=============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
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, 1993
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.)
American Express Tower
World Financial Center
New York, New York 10285
(Address of principal executive offices) (Zip code)
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
------------------- ---------------------
Common Shares (par value $.60 per Share) New York Stock Exchange
Boston Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
6 1/4% Exchangeable Notes Due October 15, 1996 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K / /.
Common shares of the registrant outstanding at March 7, 1994 were 491,387,952.
The aggregate market value, as of March 7, 1994, of such common shares held by
non-affiliates of the registrant was approximately $14.1 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.)
DOCUMENTS INCORPORATED BY REFERENCE
Parts I, II and IV: Portions of Registrant's 1993 Annual Report to
Shareholders.
Part III: Portions of Registrant's Proxy Statement dated March 14, 1994.
=============================================================================
PAGE
<PAGE>
TABLE OF CONTENTS
Form 10-K
Item Number
Part I Page
1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Travel Related Services . . . . . . . . . . . . . . . . . . . . .1
IDS Financial Services. . . . . . . . . . . . . . . . . . . . . .6
American Express Bank . . . . . . . . . . . . . . . . . . . . . 10
Discontinued Operations . . . . . . . . . . . . . . . . . . . . 17
Corporate and Other . . . . . . . . . . . . . . . . . . . . . . 18
Foreign Operations. . . . . . . . . . . . . . . . . . . . . . . 19
Industry Segment Information and
Classes of Similar Services . . . . . . . . . . . . . . . . . 19
Executive Officers of the Registrant. . . . . . . . . . . . . . 20
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 22
4. Submission of Matters to a Vote of Security Holders . . . . . . . . 27
Part II
5. Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . . . . 27
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . 27
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . 27
8. Financial Statements and Supplementary Data . . . . . . . . . . . . 27
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . . 27
Part III
10. Directors and Executive Officers of the Registran . . . . . . . . . 27
11. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . 27
12. Security Ownership of Certain Beneficial Owners
and Management. . . . . . . . . . . . . . . . . . . . . . . . . . 27
13. Certain Relationships and Related Transactions. . . . . . . . . . . 27
Part IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Index to Financial Statements . . . . . . . . . . . . . . . . . . .F-1
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . .E-1
i
<PAGE>
PART I
ITEM 1. BUSINESS
American Express Company (the "registrant") was founded in 1850 as a joint
stock association and was incorporated under the laws of the State of New York
in 1965. The registrant and its subsidiaries are principally in the business
of providing travel related services, investors diversified financial services
and international banking services throughout the world.
In January 1994, the registrant's Board of Directors approved a plan to
complete a tax-free spin-off of the common stock of the registrant's
subsidiary, Lehman Brothers Holdings Inc. ("Lehman"), through a special
dividend to the registrant's common shareholders. Lehman is in the business
of providing investment services. The final transaction, which is subject to
a number of conditions, is expected to close in the second quarter of 1994.
In anticipation of this transaction, Lehman's results are reported as a
discontinued operation in the registrant's Consolidated Financial Statements.
During 1993, Lehman sold the Shearson Lehman Brothers retail
brokerage and asset management businesses, The Boston Company, Inc. and
Shearson Lehman Hutton Mortgage Corporation.
In March 1993, the registrant reduced its ownership interest in First Data
Corporation ("FDC") to approximately 22 percent through a public offering. As
a result, effective January 1, 1993, FDC is reported under the equity method
of accounting.
These transactions are described in more detail on pages 23 and 35-37 of
the registrant's Annual Report to Shareholders, which descriptions are
incorporated herein by reference.
TRAVEL RELATED SERVICES
American Express Travel Related Services Company, Inc. (including its
subsidiaries, where appropriate, "TRS") provides a variety of products and
services, including the American Express(R) Card (the "Card"), consumer
lending, the American Express(R) Travelers Cheque (the "Travelers Cheque" or
the "Cheque"), corporate and consumer travel products and services, magazine
publishing, database marketing and management and insurance. TRS offers
products and services in over 160 countries.
TRS's 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 calendar quarters.
TRS places significant importance on its trademarks and service marks.
TRS diligently protects its intellectual property rights around the world.
CARD AND CONSUMER LENDING
TRS issues the American Express Card, including the American Express(R)
Gold Card, the Platinum Card(R), the Corporate Card, the Optima(SM) Card and,
commencing in January 1994, the Purchasing Card. Cards are currently issued
in 32 currencies. The Card, which is issued to individuals for their personal
account or through a corporate account established by their employer, permits
Cardmembers to charge purchases of goods and services in the United States and
in most countries around the world at establishments that have agreed to
accept the Card.
<PAGE>
The Card issuer accepts from each participating establishment the charges
arising from Cardmember purchases at a discount that varies with the type of
participating establishment, the volume of charges, the timing and method of
payment to the establishment and the method of submission.
Except in the case of the Optima Card, the Card is primarily designed for
use as a method of payment and not as a means of financing purchases of goods
and services and carries no pre-set spending limit. Charges are approved
based on a Cardmember's past spending and payment patterns, credit history and
personal resources. Except in the case of the Optima Card and extended
payment plans, payment of the full amount billed each month is due from the
Cardmember upon receipt of the bill, and no finance charges are assessed.
Card accounts that are past due by a given number of days are subject, in most
cases, to a delinquency assessment.
The Card issuer charges Cardmembers 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. The
Optima Card is generally offered to pre-approved prospects on a first-year-
free basis.
Cardmembers generally have access to a variety of special services,
including: the Membership Miles(R) Program, Global Assist(R) Hotline, Buyer's
Assurance(SM) Protection Plan, Car Rental Loss and Damage Insurance Plan,
Travel Accident Insurance Plan and Purchase Protection(SM) Plan. A Cardmember
participating in the Gold Card program in the United States has access to
certain additional services, including a Year End Summary of Charges Report
and, in many instances, the ability to draw on a line of credit. 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 of participating
financial institutions worldwide. TRS also offers merchandise directly to
Cardmembers, who may elect to pay for the products they purchase in
installments with no finance charges. TRS is planning to offer additional
rewards programs in conjunction with other businesses, possibly on a co-
branded basis.
The Corporate Card program offers travel and expense management systems
and services for all business entities and such services as the Business
Travel Accident Insurance Plan for large businesses and the Accident
Disability Plan and the FleetPlan(SM) auto leasing program for small
businesses. TRS is continuing to enhance its business travel and expense
management systems through various on-line access technologies and business
travel management information reports, as described below under "Travel
Services", which are integrated with the Corporate Card. Effective on
November 30, 1993, the U.S. General Services Administration awarded TRS a
contract to provide American Express(R) Government Card charge card services
to federal employees who travel on official government business. The contract
is for one year with four one-year renewal options.
TRS launched the Corporate Purchasing Card in January 1994. The Corporate
Purchasing Card is intended to provide an efficient, low-cost system for
managing purchases of supplies, equipment and services by companies.
Employees of the company to whom Corporate Purchasing Cards are issued can use
the Cards to order directly from suppliers, rather than using the traditional
system of requisitions, purchase orders and invoices. TRS pays the suppliers
and submits a single monthly billing statement to the company.
The Optima Card is a revolving credit card marketed to individuals in the
United States and several other countries. In the United States, interest is
2
<PAGE>
computed according to one of three tiers, all tied to the prime rate,
depending on the spending and payment patterns and tenure of the Cardmember.
American Express Centurion Bank ("Centurion Bank") issues the Optima Card in
the United States and owns substantially all receivables arising from the use
of Optima Cards issued in the United States. In addition, Centurion Bank
issues lines of credit in association with many American Express Cards and
offers unsecured loans to Cardmembers in connection with their Sign &
Travel(R) accounts and other unsecured lines of credit and installment loans.
The Sign & Travel account allows qualified U.S. Cardmembers the option of
extended payments for airline, cruise and certain prepaid travel charges that
are purchased with the Card. Centurion Bank combined its line of credit
products with the Optima portfolio, effective in the fourth quarter of 1993.
Outside the United States, consumer lending activities are engaged in by other
subsidiaries of the registrant where local regulations permit. The Optima
Card is currently offered primarily to individuals who already have an
American Express Card. TRS is also planning to offer revolving credit cards
to individuals who are not Cardmembers.
American Express Credit Corporation ("Credco") purchases most Cardmember
receivables arising from the use of Cards (other than Optima Cards) issued in
the United States and Cardmember receivables in designated currencies arising
from the use of Cards 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. (In addition, TRS also funds Cardmember
receivables through an asset securitization program.) The cost of funding
Cardmember receivables is a major expense of Card operations.
The American Express 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 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. These laws and regulations have not had, and are not expected to have,
a material adverse effect on the Card and consumer lending businesses, either
in the United States or on a worldwide basis.
Centurion Bank is subject to restrictions on its activities under the
Competitive Equality Banking Act of 1987 ("CEBA"). See page 18 for a
description of these restrictions. Centurion Bank is a member of the Federal
Deposit Insurance Corporation ("FDIC") and is regulated, supervised and
regularly examined by the Delaware State Banking Commissioner and the FDIC.
TRS encounters substantial and increasingly intense competition worldwide
with respect to the Card and consumer lending businesses from general purpose
cards issued under revolving credit plans, particularly VISA cards issued by
members of VISA International Service Association, Inc. or VISA USA, Inc.
(collectively, "VISA"), and MasterCard cards issued by members of MasterCard
International, Incorporated ("MasterCard"), including cards sponsored by AT&T,
General Electric Company, General Motors Corporation and Ford Motor Company;
the Discover Card, a revolving credit card; and, to a lesser extent, charge
cards such as Diners Club and JCB. TRS also encounters competition from
businesses that issue their own cards or otherwise extend credit to their
customers. Most U.S. banks issuing credit cards under revolving credit plans
3
<PAGE>
charge annual fees in addition to interest charges where permitted by state
law. The issuer of the Discover Card, as well as some issuers of VISA cards
and MasterCard cards, charge no annual fees. Certain issuers offer mileage
credit to card holders under airline frequent flyer programs or other types of
reward programs or rebates. Certain competing issuers offer premium cards
with enhanced services or lines of credit.
TRS generally charges higher discount rates to service establishments than
its competitors. As a result, TRS has encountered complaints from some
establishments, as well as suppression of the Card's use. TRS has adjusted
its discount structure in certain industries and locations. In addition, TRS
has undertaken a reengineering program designed to reduce costs and enhance
TRS's ability to address competitive pricing pressures. (For a discussion of
this program, see page 26 of the registrant's Annual Report to Shareholders,
which is incorporated herein by reference.) TRS has also increased its joint
marketing and other services offered to service establishments and has
expanded its efforts in handling and resolving suppression problems. TRS's
strategy is to focus on achieving Card acceptance at merchants where
Cardmembers want to use the Card.
The principal competitive factors that affect the Card business are (i)
the quality of the service and services, including rewards programs, provided
to Cardmembers and participating establishments; (ii) the number and
characteristics 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
number and quality of other payment instruments available to Cardmembers and
participating establishments; and (vii) the success of marketing and promotion
campaigns.
TRAVEL SERVICES
A wide variety of travel services is offered to customers for business and
personal purposes by a network of offices in more than 120 countries. Travel
services include trip planning, reservations, ticketing, management
information systems and other incidental services. TRS receives commissions
and fees for travel bookings and arrangements from airlines, hotels, car
rental companies and other travel suppliers.
To meet the competition for the business traveler and to provide client
companies with a customized approach to managing their travel and
entertainment needs, the Travel Management Services unit ("TMS") integrates
the Corporate Card and business travel services in the United States and
certain foreign countries. TMS offers to its client companies services to
manage their travel and entertainment budgets. American Express Business
Travel Centers handle reservations, provide necessary ticketing and deliver
ticket/itinerary information in the United States. In addition, this service
provides clients with an information package to plan, account for and control
travel and entertainment expenses. TMS provides a state-of-the-art Expense
Management System, which captures and reconciles expense report data with
Corporate Card charge data. TMS also developed On-Line Access, a
user-friendly information service that can help organizations obtain necessary
travel management information through their office computers.
Vigorous competition is encountered in the travel business from more than
30,000 travel agents in the United States and abroad. This competition is
mainly based on service, convenience and proximity to the customer and has
increased due to several factors in recent years. The number of travel
agencies in the United States has increased, and a number of independent
agencies have been acquired by larger travel companies. Travel agency groups
also have increased in size, enabling independent agencies to be more
4
<PAGE>
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.
TRAVELERS CHEQUES
American Express Travelers Cheques are sold as a safe and convenient
alternative to currency. The 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. The
success of the Travelers Cheque operation is in large part related to the
worldwide acceptability of the Cheque as a means of payment for goods and
services and the worldwide refundability of Cheques that are lost or stolen.
American Express Travelers Cheques are issued directly by TRS in United States
dollars, Canadian dollars, Swiss francs, German marks and Japanese yen.
French franc and British pound Cheques are primarily issued by joint venture
companies in which TRS holds an equity interest and for which TRS provides
sales, operations, marketing and refund servicing arrangements.
American Express Travelers Cheques are sold through a broad network of
outlets worldwide, including offices of TRS, its affiliates and
representatives, travel agents, commercial banks, savings banks, savings and
loan associations, credit unions and other financial, travel and commercial
businesses. TRS generally pays compensation to selling agents for their sale
of Travelers Cheques.
The proceeds from sales of Cheques issued by TRS are remitted to TRS and
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.
TRS also issues the Corporate Travelers Cheque, a cash access product for
business travelers, Cheques for Two(SM), a Cheque product with two signature
lines designed for people who are traveling together, and the American
Express(R) Gift Cheque. All of these Cheque products operate with the same
signature-countersignature negotiation procedure as Travelers Cheques and are
refundable to the purchaser in the event of loss or theft.
Although the registrant believes that TRS is the leading issuer of
travelers checks, TRS encounters significant competition from many other forms
of payment instruments, from other brands of travelers checks and from
national and international automated teller machine networks. The principal
competitive factors affecting the travelers check industry are (i) the
acceptability of the checks throughout the world as an alternative to
currency; (ii) the ability to service satisfactorily the check purchaser if
the checks are lost or stolen; (iii) the compensation paid to, and frequency
of settlement by, selling agents; (iv) the availability to the consumer of
other forms of payment; (v) the accessibility of travelers check sales and
refunds; (vi) the success of marketing and promotion campaigns; and (vii) the
amount of the fee charged to the consumer.
PUBLISHING AND DIRECT MARKETING
TRS publishes Travel & Leisure(R), Food & Wine(R), Departures(TM) and Your
Company(TM) magazines. Under a March 1993 agreement between TRS and a
subsidiary of Time Inc. ("Time"), Time provides management services in
connection with these magazines. The magazine publishing business operates in
a highly competitive market. The editorial quality of the magazines and the
size and quality of their readerships are the most critical competitive
factors.
5
<PAGE>
TRS also provides direct mail merchandise services and, through its
subsidiary Epsilon Data Management, Inc., proprietary database marketing and
management.
INSURANCE
AMEX Life Assurance Company ("AMEX Life"), its subsidiaries and its
affiliated property-casualty insurer, AMEX Assurance Company (collectively,
the "Life Group"), provide a variety of insurance products to individuals,
employers and associations. The Life Group's primary products are individual
long-term care insurance and products for American Express Cardmembers such as
Automatic Air Flight insurance and a deferred annuity marketed under the name
Privileged Assets(R).
The Life Group's long-term care products are marketed through a network
of 20,000 independent agents and brokers and American Express affiliates.
Other products are marketed through direct response methods to Cardmembers.
The Life Group competes with companies in the financial services industry
that respond to consumer needs for money management, risk management and
investments. The principal factors that affect the Life Group's competitive
position are (i) premium rates; (ii) providing coverage to meet customers'
needs; (iii) the quality of service given its customers; (iv) establishing and
maintaining distribution networks to sell policies and administrative
capabilities to service policyholders; (v) marketing; and (vi) investment
performance.
In the first quarter of 1993, the Life Group sold by reinsurance certain
closed blocks of business including policies of life, accident and health
insurance held by American Express Cardmembers, representing earned premiums
in 1992 of approximately $155 million.
The Life Group is qualified to transact business in all states of the
United States and in Puerto Rico and Canada, and is subject to comprehensive
state and federal regulations. (See page 8 for a general discussion of the
extent of state insurance regulations.)
IDS FINANCIAL SERVICES
IDS Financial Corporation (including its subsidiaries, where appropriate,
"IDS") is engaged in providing a variety of financial products and services to
help individuals, businesses and institutions establish and achieve their
financial goals. IDS's products and services include financial planning,
insurance and annuities, a variety of investment products, including
investment certificates, mutual funds and limited partnerships, investment
advisory services, trust services, tax preparation and bookkeeping services,
personal auto and homeowner's insurance and retail securities brokerage
services. At December 31, 1993, IDS maintained a nationwide financial
planning field force of 7,655 persons. IDS's marketing system consists
primarily of its field force operating in 50 states and the District of
Columbia, organized in 13 regions and 177 divisional offices.
FINANCIAL PLANNING
IDS Financial Services Inc., IDS's principal marketing subsidiary, offers
financial planning and investment advisory services to individuals for which
it charges a fee. IDS financial planning services provide financial analyses
addressing six basic areas of financial planning: financial position,
protection, investment, income tax, retirement and estate planning. To
complete their financial plans, IDS planners provide clients with
recommendations of products from the more than 100 products distributed by
6
<PAGE>
subsidiaries and affiliates of IDS, as well as products of approved third
parties.
IDS Financial Services Inc. has entered into a marketing arrangement with
a subsidiary of TRS, American Express Service Corporation ("AESC"), in which
financial planners representing both AESC and IDS offer Cardmembers and others
financial analyses through AESC and other financial products and services
through IDS in select locations. IDS is planning to rebrand its financial
planning business to identify itself more closely with the American Express
brand name, and to enable IDS to expand services to Cardmembers.
IDS Financial Services Inc. is marketing its financial products and
services to customers of banks and credit unions, by establishing offices with
dedicated financial planners within the bank's or credit union's retail
locations. Such arrangements enable these financial institutions to retain
and enhance their relationships with customers who would have gone elsewhere
to buy non-insured, non-deposit financial products.
First-year financial planners are compensated primarily by salary, while
veteran financial planners receive compensation based on sales. The IDS field
force compensation is structured to encourage planner retention and product
persistency, while adding stability to the financial planner's income. In
attracting and retaining members of the field force, IDS competes with
financial planning firms, insurance companies, securities broker-dealers and
other financial institutions. IDS has undertaken a major initiative called
"IDS 1994" to make changes in its business processes and field organization to
improve planner retention and client satisfaction. IDS has two pilot division
offices implementing the IDS 1994 recommendations and plans additional pilots
this year.
Although the use of an exclusive field force may entail higher initial
costs than other forms of marketing, such as direct-response marketing or
independent agency distribution, IDS believes that its ability to provide
broad-based integrated services on a relationship basis is a competitive
advantage.
IDS Financial Services Inc. does business as a broker-dealer and
investment adviser in 51 jurisdictions. IDS Financial Corporation, IDS
Financial Services Inc. and AESC are registered as broker-dealers and
investment advisers regulated by the Securities and Exchange Commission
("SEC"), and are members of the National Association of Securities Dealers,
Inc. ("NASD"). IDS financial planners must obtain state and NASD licenses
required for the businesses.
IDS anticipates regulation of the securities and commodities industries
to increase at all levels. Monetary penalties and restrictions on business
activities by regulators resulting from compliance deficiencies are also
expected to increase. 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 adviser, its officers or
employees.
The financial services industry responds to consumer needs for money
management, risk management and investments. Industry competition focuses
primarily on cost, investment performance, yield, convenience, service,
reliability, safety and distribution system. Competition in the financial
services market is very intense and IDS competes with a variety of financial
institutions such as banks, securities brokers, mutual funds and insurance
companies, whose products and services increasingly cross over the traditional
lines that previously differentiated one type of institution from another.
7
<PAGE>
IDS's business does not as a whole experience significant seasonal
fluctuations.
INSURANCE AND ANNUITIES
IDS'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 IDS
Financial Corporation and serves all states except New York. 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"), whose business is currently
limited to issuing fixed dollar annuity contracts to banks, thrift
institutions and stock brokerages. In Fortune magazine's May 1993 listing of
the 50 largest life insurance companies as ranked by assets, IDS Life ranked
fourteenth.
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). IDS Life also markets disability income and
long-term care insurance. In addition, it offers 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 principal annuity products are fixed deferred annuities. These
annuities guarantee a relatively low annual interest rate during the
accumulation period (the time before annuity payments begin) although the
company may pay a higher rate reflective of current market rates. IDS Life
also offers a fixed/variable annuity, or "Flexible 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. Additionally, IDS Life offers
a variable annuity contract that invests in real estate, real estate mortgages
and sale-leaseback transactions.
IDS Life, IDS Life Insurance Company of New York and American Enterprise
Life are subject to comprehensive regulation by the Minnesota Department of
Commerce (Insurance Division), the New York Department of Insurance and the
Indiana Department of Insurance, respectively, although 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 contents of insurance
policies. The purpose of such regulation and supervision is primarily to
protect the interests of policyholders. Virtually all states also 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 with respect to various aspects of the insurance industry
including taxation and 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 IDS's insurance
subsidiaries.
As a distributor of variable 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.
In addition to selling its products through IDS financial planners, IDS
Life also distributes its products through financial consultants of Smith
Barney Shearson Inc., an independent firm.
8
<PAGE>
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 issues face-amount investment certificates through its wholly-owned
subsidiary, IDS Certificate Company ("IDSC"), which is registered as an
investment company under the Investment Company Act of 1940. 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 holding 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. IDS acts as
investment manager for IDSC. IDSC's certificates are sold primarily by IDS
Financial Services Inc.'s field force.
IDSC currently offers eight types of face-amount certificates. The
specified maturities of the certificates range from four to twenty years.
Within their specified maturity, most certificates have interest rate periods
ranging from one to thirty-six months. Certificate holders can surrender
their certificates at the end of an interest rate period. Some certificates
are marketed by American Express Bank Ltd. to its foreign customers. American
Express Bank International has also sold a significant amount of certificates.
IDSC is the largest issuer of face-amount certificates in the United
States. Such certificates compete, however, 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
IDS Financial Services Inc. offers a variety of mutual funds, for which
it acts as principal underwriter (distributor of shares). IDS acts as
investment manager and performs various administrative services. These 36
publicly-offered mutual funds, the "IDS MUTUAL FUND GROUP", have varied
investment objectives, and include, for example, money market, tax-exempt,
bond and stock funds. IDS believes that the IDS MUTUAL FUND GROUP, with
combined net assets at December 31, 1993 of $36.5 billion, was the thirteenth
largest mutual fund organization and, excluding money market funds, was the
eighth largest. IDS Financial Services Inc., as principal underwriter,
maintains a continuous public offering of shares of each fund 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.
The competitive factors affecting the sale of mutual funds include sales
charges ("loads") paid, services received and investment performance. The
funds compete with other investment products, including funds that have no
sales charge (known as "no load" funds), and with funds distributed through
independent brokerage firms as well as with those distributed by other
"exclusive" sales forces.
OTHER SERVICES
IDS provides investment management services for pension, profit-sharing,
employee savings and endowment funds of large- and medium-sized businesses and
9
<PAGE>
other institutions through the IDS Advisory Group. IDS also offers investment
services for wealthy individuals and small institutions. These services are
marketed through IDS financial planners and marketing employees and third-
party referrals. International or global investment management is offered by
IDS International, Inc., a U.S. company with offices in London, England, and
IDS Fund Management Ltd., an English company. At December 31, 1993, the IDS
Advisory Group managed securities portfolios totaling $12.3 billion for 236
accounts, up from $8.6 billion at December 31, 1992 for 172 accounts. The
market for the IDS Advisory Group's services is highly competitive, with
investment performance the most critical competitive factor.
IDS Trust Company, formerly IDS Bank & Trust, provides trustee, custodial,
record-keeping and investment management services for pension, profit sharing,
employee savings and endowment funds. Through its personal trust division,
IDS Trust Company offers trust services to individuals. IDS Trust Company is
regulated by the Minnesota Department of Commerce (Banking Division). On
March 1, 1994, IDS Trust Company and IDS Deposit Corp., a Utah industrial loan
corporation, assigned their deposits and sold their loans to a subsidiary of
TRS. Prior to that date, IDS Trust Company and IDS Deposit Corp. made
consumer loans and accepted certain kinds of deposits.
IDS Financial Services Inc. distributes a variety of real estate, cable
TV, equipment leasing, and venture capital limited partnership investments
issued by other companies. IDS Financial Services Inc. also distributes
limited partnerships in which various IDS subsidiaries are co-general partners
or are involved in providing services to such partnerships. These
partnerships include real estate, cable TV and managed futures partnerships.
IDS Property Casualty Insurance Company provides personal auto and
homeowner's coverage to clients in nineteen states. This insurance is
underwritten to some extent by AMEX Assurance Company in fourteen of these
states and reinsured by IDS Property Casualty. IDS Property Casualty is
regulated by the Commissioner of Insurance for Wisconsin. Tax and Business
Services, a division of IDS Financial Services Inc., offers tax planning, tax
preparation and small business consulting services to clients in 50 locations
in 26 states.
In 1993, IDS continued to expand its securities services activities, which
offer portfolio analysis and securities brokerage services. American
Enterprise Investment Services Inc. provides securities execution and
clearance services for IDS. 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.
AMERICAN EXPRESS BANK
The registrant's wholly-owned subsidiary, American Express Bank Ltd.
(together with its subsidiaries, where appropriate, "AEB"), seeks to meet the
financial service needs of wealthy entrepreneurs and local financial service
institutions through four core businesses: private banking, correspondent
banking, commercial services and treasury. 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 U.S. and non-U.S. based
activities.
