UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission file number 1-7657
AMERICAN EXPRESS COMPANY
(Exact name of registrant as specified in its charter)
New York State 13-4922250
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
American Express Tower, World Financial Center, New York, NY 10285
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 640-2000
None
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at April 30, 1994
Common Shares (par value $.60 per share) 494,669,593 shares
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AMERICAN EXPRESS COMPANY
FORM 10-Q
INDEX
Part I. Financial Information:
Consolidated Statement of Income--Three 1
months ended March 31, 1994 and 1993
Consolidated Balance Sheet--March 31, 1994 2
and December 31, 1993
Consolidated Statement of Cash Flows--Three 3
months ended March 31, 1994 and 1993
Notes to Consolidated Financial Statements 4-7
Management's Discussion and Analysis of 8-14
Financial Condition and Results of
Operations
Review Report of Independent Auditors 15
Part II. Other Information 16-17
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PART I--FINANCIAL INFORMATION
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENT OF INCOME
(millions, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
---------------------------
1994 1993
Net Revenues: ------ ------
Commissions and fees $1,996 $1,852
Interest and dividends, net 1,014 950
Life insurance premiums 184 166
Other 179 142
------ ------
Total 3,373 3,110
------ ------
Expenses:
Human resources 885 800
Provisions for losses and benefits:
Banking, credit and other 271 322
Annuities 264 283
Life insurance 180 146
Investment certificates 22 35
Occupancy and equipment 243 230
Marketing and promotion 234 250
Interest 233 211
Professional services 138 132
Communications 89 85
Other 374 (485)
------ ------
Total 2,933 2,009
Pretax income from continuing operations 440 1,101
Income tax provision 123 400
------ ------
Income from continuing operations 317 701
Discontinued operations, net of
income taxes 36 (458)
------ ------
Net income $ 353 $ 243
====== ======
Income per common share $ 0.62 $ 1.41
from continuing operations
Income (loss) per common share
from discontinued operations 0.07 (0.93)
------ ------
Net income per common share $ 0.69 $ 0.48
====== ======
Weighted average number of common
shares outstanding (000's) 506,729 494,777
======= =======
Cash dividends declared per
common share $ 0.25 $ 0.25
======= =======
See notes to Consolidated Financial Statements.
1<PAGE>
AMERICAN EXPRESS COMPANY
CONSOLIDATED BALANCE SHEET
(millions)
(Unaudited)
March 31, December 31,
Assets 1994 1993
- - ------ ----------- ------------
Cash and cash equivalents $ 6,832 $ 3,312
Accounts receivable and accrued interest, less
reserves: 1994, $782; 1993, $796 15,228 16,142
Investments 38,915 39,308
Loans and discounts, less reserves:
1994, $585; 1993, $655 14,561 14,796
Land, buildings and equipment--at cost, less
accumulated depreciation: 1994, $1,477;
1993, $1,441 1,982 1,976
Assets held in segregated asset accounts 9,455 8,992
Deferred acquisition costs 2,083 2,025
Other assets 7,946 7,581
-------- -------
Total assets $ 97,002 $94,132
======== =======
Liabilities and Shareholders' Equity
- - ------------------------------------
Customers' deposits and credit balances $ 11,140 $ 11,131
Travelers Cheques outstanding 4,990 4,800
Accounts payable 4,050 3,737
Insurance and annuity reserves:
Fixed annuities 19,243 19,149
Life and disability policies 4,357 4,257
Investment certificate reserves 2,672 2,752
Short-term debt 13,455 12,489
Long-term debt 8,468 8,561
Liabilities related to segregated asset accounts 9,455 8,992
Other liabilities 10,019 9,530
------- -------
Total liabilities 87,849 85,398
Shareholders' equity:
Preferred shares, $1.66 2/3 par value,
authorized 20,000,000 shares
Convertible Exchangeable Preferred shares,
issued and outstanding 4,000,000 shares in
1994 and 1993, stated at liquidation value 200 200
$216.75 CAP Preferred shares,
issued and outstanding 122,448.98 shares
in 1994 and 1993, stated at par value
(liquidation value of $300) 1 1
Common shares, $.60 par value, authorized
1,200,000,000 shares; issued and outstanding
495,187,910 shares in 1994 and 489,827,852
shares in 1993 297 294
Capital surplus 3,899 3,784
Net unrealized securities gains 76 7
Foreign currency translation adjustment (66) (73)
Deferred compensation (122) (128)
Retained earnings 4,868 4,649
-------- --------
Total shareholders' equity 9,153 8,734
-------- --------
Total liabilities and shareholders' equity $ 97,002 $ 94,132
======== ========
See notes to Consolidated Financial Statements.
