify in each case, to open accounts in the name of the corporation with banks, trust companies and other depositories, to deposit therein funds, instruments and securities belonging to the corporation, to draw checks or drafts on such accounts in amounts not exceeding the credit balances therein, to order the delivery of securities therefrom, to rent safe deposit boxes or vaults in the name of the corporation, to have access to such facility and to deposit therein and remove therefrom securities and other valuables. Any such designation and certification shall contain the regulations, terms and conditions applicable to such authority and may be amended or terminated at any time.
Such powers may also be granted to any other officer, official, employee or agent of the corporation by resolution of the Board or by power of attorney authorized by the Board.
SECTION 4.12 COMPTROLLER. The Comptroller shall be the chief accounting officer of the corporation and shall have control of all its books of account. He shall see that correct and complete books and records of account are kept as required by law, showing fully, in such form as he shall prescribe, all transactions of the corporation, and he shall require, keep and preserve all vouchers relating thereto for such period as may be necessary.
The Comptroller shall render periodically such financial statements and
such other reports relating to the corporation's business as may be required
by the Chief Executive Officer or the Board. He shall generally perform all
duties appertaining to the office of comptroller of a corporation. (B.C.L.
Section 624.)
SECTION 4.13 OFFICIALS AND AGENTS. The Chief Executive Officer or his delegate may appoint such officials and agents of the corporation as the conduct of its business may require and assign to them such titles, powers, duties and compensation as he shall see fit and may remove or suspend or modify such titles, powers, duties or compensation at any time with or without cause.
ARTICLE V
SHARES
SECTION 5.1 CERTIFICATES. The shares of the corporation shall be represented by certificates or shall be uncertificated shares. Certificates shall be in such form, consistent with law, as prescribed by the Board, and signed and sealed as provided by law. (B.C.L. Section 508.)
SECTION 5.2 TRANSFER OF SHARES. Except as provided in the certificate of incorporation, upon surrender to the corporation or to its transfer agent of a certificate representing shares, duly endorsed or accompanied with proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto and to cancel the old certificate. The corporation shall be entitled to treat the holder of record of any shares as the holder in fact thereof, and,
accordingly, shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not the corporation shall have express or other notice thereof, except as may be required by law. (B.C.L. Section 508(d).)
SECTION 5.3 RECORD OF SHAREHOLDERS. The corporation shall keep at its principal office within the State of New York, or at the office of its transfer agent or registrar in the State of New York, a record in written form, or in any other form capable of being converted into written form within a reasonable time, which shall contain the names and addresses of all shareholders, the numbers and class of shares held by each, and the dates when they respectively became the owners of record thereof. (B.C.L. Section 624(a).)
SECTION 5.4 LOST OR DESTROYED CERTIFICATES. In case of the alleged loss, destruction or mutilation of a certificate or certificates representing shares, the Board may direct the issuance of a new certificate or certificates in lieu thereof upon such terms and conditions in conformity with law as the Board may prescribe. (B.C.L. Section 508(e).)
SECTION 5.5 FIXING RECORD DATE. The Board or the Chief Executive Officer may fix, in advance, a date as the record date for the purpose of determining the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or for the purpose of determining shareholders entitled to receive payment of any dividend or the allotment of any rights, or for the purpose of any other action. Such date shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. (B.C.L. Section 604.)
ARTICLE VI
INDEMNIFICATION OF CORPORATION PERSONNEL
SECTION 6.1 DIRECTORS AND OFFICERS. The corporation shall, to the fullest extent permitted by applicable law as the same exists or may hereafter be in effect, indemnify any person who is or was or has agreed to become a director or officer of the corporation and who is or was made or threatened to be made a party to, and may, in its discretion, indemnify, any person who is or was or has agreed to become a director or officer and is otherwise involved in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, legislative or investigative, including an action by or in the right of the corporation to procure a judgment in its favor and an action by or in the right of any other corporation of any type or kind, domestic or foreign, or any partnership, joint venture, trust, employee benefit plan or other enterprise, which such person is serving or has served or has agreed to serve in any capacity at the request of the corporation, by reason of the fact that he is or was or has agreed to become a director or officer of the corporation, or is or was serving or has agreed to serve such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity, against judgments, fines, amounts paid or to be paid in settlement, penalties, costs, charges and expenses, including attorneys' fees, incurred in connection with such action or proceeding or any appeal thereof; provided, however, that no indemnification shall be provided to any such person if a judgment or other final adjudication adverse to the director or officer establishes that (i) his acts were committed in bad faith
or were the result of active and deliberate dishonesty and, in either case, were material to the cause of action so adjudicated, or (ii) he personally gained in fact a financial profit or other advantage to which he was not legally entitled. The benefits of this Section 6.1 shall extend to the heirs, executors, administrators and legal representatives of any person entitled to indemnification under this Section. (B.C.L. Sections 721, 722.)
SECTION 6.2 OTHER PERSONNEL. The Board in its discretion may authorize the corporation to indemnity any person, other than a director or officer, for expenses incurred or other amounts paid in any civil or criminal action, suit or proceeding, to which such person was, or was threatened to be, made a party by reason of the fact that he, his testator or intestate is or was an employee of the corporation.
SECTION 6.3 OTHER INDEMNIFICATION. The corporation may indemnify any person to whom the corporation is permitted by applicable law or these by-laws to provide indemnification or the advancement of expenses, whether pursuant to rights granted pursuant to, or provided by, the New York Business Corporation Law or any other law or these by-laws or other rights created by (i) a resolution of shareholders, (ii) a resolution of directors, or (iii) an agreement providing for such indemnification, it being expressly intended that these by-laws authorize the creation of other rights in any such manner. The right to be indemnified and to the reimbursement or advancement of expenses incurred in defending a proceeding in advance of its final disposition authorized by this Section 6.3, shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the certificate of incorporation, by-laws, agreement, vote of shareholders or disinterested directors or otherwise. (B.C.L. Sections 721, 723(c).)
SECTION 6.4 MISCELLANEOUS. The right to indemnification conferred by
Section 6.1, and any indemnification extended under Section 6.3, (i) is a
contract right pursuant to which the person entitled thereto may bring suit as
if the provisions thereof were set forth in a separate written contract between
the corporation and such person, (ii) is intended to be retroactive to events
occurring prior to the adoption of this Article VI, to the fullest extent
permitted by applicable law, and (iii) shall continue to exist after the
rescission or restrictive modification thereof with respect to events occurring
prior thereto.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1 FISCAL YEAR. The fiscal year of the corporation shall be the calendar year.
SECTION 7.2 VOTING OF SHARES OF OTHER CORPORATIONS. The Board may authorize any officer, agent or proxy to vote shares of any domestic or foreign corporation of any type or kind standing in the name of this corporation and to execute written consents respecting the same, but in the absence of such specific authorization the Chief Executive Officer of this corporation or his delegate may vote such shares and may execute proxies and written consents with relation thereto.
ARTICLE VIII
AMENDMENTS
SECTION 8.1 GENERAL. Except as otherwise provided by law, these by-laws may be amended or repealed or new by-laws may be adopted by the Board of Directors, or by vote of the holders of the shares at the time entitled to vote in the election of any directors, except that the Board may not amend or repeal any by-law, or adopt any new by-law with respect to the subject matter of any by-law, which specifically states that it may be amended or repealed only by the shareholders. (B.C.L. Section 601.)
SECTION 8.2 AMENDMENT OF THIS ARTICLE. This Article VIII may be amended
or repealed only by the shareholders entitled to vote hereon as provided in
Section 8.1 above.
Exhibit 10.24
[Letterhead of Nippon Life Insurance Company]
January 22, 1997
Mr. Richard K. Goeltz
Vice Chairman and Chief Financial Officer
American Express Company
American Express Tower
World Financial Center
New York, New York 10285
Dear Mr. Goeltz:
We refer to the 1990 Agreement, by and between American Express and us, dated as of June 12, 1990.
We are discussing with Lehman the possibility of Lehman issuing to us in exchange for our Cumulative Convertible Voting Preferred Stock, Series A ("Series A Preferred Stock") an equal number of shares of a new series of preferred stock ("New Preferred Stock"). The terms, rights and privileges of the New Preferred Stock would be identical to the terms, rights and privileges of the Series A Preferred Stock in all respects except that there would no longer be any minimum number of shares that must be converted into Lehman common stock at any one time. Lehman would make a representation to Nippon to the effect that the New Preferred Stock would be legally and validly issued, free of all liens and we would place no liens on the New Preferred Stock. Immediately following this transaction, we would own no shares of Series A Preferred Stock. At the time of the transaction, the foregoing would be the only change involving our equity investments in Lehman.
If the transaction described above is completed, the parties agree that the rights in Section 5.5 and Exhibit 12 of the 1990 Agreement will apply to the New Preferred Stock to the same extent that they currently apply to the Series A Preferred Stock. In addition, Section 10.6 of the 1990 Agreement will apply to the New Preferred Stock. The foregoing is an expression of our mutual intent, but remains subject to American Express' right to review the final terms of the New Preferred Stock to ensure that the terms of and the rights provided by the New Preferred Stock are identical to the terms and rights of the Series A Preferred Stock except the for the minimum conversion requirement.
Except as described herein, the 1990 Agreement will remain unchanged.
Please confirm the foregoing by signing a counterpart of this letter and returning it to us, whereupon this letter will become a binding agreement between American Express and us.
Very truly yours,
Nippon Life Insurance Company
By: /s/ Kiyoshi Ujihara
-----------------------
Name: Kiyoshi Ujihara
Title: Chief Representative
|
Agreed as of the date
set forth above:
American Express Company
By: /s/ Richard K. Goeltz
------------------------
Name: Richard K. Goeltz
Title: Vice Chairman
and Chief Financial Officer
|
Exhibit 10.25
[Letterhead of American Express Company]
July 7, 1997
Mr. Hideichiro Kobayashi
Nippon Life Insurance Company
1251 Avenue of the Americas, Suite 5210
New York, NY 10020-1198
Dear Mr. Kobayashi:
We refer to your letters of January 22, 1997 and June 5, 1997.
As you noted in your June 5 letter, the exchange right in the 1990 agreement permits Nippon to exchange at any one time a minimum of 250,000 shares of Series A Preferred Stock for American Express common shares. In our January 22 letter we indicated we would permit the exchange right to apply to shares of New Preferred Stock to the same extent as the right applies to shares of Series A Preferred Stock. We now agree further that Nippon may aggregate shares of Series A Preferred Stock with shares of New Preferred Stock for purpose of satisfying the 250,000 share minimum.
Very truly yours,
/s/ Richard K. Goeltz -------------------- Richard K. Goeltz Vice Chairman and Chief Financial Officer |
Exhibit 10.26
[Letterhead of American Express Company]
January 30, 1998
Nippon Life Insurance Company
1251 Avenue of the Americas
New York, New York 10029-1198
Attention: Mr. Hideichiro Kobayashi
Ladies and Gentlemen:
We refer to the Investment Agreement, dated as of April 15, 1987, among American Express Company ("Amex"), Lehman Brothers Holdings Inc. ("Lehman") and Nippon Life Insurance Company ("Nippon Life"), the 1990 Agreement, dated as of June 12, 1990, between Amex and Nippon Life, the 1994 Agreement, dated April 28, 1994, among Amex, Lehman and Nippon Life and the letters dated January 22, 1997 and July 7, 1997, each between Amex and Nippon Life (collectively, the "Agreements").
We agree that all remaining rights, obligations and
agreements between Amex and Nippon Life contained in the
Agreements and the exhibits and schedules thereto are terminated,
including but not limited to any rights to exchange shares of
Lehman preferred stock for Amex common shares contained in
Section 5.5 of the 1990 Agreement; provided, that (i) the
registration rights contained in Exhibit 10 to the 1990 Agreement
will continue in accordance with its terms with respect to one
registration on Form S-3 relating to the 4,398,568 Amex common
shares received by Nippon Life from Amex on December 16, 1997
under Section 5.5 of the 1990 Agreement and (ii) Section 10.6 of
the 1990 Agreement shall survive and shall apply to Amex' payment
described below.
Amex and Nippon Life each waive, release and forever discharge each other from every claim, whether known or unknown, that it has or might have under any of the Agreements, except that the foregoing does not apply to any claim relating to the remaining registration right and the survival of Section 10.6 of the 1990 Agreement referred to in the prior paragraph.
As consideration for such agreements, Amex agrees to pay to Nippon Life at the time this letter is executed the sum of $15,050,000.
This letter does not affect or address any other agreements between the parties (including but not limited to the letter agreement dated May 27, 1994 relating to certain tax reimbursements) or our affiliates or any rights, obligations and agreements between one of us and any third party.
This letter may not be varied orally, constitutes the entire agreement between the parties with respect to the subject matter contained herein and will be governed by the laws of the State of New York, without regard to principles of conflicts of laws.
Please confirm your agreement with the above by signing a counterpart of this letter and returning it to us, at which point this letter will become a binding agreement between us.
Very truly yours,
AMERICAN EXPRESS COMPANY
By: /s/ Richard K. Goeltz
---------------------
Richard K. Goeltz
Vice Chairman and
Chief Financial Officer
|
Agreed:
NIPPON LIFE INSURANCE COMPANY
By: /s/ Hideichiro Kobayashi
------------------------
Hideichiro Kobayashi
Chief Representative
|
Exhibit 10.37
The amended definition of "Change in Control" for the Long-Term Incentive Awards under the American Express Company 1979 and 1989 Long-Term Incentive Plans, the American Express Senior Executive Severance Plan, the American Express Supplemental Retirement Plan, the American Express Salary/Bonus Deferral Plan, the American Express Key Executive Life Insurance Plan and the IDS Current Service Deferred Compensation Plan follows:
Attachment A
A "Change in Control" means the happening of any of the following:
(a) Any individual, entity or group (a "Person") (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) becomes
the beneficial owner (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 25% or more of either (i)
the then outstanding common shares of the Company (the
"Outstanding Company Common Shares") or (ii) the combined voting
power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that
such beneficial ownership shall not constitute a Change in
Control if it occurs as a result of any of the following
acquisitions of securities: (i) any acquisition directly from
the Company, (ii) any acquisition by the Company or any
corporation, partnership, trust or other entity controlled by the
Company (a "Subsidiary"), (iii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the
Company or any Subsidiary or (iv) any acquisition by any
corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or
consolidation, the conditions described in clauses (i), (ii) and
(iii) of subsection (c) of this "Change in Control" Section are
satisfied. Notwithstanding the foregoing, a Change in Control
shall not be deemed to occur solely because any Person (the
"Subject Person") became the beneficial owner of 25% or more of
the Outstanding Company Common Shares or Outstanding Company
Voting Securities as a result of the acquisition of Outstanding
Company Common Shares or Outstanding Company Voting Securities by
the Company which, by reducing the number of Outstanding Company
Common Shares or Outstanding Company Voting Securities, increases
the proportional number of shares beneficially owned by the
Subject Person; provided, that if a Change in Control would be
deemed to have occurred (but for the operation of this sentence)
as a result of the acquisition of Outstanding Company Common
Shares or Outstanding Company Voting Securities by the Company,
and after such share acquisition by the Company, the Subject
Person becomes the beneficial owner of any additional Outstanding
Company Common Shares or Outstanding Company Voting Securities
which increases the percentage of the Outstanding Company Common
Shares or Outstanding Company Voting Securities beneficially owned by the Subject Person, then a Change in Control shall then be deemed to have occurred; or
(b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board, including by reason of agreement intended to avoid or settle any such actual or threatened contest or solicitation; or
(c) The consummation of a reorganization, merger or consolidation, in each case, unless, following such reorganization, merger or consolidation, (i) more than 60% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Shares and Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportions as their ownership immediately prior to such reorganization, merger or consolidation of such Outstanding Company Common Shares and Outstanding Company Voting Shares, as the case may be, (ii) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company, a Subsidiary or such corporation resulting from such reorganization, merger or consolidation or any subsidiary thereof, and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 25% or more of the Outstanding Company Common Shares or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 25% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such reorganization, merger or consolidation; or
(d) The consummation of the sale, lease, exchange or other disposition of all or substantially all of the assets of the Company, unless such assets have been sold, leased, exchanged or
disposed of to a corporation with respect to which following such sale, lease, exchange or other disposition (A) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Shares and Outstanding Company Voting Securities immediately prior to such sale, lease, exchange or other disposition in substantially the same proportions as their ownership immediately prior to such sale, lease, exchange or other disposition of such Outstanding Company Common Shares and Outstanding Company Voting Shares, as the case may be, (B) no Person (excluding the Company and any employee benefit plan (or related trust) of the Company or a Subsidiary or such corporation or a subsidiary thereof and any Person beneficially owning, immediately prior to such sale, lease, exchange or other disposition, directly or indirectly, 25% or more of the Outstanding Company Common Shares or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 25% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale, lease, exchange or other disposition of assets of the Company; or
(e) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.