AEB's private banking business focuses on wealthy entrepreneurs by
providing such customers deposit products, investment and fiduciary services,
asset management, mutual funds, trust and estate planning and secured loans.
Correspondent banking services are offered primarily to medium-sized and small
financial institutions and include processing services (such as check
10
<PAGE>
clearing, money transfers, collections and remittances), electronic banking
and trade finance, in addition to deposit and investment services. Commercial
services are provided to businesses, most of which are owned by wealthy
entrepreneurs, and include trade finance products such as letters of credit,
payment guaranties, working capital loans and equipment finance. Treasury
services are provided to all segments of AEB's customer base, and primarily
include trading foreign exchange, interest rate products and other derivative
instruments.
In certain countries outside the United States and Canada, in some cases
by arrangement with TRS, AEB provides travel related services consisting of
Card, travel and Travelers Cheque products and offers consumer lending and
certain other services. In the future, AEB expects to serve a greater role as
an international platform to support TRS's business globally.
AEB has a global network of 81 locations in 37 countries. Its
international 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 also headquartered in New York City and has branches in New York
City, Miami, Beverly Hills, Los Angeles and San Diego. The three offices in
California are expected to be sold or closed in 1994. In connection with
AEB's sale in 1990 of TDB American Express Bank, its former Swiss-based
private banking subsidiary, the registrant and certain of its affiliates,
including AEB, have agreed not to engage in Switzerland in the money or asset
management businesses prior to March 2, 1995. AEB continues to maintain a
banking presence in Switzerland through a wholly-owned subsidiary, American
Express Bank (Switzerland) S.A.
As part of AEB's strategy to focus its business on wealthy entrepreneurs
and local financial service institutions, and to manage its assets and
operations more prudently, AEB continued to exit certain off-strategy
activities in 1993, including a joint venture commercial bank in the
Philippines and leasing joint ventures in Indonesia, Taiwan and Germany.
SELECTED FINANCIAL INFORMATION
The travel-related and consumer lending services referred to above were
included in AEB's legal entity, but not AEB's reporting segment, in 1993 and
in certain prior years. The financial information set forth below is
generally presented on a segment basis and thus excludes such services, which
were presented in TRS' reporting segment, except where otherwise indicated.
Commencing in the first quarter of 1994, certain of such services are being
operated within, and reported as part of, the AEB segment.
AEB provides banking services to the registrant and its subsidiaries. AEB
is only one of many international and local banks used by the registrant and
its other subsidiaries, which constitute only a few of AEB's many customers.
AEB's total assets were $13.6 billion at December 31, 1993, compared with
$13.7 billion at December 31, 1992. Liquid assets, consisting of cash and
deposits with banks, trading account assets and investments, were $5.9 billion
at December 31, 1993, compared with $5.0 billion at December 31, 1992.
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, 1993 (dollars in
millions):
11
<PAGE>
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Net financial revenues $557 $452 $445
Noninterest expenses 440 445 407
Income before cumulative effect of a
change in accounting principle 81 26 60
Cumulative effect of a change in
accounting for post-retirement
benefits other than pensions, net
of related income taxes - (7) -
Net income 81 19 60
- - -----------------------------------------------------------------------------
Cash and deposits with banks 2,641 2,065 2,844
Investments 2,820 2,780 2,942
Loans, net 5,031 4,654 4,538
Total assets 13,559 13,658 14,367
- - ----------------------------------------------------------------------------
Customers' deposits and credit
balances 8,760 8,622 9,612
Shareholder's equity 605 565 572
- - -----------------------------------------------------------------------------
Return on average assets (a) 0.65% 0.19% 0.42%
Return on average shareholder's equity (a) 13.74% 4.57% 10.52%
- - -----------------------------------------------------------------------------
Total loans/deposits and credit
balances from customers 58.70% 55.53% 48.13%
Average shareholder's equity/average
assets (a) 4.70% 4.22% 3.99%
Risk-based capital ratios: (b)
Tier 1 6.3% 5.7% 4.8%
Total 10.2% 9.1% 8.8%
Leverage ratio (b) 4.4% 4.3% 3.8%
- - -----------------------------------------------------------------------------
Average interest rates earned: (c)
Loans (d) 7.01% 8.14% 9.64%
Investments (e) 9.21% 9.13% 9.38%
Deposits with banks 5.67% 6.68% 8.61%
- - -----------------------------------------------------------------------------
Total interest-earning assets (e) 7.15% 7.87% 9.22%
- - -----------------------------------------------------------------------------
Average interest rates paid: (c) 5.49% 6.49% 7.73%
Deposits and credit balances from
customers 4.19% 5.38% 6.67%
Borrowed funds, including long-term debt
- - -----------------------------------------------------------------------------
Total interest-bearing liabilities 5.28% 6.34% 7.60%
- - -----------------------------------------------------------------------------
Net interest income/total average
interest-earning assets (e) 2.48% 2.27% 1.90%
- - -----------------------------------------------------------------------------
(a) Computed before the accounting change.
(b) Reported on a legal entity basis.
(c) Based upon average balances and related interest income and expense,
including transactions with related parties.
(d) Interest rates have been calculated based upon average total loans,
including those on nonperforming status.
(e) On a tax equivalent basis.
</TABLE>
12
<PAGE>
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, 1993
(millions):
By Geographical Region (a) 1993 1992 1991 1990 1989
- - -------------------------------------------------------------------------------
Asia/Pacific $1,924 $1,558 $1,653 $1,472 $1,229
Europe 882 844 910 1,526 1,519
Indian Subcontinent 849 907 623 632 485
Latin America 749 675 546 653 979
North America 283 382 468 537 533
Middle East 368 357 365 340 413
Africa 87 65 61 38 147
Other - - - - 11
- - -------------------------------------------------------------------------------
Total $5,142 $4,788 $4,626 $5,198 $5,316
===============================================================================
<TABLE>
<CAPTION>
1993
---------------------------------
Due After
1 Year
Due Through Due
By Type Within 5 After 5
and Maturity 1 Year Years(b) Years(b) 1993 1992 1991 1990 1989
- - ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans to $2,384 $235 $20 $2,639 $2,628 $2,355 $2,431 $2,262
businesses(c)
Real estate loans 460 228 16 704 665 751 815 423
Loans to banks and
other financial
institutions 961 107 7 1,075 666 731 778 938
Equipment
financing(d) 10 68 27 105 386 501 509 519
Consumer loans 462 3 - 465 282 118 213 567
Loans to governments
and official 83 3 3 89 96 96 324 492
institutions
All other loans 65 - - 65 65 74 128 115
- - ------------------------------------------------------------------------------------------
Total $4,425 $644 $73 $5,142 $4,788 $4,626 $5,198 $5,316
==========================================================================================
</TABLE>
(a) Based primarily on the domicile of the borrower.
(b) Loans due after 1 year at fixed (predetermined) interest rates totaled
$199 million, while those at floating (adjustable) interest rates totaled
$519 million.
(c) Business loans, which accounted for approximately 51 percent of the
portfolio as of December 31, 1993, were distributed over 26 commercial
and industrial categories.
(d) The decrease from December 31, 1992 to December 31, 1993 reflects $163
million of equipment finance (aircraft) loans transferred to other
performing assets upon foreclosure, resulting in a total value of
aircraft assets leased to others of $424 million at December 31, 1993.
13
<PAGE>
The following tables set forth AEB's nonperforming loans at year end for
each of the five years in the period ended December 31, 1993 (millions):
1993 1992 1991 1990 1989
-------------------------------------------------------------------------
Credit $ 43 $102 $ 38 $189 $ 16
Lesser Developed Countries - - - 238 311
-------------------------------------------------------------------------
Total (a) $ 43 $102 $ 38 $427 $327
=========================================================================
1993 1992 1991 1990 1989
------------------------------------------------------------------------
Loans to businesses $ 24 $ 22 $ 21 $174 $ 16
Real estate loans 19 69 5 15 -
Equipment financing - 6 5 - -
Loans to banks and other
financial institutions - 4 4 - 12
Loans to governments
and official institutions - 1 3 238 299
------------------------------------------------------------------------
Total (a) (b) $ 43 $102 $ 38 $427 $327
========================================================================
(a) AEB's other nonperforming assets totaled $89 million at December 31,
1993, $83 million at December 31, 1992 and $43 million at December 31,
1991, and represent balances transferred from nonperforming loans as a
result of foreclosures and in-substance foreclosures. The increases were
primarily related to real estate exposures.
(b) Reduced rate loans were immaterial in amount.
14
<PAGE>
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, 1993
(dollars in millions):
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
Total loans at year end $5,142 $4,788 $4,626 $5,198 $5,316
====== ====== ====== ====== ======
Reserve for credit losses-
January 1, $ 134 $ 88 $ 318 $ 452 $ 509
Provision for credit losses 34 94 25 54 127
Transfer to TRS (a) - - - (12) -
Translation and other (b) (21) - (1) 2 -
------- ------- ------- ------- ------
Subtotal 147 182 342 496 636
------- ------- ------- ------- ------
Write-offs:
Real estate loans 16 30 7 - -
Loans to businesses 19 21 88 24 17
Loans to banks and other
financial institutions - 4 18 3 52
Loans to governments and
official institutions - 2 149 163 128
All other loans 6 1 - 1 1
Recoveries:
Loans to businesses (4) (8) (6) (9) (8)
Loans to banks and other
financial institutions (1) (1) (1) (1) (3)
Real estate loans - - (1) - -
Equipment financing - - - - (2)
Loans to governments and
official institutions - - - (2) -
All other loans - (1) - (1) (1)
------ ------ ------- ------ ------
Net write-offs 36 48 254 178 184
------ ------ ------ ------ ------
Reserve for credit losses-
December 31, $ 111 $ 134 $ 88 $ 318 $ 452
====== ======= ====== ====== ======
Reserve for credit losses/
total loans 2.16% 2.80% 1.90% 6.12% 8.50%
====== ====== ====== ====== ======
(a) During 1990, AEB transferred loans totaling $236 million and related
reserves of $12 million to TRS on a segment reporting basis.
(b) The decline in 1993 was primarily due to the transfer of reserves
relating to loans reclassified to other performing assets upon
foreclosure.
- - --------------------------
Interest income is recognized on the accrual basis. Loans are placed on
nonperforming status when payments of principal or interest are 90 days past
due, or if in the opinion of management the borrower is unlikely to meet its
contractual commitments. When loans are placed on nonperforming status, all
previously accrued interest not yet received is reversed against current
interest income. Cash receipts of interest on nonperforming loans are
recognized either as income or as a reduction of principal, based upon
management's judgment as to the collectibility of principal.
15
<PAGE>
A reserve for credit losses is established by charging a provision for
credit losses against income. The amount charged to income is based upon
several factors, which include the historical credit loss experience in
relation to outstanding credits, a continuous determination as to the
collectibility of each credit, and management's evaluation of exposures in
each applicable country as related to current and anticipated economic and
political conditions.
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, 1993, AEB had significant investments in certain
on- and off-balance sheet financial instruments, which were primarily
represented by deposits with banks, investments, loans, commitments to
purchase and sell foreign currencies and U.S. dollars, interest rate swaps and
forward rate agreements. 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, Europe and North
America. AEB continuously monitors its credit concentrations and actively
manages to reduce the associated risk. AEB does not anticipate any material
losses as a result of these concentrations.
In 1991, AEB completed the liquidation of its long-term lesser developed
country ("LDC") cross border loan portfolio. At December 31, 1993, AEB had
$64 million of equity investments in LDC based enterprises (net of reserves)
resulting from certain debt for equity conversions. These remaining
conversions included 7 equity investments, the value of which were primarily
represented by a minority interest in a Brazilian petrochemical holding
company and two Mexican hotel projects.
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. Strict limits have been established, however, 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. Fixed interest rate loans with
maturities in excess of one year totaled $199 million at December 31, 1993.
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 registrant) 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, has AEB been a major factor.
REGULATION
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. AEB's New York Agency is
supervised and regularly examined by the Superintendent of Banks of the State
of New York. At the request of management, the New York State Banking
Department has extended its supervision and examination of the New York Agency
to cover AEB's global network of branches and subsidiaries. The Florida
Department of Banking and Finance supervises and examines the Miami Agency.
16
<PAGE>
In addition, the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") regulates, supervises and examines AEBI.
Following a recent examination of AEBI's California branches, in September
1993 AEBI agreed to pay a fine of $950,000 to, and entered into an agreement
(a Consent Cease and Desist Order) with, the Federal Reserve Board. Under the
agreement, AEBI agreed to correct two alleged violations of regulations of the
Federal Reserve Board and amend certain internal policies and procedures. The
fine was not material to, and did not involve a significant part of the
business of, AEB.
Since AEB does not do business in the United States except as an incident
to its activities outside the United States, the registrant's affiliation with
AEB neither causes the registrant 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 FDIC, and
is not subject to any of the restrictions imposed on grandfathered nonbank
banks by CEBA, other than anti-tie-in rules with respect to transactions
involving products and services of certain of its affiliates and restrictions
on loans to certain executive officers and directors.
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 Federal Deposit Insurance Corporation
Improvement Act of 1991, the relevant provisions of which became effective for
year-end 1992, 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 adequately capitalized if it
maintains a Tier 1 risk-based capital ratio of at least 4.0 percent, a total
risk-based capital ratio of at least 8.0 percent and a leverage ratio of at
least 4.0 percent. Based on AEB's total risk-based capital and leverage
ratios, which are set forth on page 12, AEB is considered to be adequately
capitalized at December 31, 1993. The Federal Reserve Board has proposed
revisions to its regulations which would establish a limitation on the amount
of deferred tax assets that may be considered regulatory capital for risk-
based and leverage capital purposes. In anticipation that these proposed
revisions will be adopted, deferred tax assets are being excluded from AEB's
regulatory capital ratably over a two year period commencing in January 1993,
which could reduce AEB's capital ratios in 1994.
DISCONTINUED OPERATIONS
Lehman, through its wholly-owned subsidiary Lehman Brothers ("Lehman
Brothers") and other subsidiaries, is a global investment bank serving
institutional, corporate, government and high net-worth individual clients in
major financial centers worldwide. Lehman's businesses include capital
raising for clients through securities underwriting and direct placements;
corporate finance and strategic advisory services; merchant banking;
securities sales and trading; institutional asset management; research; and
the trading of foreign exchange, derivative products and certain commodities.
Lehman acts as a market marker in all major fixed income and equity products
in both the domestic and international markets. Lehman Brothers, which is a
member of all principal securities and commodities exchanges in the United
States, as well as the NASD, also holds memberships or associate memberships
on several principal international securities and commodities exchanges,
including the London, Tokyo, Hong Kong, Frankfurt and Milan exchanges.
17
<PAGE>
During 1993, Lehman sold the Shearson Lehman Brothers retail
brokerage and asset management businesses, The Boston Company private banking,
trust and mutual fund administration businesses and Shearson Lehman Hutton
Mortgage Corporation, which engaged in mortgage banking.
In January 1994, the registrant's Board of Directors approved a plan to
complete a tax-free spin-off of the common stock of Lehman through a special
dividend to the registrant's common shareholders. The final transaction is
subject to a number of conditions, including receipt of a favorable tax
opinion, regulatory clearances, market conditions and final approval by the
registrant's Board. In addition, certain related matters are subject to
approval by the Lehman Board. The transaction is expected to close in the
second quarter of 1994. In anticipation of this transaction, Lehman's results
are reported as a discontinued operation in the registrant's Consolidated
Financial Statements. This transaction is described in more detail on pages
23 and 35-37 of the registrant's Annual Report to Shareholders, which
descriptions are incorporated herein by reference.
CORPORATE AND OTHER
BALCOR
The Balcor Company, 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 is expected to be completed in 1996. The
Balcor Company Holdings, Inc. was formed in 1992 as a holding company for The
Balcor Company and its former subsidiaries (collectively, "Balcor"). At
December 31, 1993, Balcor's assets, excluding cash and cash equivalents,
totaled $1.1 billion with related reserves of $333 million. Balcor's assets
at December 31, 1993 included real estate loans amounting to $225 million,
advances to limited partnerships originated by Balcor of $90 million,
interests in non-syndicated partnerships of $191 million and investments in
real estate of $526 million, inclusive of real estate transferred from
borrowers as a result of foreclosure of $402 million.
CEBA AND FDICIA
The Competitive Equality Banking Act of 1987 ("CEBA"), among other things,
prevents the formation of new nonbank banks after March 5, 1987 and restricts
the activities of such banks that existed on that date. The registrant owns
two nonbank banks -- Centurion Bank and IDS Trust Company -- which are subject
to these "grandfather" restrictions. The restrictions include a prohibition
on new activities and affiliate overdrafts, and limitations on asset growth
and the ability to market the products and services of the bank by an
affiliate and vice versa. CEBA has had an impact on the manner in which the
registrant's nonbank banks conduct business to assure their continued
grandfathered status, but has not had a material adverse effect on the
registrant.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") applies generally to the registrant's insured depository
institutions, including Centurion Bank. Among other things, FDICIA has
enabled the FDIC to raise the amount of assessments for federal deposit
insurance paid by the registrant's insured depository institutions and
authorizes further increases. In addition, FDICIA significantly restricts the
ability of broker-dealers such as IDS Financial Services to broker deposits
for insured depository institutions, including affiliates. FDICIA has not had
and is not expected to have a material adverse effect on the registrant.
18
<PAGE>
FOREIGN OPERATIONS
TRS 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 is in the process of broadening 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 TRS'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.
IDS does not have substantial business outside the United States.
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.
In 1993, the registrant sold its Acuma subsidiary, which distributed life
insurance, pension products and mutual funds in the United Kingdom through a
sales force of financial planners.
As a result of its foreign operations, the registrant is exposed to the
possibility that, because of foreign exchange rate fluctuations, assets and
liabilities denominated in currencies other than the U.S. dollar may be
realized in amounts greater or lesser than the U.S. dollar amounts at which
they are currently recorded in the registrant'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 registrant's operations.
The registrant'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 U.S. dollars for their spending outside their
local country. The registrant's investments in foreign operations are hedged
by forward exchange contracts or by identifiable transactions, where
appropriate.
INDUSTRY SEGMENT INFORMATION AND CLASSES OF SIMILAR SERVICES
Information with respect to the registrant's industry segments,
geographical operations and classes of similar services is set forth in Note
15 to the Consolidated Financial Statements of the registrant, which appears
on pages 48 and 49 of the registrant's 1993 Annual Report to Shareholders,
which note is incorporated herein by reference.
19
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
All of the executive officers of the registrant as of March 29, 1994, 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
and Chief Executive Officer, TRS
Mr. Golub (55) has been Chief Executive Officer of the registrant since
February 1993, Chairman of the registrant since August 1993 and Chairman and
Chief Executive Officer of TRS since November 1991. Prior to August 1993, he
had been President of the registrant since July 1991. Prior to January 1992,
he was also Chairman of IDS Financial Corporation. Prior to July 1991, he had
been Vice Chairman of the registrant and Chairman and Chief Executive Officer
of IDS since September 1990. Prior thereto, he had been President and Chief
Executive Officer of IDS since January 1984.
JEFFREY E. STIEFLER - President
Mr. Stiefler (47) has been President of the registrant since August 1993.
Prior thereto, he had been President and Chief Executive Officer of IDS
Financial Corporation since July 1991, and President of IDS since September
1990. Prior thereto, he had been Executive Vice President for Sales and
Marketing of IDS since 1987.
JONATHAN S. LINEN - Vice Chairman
Mr. Linen (50) has been Vice Chairman of the registrant since August 1993.
Prior thereto, he had been President and Chief Operating Officer of TRS since
March 1992. Prior thereto, he had been President and Chief Executive Officer
of the Shearson Lehman Brothers Division of Shearson Lehman Brothers Inc.
since June 1990. Before June 1990, he had been President and Chief Executive
Officer of TRS's Direct Marketing and Travelers Cheque Group since May 1989.
Before May 1989, he had been President of TRS's Direct Marketing Group since
1986.
ROGER H. BALLOU - President, Travel Services Group, TRS
Mr. Ballou (42) has been President of TRS's Travel Services Group since
May 1989. Prior thereto, he was Executive Vice President-Strategic Business
Systems since May 1987.
KENNETH I. CHENAULT - President, U.S.A, TRS
Mr. Chenault (42) has been President, U.S.A. of TRS since August 1993.
Prior thereto, he had been President, Consumer Card Group, TRS since 1989.
STEVEN D. GOLDSTEIN - President and Chief Executive Officer, American
Express Bank Ltd.
Mr. Goldstein (42) has been President and Chief Executive Officer of AEB
since March 1991. Prior thereto, he had been President of Consumer Financial
Services, American Express International, since September 1989 and President
of TRS International-United Kingdom and Ireland since December 1987.
20
<PAGE>
R. CRAIG HOENSHELL - President, International, TRS
Mr. Hoenshell (49) has been President, International of TRS since August
1993. Prior thereto, he had been President of TRS's Travelers Cheque Group
since 1990. Prior thereto, he was President of American Express Centurion
Bank.
DAVID R. HUBERS - President and Chief Executive Officer, IDS
Financial Corporation
Mr. Hubers (51) has been President and Chief Executive Officer of IDS
since August 1993. Prior thereto, he had been a Senior Vice President of IDS
since 1982.
JOSEPH W. KEILTY - Executive Vice President
Mr. Keilty (56) has been Executive Vice President since November 1991.
Prior thereto, he had been Managing Director of Keilty, Goldsmith & Company,
a consulting company, since 1981.
MICHAEL P. MONACO - Executive Vice President, Chief Financial Officer
and Treasurer
Mr. Monaco (46) has been Executive Vice President and Chief Financial
Officer since September 1990 and Treasurer since April 1992. Prior thereto,
he had been Senior Vice President since September 1989 and Comptroller since
1985.
LOUISE M. PARENT - Executive Vice President and General Counsel
Ms. Parent (43) has been Executive Vice President and General Counsel of
the registrant since May 1993. Prior thereto, she had been Deputy General
Counsel of the registrant since January 1992. Prior thereto, she had been
General Counsel of First Data Corporation since April 1989. Prior thereto,
she had been Assistant General Counsel of the registrant since April 1988.
THOMAS SCHICK - Executive Vice President
Mr. Schick (47) has been Executive Vice President since March 1993. Prior
thereto, he had been Executive Vice President of TRS since October 1992 and
Senior Executive Vice President of Shearson Lehman Brothers Inc. since 1986.
EMPLOYEES
The registrant, excluding Lehman and its subsidiaries, had 64,493
employees on December 31, 1993.
ITEM 2. PROPERTIES
The registrant's headquarters are in a 51-story, 2.2 million square foot
building located in lower Manhattan, known as American Express Tower, 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 is also headquartered at the building and is a co-owner.
Other principal locations of TRS include: the Southern Regional
Operations Center, Fort Lauderdale, Florida; the Western Regional Operations
Center and the Travel Group Service Center, Phoenix, Arizona; the Northern
Regional Operations Center, Greensboro, North Carolina; the Optima Regional
21
<PAGE>
Operating Center, Jacksonville, Florida; the Travelers Cheque Group Operating
Center, Salt Lake City, Utah; and American Express Canada, Inc. headquarters,
Markham, Ontario, Canada, all of which are owned by the registrant or its
subsidiaries.
IDS's principal locations are its headquarters, which IDS leases until
2002, and its Operations Center, which IDS owns; both are in Minneapolis,
Minnesota.
Generally, the registrant and its subsidiaries lease the premises they
occupy in other locations. Facilities owned or occupied by the registrant 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 registrant 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 registrant believes it
has meritorious defenses to each of these actions and intends to defend them
vigorously. The registrant believes that it is not a party to, nor are any of
its properties the subject of, any pending legal proceedings which would have
a material adverse effect on the registrant's consolidated financial
condition.
SAFRA-RELATED ACTIONS
Two purported shareholder derivative actions, now consolidated, were
brought in October 1990 in New York State Supreme Court and three purported
derivative actions, also now consolidated, were brought in early 1991 in
United States District Court for the Southern District of New York against all
of the then current directors, certain former directors and certain former
officers and employees of the registrant. The consolidated state court
complaint alleges that defendants breached their duty of care in managing the
registrant, purportedly resulting in losses and in the registrant's payment of
$8 million in July 1989 to certain charities agreed to by the registrant and
Edmond J. Safra. The federal complaints also allege breach of duty in
connection with a severance arrangement of a former executive officer of the
registrant and that certain proxy statements of the registrant were misleading
in failing to disclose such alleged breaches. Plaintiffs seek a declaratory
judgment, unspecified money damages and an accounting. The federal actions
also seek to declare void certain charter and by-law amendments relating to
exculpation and indemnification of directors and officers. The federal
actions were dismissed in December 1993. The plaintiffs have appealed the
dismissal.
COMPUTERVISION LITIGATION
Federal Court Actions. In connection with public offerings of notes and
common stock of Computervision Corporation ("Computervision"), actions were
commenced in the federal District Court for the District of Massachusetts
against Computervision, its directors, certain of its executive officers,
Lehman, Lehman Brothers, Donaldson, Lufkin & Jenrette Securities Corporation,
The First Boston Corporation, Hambrecht & Quist Incorporated and J. H. Whitney
& Co. (collectively, the "Massachusetts Case"). These actions have been
consolidated in a consolidated amended class action complaint, which alleges
in substance that the registration statement and prospectus used in connection
with the offerings contained materially false and misleading statements and
material omissions related to Computervision's anticipated operating results
for 1992 and 1993. The plaintiffs purport to represent a class of individuals
who purchased in the public offering or in the aftermarket. The complaint
22
<PAGE>
seeks damages for negligent misrepresentation and under Sections 11, 12 and 15
of the Securities Act of 1933.
In addition, three suits were filed in the United States District Court
for the Southern District of New York. The suits raise claims similar to
those in the Massachusetts Case against the same defendants. The Judicial
Panel on Multidistrict Litigation has ordered these cases consolidated with
the Massachusetts Case.