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AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(millions)
(Unaudited)
Three Months Ended
March 31,
--------------------
1994 1993
---- ----
Cash Flows from Operating Activities
Income from continuing operations $ 317 $ 701
Adjustments to reconcile income from continuing operations
to net cash (used) provided by operating activities:
Provisions for losses and benefits 424 413
Depreciation, amortization, deferred taxes and other 73 220
Changes in operating assets and liabilities, net of effects
of acquisitions/dispositions:
Accounts receivable and accrued interest (110) (53)
Other assets 807 763
Accounts payable and other liabilities 414 685
Increase in Travelers Cheques outstanding 187 74
Increase in insurance reserves 102 14
Gain on sale of FDC - (779)
Net cash flows (used) provided by operating activities of
discontinued operations (3,656) 1,669
------ ------
Net cash (used) provided by operating activities (1,442) 3,707
------ ------
Cash Flows from Investing Activities
Proceeds from FDC public offerings, net of
cash sold in 1993 - 871
Sale of investments 1,714 1,367
Maturity and redemption of investments 2,182 1,548
Purchase of investments (4,139) (3,513)
Net decrease in Cardmember receivables 744 564
Proceeds from repayment of loans 5,434 4,780
Issuance of loans (5,152) (4,579)
Sale of land, buildings and equipment 3 16
Purchase of land, buildings and equipment (68) (70)
Acquisitions/dispositions, net of cash acquired/sold - 7
Net cash flows (used) provided by investing activities of
discontinued operations (36) 49
------ ------
Net cash provided by investing activities 682 1,040
------ ------
Cash Flows from Financing Activities
Net decrease in customers' deposits and credit balances (43) (105)
Sale of investment and annuity certificates 1,140 1,313
Redemption of investment and annuity certificates (1,154) (1,017)
Net increase in short-term debt 2,912 671
Issuance of long-term debt 2,029 1,961
Principal payments on long-term debt (4,167) (2,887)
Issuance of American Express common shares 63 49
Dividends paid (134) (131)
Net cash flows provided (used) by financing activities of
discontinued operations 3,737 (966)
------ ------
Net cash provided (used) by financing activities 4,383 (1,112)
Net change in cash and cash equivalents of discontinued
operations 45 752
Effect of exchange rate changes on cash (58) (34)
------ ------
Net increase in cash and cash equivalents 3,520 2,849
Cash and cash equivalents at beginning of period 3,312 3,408
------ ------
Cash and cash equivalents at end of period $ 6,832 $6,257
====== ======
See notes to Consolidated Financial Statements.
3
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AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
1. The consolidated financial statements should be read in conjunction
with the financial statements presented in the Annual Report on Form
10-K of American Express Company (the Company or American Express) for
the year ended December 31, 1993. Certain prior year's amounts have
been reclassified to conform to the current year's presentation.
Significant accounting policies disclosed therein have not changed,
except as disclosed in Note 4.
The consolidated financial statements are unaudited; however, in the
opinion of management, they include all normal recurring adjustments
necessary for a fair presentation of the consolidated financial
position of the Company at March 31, 1994 and December 31, 1993, the
consolidated results of its operations for the three months ended
March 31, 1994 and 1993 and cash flows for the three months ended March
31, 1994 and 1993. Results of operations reported for interim periods
are not necessarily indicative of results for the entire year.
2. Interest and dividends, net, reflects gross interest and dividends, net
of $206 million and $230 million of interest expense for the quarter
ended March 31, 1994 and March 31, 1993, respectively, related to the
Company's international banking operations and Travel Related Services'
consumer lending activities.
3. On April 29, 1994, the Company's Board of Directors declared a dividend
to its common shareholders of all of the Lehman Brothers Holdings Inc.
(Lehman Brothers) common stock held by American Express on May 31,
1994. See Consolidated Financial Condition, which is incorporated
herein by reference. In anticipation of this transaction, Lehman
Brothers' results are reported as a discontinued operation in the
Consolidated Financial Statements for all periods presented. The
assets and liabilities of Lehman Brothers have been reported in the
Consolidated Balance Sheet as net assets of discontinued operations and
are included in Other Assets (net of $508 million in minority preferred
interest). Discontinued operations are summarized as follows:
Quarters ended March 31, (millions) 1994 1993
- - -------------------------------------------------------------------------------
Net revenues $ 841 $1,587
Net income (loss) before preferred dividends 42 (451)
===============================================================================
Income excluding items listed below: $ 73 $ 55
Severance charge (18) -
Reserve for non-core partnership
syndication activities - (21)
Change in accounting principle * (13) -
- - -------------------------------------------------------------------------------
Lehman businesses net income $ 42 $ 34
Loss on sale of SLB - (630)
Gain on sale of The Boston Company - 165
Earnings from businesses sold - 59
Reserve for sale of non-core businesses - (79)
- - -------------------------------------------------------------------------------
Net income (loss) $ 42 $ (451)
===============================================================================
Income (loss) before preferred dividends 42 (451)
Preferred dividends (6) (7)
- - -------------------------------------------------------------------------------
Discontinued operations $ 36 $ (458)
===============================================================================
*Implementation of SFAS No. 112 related to accounting for post-employment
benefits 4
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Lehman Brothers balance sheet is summarized as follows:
March 31 December 31
(millions) 1994 1993
- - -------------------------------------------------------------------------------
Assets
Cash and segregated cash $ 2,745 $ 2,406
Receivables 12,209 10,398
Securities purchased under agreements to resell 41,130 26,046
Securities and commodities owned 44,615 35,699
Other assets 11,578 5,925
- - -------------------------------------------------------------------------------
Total assets $ 112,277 * $ 80,474
- - -------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Short-term borrowings $ 14,353 $ 11,205
Securities sold under agreements to repurchase 57,204 39,191
Securities and commodities sold but not yet
purchased 16,724 8,313
Long-term debt 10,575 9,899
Other liabilities 11,388 9,814
- - -------------------------------------------------------------------------------
Total liabilities 110,244 78,422
Stockholders' equity 2,033 2,052
- - -------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 112,277 $ 80,474
===============================================================================
* The increase in assets is primarily due to Lehman Brothers' adoption of
Financial Accounting Standards Board Interpretation No. 39, which restricts
the historical industry practice of offsetting certain receivables and
payables.