EXHIBIT 12.1
AMERICAN EXPRESS COMPANY
COMPUTATION IN SUPPORT OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
Years Ended December 31,
----------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Earnings:
Pretax income from
continuing operations $ 2,750 $ 2,664 $ 2,183 $ 1,891 $ 2,326
Interest expense 2,122 2,160 2,343 1,925 1,776
Other adjustments 127 139 95 103 88
------ ------ ------ ------ ------
Total earnings (a) $ 4,999 $ 4,963 $ 4,621 $ 3,919 $ 4,190
------ ------ ------ ------ ------
Fixed charges:
Interest expense $ 2,122 $ 2,160 $ 2,343 $ 1,925 $ 1,776
Other adjustments 129 130 135 142 130
------ ------ ------ ------ ------
Total fixed charges (b) $ 2,251 $ 2,290 $ 2,478 $ 2,067 $ 1,906
------ ------ ------ ------ ------
Ratio of earnings to
fixed charges (a/b) 2.22 2.17 1.86 1.90 2.20
|
Included in interest expense in the above computation is interest expense related to the international banking operations of American Express Company (the "Company") and Travel Related Services' Cardmember lending activities, which is netted against interest and dividends and Cardmember lending net finance charge revenue, respectively, in the Consolidated Statements of Income.
For purposes of the "earnings" computation, other adjustments include adding the amortization of capitalized interest, the net loss of affiliates accounted for at equity whose debt is not guaranteed by the Company, the minority interest in the earnings of majority-owned subsidiaries with fixed charges, and the interest component of rental expense and subtracting undistributed net income of affiliates accounted for at equity.
For purposes of the "fixed charges" computation, other adjustments include capitalized interest costs and the interest component of rental expense.
On May 31, 1994, the Company completed the spin-off of Lehman Brothers through a dividend to American Express common shareholders. Accordingly, Lehman Brothers' results are reported as a discontinued operation and are excluded from the above computation for all periods presented. In March 1993, the Company reduced its ownership in First Data Corporation ("FDC") to approximately 22 percent through a public offering. As a result, beginning in 1993, FDC was reported as an equity investment in the above computation. In the fourth quarter of 1995, the Company's ownership was further reduced to approximately 10 percent as a result of shares issued by FDC in connection with a merger transaction. Accordingly, as of December 31, 1995, the Company's investment in FDC is accounted for as Investments - Available for Sale.
EXHIBIT 12.2
AMERICAN EXPRESS COMPANY
COMPUTATION IN SUPPORT OF RATIO OF EARNINGS TO FIXED CHARGES AND
PREFERRED SHARE DIVIDENDS
(Dollars in millions)
Years Ended December 31,
----------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Earnings:
Pretax income from
continuing operations $ 2,750 $ 2,664 $ 2,183 $ 1,891 $ 2,326
Interest expense 2,122 2,160 2,343 1,925 1,776
Other adjustments 127 139 95 103 88
------ ------ ------ ------ ------
Total earnings (a) $ 4,999 $ 4,963 $ 4,621 $ 3,919 $ 4,190
------ ------ ------ ------ ------
Fixed charges and
preferred share
dividends:
Interest expense $ 2,122 $ 2,160 $ 2,343 $ 1,925 $ 1,776
Dividends on preferred
shares - 8 24 50 66
Other adjustments 129 130 135 142 130
------ ------ ------ ------ ------
Total fixed charges and
preferred share
dividends (b) $ 2,251 $ 2,298 $ 2,502 $ 2,117 $ 1,972
------ ------ ------ ------ ------
Ratio of earnings to
fixed charges and
preferred share
dividends (a/b) 2.22 2.16 1.85 1.85 2.12
|
Included in interest expense in the above computation is interest expense related to the international banking operations of American Express Company (the "Company") and Travel Related Services' Cardmember lending activities, which is netted against interest and dividends and Cardmember lending net finance charge revenue, respectively, in the Consolidated Statements of Income.
For purposes of the "earnings" computation, other adjustments include adding the amortization of capitalized interest, the net loss of affiliates accounted for at equity whose debt is not guaranteed by the Company, the minority interest in the earnings of majority-owned subsidiaries with fixed charges, and the interest component of rental expense and subtracting undistributed net income of affiliates accounted for at equity.
For purposes of the "fixed charges and preferred share dividends" computation, dividends on outstanding preferred shares have been increased to an amount representing the pretax earnings required to cover such dividend requirements. Other adjustments include capitalized interest costs and the interest component of rental expense.
On May 31, 1994, the Company completed the spin-off of Lehman Brothers through a dividend to American Express common shareholders. Accordingly, Lehman Brothers' results are reported as a discontinued operation and are excluded from the above computation for all periods presented. In March 1993, the Company reduced its ownership in First Data Corporation ("FDC") to approximately 22 percent through a public offering. As a result, beginning in 1993, FDC was reported as an equity investment in the above computation. In the fourth quarter of 1995, the Company's ownership was further reduced to approximately 10 percent as a result of shares issued by FDC in connection with a merger transaction. Accordingly, as of December 31, 1995, the Company's investment in FDC is accounted for as Investments - Available for Sale.
Exhibit 13
FINANCIAL REVIEW
CONSOLIDATED RESULTS OF OPERATIONS
1997 was an outstanding year for American Express. Our financial results were good and our competitive position improved. During the year we introduced a wide range of new card products with particular focus on international markets, signed a large number of merchants worldwide, expanded the number and range of alliances and partnerships with financial institutions and travel businesses, and increased market share slightly in charge and credit volume in the United States, travel and Travelers Cheques. At the core of our strong performance is a continued focus on three basic operating principles: offering superior value to customers, continually driving toward best-in-class economics and building the American Express brand.
American Express Company (the company) reported record 1997 net income of $1.99 billion, 14 percent higher than operating income of $1.74 billion in 1996; net income was $1.56 billion in 1995. The 1996 operating income excluded two fourth quarter items: a $300 million gain (after-tax) on the exchange of Debt Exchangeable for Common Stock (DECS) for shares of common stock of First Data Corporation (FDC) and a $138 million restructuring charge (after-tax). See Note 3 to the Consolidated Financial Statements for a discussion of this charge. The company's 1997 results exceeded its long-term targets of achieving on average and over time: 12-15 percent earnings per share growth, at least 8 percent growth in revenues and a return on equity of 18-20 percent.
Primary earnings per share were $4.16, $3.57 and $3.11, basic earnings per share were $4.29, $3.67 and $3.19 and diluted earnings per share were $4.15, $3.56 and $3.10 in 1997, 1996 and 1995, respectively. All earnings per share amounts increased 17 percent over the corresponding 1996 amounts. 1996 earnings per share excluded the restructuring charge and the DECS gain referred to above, as discussed in Notes 3 and 4 to the Consolidated Financial Statements, respectively. The rise in earnings per share for 1997 and 1996 reflects revenue growth, margin improvement and a reduction in average shares outstanding in both years.
Consolidated net revenues rose 8 percent in 1997 to $17.8 billion, compared with $16.4 billion and $15.5 billion in 1996 and 1995, respectively, excluding revenues of American Express Life Assurance Company (AMEX Life) which was sold in 1995. Contributing to the 1997 results were increases in worldwide billed business, growth and wider interest margins in Cardmember loans outstanding, as well as higher management and distributions fees. The improvement in 1996 resulted from growth in billed business and management and distribution fees.
The Year 2000 issue is the result of computer programs having been written using two digits rather than four to define a year. Any programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than 2000. This could result in a major system failure or miscalculations which could have a material impact on the operations of the company. A comprehensive review of the company's computer systems and business processes has been conducted to identify the major systems that could be affected by the Year 2000 issue. Steps are being taken to resolve any potential problems including modifications to existing software and the purchase of new software. These modifications are scheduled to be completed and tested on a timely basis. The
-1- (1997 Annual Report p. 22)
costs related to the Year 2000 issue, which are expensed as incurred, are not expected to have a material impact on the company's results of operations or financial condition. The company is also evaluating the Year 2000 readiness of merchants, customers and other third parties whose systems failures could have an impact on the company's operations. The potential materiality of any such impact is not known at this time.
On January 1, 1999, certain European countries plan to adopt a single currency (the euro). For countries adopting the euro, the exchange rate between their local currency and the euro will be fixed as of June 30, 1998. The company has carried out an assessment and identified business requirements for the introduction of the euro. The company is making systems modifications to comply with euro requirements and maintain its competitiveness in the marketplace. The related costs, which are expensed as incurred, are not expected to have a material impact on the company's earnings.
Accounting Developments
In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related Information," which is effective for fiscal years beginning after December 15, 1997 and redefines how operating segments are determined. The company will adopt the provisions of SFAS No. 131 in the first quarter of 1998. As a result, the Travelers Cheque operations which currently are included in the Travel Related Services segment will be reported in the same segment as American Express Bank, consistent with our management structure.
-2- (1997 Annual Report p. 22)
TRAVEL RELATED SERVICES
Results of Operations
STATEMENT OF INCOME
(Amounts in millions)
Years Ended December 31, 1997 1996 1995
-------- -------- --------
Net Revenues:
Discount Revenue $ 5,666 $ 5,024 $ 4,457
Net Card Fees 1,604 1,668 1,742
Travel Commissions and Fees 1,489 1,422 1,368
Interest and Dividends 561 724 969
Other Revenues 2,103 1,867 2,054
Lending:
Finance Charge Revenue 1,848 1,575 1,529
Interest Expense 604 507 497
------- -------- --------
Net Finance Charge
Revenue 1,244 1,068 1,032
------- -------- --------
Total Net Revenues 12,667 11,773 11,622
======= ======== ========
Expenses:
Marketing and Promotion 1,062 998 950
Provision for Losses and Claims:
Charge Card 858 743 835
Lending 817 635 522
Other 88 101 416
-------- -------- --------
Total 1,763 1,479 1,773
Interest Expense:
Charge Card 743 688 673
Other 177 347 453
-------- -------- --------
Total 920 1,035 1,126
Net Discount Expense 597 554 414
Human Resources 3,154 2,984 2,829
Other Operating Expenses 3,266 3,004 2,951
-------- -------- --------
Total Expenses 10,762 10,054 10,043
-------- -------- --------
Pretax Income 1,905 1,719 1,579
Income Tax Provision 551 489 454
-------- -------- --------
Operating Income 1,354 1,230 1,125
Restructuring Charge (net of tax) - 125 -
-------- -------- --------
Net Income $ 1,354 $ 1,105 $ 1,125
======== ======== ========
|
Travel Related Services (TRS) reported earnings of $1.35 billion in 1997, a 10 percent increase from $1.23 billion in 1996, excluding a $125 million restructuring charge ($196 million pretax). 1995 earnings excluding the income of AMEX Life were $1.09 billion.
-3- (1997 Annual Report p. 23)
TRS' net revenues rose 8 percent in 1997 compared with 1996. In the past two years, TRS' net revenues benefited from growth in worldwide billed business and Cardmember loans outstanding. Additionally, 1997 included wider interest margins and increased recognition of recoveries on abandoned property related to the Travelers Cheque business; these recoveries are included in other revenues and were largely offset by higher investment spending on business building initiatives. In both years, growth in billed business resulted from greater spending per basic Cardmember, due in part to rewards programs and expanded merchant coverage, and a larger number of cards outstanding. The increase in worldwide cards in force in both years is primarily attributable to new credit card product launches and a broader product portfolio.
Discount revenue rose in 1997 and 1996 from growth in billed business. Net card fees decreased in both years due to declines in consumer charge cards and the effect of TRS' strategy of building its lending portfolio through the issuance of low- and no-fee credit cards. Travel commissions and fees improved in 1997 and 1996 as a result of increased sales volumes, offset in part by the continued efforts by airlines to reduce distribution costs and by corporate travel and entertainment expense containment efforts. Interest and dividends declined in 1997 and 1996, primarily as a result of a reduction in investments related to the consolidation of certain legal entities within the U.S. Consumer Lending business. The consolidation reduced interest revenue by approximately $82 million and $119 million in 1997 and 1996, respectively, but had no effect on net income as other interest expense decreased by a corresponding amount. The remaining decline in 1997 is attributable to a smaller investment pool at American Express Credit Corporation (Credco). In addition, interest and dividends and other revenues declined in 1996 as a result of the sale of AMEX Life. Lending net finance charge revenue was reduced by the $1 billion asset securitization in the second quarter of 1996 and an additional $1 billion securitization in the third quarter of 1997. (See TRS' Liquidity and Capital Resources discussion.) Excluding these, lending net finance charge revenue rose 24 percent and 11 percent in 1997 and 1996, respectively. The increase in 1997 is due to higher worldwide lending balances and a widening of interest margins on the U.S. portfolio resulting from a smaller portion of the portfolio being subject to lower introductory interest rates. The growth in 1996 resulted from larger worldwide lending balances, partially offset by reduced interest margins on the U.S. portfolio due to introductory interest rates on new products.
-4- (1997 Annual Report p. 23)
SELECTED STATISTICAL INFORMATION
(Amounts in billions, except percentages and where indicated)
Years Ended December 31, 1997 1996 1995
------- ------- -------
Total Cards in Force (millions):
United States 29.6 29.2 26.7
Outside the United States 13.1 12.3 11.6
------- ------- -------
Total 42.7 41.5 38.3
======= ======= =======
Basic Cards in Force (millions):
United States 23.3 22.5 20.0
Outside the United States 10.0 9.6 9.2
------- ------- -------
Total 33.3 32.1 29.2
======= ======= =======
Card Billed Business:
United States $ 150.5 $ 131.0 $ 115.2
Outside the United States 58.7 53.3 47.3
------- ------- -------
Total $ 209.2 $ 184.3 $ 162.5
======= ======= =======
Average Discount Rate* 2.73% 2.75% 2.76%
Average Basic Cardmember
Spending (dollars)* $ 6,473 $ 6,074 $ 5,829
Average Fee per Card (dollars)* $ 39 $ 42 $ 47
Travel Sales $ 17.4 $ 15.8 $ 15.1
Travel Commissions and
Fees/Sales 8.6% 9.0% 9.1%
Travelers Cheque:
Sales $ 25.0 $ 26.0 $ 25.6
Average Outstanding $ 5.9 $ 6.0 $ 6.0
Tax Equivalent Yield 9.2% 9.4% 9.7%
Owned and Managed Charge Card
Receivables:**
Total Receivables $ 23.5 $ 22.5 $ 20.5
90 Days Past Due as a
% of Total 3.1% 3.2% 3.5%
Loss Reserves (millions) $ 951 $ 923 $ 952
% of Receivables 4.0% 4.1% 4.6%
% of 90 Days Past Due 132% 128% 131%
Net Loss Ratio 0.50% 0.51% 0.51%
Owned and Managed U.S. Cardmember
Lending:**
Total Loans $ 14.6 $ 12.7 $ 10.0
Past Due Loans as a % of Total:
30-89 Days 2.4% 2.4% 2.8%
90+ Days 1.1% 0.9% 1.0%
Loss Reserves (millions):
Beginning Balance $ 488 $ 443 $ 357
Provision 867 607 477
Net Charge-Offs/Other (766) (562) (391)
------- ------- -------
-5- (1997 Annual Report p. 24)
|
Ending Balance $ 589 $ 488 $ 443
======== ======= =======
% of Loans 4.0% 3.8% 4.5%
% of Past Due 116% 117% 116%
Average Loans $ 13.3 $ 10.8 $ 8.8
Net Write-Off Rate 6.0% 5.2% 4.4%
Net Interest Yield 9.1% 8.8% 9.9%
|
* Computed excluding Cards issued by strategic alliance partners and independent operators as well as business billed on those Cards. ** Owned and managed Cardmember receivables and loans include securitized assets not reflected in the Consolidated Balance Sheets.
The growth in marketing and promotion expense in 1997 reflected higher media and merchant-related advertising costs. The increase in 1996 resulted from new product activity. The worldwide Charge Card provision rose in 1997 primarily driven by volume growth. In 1996, the Charge Card provision declined due to improved credit quality, particularly in Latin America. The worldwide lending provision increased in 1997 and 1996 as a result of portfolio growth as well as higher loss rates. The growth in the lending provision was partly offset by the securitizations of U.S. Cardmember loans in 1997 and 1996. The other provision for losses declined in 1996 due to the sale of AMEX Life. Charge Card interest expense rose in 1997 and 1996 as a result of higher volumes, partly offset by lower borrowing rates. The decline in other interest expense mirrors the decrease in interest revenue as a result of the reduction in investments discussed previously. The growth in human resources expense primarily reflected higher systems programmers' costs for technology projects and merit increases in both years. Other operating expenses rose in 1997 and 1996 due to Cardmember loyalty programs, business growth and investment spending. The increase in 1996 was partially offset as a result of the sale of AMEX Life.
The 1996 restructuring charge primarily related to a series of reengineering initiatives in the card and travel businesses implemented in 1997. Approximately two-thirds of the restructuring charge applied to TRS' international businesses. It included $109 million pretax in severance costs and $87 million pretax to close certain leased facilities, to consolidate or outsource certain operations, and to write down certain assets. Approximately $125 million of the pretax charge required cash outlays for severance, lease obligations and other facilities costs.
TRS' asset securitization programs increased fee revenue by $195 million, $157 million and $84 million in 1997, 1996 and 1995, respectively. The Charge Card securitization program resulted in net discount expense of $597 million, $554 million and $414 million in 1997, 1996 and 1995, respectively. The program also reduced the Charge Card provision by $247 million, $246 million and $167 million in 1997, 1996 and 1995, respectively, and Charge Card interest expense by $230 million, $183 million and $163 million in 1997, 1996, and 1995, respectively. The revolving credit securitization program also reduced lending net finance charge revenue by $167 million and $75 million and the lending provision by $120 million and $43 million, in 1997 and 1996, respectively. These securitizations had no material effect on net income for any year presented.