State Court Action. Lehman Brothers is named as the sole defendant in a
putative class action, Greenwald v. Lehman Brothers Inc., brought in New York
State Supreme Court. The complaint, which alleges in substance that Lehman
Brothers breached a fiduciary duty owed to its customers in selling them the
common stock, senior notes and senior subordinated notes of Computervision
during the class period, as defined in the complaint, was dismissed.
FCH-RELATED ACTIONS
FCH Derivative Actions. On or about March 29, 1991, two identical
purported shareholder derivative actions were filed, entitled Mentch v.
Weingarten, et al. and Isaacs v. Weingarten, et al. The complaints in these
two actions, pending in the Superior Court of the State of California, County
of Los Angeles, were filed allegedly on behalf of and naming as a nominal
defendant First Capital Holdings Corp. ("FCH"). Other defendants include
Lehman, two former officers and directors of FCH, Robert Weingarten and Gerry
Ginsberg, the four outside directors of FCH, Peter Cohen, Richard DeScherer,
William L. Mack and Jerome H. Miller (collectively, the "Outside Directors"),
and Michael Milken. The complaints allege generally breaches of fiduciary
duty, gross corporate mismanagement and waste of assets in connection with
FCH's purchase of non-rated bonds underwritten by Drexel Burnham Lambert Inc.
and seek damages for losses suffered by FCH, punitive damages and attorneys'
fees. The actions have been stayed pursuant to the bankruptcy of FCH.
Concurrent with the bankruptcy filing of FCH and the conservatorship and
receivership of its two life insurance subsidiaries, First Capital Life
Insurance Company ("FCL") and Fidelity Bankers Life Insurance Company ("FBL")
(collectively, the "Insurance Subsidiaries"), a number of additional actions
were instituted naming one or more of the registrant, Lehman and Lehman
Brothers as defendants.
FCH Shareholder and Agent Actions. Three actions were commenced in the
United States District Courts for the Southern District of New York and the
Central District of California allegedly as class actions on behalf of the
purchasers of FCH securities during certain specified periods, commencing no
earlier than May 4, 1988 and ending no later than May 31, 1991 (the
"Shareholder Class"). The complaints are captioned Larkin, et al. v. First
Capital Holdings Corp., et al., amended on May 15, 1991 to add the registrant
as a defendant, Zachary v. American Express Company, et al., filed on May 20,
1991, and Morse v. Weingarten, et al., filed on June 13, 1991 (the
"Shareholder Class Actions"). The complaints raise claims under the federal
securities laws and allege that the defendants concealed adverse material
information regarding the finances, financial condition and future prospects
of FCH and made material misstatements regarding these matters.
On July 1, 1991, an action was filed in the United States District Court
for the Southern District of Ohio entitled Benndorf v. American Express
Company, et al. The action is brought purportedly on behalf of three classes.
The first class is similar to the Shareholder Class; the second consists of
managing general agents and general agents who marketed various FCL products
from April 2, 1990 to the filing of the suit and to whom it is alleged
misrepresentations were made concerning FCH (the "Agent Class"); and the third
class consists of Agents who purchased common stock of FCH through the First
23
<PAGE>
Capital Life Non Qualified Stock Purchase Plan ("FSPP") and who have an
interest in the stock purchase account under the FSPP (the "FSPP Class"). The
complaint raises claims similar to those asserted in the other Shareholder
Class Actions, along with additional claims relating to the FSPP Class and the
Agent Class alleging damages in marketing the products. In addition, on
August 15, 1991, Kruthoffer v. American Express Company, et al. was filed in
the United States District Court for the Eastern District of Kentucky, which
complaint is nearly identical to the Benndorf complaint (collectively, the
"Agent Class Actions").
On November 14, 1991, the Judicial Panel on Multidistrict Litigation
issued an order transferring and coordinating for all pretrial purposes all
related actions concerning the sale of FCH securities, including the
Shareholder Class Action and Agent Class Actions, and any future filed
"tag-along" actions, to Judge John G. Davies of the United States District
Court for the Central District of California (the "California District
Court"). The cases are captioned In Re: First Capital Holdings Corp.
Financial Products Securities Litigation, MDL Docket No. 901 (the "MDL
Action").
On January 18, 1993, an amended consolidated complaint (the "Third
Complaint") was filed on behalf of the Shareholder Class and the Agent Class.
The Third Complaint names as defendants the registrant, Lehman, Lehman
Brothers, Weingarten and his wife Palomba Weingarten, Ginsberg, Philip A.
Fitzpatrick (Chief Financial Officer of FCH), the Outside Directors, former
outside FCH directors, Jeffrey B. Lane and Robert Druskin (the "Former Outside
Directors"), Fred Buck (President of FCL) and Peat Marwick. The Third
Complaint raises claims under the federal securities laws and the common law
of fraud and negligence. On March 10, 1993, the defendants answered the Third
Complaint, denying its material allegations.
On March 11, 1993, the California District Court entered an order granting
class certification to the Shareholder Class. The class consists of all
persons, except defendants, who purchased FCH common stock, preferred stock or
debentures during the period May 4, 1988 to and including May 10, 1991. It
also issued an order denying class certification to the Agent Class. The FSPP
Class action had been previously dropped by the plaintiffs.
American Express Shareholder Action. On or about May 20, 1991, a
purported class action was filed on behalf of all shareholders of the
registrant who purchased the registrant's common shares during the period
beginning August 16, 1990 to and including May 10, 1991. The case is
captioned Steiner v. American Express Company, et al. and was commenced in the
United States District Court for the Eastern District of New York. The
defendants are the registrant, Lehman, James D. Robinson III, Howard L. Clark
Jr., Harvey Golub and Aldo Papone. The complaint alleges generally that the
defendants failed to disclose material information in their possession with
respect to FCH which artificially inflated the price of the common shares of
the registrant from August 16, 1990 to and including May 10, 1991 and that
such non-disclosure allegedly caused damages to the purported shareholder
class. The action has been transferred to California and is now part of the
MDL Action. The defendants have answered the complaint, denying its material
allegations.
The Bankruptcy Court Action. In the FCH bankruptcy, pending in the United
States Bankruptcy Court for the Central District of California (the
"Bankruptcy Court"), on February 11, 1992, the Official Committee of Creditors
Holding Unsecured Claims (the "Creditors' Committee") obtained permission from
the Bankruptcy Court to file an action for and on behalf of FCH and the parent
companies of the Insurance Subsidiaries. On March 3, 1992, the Creditors'
Committee initiated an adversary proceeding in the Bankruptcy Court, in which
they assert claims for breach of fiduciary duty and waste of corporate assets
24
<PAGE>
against Lehman; fraudulent transfer against both Lehman and Lehman Brothers;
and breach of contract against Lehman Brothers. Also named as defendants are
the Outside Directors, the Former Outside Directors, Weingarten and Ginsberg.
Lehman and Lehman Brothers have answered the complaint, denying its material
allegations. Fact discovery has been completed, and the contract claim has
been dropped by plaintiffs. No trial date has been set.
American Express Derivative Action. On June 6, 1991, a purported
shareholder derivative action was filed in the United States District Court
for the Eastern District of New York, entitled Rosenberg v. Robinson, et al.,
against all of the then-current directors of the registrant. In January 1992,
this action was transferred by stipulation to the United States District Court
for the Central District of California for coordinated or consolidated
proceedings with all other federal actions related to FCH. The complaint
alleges that the Board of Directors of the registrant should have required
Lehman to divest its investment in FCH and to write down such investment
sooner. In addition, the complaint alleges that the failure to act
constituted a waste of corporate assets and caused damage to the registrant's
reputation. The complaint seeks a judgment declaring that the directors named
as defendants breached their fiduciary duties and duties of loyalty and
requiring the defendants to pay money damages to the registrant and remit
their compensation for the periods in which the duties were breached,
attorneys' fees and costs and other relief. The defendants have answered the
complaint, denying its material allegations.
The Virginia Commissioner of Insurance Action. On December 9, 1992, a
complaint was filed in federal court in the Eastern District of Virginia by
Steven Foster, the Virginia Commissioner of Insurance as Deputy Receiver of
FBL. The Complaint names Lehman and Weingarten, Ginsberg and Leonard Gubar (a
former director of FCH and FBL) as defendants. The action was subsequently
transferred to California to be part of the MDL Action. The complaint alleges
that Lehman acquiesced in and approved the continued mismanagement of FBL and
that it participated in directing the investment of FBL assets. The complaint
asserts claims under the federal securities laws and asserts common law claims
including fraud, negligence and breach of fiduciary duty and alleges
violations of the Virginia Securities laws by Lehman. It seeks no less than
$220 million in damages to FBL and its present and former policyholders and
creditors and punitive damages. Lehman has answered the complaint, denying
its material allegations.
MAXWELL-RELATED LITIGATION
Certain of Lehman's subsidiaries are defendants in several lawsuits
arising out of transactions entered into with the late Robert Maxwell or
entities controlled by Maxwell interests. These actions are described below.
Berlitz International Inc. v. Macmillan Inc. et al. This interpleader
action was commenced in Supreme Court, New York County on or about January 2,
1992, by Berlitz International Inc. ("Berlitz") against Macmillan Inc.
("Macmillan"), Lehman Brothers Holdings PLC ("PLC"), Lehman Brothers
International Ltd. (now known as Lehman Brothers International (Europe),
"LBIE") and seven other named defendants. The interpleader complaint seeks a
declaration of the rightful ownership of approximately 10.6 million shares of
Berlitz common stock, including 1.9 million shares then registered in PLC's
name, alleging that Macmillan claimed to be the beneficial owner of all 10.6
million shares, while the defendants did or might claim ownership to some or
all of the shares. As a result of its bankruptcy filing, Macmillan sought to
remove this case to the U.S. Bankruptcy Court for the Southern District of New
York. LBIE has moved to remand the case back to the State Supreme Court.
Macmillan, Inc. v. Bishopsgate Investment Trust, Shearson Lehman Brothers
Holdings PLC et al. This action was commenced by issuance of a writ in the
25
<PAGE>
High Court of Justice in London, England on or about December 9, 1991. In
this action, Macmillan sought a declaration that it is the legal and
beneficial owner of the disputed 10.6 million shares of Berlitz common stock,
including 1.9 million shares registered in the name of PLC. After a trial on
December 10, 1993, the High Court of Justice handed down a judgment finding
for Lehman on all aspect of its defense and dismissing Macmillan's claims.
MGN Pension Trustees Limited v. Invesco MIM Management Limited, Capel-Cure
Myers Capital Management Limited and Lehman Brothers International Limited.
This action was commenced by issuance of a writ in the High Court of Justice,
London, England on or about June 5, 1992. The writ alleges that LBIE knew or
should have known that certain securities received by it as collateral on a
stock loan account held by Bishopsgate Investment Management were in fact
beneficially owned by the Mirror Group Pension Scheme ("MGPS") or by MGN
Pension Trustees Limited (the trustee of MGPS).
On this basis, the plaintiff sought a declaration that LBIE holds or held
a portfolio of securities in constructive trust for plaintiff. According to
the writ, LBIE sold certain of these securities for 32,024,918 pounds
sterling, and that LBIE still holds certain of these securities, allegedly
worth approximately 1,604,240 pounds sterling. The plaintiff sought return of
the securities still held and the value of the securities liquidated in
connection with the stock loan account. On January 31, 1994, Lehman, along
with the other defendants, settled the case.
Bishopsgate Investment Management Limited (in liquidation) v. Lehman
Brothers International (Europe) and Lehman Brothers Holdings PLC. In August
1993, Bishopsgate Investment Management Limited ("BIM") served a Writ and
Statement of Claim against LBIE and PLC. The Statement of Claim alleges that
LBIE and PLC knew or should have known that certain securities received by
them, either for sale or as collateral in connection with BIM's stock loan
activities, were in fact beneficially owned by various pension funds
associated with the Maxwell Group entities. BIM seeks recovery of any
securities still held by LBIE and PLC or recovery of any proceeds from
securities sold by them. The total value of the securities is alleged to be
100 million pounds sterling. BIM also commenced certain proceedings for
summary disposition of its claims relating to certain of the securities with
a value of approximately 30 million pounds sterling. On January 11, 1994, the
parties agreed to a settlement of that portion of the claim relating to BIM's
request for summary disposition with respect to certain securities. Under
this agreement, two securities holdings were delivered to BIM. Lehman
continues to defend the balance of BIM's claim for recovery of other assets
alleged to be worth approximately 70 million pounds sterling. The case is
scheduled for trial in April 1995.
MELLON BANK LITIGATION
In September 1993, Mellon Bank filed a complaint in the U.S. District
Court for the Western District of Pennsylvania against Lehman Brothers and the
registrant. The complaint alleges that Lehman Brothers, through the conduct
of Smith Barney Shearson Inc. ("Smith Barney") and The Travelers Inc.
(formerly Primerica Corporation) ("Travelers"), breached certain covenants
contained in the agreement with Mellon Bank relating to the sale of The Boston
Company. The covenants, which relate to the provision of custodial and
administrative services to certain mutual funds, were assumed by Smith Barney
in connection with the sale by Lehman to Smith Barney of certain Shearson
Lehman Brothers Inc. retail and asset management businesses. In a separate
action, Smith Barney and Travelers were also sued by Mellon Bank in connection
therewith. By order dated January 26, 1994, the action against Lehman and the
registrant was dismissed.
26
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the registrant's security holders
during the last quarter of its fiscal year ended December 31, 1993.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The principal market for the registrant's Common Shares is The New York
Stock Exchange. Its Common Shares are also listed on the Boston, Chicago,
Pacific, London, Zurich, Geneva, Basle, Dusseldorf, Frankfurt, Paris,
Amsterdam, Tokyo, and Brussels Stock Exchanges. The registrant had 58,179
common shareholders of record at December 31, 1993. For price and dividend
information with respect to such Common Shares, see Note 18 to the
Consolidated Financial Statements on page 50 of the registrant's 1993 Annual
Report to Shareholders, which note is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The "Consolidated Five-Year Summary of Selected Financial Data" appearing
on page 52 of the registrant's 1993 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 29 of the registrant's 1993 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 Independent Auditors"
appearing on pages 30 through 51 of the registrant's 1993 Annual Report to
Shareholders are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEMS 10, 11, 12 and 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT; EXECUTIVE COMPENSATION; SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT; CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
The registrant filed with the SEC, within 120 days after the close of its
last fiscal year, a definitive proxy statement dated March 14, 1994 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 6 under the
headings "Security Ownership of Directors and Executive Officers," and
"Security Ownership of Named Executives," pages 9 through 11 under the heading
"Directors' Fees and Other Compensation," pages 11, beginning at "Election of
Directors" through 36, ending at "Selection of Auditors" (excluding the
27
<PAGE>
portions under the headings, "Board Compensation Committee Report on Executive
Compensation" appearing on pages 14 through 20 and "Performance Graph"
appearing on page 28), and page 42 under the heading "Certain Filings." In
addition, the registrant has provided, under the caption "Executive Officers
of the Registrant" at pages 20 and 21 above, the information regarding
executive officers called for by Item 401(b) of Regulation S-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
See Index to Financial Statements on page F-1 hereof.
2. Financial Statement Schedules:
See Index to Financial Statements on page F-1 hereof.
3. Exhibits:
See Exhibit Index on pages E-1 through E-3 hereof.
(b) Reports on Form 8-K:
1. Form 8-K, dated October 7, 1993, Item 5, reporting the
declaration of effectiveness of the registration statement
covering the sale of debt exchangeable for shares of First
Data Corporation common stock.
2. Form 8-K, dated October 25, 1993, Item 5, reporting
earnings for the quarter ended September 30, 1993.
3. 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.
4. Form 8-K, dated January 24, 1994, Item 5, revising certain
pro forma financial information previously filed.
28
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
AMERICAN EXPRESS COMPANY
March 28, 1994 By /s/ Michael P. Monaco
---------------------------
Michael P. Monaco
Executive Vice President,
Chief Financial Officer
and Treasurer
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
registrant and in the capacities and on the dates indicated.
By /s/ Harvey Golub By /s/ Richard M. Furlaud
--------------------------- -------------------------
Harvey Golub Richard M. Furlaud
Chairman, Chief Executive Director
Officer and Director
By /s/ Jeffrey E. Stiefler By /s/ Beverly Sills Greenough
--------------------------- ---------------------------
Jeffrey E. Stiefler Beverly Sills Greenough
President and Director Director
By /s/ Michael P. Monaco By /s/ F. Ross Johnson
--------------------------- -------------------------
Michael P. Monaco F. Ross Johnson
Executive Vice President, Director
Chief Financial Officer
and Treasurer
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/ Anne L. Armstrong By /s/ Henry A. Kissinger
--------------------------- -------------------------
Anne L. Armstrong Henry A. Kissinger
Director Director
By /s/ William G. Bowen By /s/ Drew Lewis
--------------------------- -------------------------
William G. Bowen Drew Lewis
Director Director
By /s/ David M. Culver By /s/ Aldo Papone
--------------------------- -------------------------
David M. Culver Aldo Papone
Director Director
By /s/ Charles W. Duncan Jr. By /s/ Roger S. Penske
--------------------------- -------------------------
Charles W. Duncan Jr. Roger S. Penske
Director Director
By By /s/ Frank P. Popoff
--------------------------- -------------------------
George M.C. Fisher Frank P. Popoff
Director Director
March 28, 1994
29
PAGE
<PAGE>
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
1993 Annual Report to Shareholders:
Report of independent auditors ........... 51
Consolidated statement of income for the
three years ended December 31, 1993 ...... 30
Consolidated balance sheet at December 31,
1993 and 1992 ............................ 31
Consolidated statement of cash flows for
the three years ended December 31, 1993 .. 32
Consolidated statement of shareholders' equity
for the three years ended December 31, 1993 33
Notes to consolidated financial statements . 34-50
Consent of independent auditors .............. F-2
Schedules:
I-- Summary of investment securities
at December 31, 1993 F-3-7
II-- Amounts receivable from related
parties and underwriters, promoters,
and employees other than related parties F-8-9
III-- Condensed financial information of registrant F-10-13
VIII-- Valuation and qualifying accounts for the
three years ended December 31, 1993 F-14
IX-- Short-term borrowings at and for the years
ended December 31, 1993, 1992 and 1991 F-15
X-- Supplementary income statement information F-16
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 for the year ended December 31,
1993, 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 1993 Annual Report is not
to be deemed filed as part of this report.
F-1
<PAGE>
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 3,
1994 (hereinafter referred to as our Report), included in the 1993 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 Registration
Statements (Form 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; Form 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) 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, 1993.
ERNST & YOUNG
/s/ Ernst & Young
New York, New York
March 30, 1994
F-2
<PAGE>
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I--SUMMARY OF INVESTMENT SECURITIES
DECEMBER 31, 1993
(millions)
Principal Amounts at Market
amounts of which carried value at
bonds and cost in balance December
of stocks sheet (a) 31, 1993
------------- ------------- ---------
U.S. Government and Agencies
Obligations $ 3,684 $ 3,640 $ 3,641
------ ------ ------
State and Municipal Obligations:
General Obligation bonds (b) $ 1,178 1,179 1,285
Revenue bonds (c) 3,768 3,764 4,082
------ ------ ------
Total State and Municipal
Obligations $ 4,946 4,943 5,367
------ ------ ------
Corporate Bonds and Obligations (d) $ 12,669 12,935 13,773
------ ------ ------
Foreign Government Obligations (e) $ 1,498 1,508 1,538
------ ------ ------
Preferred Stocks:
Non-Convertible $ 965 1,265 1,318
Convertible 150 153 193
------ ------ ------
Total Preferred stocks $ 1,115 1,418 1,511
------ ------ ------
Common Stocks:
Held by domestic offices $ 356 377 409
Held by overseas offices (e) 1 1 4
------ ------ ------
Total Common Stocks $ 357 378 413
------ ------ ------
Mortgage-Backed Securities $ 11,657 11,413 11,724
------ ------ ------
Investment Mortgage Loans (f) $ 2,269 2,231 2,302
------ ------ ------
Other $ 842 842 818
------ ------ ------
Total $ 39,308 $ 41,087
======= =======
(a) See summary of significant accounting policies in the notes to the
consolidated financial statements.
(b) See F-4 for detail listing of General Obligation bonds by state.
(c) See F-5 for detail listing of Revenue bonds by state.
(d) See F-6 for detail listing of Corporate Bonds and Obligations by type.
(e) Stated at U.S. dollar equivalents based on rates of exchange generally
prevailing at December 31, 1993.
(f) See F-7 for detail listing of Investment Mortgage Loans by type.
F-3
<PAGE>
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
DETAIL LISTING OF GENERAL OBLIGATION BONDS BY STATE
December 31, 1993
(millions)
State Par Value Book Value Market Value
----- --------- ---------- -------------
Arizona $ 83 $ 83 $ 88
California 62 63 71
Connecticut 28 28 32
District of Columbia 65 65 69
Florida 58 57 63
Hawaii 39 40 45
Illinois 110 110 120
Louisiana 78 78 83
Massachusetts 72 72 78
Minnesota 30 30 33
New Jersey 40 40 44
New York 58 58 65
Pennsylvania 68 67 74
Texas 170 170 183
Wisconsin 54 54 59
All other states 163 164 178
------ ------ ------
Totals $1,178 $1,179 $1,285
====== ====== ======
F-4<PAGE>
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
DETAIL LISTING OF REVENUE BONDS BY STATE
December 31, 1993
(millions)
State Par Value Book Value Market Value
----- --------- ---------- ------------
Alabama $ 38 $ 38 $ 40
Alaska 29 29 31
Arizona 150 150 161
Arkansas 36 36 38
California 309 311 332
Colorado 64 64 70
Connecticut 59 59 65
Florida 289 289 316
Georgia 55 55 59
Hawaii 30 30 34
Illinois 271 271 290
Indiana 61 61 65
Iowa 31 31 33
Kentucky 42 42 45
Louisiana 91 91 96
Maryland 75 75 84
Massachusetts 83 81 86
Michigan 72 72 80
Minnesota 67 68 73
Missouri 32 32 34
Nebraska 33 33 36
Nevada 33 33 34
New Jersey 90 90 99
New York 226 222 250
North Carolina 102 103 109
Ohio 145 145 159
Oklahoma 40 40 45
Pennsylvania 142 142 154
South Carolina 59 60 64
South Dakota 31 31 34
Tennessee 52 44 47
Texas 497 500 548
Utah 110 110 118
Virginia 46 46 49
Washington 69 69 74
Wisconsin 73 73 80
All other states 136 138 150
------ ------ ------
Totals $3,768 $3,764 $4,082
====== ====== ======
F-5<PAGE>
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
DETAIL LISTING OF CORPORATE BONDS AND
OBLIGATIONS BY TYPE
December 31, 1993
(millions)
Par Value Book Value Market Value
--------- ---------- ------------
Air Transport $ 313 $ 313 $ 336
Astronautics 193 193 211
Automotive 351 356 388
Banks:
Commercial Paper 1,120 1,122 1,132
Interest Rate Caps - 52 21
Other 1,060 1,260 1,334
Building Materials 468 468 501
Business Equipment 51 51 50
Chemicals 455 456 476
Electric Equipment and Appliance 119 119 124
Electronics 98 98 102
Finance Companies 1,222 1,223 1,315
Foods and Beverages 199 199 207
Industrial Machinery 249 244 265
Natural Gas 518 530 575
Oil and Gas 855 852 928
Paper 426 428 451
Power and Light 932 928 987
Publishing 401 404 450
Railroads 650 647 703
Retail Trade 550 552 601
Steel 459 459 495
Telephone 350 352 388
Tobacco 227 227 237
Other 1,403 1,402 1,496
------- ------- -------
Totals $12,669 $12,935 $13,773
======= ======= =======
F-6
<PAGE>
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
DETAIL LISTING OF INVESTMENT MORTGAGE LOANS
BY PROPERTY TYPE
December 31, 1993
(millions)
Property Type Par Value Book Value Market Value
------------- --------- ---------- ------------
Apartments $ 858 $ 822
Shopping Centers/Retail 707 705
Office Buildings 263 262
Industrial Buildings 254 254
Retirement Homes 85 85
Hotels/Motels 37 37
Medical Buildings 30 30
Other 35 36
------ ------
Totals $2,269 $2,231 $2,302
====== ====== ======
F-7
<PAGE>
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II-AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
<TABLE>
<CAPTION>
Balance at Balance at
beginning Amounts end of
Name of officer of period Additions collected period
--------------- --------- --------- --------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1993:
Stock Purchase Plans:
J. D. Robinson III $ 2,399,997 $ - $2,399,997 $ -
J. S. Linen 415,000 - - 415,000
H. L. Clark Jr. 399,998 - - 399,998
B. Hamilton 300,189 - 300,189 -
G. Cupp 228,209 - 228,209 -
S. Friedman 214,760 - 132,339 82,421
W. Westhoff - 220,000 - 220,000
Other officers of the
Company and its
subsidiaries 44,256,265 1,151,791 32,112,478 13,295,578
---------- --------- ---------- ----------
48,214,418 1,371,791 35,173,212 14,412,997
Other Loans Receivable:
G. R. Thoman 253,125 - 253,125 -
--------- ---------- ---------- ----------
$48,467,543 $1,371,791 $35,426,337 $14,412,997
========== ========= ========== ==========
Year ended December 31, 1992:
Stock Purchase Plans:
J. D. Robinson III $ 2,399,997 $ - $ - $2,399,997
G. R. Thoman 578,828 - 578,828 -
J. S. Linen 415,000 - - 415,000
H. L. Clark Jr. 399,998 - - 399,998
B. Hamilton 300,189 - - 300,189
G. Cupp 228,209 - - 228,209
S. Friedman 214,760 - - 214,760
Other officers of the
Company and its
subsidiaries 48,541,932 4,018,068 8,303,735 44,256,265
---------- --------- --------- ----------
53,078,913 4,018,068 8,882,563 48,214,418
Other Loans Receivable:
H. Golub 268,245 - 268,245 -
G. R. Thoman 500,000 - 246,875 253,125
---------- --------- --------- ----------
$53,847,158 $4,018,068 $9,397,683 $48,467,543
========== ========= ========= ==========
Year ended December 31, 1991:
Stock Purchase Plans:
J. D. Robinson III $ 2,399,997 $ - $ - $2,399,997
E. Cooperman 689,398 - 689,398 -
G. R. Thoman 578,828 - - 578,828
J. S. Linen 561,414 - 146,414 415,000
H. L. Clark Jr. 399,998 - - 399,998
B. Hamilton 300,189 - - 300,189
G. Cupp 228,209 - - 228,209
S. Friedman 214,760 - - 214,760
Other officers of the
Company and its
subsidiaries 50,512,813 4,556,681 6,527,562 48,541,932
---------- --------- --------- ----------
55,885,606 4,556,681 7,363,374 53,078,913
Other Loans Receivable:
H. Golub 349,295 - 81,050 268,245
G. R. Thoman 500,000 - - 500,000
---------- --------- --------- ----------
$56,734,901 $4,556,681 $7,444,424 $53,847,158
========== ========= ========= ==========
</TABLE>
(See accompanying note)
F-8
<PAGE>
Note to Schedule II:
The Stock Purchase Plans information relates to loans made to
members of senior management pursuant to the American Express
Company 1983 Stock Purchase Assistance Plan (the "Plan") and the
Lehman Brothers Holdings Inc. ("Lehman") Executive Stock Loan
Program (the "Program") established in 1988. Pursuant to the
Plan, full recourse loans are provided to certain key employees
for the purpose of exercising stock options and/or for paying
any taxes in respect thereof or for buying the Company's common
shares at fair market value from the Company or on the open
market. Eligible key employees may borrow a maximum of 300% of
their respective annual base salaries, provided that such
persons provide sufficient collateral, presently 100% of the
amount of the loan at the date of grant. Such loans currently
have five to seven year maturities and bear interest, payable
quarterly, at a variable rate of two percentage points below the
prime rate of a major New York City bank; at December 31, 1993,
this rate was 3.5% per annum. Such loans are payable in full
upon the occurrence of certain events, including termination of
employment.