4. In May 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," which the Company
adopted as of January 1, 1994. The opening balance of Shareholders'
Equity was increased by $325 million (net of deferred taxes) to reflect
the net unrealized holding gains on securities classified as Available
for Sale. These securities were previously carried at amortized cost
or the lower of cost or market. Under the new rules, debt securities
for which the Company has both the positive intent and the ability to
hold to maturity are carried at amortized cost. Other debt securities
and all marketable equity securities, are classified as either
Available for Sale or Trading and are carried at fair value.
Unrealized holding gains and losses on securities classified as
Available for Sale are reported as a separate component of
Shareholders' Equity. Unrealized holding gains and losses on
securities classified as Trading are recognized in earnings.
The following is a summary of investments at March 31, 1994
(in millions):
Held to Maturity, at amortized cost $22,383
Available for Sale, at fair value 13,877
Trading 337
Mortgage loans 2,318
-------
$38,915
=======
5
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The following is a summary of securities Available for Sale and
securities Held to Maturity at March 31, 1994 (in millions):
Securities Held to Maturity
Gross Gross
Fair Unrealized Unrealized
Cost Value Gains Losses
---- ----- ---------- ----------
U.S. Government and agencies
obligations $ 3,467 $ 3,464 $ 1 $ (4)
State and municipal obligations 4,576 4,775 226 (27)
Corporate debt securities 11,138 11,548 483 (73)
Foreign government bonds and
obligations 100 109 10 (1)
Mortgage-backed securities 3,091 3,072 52 (71)
Other debt securities 11 11 - -
------ ------ ------ -----
Total $22,383 $22,979 $ 772 $ (176)
====== ====== ====== =====
Fair
Cost Value
---- -----
Due within 1 year $ 3,787 $ 3,796
Due after 1 year through 5 years 3,384 3,630
Due after 5 years through 10 years 8,067 8,349
Due after 10 years 4,054 4,132
------ ------
19,292 19,907
Mortgage-backed securities 3,091 3,072
------ ------
Total $22,383 $22,979
====== ======
Securities Available for Sale
Gross Gross
Fair Unrealized Unrealized
Cost Value Gains Losses
----- ----- ---------- ----------
U.S. Government and agencies
obligations $ 179 $ 179 - -
State and municipal obligations 361 386 $ 26 $ (1)
Corporate debt securities 1,674 1,754 95 (15)
Foreign government bonds and
obligations 1,784 1,789 17 (12)
Mortgage-backed securities 8,218 8,164 138 (192)
Equity securities 611 653 47 (5)
Other debt securities 931 952 22 (1)
------ ------ ---- ----
Total $13,758 $13,877 $ 345 $(226)
====== ====== ==== ====
Fair
Cost Value
----- -----
Due within 1 year $ 1,150 $ 1,150
Due after 1 year through 5 years 2,148 2,190
Due after 5 years through 10 years 1,223 1,289
Due after 10 years 408 431
------ ------
4,929 5,060
Equity securities 611 653
Mortgage-backed securities 8,218 8,164
------ ------
Total $13,758 $13,877
====== ======
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The change in net unrealized holding gains on Available for Sale
securities that is included as a separate component in Shareholders'
Equity was a decrease of $256 million (after-tax) for the quarter ended
March 31, 1994. The change in net unrealized holding gains on Trading
securities included in income was $3 million (pretax) at March 31, 1994.
During the quarter ended March 31, 1994, securities Available for Sale
were sold with proceeds of $2,343 million and gross realized gains on such
sales of $22 million and gross realized losses on such sales of $10
million. The average cost method was the basis used in determining the
realized gain or loss.
In addition, $16 million of securities were sold from Held to Maturity
during the quarter ended March 31, 1994, resulting in $0.2 million of
gross realized gains. These sales were due to credit deterioration.
Below is a table detailing the purchases, sales and maturities of
investments classified as Held to Maturity and Available for Sale for the
quarter ended March 31, 1994 (in millions):
Held to Available for
Maturity Sale
-------- -------------
Purchases $ 2,437 $ 2,820
Sales $ 16 $ 2,343
Maturities $ 2,446 $ 1,155
5. Net income taxes paid during the three months ended March 31, 1994 and
1993 were approximately $29 million and $34 million, respectively.
Interest paid during the three months ended March 31, 1994 and 1993 was
approximately $265 million and $501 million, respectively.
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Consolidated Financial Condition
On April 29, 1994, the Company's Board of Directors declared a dividend to
its common shareholders of all of the Lehman Brothers Holdings Inc. (Lehman
Brothers) common stock held by American Express on the dividend
distribution date. The dividend will be distributed on May 31, 1994 to
shareholders of record on May 20, 1994 and represents approximately
98.3 million shares of Lehman Brothers common stock. Shareholders of
American Express will receive one share of Lehman Brothers common stock for
each five common shares of American Express that they hold on the record
date. Prior to the distribution, the Company will add approximately $1.1
billion of additional equity capital to Lehman Brothers representing:
The Company's purchase of $903.8 million of Lehman Brothers common
stock, which will be included in the dividend to American Express
common shareholders. The Company will sell $11.3 million of Lehman
Brothers common stock from its current holdings to certain Lehman
Brothers executive officers; and
The Company's purchase of $200 million of Lehman Brothers cumulative
voting preferred stock which will be held for investment purposes.