-6- (1997 Annual Report p. 24)
Liquidity and Capital Resources
SELECTED BALANCE SHEET INFORMATION
(Amounts in billions, except percentages)
December 31, 1997 1996
------ ------
Accounts Receivable, net $ 20.9 $ 19.5
Travelers Cheque Investments $ 5.6 $ 5.6
U.S. Cardmember Lending Balances $ 12.6 $ 11.7
Total Assets $ 47.2 $ 43.1
Travelers Cheques Outstanding $ 5.6 $ 5.8
Short-term Debt $ 20.9 $ 18.4
Long-term Debt $ 6.0 $ 5.0
Total Liabilities $ 42.2 $ 38.4
Total Shareholder's Equity $ 5.0 $ 4.7
Return on Average Equity* 27.9% 25.6%
Return on Average Assets* 3.0% 2.8%
|
* Excluding the effect of SFAS No. 115 and the fourth quarter 1996 restructuring charge of $125 million after-tax.
In 1996, American Express Centurion Bank (Centurion Bank) and American Express Receivables Financing Corporation II, a newly formed wholly owned subsidiary of TRS, created a new trust, the American Express Credit Account Master Trust (the Trust), to securitize revolving credit loans. The Trust securitized $1 billion of loans in 1996 and an additional $1 billion in August 1997, through the public issuance of two classes of investor certificates and a privately placed collateral interest in the assets of the Trust. The securitized assets consist of loans arising in a portfolio of designated Optima Card, Optima Line of Credit and Sign & Travel revolving credit accounts owned by Centurion Bank. These securitized loans are not in the Consolidated Balance Sheets.
In addition, the American Express Master Trust securitizes charge card receivables generated under designated American Express Card, Gold Card and Platinum Card consumer accounts through the issuance of trust certificates. At December 31, 1997 and 1996, TRS had securitized $3.25 billion and $3.75 billion, respectively, of receivables, which are not in the Consolidated Balance Sheets.
In 1997, Credco issued and sold exclusively outside the United States and to non-U.S. persons, $400 million Floating Rate Notes and an additional $400 million of 6.5% Fixed Rate Notes. These notes are listed on the Luxembourg Stock Exchange and will mature in 2002. At December 31, 1997, Credco had approximately $2.5 billion of medium and long-term debt and warrants available for issuance under shelf registrations filed with the Securities and Exchange Commission.
TRS, primarily through Credco, maintained commercial paper outstanding of approximately $14.5 billion at an average interest rate of 6.0 percent and approximately $13.0 billion at an average interest rate of 5.7 percent at December 31, 1997 and 1996, respectively. Unused lines of credit of approximately $7.3 billion, which expire in increments from 1998 through 2002, were available at December 31, 1997 to support a portion of TRS' commercial paper borrowings.
-7- (1997 Annual Report p. 25)
Borrowings under bank lines of credit totaled $1.7 billion at December 31, 1997 and $1.4 billion at December 31, 1996.
AMERICAN EXPRESS FINANCIAL ADVISORS
Results of Operations
STATEMENT OF INCOME
(Amounts in millions)
Years Ended December 31, 1997 1996 1995
------ ------ ------
Revenues:
Investment Income $2,339 $2,267 $2,209
Management and Distribution Fees 1,486 1,205 935
Other Revenues 774 638 547
------ ------ ------
Total Revenues 4,599 4,110 3,691
------ ------ ------
Expenses:
Provision for Losses and Benefits:
Annuities 1,214 1,208 1,156
Insurance 452 420 401
Investment Certificates 200 197 205
------ ------ ------
Total 1,866 1,825 1,762
Human Resources 1,229 1,034 877
Other Operating Expenses 482 366 297
------ ------ ------
Total Expenses 3,577 3,225 2,936
------ ------ ------
Pretax Income 1,022 885 755
Income Tax Provision 315 291 252
------ ------ ------
Net Income $ 707 $ 594 $ 503
====== ====== ======
|
American Express Financial Advisors (AEFA) reported increases in revenues of 12 and 11 percent, and earnings of 19 and 18 percent for 1997 and 1996, respectively. Revenue and earnings in both years benefited primarily from higher fees due to growth in managed assets and record mutual fund sales.
The improvement in investment income reflected higher average investments of 4 and 5 percent in 1997 and 1996, respectively, partly offset by lower investment yields in 1996. Management and distribution fees rose in both years due to greater management fee revenue from higher managed and separate account assets. The increase in these assets in both years was due to strong market appreciation and positive net sales. Distribution fees improved in both years reflecting strong mutual fund sales. Other revenues rose in both years from increased life insurance contract charges and premiums and from higher financial planning and tax preparation fees in 1997.
-8- (1997 Annual Report p. 25)
Provisions for losses and benefits for annuities and insurance grew in both years due to higher business in force, partially offset by lower credited rates. Human resources expense rose in both years, reflecting rising financial advisors' compensation from growth in sales and asset levels, and a greater number of employees to support business expansion. The growth in other operating expenses in both years primarily resulted from higher data processing, technology spending and advertising expenditures. In 1997, there also were increased occupancy and equipment costs. The lower effective tax rate in 1997 is due to tax credits from low income housing investments.
SELECTED STATISTICAL INFORMATION
(Amounts in millions, except percentages and where indicated)
Years Ended December 31, 1997 1996 1995
------- ------- -------
Revenues, Net of Provisions $ 2,732 $ 2,285 $ 1,929
Life Insurance
in Force (billions) $ 74.5 $ 67.3 $ 59.4
Deferred Annuities
in Force (billions) $ 41.7 $ 37.5 $ 34.1
Assets Owned and/or
Managed (billions):
Assets managed
for institutions $ 40.8 $ 37.3 $ 32.0
Assets owned and managed
for individuals:
Owned Assets:
Separate Account Assets 23.2 18.5 15.0
Other Owned Assets 36.6 34.2 33.3
------- ------- -------
Total Owned Assets 59.8 52.7 48.3
------- ------- -------
Managed Assets 72.8 59.4 49.2
------- ------- -------
Total $ 173.4 $ 149.4 $ 129.5
======= ======= =======
Market Appreciation (Depreciation)
During the Period:
Owned Assets:
Separate Account Assets $ 3,170 $ 1,937 $ 2,839
Other Owned Assets $ 262 $ (232) $ 927
Managed Assets $11,735 $ 9,063 $12,246
Sales of Selected Products:
Mutual Funds $17,179 $14,331 $10,202
Annuities $ 3,473 $ 4,311 $ 3,520
Investment Certificates $ 1,194 $ 736 $ 1,467
Life and Other
Insurance Products $ 421 $ 449 $ 383
Number of Financial Advisors 8,776 8,340 7,945
Fees from Financial
Plans (thousands) $60,809 $48,072 $40,828
Product Sales Generated
from Financial Plans as a
Percentage of Total Sales 65.7% 64.0% 64.1%
------- ------- -------
|
-9- (1997 Annual Report p. 26)
Liquidity and Capital Resources
SELECTED BALANCE SHEET INFORMATION
(Amounts in billions, except percentages)
December 31, 1997 1996
------ ------
Investments $ 30.7 $ 28.6
Assets Held in Segregated
Asset Accounts $ 23.2 $ 18.5
Total Assets $ 59.8 $ 52.7
Client Contract Reserves $ 30.2 $ 28.9
Total Liabilities $ 56.1 $ 49.5
Total Shareholder's Equity $ 3.7 $ 3.2
Return on Average Equity* 21.8% 20.4%
|
* Excluding the effect of SFAS No. 115.
AEFA's total assets and liabilities grew primarily due to separate accounts as a result of market appreciation and positive net sales. Investments comprised primarily of corporate bonds and mortgage-backed securities, including $3.0 billion and $2.6 billion in below investment grade debt securities as well as $3.8 billion and $3.7 billion in mortgage loans at December 31, 1997 and 1996, respectively. Investments are principally funded by sales of insurance and annuities and by reinvested income. Maturities of these investments are matched, for the most part, with the expected future payments of insurance and annuity obligations. Separate account assets, primarily investments carried at market value, are for the exclusive benefit of variable annuity and variable life insurance contract holders. AEFA earns investment management and administration fees from the related accounts.
-10- (1997 Annual Report p. 26)
AMERICAN EXPRESS BANK
Results of Operations
STATEMENT OF INCOME
(Amounts in millions)
Years Ended December 31, 1997 1996 1995
---- ---- ----
Net Revenues:
Interest Income $897 $842 $925
Interest Expense 579 536 604
---- ---- ----
Net Interest Income 318 306 321
Commissions, Fees and
Other Revenues 218 213 243
Foreign Exchange Income 101 72 79
---- ---- ----
Total Net Revenues 637 591 643
---- ---- ----
Provision for Credit Losses 20 23 7
---- ---- ----
Expenses:
Human Resources 242 224 248
Other Operating Expenses 245 239 273
---- ---- ----
Total Expenses 487 463 521
---- ---- ----
Pretax Income 130 105 115
Income Tax Provision 48 37 38
---- ---- ----
Net Income $ 82 $ 68 $ 77
==== ==== ====
|
American Express Bank's (the Bank) 1997 net income was higher than last year as a result of increased foreign exchange trading and net interest income, partially offset by larger operating expenses. 1996 net income was below 1995 as a result of lower revenues and a higher provision for losses, partly offset by reduced expenses.
Net interest income grew in 1997 due to higher average balances in loans and trading securities; in 1996 net interest income fell due to higher borrowing rates and decreased business volumes. Commissions, fees and other revenues increased in 1997 driven by higher fees from new product launches; the decrease in 1996 was primarily due to exiting nonstrategic businesses. Foreign exchange income rose significantly in 1997, reflecting very strong trading results.
The provision for credit losses rose in 1996 due to loan growth, slightly higher consumer and commercial write-offs and lower commercial banking recoveries. Human resources expense grew in 1997 as a result of merit increases and higher incentive compensation; the improvement in 1996 reflected cost reduction initiatives. Other operating expenses rose in 1997 with increased systems technology expenses; the decline in 1996 was due to the transfer of aircraft assets to the Bank's parent.
-11- (1997 Annual Report p. 27)
The Bank has exposures throughout the Asia/Pacific region, including Indonesia, Korea, Thailand as well as Hong Kong and Singapore. Our Risk Management group has been monitoring the Asian financial crisis as it has evolved. The Bank had approximately $2.8 billion in loans outstanding in the entire region at December 31, 1997. In addition to these, there are other banking activities, such as forward contracts, various contingencies and market placements, which add another approximately $1.5 billion to the regional number at year-end. We should be in a better position to estimate any reserve requirements in the relatively near future.
Liquidity and Capital Resources
SELECTED BALANCE SHEET INFORMATION
(Amounts in billions, except percentages and where indicated)
December 31, 1997 1996
----- -----
Investments $ 2.3 $ 2.8
Total Loans $ 6.2 $ 5.9
Reserve for Credit Losses (millions) $ 131 $ 117
Reserves as a Percentage of Total Loans 2.1% 2.0%
Total Nonperforming Loans (millions) $ 47 $ 35
Other Real Estate Owned (millions) $ 4 $ 36
Total Assets $12.8 $12.3
Deposits $ 8.5 $ 8.7
Total Liabilities $12.0 $11.6
Total Shareholder's Equity (millions) $ 830 $ 799
Risk-Based Capital Ratios:
Tier 1 8.8% 8.8%
Total 12.3% 12.5%
Leverage Ratio 5.3% 5.6%
Return on Average Assets* .64% .57%
Return on Average Common Equity* 10.83% 9.22%
|
* Excluding the effect of SFAS No. 115.
The reserve for credit losses rose as a result of a loan recovery in 1997. The Bank had net loan recoveries of $1.6 million and net loan write-offs of $16.2 million in 1997 and 1996, respectively. Other real estate owned declined primarily due to a property sale.
CORPORATE AND OTHER
Corporate and Other net expenses were $152 million, $153 million and $141 million in 1997, 1996 and 1995, respectively. The 1996 amount excludes a $300 million after-tax gain on the exchange of the company's DECS ($480 million pretax) and a $13 million after-tax charge ($20 million pretax) primarily related to the early retirement of debt. Including the above items in 1996, Corporate and Other had net income of $134 million.
Results for all three years include a benefit from an earnings payout from Travelers Inc. (Travelers), related to the 1993 sale of the Shearson Lehman Brothers Division (the 1993 sale). Results for 1997 also reflect preferred dividends received from Lehman Brothers Holdings, Inc. Results for 1996 and 1995
-12- (1997 Annual Report pp. 27-28)
also include the company's share of the participation in Travelers' revenue in accordance with the 1993 sale. Results for 1995 also included a gain from the sale of common stock and warrants of Mellon Bank Corporation. In each year, these gains were offset by certain business building initiatives.
CONSOLIDATED LIQUIDITY AND CAPITAL RESOURCES
The company believes allocating capital to businesses with a return on risk-adjusted equity in excess of its cost of equity and sustained earnings growth in its core business will continue to build shareholder value.
The company's philosophy is to retain enough earnings to help achieve its goals of earnings per share growth in the 12 to 15 percent range. As further described in Note 7 to the Consolidated Financial Statements, the company has undertaken a systematic share repurchase program to offset new share issuances. To the extent retained earnings exceed investment opportunities, the company has returned excess capital to shareholders.
Financing Activities
The company has procedures to transfer immediately short-term funds within the company to meet liquidity needs. These internal transfer mechanisms are subject to and comply with various contractual and regulatory constraints.
The parent company generally meets its short-term funding needs through an intercompany dividend policy and by the issuance of commercial paper. The Board of Directors has authorized a parent company commercial paper program that is supported by a $1.3 billion multi-purpose credit facility that expires in increments from 1998 through 2002. No borrowings have been made under this credit facility. There was no parent company commercial paper outstanding during 1997 and at December 31, 1996.
Total parent company long-term debt outstanding was $1,079 million at December 31, 1997 and $666 million at December 31, 1996. In June 1997, the parent company issued $500 million of 6.75% Global Notes due June 23, 2004. The proceeds from this issuance were used for general corporate purposes. At December 31, 1997 and 1996, the parent company had $550 million and $1.1 billion, respectively, of debt or equity securities available for issuance under a shelf registration filed with the Securities and Exchange Commission. In addition, TRS, Credco, American Express Overseas Credit Corporation Limited and the Bank have established programs for the issuance, outside the United States, of debt instruments to be listed on the Luxembourg Stock Exchange. In 1997, Centurion Bank was added to this program. The maximum aggregate principal amount of debt instruments outstanding at any one time under the program will not exceed $3 billion. At December 31, 1997 and 1996, $1.1 billion and $300 million of debt, respectively, has been issued under this program.
Risk Management
Management establishes and oversees implementation of Board-approved policies covering the company's funding, investments and use of derivative financial instruments and monitors aggregate risk exposures on an ongoing basis. The company's objective is to realize returns commensurate with the level of risk assumed while achieving consistent earnings growth. Individual business segments are responsible for managing their respective exposures within the context of Board-approved policies. See Note 11 to the Consolidated Financial Statements for a discussion of the company's use of derivatives.
-13- (1997 Annual Report p. 28)
The sensitivity analysis of three different tests of market risk in the following sections estimate the effects of hypothetical sudden and sustained changes in the applicable market conditions on the ensuing year's earnings. The market changes, assumed to occur as of December 31, 1997, are a 100 basis point increase in market interest rates, a 10% strengthening of the U.S. dollar versus all other currencies, and a 10% decline in the value of equity securities under management at AEFA. Computations of the prospective effects of hypothetical interest rate, foreign exchange rate and equity market changes are based on numerous assumptions, including relative levels of market interest rates, foreign exchange rates and equity prices, as well as the levels of assets and liabilities. The hypothetical changes and assumptions will be different from what actually occurs in the future. Furthermore, the computations do not anticipate actions that may be taken by management if the hypothetical market changes actually occurred over time. As a result, actual earnings effects in the future will differ from those quantified below.
A variety of interest rate and foreign exchange hedging strategies are employed to manage interest rate and foreign currency risks. TRS' hedging policies are established, maintained and monitored by a central treasury function. TRS generally manages its exposures along product lines.
For Charge Card products, TRS funds its Cardmember receivables using both on-balance sheet sources such as long-term debt, medium-term notes, commercial paper and other debt, and an asset securitization program. Such funding is predominantly obtained by Credco and its subsidiaries. Interest rate exposure is managed through the issuance of long- and short-term debt and the use of interest rate swaps to achieve a targeted mix of fixed and floating rate funding. TRS currently targets this mix to be approximately 100 percent floating rate. In early 1998, TRS purchased interest rate caps to limit the adverse effect of an interest rate increase on substantially all Charge Card funding costs. The majority of the caps will mature by the end of 1998. TRS periodically reviews and may change this policy.
For its lending products, TRS funds its Cardmember loans using a mixture of long- and short-term debt, and an asset securitization program, primarily through Centurion Bank. The interest rates on TRS' lending products are linked to a floating rate base and typically reprice each month. TRS generally enters into interest rate swaps, paying rates that reprice similarly with changes in the base rate of the underlying loans.