The Program, terminated in August 1990 as to future loans,
provided low interest demand loans, on an unsecured basis, to
assist key employees in acquiring Lehman common stock through
open market purchases. Eligible employees could borrow up to
150% of their average total compensation for the last two years,
subject to credit approval and continuing credit review. These
loans are payable on demand, may not extend beyond five years
and bear interest at the lower of the prime lending rate minus
2% or 11%; at December 31, 1993, this rate was 3.5% per annum.
Such loans are payable in full upon the occurrence of certain
events, including termination of employment.
Other Loans Receivable relate to loans extended to Mr. Golub in
1984 for the purchase of a new residence in connection with
relocation upon assumption of duties as President and Chief
Executive Officer of IDS Financial Corporation and Mr. Thoman in
1989 for the purchase of a residence in France used in
connection with his duties as President and Chief Executive
Officer of American Express International. The loan to Mr.
Golub bore interest at an annual rate of 5%, payable quarterly,
and was secured by a mortgage on the residence. The loan was
fully repaid during 1992. The loan to Mr. Thoman bore interest
at an annual rate of 9.5%, payable quarterly, and was secured by
a second mortgage on the property. The loan was fully repaid
during 1993.
F-9
<PAGE>
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENT OF INCOME (A)
(Parent Company Only)
(dollars in millions)
Years Ended
December 31,
-------------------------
1993 1992 1991
---- ---- ----
Revenues $ 123 $ 146 $ 113
---- ---- ----
Expenses:
Interest 181 174 160
Human resources 82 84 63
Other (B) (659) (592) 149
---- ---- ----
Total (396) (334) 372
---- ---- ----
Pretax income (loss) from continuing operations
before accounting changes 519 480 (259)
Income tax provision (benefit) 271 237 (75)
---- ---- ----
Net income (loss) before equity in net income
of subsidiaries and affiliates 248 243 (184)
Equity in net income of subsidiaries(C) 1,357 228 791
and affiliates ----- ---- ----
Income from continuing operations
before accounting changes 1,605 471 607
Equity in income (loss) of discontinued (127) (149) 182
operations
Cumulative effect of changes in accounting
principles, net of income taxes - 139 -
----- ---- ----
Net income $1,478 $ 461 $ 789
===== ===== =====
(A)Prior year amounts have been restated to reflect Lehman Brothers as a
discontinued operation.
(B)Includes pretax gains on the sale of First Data Corporation of $779
($433 million after-tax) million and $706 ($425 million after-tax)
million in 1993 and 1992, respectively.
(C)Equity in net income of subsidiaries for 1992 includes a $106 million
charge related to the adoption of SFAS 106.
See Notes to Condensed Financial Information of Registrant
F-10
<PAGE>
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEET
(Parent Company Only)
(millions, except share amounts)
ASSETS
------
December 31,
-----------------
1993 1992
---- ----
Cash and cash equivalents $ 8 $ 27
Investment securities 1,304 625
Securities purchased under agreement to resell 746 317
Equity in net assets of subsidiaries and affiliates
- continuing operations 6,875 6,840
Investment in discontinued operations 1,540 1,849
Accounts receivable and accrued interest, less reserves 14 15
Land, buildings and equipment--at cost, less
accumulated depreciation: 1993, $65; 1992, $79 95 127
Due from subsidiaries (net) 1,363 899
Other assets 804 430
------ ------
Total assets $12,749 $11,129
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Accounts payable and other liabilities $ 762 $ 874
Long-term debt 3,153 2,409
Short-term debt 100 347
Total liabilities 4,015 3,630
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 1993 and 1992, stated
at liquidation value 200 200
$216.75 CAP Preferred Shares, issued and
outstanding 122,448.98 shares in 1993 and 1992,
stated at par value (liquidation value of $300) 1 1
Common shares, $.60 par value, authorized
1,200,000,000 shares; issued and outstanding
489,827,852 shares in 1993 and 479,976,358 shares
in 1992 294 288
Capital surplus 3,784 3,534
Net unrealized securities gains (losses) 7 (1)
Foreign currency translation adjustment (73) (83)
Deferred compensation (128) (137)
Retained earnings 4,649 3,697
------ ------
Total shareholders' equity 8,734 7,499
------ ------
Total liabilities and shareholders' equity $12,749 $11,129
====== ======
See Notes to Condensed Financial Information of Registrant
F-11
<PAGE>
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOWS
(Parent Company Only)
(millions)
Years Ended December 31,
----------------------------
1993 1992 1991
---- ---- ----
Cash flows from operating activities:
Net income $1,478 $ 461 $ 789
Adjustments to reconcile net income to cash
provided by operating activities:
Equity in net income of subsidiaries
and affiliates (1,357) (228) (791)
Equity in (income) loss of discontinued
operations 127 149 (182)
Dividends received from subsidiaries
and affiliates 868 492 620
Gain on sale of First Data Corporation (779) (706) -
Changes in accounting - (139) -
Other (net) 42 (12) (185)
---- ---- ----
Net cash provided by operating activities 379 17 251
---- ---- ----
Net cash provided (used) by investing
activities (655) 309 (226)
---- ---- ----
Cash flows from financing activities:
Issuance of American Express common shares 259 159 162
Issuance of American Express preferred shares - - 300
Redemption of American Express Money Market
Preferred shares - (150) (150)
Dividends paid (526) (518) (477)
Other 524 128 101
---- ---- ----
Net cash provided (used) by financing
activities 257 (381) (64)
---- ---- ----
Net decrease in cash and cash equivalents (19) (55) (39)
---- ---- ----
Cash and cash equivalents at beginning
of year 27 82 121
---- ---- ----
Cash and cash equivalents at end of year $ 8 $ 27 $ 82
===== ===== =====
Note: The Other financing activities in 1993 reflects the issuance
of DECs, the proceeds of which were primarily used to fund the
increase in investments.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest (net of amounts capitalized) in 1993, 1992, and 1991
was $105 million, $129 million and $127 million, respectively. Net cash paid
for income taxes was $256 for 1993 and $113 for 1992. Net cash received for
income taxes was $23 for 1991.
F-12
PAGE
<PAGE>
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
1. Principles of Consolidation
The accompanying financial statements include the accounts of American
Express Company and on an equity basis its subsidiaries and affiliates.
Shearson Lehman Brothers is reported as a discontinued operation and,
accordingly, prior years' amounts have been restated. 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,
-------------
1993 1992
----- -----
Floating Medium-Term Note Due June 28, 1996 $ 945 $ 945
6 1/4% DECs Due October 15, 1996 868 -
8 5/8% Notes Payable due July 15, 1994 300 299
8 1/2% Notes due August 15, 2001 298 297
8 3/4% Notes Payable due June 15, 1996 199 199
8 5/8% 30 year Senior Note Due 2022 197 197
Employee Stock Ownership Plan 83 86
9% Convertible Notes due April 1, 1994 58 66
11.95% Private Placement Notes due 1995 102 102
WFC Series C 12 1/5% Guaranteed Notes due December 12, 1997 19 23
WFC Series D 11 5/8% Guaranteed Notes due December 12, 2020 22 22
WFC Series Z Zero Coupon Notes due December 12, 2000 30 27
WFC $60 million 8.15% Japanese Yen PPN due July 1996 9 9
WFC $80 million 7.86% Japanese Yen PPN due August 1996 11 11
7 1/2% Debentures due February 27, 1999 7 7
12 3/4% Industrial Revenue Bonds due October 31, 2001 5 5
Samurai Bonds due November 16, 1993 - 75
8% $40 million Promissory Notes due 1994 - 39
------ ------
$3,153 $2,409
====== ======
Aggregate annual maturities of long-term debt for the five years ending
December 31, 1998 are as follows (millions): 1994, $445; 1995, $106; 1996,
$2,038; 1997, $6, 1998, $6.
Other assets includes a $215 million receivable from Lehman Brothers
consisting of $71 million related to long-term financing for the Company's
Headquarters building, and $144 million related to certain notes issued for
the 1984 acquisition of Lehman Brothers Kuhn Loeb Holding Co., Inc.
F-13
<PAGE>
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1993
(millions)
Reserve for credit losses, Reserve for doubtful
loans and discounts accounts receivable
------------------- -------------------
1993 1992 1991 1993 1992 1991
---- ---- ---- ---- ---- ----
Balance at beginning
of period $ 911 $ 847 $ 815 $1,124 $1,306 $1,334
Additions:
Charges to income 535 1,044 1,135 1,020(a) 1,143(a) 1,329(a)
Recoveries of amounts
previously written-off 26 14 9 - - -
Other credits (debits) (85) 3 (11) - - -
Deductions:
Charges for which reserves
were provided (732) (997) (1,101) (1,348) (1,325) (1,357)
--- --- ----- ----- ----- -----
Balance at end of period $ 655 $ 911 $ 847 $ 796 $1,124 $1,306
=== === ===== ===== ===== =====
(a) Before recoveries on accounts previously written-off, which are credited
to income: 1993--$333, 1992--$243, 1991--$200.
F-14<PAGE>
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE IX--SHORT-TERM BORROWINGS
AT AND FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(millions)
<TABLE>
<CAPTION>
Year-end Weighted
weighted Maximum Average average
Balance average outstanding outstanding interest
Category of aggregate at end interest during during rate during
short-term borrowings of period rate the period the period the period
--------------------- --------- ----- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
1993
Commercial paper $8,914 3.15% $9,832 $8,923 (a) 3.26% (c)
Bank loans and other
short-term borrowings $3,575 2.93% $3,575 $2,398 (b) 4.39% (d)
Securities sold under
agreements
to repurchase $3,601 3.95% $4,016 $3,723 (b) 3.76% (d)
1992
Commercial paper $7,648 3.29% $9,230 $8,081 (a) 3.78% (c)
Bank loans and other
short-term borrowings $3,515 5.40% $4,531 $3,168 (b) 5.29% (d)
Securities sold under
agreements
to repurchase $3,254 4.54% $4,043 $3,286 (b) 4.55% (d)
1991
Commercial paper $8,023 4.78% $9,928 $8,666 (a) 6.03% (c)
Bank loans and other
short-term borrowings $4,373 6.55% $4,783 $3,743 (b) 7.54% (d)
Securities sold under
agreements
to repurchase $2,253 5.64% $2,562 $2,382 (b) 6.59% (d)
(a) The average borrowings were computed using the daily amounts
outstanding.
(b) The average borrowings were computed using the month-end balances.
(c) Interest rates were determined by dividing the actual interest
expense for the year by the average daily amounts outstanding.
(d) Interest rates were determined by dividing the actual interest
expense for the year by the average month-end borrowings
outstanding.
</TABLE>
F-15
<PAGE>
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
Year Ended December 31,
1993 1992 1991
---- ---- ----
Taxes, other than payroll and
income taxes $168,408 $178,022 $156,899
F-16
<PAGE>
EXHIBIT INDEX
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 10.25, 10.27, and 10.30 through 10.35 are management contracts or
compensatory plans or arrangements.
3.1 Registrant's Restated Certificate of Incorporation (incorporated by
reference to Exhibit 4.1 of the registrant's Registration Statement on
Form S-8, dated October 31, 1991 (File No. 33-43671)).
3.2 Registrant's By-Laws, as amended (incorporated by reference to Exhibit
1(b) of the registrant's registration statement on Form S-3, dated
December 3, 1993 (File No. 33-50997)).
4 The instruments defining the rights of holders of long-term debt
securities of the registrant and its subsidiaries are omitted pursuant
to Section (b)(4)(iii)(A) of Item 601 of Regulation S-K. The
registrant 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 registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987).
10.2 American Express Company 1989 Long-Term Incentive Plan, as amended
(incorporated by reference to Exhibit 28.1 of the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1993).
10.3 American Express Company Deferred Compensation Plan for Directors, as
amended (incorporated by reference to Exhibit 10.3 of the registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1992).
10.4 American Express Company Executives' Incentive Compensation Plan
(incorporated by reference to Exhibit 10.4 of the registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1988).
10.5 American Express Company Supplementary Incentive Savings Plan
(incorporated by reference to Exhibit 10.7 of the registrant's
Registration Statement on Form S-14, dated November 17, 1983 (File No.
2-87925)).
10.6 American Express Company Supplementary Pension Plan, as amended
(incorporated by reference to Exhibit 10.6 of the registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1988).
10.7 American Express Company 1983 Stock Purchase Assistance Plan, as
amended (incorporated by reference to Exhibit 10.6 of the registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1988).
10.8* Consulting Agreements dated May 25, 1993 and March 3, 1994 between the
registrant and Aldo Papone Consulting.
10.9 Written description of consulting agreement between American Express
Company and Kissinger Associates, Inc. (incorporated by reference to
Exhibit 10.20 of the registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1984).
10.10 American Express Company Retirement Plan for Non-Employee Directors, as
amended (incorporated by reference to Exhibit 10.12 of the registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1988).
E-1
<PAGE>
10.11 American Express Company Directors' Stock Option Plan (incorporated by
reference to Exhibit 10.16 of the registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1987).
10.12 American Express Key Executive Life Insurance Plan, as amended
(incorporated by reference to Exhibit 10.12 of the registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1991).
10.13 American Express Key Employee Charitable Award Program for Education
(incorporated by reference to Exhibit 10.13 of the registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1990).
10.14 American Express Directors' Charitable Award Program (incorporated by
reference to Exhibit 10.14 of the registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1990).
10.15 Description of separate pension arrangement and loan agreement between
the registrant and Harvey Golub (incorporated by reference to Exhibit
10.17 of registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1988).
10.16 Shearson Lehman Brothers Capital Partners I Amended and Restated
Agreement of Limited Partnership (incorporated by reference to Exhibit
10.18 of registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1988).
10.17 Shearson Lehman Hutton Capital Partners II, L.P. Amended and Restated
Agreement of Limited Partnership (incorporated by reference to Exhibit
10.19 of registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1988).
10.18 American Express Company Salary Deferral Plan (incorporated by
reference to Exhibit 10.20 of registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1988).
10.19 Shearson Lehman Brothers Inc. Voluntary Deferred Compensation Plan
(incorporated by reference to Exhibit 10.9 of Shearson Lehman Brothers
Holdings Inc.'s Annual Report on Form 10-K for the fiscal year ended
December 31, 1987).
10.20 Shearson Lehman Brothers Holdings Inc. Retirement Plan for Outside
Directors (incorporated by reference to Exhibit 10.9 of Shearson Lehman
Brothers Holdings Inc.'s Registration Statement on Form S-1, dated
March 30, 1987 (File No. 33-12976)).
10.21 Shearson Lehman Brothers Holdings Inc. Deferred Compensation Plan for
Outside Directors (incorporated by reference to Exhibit 10.11 of
Shearson Lehman Brothers Holdings Inc.'s Registration Statement on Form
S-1, dated March 30, 1987 (File No. 33-12976)).
10.22 Written description of certain pension arrangements with Howard L.
Clark Jr. and Jonathan S. Linen (incorporated by reference to Exhibit
10.14 of the registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991).
10.23* Consulting Agreements dated May 25, 1993 and March 3, 1994 between
American Express Travel Related Services Company, Inc. and Aldo Papone
Consulting.
10.24 1992 Incentive Compensation Agreement between Shearson Lehman Brothers
Inc. and Howard L. Clark, Jr. (incorporated by reference to Exhibit
10.24 of the registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992.)
10.25 Written description of Shearson Lehman Brothers Inc. 1991/92 Special
Compensation Program (incorporated by reference to Exhibit 10.28 of
E-2
<PAGE>
<PAGE> the registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990).
10.26 1990 Agreement, dated as of June 12, 1990, by and between American
Express 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 for the fiscal year ended December 31,
1990).
10.27 Consulting Agreement dated February 25, 1991 between Shearson Lehman
Brothers Inc. and Kissinger Associates, Inc., as amended (incorporated
by reference to Exhibit 10.27 of the registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1992).
10.28 Stock Purchase Agreement dated as of September 14, 1992 between Mellon
Bank Corporation and Shearson Lehman Brothers Inc. (incorporated by
reference to Exhibit 10.15 of Shearson Lehman Brothers Holdings Inc.'s
Annual Report on Form 10-K for the fiscal year ended December 31,
1992).
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 for the fiscal year ended December 31, 1992).
10.30 Termination Agreement dated March 24, 1993 between the registrant and
James D. Robinson III (incorporated by reference to Exhibit 10.30 of
the registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992).
10.31* Employment Agreement dated May 27, 1993 between Shearson Lehman
Brothers Inc. and Howard L. Clark Jr.
10.32 American Express Company 1993 Directors' Stock Option Plan
(incorporated by reference to Exhibit 28.2 of the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1993).
10.33* Agreement dated July 15, 1993 between the registrant and Richard M.
Furlaud.
10.34* Lehman Brothers Inc. Employee Ownership Plan.
10.35* Lehman Brothers Inc. Participating Preferred Plan.
11* Computation of Earnings Per Share.
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 registrant's 1993 Annual Report to Shareholders that
are incorporated herein by reference.
21* Subsidiaries of the registrant.
23* Consent of Ernst & Young (contained on page F-2 hereof).
E-3
Exhibit 10.8
March 3, 1994
Mr. Aldo Papone
Aldo Papone Consulting
280 Otter Rock Drive
Greenwich, CT 06830
Dear Aldo:
I am pleased to continue the agreement to retain your firm to serve as a
consultant to American Express Company ("Company") in accordance with the
following terms and conditions. These arrangements are separate and distinct
from your obligations as a Director of the Company.
1. Consulting Services
The Company will retain your firm to provide consulting services. Your
firm is expected to provide assistance and guidance on corporate and
cross-business issues, particularly on matters of communications strategy,
and to maintain key contact relationships with one or two strategic
partners of the Company or its subsidiaries.
2. Term and Termination of Agreement
The term of the Agreement shall begin on January 1, 1994 and may be
terminated at any time by either party upon at least ninety (90) days
prior written notice to the other party; and provided further that this
Agreement shall terminate upon your death. This Agreement may be renewed
by mutual written agreement.
3. Compensation
The Company agrees to compensate your firm for the services you have
provided and will provide at the rate of $18,750.00 per calendar month.
That retainer will be paid to you by the fifteenth of each month in which
services are rendered. In the event that this Agreement is terminated
during a calendar month, you will be paid your regular monthly retainer on
a pro-rata basis up to the date of such termination.
The Company further agrees to reimburse you for any reasonable and
customary travel and entertainment expenses actually incurred by you
directly in the performance of your services under this Agreement;
provided that such expenses are reasonable and properly documented. The
Company agrees to provide you with access, subject to the normal usage and
approval guidelines in place from time to time, to corporate aircraft,
where appropriate, and to corporate transportation, as necessary to
perform the actual consulting services you will provide under this
Agreement.
4. Independent Contractor Status and Authority
You represent and agree that in the performance of the consulting services
described above, you and your firm are independent contractors and not
employees or agents of the Company, its subsidiaries or affiliates. While
serving in this consulting capacity to the Company, neither you nor your
firm shall have authority to enter into contracts on behalf of the
Company, its subsidiaries or affiliates, to hire or fire employees of the
Company, its subsidiaries or affiliates, or in any other way to obligate
the Company, its subsidiaries or affiliates to any third party.
Because you and your firm are independent contractors and not employees or
agents of the Company, you represent and agree that you and your firm
shall be liable for all taxes and withholdings applicable to the payment
of your fee and expenses, whether current or deferred, for the work
hereunder and that you and your firm will indemnify and hold the Company
harmless from any such taxes or withholdings for which the Company, its
subsidiaries or affiliates may be determined to be liable.
5. Contacts
(a) I will be your primary contact with the Company. You agree to keep
me or my designee informed as to the status of the services your
firm is providing and your progress on all assignments.
(b) You agree that any services to be performed by your firm pursuant to
this Agreement will be performed exclusively by you unless you
receive the prior consent of the Company.
6. Confidential Information
Of course, you understand that information gained in providing these
consulting services imposes continuing confidentiality obligations on you
and your firm, of which you are already aware.
7. Assignment
Neither party may assign this Agreement or any of its rights and/or
obligations hereunder without the prior written consent of the other
party, except that the Company may assign this Agreement, upon notice to
you, to a subsidiary or an affiliate without your prior written consent.
8. Amendment
No amendment, modification or waiver of this Agreement or any of its
provisions shall be binding upon either party unless made in writing and
signed by both parties.
9. Entire Agreement
This Agreement contains the entire and only agreement between your firm
and the Company with respect to the subject matter hereof, and supersedes
all prior understandings, agreements or arrangements concerning this
subject matter, if any, between your firm and the Company.
10. Governing Law
This Agreement and the rights and obligations of the parties hereto shall
be governed by and construed in accordance with the laws of the State of
New York.
11. Severability
The invalidity or unenforceability of any provision of this Agreement
shall not be deemed to affect the validity or enforceability of any other
provision.
<PAGE>
If you are in agreement with the foregoing, please sign the enclosed copy of
this letter and return it to my attention at your earliest convenience.
AMERICAN EXPRESS COMPANY
By: /s/ Harvey Golub
Harvey Golub, Chairman and
Chief Executive Officer,
Accepted and agreed to this
7th day of March, 1994
ALDO PAPONE CONSULTING
By: /s/ Aldo Papone
Aldo Papone
<PAGE>
May 25, 1993
Mr. Aldo Papone
Aldo Papone Consulting
280 Otter Rock Drive
Greenwich, CT 06830
Dear Aldo:
I am pleased to continue the agreement to retain your firm to serve as a
consultant to American Express Company ("Company") in accordance with the
following terms and conditions. These arrangements are separate and distinct
from your obligations as a Director of the Company.
1. Consulting Services
The Company will retain your firm to provide consulting services. Your
firm is expected to provide assistance and guidance on corporate and
cross-business issues, particularly on matters of communications strategy,
and to maintain key contact relationships with one or two strategic
partners of the Company or its subsidiaries.
2. Term and Termination of Agreement
The term of the Agreement shall be one (1) year beginning January 1, 1993
and ending December 31, 1993; provided, however, that this Agreement may
be terminated at any earlier time by either party upon at least ninety
(90) days prior written notice to the other party; and provided further
that this Agreement shall terminate upon your death. This Agreement may
be renewed by mutual written agreement.
3. Compensation
The Company agrees to compensate you at the rate of $18,750.00 per
calendar month. That retainer will be paid to you by the fifteenth of
each month in which services are rendered. In the event that this
Agreement is terminated during a calendar month, you will be paid your
regular monthly retainer on a pro-rata basis up to the date of such
termination.
The Company further agrees to reimburse you for any reasonable and
customary travel and entertainment expenses actually incurred by you
directly in the performance of your services under this Agreement;
provided that such expenses are reasonable and properly documented. The
Company agrees to provide you with access, subject to the normal usage and
approval guidelines in place from time to time, to corporate aircraft,
where appropriate, and to corporate transportation, as necessary to
perform the actual consulting services you will provide under this
Agreement.
4. Independent Contractor Status and Authority
You represent and agree that in the performance of the consulting services
described above, you and your firm are independent contractors and not
employees or agents of the Company, its subsidiaries or affiliates. While
serving in this consulting capacity to the Company, neither you nor your
firm shall have authority to enter into contracts on behalf of the
Company, its subsidiaries or affiliates, to hire or fire employees of the
Company, it subsidiaries or affiliates, or in any other way to obligate
the Company, its subsidiaries or affiliates to any third party.