In addition, approximately $57 million of Lehman Brothers common stock is
expected to be acquired by Lehman Brothers employees through an existing
employee ownership plan, and $89.2 million of the common stock will be
acquired by Nippon Life Insurance Company (Nippon Life). The Nippon Life
investment represents a change from the original plan. As a further change
to the original plan, Lehman Brothers employees are being offered
participation in the offering on a more limited basis. The Company will
also purchase 928 shares and Nippon Life will purchase 72 shares of Lehman
Brothers redeemable voting preferred stock for a nominal dollar amount.
The redeemable voting preferred stock entitles its holders to receive an
aggregate annual dividend of 50 percent of Lehman Brothers net income over
$400 million for each of the next eight years, with a maximum of $50
million in any one year. In addition, the Company and Nippon Life will be
entitled to receive 92.8 percent and 7.2 percent, respectively, of certain
contingent revenue and earnings related payouts from Travelers Corporation
(Travelers), which is being assigned by Lehman Brothers to American Express
and Nippon Life in connection with the spin-off transaction. The Travelers
participations will yield a maximum of $50 million pretax annually for
three years (of which the first installment was received in the first
quarter), depending on the revenues of Smith Barney Shearson, plus 10
percent of after-tax profits of Smith Barney Shearson in excess of $250
million per year over a five-year period.
In anticipation of this transaction, Lehman Brothers' results are reported
as a discontinued operation in the Consolidated Financial Statements for
all periods presented. The assets and liabilities of Lehman Brothers have
been reported in the Consolidated Balance Sheet as net assets of
discontinued operations and are included in Other Assets. See Note 3 which
is incorporated herein by reference.
8
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During the first quarter of 1994, the Company announced that it plans to
purchase up to four million of its common shares in the open market from
time to time. The repurchase of shares is intended to offset any dilution
resulting from the 1994 conversions of American Express Company 9%
Convertible Notes Series A-G, convertible prior to April 1, 1994 at
$17.755. Of the $160 million in Notes originally issued, $58 million was
outstanding at December 31, 1993 and was converted into approximately
3.3 million shares during the quarter.
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", as of January 1, 1994. The Statement requires debt securities
that the Company has both the ability and positive intent to hold to
maturity to be classified as Held to Maturity and accounted for at
amortized cost. All other debt securities, as well as all marketable
equity securities, are classified as Available for Sale or as Trading and
carried at fair value. Unrealized gains and losses on securities
classified as Available for Sale are carried as a separate component of
Shareholders' Equity.
At March 31, 1994, approximately 38 percent or $13.9 billion of the
Company's debt securities were classified as Available for Sale. This does
not mean that the Company expects to sell these securities, but that under
SFAS No. 115 positive intent criteria, these securities are available to
meet possible liquidity needs should there be significant changes in market
interest rates, customer demand, funding sources and terms, or foreign
currency risk.
The following sections discuss changes during the three months ended March
31, 1994 in the financial condition of each of the Company's business
segments. Except where indicated otherwise, comparisons of March 31, 1994
balance sheet amounts are made with comparable amounts at December 31,
1993.
Travel Related Services (TRS)
TRS' total assets were $39.6 billion at March 31, 1994 and $38.8 billion at
December 31, 1993. The increase in total assets reflects increased
liquidity. Accounts receivable and accrued interest declined to
$14.5 billion from $15.7 billion at December 31, 1993, due to seasonality
of the business. Loans and discounts were $8.2 billion at both March 31,
1994 and December 31, 1993. TRS' prior year's assets have been restated to
reflect the transfer of certain international consumer financial services
businesses to American Express Bank.
IDS Financial Services (IDS)
IDS' total assets owned increased to $38.4 billion at March 31, 1994 from
$37.4 billion at December 31, 1993. This growth primarily reflects an
increase in investments and assets held in segregated asset accounts. The
increase in investments of $532 million was principally funded by sales of
insurance and annuities, and by reinvested income. Assets held in
segregated accounts totaled $9.5 billion and $9.0 billion at March 31,
1994 and December 31, 1993, respectively. These assets, primarily
9
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investments carried at market value, are held for the exclusive benefit of
variable annuity and variable life insurance contract holders. IDS earns
investment management and administration fees from the related funds.
Assets under management decreased to $61.1 billion at March 31, 1994 from
$62.3 billion at December 31, 1993, reflecting market depreciation.
During the quarter, IDS Financial Corporation issued and sold $70 million
of 6.5% Medium-Term Notes due 2004 and $50 million of 6.625% Medium-Term
Notes due 2006. The Notes were sold in private placements to institutional
investors. The proceeds from these issuances were used for general
corporate purposes including repayment of existing indebtedness.
American Express Bank (the Bank)
The Bank's assets totaled $14.5 billion and $14.1 billion at March 31, 1994
and December 31, 1993, respectively. The Bank's prior year's assets have
been restated to reflect the transfer of certain international consumer
financial services businesses from TRS.