The detrimental effect on TRS earnings of the hypothetical 100 basis point increase in interest rates described above would be approximately $164 million pretax. This effect, which is primarily due to the variable rate funding of the Charge Card products, is based on December 31, 1997 positions. The interest rate caps purchased in early 1998 would reduce that effect by nearly half.
TRS' foreign exchange risk arising from cross-currency charges and balance sheet exposures is managed primarily by entering into agreements to buy and sell currencies on a spot or forward basis. In the latter part of 1997, foreign currency forward contracts were both sold ($562 million) and purchased ($92 million) to manage a majority of anticipated 1998 cash flows in major overseas markets.
Based on the year-end 1997 foreign exchange positions, but excluding the forward contracts managing the anticipated 1998 overseas cash flows, the effect on TRS' earnings of the hypothetical 10% strengthening of the U.S. dollar would
-14- (1997 Annual Report pp. 28-29)
be immaterial. With respect to the forward contracts related to anticipated 1998 cash flows, the 10% strengthening would create a hypothetical net pretax gain of $41 million. Such a gain, if any, would mitigate the negative impact that a strengthening U.S. dollar would have on 1998 overseas earnings.
AEFA owned investment securities are, for the most part, held by its life insurance and investment certificate subsidiaries which primarily invest in long-term and intermediate-term fixed income securities to provide their clients with a competitive rate of return on their investments while minimizing risk. Investment in fixed income securities provides AEFA with a dependable and targeted margin between the interest rate earned on investments and the interest rate credited to clients' accounts. AEFA does not invest in securities to generate trading profits for its own account.
AEFA's life insurance and investment certificate subsidiaries' investment committees meet regularly to review models projecting different interest rate scenarios and their impact on the profitability of each subsidiary. The committees' objective is to structure their investment security portfolios based upon the type and behavior of the products in the liability portfolios, to achieve targeted levels of profitability and meet contractual obligations.
Rates credited to customers' accounts are generally reset at shorter intervals than the maturity of underlying investments. Therefore, AEFA's margins may be impacted by changes in the general level of interest rates. Part of the committees' strategies include the purchase of derivatives, such as interest rate caps, swaps and floors, for hedging purposes.
The negative effect on AEFA's earnings of the 100 basis point increase in interest rates would be approximately $40 million pretax. It assumes repricings and customer behavior based on the application of proprietary models to the book of business at December 31, 1997 and also includes a small decline in AEFA's fees earned on managed fixed income assets.
AEFA's fees earned on the management of equity securities in variable annuities and mutual funds are generally based on the value of the portfolios. To manage the level of 1998 fee income, AEFA has entered into a series of stock index option transactions designed to mitigate, for a substantial portion of the portfolios, the negative effect on fees that would result from a decline in the equity market. The negative effect on AEFA's earnings of the 10% decline in equity markets discussed above would be approximately $20 million pretax, net of the impact of the index options.
The Bank employs a variety of on- and off-balance sheet financial instruments in managing its exposure to fluctuations in interest and currency rates. Derivative instruments consist principally of foreign exchange spot and forward contracts, interest rate swaps, foreign currency options and forward rate agreements. Generally, they are used to manage specific on-balance sheet interest rate and foreign exchange exposures related to deposits and long-term debt, equity, loans and securities holdings.
The negative effect of the 100 basis point increase in interest rates on the Bank's earnings would be approximately $9 million pretax. The impact of the 10% strengthening of the U.S. dollar described above would be negligible on earnings and, with respect to translation exposure of foreign operations, would result in a $14 million pretax charge against equity.
-15- (1997 Annual Report pp. 29-30)
The Bank also utilizes foreign exchange and interest rate products to meet the needs of its customers. Customer positions are usually, but not always, offset. They are evaluated in terms of the Bank's overall interest rate or foreign exchange exposure. The Bank also takes limited proprietary positions. Potential daily negative earnings effects from these activities are estimated using a Value at Risk model that employs a parametric technique using a correlation matrix based on historical data. At December 31, 1997, there was a 99.0% probability that any potential loss for one day would be less than $1 million.
Asset/liability and market risk management at the Bank is supervised by the Asset and Liability (ALCO) and Risk Management Committees, respectively. These committees are comprised of senior business managers and the Chairman of the Bank. Both committees meet monthly and monitor (a) liquidity, (b) capital levels and (c) investment portfolios. Both committees evaluate current market conditions and determine the Bank's tactics within risk limits approved by the Bank's Board of Directors. The Bank's treasury and global trading management issues policies and control procedures and delegate risk limits throughout the Bank's country trading operations.
The Bank's overall credit policies are approved by the Finance and Credit Policy Committee of the Bank's Board of Directors. Credit lines are based on a tiered approval ladder, with levels of authority delegated to each country, geographic area, the Bank's Senior management, and the Bank's Board of Directors. Approval authorities are based on factors such as type of borrower, nature of transaction, collateral, and overall risk rating. The Bank controls the credit risk arising from derivative transactions through the same procedures. The Credit Audit department reviews all significant exposures periodically. Risk of all foreign exchange and derivative transactions are reviewed by the Bank on a regular basis.
-16- (1997 Annual Report p. 30)
CONSOLIDATED STATEMENTS OF INCOME
American Express Company
Years Ended December 31, (millions, except per share amounts)
1997 1996 1995
------- ------- -------
Net Revenues
Discount revenue $ 5,666 $ 5,024 $ 4,457
Interest and dividends, net 3,175 3,289 3,499
Net card fees 1,604 1,668 1,742
Travel commissions and fees 1,489 1,422 1,368
Other commissions and fees 1,475 1,261 1,254
Cardmember lending net finance charge revenue 1,244 1,068 1,032
Management and distribution fees 1,486 1,205 935
Life and other insurance premiums 424 395 735
Other 1,197 1,048 899
------- ------- -------
Total 17,760 16,380 15,921
======= ======= =======
Expenses
Human resources 4,700 4,325 4,039
Provisions for losses and benefits:
Annuities and investment certificates 1,414 1,405 1,392
Life insurance and other 567 544 793
Charge card 858 743 835
Cardmember lending 817 635 522
Interest:
Charge card 743 688 673
Other 181 428 569
Occupancy and equipment 1,139 1,126 1,094
Marketing and promotion 1,118 1,071 977
Professional services 1,028 951 834
Communications 450 445 407
Other 1,995 1,355 1,603
------- ------- -------
Total 15,010 13,716 13,738
======= ======= =======
Pretax income 2,750 2,664 2,183
Income tax provision 759 763 619
------- ------- -------
Net income $ 1,991 $ 1,901 $ 1,564
======= ======= =======
Earnings Per Common Share
Basic $ 4.29 $ 4.02 $ 3.19
Diluted $ 4.15 $ 3.89 $ 3.10
------- ------- -------
Average common shares outstanding for
earnings per common share (millions):
Basic 464 472 485
Diluted 479 488 499
|
See notes to consolidated financial statements.
-17- (1997 Annual Report p. 31)
CONSOLIDATED BALANCE SHEETS
American Express Company
December 31, (millions) 1997 1996
--------- ---------
Assets
Cash and cash equivalents $ 4,179 $ 2,677
Accounts receivable and accrued interest:
Cardmember receivables, less reserves:
1997, $640; 1996, $658 19,275 17,938
Other receivables, less reserves:
1997, $72; 1996, $64 2,499 2,553
Investments 39,648 38,339
Loans:
Cardmember lending, less reserves:
1997, $576; 1996, $482 13,183 12,194
International banking, less reserves:
1997, $131; 1996, $117 6,062 5,760
Other, net 864 564
Separate account assets 23,215 18,535
Deferred acquisition costs 2,894 2,660
Land, buildings and equipment-- at cost,
less accumulated depreciation:
1997, $1,838; 1996, $1,852 1,533 1,675
Other assets 6,651 5,617
--------- ---------
Total assets $ 120,003 $ 108,512
========= =========
Liabilities and Shareholders' Equity
Customers' deposits $ 9,444 $ 9,555
Travelers Cheques outstanding 5,634 5,838
Accounts payable 4,876 4,601
Insurance and annuity reserves:
Fixed annuities 22,112 21,838
Life and disability policies 4,053 3,836
Investment certificate reserves 4,149 3,265
Short-term debt 20,570 18,402
Long-term debt 7,873 6,552
Separate account liabilities 23,215 18,535
Other liabilities 8,503 7,562
-------- --------
Total liabilities 110,429 99,984
======== ========
Shareholders' Equity
Common shares, $.60 par value,
authorized 1.2 billion shares; issued and
outstanding 466.4 million shares in 1997
and 472.9 million shares in 1996 280 284
Capital surplus 4,624 4,191
Net unrealized securities gains 579 386
Foreign currency translation adjustment (97) (89)
Retained earnings 4,188 3,756
-------- --------
Total shareholders' equity 9,574 8,528
-------- --------
Total liabilities and shareholders' equity $120,003 $108,512
======== ========
|
See notes to consolidated financial statements.
-18- (1997 Annual Report p. 32)
CONSOLIDATED STATEMENTS OF CASH FLOWS
American Express Company
Years Ended December 31, (millions) 1997 1996 1995
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations $ 1,991 $ 1,901 $ 1,564
Adjustments to reconcile income from continuing operations
to net cash provided by operating activities:
Provisions for losses and benefits 2,307 2,009 2,086
Depreciation, amortization, deferred taxes and other 187 266 367
Changes in operating assets and liabilities, net of effects of
acquisitions and dispositions:
Accounts receivable and accrued interest (227) 290 (353)
Other assets 334 567 (1,157)
Accounts payable and other liabilities 517 (297) (280)
(Decrease) increase in Travelers Cheques outstanding (111) 141 427
Increase in insurance reserves 172 224 440
(FDC Gain)/restructuring - (162) -
--------- --------- ---------
Net cash provided by operating activities 5,170 4,939 3,094
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of investments 1,778 4,634 2,236
Maturity and redemption of investments 4,827 6,573 8,274
Purchase of investments (7,898) (10,896) (11,242)
Net increase in Cardmember receivables (2,575) (2,770) (3,754)
Cardmember loans/receivables sold to Trust, net 516 2,242 -
Proceeds from repayment of loans 25,591 22,696 21,603
Issuance of loans (29,304) (27,277) (23,960)
Purchase of land, buildings and equipment (343) (438) (347)
Sale of land, buildings and equipment 164 238 91
Dispositions (acquisitions), net of cash sold/acquired 23 (4) 357
--------- --------- ---------
Net cash used by investing activities (7,221) (5,002) (6,742)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in customers' deposits 733 (133) (125)
Sale of annuities and investment certificates 5,888 5,411 5,729
Redemption of annuities and investment certificates (4,965) (5,508) (3,957)
Net increase (decrease) in debt with maturities of 3 months or less 3,823 4,885 (4,700)
Issuance of debt 11,439 13,578 23,012
Principal payments on debt (11,604) (17,384) (15,454)
Issuance of American Express common shares 168 176 246
Repurchase of American Express common shares (1,259) (1,041) (891)
Dividends paid (423) (436) (458)
--------- --------- ---------
Net cash provided (used) by financing activities 3,800 (452) 3,402
Effect of exchange rate changes on cash (247) (8) 13
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 1,502 (523) (233)
Cash and cash equivalents at beginning of year 2,677 3,200 3,433
--------- --------- ---------
Cash and cash equivalents at end of year $ 4,179 $ 2,677 $ 3,200
========= ========= =========
|
See notes to consolidated financial statements.
-19- (1997 Annual Report p. 33)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
American Express Company
Net
Unrealized
Securities
Three Years Ended December 31, 1997 Preferred Common Capital Gains Retained
(millions) Total Shares Shares Surplus (Losses) Other Earnings
----------------------------------- ------- ------- ------- ------- ------- ------- --------
BALANCES AT DECEMBER 31, 1994 $ 6,433 $ 200 $ 298 $ 3,651 $ (389) $(77) $ 2,750
------- ------- ------- ------- ------- ------- --------
Net income 1,564 1,564
Repurchase of common shares (891) (14) (180) (697)
Net put options activity (1) (1)
Change in net unrealized securities
gains (losses) 1,264 1,264
Foreign currency translation adjustments (8) (8)
Other changes, primarily employee plans 313 6 311 (4)
Cash dividends declared:
Preferred (15) (15)
Common, $.90 per share (439) (439)
------- ------- ------- ------- ------- ------- --------
BALANCES AT DECEMBER 31, 1995 8,220 200 290 3,781 875 (85) 3,159
------- ------- ------- ------- ------- ------- --------
Net income 1,901 1,901
Repurchase of common shares (1,041) (13) (177) (851)
Net put options activity 124 124
Change in net unrealized securities
gains (losses) (489) (489)
Conversion of preferred shares into
common - (200) 3 197
Foreign currency translation adjustments (4) (4)
Other changes, primarily employee plans 252 4 266 (18)
Cash dividends declared:
Preferred (6) (6)
Common, $.90 per share (429) (429)
------- ------- ------- ------- ------- ------- --------
BALANCES AT DECEMBER 31, 1996 8,528 - 284 4,191 386 (89) 3,756
------- ------- ------- ------- ------- ------- --------
Net income 1,991 1,991
Repurchase of common shares (1,259) (10) (153) (1,096)
Change in net unrealized securities
gains (losses) 193 193
Foreign currency translation adjustments (8) (8)
Exchange of Lehman Brothers Holdings, Inc.
preferred shares for American Express
common shares 337 3 334
Other changes, primarily employee plans 213 3 252 (42)
Cash dividends declared:
Common, $.90 per share (421) (421)
------- ------- ------- ------- ------- ------- --------
BALANCES AT DECEMBER 31, 1997 $ 9,574 $ - $ 280 $ 4,624 $ 579 $ (97) $4,188
------- ------- ------- ------- ------- ------- --------
|
See notes to consolidated financial statements.
-20- (1997 Annual Report p. 34)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying Consolidated Financial Statements include the accounts of American Express company and its subsidiaries (the company). All significant intercompany transactions are eliminated. Some amounts are based on estimates and assumptions, e.g., reserves for Cardmember Receivables and Loans; Deferred Acquisition Costs; and Insurance and Annuity Reserves. These reflect the best judgment of management and actual results could differ.
Certain amounts from prior years have been reclassified to conform to the current presentation.
Net Revenues
Cardmember Lending Net Finance Charge Revenue is presented net of interest expense of $604 million, $507 million and $497 million for the years ended December 31, 1997, 1996 and 1995, respectively. Interest and Dividends is presented net of interest expense related primarily to the company's international banking activities of $594 million, $536 million and $604 million for the years ended December 31, 1997, 1996 and 1995, respectively.
Marketing and Promotion
The company expenses advertising costs in the year in which the advertising first takes place.
Cash and Cash Equivalents
The company has defined cash equivalents to include time deposits with original maturities of 90 days or less, excluding those that are restricted by law or regulation.
Separate Account Assets and Liabilities
Separate account assets and liabilities are funds held for the exclusive benefit of variable annuity and variable life insurance contract holders. The company receives investment management fees, mortality and expense assurance fees, minimum death benefit guarantee fees and cost of insurance charges from the related accounts.
NOTE 2 EARNINGS PER COMMON SHARE
The company adopted Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share," effective for the quarter and year-ended December 31, 1997. SFAS No. 128 requires the presentation of basic and diluted earnings per common share (EPS) in the income statement. Under the new requirements, basic EPS is computed using the average actual shares outstanding during the period. Diluted EPS is basic EPS adjusted for the dilutive effect of stock options, restricted stock awards (RSAs) and other securities that may be converted into common shares. The following is a reconciliation of the numerators and denominators of the basic and diluted EPS computations:
-21- (1997 Annual Report p. 35)
(millions, except per share amounts) 1997 1996 1995
------- -------- --------
Numerator:
Net income $ 1,991 $ 1,901 $ 1,564
Less: Preferred dividends - 5 16
------- -------- --------
Numerator for basic EPS $ 1,991 $ 1,896 $ 1,548
Effect of dilutive securities:
7.75% Convertible Preferred Shares(a) - 5 -
------- -------- --------
Numerator for diluted EPS $ 1,991 $ 1,901 $ 1,548
Denominator:
Denominator for basic EPS - weighted-average shares 464.2 472.2 484.8
Effect of dilutive securities:
Stock Options and RSAs 8.8 8.2 8.1
5% Exchangeable Lehman Brothers Holdings, Inc.
Preferred Shares (See Note 7) 6.1 6.2 6.2
7.75% Convertible Preferred Shares(a) - 1.6 -
Other 0.1 0.1 0.1
------- -------- --------
Potentially dilutive common shares 15.0 16.1 14.4
------- -------- --------
Denominator for diluted EPS 479.2 488.3 499.2
------- -------- --------
Basic EPS $ 4.29 $ 4.02 $ 3.19
------- -------- --------
Diluted EPS $ 4.15 $ 3.89 $ 3.10
------- -------- --------
|
(a) $200 million of 7.75% convertible preferred shares were outstanding during 1995 but were not included in the computation of diluted EPS, as the effect would be antidilutive. These shares were converted into common stock of the company in May 1996.