Because you and your firm are independent contractors and not employees or
agents of the Company, you represent and agree that you and your firm
shall be liable for all taxes and withholdings applicable to the payment
of your fee and expenses, whether current or deferred, for the work
hereunder and that you and you firm will indemnify and hold the Company
harmless from any such taxes or withholdings for which the Company, its
subsidiaries or affiliates may be determined to be liable.
5. Contacts
(a) I will be your primary contact with the Company. You agree to keep
me or my designee informed as to the status of the services your
firm is providing and your progress on all assignments.
(b) You agree that any services to be performed by your firm pursuant to
this Agreement will be performed exclusively by you unless you
receive the prior consent of the Company.
6. Confidential Information
Of course, you understand that information gained in providing these
consulting services imposes continuing confidentiality obligations on you,
of which you are already aware.
7. Assignment
Neither party may assign this Agreement or any of its rights and/or
obligations hereunder without the prior written consent of the other
party, except that the Company may assign this Agreement, upon notice to
you, to a subsidiary or an affiliate without your prior written consent.
8. Amendment
No amendment, modification or waiver of this Agreement or any of its
provisions shall be binding upon either party unless made in writing and
signed by both parties.
9. Governing Law
This Agreement and the rights and obligations of the parties hereto shall
be governed by the construed in accordance with the laws of the State of
New York.
10. Severability
The invalidity or unenforceability of any provision of this Agreement
shall not be deemed to affect the validity or enforceability of any other
provision.
<PAGE>
If you are in agreement with the foregoing, please sign the enclosed copy of
this letter and return it to my attention at your earliest convenience.
AMERICAN EXPRESS COMPANY
By: /s/ Harvey Golub
Harvey Golub
Chief Executive Officer,
American Express Company
Accepted and agreed to this
3rd day of June, 1993:
ALDO PAPONE CONSULTING
By: /s/ Aldo Papone
Aldo Papone
EXHIBIT 10.23
March 3, 1994
Mr. Aldo Papone
Aldo Papone Consulting
280 Otter Rock Drive
Greenwich, CT 06830
Dear Aldo:
I am pleased to continue the agreement to retain your firm to serve as a
consultant to American Express Travel Related Services Company, Inc. ("TRS")
in accordance with the following terms and conditions. These arrangements are
separate and distinct from your obligations as a Director of American Express
Company.
1.Consulting Services
TRS will retain your firm to provide consulting services in the areas of
advertising and marketing. More specifically, your firm will provide
creative approaches to TRS in its efforts to create and produce new, more
effective strategies.
2.Term and Termination of Agreement
The term of the Agreement shall begin on January 1, 1994 and may be
terminated at any time by either party upon at least ninety (90) days
prior written notice to the other party; and provided further that this
Agreement shall terminate upon your death.
3.Compensation
TRS agrees to pay your firm the amount of $250,000 per year for the
services you have provided and will provide. In 1994, you will be paid
$125,000 on or about the date of signing this Agreement and $125,000 on
or about December 31, 1994. In subsequent years, you will be paid
$125,000 on or about January 1 and $125,000 on or about December 31. If
this Agreement is terminated by either party on or before June 30th of
any calendar year, you agree to reimburse TRS on a pro rata basis based
on the number of full calendar months between the date you cease
performing services and June 30th of that calendar year. If your
services are terminated after June 30th of any calendar year by either
party, you will receive a pro-rata portion of the $125,000 payment that
was due on or about December 31st of that calendar year. TRS further
agrees to reimburse you for any reasonable and customary travel and
entertainment expenses actually incurred by you directly in the
performance of your services under this Agreement; provided that such
expenses are reasonable and properly documented. TRS agrees to provide
you with access, subject to the normal usage and approval guidelines in
place from time to time, to corporate aircraft, where appropriate, and to
corporate transportation, as necessary to perform the actual consulting
services you will provide under this Agreement.
<PAGE>
4.Independent Contractor Status and Authority
You represent and agree that in the performance of the consulting
services described above, you and your firm are independent contractors
and not employees or agents of TRS, its parent, subsidiaries or
affiliates. While serving in this consulting capacity to TRS, neither
you nor your firm shall have authority to enter into contracts on behalf
of TRS, its parent, subsidiaries or affiliates, to hire or fire employees
of TRS, its parent, subsidiaries or affiliates, or in any other way to
obligate TRS, its parent, subsidiaries or affiliates to any third party.
Because you and your firm are independent contractors and not employees
or agents of TRS, you represent and agree that you and your firm shall be
liable for all taxes and withholdings applicable to the payment of your
fee and expenses, whether current or deferred, for the work hereunder and
that you and your firm will indemnify and hold TRS harmless from any such
taxes or withholdings for which TRS, its parent, subsidiaries or
affiliates may be determined to be liable.
5.Contacts
(a) I will be your primary contact with TRS. You agree to keep me or
my designee informed as to the status of the services your firm is
providing and your progress on all assignments.
(b) You agree that any services to be performed by your firm pursuant
to this Agreement will be performed exclusively by you unless you
receive the prior consent of TRS.
6.Confidential Information
Of course, you understand that information gained in providing these
consulting services imposes continuing confidentiality obligations on you
and your firm, of which you are already aware.
7.Assignment
Neither party may assign this Agreement or any of its rights and/or
obligations hereunder without the prior written consent of the other
party, except that TRS may assign this Agreement, upon notice to you, to
its parent, a subsidiary or an affiliate without your prior written
consent.
8.Amendment
No amendment, modification or waiver of this Agreement or any of its
provisions shall be binding upon either party unless made in writing and
signed by both parties.
9.Entire Agreement
This Agreement contains the entire and only agreement between your firm
and TRS with respect to the subject matter hereof, and supersedes all
prior understandings, agreements or arrangements concerning this subject
matter, if any, between your firm and TRS.
<PAGE>
10. Governing Law
This Agreement and the rights and obligations of the parties hereto shall
be governed by and construed in accordance with the laws of the State of
New York.
11. Severability
The invalidity or unenforceability of any provision of this Agreement
shall not be deemed to affect the validity or enforceability of any other
provision.
If you are in agreement with the foregoing, please sign the enclosed copy of
this letter and return it to my attention at your earliest convenience.
AMERICAN EXPRESS TRAVEL RELATED
SERVICES COMPANY, INC.
By:/s/ Harvey Golub
Harvey Golub
Chairman and Chief Executive Officer
Accepted and agreed to this
7th day of March , 1994
ALDO PAPONE CONSULTING
By: /s/ Aldo Papone
Aldo Papone
<PAGE>
May 25, 1993
Mr. Aldo Papone
Aldo Papone Consulting
280 Otter Rock Drive
Greenwich, CT 06830
Dear Aldo:
I am pleased to continue the agreement to retain your firm to serve as a
consultant to American Express Travel Related Service Company, Inc. ("TRS") in
accordance with the following terms and conditions. These arrangements are
separate and distinct from your obligations as a Director of American Express
Company.
1. Consulting Services
TRS will retain your firm to provide consulting services in the areas of
advertising and marketing. More specifically, to provide creative
approaches to TRS in its efforts to create and produce new, more
effective strategies.
2. Term and Termination of Agreement
The term of the Agreement shall be one (1) year beginning January 1, 1993
and ending December 31, 1993; provided, however, that this Agreement may
be terminated at any earlier time by either party upon at least ninety
(90) days prior written notice to the other party; and provided further
that this Agreement shall terminate upon your death. This Agreement may
be renewed by mutual written agreement.
3. Compensation
TRS agrees to pay your firm the amount of $250,000 for the services you
have and will provide during calendar year 1993. You will be paid
$125,000 on or about signing this Agreement and $125,000 on or about
December 31, 1993.
TRS further agrees to reimburse you for any reasonable and customary
travel and entertainment expenses actually incurred by you directly in
the performance of your services under this Agreement; provided that such
expenses are reasonable and properly documented. TRS agrees to provide
you with access, subject to the normal usage and approval guidelines in
place from time to time, to corporate aircraft, where appropriate, and to
corporate transportation, as necessary to perform the actual consulting
services you will provide under this Agreement.
<PAGE>
4. Independent Contractor Status and Authority
You represent and agree that in the performance of the consulting
services described above, you and your firm are independent contractors
and not employees or agents of TRS, its parent, subsidiaries or
affiliates. While serving in this consulting capacity to TRS, neither
you nor your firm shall have authority to enter into contracts on behalf
of TRS, its parent, subsidiaries or affiliates, to hire or fire employees
of TRS, its parent, subsidiaries or affiliates, or in any other way to
obligate TRS, its parent, subsidiaries or affiliates to any third party.
Because you and your firm are independent contractors and not employees
or agents of TRS, you represent and agree that you and your firm shall be
liable for all taxes and withholdings applicable to the payment of your
fee and expenses, whether current or deferred, for the work hereunder and
that you and your firm will indemnify and hold TRS harmless from any such
taxes or withholdings for which TRS, its parent, subsidiaries or
affiliates may be determined to be liable.
5. Contacts
(a) I will be your primary contact with TRS. You agree to keep me or
my designee informed as to the status of the services your firm is
providing and your progress on all assignments.
(b) You agree that any services to be performed by your firm pursuant
to this Agreement will be performed exclusively by you unless you
receive the prior consent of TRS.
6. Confidential Information
Of course, you understand that information gained in providing these
consulting services imposes continuing confidentiality obligations on
you, of which you already aware.
7. Assignment
Neither party may assign this Agreement or any of its rights and/or
obligations hereunder without the prior written consent of the other
party, except that TRS may assign this Agreement, upon notice to you, to
its parent, a subsidiary or an affiliate without your prior written
consent.
8. Amendment
No amendment, modification or waiver of this Agreement or any of its
provisions shall be binding upon either party unless made in writing and
signed by both parties.
9. Entire Agreement
This Agreement contains the entire and only agreement between your firm
and TRS with respect to the subject matter hereof, and supersedes all
prior understandings, agreements or arrangements concerning this subject
matter, if any, between your firm and TRS.
10. Governing Law
This Agreement and the rights and obligations of the parties hereto shall
be governed by the construed in accordance with the laws of the State of
New York.
11. Severability
The invalidity or unenforceability of any provision of this Agreement
shall not be deemed to affect the validity or enforceability of any other
provision.
If you are in agreement with the foregoing, please sign the enclosed copy of
this letter and return it to my attention at your earliest convenience.
AMERICAN EXPRESS TRAVEL RELATED
SERVICES COMPANY, INC.
By:/s/ Harvey Golub
Harvey Golub
Chairman and Chief Executive
Officer, American Express Travel
Related Services Company, Inc.
Accepted and agreed to this
3rd day of June, 1993:
ALDO PAPONE CONSULTING
By: /s/ Aldo Papone
Aldo Papone
Exhibit 10.31
LEHMAN BROTHERS
May 27, 1993
Mr. Howard L. Clark, Jr.
404 Round Hill Road
Greenwich, Connecticut 06830
Dear Howard:
This will confirm our understanding regarding your employment with the
Lehman Brothers Division of Shearson Lehman Brothers Inc. ("Lehman Brothers"
or "the Firm"). Based upon this understanding, the letter agreement dated
March 18, 1993 between you and Shearson Lehman Brothers Inc. shall hereby be
rescinded except that the release contained in Paragraph 13 shall remain
through the date of this Agreement and is hereby agreed that there has been no
break in your employment.
1. Effective Dates and Status
Effective May 27, 1993 you shall hold the title of Vice Chairman.
2. Payments
A. Salary
(i)You shall be paid a salary of $382,898 for 1993. Effective
April 23, 1993, you shall be paid at the biweekly rate of
$12,500 for the remainder of 1993.
(ii)You shall be paid an annual salary comparable to that paid
at such time to the President of Lehman Brothers (currently
$400,000) for 1994.
(iii)You acknowledge that you have been paid $200,000 on or about
March 19, 1993 and you will not be required to reimburse the
Company for these monies.
B. Bonuses
Subject to your resignation or termination "for cause" (defined in
Paragraph 10C below):
(i)You will be paid a minimum guaranteed bonus for performance
year 1993 of $1,167,302, payable at the time the Firm pays
its annual bonuses, but in no event later than March 15,
1994; provided, however, that if you are employed through
December 31, 1993 and in the event you subsequently resign
or your employment is otherwise terminated prior to payment
of the annual bonus, you shall be entitled to receive the
full bonus when paid.
(ii)You will be paid a bonus for performance year 1994 of
$1,350,000 (subject to adjustment based on your salary as
described in Paragraph 2C below), payable at the time the
Firm pays its annual bonuses, but in no event later than
March 15, 1995; provided, however, that if you are employed
through December 31, 1994 and in the event you subsequently
resign or your employment is otherwise terminated prior to
payment of the annual bonus, you shall be entitled to
receive the full bonus when paid.
C. Total Compensation
Subject to your resignation or termination for cause (as defined
in Paragraph 10C below), you shall receive a minimum total
guaranteed compensation for 1993 of $1,750,000 and for calendar
year 1994 of $1,750,000 which shall be comprised of salary and
bonus payments as described in Paragraphs 2A and B above.
3. Lehman Brothers Equity Program (the "Partnership")
Subject to the terms and conditions of the Lehman Brothers Equity Program, you
have been allocated 500 Equity Participation shares effective January 1, 1993.
In addition, a special capital account start-up allocation of approximately
$180,000 will be credited to your account (also as of January 1, 1993). The
$180,000 is also subject to the terms and conditions of the Partnership among
which is that it does not vest until January 1, 1995.
4. Portfolio Grant Awards
A. Under the terms of your Portfolio Grant-I award agreement, your
vested convertible debentures will remain outstanding in
accordance with and subject to the provisions of the American
Express Company 1979 and/or 1989 Long Term Incentive Plan
(hereinafter referred to as "the Incentive Plan"), the award, and
the convertible debentures.
B. You will be paid your Portfolio Grant-II award in accordance with
the original terms of the award and the Incentive Plan when such
awards are paid to other Shearson executives.
C. You shall continue eligibility for your Portfolio Grant-III award
in accordance with the original terms of the award and the
Incentive Plan when such awards are paid to other Shearson
executives.
5. Capital Partners I and II, L.P.s
You may continue to participate in Shearson Lehman Brothers Capital Partners I
and II, L.P.s as an active limited partner.
6. Benefits
You will continue eligibility to participate in the employee benefits programs
in which you currently participate, which may be modified or amended from time
to time by the Firm. This includes but is not limited to the Firm's medical,
dental, basic and supplemental life insurance programs, the American Express
Key Executive Life Insurance Plan, the Firm's long-term disability program,
and any and all qualified plans maintained by the Firm or its affiliates. You
shall continue to pay employee premiums and contributions through deduction
from the payments outlined in Paragraph 2A above.
When applicable, your pension benefits will be calculated in accordance with
the resolution of the Compensation, Benefits and Nominating committee of the
Board of Directors of American Express Company dated November 26, 1990, and
the terms and conditions of the applicable plans.
7. Stock Options and Restricted Stock
All stock options and restricted stock now held by you on shares of American
Express Company shall continue to vest in accordance with and subject to the
provisions of the applicable plans and awards, which may be ratified or
amended from time to time in accordance with the original terms of the plans.
8. Special Compensation Programs
A. You will continue to participate in this American Express Company
Salary and Bonus Deferral Program under which you have previously
deferred compensation, pursuant to the Program's provisions.
B. You acknowledge that you have received $902,128 of your 1992
Incentive Compensation Agreement. The remainder of your balance
of $400,532 shall be transferred to the applicable Lehman Brothers
incentive compensation program or programs, pursuant to the terms
of said program(s), and subject to the administration and approval
of the Shearson Lehman Brothers Holdings Inc. Finance Committee.
If the Finance Committee does not approve the transfer, it is
agreed you will be paid the $400,532 upon termination.
9. Outstanding Indebtedness
You agree to comply with the terms of your loan agreement under the American
Express Company 1983 Stock Purchase Assistance Plan.
10. Miscellaneous Provisions
A. This agreement constitutes the entire understanding between you
and the Firm and/or its affiliates on the subject matter hereof.
There are no representations, understandings or agreements of any
nature or kind whatsoever, oral or written, regarding anything
which is not included herein.
B. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors,
heirs, legal representatives and assigns.
C. For the purpose of this letter agreement, termination "for cause"
shall be deemed to mean those instances where Lehman Brothers
reasonably and in good faith determines that termination of
employment is necessary by reason of (i) a material violation by
you of any government statute or regulation, or of the
constitution by-laws, rules or regulations of any securities or
commodities exchange or a self-regulatory organization of which
Lehman Brothers is now or later may become a member, or of the
established policies of Lehman Brothers; (ii) the entering by any
regulatory or self-regulatory organization of a final order or
decree or the taking of similar action against you which
substantially impairs you from performing your duties; (iii) your
dishonesty; (iv) your conviction of a misdemeanor (excluding
traffic and similar minor matters) or felony; (v) your failure to
devote substantially all of your professional time to your
assigned duties and to the business of Lehman Brothers; or (vi)
gross insubordination or your failure to abide by reasonable
instructions from the President of Lehman Brothers, and upon
notice, your failure to cure.
D. If you are terminated prior to December 31, 1994 and paid any
remaining bonus or salary payments under this Agreement, you
hereby waive your rights to any severance payments you may be
entitled to under Firm policy.
If you agree with the terms outlined in this letter, please acknowledge
by signing a copy of this letter and returning to me.
Sincerely yours,
/s/ Robert I. Shapiro
Robert I. Shapiro
Chief Administrative Officer
Lehman Brothers Division
Accepted:
/s/ Howard L. Clark, Jr. June 1, 1993
Howard L. Clark, Jr. Date
EXHIBIT 10.33
July 15, 1993
Mr. Richard M. Furlaud
35 East Dune Lane
East Hampton, N.Y. 11937
Dear Dick:
This letter is to confirm the following arrangements for you, in
consideration of your work as non-executive Chairman of American Express
Company, effective February 22, 1993, and in such other applicable capacities
as are determined by the Company's Board of Directors in 1993:
- In the unlikely event that it would become necessary, you will be
reimbursed for any incremental 1993 New York state and local income
taxes incurred by you as a result of a change in your status from
non-resident to resident because of your responsibilities and
activities in New York City and State in the above-mentioned
capacities. Such payment will cover both such taxes incurred and
any additional amount that might be incurred as a result of
additional taxes on such payment.
- You will also be reimbursed for reasonable and customary financial
planning fees with respect to 1993 and any additional amount that
might be incurred as a result of additional taxes on such payment.
- You were granted a nonqualified stock option for 30,000 shares
under the Company's 1989 Long-Term Incentive Plan on May 24, 1993.
Pursuant to the governing Plan and award agreement, the exercise
price per share is $28.25, the fair market value on the date of
grant. Please sign and return the enclosed award agreement.
Naturally, as a Director of the Company you will continue to receive
your quarterly retainer in the normal course, and regular stock option award
under the 1993 Directors' Stock Option Plan as applicable each April
(beginning in 1994).
Very truly yours,
AMERICAN EXPRESS COMPANY
By:/s/ Joseph W. Keilty
Joseph W. Keilty
Exhibit 10.34
LEHMAN BROTHERS INC. EMPLOYEE OWNERSHIP PLAN
Effective as of August 25, 1993 (the "Effective Date")
Introduction
The Lehman Brothers Inc. Employee Ownership Plan (the "Plan"),
is intended to motivate and reward certain key employees of Lehman Brothers
Inc. (the "Company") and its Affiliates by providing them grants of, or
opportunities to acquire, phantom equity interests ("Phantom Shares"), each
representing a notional interest in a share of the common stock, par value
$.10 per share, of Lehman Brothers Holdings Inc. ("Holdings") (such stock,
together with any class of equity securities of Holdings or any successor of
Holdings into which it may hereafter be converted, the "Common Stock") and
related rights to receive certain amounts in cash ("Cash Rights"). (A Phantom
Share and a related Cash Right from time to time may be referred to together
hereunder as a "Phantom Unit".)
Except where defined elsewhere in the Plan, all capitalized
terms used herein have the meanings assigned to them in Part III below.
PART I - OPERATION OF THE PLAN
1.1 Number of Phantom Shares Available for Issuance.
1.1 (a) In General. Up to 10 million Phantom Shares are
available for issuance to Participants hereunder. In the event that any
Phantom Shares are forfeited pursuant to the terms of the Plan, such Phantom
Shares shall again be available for issuance hereunder.
1.1 (b) Adjustment on Effective Date. Notwithstanding anything
contained herein to the contrary, in the event that on the Effective Date the
number of shares of Common Stock outstanding is not 90 million, then (i) the
number of Phantom Shares issuable hereunder shall be changed to a number equal
to 11.11% of the actual number of shares of Common Stock outstanding on the
Effective Date (and all references to 10 million Phantom Shares hereunder
shall be deemed to refer to such adjusted number) and (ii) the Initial Value
and Original Value of Phantom Shares and Cash Rights, respectively, to be
issued as of January 1, 1994 shall be adjusted to reflect
such change in the number of shares of Common Stock and the resultant change
is the number of Phantom Shares and Cash Rights issuable hereunder.
1.2 Eligible Participants; Establishment of Phantom Unit
Account.
The Finance Committee of the Board of Directors of Holdings (as
constituted from time to time, together with its designees, the "Finance
Committee") may designate such key employees of the Company and its Affiliates
as Participants as it may determine from time to time in its discretion. Each
Participant shall have a Phantom Unit Account established in the Participant's
name.
1.3 Crediting of Phantom Shares and Cash Rights.
1.3 (a) Mandatory 1993 Total Compensation Deferrals. The Finance
Committee shall designate in its discretion which Participants shall have a
portion of their base salary and Bonus (hereinafter, "Total Compensation")
payable to them with respect to the 1993 fiscal year of Holdings credited,
effective January 1, 1994, as Phantom Shares and Cash Rights to their Phantom
Unit Accounts in lieu of being paid in cash. One Phantom Share (with an
Initial Value of $10) and one Cash Right (with an Original Value of $6.67)
will be credited to such Participant's Phantom Unit Account for each $16.67 of
1993 Total Compensation mandatorily deferred in accordance with the schedule
to be established by the Finance Committee.
1.3 (b) Voluntary Deferrals. (i) The Finance Committee shall
offer certain Participants the opportunity to elect to have up to a specified
portion or dollar amount of their 1993 Total Compensation (or commissions
earned with respect to the 1993 fiscal year of Holdings) credited as Phantom
Units to their Phantom Unit Accounts in lieu of being paid in cash. Such
portion or dollar amount of 1993 Total Compensation (or commissions) shall be
determined by the Finance Committee in its discretion, and may vary among
individual Participants or categories of Participants. Each Participant who
voluntarily defers 1993 Total Compensation (or commissions) shall be credited
with one Phantom Share (with an Initial Value of $10) and one Cash Right (with
an Original Value of $6.67) for each $16.67 of 1993 Total Compensation (or
commissions) so deferred.
(ii) If the mandatory deferrals described in Section 1.3(a)
above and the voluntary deferrals described above in this Section 1.3(b)
result in fewer than 10 million Phantom Shares being credited to Participants'
Phantom Unit Accounts as of January 1, 1994, then the Finance Committee may
extend the mandatory deferral provisions of Section 1.3(b) above to the 1994
fiscal year and later fiscal years of Holdings and may offer certain 1993
Participants and certain additional employees and new hires the opportunity to
have Phantom Units credited to their Phantom Unit Accounts in lieu of Total
Compensation (or commissions) payable in respect of the 1994 fiscal year or
later fiscal years of Holdings. The Initial Value of Phantom Shares credited
in lieu of Total Compensation (or commissions) in respect of the 1994 fiscal
year or later fiscal years of the Company shall be determined by the Finance
Committee in its discretion with reference to the then value of Common Stock
and the restrictions applicable to Phantom Shares hereunder.
1.3 (c) Plan Agreements. The Finance Committee shall establish
procedures for the issuances of Phantom Units pursuant to this Section 1.3 and
shall set forth the terms of such issuances in such documents, including,
without limitation, deferral agreements, consents and offering memoranda, as
it may deem necessary or appropriate in its discretion. All such
documentation shall incorporate the terms of the Plan by reference and shall
contain such other terms, not inconsistent with the Plan, as the Finance
Committee may establish.
1.4 Terms of Phantom Shares and Cash Rights.
1.4 (a) Quarterly Distributions. As soon as practicable following
the end of each fiscal quarter of Holdings (beginning with the first fiscal
quarter of 1994 and ending with the fiscal quarter ending immediately prior
to, or coincident with, the payment or conversion of the last Phantom Share
hereunder), the Company shall pay an amount in cash (the "Quarterly
Distribution") in respect of each outstanding Phantom Unit equal to (i) the
sum of (A) the Phantom Unit Value of such Phantom Unit, and (B) Retained
Earnings Per Share after December 31, 1993 (or such other date immediately
preceding the date on which such Phantom Unit was credited to the
Participant's Phantom Unit Account) through the last day of Holdings' fiscal
quarter for which such Quarterly Distribution is being paid, multiplied by
(ii) the Peer Company Yield for such fiscal quarter.
1.4 (b) Conversion to Common Stock upon IPO. In the event of an
IPO, each Participant with Phantom Units credited to the Participant's Phantom
Unit Account as of the closing of the IPO shall receive at or about the time
of the closing of such IPO with respect to each such Phantom Unit (i) a share
of Common Stock and (ii) an amount in cash in full satisfaction of the related
Cash Right equal to the Original Value of such Cash Right. Each share of
Common Stock so issued shall be subject to the terms of Section 1.6 below.
1.4 (c) Sale of Holdings to a Single Buyer. (i) In the event of
the sale of all or substantially all of the Common Stock or the assets of
Holdings to a person or group (as defined under Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended) that is not an Affiliate of
Holdings (a "Third Party Sale"), each Phantom Unit shall be revalued so that
the Participant will be credited with a value per Phantom Share equal to the
price paid per share of Common Stock (including as Common Stock for this
purpose all Phantom Shares then outstanding) by such person or group (in the
case of an asset sale, using a value per share of Common Stock determined by
the Finance Committee prior to the consummation of such Third Party Sale based
on the purchase price of Holdings' assets) and a value per Cash Right equal to
the Original Value of such Cash Right.