Total loans were $5.7 billion at March 31, 1994 and $5.6 billion at year-
end 1993. The reserve for credit losses was $132 million at March 31,
1994, compared with $126 million at December 31, 1993. The Bank's credit
loss reserve coverage was 2.3 percent of total loans at March 31, 1994,
compared with 2.2 percent at December 31, 1993. Total loan write-offs, net
of recoveries, were $1.0 million during the first three months of 1994 and
$1.2 million for the first quarter of 1993. Nonperforming loans totaled
$34 million at March 31, 1994, compared with $43 million at December 31,
1993. The decline in nonperforming loans primarily reflects repayments.
The Bank's other nonperforming assets totaled $89 million at March 31,
1994, unchanged from year-end 1993.
American Express Bank Ltd.'s (AEBL) risk-based capital ratios were
6.5 percent for Tier 1 Capital and 12.7 percent for Total Capital at
March 31, 1994, compared with 6.3 percent and 10.2 percent, respectively,
at year-end 1993. AEBL's leverage ratio was 4.3 percent at March 31,
1994 and 4.4 percent at December 31, 1993. The increase in the Total
Capital ratio at March 31, 1994 was primarily due to the issuance and
sale outside the United States of $250 million of Floating Rate
Subordinated Notes due 2004. The proceeds of this issuance were used for
general corporate purposes.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1994 and 1993
The Company reported consolidated income from continuing operations of
$317 million in the first quarter of 1994, compared with $701 million last
year, including the 1993 gain of $433 million ($779 million pretax) on the
sale of First Data Corporation (FDC) stock. Including Lehman Brothers,
which is reflected as a discontinued operation, first quarter 1994 net
income totaled $353 million compared with $243 million last year.
Consolidated net revenues totaled $3.4 billion in the first quarter of
1994, compared with $3.1 billion a year ago.
10
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Discontinued operations for the first three months of 1993 included a
$630 million ($535 million pretax) charge related to the sale of certain
Lehman Brothers' retail and asset management businesses (SLB), a
$165 million ($202 million pretax) gain on the sale of The Boston Company
(TBC), approximately $100 million ($152 million pretax) in reserves related
to non-core businesses and the net income of SLB and TBC of $59 million
($104 million pretax).
The Company's effective tax rate was 28 percent in the first quarter of
1994, compared with 36 percent a year ago. This year's rate was reduced by
tax-advantaged investment income, while the prior year's rate reflects the
tax effects of the FDC gain, partially offset by tax-advantaged investment
income.
Travel Related Services
Three Months Ended March 31, 1994 and 1993
TRS reported net income of $234 million in the first quarter of 1994,
compared with $209 million last year. Pretax income totaled $326 million,
compared with $261 million a year ago. During last year's first quarter,
TRS sold a portion of its insurance business and other investments and
recognized a charge on the defeasance of certain high-coupon debt. These
combined transactions resulted in a net after-tax gain of $15 million.
TRS' prior year's results have been restated to reflect the transfer of
certain international consumer financial services businesses to the Bank.
Worldwide Card billed business increased to $31.8 billion in the first
quarter of 1994 from $28.2 billion last year, reflecting higher spending
per Cardmember, growth in Corporate Card billed business and an increase in
the number of Cards outstanding. Domestic Card billed business was
$22.9 billion, compared with $20.3 billion a year ago. International Card
billed business totaled $8.9 billion, compared with $7.9 billion last year.
Worldwide Cards in force totaled 35.4 million, compared with 34.3 million a
year ago. Domestic Cards in force totaled 24.7 million, compared with
24.0 million last year. International Cards in force were 10.7 million at
March 31, 1994, compared with 10.3 million a year ago. Basic Cards in
force totaled 26.0 million, compared with 25.2 million last year. The
increase in worldwide Cards in force reflects the addition of approximately
one million Cards issued to Government employees beginning late in 1993.
The number of service establishments (SE) increased 7.8 percent to
3.7 million from 3.4 million last year.
Travelers Cheque sales totaled $4.8 billion in the first quarter of 1994,
compared with $4.7 billion last year. Average Travelers Cheques
outstanding totaled $4.8 billion, compared with $4.7 billion a year ago.
Net revenues (total revenues net of lending interest expense) increased
5.7 percent to $2.4 billion, reflecting the increase in worldwide Card
billed business. This increase was partially offset by discount rate
reductions from SE repricing implemented subsequent to the first quarter of
1993 and a decrease in net Card fee revenues. Discount revenue
increased to $906 million from $845 million last year. Net Card fees
totaled $431 million, compared with $435 million a year ago, reflecting a
change in the mix of Card products. Interest and dividend revenue
decreased to $174 million from $175 million last year. Lending finance
11
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charge revenue declined to $292 million from $294 million a year ago.
Lending net finance charge revenue increased 1.8 percent to $228 million.
Other revenues increased 12 percent to $620 million primarily due to
increased travel revenues.
Total expenses, excluding lending interest expense, remained flat at
$2.0 billion for the first quarter of 1994, compared with the first quarter
1993. The provision for losses and claims declined 6.9 percent to
$365 million from $392 million a year ago. The worldwide charge Card
provision declined to $148 million in the first quarter of 1994 from
$180 million last year, reflecting continued improvement in Card credit
experience. The worldwide lending provision was $114 million, compared to
$116 million a year ago. Interest expense, excluding lending interest
expense which is included in net revenues above, totaled $184 million in
the first quarter of 1994, down from $200 million last year, reflecting
lower borrowing rates, partially offset by increased funding requirements.