NOTE 3 RESTRUCTURING CHARGE
In the fourth quarter of 1996, the company recorded a $138 million charge ($216 million pretax) primarily for restructuring costs related to a series of reengineering initiatives that were implemented in 1997. Of the total charge, $125 million ($196 million pretax) related to Travel Related Services (TRS), approximately two-thirds of which applied to international businesses. Most of the remaining $13 million ($20 million pretax) was due to the early retirement of debt at the Corporate level. The pretax charge was included in Other Expenses in the Consolidated Statements of Income. The TRS restructuring charge included $109 million pretax in severance costs and $87 million pretax to close certain leased facilities, to consolidate or outsource certain operations and to write-down certain assets. As of December 31, 1997, the company has substantially completed all restructuring activities.
-22- (1997 Annual Report pp. 35-36)
NOTE 4 INVESTMENTS
The following is a summary of investments included in the Consolidated Balance Sheets at December 31:
(millions) 1997 1996
------- -------
Held to Maturity, at amortized cost $11,871 $13,063
Available for Sale, at fair value 23,727 20,978
Investment mortgage loans (fair value:
1997, $4,026; 1996, $3,827) 3,831 3,712
Trading 219 586
------- -------
Total $39,648 $38,339
======= =======
|
Investments classified as Held to Maturity and Available for Sale at December 31 are distributed by type and maturity as presented below:
Held to Maturity
----------------------------------------------------------------------------------
1997 1996
--------------------------------------- ---------------------------------------
Gross Gross Gross Gross
Unrealized Unrealized Fair Unrealized Unrealized Fair
(millions) Cost Gains Losses Value Cost Gains Losses Value
------- ---------- ---------- ------- ------- ---------- ---------- -------
U.S. Government and agencies obligations $ 53 $ 3 - $ 56 $ 45 $ 1 $ 2 $ 44
State and municipal obligations 1,224 75 - 1,299 1,410 52 3 1,459
Corporate debt securities 8,226 452 $ 8 8,670 9,085 392 48 9,429
Foreign government bonds
and obligations 118 11 - 129 371 7 - 378
Mortgage-backed securities 1,992 27 8 2,011 2,152 23 46 2,129
Other 258 7 1 264 - - - -
------- ---------- ---------- ------- ------- ---------- ---------- -------
Total $11,871 $ 575 $ 17 $12,429 $13,063 $ 475 $ 99 $13,439
======= ========== ========== ======= ======= ========== ========== =======
-23- (1997 Annual Report p. 36)
|
Available for Sale
----------------------------------------------------------------------------------
1997 1996
--------------------------------------- ---------------------------------------
Gross Gross Gross Gross
Unrealized Unrealized Fair Unrealized Unrealized Fair
(millions) Cost Gains Losses Value Cost Gains Losses Value
------- ---------- ---------- ------- ------- ---------- ---------- -------
U.S. Government and agencies obligations $ 46 $ 1 - $ 47 $ 46 - - $ 46
State and municipal obligations 4,273 311 - 4,584 3,964 $182 - 4,146
Corporate debt securities 7,667 266 $37 7,896 5,441 139 $ 28 5,552
Foreign government bonds
and obligations 956 27 6 977 1,227 24 11 1,240
Mortgage-backed securities 9,027 200 7 9,220 8,641 125 71 8,695
Equity securities 467 159 3 623 465 259 6 718
Other 380 - - 380 582 - 1 581
------- ----- ----- ------- ------- ----- ------ -------
Total $22,816 $964 $53 $23,727 $20,366 $729 $117 $20,978
======= ==== ===== ======= ======= ===== ====== =======
|
Held to Maturity Available for Sale
----------------- ------------------
Fair Fair
December 31, 1997 (millions) Cost Value Cost Value
------- ------- ------- -------
Due within 1 year $ 597 $ 603 $ 851 $ 862
Due after 1 year through 5 years 3,605 3,800 3,332 3,438
Due after 5 years through 10 years 3,901 4,108 5,058 5,240
Due after 10 years 1,776 1,907 4,081 4,344
------- ------- ------- -------
9,879 10,418 13,322 13,884
Mortgage-backed securities 1,992 2,011 9,027 9,220
Equity securities - - 467 623
------- ------- ------- -------
Total $11,871 $12,429 $22,816 $23,727
======= ======= ======= =======
|
Mortgage-backed securities primarily include GNMA, FNMA and FHLMC securities at December 31, 1997 and 1996.
The table below includes purchases, sales and maturities of investments classified as Held to Maturity and Available for Sale for the year ended December 31:
1997 1996
---------------------- ----------------------
Held to Available Held to Available
(millions) Maturity for Sale Maturity for Sale
---------- ---------------------- ----------------------
Purchases $ 64 $ 7,323 $11,281 $ 9,340
Sales $ 274 $ 1,504 $ 312 $ 4,315
Maturities $ 1,513 $ 2,965 $14,673 $ 4,918
|
-24- (1997 Annual Report p. 37)
Investments classified as Held to Maturity were sold during 1997 and 1996 due to credit deterioration. Gross realized gains and losses on sales were negligible.
The change in the Net Unrealized Securities Gains (Losses) component of Shareholders' Equity was an increase of $193 million, a decrease of $489 million and an increase of $1.3 billion for the years ended December 31, 1997, 1996 and 1995, respectively. The decrease in 1996 primarily reflected the exchange of the company's Debt Exchangeable for Common Stock (DECS) for shares of First Data Corporation (FDC) held by the company, which resulted in the realization of a $300 million after-tax gain. An increase in the general level of interest rates also contributed to the decline in 1996. The rise in market value during 1995 reflected a decline in the general level of interest rates and the reclassification of the company's investment in FDC to Available for Sale securities.
Gross realized gains and (losses) on sales of securities classified as Available for Sale, using the specific identification method, were $67 million and ($10 million), $65 million and ($25 million) and $46 million and ($12 million) for the years ended December 31, 1997, 1996 and 1995, respectively.
The change in Net Unrealized Gains on Trading securities, which is included in income, was $24 million, $28 million and $12 million for the years ended December 31, 1997, 1996 and 1995, respectively.
In connection with the spin-off of Lehman Brothers Holdings Inc. (Lehman) in 1994, the company acquired 928 shares and Nippon Life Insurance Company (Nippon Life) acquired 72 shares of Lehman's redeemable voting preferred stock for a nominal dollar amount. This security entitles its holders to receive an aggregate annual dividend of 50 percent of Lehman's net income in excess of $400 million for each of eight years ending in May 2002, with a maximum of $50 million in any one year. Prior to 1997, the company received no dividends in connection with the earnout. In 1997, the company received a dividend of $7 million on these shares. In addition, the company and Nippon Life are entitled to receive 92.8 percent and 7.2 percent, respectively, of certain contingent revenue and earnings-related payouts from Travelers Inc. (Travelers), which were assigned by Lehman to the company and Nippon Life in connection with the spin-off transaction. The Travelers revenue-related payout was for three years and ended in 1996. The company received $46 million in 1996 and 1995. The earnings-related payout, which is in effect for a five-year period beginning in 1994, is 10 percent of after-tax profits of Smith Barney, a subsidiary of Travelers, in excess of $250 million per year ($70 million, $56 million and $24 million was received by the company in 1997, 1996 and 1995, respectively).
-25- (1997 Annual Report p. 38)
NOTE 5 LOANS
Loans at December 31 consisted of:
(millions) 1997 1996
------- -------
Cardmember and Consumer Loans $14,981 $13,545
Commercial Loans:
Commercial and industrial 2,793 2,641
Mortgage and real estate 490 431
Loans to banks and other institutions 1,966 1,923
Other, principally policyholders' loans 586 579
------- -------
20,816 19,119
Less: Reserves for credit losses 707 601
------- -------
Total $20,109 $18,518
======= =======
|
Note:American Express Financial Advisors (AEFA) mortgage loans of $3.8 billion and $3.7 billion in 1997 and 1996, respectively, are included in Investment Mortgage Loans and are shown in Note 4.
The following table presents changes in Reserves
for Credit Losses related to loans:
(millions) 1997 1996
-------- --------
Balance, January 1 $ 601 $ 602
Provision for credit losses 837 658
Write-offs (890) (795)
Recoveries of amounts previously written-off 159 136
-------- --------
Balance, December 31 $ 707 $ 601
======== ========
|
NOTE 6 PREFERRED SHARES
In January 1990, the company sold four million of the company's $3.875 Convertible Exchangeable Preferred shares (Convertible Preferred shares) to Nippon Life for $200 million. In May 1996, after receiving a redemption notice from the company, Nippon Life converted all of the Convertible Preferred shares into 4,705,882 of the company's common shares.
The Board of Directors is authorized to permit the company to issue up to 20 million preferred shares without further shareholder approval.
-26- (1997 Annual Report p. 39)
NOTE 7 COMMON SHARES
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 purchase shares systematically both to offset the issuance of new shares as part of employee compensation plans and to reduce shares outstanding. Under the 1996 authorization, the company has repurchased and cancelled 17,556,053 and 13,146,053 shares, respectively.
Of the common shares authorized but unissued at December 31, 1997, 71 million shares were reserved for issuance for employee stock, employee benefit and the dividend reinvestment plan as well as debentures.
In 1987, Nippon Life purchased 13 million shares of Lehman 5% Series A Preferred Stock for $508 million. In 1990, the company gave Nippon Life the right to exchange these shares (subsequently exchanged by Lehman for Series B shares) into 6.24 million common shares of the company at any time through December 1999 at an exchange price of $81.46. In 1996, Nippon Life informed the company that it had reduced its holding of such preferred shares by approximately 30 percent but maintained the exchange rights related to the shares sold. On December 16, 1997, Nippon Life exchanged all of its remaining holdings of these preferred shares for approximately 4.4 million common shares of the company. In January 1998, the company purchased all remaining exchange rights of Nippon Life.
Common shares activity for each of the last three years ended December 31 was:
(thousands) 1997 1996 1995
------- ------- -------
Shares outstanding at beginning of year 472,859 483,108 495,866
Repurchase of common shares (17,010) (22,200) (23,745)
Conversion of Convertible Exchangeable Preferred shares - 4,706 -
Exchange of Lehman preferred shares for
American Express common shares 4,399 - -
Employee benefit plans, compensation and other 6,169 7,245 10,987
------- ------- -------
Shares outstanding at end of year 466,417 472,859 483,108
======= ======= =======
|
-27- (1997 Annual Report p. 40)
NOTE 8 STOCK PLANS
Under the 1989 Long-Term Incentive Plan (the 1989 Plan), awards may be granted to officers and other key employees and other key individuals who perform services for the company and its participating subsidiaries. These awards may be in the form of stock options, stock appreciation rights, restricted stock, performance grants and other awards deemed by the Compensation and Benefits Committee of the Board of Directors to be consistent with the purposes of the 1989 Plan. The company also has options outstanding pursuant to a Directors' Stock Option Plan. Under both of these plans, there were a total of 25.9 million, 32.1 million and 14.1 million common shares available for grant at December 31, 1997, 1996 and 1995, respectively. Each option has an exercise price at least equal to the market price of the company's common stock on the date of grant and a maximum term of 10 years. Options generally vest at 33 1/3 percent per year. The company also sponsors the American Express Incentive Savings Plan, under which purchases of the company's common shares are made by or on behalf of participating employees.
On January 13, 1998, the Compensation and Benefits Committee approved the addition of a restoration feature to existing and future stock option awards. That feature provides that employees who exercise options that have been outstanding at least five years by surrendering previously owned shares as payment will automatically receive a new (restoration) stock option with an exercise price equal to the market price on the date of exercise. The size of the restoration option is equal to the number of shares surrendered plus any shares surrendered or withheld to satisfy the employees' statutory income tax requirements. The term of the restoration option, which is exercisable six months after grant, is equal to the remaining life of the original option. Senior officers must be in compliance with their stock ownership guideline to exercise restoration options.
The company granted 1.4 million, 1.4 million and 1.7 million restricted stock awards with a weighted average grant date value of $67.08, $46.14 and $34.77 per share for 1997, 1996 and 1995, respectively. Restrictions generally expire four years from date of grant. The compensation cost that has been charged against income for the company's restricted stock awards was $48 million, $39 million and $31 million for 1997, 1996 and 1995, respectively.
The company has elected to follow APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations in accounting for its employee stock options. Therefore, no compensation cost has been recognized related to stock options. If the company had elected to account for its stock options under the fair value method of SFAS No. 123, "Accounting for Stock-Based Compensation," the company's net income and earnings per common share would have been reduced to the pro forma amounts indicated below:
-28- (1997 Annual Report p. 41)
(millions, except per
share amounts) 1997 1996 1995
------- ------- -------
Net income:
As reported $ 1,991 $ 1,901 $ 1,564
Pro forma $ 1,948 $ 1,877 $ 1,552
Basic EPS:
As reported $ 4.29 $ 4.02 $ 3.19
Pro forma $ 4.20 $ 3.96 $ 3.17
Diluted EPS:
As reported $ 4.15 $ 3.89 $ 3.10
Pro forma $ 4.07 $ 3.84 $ 3.08
|
The fair value of each option is estimated on the date of grant using a Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 1997, 1996 and 1995, respectively:
1997 1996 1995
------- ------- -------
Dividend yield 2.6% 3.1% 3.6%
Expected volatility 20% 23% 26%
Risk-free interest rate 6.2% 5.9% 7.2%
Expected life of stock option 5 years 7 years 7 years
|
The dividend yield reflects the assumption that the current dividend payout will continue with no anticipated increases. The expected life of the options is based on historical data, and is not necessarily indicative of exercise patterns that may occur. The weighted average fair value per option was $14.76, $11.43 and $9.39 for options granted during 1997, 1996 and 1995, respectively.
A summary of the status of the company's stock option plans as of December 31 and changes during each of the years then ended is presented below:
1997 1996 1995
--------------------- --------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
(shares in thousands) Shares Exercise Price Shares Exercise Price Shares Exercise Price
------ -------------- ------ -------------- ------ --------------
Outstanding at beginning of year 21,116 $32.60 23,479 $27.41 28,998 $24.89
Granted 6,295 $66.74 5,778 $46.02 6,046 $34.26
Exercised (6,566) $27.65 (7,104) $25.64 (10,397) $24.25
Forfeited/Expired (804) $48.12 (1,037) $38.49 (1,168) $28.26
------ ------ ------ ------ ------- ------
Outstanding at end of year 20,041 $44.32 21,116 $32.60 23,479 $27.41
------ ------ ------ ------ ------- ------
Options exercisable at end of year 9,124 $30.58 10,641 $26.05 12,591 $25.18
|
The following table summarizes information about the stock options outstanding at December 31, 1997:
-29- (1997 Annual Report pp. 41-42)
Options Outstanding Options Exercisable
------------------------------------------- --------------------------
(shares in thousands) Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
------------------------ ----------- ---------------- -------------- ----------- --------------
$9.00 - $19.99 608 4.1 $18.64 608 $18.64
$20.00 - $29.99 4,527 5.1 $25.34 4,527 $25.34
$30.00 - $49.99 8,779 7.4 $40.38 3,956 $38.23
$50.00 - $88.38 6,127 9.1 $66.52 33 $52.48
------ ------ ------ ------ ------
$9.00 - $88.38 20,041 7.3 $44.32 9,124 $30.58
------ ------ ------ ------ ------
|
NOTE 9 RETIREMENT PLANS
Pension Plans
The company sponsors the American Express Retirement Plan (the Plan), a noncontributory defined benefit plan, under which the cost of retirement benefits for eligible employees in the United States is measured by length of service, compensation and other factors, and is currently being funded through a trust. In addition, the company sponsors an unfunded, nonqualified supplemental plan for which the aggregate accrued liability is not material. Funding of retirement costs for the Plan complies with the applicable minimum funding requirements specified by the Employee Retirement Income Security Act of 1974, as amended. Employees' accrued benefits are based on nominal account balances which are maintained for each individual. These balances are credited with additions equal to a percentage, based on age plus service, of base pay, overtime, shift differential, certain commissions and bonuses, each pay period. Employees' balances are also credited annually with a fixed rate of interest based on the daily average of published five-year Treasury Note yields. Lump sum payout at termination or retirement is available.
Most employees outside the United States are covered by local retirement plans, some of which are funded, or receive payments at the time of retirement or termination under applicable labor laws or agreements. Benefits under these local plans are generally expensed and are not funded.
Plan assets consist principally of equities and fixed income securities.
Net pension cost consisted of the following components:
(millions) 1997 1996 1995
----- ----- -----
Service cost $ 76 $ 77 $ 66
Interest cost 82 77 76
Actual return on plan assets (231) (150) (153)
Net amortization and deferral 122 53 78
----- ----- -----
Net periodic pension cost $ 49 $ 57 $ 67
===== ===== =====
|
-30- (1997 Annual Report pp. 42-43)
The following table sets forth the funded status and amounts recognized in the Consolidated Balance Sheets for the company's defined benefit plans, including certain unfunded, nonqualified supplemental plans. The underfunded plans relate to foreign and supplemental executive plans.