(ii) The value of each Participant's Phantom Unit Account as so
recalculated shall be paid, together with interest calculated from the closing
of the Third Party Sale to the relevant date of payment at a rate equal to the
cost to the third party effecting the Third Party Sale of three year debt
determined by the Finance Committee as of the closing of the Third Party Sale,
in three equal installments on each of the first, second and third
anniversaries of the closing of the Third Party Sale.
(iii) The excess of the value of each Participant's Phantom Unit
Account as so recalculated over the value of the Participant's Phantom Unit
Account based on the Phantom Unit Value (the "Sale Premium") shall be
forfeited if a Participant resigns for any reason other than Good Reason or is
terminated for Cause prior to the relevant payment date, and the portion of
such Participant's Phantom Unit Account not representing the Sale Premium
shall continue to be subject to the vesting schedule originally applicable to
such Participant's Phantom Units. In determining which portion of the Phantom
Unit Account is to be paid on a given installment date pursuant to this
Section 1.4(c), vested amounts shall be paid prior to the payment of any
unvested amounts.
1.4 (d) No Transaction. In the event that no IPO or Third Party
Sale occurs on or prior to July 1, 1997, the value of the Phantom Units
credited to a Participant's Phantom Unit Account on such date shall be valued
as of such date and shall be paid, subject to the vesting schedule and
forfeiture terms applicable to such Phantom Units, in cash to the Participant
in equal installments, together with interest at a rate equal to the Company's
cost of three-year debt as of July 1, 1997, on each of July 1, 1998, July 1,
1999 and July 1, 2000. The amount payable with respect to each Phantom Unit
shall be the sum of (i) the Phantom Unit Value of such Phantom Unit and (ii)
Retained Earnings Per Share for the period after December 31, 1993 (or such
other date immediately preceding the date on which such Phantom Unit was
credited to the Participant's Phantom Unit Account) to June 30, 1997.
1.5 Vesting and Forfeiture of Phantom Units.
1.5 (a) Mandatory Deferrals. All Phantom Units credited to
Phantom Unit Accounts pursuant to Section 1.3(a) above shall vest as
determined by the Finance Committee.
1.5 (b) Voluntary Deferrals. All Phantom Units credited to
Phantom Unit Accounts pursuant to Section 1.3(b) shall be vested immediately
upon such crediting.
1.5 (c) Termination of Employment and Forfeitures.
(i) Resignation; Termination for Cause. In the event a
Participant's employment with the Company or any of its Affiliates terminates
by reason of a termination of employment by the Company or the relevant
Affiliate for Cause or a resignation for any reason, then (I) all unvested
Phantom Units credited to the Participant's Phantom Unit Account as of the
date of such termination shall be forfeited without payment therefor, and (II)
the Participant shall be paid promptly an amount in cash for each vested
Phantom Unit credited to the Participant's Phantom Unit Account as of the date
of such termination equal to the Phantom Unit Value of such Phantom Unit plus
(only if negative) Retained Earnings Per Share for the period after
December 31, 1993 (or such other date immediately preceding the date on which
such Phantom Unit was credited to the Participant's Phantom Unit Account) to
the last day of Holdings' fiscal quarter ending immediately prior to, or
coincident with, the relevant date of termination of employment.
(ii) Termination Without Cause; Death, Disability, Governmental
Service, Early Retirement or Normal Retirement. In the event a Participant's
employment with the Company or any of its Affiliates terminates by reason of a
termination by the Company or the relevant Affiliate without Cause, or of the
Participant's death, Disability, entry into Governmental Service, Early
Retirement or Normal Retirement, then all Phantom Units credited to the
Participant's Phantom Unit Account as of the relevant date of termination of
employment shall vest and the Participant (or his Beneficiary, as the case may
be) shall be paid promptly an amount in cash for each Phantom Unit credited to
the Participant's Phantom Unit Account as of the relevant date of termination
of employment equal to the sum of (A) the Phantom Unit Value of such Phantom
Unit, (B) Retained Earnings Per Share for the period after December 31, 1993
(or such other date immediately preceding the date on which such Phantom Unit
was credited to the Participant's Phantom Unit Account) to the last day of
Holdings' fiscal quarter ending immediately prior to, or coincident with, the
relevant date of termination of employment, and (C) the Quarterly Distribution
payable per Phantom Share for the fiscal quarter ending immediately prior to,
or coincident with, the relevant date of termination of employment.
1.6 Provisions Regarding Common Stock Issued upon Conversion
of Phantom Shares.
1.6 (a) In General. The shares of Common Stock issued to
Participants pursuant to Section 1.4(b) above (hereinafter, "Restricted
Shares") shall be subject to the terms and conditions of this Section 1.6. At
the time of the issuance of Restricted Shares to a Participant, a legended
certificate evidencing the appropriate number of shares of Common Stock issued
to the Participant as Restricted Shares shall be issued in the Participant's
name but shall be held by the Company in a brokerage account for the account
of the Participant until such time as such Restricted Shares become
transferable hereunder. Upon the lapse of transfer restrictions as to
Restricted Shares held by a Participant, the certificate evidencing such
shares shall be delivered to the Participant.
1.6 (b) Vesting and Forfeiture of Restricted Shares. The
Restricted Shares shall vest in accordance with the schedules applicable to
the Phantom Shares in respect of which they were issued pursuant to Section
1.4(b). Upon any termination of a Participant's employment with the Company
or any of its Affiliates by reason of a resignation by the Participant for any
reason or a termination of employment by the Company or the relevant Affiliate
for Cause, all unvested Restricted Shares shall be forfeited without payment
therefor, and all vested Restricted Shares shall be subject to the provisions
of Sections 1.6(c) and 1.6(d) below. Upon any termination of a Participant's
employment with the Company or any of its Affiliates by reason of a
termination by the Company or the relevant Affiliate without Cause, or of the
Participant's death, Disability, entry into Governmental Service, Early
Retirement or Normal Retirement, all unvested Restricted Shares shall vest as
of the date of such termination of employment, but shall be subject to the
provisions of Sections 1.6(c) and 1.6(d) below.
1.6 (c) Transfer Restrictions. The Restricted Shares issued to a
Participant may not be sold, gifted, pledged, hypothecated or otherwise
transferred in any way, except by will or the laws of descent and
distribution, so long as they are unvested and, in any event, shall continue
to be subject to such transfer restrictions until such transfer restrictions
lapse in accordance with the schedules set forth in clauses (i) and (ii)
below:
(i) Time-Based Lapse of Restrictions. Subject to clause (ii)
below, transfer restrictions applicable to the Restricted Shares will
lapse as to one third of the Restricted Shares issued to a
Participant on each of the first through third anniversaries of the
closing date of the IPO.
(ii) Lapse of Restrictions Based on Level of American Express
Ownership. Notwithstanding clause (i) above, for five years after
the closing date of the IPO, transfer restrictions as to the
Restricted Shares issued to a Participant shall lapse no more rapidly
than in accordance with the following schedule (or interpolations
therefrom) based on the percentage ownership of outstanding Common
Stock by American Express Company ("American Express") or any of its
Affiliates, calculated for purposes of the Plan on a monthly basis.
American Express Percentage of
Ownership Percentage Restricted Shares
of Outstanding Common Stock Transferable
100% 0%
80 20
60 40
40 60
20 80
0 100
In the event of a Participant's termination of employment for any reason other
than death or Disability, the transfer restrictions of this Section 1.6(c)
shall continue to apply to any Restricted Shares that are not forfeited and
not repurchased by Holdings pursuant to Section 1.6(d) below. In such an
event, clauses (i) and (ii) above shall be applied so that the percentages or
fractions of Restricted Shares transferable thereunder refer to percentages or
fractions of the number of Restricted Shares held by a terminated Participant
after taking into account forfeitures and repurchases pursuant to Section
1.6(d) below.
1.6 (d) Termination of Employment; Call Right. For a period of 10
business days following the termination of a Participant's employment with the
Company or any of its Affiliates by reason of a resignation by the Participant
for any reason or of a termination of employment by the Company or the
relevant Affiliate for Cause, Holdings shall have the right, but not the
obligation, upon written notice to the Participant, to purchase from the
Participant any or all vested Restricted Shares at a price per share equal to
the sum of (i) the Initial Value of the Phantom Share in respect of which such
Restricted Share was issued pursuant to Section 1.4(b) above, and (ii) the
Retained Earnings Per Share for the period after December 31, 1993 (or such
other date immediately preceding the date on which such Phantom Unit was
credited to the Participant's Phantom Unit Account) to the last day of the
fiscal quarter of Holdings ending immediately prior to, or coincident with,
the relevant date of exercise of the purchase right described in this Section
1.6(d).
1.6 (e) Miscellaneous Terms of Restricted Shares.
(i) Stockholder Rights. A Participant shall have all rights of
a stockholder as to the Restricted Shares, including the right to receive
dividends and the right to vote for directors and upon other matters in
accordance with Holdings' Certificate of Incorporation, subject to the vesting
and transfer restrictions contained above in this Section 1.6.
(ii) Dividends and Distributions. Any shares of Common Stock or
other property received in respect of a Restricted Share as a result of a
distribution to holders of Common Stock or as a dividend on Common Stock shall
be subject to the same restrictions hereunder as such Restricted Share.
<PAGE>
PART II - GENERAL ADMINISTRATIVE PROVISIONS
2.1 Administration.
2.1 (a) General. The terms of the Plan shall be administered,
interpreted (which shall include the power to supply any omission and
reconcile any inconsistencies) and adjusted, as appropriate, by the Finance
Committee. Any action taken or determination made by the Finance Committee
which has been assigned to the Finance Committee pursuant to the terms of the
Plan shall be within its sole discretion and shall be final and binding on all
interested parties. The Finance Committee shall have no liability to any
Participant (or his Beneficiaries or heirs) under the Plan or otherwise on
account of any action taken, or not taken, or any determination made in good
faith by the Finance Committee pursuant to the terms of the Plan or authority
delegated to it under the Plan.
2.1 (b) Adjustments. In the event of a change in the number of
shares of Common Stock outstanding by reason of any stock dividend or split or
recapitalization, the Finance Committee shall make appropriate adjustments to
the terms of the Plan and to any outstanding Phantom Shares. In addition, the
Finance Committee may make adjustments to the terms of the Plan and its
applicability to any Participant which, in its discretion, it deems equitable
and necessary in order to preserve the economic rights and expectations of the
Participants, Holdings and the Company hereunder, in the event:
(i) that there occurs an event such as a merger, sale of
substantially all of the assets of, or a consolidation,
reorganization or other restructuring of Holdings or the Company; or
(ii) that any anticipated benefits of deferral under, or other
aspects of, the Plan are altered by reason of any interpretation of
or change in applicable laws, governmental regulations or accounting
rules;
provided, however, that any rights under Section 2.12 may not be materially
adversely affected without such Participant's written consent.
2.2 The Company as Payor; Status of Participants as Unsecured,
Subordinated Creditors; Expenses.
The Company is the sponsor and legal obligor under the Plan,
and shall make all payments hereunder. Nothing herein is intended to restrict
the Company from charging an Affiliate that employs a Participant for all or a
portion of the payments made by the Company hereunder to such Participant.
The Company shall not be required to establish any special or separate fund or
to make any other segregation of assets to assure the payment of any amounts
under the Plan, and rights to payment hereunder shall be no greater than the
rights of the Company's unsecured, subordinated creditors, and shall be
subordinated to the claims of the customers and clients of the Company. As a
condition to participation in the Plan, each Participant shall agree that, in
the event the Finance Committee concludes that the obligation of the Company
under the Plan should qualify as subordinated capital of the Company for
regulatory purposes, such Participant shall execute from time to time such
subordinated debt agreements, and shall consent to such modifications to the
Plan, as the Finance Committee may determine are necessary or appropriate in
order to ensure that the Company's obligations so qualify. All expenses
involved in administering the Plan shall be borne by the Company.
<PAGE>
2.3 Agreements with Participants.
2.3 (a) Agreement to Be Bound. By becoming a Participant in the
Plan, each Participant (and each person claiming under or through a
Participant) shall be conclusively bound by the terms of the Plan and any
action taken or not taken under the Plan by the Company, Holdings, or the
Finance Committee.
2.3 (b) Designation of Beneficiaries. The Finance Committee shall
create a procedure whereby a Participant may file, on a form to be provided by
the Finance Committee, a written election designating one or more
Beneficiaries with respect to the vested portion of such Participant's Phantom
Unit Account or of such Participant's Restricted Shares in the event of the
Participant's death. The Participant may amend such Beneficiary designation
in writing at any time prior to the Participant's death, without the consent
of any previously designated Beneficiary (to the extent permitted by law);
provided, however, that such amended designation shall not be effective unless
and until received by the duly authorized representative of the Company prior
to the Participant's death.
2.4 Government Regulations.
All transactions in Phantom Shares, Cash Rights and Restricted
Shares and all amounts payable by the Company under the Plan shall be
contingent upon compliance with any and all applicable federal, state, local
and foreign laws and rules and regulations of any regulatory or self-
regulatory body in effect at the time, as deemed necessary or desirable by the
Finance Committee. No changes to the Plan that are necessary in order to
comply with such laws, rules or regulations shall be deemed to violate the
Participant's rights protected under Section 2.12, provided that the Company
takes all reasonable steps necessary to provide the Participants with the
benefits intended under the Plan.
2.5 Withholding Taxes.
The Company may make such provisions and take such steps as it
may deem necessary or appropriate for the withholding of any taxes which the
Company or any of its Affiliates is required by any law or regulation of any
governmental authority, whether federal, state, local or foreign, to withhold
in connection with payments pursuant to the Plan, including, but not limited
to, (a) the withholding of funds or other property (or any portion thereof)
until the Participant reimburses the Company or such Affiliate for the amount
that is required with respect to such taxes, (b) the cancelling of any portion
of such payment in an amount sufficient to reimburse itself or such Affiliate
for the amount of taxes required to be withheld, or (c) the withholding of
appropriate sums from any amount otherwise payable to the Participant (or his
Beneficiary).
2.6 Applicable Law.
The Plan and all actions taken hereunder shall be governed by,
and construed in accordance with, the substantive laws, but not the choice of
law rules, of the State of New York.
2.7 Rights of Participants.
No employee or other person shall have any claim or right to
receive Phantom Shares, Cash Rights or Restricted Shares under the Plan except
as expressly provided herein and neither the Plan nor any action taken under
(or inaction involving) the Plan shall be construed as (a) giving any employee
any right to be retained in the employ of the Company or any of its Affiliates
or (b) affecting the right of any of the above-mentioned entities to terminate
the employment of any individual with or without Cause. Notwithstanding
anything that may be to the contrary herein, until the issuance of Restricted
Shares hereunder, no relationship is intended between the Company or any
Affiliate and any Participant under the Plan other than that of
employer and employee (and, in particular, no partnership or other
organization among the Company, any Affiliate of the Company or any
Participant is intended) and no position to the contrary shall be taken for
any purpose.
2.8 Non-Transferability of Rights.
Except as previously provided hereunder, a Participant's rights
and interest under the Plan may not be assigned or transferred in whole or in
part either directly or by operation of law or otherwise including, but not by
way of limitation, execution, levy, garnishment, attachment, pledge,
bankruptcy or in any other manner, and no such right or interest of any
Participant under the Plan shall be subject to any obligation or liability of
such Participant other than any obligations or liabilities owed by such
Participant to the Company, Holdings or their respective subsidiaries.
2.9 Amendment of the Plan.
The Finance Committee may amend the Plan at any time or from
time to time. However, no amendment of the Plan shall materially adversely
affect any rights described in Section 2.12, without an affected Participant's
written consent.
2.10 Termination of the Plan.
2.10 (a) In General. Notwithstanding any other provision herein
that may be to the contrary, the Plan is subject to termination at any time by
action of the Finance Committee.
2.10 (b) Consequences of Termination of the Plan. In the event of
a termination of the Plan, no further Phantom Shares, Cash Rights or
Restricted Shares shall be issued hereunder, and all outstanding Phantom
Shares, Cash Rights and Restricted Shares shall remain subject to the terms of
the Plan as in effect prior to its termination. Notwithstanding the
foregoing, in the event the Finance Committee determines to terminate the
Plan, it may elect to cash out all outstanding Phantom Units based on a value
per Phantom Unit equal to the sum of (x) the Phantom Unit Value of such
Phantom Unit and (y) Retained Earnings Per Share for the period after December
31, 1993 (or such other date immediately preceding the date on which such
Phantom Unit was credited to a Participant's Phantom Unit Account) to the last
day of the fiscal quarter ending immediately prior to, or coincident with, the
date of the termination of the Plan; provided, however, that in the event such
termination of the Plan occurs in connection with an IPO, the Phantom Unit
Value shall be calculated using a value per Phantom Share equal to the price
paid per share of Common Stock in the IPO (or, in the case of an IPO which is
a spin-off, the valuation per share used in such transaction). The value of
the Phantom Units so calculated shall be paid, to the extent vested, promptly
following the date of termination of the Plan and to the extent unvested,
promptly following the date or dates on which such amounts would have vested
had the Plan not been terminated, together with interest at a rate equal to
the Company's cost of three-year debt as of the date of termination of the
Plan.
2.11 Severability.
The invalidity or unenforceability of any one or more
provisions of the Plan shall not affect the validity or enforceability of any
other provision of the Plan, which shall remain in full force and effect.
2.12 Certain Rights of Participants.
Subject to the Finance Committee's ability to amend the Plan
pursuant to Section 2.9, to terminate the Plan in accordance with Section 2.10
or to adjust the terms of the Plan as provided expressly elsewhere under the
Plan, none of the following rights of a Participant may be materially
adversely affected by any adjustment, amendment or termination of the Plan
without such Participant's written consent:
(a) the right to vest in, or to become free of transfer
restriction with respect to, any Phantom Shares or Cash Rights
credited to the Participant's Phantom Unit Account under the Plan or
Restricted Shares held by the Participant, as of the date of such
adjustment, amendment or termination, based on (i) his continued
service (if any) with the Company, Holdings or any of their
respective subsidiaries and (ii) the vesting, forfeiture and transfer
restriction provisions of the Plan as in effect prior to such
adjustment, amendment or termination;
(b) the right to receive Quarterly Distributions with respect
to all Phantom Units credited to the Participant's Phantom Unit
Account as of the date of such adjustment, amendment or termination,
based on the terms of the Plan as in effect prior to such adjustment,
amendment or termination; and
(c) the right to receive payments or Common Stock with
respect to the Phantom Shares credited to the
Participant's Phantom Unit Account or with respect to Restricted
Shares held by the Participant, as of the date of adjustment,
amendment or termination, in accordance with the terms of the Plan as
in effect prior to such adjustment, amendment or termination.
Further, Sections 2.9, 2.10, and 2.12 shall not be adjusted or amended in any
way that would have a material adverse effect on a Participant without the
consent of the affected Participant. Nothing in this Section 2.12 shall be
construed to confer a right to remain employed by the Company, Holdings or any
of their respective subsidiaries or otherwise affect the application of
Section 2.7 above.
2.13 Actions and Decisions Regarding the Business or
Operations of the Company, Holdings, and any of their Subsidiaries.
Notwithstanding anything in the Plan to the contrary, neither
the Company nor Holdings, nor any of their respective subsidiaries nor their
respective officers, directors, employees or agents shall have any liability
to any Participant (or his Beneficiaries or heirs) under the Plan or otherwise
on account of any action taken, or not taken, in good faith by any of the
foregoing persons with respect to the business or operations of the Company,
Holdings or any of their respective subsidiaries. In particular, nothing
herein shall be interpreted as limiting in any way Holdings' right to pay
dividends to American Express or other holders of Common Stock in such amounts
as the Board of Directors of Holdings determines in its discretion are
appropriate.
2.14 Offset.
Subject to applicable law, any amounts payable to any
Participant hereunder as credited to the Participant's Phantom Unit Account
are subject to reduction to satisfy any liabilities owed to the Company,
Holdings or any of their respective subsidiaries by the Participant.
2.15 Notices.
The Finance Committee shall give each Participant prompt notice
of any credits, charges, adjustments, redemptions, forfeitures, reallocations
or other transactions affecting such Participant's Phantom Unit Account. The
Company shall maintain the Phantom Unit Accounts under the Plan and shall
effect all credits and debits to such accounts in accordance with the terms of
the Plan under the direction of the Finance Committee.
2.16 Arbitration.
Any dispute between a Participant and the Company, Holdings or
any of their respective subsidiaries arising from or relating to the terms of
the Plan shall be submitted to arbitration under the auspices and in
accordance with the rules of the New York Stock Exchange, Inc. (or, in the
case of any such dispute between the Participants as a group and the Company,
Holdings or any of their respective subsidiaries, the rules of the American
Arbitration Association (the "AAA")), and each Participant shall be deemed to
have agreed to such submission by becoming a Participant in the Plan. In the
event of any such dispute between the Participants as a group and the Company,
Holdings or any of their respective subsidiaries, the party seeking relief
shall give written notice of its intention to seek resolution of such dispute
to the other party. The arbitral tribunal shall be appointed within 30 days
of the notice of dispute, and shall consist of three arbitrators, one of which
shall be appointed by Holdings (or the Company or the relevant subsidiary, as
the case may be), one by the Participants as a group (which first two
arbitrators shall have knowledge of the securities industry and familiarity
with the compensation practices of such industry), and the third jointly by
such two arbitrators; provided, however, that, if such two arbitrators shall
be unable to select the third arbitrator within such 30-day period, such third
arbitrator shall be chosen by the AAA as soon as practicable following notice
to the AAA by such two arbitrators of their inability to choose such third
arbitrator; and provided further that in the case of a third arbitrator so
chosen by the AAA, such third arbitrator shall be required to have knowledge
of the securities industry and be familiar with the compensation practices of
such industry.
2.17 Adjustments for Non-U.S. Participants.
The Finance Committee may approve such adjustments to the terms
of the Plan applicable to Participants who are subject to taxes in non-United
States jurisdictions as it deems appropriate in order to accomplish the
purposes of the Plan.
2.18 Governing Document.
The Plan (including any instruments or documents expressly
referred to herein) contains all of the terms and conditions of the program
described herein and shall be its sole governing document and authority, and
shall supersede all prior descriptions or understandings, both written and
oral, with respect to the subject matter of the Plan.
<PAGE>
PART III - DEFINITIONS
For purposes of the Plan, the following terms are defined as set forth below:
3.1 "Affiliate" of a person means any enterprise (whether a
corporation, partnership, joint venture or other business or legal
entity) controlling, controlled by or under common control with
such person.
3.2 "Beneficiary" means the person or persons designated in writing by
a Participant under Section 2.3 above, or, in the absence of an
effective designation, or if such designated person shall have died
before the Participant, the legal representative of the
Participant's estate.
3.3 "Bonus" and "Bonuses" mean the annual discretionary compensation
awarded by the Board of Directors of Holdings (or a Committee
thereof) to Participants and other employees of the Company or its
Affiliates.
3.4 "Cause" means a material breach by a Participant of, or "cause" as
defined under, an employment contract (if any) between the
Participant and the Company or any of its Affiliates, failure by a
Participant to devote substantially all business time exclusively
to the performance of his duties, willful misconduct, dishonesty
related to the business and affairs of his employer or an Affiliate
of his employer, conviction of a felony (or failure to contest
prosecution for a felony), habitual or gross negligence in the
performance of a Participant's duties or failure to satisfactorily
perform such duties after notification of such failure and a
reasonable opportunity to cure the same, the violation of policies
and practices adopted by his employer or an Affiliate of his
employer or a material violation of the conflict of interest,
proprietary information or business ethics policies of his employer
or an Affiliate of his employer.
3.5 "Disability" shall have the meaning set forth in the Company's
Long-Term Disability Program as in effect from time to time or any
successor thereto.
3.6 "Early Retirement" means a Participant's termination of employment
with the Company and its Affiliates on or after age 55 and ten
full years of employment with not less than five full years of
participation in the Plan (including, for this purpose,
participation in the EBP and the Lehman Brothers Equity Program).
3.7 "EBP" means the Lehman Brothers Equity Unit and Bonus Plan, as
amended and restated as of January 1, 1993, as amended from time
to time.
3.8 A resignation for "Good Reason" means a refusal of a Participant
to accept an offer of employment from the buyer effecting a Third
Party Sale, or a resignation from such employment within one year
following a Third Party Sale, if (a) the assignment of a
Participant's new employment duties is substantially diminished
from the scope of responsibilities of the Participant immediately
prior to the Third Party Sale or (b) the Participant's annual cash
compensation for his new employment position is significantly
reduced from his annual compensation prior to the Third Party Sale
for reasons other than "across the board" reductions in cash
compensation.
3.9 "Governmental Service" means full-time employment in an elective
or nonelective capacity with any federal or state government or
political subdivision thereof or any agency or other
instrumentality thereof.
3.10 The "Initial Value" of a Phantom Share means $10 in the case of a
Phantom Share credited to a Phantom Unit Account as of January 1,
1994, and a price determined by the Finance Committee in
accordance with Section 1.3(b) in all other cases.
3.11 "IPO" means an offering of Common Stock pursuant to a registration
statement filed under the Securities Act of 1933, as amended, or a
spinoff of the Common Stock to the shareholders of American
Express.
3.12 "Normal Retirement" means a Participant's termination of
employment with the Company and its Affiliates on or after age 65
with not less than two full years of participation in the Plan
(including, for this purpose, participation in the EBP and the
Lehman Brothers Equity Program).
3.13 The "Original Value" of a Cash Right means $6.67 in the case of a
Cash Right credited to a Phantom Unit Account as of January 1,
1994, and in the case of any other Cash Right a price equal to
66.67% of the Initial Value of the related Phantom Share which,
together with such Cash Right, comprise a Phantom Unit.