Worldwide charge Card interest expense totaled $159 million, compared with
$176 million last year. Excluding interest and the provision for losses,
total expenses increased 7 percent, primarily reflecting business travel
growth and investments in certain business initiatives. Human resources
expense increased to $586 million in the first quarter of 1994 from
$529 million a year ago, primarily reflecting growth in the Business Travel
and Corporate Card products. Marketing and promotion expense decreased
7.1 percent to $229 million in the first quarter of 1994 from $246 million
last year. However, it is expected that for the full year, marketing and
promotion expense will be higher than last year.
IDS Financial Services
Three Months Ended March 31, 1994 and 1993
IDS' net income increased 22 percent to $91 million in the first quarter of
1994 from $74 million last year. Revenues increased 10 percent to
$818 million in the first quarter of 1994 from $742 million a year ago.
Revenue and earnings growth benefited primarily from an increase in management
fees and net investment income resulting from higher asset levels. Results
also benefited from wider investment margins compared to year-ago levels.
Pretax income totaled $136 million, compared with $107 million last year.
IDS' financial planning field force totaled 7,719 at March 31, 1994, compared
with 7,398 and 7,655 at March 31, 1993 and December 31, 1993, respectively.
Total product sales increased in the first quarter of 1994. Product sales
generated from financial plans were approximately 60 percent of total sales,
compared with approximately 55 percent a year ago. Fees from financial plans
were $10.2 million in the first quarter of 1994, compared with $8.8 million
last year. Mutual fund sales totaled $2.5 billion in the first quarter of
1994, up 22 percent from $2.1 billion last year. This increase reflects
higher sales of both equity and income funds. Annuity sales increased
6.5 percent in the first quarter of 1994 to $1.0 billion from $948 million a
year ago, reflecting increased sales of annuities with equity investment
options. Sales of investment certificates totaled $155 million in the first
quarter of 1994, up from $141 million last year. Life and other insurance
sales totaled $75 million in the first quarter of 1994, up 27 percent from
$59 million a year ago, reflecting increased sales of universal life
insurance. Life insurance in force increased 13 percent to $47.7 billion at
March 31, 1994 from $42.2 billion at March 31, 1993.
12
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<PAGE>
Investment income increased to $503 million in the first quarter of 1994
from $491 million last year, reflecting higher asset levels, offset, in
part, by lower investment yields. Commissions and fees totaled
$207 million in the first quarter of 1994, up from $165 million a year ago,
reflecting management fees earned on a higher asset base and distribution
fees earned on higher mutual fund sales.
Total expenses were $682 million in the first quarter of 1994, compared
with $635 million last year. The provision for annuity benefits, the
largest component of expenses, decreased to $255 million from $265 million
a year ago, reflecting lower accrual rates. The provision for insurance
benefits increased to $88 million from $79 million a year ago. The
provision for investment certificates totaled $22 million, down from
$35 million last year, reflecting lower investment certificates in force
and lower accrual rates. Human resources expense increased to $212 million
from $177 million a year ago, reflecting an increase in the number of
employees and financial planners, and increased commissionable sales.
Other operating expenses increased to $105 million in the first quarter of
1994 from $78 million last year, reflecting increased deferred acquisition
costs and the establishment of a reserve to reflect anticipated surrenders
as a result of an annuity exchange plan announced during the quarter.
American Express Bank
Three Months Ended March 31, 1994 and 1993
The Bank reported net income of $24 million in the first quarter of 1994,
compared with $17 million a year ago. The Bank's results for the first
quarter of 1994 reflected growth in private banking fee income, a lower
provision for credit losses and a lower effective tax rate. Pretax income
totaled $36 million, compared with $27 million last year. The Bank's prior
year's results have been restated to reflect the transfer of certain
international consumer financial services businesses from TRS to the Bank.
Net interest income totaled $91 million in the first quarter of 1994,
compared with $87 million a year ago. Noninterest income, consisting
primarily of commissions, fees and other revenues, increased to $77 million
in the first quarter of 1994 from $69 million last year, primarily
reflecting growth in fee income. Noninterest expenses, excluding the
provision for credit losses, totaled $125 million in the first quarter of
1994, compared with $116 million a year ago. Increased expense levels
reflected growth in revenues.
The provision for credit losses was $6.8 million in the first quarter of
1994, compared with $13 million a year ago.
Corporate and Other
Three Months Ended March 31, 1994 and 1993
Corporate and Other reported first quarter net expenses of $32 million in
both 1994 and 1993, before a $433 million ($779 million pretax) gain from
the sale of FDC stock last year.
13
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<PAGE>
Results for the first quarter of 1994 include income from the Company's
share of the Travelers revenue participation, in accordance with an
agreement related to the 1993 sale of SLB, as well as a capital gain on the
sale of Travelers preferred stock and warrants which were acquired as part
of the 1993 sale. These gains were offset by the Company's costs
associated with the Lehman Brothers spin-off, certain business building
initiatives and a loss on the expected termination of the Company's
Employee Stock Ownership Plan.
Results for the first quarter of 1993 included the gain on the sale of FDC
stock mentioned above, which reduced the Company's ownership in FDC from 54
percent to approximately 22 percent. Lower earnings from FDC in 1994 were
offset by lower corporate expenses.