1997 1996
--------------------------- ----------------------------
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
(millions) Benefits Exceed Assets Benefits Exceed Assets
------------- ------------- ------------- -------------
Actuarial present value of benefit obligations:
Vested benefit obligation $ (896) $ (136) $ (756) $ (132)
-------- -------- -------- --------
Accumulated benefit obligation $ (925) $ (153) $ (786) $ (152)
-------- -------- -------- --------
Projected benefit obligation $(1,014) $ (186) $ (852) $ (200)
Plan assets at fair value 1,271 8 1,083 9
-------- -------- -------- --------
Projected benefit obligation (in excess of)
or less than plan assets 257 (178) 231 (191)
Unrecognized net (gain) loss (193) 4 (153) (1)
Unrecognized prior service cost (70) (5) (80) (7)
Unrecognized net obligation at transition (5) 11 (6) 12
Adjustment required to recognize minimum liability - (10) - (12)
-------- -------- -------- --------
Pension liability included in the Consolidated Balance Sheet $ (11) $ (178) $ (8) $ (199)
======== ======== ======== ========
|
The weighted average assumptions used in the company's plans at December 31 were:
1997 1996
---- ----
Discount rates 7.3% 7.9%
Rates of increase in compensation levels 4.6% 4.7%
Expected long-term rates of return on assets 9.1% 9.7%
|
Other Postretirement Benefits
The company sponsors postretirement benefit plans that provide health care, life insurance and other postretirement benefits to retired U.S. employees. Net periodic postretirement benefit expenses were $15 million, $18 million, and $19 million in 1997, 1996 and 1995, respectively. The liabilities recognized in the Consolidated Balance Sheets for the company's defined postretirement benefit plans (other than pension plans) at December 31, 1997 and 1996 were $204 million and $205 million, respectively.
-31- (1997 Annual Report p. 43)
NOTE 10 INCOME TAXES
The provisions for income taxes were:
(millions) 1997 1996 1995
---- ---- ----
Federal $453 $468 $416
State and local 46 74 18
Foreign 260 221 185
---- ---- ----
Total $759 $763 $619
==== ==== ====
|
Accumulated net earnings of certain foreign subsidiaries, which totaled $873 million at December 31, 1997, are intended to be permanently reinvested outside the United States. Accordingly, federal taxes, which would have aggregated $202 million, have not been provided on those earnings.
The current and deferred components of the provision for income taxes were:
(millions) 1997 1996 1995
----- ----- -----
Current $ 824 $ 846 $ 654
Deferred (65) (83) (35)
----- ----- -----
Total $ 759 $ 763 $ 619
===== ===== =====
|
The company's net deferred tax assets at December 31 were:
(millions) 1997 1996
------- -------
Deferred tax assets $ 2,767 $ 2,571
Deferred tax liabilities 1,609 1,461
------- -------
Net deferred tax assets $ 1,158 $ 1,110
======= =======
|
Deferred tax assets for 1997 and 1996, which are presented net of a $45 million valuation allowance, primarily reflect: reserves not yet deducted for tax purposes of $1.8 billion and $1.6 billion, respectively, and deferred Cardmember fees of $238 million and $233 million, respectively. Deferred tax liabilities for 1997 and 1996 mainly comprise deferred acquisition costs of $826 million and $762 million, respectively, liabilities related to SFAS No. 115 of $318 million and $242 million, respectively, and accelerated depreciation of $150 million and $155 million, respectively.
-32- (1997 Annual Report p. 44)
The principal reasons that the aggregate income tax provision is different from that computed by using the U.S. statutory rate of 35 percent are:
(millions) 1997 1996 1995
----- ----- -----
Combined tax at U.S. statutory rate $ 962 $ 933 $ 764
Changes in taxes resulting from:
Tax-exempt interest income (132) (153) (157)
Tax-exempt element of dividend income (22) (22) (29)
Foreign income taxed at rates other than
U.S. statutory rate (13) (35) 1
State and local income taxes 29 47 11
All other (65) (7) 29
----- ----- -----
Income tax provision $ 759 $ 763 $ 619
===== ===== =====
|
Net income taxes paid by the company during 1997, 1996 and 1995 were $878 million, $548 million and $595 million, respectively, and include estimated tax payments, as well as cash settlements relating to prior tax years.
NOTE 11 DERIVATIVE AND OTHER OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The company uses derivative financial instruments for nontrading purposes to manage its exposure to interest and foreign exchange rates, financial indices and its funding costs. In addition, American Express Bank (the Bank) enters into derivative contracts both to meet the needs of its clients and, to a limited extent, for proprietary trading purposes.
There are a number of risks associated with derivatives. Market risk is the possibility that the value of the derivative financial instrument will change. The company is not exposed to market risk related to derivatives held for nontrading purposes beyond that inherent in cash market transactions. The Bank is generally not subject to market risk when it enters into a contract with a client, as it usually enters into an offsetting contract or uses the position to offset an existing exposure. The Bank takes proprietary positions within approved limits. These positions are monitored daily at the local and headquarters levels against Value at Risk (VAR) limits. The company does not enter into derivative contracts with features that would leverage or multiply its market risk.
Credit risk related to derivatives and other off-balance sheet financial instruments is the possibility that the counterparty will not fulfill the terms of the contract. It is monitored through established approval procedures, including setting concentration limits by counterparty and country, reviewing credit ratings and requiring collateral where appropriate. For its trading activities with clients, the Bank requires collateral when it is not willing to assume credit exposure to counterparties for either contract mark-to-market or delivery risk. A significant portion of the company's transactions are with counterparties rated A or better by nationally recognized credit rating agencies. The company also uses master netting agreements, which allow the company to settle multiple contracts with a single counterparty in one net receipt or payment in the event of counterparty default. Credit risk approximates the fair value of contracts in a gain position (asset) and totaled $1.4 billion and $361 million at December 31, 1997 and 1996, respectively. The fair value represents the replacement cost and is determined by market values, dealer quotes or pricing models.
-33- (1997 Annual Report p. 45)
The following tables detail information regarding the company's derivatives at December 31:
NONTRADING 1997
-------------------------------------------------
Carrying Value Fair Value
Notional --------------- ----------------
(millions) Amount Asset Liability Asset Liability
-------- ----- --------- ----- ---------
Interest Rate Products:
Interest rate swaps $12,573 $ 95 $ 49 $ 154 $ 102
Interest rate caps and floors purchased 6,100 27 - 20 -
Forward rate agreements 763 - - - -
------- ------- ------- ------- -------
Total Interest Rate Products 19,436 122 49 174 102
Foreign Currency Products:
Forward and spot contracts 11,289 80 39 220 203
Other Products 1,876 130 - 87 52
------- ------- ------- ------- -------
Total $32,601 $ 332 $ 88 $ 481 $ 357
======= ======= ======= ======= =======
1996
-------------------------------------------------
Carrying Value Fair Value
Notional --------------- ----------------
(millions) Amount Asset Liability Asset Liability
-------- ----- --------- ----- ---------
Interest Rate Products:
Interest rate swaps $ 9,942 $ 43 $ 78 $ 53 $ 173
Interest rate caps and floors purchased 5,200 18 - 18 -
Forward rate agreements 647 - - - -
------- ------- ------- ------- -------
Total Interest Rate Products 15,789 61 78 71 173
Foreign Currency Products:
Forward and spot contracts 7,893 28 46 47 75
Other Products 641 50 - 39 18
------- ------- ------- ------- -------
Total $24,323 $ 139 $ 124 $ 157 $ 266
======= ======= ======= ======= =======
TRADING 1997
--------------------------------------------------
Carrying/Fair Value Average Fair Value
Notional ------------------- ------------------
(millions) Amount Asset Liability Asset Liability
-------- ----- --------- ----- ---------
Interest Rate Products:
Interest rate swaps $ 2,165 $ 72 $ 63 $ 37 $ 33
Other 588 4 10 1 2
------- ------- ------- ------- -------
Total Interest Rate Products 2,753 76 73 38 35
------- ------- ------- ------- -------
Foreign Currency Products:*
-34- (1997 Annual Report p. 46)
|
Forward and spot contracts 13,120 827 714 333 247
Foreign currency options written 2,755 - 50 - 36
Foreign currency options purchased 2,586 51 - 36 -
------- ------- ------- ------- -------
Total Foreign Currency Products 18,461 878 764 369 283
------- ------- ------- ------- -------
Total $21,214 $ 954 $ 837 $ 407 $ 318
======= ======= ======= ======= =======
1996
-------------------------------------------------
Carrying/Fair Value Average Fair Value
Notional ------------------- ------------------
(millions) Amount Asset Liability Asset Liability
-------- ----- --------- ----- ---------
Interest Rate Products:
Interest rate swaps $ 2,098 $ 24 $ 23 $ 20 $ 21
Forward rate agreements 526 2 2 2 1
Other 1,270 - - - -
------- ------- ------- ------- -------
Total Interest Rate Products 3,894 26 25 22 22
------- ------- ------- ------- -------
Foreign Currency Products*:
Forward and spot contracts 12,029 164 99 148 101
Foreign currency options written 1,874 - 14 - 13
Foreign currency options purchased 1,849 14 - 13 -
------- ------- ------- ------- -------
Total Foreign Currency Products 15,752 178 113 161 114
------- ------- ------- ------- -------
Total $19,646 $ 204 $ 138 $ 183 $ 136
======= ======= ======= ======= =======
|
* These are predominantly contracts with clients and the related hedges of those client contracts. The company's net trading foreign currency exposure was approximately $38 million and $151 million at December 31, 1997 and 1996, respectively.
The average aggregate fair values of derivative financial instruments held for trading purposes were computed based on monthly information. Net derivative trading gains of $103 million and $72 million for 1997 and 1996, respectively, were primarily due to trading in foreign currency forward contracts and are included in Other Commissions and Fees.
Interest Rate Products
The company uses interest rate products, principally swaps, primarily to manage funding costs related to TRS' Charge Card and Cardmember lending businesses. For its Charge Card products, TRS uses interest rate swaps to achieve a targeted mix of fixed and floating rate funding. For its Cardmember loans, which are linked to a floating rate base and generally reprice each month, TRS generally enters into interest rate swaps paying rates that reprice similarly with changes in the base rate of the underlying loans.
The Bank uses interest rate swaps to manage its portfolio of loans, deposits
and, to a lesser extent, securities holdings. The termination dates of these
swaps are generally matched with the maturity dates of the underlying assets and
liabilities.
-35- (1997 Annual Report pp. 46-47)
For interest rate swaps that are used for nontrading purposes and meet the criteria for hedge accounting, interest is accrued and reported in Other Receivables and Interest and Dividends or Accounts Payable and Interest Expense, as appropriate. Products used for trading purposes are reported at fair value in Other Assets or Other Liabilities, as appropriate, with unrealized gains and losses recognized currently in Other Revenues.
AEFA uses interest rate caps, swaps and floors to protect the margin between the interest rates earned on investments and the interest rates credited to holders of investment certificates and fixed annuities. Interest rate caps and floors generally mature within five years. The costs of interest rate caps and floors are reported in Other Assets and amortized into Interest and Dividends on a straight line basis over the term of the contract; benefits are recognized in income when earned.
See Note 12 for further information regarding the company's use of interest rate products related to short-and long-term debt obligations.
Foreign Currency Products
The company uses foreign currency products primarily to hedge net investments in foreign operations and to manage transactions denominated in foreign currencies. In addition, the Bank enters into derivative contracts both to meet the needs of its clients and, to a limited extent, for trading purposes, including taking proprietary positions.
Foreign currency exposures are hedged, where practical and economical, through foreign currency contracts. Foreign currency contracts involve the purchase and sale of a designated currency at an agreed upon rate for settlement on a specified date. Foreign currency forward contracts generally mature within one year, whereas foreign currency spot contracts generally settle within two days.
For foreign currency products used to hedge net investments in foreign operations, unrealized gains and losses as well as related premiums and discounts are reported in Shareholders' Equity. For foreign currency contracts related to transactions denominated in foreign currencies, unrealized gains and losses are reported in Other Assets and Other Commissions and Fees or Other Liabilities and Other Expenses, as appropriate. Related premiums and discounts are reported in Other Assets or Other Liabilities, as appropriate, and amortized into Interest Expense and Other Expenses over the term of the contract. Foreign currency products used for trading purposes are reported at fair value in Other Assets or Other Liabilities, as appropriate, with unrealized gains and losses recognized currently in Other Commissions and Fees.
The company also uses foreign currency forward contracts to hedge its firm commitments. In addition, for selected major overseas markets, the company uses foreign currency forward contracts to hedge future income, generally for periods not exceeding one year; unrealized gains and losses are recognized currently in income. In the latter part of 1997, foreign currency forward contracts were both sold ($562 million) and purchased ($92 million) to manage a majority of anticipated 1998 cash flows in major overseas markets. The impact of these activities was not material.
-36- (1997 Annual Report pp. 47-48)
Other Products
Included in Other Products are purchased and written index options used by AEFA to hedge against adverse changes in the U.S. equities markets, which affect revenues earned on assets under management. Index options are carried at market value and included in Other Assets. Gains and losses on these options are deferred until the revenues are earned. At December 31, 1997, the notional value of these options was $1 billion.
Other Off-Balance Sheet Financial Instruments
The company's other off-balance sheet financial instruments principally relate
to extending credit to satisfy the needs of its clients. The contractual amount
of these instruments represents the maximum accounting loss the company would
record assuming the contract amount is fully utilized, the counterparty defaults
and collateral held is worthless. Management does not expect any material
adverse impact to the company's financial position to result from these
contracts.
December 31, (millions) 1997 1996
------- -------
Unused Credit Available to Cardmembers $37,668 $33,917
Loan Commitments and Other Lines of Credit $ 1,053 $ 1,094
Standby Letters of Credit and Guarantees $ 1,301 $ 1,318
Commercial and Other Letters of Credit $ 618 $ 880
|
The company is committed to extend credit to certain Cardmembers as part of established lending product agreements. Many of these are not expected to be drawn; therefore, total unused credit available to Cardmembers does not represent future cash requirements. The company's Charge Card products have no preset spending limit and are not reflected in unused credit available to Cardmembers.
The company may require collateral to support its loan commitments based on the creditworthiness of the borrower.
Standby letters of credit and guarantees primarily represent conditional commitments to insure the performance of the company's customers to third parties. These commitments generally expire within one year.
The company issues commercial and other letters of credit to facilitate the short-term trade-related needs of its clients, which typically mature within six months. At December 31, 1997 and 1996, the company held $744 million and $811 million, respectively, of collateral supporting standby letters of credit and guarantees and $276 million and $504 million, respectively, of collateral supporting commercial and other letters of credit.
Other financial institutions have committed to extend lines of credit to the company of $9.7 billion and $9.2 billion at December 31, 1997 and 1996, respectively.
-37- (1997 Annual Report p. 48)
NOTE 12 SHORT- AND LONG-TERM DEBT AND BORROWING AGREEMENTS
Short-Term Debt
At December 31, 1997 and 1996, the company's total short-term debt outstanding was $20.6 billion and $18.4 billion, respectively, with weighted average interest rates of 6.12% and 5.79%, respectively. At December 31, 1997 and 1996, $1.6 billion and $625 million, respectively, of short-term debt outstanding was covered by interest rate swaps. The year-end weighted average effective interest rates were 6.17% and 5.84%, respectively. The company generally pays floating rates of interest under the terms of interest rate swaps. Unused lines of credit to support commercial paper borrowing were approximately $8.6 billion at December 31, 1997.
Long-Term Debt
December 31, (dollars in millions)
1997
-----------------------------------------------------------
Year-End
Year-End Effective
Notional Stated Interest
Outstanding Amount of Rate on Rate with Maturity of
Balance Swaps Debt (a,b) Swaps (a,b) Swaps
----------- --------- ---------- ----------- -----------
Notes due June 23, 2004 $ 499 - 6.75% - -
Notes due August 12, 2002 400 $ 400 6.50% 5.78% 2002
Notes due June 15, 2000 300 300 6.125% 5.70% 2000
Notes due November 15, 2001 299 299 6.125% 5.98% 2001
Notes due August 15, 2001 299 - 8.50% - -
Floating Rate Notes due
May 1, 2002 399 399 5.80% 6.00% 2002
Floating Rate Notes due
December 18, 2001 300 - 6.03% - -
Other Fixed Senior Notes
due 1998-2022 1,509 1,200 7.59% 6.71% 1998-2005
Other Floating Senior Notes
due 1998-2002 3,106 320 5.94% 5.98% 1998-1999
Other Floating Rate Notes
due 1999-2004 506 150 6.52% 6.70% 2004
Other Fixed Rate Notes
due 1998-2006 256 31 4.38% 4.40% 2006
----------- --------- ---------- ----------- ----------
Total $7,873 $3,099
=========== =========
-38- (1997 Annual Report p. 49)
|
1996
-----------------------------------------------------------
Year-End
Year-End Effective
Notional Stated Interest
Outstanding Amount of Rate on Rate with Maturity of
Balance Swaps Debt (a,b) Swaps(a,b) Swaps
----------- --------- ---------- ---------- -----------
Notes due June 23, 2004 - - - - -
Notes due August 12, 2002 - - - - -
Notes due June 15, 2000 $ 299 $ 299 6.125% 5.95% 2000
Notes due November 15, 2001 299 299 6.125% 5.61% 2001
Notes due August 15, 2001 299 - 8.50% - -
Floating Rate Notes due
May 1, 2002 - - - - -
Floating Rate Notes due
December 18, 2001 300 - 5.67% - -
Other Fixed Senior Notes
due 1998-2022 1,879 1,425 7.77% 6.71% 1997-2005
Other Floating Senior Notes
due 1998-2002 2,666 512 5.71% 5.69% 1997-1998
Other Floating Rate Notes
due 1999-2004 509 150 6.58% 6.75% 2004
Other Fixed Rate Notes
due 1998-2006 301 38 4.32% 4.69% 2006
----------- --------- ---------- ---------- -----------
Total $6,552 $2,723
=========== =========
|
(a)For floating rate debt issuances, the stated and effective interest
rates were based on the respective rates at December 31, 1997 and 1996;
these rates are not an indication of future interest rates.