3.14 "Participant" means an employee of the Company or any of its
Affiliates who is designated to participate in the Plan pursuant
to Section 1.2.
3.15 "Peer Company Yield" means a percentage determined by calculating
the average of the Dividend Yields of The Bear Stearns Companies
Inc., Merrill Lynch & Co., Inc., Morgan Stanley Group, Inc. and
Salomon Inc (or such other or additional entities which the
Finance Committee from time to time determines constitute peer
competitors of the Company) for the fiscal quarter of each such
entity ending immediately prior to, or coincident with, the date
as of which the Peer Company Yield is to be calculated. As used
in this Section 3.15, "Dividend Yield" means a percentage
determined by dividing (a) the dollar amount or value of a
dividend paid per share of common stock with respect to a fiscal
quarter, by (b) the average of the daily New York Stock Exchange
Composite Transactions Tape closing prices of such share of common
stock for each trading day during such fiscal quarter; provided,
however, that, in the event of extraordinary dividends or similar
transactions, the Finance Committee in its discretion may make
such adjustments to the Dividend Yield as it deems necessary or
appropriate to carry out the objectives of the Plan.
3.16 "Phantom Unit Account" means the bookkeeping account created and
maintained under the Plan for each Participant to or against which
Phantom Shares, Cash Rights or other amounts are credited or
charged pursuant to the terms of the Plan.
3.17 "Phantom Unit Value" means the sum of the Initial Value of a
Phantom Share and the Original Value of the related Cash Right
which, together with such Phantom Share, comprise a Phantom Unit.
The Phantom Unit Value of Phantom Units acquired by Participants
pursuant to deferrals of 1993 Total Compensation shall be $16.67.
3.18 "Retained Earnings" means the retained earnings of Holdings as
determined in accordance with United States Generally Accepted
Accounting Principles; provided, however, that the Finance
Committee in its discretion may make such adjustments to Retained
Earnings as it deems necessary or appropriate to carry out the
objectives of the Plan. For purposes of the Plan, calculations of
Retained Earnings for a specified period up to the end of a fiscal
quarter of Holdings shall reflect all dividends and Quarterly
Distributions payable with respect to such fiscal quarter, whether
or not paid during such fiscal quarter.
3.19 "Retained Earnings Per Share" means (a) the net increase or
decrease in Retained Earnings over a specified period, divided by
(b) the average number of shares of Common Stock and Phantom
Shares outstanding during such period (calculated for purposes of
the Plan on a quarterly basis).
3.20 Miscellaneous. Where appropriate, all references in the Plan to
the masculine pronoun shall include the feminine, and all
references to the singular shall include the plural.
3.21 Other Defined Terms. The following terms are defined in the Plan
in the Section indicated:
Term Section
"AAA" 2.16
"American Express" 1.6(c)
"Cash Rights" Introduction
"Common Stock" Introduction
"Company" Introduction
"Dividend Yield" 3.16
"Effective Date" Title
"Finance Committee" 1.2
"Holdings" Introduction
"Phantom Shares" Introduction
"Phantom Unit" Introduction
"Plan" Introduction
"Quarterly Distribution" 1.4(a)
"Restricted Shares" 1.6(a)
"Sale Premium" 1.4(c)
"Third Party Sale" 1.4(c)
"Total Compensation" 1.3(a)
Exhibit 10.35
LEHMAN BROTHERS INC. PARTICIPATING PREFERRED PLAN
Introduction
The Lehman Brothers Inc. Participating Preferred Plan (the
"Plan") is intended to motivate and reward certain key employees of Lehman
Brothers Inc. (the "Company") by providing them with a compensation
arrangement whose value over time will be linked to the financial performance
of the Company and Holdings. Except as otherwise provided in Section 1.5
below, the Plan is intended to amend and thereby replace the Lehman Brothers
Equity Unit and Bonus Plan (the "EBP"). Unless waived by the Finance
Committee, the effectiveness of the Plan is conditioned upon the consent of
each Partner (as defined in the EBP) to the amendment to the EBP made by the
crediting of his interests in the EBP to such Partner's PPP Account under the
Plan.
Except where defined elsewhere in the Plan, all capitalized
terms used herein have the meanings assigned to them in Part III below.
PART I - OPERATION OF THE PLAN
1.1 Crediting of Interests in the EBP; Annual Crediting.
Effective as of January 1, 1993 (the "Effective Date"), the
notional cash value of all notional securities credited to the Equity Unit
Accounts (as defined in the EBP) of Partners as of such date shall be credited
to the PPP Accounts to be established by the Company for the Participants in
the Plan. Upon such crediting, each Partner in the EBP shall waive all rights
and claims under the EBP and shall become a Participant. All notional amounts
credited to the PPP Accounts of the Participants shall be credited with a
fixed return (the "Fixed Return") at a rate of 12% per annum, payable in cash
on or as soon as practicable following the end of each Quarter. In addition,
as of each January 1 following the close of a Year, the balance in the PPP
Accounts of Participants on such date shall be credited or debited, as the
case may be, with notional income equivalents (the "New Accretions") equal to
the RORAE for such Year multiplied by the then outstanding balance in the PPP
Account. Except as a result of New Accretions, no amounts shall be credited
to PPP Accounts (by reason of new deferrals or otherwise) after the Effective
Date.
1.2 Vesting and Forfeiture of Amounts Credited to the Participants'
PPP Accounts.
1.2 (a) Vesting of Amounts Credited to PPP Accounts on the
Effective Date. All unvested amounts credited to a Participant's PPP Account
as of the Effective Date shall vest on January 1, 1995.
1.2 (b) Vesting of New Accretions. All New Accretions credited
to a Participant's PPP Account under Section 1.1 above shall vest on the first
anniversary of the effective date of the crediting thereof to the
Participant's PPP Account. If New Accretions result in a debit to a
Participant's PPP Account, such debit shall take effect immediately as of the
January 1 following the Year to which such New Accretion relates.
1.2 (c) Forfeitures and Resultant Transactions.
(i) Forfeiture. Except as the Finance Committee may
determine otherwise in its discretion, any unvested amounts credited
to a Participant's PPP Account as of the last day of the Quarter
coincident with or immediately preceding the date of a termination of
the Participant's employment with the Company or any of its
Affiliates (such date being hereinafter referred to as the
"Forfeiture Date"), other than an involuntary termination of
employment without Cause or a termination of employment due to Normal
or Early Retirement, Disability, death or Governmental Service, shall
be forfeited as of the Forfeiture Date. All unvested amounts
credited to a terminating Participant's PPP Account that are not
forfeited pursuant to this Section 1.2(c)(i) shall vest as of the
Forfeiture Date.
(ii) Forfeiture of New Accretion. Upon the forfeiture of any
amounts pursuant to this Section 1.2(c), the relevant terminating
Participant shall forfeit all rights to any New Accretion with
respect to the forfeited portion of his PPP Account for the Year in
which the relevant Forfeiture Date occurs.
1.3 Payment of Amounts Credited to the Participants' PPP Accounts.
1.3 (a) In Service.
(i) Payment at Any Time. All or any portion of amounts
credited to a Participant's' PPP Account may be paid out by the
Company at any time at the election of the Finance Committee. The
effective date of such payout shall be the end of the Quarter
coincident with or immediately preceding the Quarter in which such
determination to pay out occurs (such effective date of payment being
hereinafter referred to as the "In-Service Payment Date").
(ii) Payment Procedure. A payment of the amounts credited to
a Participant's PPP Account shall be effected as follows:
(A) such Participant shall be paid in cash any unpaid
Fixed Return for the Quarter ending on the In-Service Payment
Date and for the portion of the succeeding Quarter ending on
the date of the lump sum payment or first installment payment,
as the case may be, described in clause (C)(y) below;
(B) such Participant shall be credited or debited with
a New Accretion on the amount so paid out, calculated (if the
In-Service Payment Date is not the end of a Year) as if the
current Year ended on the In-Service Payment Date (which New
Accretion shall be simultaneously paid out as described in
clause (C) below); and
(C) such Participant shall have a right to receive a
cash payment from the Company, subject to the vesting schedule
and forfeiture terms applicable to the payment amount, which
cash payment shall be:
(x) in an amount equal to the notional dollar
value of the amount credited to the Participant's PPP
Account (including the New Accretion described in clause
(B) of this Section 1.3(a)(ii)), as of the In-Service
Payment Date; and
(y) paid, at the election of the Finance
Committee, either (I) in a lump sum or (II) in three
equal installments, the first of which shall be paid on
a date promptly following the In-Service Payment Date
(but in no event earlier than the calculation of RORAE
for the portion of the Year ending on the In-Service
Payment Date) and the second and third of which shall be
paid on or as soon as practicable following the first
and second anniversaries of the first installment
payment, respectively. On each of the second and third
installment payment dates, interest at a rate of 8% per
annum shall be paid on the entire amount outstanding
immediately prior to such installment payment date,
calculated from the immediately preceding installment
payment date.
1.3 (b) Seniority Payout. Effective immediately following the
close of the Year in which a Participant who has participated in the Plan (or
the EBP and the Lehman Brothers Equity Program) for two full Years and is an
employee of the Company or any of its Affiliates has attained age 52 and of
each Year thereafter (provided that he remains an employee of the Company or
any of its Affiliates throughout such Year), one tenth (or one fifth, in the
case of each such Year beginning with the Year in which the Participant
attains age 57) of the notional dollar value of such Participant's vested
amount credited to his PPP Account (after payment of Fixed Returns and taking
into account the crediting or debiting of New Accretions with respect to the
Year just ended), shall be paid in cash to such Participant on or as soon as
practicable following the effective date of such payout and the PPP Account of
such Participant shall be debited accordingly. Notwithstanding anything
contained in this Section 1.3(b) to the contrary, no payments hereunder shall
occur until after the close of 1993, regardless of whether a Participant has
attained the age of 52 or 57 during 1993.
1.3 (c) Termination of Employment. Upon the termination of a
Participant's employment with the Company or any of its Affiliates for any
reason, all amounts credited to the Participant's PPP Account (after taking
into account any forfeitures of unvested amounts pursuant to Section 1.2)
shall be paid out. Such amounts shall be paid out effective as of the end of
the Quarter coincident with or preceding the date on which such termination of
employment occurs (such date being hereinafter referred to as the "Termination
Payment Date"), in which case:
(i) such Participant shall be paid in cash any unpaid Fixed
Return for the Quarter ending on the Termination Payment Date;
(ii) such Participant shall be credited or debited with a New
Accretion on the payout amounts calculated (if the Termination
Payment Date is not the end of a Year) as if the current Year ended
on the Termination Payment Date (which New Accretion shall be
simultaneously paid out as described in clause (iii) below); and
(iii) the amount payable by the Company in connection with
such payouts:
(A) shall be the notional dollar value of the amounts
credited to the Participant's PPP Account (including the New
Accretion described in clause (ii) above, unless such New
Accretion is forfeited pursuant to the provisions of Section
1.2 above), as of the Termination Payment Date; and
(B) shall be paid in cash, at the election of the
Finance Committee, either (x) in a lump sum as soon as
practicable following the Participant's date of termination of
employment or (y) in three equal installments as soon as
practicable following the Participant's date of termination of
employment and as of the first and second anniversaries of such
date. On each installment payment date, interest at a rate of
8% per annum shall be paid on the entire amount outstanding
immediately prior to such installment payment date, calculated
from the Termination Payment Date (in the case of the first
installment payment date), and from the immediately preceding
installment payment date (in the case of the second and third
installment payment dates).
1.4 Notional Computervision Stock.
Notwithstanding the termination of the EBP and anything
contained in the Plan to the contrary, the Notional Computervision Stock (as
defined in the EBP) shall continue to be subject to the same terms as were
previously applicable under the EBP, which terms are hereby incorporated in
the Plan as if the relevant provisions of the EBP (including provisions of the
EBP referred to in such provisions) remained in full force and effect (but
only with respect to such Notional Computervision Stock); provided, however,
that upon the occurrence of an event that would otherwise result in the
crediting of Phantom Participating Preferred Stock (as defined in the EBP) in
respect and in lieu of Notional Computervision Stock under the terms of the
EBP, the amount that would otherwise be so credited shall instead be credited
hereunder to the PPP Account of the relevant Participant.
<PAGE>
PART II - GENERAL ADMINISTRATIVE PROVISIONS
2.1 Administration.
2.1 (a) General. The terms of the Plan shall be administered,
interpreted (which shall include the power to supply any omission and
reconcile any inconsistencies) and adjusted, as appropriate, by the Finance
Committee. Any action taken or determination made by the Finance Committee
which has been assigned to the Finance Committee pursuant to the terms of the
Plan shall be within its sole discretion and shall be final and binding on all
interested parties. The Finance Committee shall have no liability to any
Participant (or his Beneficiaries or heirs) under the Plan or otherwise on
account of any action taken, or not taken, or any determination made in good
faith by the Finance Committee pursuant to the terms of the Plan or authority
delegated to it under the Plan.
2.1 (b) Adjustments. In addition, the Finance Committee may
make adjustments to the terms of the Plan and its applicability to any
Participant which, in its discretion, it deems equitable and necessary in
order to preserve the economic rights and expectations of the Participants,
Holdings and the Company hereunder, in the event that:
(i) there occurs an event such as a merger, sale of
substantially all of the assets of, or a consolidation,
reorganization or other restructuring of Holdings or the Company; or
(ii) any anticipated benefits of deferral under, or other
aspects of, the Plan are altered by reason of any interpretation of
or change in applicable laws, governmental regulations or accounting
rules;
provided, however, that any rights under Section 2.12 may not be materially
adversely affected without such Participant's written consent.
2.2 The Company as Payor; Status of Participants as Unsecured,
Subordinated Creditors; Expenses.
The Company is the sponsor and legal obligor under the Plan,
and shall make all payments hereunder. Nothing herein is intended to restrict
the Company from charging an Affiliate that employs a Participant for all or a
portion of the payments made by the Company hereunder to such Participant.
The Company shall not be required to establish any special or separate fund or
to make any other segregation of assets to assure the payment of any amounts
under the Plan, and rights to payment hereunder shall be no greater than the
rights of the Company's unsecured, subordinated creditors, and shall be
subordinated to the claims of the customers and clients of the Company. As a
condition to participation in the Plan, each Participant shall agree that, in
the event the Finance Committee concludes that the obligation of the Company
under the Plan should qualify as subordinated capital of the Company for
regulatory purposes, such Participant shall execute from time to time such
subordinated debt agreements, and shall consent to such modifications to the
Plan, as the Finance Committee may determine are necessary or appropriate in
order to ensure that the Company's obligations so qualify. Unless waived by
the Finance Committee, any failure to execute any such agreement or to consent
to any such modification shall result in the forfeiture of the Participant's
PPP Account. All expenses involved in administering the Plan shall be borne
by the Company.
2.3 Agreements with Participants.
2.3 (a) Agreement to Be Bound. By becoming a Participant in the
Plan, each Participant (and each person claiming under or through a
Participant) shall be conclusively bound by the terms of the Plan and any
action taken or not taken under the Plan by the Company, Holdings, or the
Finance Committee.
2.3 (b) Designation of Beneficiaries. The Finance Committee
shall create a procedure whereby a Participant may file, on a form to be
provided by the Finance Committee, a written election designating one or more
Beneficiaries with respect to the vested portion of such Participant's PPP
Account in the event of the Participant's death. The Participant may amend
such Beneficiary designation in writing at any time prior to the Participant's
death, without the consent of any previously designated Beneficiary (to the
extent permitted by law); provided, however, that such amended designation
shall not be effective unless and until received by the duly authorized
representative of the Company prior to the Participant's death.
2.4 Government Regulations.
All transactions and all amounts payable by the Company under
the Plan shall be contingent upon compliance with any and all applicable
federal, state, local and foreign laws and rules and regulations of any
regulatory or self-regulatory body in effect at the time, as deemed necessary
or desirable by the Finance Committee. No changes to the Plan that are
necessary in order to comply with such laws, rules or regulations shall be
deemed to violate the Participants' rights protected under Section 2.12,
provided that the Company takes all reasonable steps necessary to provide the
Participants with the benefits intended under the Plan.
2.5 Withholding Taxes.
The Company may make such provisions and take such steps as it
may deem necessary or appropriate for the withholding of any taxes which the
Company or any of its Affiliates is required by any law or regulation of any
governmental authority, whether federal, state, local or foreign, to withhold
in connection with amounts credited or payments made pursuant to the Plan,
including, but not limited to, (a) the withholding of funds or other property
(or any portion thereof) until the Participant reimburses the Company or such
Affiliate for the amount that is required with respect to such taxes, (b) the
cancelling of any portion of such crediting or payment in an amount sufficient
to reimburse itself or such Affiliate for the amount of taxes required to be
withheld, or (c) the withholding of appropriate sums from any amount otherwise
credited or payable to the Participant (or his Beneficiary).
2.6 Applicable Law.
The Plan and all actions taken hereunder shall be governed by,
and construed in accordance with, the substantive laws, but not the choice of
law rules, of the State of New York, except that any subordination provisions
included for regulatory purposes shall be governed by, and construed in
accordance with, the Constitution and Rules of the New York Stock Exchange,
Inc.
2.7 Rights of Participants.
No employee or other person shall have any claim or right to a
Fixed Return or a New Accretion or other credits, debits or payments under the
Plan except as expressly provided herein and neither the Plan nor any action
taken under (or inaction involving) the Plan shall be construed as (a) giving
any employee any right to be retained in the employ of the Company or any of
its Affiliates or (b) affecting the right of any of the above-mentioned
entities to terminate the employment of any individual with or without
Cause. Notwithstanding anything that may be to the contrary herein, no
relationship is intended between the Company or any Affiliate and any
Participant under the Plan other than that of employer and employee (and, in
particular, no partnership or other organization among the Company, any
Affiliate of the Company or any Participant is intended) and no position to
the contrary shall be taken for any purpose.
2.8 Non-Transferability of Rights.
Except as previously provided hereunder, a Participant's rights
and interest under the Plan may not be assigned or transferred in whole or in
part either directly or by operation of law or otherwise (except in the event
of the Participant's death) including, but not by way of limitation,
execution, levy, garnishment, attachment, pledge, bankruptcy or in any other
manner, and no such right or interest of any Participant under the Plan shall
be subject to any obligation or liability of such Participant other than any
obligations or liabilities owed by such Participant to the Company, Holdings
or their respective Affiliates.
2.9 Amendment of the Plan.
The Finance Committee may amend the Plan at any time or from
time to time. However, no amendment of the Plan shall materially adversely
affect any rights described in Section 2.12, without an affected Participant's
written consent.
2.10 Termination of the Plan.
2.10 (a) In General. Notwithstanding any other provision herein
that may be to the contrary, the Plan is subject to termination at any time by
action of the Finance Committee.
2.10 (b) Consequences of Termination of the Plan. In the event
of a termination of the Plan, the Company shall effect an in service
redemption of the amounts credited to each Participant's PPP Account in
accordance with Section 1.3(a) above.
2.11 Severability.
The invalidity or unenforceability of any one or more
provisions of the Plan (or any portion thereof) shall not affect the validity
or enforceability of any other provision of the Plan (or any portion thereof),
which shall remain in full force and effect.
2.12 Certain Rights of Participants.
Subject to the Finance Committee's ability to amend the Plan
pursuant to Section 2.9, to terminate the Plan in accordance with Section 2.10
or to adjust the terms of the Plan as provided expressly elsewhere under the
Plan, none of the following rights of a Participant may be materially
adversely affected by any adjustment, amendment or termination of the Plan
without such Participant's written consent:
(a) the right to vest in, or to become free of transfer
restriction with respect to, any amounts credited to the
Participant's PPP Account under the Plan, as of the date of such
adjustment, amendment or termination, based on (i) his continued
service (if any) with the Company and any of its Affiliates and (ii)
the vesting, forfeiture and transfer restriction provisions of the
Plan as in effect prior to such adjustment, amendment or termination;
and
(b) the right to receive Fixed Returns and New Accretions
with respect to all amounts credited to his PPP Account as of the
date of such adjustment, amendment or termination, based on the terms
of the Plan as in effect prior to such adjustment, amendment or
termination.
Furthermore, Sections 2.9, 2.10, and 2.12 shall not be adjusted or amended in
any way that would have a material adverse effect on a Participant without the
consent of the affected Participant. Nothing in this Section 2.12 shall be
construed to confer a right to remain employed by the Company or any of its
Affiliates or otherwise affect the application of Section 1.3(a) or Section
2.7 above.
2.13 Actions and Decisions Regarding the Business or Operations of
the Company, Holdings, and any of their Affiliates.
Notwithstanding anything in the Plan to the contrary, neither
the Company nor Holdings, nor any of their respective Affiliates nor their
respective officers, directors, employees or agents shall have any liability
to any Participant (or his Beneficiaries or heirs) under the Plan or otherwise
on account of any action taken, or not taken, in good faith by any of the
foregoing persons with respect to the business or operations of the Company,
Holdings or any of their respective Affiliates.
2.14 Offset.
Subject to applicable law, any amounts payable to any
Participant hereunder as credited to the Participant's PPP Account are subject
to reduction to satisfy any liabilities owed to the Company, Holdings or any
of their respective Affiliates by the Participant.
2.15 Notices.
The Finance Committee shall give each Participant prompt notice
of any credits, charges, adjustments, redemptions, forfeitures, reallocations
or other transactions affecting such Participant's PPP Account. The Company
shall maintain the PPP Accounts under the Plan and shall effect all credits
and debits to such PPP Accounts in accordance with the terms of the Plan under
the direction of the Finance Committee.
2.16 Arbitration.
Any dispute between a Participant and the Company, Holdings or
any of their respective Affiliates arising from or relating to the terms of
the Plan shall be submitted to arbitration under the auspices and in
accordance with the rules of the New York Stock Exchange, Inc. (or, in the
case of any such dispute between the Participants as a group and the Company,
Holdings or any of their respective Affiliates, the rules of the American
Arbitration Association (the "AAA")), and each Participant shall be deemed to
have agreed to such submission by becoming a Participant in the Plan. In the
event of any such dispute between the Participants as a group and the Company,
Holdings or any of their respective Affiliates, the party seeking relief shall
give written notice of its intention to seek resolution of such dispute to the
other party. The arbitral tribunal shall be appointed within 30 days of the
notice of dispute, and shall consist of three arbitrators, one of which shall
be appointed by Holdings (or the Company or the relevant Affiliates, as the
case may be), one by the Participants as a group (which first two arbitrators
shall have knowledge of the securities industry and familiarity with the
compensation practices of such industry), and the third jointly by such two
arbitrators; provided, however, that, if such two arbitrators shall be unable
to select the third arbitrator within such 30-day period, such third
arbitrator shall be chosen by the AAA as soon as practicable following notice
to the AAA by such two arbitrators of their inability to choose such third
arbitrator; and provided further that in the case of a third arbitrator so
chosen by the AAA, such third arbitrator shall be required to have knowledge
of the securities industry and be familiar with the compensation practices of
such industry.
2.17 Adjustments for Non-U.S. Participants.
The Finance Committee may approve such adjustments to the terms
of the Plan applicable to Participants who are subject to taxes in non-United
States jurisdictions as it deems appropriate in order to accomplish the
purposes of the Plan.
2.18 Governing Document.
The Plan (including any instruments or documents expressly
referred to herein) contains all of the terms and conditions of the program
described herein and shall be its sole governing document and authority, and
shall supersede all prior descriptions or understandings, both written and
oral, with respect to the subject matter of the Plan.
<PAGE>
PART III - DEFINITIONS
For purposes of the Plan, the following terms are defined as set forth below:
3.1 "Affiliates" of a person means any enterprise (whether a
corporation, partnership, joint venture or other business or
legal entity) controlling, controlled by or under common
control with such person.
3.2 "Average Annual Risk-Adjusted Equity" means, for any given
Year, the sum of the total risk-adjusted equity (or the
equivalent thereof) of Lehman Brothers Division (with respect
to 1993) or Holdings (with respect to other Years) as of the
first day of such Year and as of the end of each month during
such period (each as determined by Holdings in accordance with
United States generally accepted accounting principles),
divided by 13.
3.3 "Beneficiary" means the person or persons designated in writing
by a Participant under Section 2.3(b) above, or, in the absence
of an effective designation, or if such designated person shall
have died before the Participant, the legal representative of
the Participant's estate.
3.4 "Cause" means a material breach by a Participant of an
employment contract (if any) between the Participant and the
Company or an Affiliate, failure by a Participant to devote
substantially all business time exclusively to the performance
of his duties, willful misconduct, dishonesty related to the
business and affairs of his employer or an Affiliate of his
employer, conviction of a felony (or failure to contest
prosecution for a felony), habitual or gross negligence in the
performance of a Participant's duties or failure to
satisfactorily perform such duties after notification of such
failure and a reasonable opportunity to cure the same, the
violation of policies and practices adopted by his employer or
the parent of his employer or a material violation of the
conflict of interest, proprietary information or business
ethics policies of his employer or the parent of his employer.
3.5 "Disability" shall have the meaning set forth in the Company's
Long-term Disability Program as in effect from time to time or
any successor thereto.
3.6 "Early Retirement" means a Participant's termination of
employment with the Company and its Affiliates on or after age
55 and ten full years of employment with not less than five
full years of participation in the Plan (including, for this
purpose, participation in the EBP and the Lehman Brothers
Equity Program).
3.7 "Finance Committee" means the Finance Committee of the Board of
Directors of Holdings, as constituted from time to time, or its
designee.
3.8 "Governmental Service" means full-time employment in an
elective or nonelective capacity with any federal or state
government or political subdivision thereof or any agency or
instrumentality thereof.