14
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<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Shareholders and Board of Directors
American Express Company
We have reviewed the accompanying consolidated balance sheet of American
Express Company (the "Company") as of March 31, 1994 and the related
consolidated statements of income and cash flows for the three-month periods
ended March 31, 1994 and 1993. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data, and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, which will
be performed for the full year with the objective of expressing an opinion
regarding the consolidated financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of the Company as of December 31,
1993, and the related consolidated statements of income, shareholders' equity,
and cash flows for the year then ended (not presented herein), and in our
report dated February 3, 1994, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth
in the accompanying consolidated balance sheet as of December 31, 1993, is
fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
ERNST & YOUNG
/s/Ernst & Young
New York, New York
May 13, 1994
15
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<PAGE>
PART II. OTHER INFORMATION
AMERICAN EXPRESS COMPANY
Item 1. Legal Proceedings
MAXWELL RELATED LITIGATION
On April 12, 1994, Macmillan appealed the judgment against it in
Macmillan, Inc. v. Bishopsgate Investment Trust, Shearson Lehman Brothers
Holdings PLC et al., which was previously reported in the registrant's Annual
Report on Form 10-K for the year ended December 31, 1993.
Item 4. Submission of Matters to a Vote of Securities Holders
The registrant's annual meeting of shareholders was held on April 25,
1994. The matters that were voted upon at the meeting, and the number of
votes cast for, against or withheld, as well as the number of abstentions and
broker non-votes, as to each such matter, where applicable, are set forth
below.
<TABLE>
<CAPTION>
Votes Votes Votes Broker
For Against Withheld Abstentions Non-Votes
<S> <C> <C> <C> <C> <C>
Selection of
Ernst & Young
as independent 400,444,758 2,921,016 - 1,032,281 -
auditors
Shareholder proposal
relating to cumula-
tive voting 130,122,120 224,321,143 - 2,704,684 47,250,108
Shareholder proposal
relating to term
limits for directors 14,278,816 339,266,134 - 4,466,186 46,386,919
Shareholder proposal
relating to executive
compensation 23,600,789 329,860,210 - 4,570,437 46,366,619
Shareholder proposal
relating to CERES
Principles 26,288,409 300,317,487 - 31,435,034 46,357,125
Election of Directors:
A.L. Armstrong 401,806,856 - 2,591,199 - -
W.G. Bowen 401,830,783 - 2,567,272 - -
D.M. Culver 401,880,823 - 2,517,232 - -
C.W. Duncan Jr. 401,865,183 - 2,532,872 - -
R.M. Furlaud 401,880,346 - 2,517,709 - -
H. Golub 401,982,796 - 2,415,259 - -
B. Sills Greenough 400,985,791 - 3,412,264 - -
F.R. Johnson 398,838,508 - 5,559,547 - -
V.E. Jordan Jr. 399,690,069 - 4,707,986 - -
H.A. Kissinger 400,158,757 - 4,239,298 - -
D. Lewis 402,029,858 - 2,368,197 - -
A. Papone 401,940,746 - 2,457,309 - -
R.S. Penske 401,987,926 - 2,410,129 - -
F.P. Popoff 401,873,796 - 2,524,259 - -
J.E. Stiefler 402,013,998 - 2,384,057 - -
</TABLE>
16
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<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on page E-1 hereof.
(b) Reports on Form 8-K:
Form 8-K, dated January 24, 1994, Item 5, announcing a plan to
issue a special dividend and reporting earnings for the quarter
and year ended December 31, 1993.
Form 8-K, dated January 24, 1994, Item 5, revising certain pro
forma financial information previously filed.
Form 8-K, dated April 5, 1994, Item 5, reporting the filing of a
registration statement covering common shares of Lehman Brothers
Holdings Inc.
Form 8-K, dated April 21, 1994, Item 5, reporting the
registrant's earnings for the quarter ended March 31, 1994.
17
PAGE
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned,
thereunto duly authorized.
AMERICAN EXPRESS COMPANY
(Registrant)
Date: May 16, 1994 By /s/ Michael P. Monaco
Michael P. Monaco
Executive Vice President,
Chief Financial Officer and
Treasurer
Date: May 16, 1994 /s/ Daniel T. Henry
Daniel T. Henry
Senior Vice President and
Comptroller
(Chief Accounting Officer)
18
<PAGE>
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as part of this Quarterly Report:
Exhibit Description
10.1 Form of Amended and Restated Agreement of Tenants-In-Common,
dated May 1994, by and among the registrant, 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
Registration Statement on Form S-1, dated April 28, 1994 (File
No. 33-52977)).
10.2 Form of Amended and Restated Tax Allocation Agreement, dated
May 1994, between Lehman Brothers Holdings Inc. and the
registrant (incorporated by reference to Exhibit 10.2 of Lehman
Brothers Holdings Inc.'s Registration Statement on Form S-1,
dated April 28, 1994 (File No. 33-52977)).
10.3 Form of Amended and Restated Intercompany Agreement, dated May
1994, between the registrant and Lehman Brothers Holdings Inc.
(incorporated by reference to Exhibit 10.3 of Lehman Brothers
Holdings Inc.'s Registration Statement on Form S-1, dated April
28, 1994 (File No. 33-52977)).
10.4 Form of Purchase and Exchange Agreement, dated May 1994,
between Lehman Brothers Holdings Inc. and the registrant
(incorporated by reference to Exhibit 10.29 of Lehman Brothers
Holdings Inc.'s Registration Statement on Form S-1, dated April
28, 1994 (File No. 33-52977)).