(b)Weighted average rates were determined where appropriate.
The above interest rate swaps generally require the company to pay a floating rate, with a predominant index of LIBOR (London Interbank Offered Rate).
The company paid interest (net of amounts capitalized) of $2.5 billion, $2.4 billion and $2.6 billion in 1997, 1996 and 1995, respectively.
Approximately $171 million of the long-term financing for the company's headquarters building is secured by certain mortgages on the interests of the company in the building.
Aggregate annual maturities of long-term debt for the five years ending December 31, 2002 are as follows (millions): 1998, $1,680; 1999, $1,658; 2000, $1,178; 2001, $1,427; and 2002, $921.
-39- (1997 Annual Report p. 49)
NOTE 13 FAIR VALUES OF FINANCIAL INSTRUMENTS
The following table discloses fair value information for most on- and off-balance sheet financial instruments. Certain financial instruments, such as life insurance obligations, employee benefit obligations and investments accounted for under the equity method are excluded. The fair values of financial instruments are estimates based upon market conditions and perceived risks at December 31, 1997 and 1996 and require management judgment. These figures may not be indicative of their future fair values.
December 31, (millions) 1997 1996
------------------- --------------------
Carrying Fair Carrying Fair
Value Value Value Value
-------- -------- -------- ---------
FINANCIAL ASSETS
Assets for which carrying values approximate fair values $ 51,037 $ 51,037 $ 43,887 $ 43,887
Investments $ 39,648 $ 40,401 $ 38,339 $ 38,830
Loans $ 20,269 $ 20,206 $ 18,614 $ 18,573
Derivative financial instruments, net $ 361 $ 241 $ 81 $ (43)
FINANCIAL LIABILITIES
Liabilities for which carrying values approximate fair values $ 44,383 $ 44,383 $ 42,091 $ 42,091
Fixed annuity reserves $ 20,731 $ 19,882 $ 20,642 $ 19,722
Investment certificate reserves $ 4,112 $ 3,979 $ 3,222 $ 3,205
Long-term debt $ 7,873 $ 7,903 $ 6,552 $ 6,592
Separate account liabilities $ 21,489 $ 20,708 $ 17,358 $ 16,689
|
The carrying and fair values of other off-balance sheet financial instruments are not material as of December 31, 1997 and 1996. See Notes 4 and 11 for carrying and fair value information regarding investments and derivative financial instruments. The following methods were used to estimate the fair values of financial assets and financial liabilities:
Financial Assets
ASSETS FOR WHICH CARRYING VALUES APPROXIMATE FAIR VALUES: The carrying values
of Cash and Cash Equivalents, Accounts Receivable and Accrued Interest, Separate
Account Assets and applicable Other Assets approximate their fair values.
LOANS: For variable rate loans that reprice within a year where there has been no significant change in counterparties' creditworthiness, fair values are based on carrying values. The fair values of all other loans, except for loans with significant credit deterioration, are estimated using discounted cash flow analysis, based on current interest rates for loans with similar terms to borrowers of similar credit quality. For loans with significant credit deterioration, fair values are based on revised estimates of future cash flows discounted at rates commensurate with the risk inherent in the revised cash flow projections, or for collateral dependent loans, on collateral values.
-40- (1997 Annual Report pp. 50-51)
Financial Liabilities
LIABILITIES FOR WHICH CARRYING VALUES APPROXIMATE FAIR VALUES: The carrying values of Customers' Deposits, Travelers Cheques Outstanding, Accounts Payable, Short-Term Debt and applicable Other Liabilities approximate their fair values.
FIXED ANNUITY RESERVES: Fair values of annuities in deferral status are estimated as the accumulated value less applicable surrender charges and loans. For annuities in payout status, fair value is estimated using discounted cash flow, based on current interest rates. The fair value of these reserves excludes life insurance-related elements of $1.3 billion and $1.2 billion in 1997 and 1996.
INVESTMENT CERTIFICATE RESERVES: For variable rate investment certificates that reprice within a year, fair values approximate carrying values. For other investment certificates, fair value is estimated using discounted cash flow analysis, based on current interest rates. The valuations are reduced by the amount of applicable surrender charges and related loans.
LONG-TERM DEBT: For variable rate long-term debt that reprices within a year, fair values approximate carrying values. For other long-term debt, fair value is estimated using either quoted market prices or discounted cash flow based on the company's current borrowing rates for similar types of borrowing.
SEPARATE ACCOUNT LIABILITIES: Fair values of these liabilities, after excluding life insurance-related elements of $1.7 billion and $1.2 billion in 1997 and 1996, are estimated as the accumulated value less applicable surrender charges.
-41- (1997 Annual Report p. 51)
NOTE 14 SIGNIFICANT CREDIT CONCENTRATIONS
A credit concentration may exist if customers are involved in similar industries. The company's customers operate in diverse economic sectors. Therefore, management does not expect any material adverse consequences to the company's financial position to result from credit concentrations. Certain distinctions between categories require management judgment.
December 31,(dollars in millions) 1997 1996
--------- --------
Financial institutions(a) $ 13,074 $ 11,129
Individuals(b) 74,708 66,731
U.S. Government and agencies(c) 16,706 16,111
All other 25,343 24,727
--------- --------
Total $ 129,831 $118,698
========= ========
Composition:
On-balance sheet 69% 69%
Off-balance sheet 31 31
--------- --------
Total 100% 100%
========= ========
|
(a) Financial institutions primarily include banks, broker-dealers, insurance
companies and savings and loan associations.
(b) Charge Card products have no preset spending limit; therefore, the
quantified credit amount includes only Cardmember receivables recorded in
the Consolidated Balance Sheets.
(c) U.S. Government and agencies represent the U.S. Government and its
agencies, states and municipalities, and quasi-government agencies.
NOTE 15 INDUSTRY SEGMENTS AND GEOGRAPHIC OPERATIONS
Industry Segments
The company is principally engaged in providing travel related, financial advisory and international banking services throughout the world. TRS' products and services include, among others, Charge Cards, consumer lending products, Travelers Cheques and corporate and consumer travel services. American Express Financial Advisors' services and products include financial planning and advice, investment advisory services and a variety of products, including insurance and annuities, investment certificates and mutual funds. The Bank serves the financial needs of wealthy entrepreneurs and their companies, financial service institutions and retail customers by providing correspondent, commercial and private banking, consumer financial services and global trading. The main market for the travel related and financial advisory services is the United States; the principal markets for international banking services are Europe and Asia/Pacific.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which is effective for fiscal years beginning after December 15, 1997 and redefines how operating segments are determined. The company will adopt the provisions of SFAS No. 131 in the first quarter of 1998. As a result, the Travelers Cheque operations which currently are included in the TRS segment will be reported in the same segment as the Bank, consistent with our management structure.
-42- (1997 Annual Report p. 52)
The following table presents certain information regarding these industry segments at December 31, 1997, 1996 and 1995 and for each of the years then ended. TRS' results for 1996 include a $125 million after-tax ($196 million pretax) restructuring charge. Corporate and Other's results for 1996 include a $300 million after-tax ($480 million pretax) gain on the exchange of the company's DECS and a $13 million after-tax ($20 million pretax) charge related to the early retirement of debt and certain restructuring costs.
American
Travel Express American Corporate Adjustments
Related Financial Express and and
(millions) Services Advisors Bank Other Eliminations Consolidated
-------- --------- --------- --------- ------------ ------------
1997
----
Net revenues $ 12,667 $ 4,599 $ 637 $ 123 $ (266) $ 17,760
Pretax income before
general corporate expenses $ 1,905 $ 1,022 $ 130 - - $ 3,057
General corporate expenses - - - $ (307) - (307)
-----------------------------------------------------------------------
Pretax income (loss) $ 1,905 $ 1,022 $ 130 $ (307) - $ 2,750
Net income (loss) $ 1,354 $ 707 $ 82 $ (152) - $ 1,991
Assets $ 47,187 $ 59,828 $ 12,868 $ 3,374 $ (3,254) $ 120,003
-----------------------------------------------------------------------
1996
----
Net revenues $ 11,773 $ 4,110 $ 591 $ 129 $ (223) $ 16,380
Pretax income before
general corporate expenses $ 1,523 $ 885 $ 105 - - $ 2,513
General corporate expenses - - - $ 151 - 151
-----------------------------------------------------------------------
Pretax income $ 1,523 $ 885 $ 105 $ 151 - $ 2,664
Net income $ 1,105 $ 594 $ 68 $ 134 - $ 1,901
Assets $ 43,053 $ 52,670 $ 12,350 $ 3,158 $ (2,719) $ 108,512
-----------------------------------------------------------------------
1995
----
Net revenues $ 11,622 $ 3,691 $ 643 $ 139 $ (174) $ 15,921
Pretax income before
general corporate expenses $ 1,579 $ 755 $ 115 - - $ 2,449
General corporate expenses - - - $ (266) - (266)
-----------------------------------------------------------------------
Pretax income (loss) $ 1,579 $ 755 $ 115 $ (266) - $ 2,183
Net income (loss) $ 1,125 $ 503 $ 77 $ (141) - $ 1,564
Assets $ 45,188 $ 48,250 $ 12,324 $ 4,358 $ (2,715) $ 107,405
-----------------------------------------------------------------------
|
Net revenues includes interest earned on the investment of funds attributable to each industry segment. Pretax income before general corporate expenses is net revenues less operating expenses, including interest, related to each industry segment's revenues.
Net income (loss) includes a provision for income taxes calculated on a
separate return basis; however, benefits from operating losses, loss carrybacks
and tax credits (principally foreign tax credits) recognizable for the company's
consolidated reporting purposes are allocated based upon the tax sharing
agreement among members of the American Express Company consolidated U.S. tax
group.
-43- (1997 Annual Report pp. 52-53)
Assets are those that are used or generated exclusively by each industry segment. The adjustments and eliminations required to determine the consolidated amounts shown above consist principally of the elimination of intersegment revenues and assets.
Geographic Operations
The following table presents certain information regarding the company's
operations in different geographic regions at December 31 and for each of the
years then ended.
Adjustments
United Asia/ and
(millions) States Europe Pacific All Other Eliminations Consolidated
--------- --------- --------- --------- ------------ ------------
1997
----
Net revenues $ 13,449 $ 2,209 $ 1,378 $ 1,277 $ (553) $ 17,760
Pretax income before
general corporate expenses $ 2,418 $ 219 $ 256 $ 164 - $ 3,057
General corporate expenses (307) - - - - (307)
--------------------------------------------------------------------------
Pretax income $ 2,111 $ 219 $ 256 $ 164 - $ 2,750
Assets $ 97,805 $ 13,323 $ 7,547 $ 5,578 $ (7,624) $ 116,629
Corporate assets 3,374
--------------------------------------------------------------------------
Total assets $ 120,003
--------------------------------------------------------------------------
1996
----
Net revenues $ 12,107 $ 2,123 $ 1,355 $ 1,129 $ (334) $ 16,380
Pretax income before
general corporate expenses $ 1,932 $ 210 $ 257 $ 114 - $ 2,513
General corporate expenses 151 - - - - 151
--------------------------------------------------------------------------
Pretax income $ 2,083 $ 210 $ 257 $ 114 - $ 2,664
Assets $ 86,696 $ 12,655 $ 7,698 $ 4,555 $ (6,250) $ 105,354
Corporate assets 3,158
--------------------------------------------------------------------------
Total assets $ 108,512
--------------------------------------------------------------------------
1995
----
Net revenues $ 11,439 $ 2,171 $ 1,357 $ 1,191 $ (237) $ 15,921
Pretax income before
general corporate expenses $ 1,938 $ 209 $ 284 $ 18 - $ 2,449
General corporate expenses (266) - - - - (266)
--------------------------------------------------------------------------
Pretax income $ 1,672 $ 209 $ 284 $ 18 - $ 2,183
Assets $ 83,216 $ 8,900 $ 7,026 $ 4,169 $ (264) $ 103,047
Corporate assets 4,358
--------------------------------------------------------------------------
Total assets $ 107,405
--------------------------------------------------------------------------
|
Most services of the company are provided on an integrated worldwide basis.
Therefore it is not practical to separate precisely the U.S. and international
services. Accordingly, the data in the above table are, in part, based upon
internal allocations, which necessarily involve management judgments. The growth
in international net revenues and pretax income was curtailed by the impact of
the stronger U.S. dollar.
-44- (1997 Annual Report pp. 53-54)
NOTE 16 LEASE COMMITMENTS AND OTHER CONTINGENT LIABILITIES
The company leases certain office facilities and operating equipment under noncancellable and cancellable agreements. Total rental expense amounted to $384 million, $397 million and $415 million in 1997, 1996 and 1995, respectively. At December 31, 1997, the minimum aggregate rental commitment under all noncancellable leases (net of subleases) was (millions): 1998, $271; 1999, $217; 2000, $169; 2001, $156; 2002, $127; and thereafter, $1,239.
The company is not a party to any pending legal proceedings that, in the opinion of management, would have a material adverse effect on the company's financial position.
NOTE 17 TRANSFER OF FUNDS FROM SUBSIDIARIES
The Securities and Exchange Commission requires the disclosure of certain restrictions on the flow of funds to a parent company from its subsidiaries in the form of loans, advances or dividends.
Restrictions on the transfer of funds exist under debt agreements and regulatory requirements of certain of the company's subsidiaries. These restrictions have not had any effect on the company's shareholder dividend policy and management does not anticipate any effect in the future.
At December 31, 1997, the aggregate amount of net assets of subsidiaries that may be transferred to the parent company was approximately $6.9 billion. Should specific additional needs arise, procedures exist to permit immediate transfer of short-term funds between the company and its subsidiaries, while complying with the various contractual and regulatory constraints on the internal transfer of funds.
NOTE 18 QUARTERLY FINANCIAL DATA (UNAUDITED)
(millions, except per share amounts)
1997 1996
----------------------------------------- ------------------------------------------
Quarter Ended 12/31 9/30 6/30 3/31 12/31 9/30 6/30 3/31
-------- -------- -------- -------- -------- -------- -------- ---------
Net revenues $ 4,674 $ 4,500 $ 4,422 $ 4,164 $ 4,301 $ 4,094 $ 4,076 $ 3,909
Pretax income(1) 690 718 702 640 843 621 636 565
Net income(1) 493 524 520 454 595 458 452 396
Earnings per common share:
Basic(1) 1.07 1.13 1.12 .97 1.27 .98 .95 .82
Diluted(1) 1.04 1.10 1.08 .94 1.23 .95 .92 .80
Cash dividends declared per
common share .225 .225 .225 .225 .225 .225 .225 .225
Common share prices:
High 91.50 85.25 79.75 70.00 60.38 46.88 50.75 50.25
Low 72.00 73.69 57.50 53.63 45.38 39.38 43.38 38.63
|
(1) Fourth quarter 1996 amounts include a gain of $300 million ($480 million pretax) on the exchange of the company's DECS and a $138 million ($216 million pretax) restructuring charge.