10.5 Form of Registration Rights Agreement, dated May 1994, between
the registrant and Lehman Brothers Holdings Inc. (incorporated
by reference to Exhibit 10.30 of Lehman Brothers Holdings
Inc.'s Registration Statement on Form S-1, dated April 28, 1994
(File No. 33-52977)).
10.6 Form of Option Agreement, dated May 1994, by and among the
registrant, 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 10.31 of
Lehman Brothers Holdings Inc.'s Registration Statement on Form
S-1, dated April 28, 1994 (File No. 33-52977)).
10.7 Form of 1994 Agreement, dated April 27, 1994, between the
registrant, Lehman Brothers Holdings Inc. and Nippon Life
Insurance Company (incorporated by reference to Exhibit 10.32
of Lehman Brothers Holdings Inc.'s Registration Statement on
Form S-1, dated April 28, 1994 (File No. 33-52977)).
12.1 Computation in Support of Ratio of Earnings to Fixed Charges.
12.2 Computation in Support of Ratio of Earnings to Fixed Charges
and Preferred Share Dividends.
15 Letter re Unaudited Interim Financial Information.
E-1
PAGE
<PAGE>
EXHIBIT 12.1
AMERICAN EXPRESS COMPANY
COMPUTATION IN SUPPORT OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
Three Months
Ended March 31, Years Ended December 31,
1994 1993 1992 1991 1990
-------------- ---- ---- ---- ----
Earnings:
Pretax income from
continuing operations $ 440 $2,326 $ 896 $ 622 $1,578
Interest expense 439 1,783 2,171 2,761 3,160
Other adjustments 34 88 196 142 209
----- ----- ----- ----- -----
Total earnings (a) $ 913 $4,197 $3,263 $3,525 $4,947
Fixed charges:
Interest expense $ 439 $1,783 $2,171 $2,761 $3,160
Other adjustments 33 130 154 147 143
----- ----- ----- ----- -----
Total fixed charges (b) $ 472 $1,913 $2,325 $2,908 $3,303
----- ----- ----- ----- -----
Ratio of earnings to
fixed charges (a/b) 1.93 2.19 1.40 1.21 1.50
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.
In January 1994, the Company announced plans to spin-off Lehman Brothers
through a special 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 to approximately 22 percent through a public offering.
As a result, beginning in 1993 FDC is reported as an equity investment
in the above computation.
<PAGE>
<PAGE>
EXHIBIT 12.2
AMERICAN EXPRESS COMPANY
COMPUTATION IN SUPPORT OF RATIO OF EARNINGS TO FIXED CHARGES AND
PREFERRED SHARE DIVIDENDS
(Dollars in millions)
Three Months
Ended March 31, Years Ended December 31,
1994 1993 1992 1991 1990
-------------- ---- ---- ---- ----
Earnings:
Pretax income from
continuing operations $ 440 $2,326 $ 896 $ 622 $1,578
Interest expense 439 1,783 2,171 2,761 3,160
Other adjustments 34 88 196 142 209
----- ----- ----- ----- -----
Total earnings (a) $ 913 $4,197 $3,263 $3,525 $4,947
----- ----- ----- ----- -----
Fixed charges and preferred
share dividends:
Interest expense $ 439 $1,783 $2,171 $2,761 $3,160
Dividends on preferred
shares 16 66 65 61 74
Other adjustments 33 130 154 147 143
----- ----- ----- ----- -----
Total fixed charges and
preferred share
dividends (b) $ 488 $1,979 $2,390 $2,969 $3,377
----- ----- ----- ----- -----
Ratio of earnings to
fixed charges and
preferred share
dividends (a/b) 1.87 2.12 1.37 1.19 1.46
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.
In January 1994, the Company announced plans to spin-off Lehman Brothers
through a special 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 to approximately 22 percent through a public offering.
As a result, beginning in 1993 FDC is reported as an equity investment
in the above computation.
<PAGE>
<PAGE>
Exhibit 15
May 16, 1994
The Shareholders and Board of Directors
American Express Company
We are aware of the incorporation by reference in Registration
Statements (Forms S-8 No. 2-46918, No. 2-59230, No. 2-64285, No. 2-73954,
No. 2-74368, No. 2-89115, No. 2-89680, No. 2-93654, No. 2-97617, No. 33-01771,
No. 33-02980, No. 33-05875, No. 33-06350, No. 33-17133, No. 33-19724,
No. 33-24675, No. 33-28721, No. 33-32876, No. 33-33552, No. 33-34005,
No. 33-34625, No. 33-36422, No. 33-37882, No. 33-38777, No. 33-43671,
No. 33-43695, No. 33-45584, No. 33-48629, No. 33-55344, No. 33-62124 and
33-65008; Forms S-3 No. 2-89469, No. 2-95771, No. 33-06038, No. 33-07435,
No. 33-17706, No. 33-40636, No. 33-43268, No. 33-66654 and No. 33-50997) of
American Express Company of our report dated May 13, 1994 relating to the
unaudited consolidated interim financial statements of American Express
Company which are included in its Form 10-Q for the three-month period ended
March 31, 1994.
Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not
a part of the registration statement prepared or certified by accountants
within the meaning of Section 7 or 11 of the Securities Act of 1933.
/s/Ernst & Young
New York, New York