-45- (1997 Annual Report p. 55)
REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
The Shareholders and Board of Directors
of American Express Company
We have audited the accompanying consolidated balance sheets of American Express Company as of December 31, 1997 and 1996, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the management of American Express Company. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Express Company at December 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
February 5, 1998
|
-46- (1997 Annual Report p. 56)
CONSOLIDATED FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
(millions, except per share amounts and where italicized) 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
OPERATING RESULTS
Net revenues $ 17,760 $ 16,380 $ 15,921 $ 14,342 $ 13,301
Percent increase (decrease) 8% 3% 11% 8% (7%)
Expenses 15,010 13,716 13,738 12,451 10,975
Income from continuing operations before accounting changes:
As reported 1,991 1,901 1,564 1,380 1,605
Adjusted* 1,991 1,739 1,564 1,380 1,172
Net income 1,991 1,901 1,564 1,413 1,478
Return on average shareholders' equity** 23.5% 22.8% 22.0% 20.3% 20.9%
----------------------------------------------------------
BALANCE SHEET
Cash and cash equivalents $ 4,179 $ 2,677 $ 3,200 $ 3,433 $ 3,312
Accounts receivable and accrued interest, net 21,774 20,491 19,914 17,147 16,142
Investments 39,648 38,339 42,561 40,108 39,308
Loans, net 20,109 18,518 16,091 14,722 14,796
Total assets 120,003 108,512 107,405 97,006 94,132
Customers' deposits 9,444 9,555 9,889 10,013 11,131
Travelers Cheques outstanding 5,634 5,838 5,697 5,271 4,800
Insurance and annuity reserves 26,165 25,674 25,157 24,849 23,406
Short-term debt 20,570 18,402 17,654 14,810 12,489
Long-term debt 7,873 6,552 7,570 7,162 8,561
Shareholders' equity 9,574 8,528 8,220 6,433 8,734
----------------------------------------------------------
COMMON SHARE STATISTICS
Earnings per share from continuing operations:
Basic $ 4.29 $ 4.02 $ 3.19 $ 2.74 $ 3.25
Basic adjusted* $ 4.29 $ 3.67 $ 3.19 $ 2.74 $ 2.35
Diluted $ 4.15 $ 3.89 $ 3.10 $ 2.69 $ 3.18
Diluted adjusted* $ 4.15 $ 3.56 $ 3.10 $ 2.69 $ 2.32
Percent increase (decrease):
Basic 7% 26% 16% (16%) 246%
Basic adjusted* 17% 15% 16% 17% 68%
Diluted 7% 25% 15% (15%) 238%
Diluted adjusted* 17% 15% 15% 16% 66%
Earnings per share:
Basic $ 4.29 $ 4.02 $ 3.19 $ 2.81 $ 2.99
Diluted $ 4.15 $ 3.89 $ 3.10 $ 2.75 $ 2.93
Cash dividends declared per share:
Actual $ .90 $ .90 $ .90 $ .925 $ 1.00
Pro forma $ .90 $ .90 $ .90 $ .90 $ .90
Book value per share:
Actual $ 20.53 $ 18.04 $ 16.60 $ 12.57 $ 16.81
Pro forma** $ 19.29 $ 17.22 $ 14.79 $ 13.35 $ 11.81
Market price per share:
High $ 91.50 $ 60.38 $ 45.13 $ 32.00 $ 32.32
Low $ 53.63 $ 38.63 $ 29.00 $ 23.17 $ 19.75
Close $ 89.25 $ 56.50 $ 41.38 $ 29.50 $ 27.25
-47- (1997 Annual Report p. 57)
|
Average common shares outstanding for earnings per share:
Basic 464 472 485 492 481
Diluted 479 488 499 512 501
Shares outstanding at year end 466 473 483 496 490
Number of shareholders of record 53,576 55,803 57,010 60,520 58,179
OTHER STATISTICS
Number of employees at year end:
United States 44,691 43,688 41,700 43,421 40,342
Outside United States 28,929 28,611 28,647 28,991 24,151
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Total 73,620 72,299 70,347 72,412 64,493
----------------------------------------------------------
|
Note: Historical common share prices have been adjusted to reflect the Lehman spin-off at a ratio based on the trading prices of the company's common shares and shares of Lehman common stock on May 31, 1994. Pro forma cash dividends declared and book value per share have also been adjusted to reflect the Lehman spin-off. For purposes of the pro forma book value per share calculation, it is assumed that the spin-off includes the book value of the company's investment in Lehman at the balance sheet date plus the capital infusion of approximately $904 million that was made immediately prior to the spin-off.
* Adjusted to exclude: in 1996 -- a $300 million gain on the exchange of the company's DECS and a $138 million restructuring charge; 1993 -- a $433 million gain on the sale of FDC shares. **Return on average shareholders' equity is based on adjusted income from continuing operations before accounting changes and excludes the effect of SFAS No. 115 beginning in 1994. In addition, book value per share excludes the effect of SFAS No. 115 beginning in 1994.
-48- (1997 Annual Report p. 57)
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Unless otherwise indicated, all of the voting securities of these subsidiaries are directly or indirectly owned by the registrant. Where the name of the subsidiary is indented, the voting securities of such subsidiary are owned directly by the company under which its name is indented. Certain subsidiaries have been omitted which, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as defined in Rule 1-02(v) of Regulation S-X.
Jurisdiction
Name of Subsidiary of
Incorporation
I. American Express Travel Related Services Company, Inc.
and its Subsidiaries
American Express Travel Related New York
Services Company, Inc.
Amex Canada, Inc. Canada
1001675 Ontario, Inc. Canada
1001674 Ontario, Inc. Canada
Amex Bank of Canada Canada
Sourcing Innovation, Inc. Canada
American Express Company (Mexico) S.A. de C.V. Mexico
American Express Centurion Bank Utah
American Express Centurion Services Corporation Delaware
American Express Credit Corporation Delaware
American Express Overseas Credit Jersey,
Corporation Limited Channel Islands
AEOCC Management Company, Ltd. Jersey,
Channel Islands
American Express Overseas Credit Netherlands
Corporation N.V. Antilles
Credco Receivables Corp. Delaware
American Express Financial Services Ltd.(50% owned) England & Wales
American Express Receivables Financing Corp. Delaware
American Express Receivables Financing Corp. II Delaware
American Express Tax and Business Services, Inc. Minnesota
American Express do Brasil Tempo & Cia, Inc. Delaware
Amex do Brazil Empreedimentos e Participacoes Ltda. Brazil
American Express do Brasil Servicos Brazil
Internacionais, Ltda. (90% owned)
American Express do Brazil Tempo & Cia Brazil
American Express do Brasil S.A. Turismo Brazil
American Express Limited Delaware
American Express Argentina, S.A. Argentina
American Express (Malaysia) Sdn. Bhd. Malaysia
American Express (Thai) Co. Ltd. Thailand
TRS Card International Inc. (75% owned) Delaware
American Express de Espana, S.A. Spain
American Express Viajes, S.A. Spain
Amex Asesores de Seguros, S.A. Spain
1
|
American Express International (B) SDN.BHD. Brunei
Amex Travel Advisors, Limited Hong Kong
South Pacific Credit Card Ltd. New Zealand
Centurion Finance, Ltd. New Zealand
American Express International, Inc. Delaware
American Express Hungary KFT Hungary
American Express Company A/S Norway
American Express Locazioni Finanziarie, S.r.1. Italy
Amex Broker Assicurativo S.r.l. Italy
American Express Int'l A.E. (Greece) Greece
American Express Int'l (Taiwan), Inc. Taiwan
American Express of Egypt, Ltd. Delaware
American Express Carte France, S.A. France
AllCard Service GmbH Germany
American Express Bureau de Change S.A. Greece
Amex (Middle East) E.C. (50% owned) Bahrain
American Express Exposure Management, Ltd. Jersey,
Channel Islands
American Express Travel Poland Sp.Zo.O Poland
American Express Resebyra A/B Sweden
Sociedad Internacional de Servicios Panama
de Panama, S.A.
American Express Voyages Tourisme France
Havas Voyages American Express (20% owned) France
Amex Sumigin Service Company, Ltd. (40% owned) Japan
American Express International Services Limited Russia
Amex Marketing Japan Ltd. Delaware
American Express (India) Pvt. Ltd. India
P.T. American Express Travel Indonesia Indonesia
(80% owned)
BTO Ticket Delivery Office (80% owned) Belgium
American Express spol. s.r.o. Czech Republic
Nippon Card Business Co., Ltd. (25% owned) Japan
Schenker Rhenus Reisen Germany
American Express Holdings AB Sweden
Nyman & Schultz AB Sweden
TMG Forvaltning HB Sweden
Nyman & Schultz Grupp och Konferens AB Sweden
Resespecialisterna Syd AB Sweden
Resespecialisterna Helsingborg AB Sweden
Book Hotel AB Sweden
Forsakringsaktiebolaget Viator Sweden
First Card AB Sweden
Profil Rejser A/S (50% owned) Denmark
Resespecialisterna Enkoping AB (26% owned) Sweden
Scandinavian Express AB Sweden
Central Hotel AB Sweden
Nyman & Schultz Forretningsreiser A/S Norway
Nyman & Schultz Erhvevvsrejser ApS Denmark
American Express Insurance Marketing, Inc. Taiwan
American Express Publishing Corp. New York
Southwest Media Corporation Texas
Societe Francaise du Cheque de Voyage, S.A. France
(34% owned)
Travellers Cheque Associates, Ltd. (54% owned) England & Wales
American Express Service Corporation Delaware
Bansamex S.A. (50% owned) Spain
2
|
American Express Europe Limited Delaware
American Express Services Europe Limited England & Wales
and Delaware
American Express Ireland, Ltd. Ireland
American Express Insurance Services, Ltd. England & Wales
American Express TRS, Inc. Florida
Cardmember Financial Services, Ltd. Jersey,
Channel Islands
Integrated Travel Systems, Inc. Texas
Epsilon Data Management, Inc. (19.9% owned) Delaware
Controlled Airspace Corporation Texas
American Express General Insurance Agency Taiwan
American Express Bank (Mexico), S.A. Mexico
American Express Student Funding, Inc. Delaware
Educational Funding Company LCC (64% owned) California
American Express Educational Assurance Company Arizona
American Express Group & Incentive Michigan
Services, Inc. (90% owned)
American Express Incentive Services, Inc. Delaware
American Express Incentive Services, Missouri
LLC (50% owned)
American Express International (NZ), Inc. Delaware
American Express Newco, Inc. Delaware
American Express Realty Management Co. Delaware
Cavendish Holdings, Inc. Delaware
Helmshore Limited Ireland
|
II. American Express Financial Corporation and its Subsidiaries
American Express Financial Corporation Delaware
American Express Financial Advisors Inc. Delaware
IDS Real Estate Services, Inc. Delaware
IDS Securities Corporation Delaware
American Express Trust Company Minnesota
IDS Life Insurance Company Minnesota
American Partners Life Insurance Company Arizona
IDS Life Insurance Company of New York New York
American Enterprise Life Insurance Company Indiana
American Centurion Life Assurance Company New York
IDS Certificate Company Delaware
Investors Syndicate Development Corporation Nevada
IDS Insurance Agency of Arkansas Inc. Arkansas
IDS Insurance Agency of Alabama Inc. Alabama
IDS Insurance Agency of Massachusetts Inc. Massachusetts
IDS Insurance Agency of Mississippi Inc. Mississippi
IDS Insurance Agency of New Mexico Inc. New Mexico
IDS Insurance Agency of North Carolina Inc. North Carolina
IDS Insurance Agency of Ohio Inc. Ohio
IDS Insurance Agency of Texas Inc. Texas
IDS Insurance Agency of Utah Inc. Utah
IDS Insurance Agency of Wyoming Inc. Wyoming
American Express Insurance Agency of Nevada Inc. Nevada
American Express Asset Management Group Inc. Minnesota
Advisory Capital Strategies Group Inc. Minnesota
3
|
American Express Asset Management International Japan
(Japan) Ltd.
IDS Capital Holdings Inc. Minnesota
American Express Asset Management International Inc. Delaware
American Express Asset Management Ltd. England & Wales
IDS Management Corporation Minnesota
IDS Partnership Services Corporation Minnesota
IDS Cable Corporation Minnesota
IDS Futures Corporation Minnesota
IDS Realty Corporation Minnesota
IDS Cable II Corporation Minnesota
IDS Futures Brokerage Corporation Minnesota
IDS Property Casualty Insurance Company Wisconsin
American Express Minnesota Foundation Minnesota
IDS Sales Support Inc. Minnesota
IDS Plan Services of California, Inc. Minnesota
American Enterprise Investment Services Inc. Minnesota
IDS Aircraft Services Corporation Minnesota
American Express Insurance Agency of Arizona, Inc. Arizona
American Express Insurance Agency of Idaho, Inc. Idaho
American Express Property Casualty Insurance Kentucky
Agency of Kentucky, Inc.
American Express Client Service Corporation Minnesota
North Dakota Public Employee Payment Company Minnesota
American Express Property Casualty Insurance Maryland
Agency of Maryland Inc.
American Express Property Casualty Insurance Mississippi
Agency of Mississippi Inc.
American Express Property Casualty Insurance Pennsylvania
Agency of Pennsylvania Inc.
III.American Express Bank Ltd. and its Subsidiaries
American Express Bank Ltd. Connecticut
Amex Holdings, Inc. Delaware
American Express Bank GmbH Germany
AEB - International Portfolios
Management Company Luxembourg
American Express International Development Cayman Islands
Company (Cayman) Limited
Egyptian American Bank (41% owned) Egypt
Delta AEB Brokerage SAE (60% owned) Egypt
Amtrade Holdings, Inc. Delaware
American Express Bank (Switzerland) S.A. Switzerland
Cristal Trust Services S.A.-Geneva Switzerland
International Trade Services Pte Ltd. Singapore
Amex International Trust (Guernsey) Limited Guernsey,
Channel Islands
January Real Estate Cayman Islands
Etoral Finance, Inc. Panama
Sociedad Del Desarrollo Mercantil Ltda. Chile
Remor and Associates Inc. Panama
American Express Bank Asset Management Jersey,
(Jersey) Ltd. Channel Islands
American Express Bank (Luxembourg) S.A. Luxembourg
AEB WorldFolio Capital Preservation Luxembourg
Management Co. S.A.
4
|
American Express Bank (Uruguay) S.A. Uruguay
Amex International Trust (Cayman) Ltd. Cayman Islands
OLP Investments Ltd. Cayman Islands
Rilanex Participations N.V. Netherlands
Antilles
American Express Worldfolio Management Company Luxembourg
American Express Bank (France) S.A. France
Amex Gestion S.A. France
American Express Bank International United States
American Express Leasing (UK) Limited England & Wales
Bexim International S.A. (45% owned) Panama
The American Express Nominees Limited England & Wales
Priory Centre Investments Limited (29% owned) Guernsey,
Channel Islands
Argentamex S.A. Argentina
AEB (UK) PLC England & Wales
Amex Nominees (S) Pte Ltd. Singapore
Amex Bank Nominee Hong Kong Limited Hong Kong
First International Investment Bank Ltd. Pakistan
(20% owned)
American Express (Poland) Ltd. Delaware
American Express Bank Asset Management (Cayman) Ltd. Cayman Islands
Banco Inter American Express (50% owned) Chile
Inveramex Chile Ltda. Chile
Amex Immobiliaria Ltda. Chile
American Express Bank S.A. Argentina
AEB Global Asset Management, Inc. New York
AEB/FFS Management Company (50% owned) Luxembourg and
Jersey,
Cayman Islands
IV. Other Subsidiaries of the Registrant
Acuma Financial Services Ltd. Delaware
Acuma Ltd. Delaware
Ainwick Corporation Texas
American Express Asset Management Holdings, Inc. Delaware
American Express Corporation Delaware
Amexco Insurance Company Vermont
Amexco Risk Financing Holding Company Delaware
AMEX Assurance Company Illinois
National Express Company, Inc. New York
The Balcor Company Holdings, Inc. Delaware
Balcor Real Estate Holdings, Inc. Delaware
The Balcor Company Delaware
Balcor Securities Company Illinois
Balcor Development Company Illinois
Balcor Institutional Realty Advisors, Inc. Illinois
Balcor Financial Resources, Inc. Delaware
Balcor Capital Markets, Inc. Illinois
Balcor Consulting Group Illinois
Balcor Realty Company Illinois
Balcor Management Services, Inc. Illinois
International Capital Corporation Delaware
Intercapital Comercio e Participacoes Ltda. Brazil
5
|
Conepar Compania Nordestina de Brazil
Participacoes S.A. (37% owned)
Convertible Holding Ltd. Cayman Islands
CTH Common Holdings Ltd. Cayman Islands
CTH Preferred Holdings Ltd. Cayman Islands
Complejos Turisticos Huatulco, Mexico
S.A. de C.V. (84% of preferred stock)
Acamex Holdings, Inc. Cayman Islands
Etisa Holdings Ltd. Cayman Islands
Empresas Turisticas Integradas, Mexico
S.A. de C.V. (98% owned)
Floriano Representacoes Ltda. Brazil
International Capital Corp. (Ltd.) Cayman Cayman Islands
Rexport, Inc. Delaware
Drillamex, Inc. Delaware
UMPAWAUG I Corporation Delaware
UMPAWAUG II Corporation Delaware
UMPAWAUG III Corporation Delaware
UMPAWAUG IV Corporation Delaware
Daedalus Leasing Corp. New York
Dash 200 + Ltd. (50% owned) Cayman Islands
Carter Leasing Inc. Delaware
Nora Leasing, Inc. New York
Nora 737 Leasing, Inc. New York
Gemini Leasing Ltd. Cayman Islands
Wings Aircraft Leasing Corp. Belgium
AKW Aircraft Leasing Corporation Limited England & Wales
Jesem Aviation Corp. New York
MME Leasing Corp. New York
C Power, Inc. New York
Exatco Limited (50% owned) Bermuda
Far East Leasing Ltd. Cayman Islands
|
| ARTICLE 5 |
| This schedule contains summary financial information extracted from the Company's Consolidated Balance Sheet at December 31, 1997 and Consolidated Statement of Income for the year ended December 31, 1997 and is qualified in its entirety by reference to such financial statements. |
| MULTIPLIER: 1,000,000 |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | DEC 31 1997 |
| PERIOD END | DEC 31 1997 |
| CASH | 4,179 |
| SECURITIES | 39,648 |
| RECEIVABLES | 22,486 |
| ALLOWANCES | 712 |
| INVENTORY | 0 |
| CURRENT ASSETS | 0 |
| PP&E | 3,371 |
| DEPRECIATION | 1,838 |
| TOTAL ASSETS | 120,003 |
| CURRENT LIABILITIES | 0 |
| BONDS | 28,443 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 280 |
| OTHER SE | 9,294 |
| TOTAL LIABILITY AND EQUITY | 120,003 |
| SALES | 0 |
| TOTAL REVENUES | 17,760 |
| CGS | 0 |
| TOTAL COSTS | 8,435 |
| OTHER EXPENSES | 1,995 |
| LOSS PROVISION | 3,656 |
| INTEREST EXPENSE | 924 |
| INCOME PRETAX | 2,750 |
| INCOME TAX | 759 |
| INCOME CONTINUING | 1,991 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 1,991 |
| EPS PRIMARY | 4.29 |
| EPS DILUTED | 4.15 |