3.9 "Holdings" means Lehman Brothers Holdings Inc., a Delaware
corporation (and any successor corporation).
3.10 "Lehman Brothers Division" means the businesses of Lehman
Brothers as reflected in their Quarterly Financial Review as of
December 31, 1992, as such review may be amended as determined
by the President of Holdings.
3.11 "Net Income" means, for any given year, the after-tax net
income (or loss) of Lehman Brothers Division or Holdings, as
the case may be, for such Year, as determined by Holdings in
accordance with United States generally accepted accounting
principles.
3.12 "Normal Retirement" means a Participant's termination of
employment with the Company and its Affiliates on or after 65
with not less than two full years of participation in the Plan
(including, for this purpose, participation in the EBP and the
Lehman Brothers Equity Program).
3.13 "Participant" means an employee of the Company or any of its
Affiliates who participates in the Plan.
3.14 "PPP Account" means the bookkeeping account created and
maintained under the Plan for each Participant to or against
which deferred amounts are credited or charged pursuant to the
terms of the Plan.
3.15 "Quarter" means each calendar quarter during the term of the
Plan.
3.16 "RORAE" means, for any given Year, the Net Income of Holdings
for such Year (or the Net Income of Lehman Brothers Division,
in the case of 1993) divided by the Average Annual Risk-
Adjusted Equity of Holdings (or of Lehman Brothers Division, in
the case of 1993) for such Year.
3.17 "Year" shall mean each calendar year during the term of the
Plan.
3.18 Miscellaneous. Where appropriate, all references in the Plan
to the masculine pronoun shall include the feminine, and all
references to the singular shall include the plural.
3.19 Other Defined Terms. The following terms are defined in the
Plan in the Section indicated:
Term Section
"AAA" 2.16
"Company" Introduction
"EBP" Introduction
"Effective Date" 1.1
"Fixed Return" 1.1
"Forfeiture Date" 1.2(c)
"In-Service Payment Date" 1.3(a)
"New Accretion" 1.1
"Notional Computervision Stock" 1.4
"PPP Plan" Introduction
"Termination Payment Date" 1.3(c)
EXHIBIT 11
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
Five Years Ended December 31, 1993
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1. Weighted average number of
common shares issued and
outstanding 484,754,771 476,047,601 468,950,425 438,110,325 417,463,323
2. Weighted average number of
shares In-Lieu/LOI 414,904 463,128 465,383 462,784 525,848
3. Common shares assuming
exercise of stock options 2,777,899 255,139 331,756 495,716 2,973,948
4. Common share equivalents
for Variable Rate
Convertible Notes - - 6,117 178,228 411,723
5. Berkshire Hathaway 12,190,155 - - - -
----------- ----------- ----------- ----------- -----------
6. Primary common shares
and common share
equivalents 500,137,729 476,765,868 469,753,681 439,247,053 421,374,842
7. Additional common
shares assuming
exercise of stock
options based on
year-end market price - - - - 239,468
8. Common shares reserved
for conversion of 9%
Convertible Debentures 3,519,727 - 3,865,733 4,033,880 4,813,033
9. Common shares reserved
for conversion of 7 1/2%
Convertible Debentures 195,406 - 198,582 198,582 320,695
10. Common shares reserved
for conversion of 7 3/4%
Convertible Debentures - - - 28,794 320,695
----------- ----------- ----------- ----------- -----------
11. Fully diluted common shares
and common share
equivalents 503,852,862 476,765,868 473,817,996 443,508,309 427,068,733
=========== =========== =========== =========== ===========
12. Income from continuing
operations before
accounting changes
($ millions) $1,605 $578 $607 $1,148 $1,099
13. Less:
Dividends on Money Market
Preferred Shares - - (14) (19) (22)
Dividends on Convertible
Exchangeable Preferred
Shares (16) (16) (16) (16) -
Dividends on $216.75
CAP Preferred Shares - (27) (10) - -
14. Add back:
Interest on Variable Rate
Convertible Notes, net of
income tax benefit - - - 1 1
------ ------ ------ ------ ------
15. Income from continuing
operations before
accounting changes
applicable to primary
common shares and common
share equivalents 1,589 535 567 1,114 1,078
16. Discontinued operations,
net of income taxes (127) (149) 182 (967) 58
17. Cumulative effect of
changes in accounting
principles, net of
income taxes - 32 - - -
------ ------ ------ ------ ------
18. Net income applicable to
primary common shares
and common share
equivalents 1,462 418 749 147 1,136
19. Add back:
Interest on convertible debt,
net of income tax benefit 4 - 4 4 6
------ ------ ------ ------ ------
20. Net income applicable to
fully diluted common shares
and common share equivalents $1,466 $ 418 $ 753 $ 151 $1,142
===== ===== ===== ===== =====
21. Income from continuing
operations before
accounting changes
applicable to fully
diluted common shares
and common share
equivalents (20 - (16+17)) $1,593 $ 535 $ 571 $1,118 $1,084
====== ===== ===== ===== =====
22. Income from continuing
operations before accounting
changes per share:
Primary (15/6) $ 3.17 $ 1.12 $1.21 $ 2.54 $ 2.56
Fully diluted (21/11) $ 3.16 $ 1.12 $1.21 $ 2.52 $ 2.54
23. Income (loss) from
discontinued
operations per share:
Primary (16/6) $(.25) $ (.31) $ .38 $ (2.20) $ .14
Fully diluted (16/11) $(.25) $ (.31) $ .38 $ (2.18) $ .13
24. Cumulative effect of
accounting changes per share:
Primary (17/6) $ - $ .07 $ - $ - $ -
Fully diluted (17/11) $ - $ .07 $ - $ - $ -
25. Net income per share:
Primary (18/6) $ 2.92 $ .88 $1.59 $ .34 $2.70
Fully diluted (20/11) $ 2.91 $ .88 $1.59 $ .34 $2.67
</TABLE>
Note: The above amounts reflect changes in accounting principles relating to
income taxes and postretirement benefits other than pensions in 1992.
EXHIBIT 12.1
AMERICAN EXPRESS COMPANY
COMPUTATION IN SUPPORT OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
Years Ended December 31,
--------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
Earnings:
Pretax income from
continuing operations $2,326 $ 896 $ 622 $1,578 $1,423
Interest expense 1,783 2,171 2,761 3,160 3,229
Other adjustments 88 196 142 209 103
----- ----- ----- ----- -----
Total earnings (a) $4,197 $3,263 $3,525 $4,947 $4,755
----- ----- ----- ----- -----
Fixed charges:
Interest expense $1,783 $2,171 $2,761 $3,160 $3,229
Other adjustments 130 154 147 143 117
----- ----- ----- ----- -----
Total fixed charges (b) $1,913 $2,325 $2,908 $3,303 $3,346
===== ===== ===== ===== =====
Ratio of earnings to
fixed charges (a/b) 2.19 1.40 1.21 1.50 1.42
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, for 1993 FDC is reported as an equity investment in the above
computation.
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,
---------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
Earnings:
Pretax income from
continuing operations $2,326 $ 896 $ 622 $1,578 $1,423
Interest expense 1,783 2,171 2,761 3,160 3,229
Other adjustments 88 196 142 209 103
----- ----- ----- ----- -----
Total earnings (a) $4,197 $3,263 $3,525 $4,947 $4,755
===== ===== ===== ===== =====
Fixed charges and preferred
share dividends:
Interest expense $1,783 $2,171 $2,761 $3,160 $3,229
Dividends on preferred
shares 66 65 61 74 29
Other adjustments 130 154 147 143 117
----- ----- ----- ----- -----
Total fixed charges and
preferred share
dividends (b) $1,979 $2,390 $2,969 $3,377 $3,375
===== ===== ===== ===== =====
Ratio of earnings to
fixed charges and
preferred share
dividends (a/b) 2.12 1.37 1.19 1.46 1.41
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, for 1993 FDC is reported as an equity investment in the above
computation.
Exhibit 13
Financial Review
Consolidated Results of Operations
American Express Company's (the Company) consolidated income from continuing
operations totaled $1.6 billion in 1993, compared with $578 million in 1992
and $607 million in 1991. Including discontinued operations and, in 1992, $32
million net income from accounting changes, the Company's consolidated net
income totaled $1.5 billion in 1993, compared with $461 million in 1992 and
$789 million in 1991. Income from continuing operations per common share was
$3.17 in 1993, compared with $1.12 in 1992 and $1.21 in 1991. Net income per
common share was $2.92 in 1993, compared with $.81 before accounting changes
in 1992 ($.88 after accounting changes) and $1.59 in 1991.
On January 24, 1994, the Company announced plans to spin-off its
subsidiary, Lehman Brothers Holdings Inc., through a special dividend to
American Express common shareholders. The transaction is expected to occur
late in the second quarter of 1994. Accordingly, Lehman Brothers' (Lehman)
results are reported as a discontinued operation in the Consolidated Financial
Statements for all periods presented. After preferred dividend requirements,
the Company's share of Lehman's results was a net loss of $127 million in
1993, compared with a net loss of $149 million in 1992 and net income of $182
million in 1991. See Note 2 to the Consolidated Financial Statements.
Results for 1993 included a $433 million ($779 million pretax) gain
on the secondary public offering of First Data Corporation (FDC) shares.
Effective January 1, 1993, the U.S. federal income tax rate was increased from
34 percent to 35 percent. The Company's results for 1993 included a $30
million benefit from the impact of the tax rate change on the Company's net
deferred tax assets as of January 1, 1993.
Results for 1992 included a restructuring charge of $342 million
($492 million pretax) at Travel Related Services (TRS), additional reserves at
Balcor of $300 million ($388 million pretax) and a $425 million ($706 million
pretax) gain from the FDC public offering. Results for 1992 also reflected the
impact of the Company's adoption of Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes," and SFAS No. 106,
"Accounting for Postretirement Benefits Other Than Pensions," which together
increased 1992 net income by $32 million. The impact of adopting SFAS No. 109
and 106 on the Company's business segments is discussed in their respective
Results of Operations sections. See Notes 10 and 11 to the Consolidated
Financial Statements.
The Company's 1991 income from continuing operations reflected
approximately $70 million of tax benefits previously unrecognized under SFAS
No. 96, "Accounting for Income Taxes," and restructuring charges of $110
million ($177 million pretax) at TRS.
Consolidated revenues for 1993 were $14.2 billion, compared with $15.5
billion and $15.0 billion in 1992 and 1991, respectively. Consolidated
expenses for 1993 were $11.8 billion, compared with $14.6 billion and $14.3
billion in 1992 and 1991, respectively. The 1993 amounts exclude the revenues
and expenses of FDC, which is accounted for under the equity method; the prior
years' amounts have not been restated. Excluding FDC, consolidated revenues
for 1992 and 1991 were $14.3 billion and $14.0 billion, respectively, and
consolidated expenses were $13.5 billion and $13.4 billion, respectively.
<PAGE>
Consolidated Financial Condition
Since year-end 1992, the Company continued to make significant progress toward
its objectives of strengthening its overall financial condition and focusing
on its core businesses. Significant steps taken included:
- - - In March 1993, the Company further reduced its ownership interest in FDC
through a public offering.
- - - In October 1993, the Company issued debt exchangeable for FDC common stock.
- - - In January 1994, the Company announced its plan to infuse equity capital
into Lehman and spin it off to American Express common shareholders. During
1993, Lehman strengthened its capital position through the sales of The Boston
Company, certain Shearson Lehman Brothers Inc. retail and asset management
businesses and Shearson Lehman Hutton Mortgage Corporation. These actions have
brought Lehman to the point where it can sustain a stand-alone single-A credit
rating based on its earnings, management strength and $1.25 billion of
additional capital.
Lehman Brothers Spin-Off
On January 24, 1994, the Company's Board of Directors approved a plan to
complete a tax-free spin-off of the common stock of the Company's subsidiary,
Lehman Brothers Holdings Inc., through a special dividend to American Express
common shareholders. The final transaction, which is subject to a number of
conditions, is expected to close late in the second quarter of 1994. In
anticipation of this transaction, Lehman's results are reported as a
discontinued operation in the Consolidated Financial Statements for all
periods presented. The assets and liabilities of Lehman have been reported in
the Consolidated Balance Sheet as net assets of discontinued operations and
are included in Other Assets. Prior to the spin-off, the Company will add
approximately $1.1 billion of additional equity capital to Lehman and Lehman
employees will purchase approximately $160 million of newly-issued Lehman
common shares. See Note 2 to the Consolidated Financial Statements.
First Data Corporation
In March 1993, the Company further reduced its ownership interest in FDC to
approximately 22 percent through a public offering of 34.6 million shares of
FDC common stock at $32 per share. The transaction resulted in net proceeds of
approximately $1.1 billion, which are being used for general corporate
purposes. As a result of the Company's reduced ownership, effective January 1,
1993, FDC is reported under the equity method of accounting and, therefore, is
not consolidated in the Company's 1993 Consolidated Financial Statements. See
Notes 1 and 3 to the Consolidated Financial Statements.
Balcor
Assets, excluding cash and cash equivalents, of Balcor, an indirect wholly-
owned subsidiary of the Company, totaled $1.1 billion at December 31, 1993 and
$1.3 billion at December 31, 1992, before related reserves of $333 million and
$409 million at December 31, 1993 and 1992, respectively. The Company
continues to closely monitor the orderly liquidation of Balcor's real estate
portfolio and the adequacy of its reserves. The reduction in Balcor's 1993
assets and related reserves reflected sales and write-offs during the year.
Parent Company Financing
The Company's business segments manage substantial daily cash flows,
investment portfolios, receivables and loans and closely monitor related
financing requirements and payment obligations. Each business segment has
primary responsibility for financing its operations. The parent company
monitors and coordinates cash flow and financing activities Company-wide. The
parent company has available a variety of alternative funding sources. In
addition, procedures have been developed to permit immediate transfer of
short-term funds within the Company, if necessary to meet specific needs,
while complying with the various contractual and regulatory constraints on the
internal transfer of funds.
At December 31, 1993, the parent company had $1.1 billion of debt or
equity securities available for issuance under a shelf registration filed with
the Securities and Exchange Commission.
In October 1993, the Company issued 23,618,500 DECS (Debt
Exchangeable for Common Stock) in the form of 6 1/4 percent Exchangeable Notes
due October 15, 1996. The DECS were issued at a principal amount of $36.75 per
DECS, resulting in net proceeds of approximately $842 million. At maturity,
holders of DECS will receive, in exchange for the principal amount thereof,
shares of FDC common stock, or at the Company's option, an equivalent amount
of cash in lieu of such shares. The number of such shares or the amount of
such cash will be based on the average market price of FDC stock calculated
during a period shortly before the maturity of the DECS. If the Company elects
to deliver shares of FDC at maturity, the Company's holdings of FDC will be
reduced to between zero (if the average market price of FDC shares is at or
below $36.75) and approximately 4.3 million shares if the average market price
of FDC shares is at or above $44.875. The market value of the Company's
holdings in FDC at December 31, 1993 was approximately $962 million. The
proceeds from the DECS offering are being used for general corporate purposes.
Total parent company debt outstanding was $2.2 billion at December 31,
1993, compared with $1.8 billion at December 31, 1992. The parent company
generally meets its short-term funding needs through the issuance of
commercial paper. The Board of Directors has authorized a parent company
commercial paper program of approximately $1.3 billion. Average commercial
paper outstanding was $193 million during 1993 and $332 million during 1992.
Commercial paper outstanding was $100 million and $348 million at December 31,
1993 and 1992, respectively. In addition, the parent company has standby
credit facilities with a number of banks that provide approximately $1.0
billion in committed funds at various maturities through 1994. No borrowings
have been made under any of these facilities. (See the Financial Review of
each business segment for a discussion of 1993 financing activities of
subsidiaries.)
In March 1993, Standard and Poor's Corporation downgraded the long-
term credit ratings of the Company and TRS to A+ from AA- and their short-term
credit ratings to A-1 from A-1+. The downgrade has had an insignificant impact
on the cost of funds of the Company and TRS.
Investment Portfolio Management
The Company and its subsidiaries own and manage several investment portfolios.
The Company carefully monitors the distribution of maturities in the
investment portfolios to ensure that adequate funds are available to satisfy
the Company's maturing liabilities. In addition, maturities are managed based
on management's assessment of interest rate trends and other factors affecting
the risk involved.
A major portion of the Company's investments are carried at cost. At
December 31, 1993 and 1992, aggregate market value exceeded cost by
approximately $1.8 billion and approximately $1.2 billion, respectively. Gross
unrealized gains and gross unrealized losses on investments carried at cost
were approximately $1.9 billion and $0.1 billion, respectively, at December
31, 1993, compared with approximately $1.4 billion and $0.2 billion,
respectively, at December 31, 1992. The Company has the ability and, absent
unforeseen circumstances, the intent to recover the cost of its investments
carried at cost by holding them until maturity. These investments are
diversified; corporate bonds and obligations represent the largest component
of investments carried at cost, of which no one issuer represents more than
two percent of these investments. See Note 5 to the Consolidated Financial
Statements for additional disclosures related to the Company's investment
portfolio.
Impact of New Accounting Standards
In May 1993, the Financial Accounting Standards Board issued SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," which the
Company will implement, effective January 1, 1994. Under the new rules, debt
securities that the Company has both the positive intent and ability to hold
to maturity will be carried at amortized cost. Debt securities that the
Company does not have the positive intent to hold to maturity, as well as all
marketable equity securities, will be classified as available for sale or
trading and carried at fair value. Unrealized gains and losses on securities
classified as available for sale will be carried as a separate component of
Shareholders' Equity. Unrealized holding gains and losses on securities
classified as trading will be reported in earnings. The effect of the new
rules will be to increase Shareholders' Equity by approximately $300 million,
net of taxes, as of January 1, 1994. The measurement of unrealized securities
gains (losses) in Shareholders' Equity is affected by market conditions and,
therefore, subject to volatility. The new rules will not have a material
impact on the Company's results of operations.
SFAS No. 112, "Employers' Accounting for Postemployment Benefits,"
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," and FASB
Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts,"
are not expected to have a material impact on the Company's results of
operations or financial condition.
<PAGE>
Travel Related Services
Results of Operations
TRS' net income increased to $895 million in 1993, compared with $243 million
before the accounting change in 1992 (net income of $164 million after the
accounting change) and $396 million in 1991. TRS reported pretax income of
$1.2 billion in 1993, compared with $277 million before the accounting change
in 1992 and $415 million in 1991.
Results for 1992 and 1991 included restructuring charges of $342
million ($492 million pretax) and $110 million ($177 million pretax),
respectively. TRS' earnings, excluding the restructuring charges, were $585
million before the accounting change in 1992 and $506 million in 1991.
Worldwide Card billed business increased to $124 billion in 1993,
compared with $118 billion in 1992 and $111 billion in 1991, reflecting higher
average spending per Cardmember and growth in Corporate Card billed business.
Domestic billed business was $89.8 billion in 1993, $82.0 billion in 1992 and
$76.6 billion in 1991. International billed business was $34.3 billion in
1993, compared with $35.6 billion and $34.9 billion in 1992 and 1991,
respectively. Worldwide Cards in force increased to 35.4 million in 1993,
compared with 34.7 million in 1992 and 36.6 million in 1991. Total Cards in
force for 1993 included the addition of approximately 900,000 Cards issued to
U.S. government employees late in the year. Domestic Cards in force were 24.7
million in 1993, 24.3 million in 1992 and 25.8 million in 1991. International
Cards in force were 10.7 million, compared with 10.4 million and 10.8 million
in 1992 and 1991, respectively. Basic Cards in force totaled 26.0 million,
compared with 25.5 million in 1992 and 26.5 million in 1991. The decline in
worldwide Cards in force, excluding the Cards issued to U.S. government
employees, reflected, in part, a focus on retaining the most profitable
Cardmembers. The number of service establishments increased 6.6 percent to 3.6
million at December 31, 1993, compared with 3.4 million and 3.2 million at
December 31, 1992 and 1991, respectively.
Travelers Cheque sales totaled $23.6 billion in 1993, compared with
$24.0 billion and $22.6 billion in 1992 and 1991, respectively.
Net revenues (total revenues net of lending interest expense)
declined slightly to $9.5 billion in 1993, compared with $9.8 billion and $9.4
billion in 1992 and 1991, respectively. The 1993 decline reflected discount
rate reductions, a decrease in net Card fees, lower insurance premium revenue
and lower net finance charge revenue. This decline was largely offset by an
increase in Card billed business, reflecting higher spending per Cardmember
and an increase in the number of service establishments accepting the Card, as
well as growth in the Travel business. The 1992 increase reflected higher
Card billed business and growth in the Travel business, which offset a decline
in lending net finance charge revenue reflecting lower interest rates.
Discount revenue was $3.6 billion, compared with $3.7 billion in 1992
and $3.5 billion in 1991. The 1993 decline in discount revenue reflected a
lower average discount rate, substantially offset by increased Cardmember
spending. The increase in 1992 reflected increased Card billed business,
partly offset by a decline in the average discount rate. Although the average
discount rate will continue to decline, it will do so at a slower rate as most
repricing is complete. Net Card fees were $1.7 billion, compared with $1.8
billion in both 1992 and 1991. The 1993 decrease reflected the decline in
average Cards in force. Interest and dividend revenue totaled $724 million,
compared with $720 million and $750 million in 1992 and 1991, respectively.
Lending finance charge revenue was $1.3 billion, compared with $1.5 billion in
1992 and $1.7 billion in 1991. Lending net finance charge revenue declined 7.1
percent to $1.0 billion, compared with $1.1 billion in 1992 and $1.0 billion
in 1991. The decline in 1993 reflected lower average balances, partly offset
by higher net interest spreads.
Total expenses, excluding lending interest expense, were $8.3 billion
in 1993, compared with $9.5 billion in 1992 and $9.0 billion in 1991. The 1993
decline reflected the benefit of ongoing reengineering initiatives, which
offset costs associated with overall growth in business volumes and franchise
building investments. Expenses for both 1992 and 1991 included the
restructuring charges discussed above. The provision for losses and claims was
$1.6 billion, compared with $2.2 billion in 1992 and $2.6 billion in 1991. The
decline in 1993 reflected actions taken last year to restructure the
portfolio, as well as ongoing improvements in credit management. The worldwide
charge Card provision was $792 million, compared with $997 million in 1992 and
$1.1 billion in 1991. The declines in 1993 and 1992 reflected continued
improvement in Card credit experience compared with 1991. The worldwide
lending provision was $427 million in 1993, $793 million in 1992 and $1.1
billion in 1991. The declines reflected continued improvement in the credit
quality of the worldwide lending portfolio. Interest expense, excluding
lending interest expense which is included in net revenues above, totaled $799
million, compared with $899 million in 1992 and $1.0 billion in 1991. The
decline in 1993 and 1992 reflected lower borrowing rates. Worldwide charge
Card interest expense totaled $662 million, compared with $788 million and
$998 million in 1992 and 1991, respectively. Human resources expense declined
to $2.2 billion, compared with $2.3 billion in 1992 and $2.0 billion in 1991.
The 1992 increase primarily reflected growth in the Travel business. Marketing
and promotion expense totaled $1.1 billion in both 1993 and 1992 and $1.0
billion in 1991. Other operating expenses increased in 1992 as a result of
growth in the Travel business, the cost of Cardmember loyalty programs and
other initiatives designed to build the TRS franchise.
The reengineering efforts launched in early 1992 established a target
of $1.0 billion in savings by the end of 1994 based on 1991 volumes and
business mix. TRS realized expense savings of $929 million net of franchise
building investments in 1993. These savings primarily resulted from reduced
credit losses and savings in operating expenses. Of the $492 million (pretax)
1992 restructuring charge, the remaining $287 million reserve is expected to
be utilized for its originally intended purpose.
TRS' asset securitization program, which began in the third quarter
of 1992, resulted in net discount expense of $219 million in 1993 and $100
million in 1992 and servicing fee revenue of $54 million in 1993 and $35
million in 1992, reduced the provision for credit losses by $89 million in
1993 and $41 million in 1992, and reduced interest expense, with no material
impact on net income for the years ended December 31, 1993 or 1992.
Financial Condition
TRS utilizes a number of methods to fund its Cardmember receivables and
lending activities. Other operating activities are funded through operations.
TRS generally issues debt securities to fund acquisitions and large capital
additions. Funding for its Cardmember receivables activities is provided by
American Express Credit Corporation (Credco) through the sale of commercial
paper and debt securities, and borrowing under lines of credit, as well as
through operations, and by American Express Receivables Financing Corporation
(RFC) through an asset-backed securitization program. Funding for its lending
activities is provided primarily by American Express Centurion Bank (Centurion
Bank) through deposit liabilities and other borrowings. TRS also enters into
interest rate and foreign exchange contracts to meet its foreign currency
funding needs for Cardmember receivables and loans denominated in foreign
currencies and to minimize its funding costs.
In 1993 and 1992, TRS sold certain Cardmember receivables to RFC,
which transferred such receivables to a trust. The trust issued trust
certificates in a public offering in the amount of $600 million due 2000 in
1993, and $500 million due 1997 and $500 million due 1999 in 1992.
Total debt outstanding at December 31, 1993 and 1992 was $16.8
billion and $15.3 billion, respectively, of which $14.1 billion and $12.4
billion, respectively, was due within one year. Through Credco and Centurion
Bank, TRS issued in 1993 approximately $1.6 billion of medium- and long-term
debt at various rates and maturities. The proceeds of these issuances were
used to fund Card and lending accounts receivable. Additionally, in 1993, TRS
issued $125 million of Senior Floating Rate Notes due 1998, the proceeds of
which were used to finance an international travel business acquisition. At
December 31, 1993, Credco had approximately $810 million of medium- and long-
term debt available for issuance under shelf registrations filed with the
Securities and Exchange Commission.
TRS, primarily through Credco, maintained average commercial paper
outstanding of approximately $8.7 billion at an average interest rate of 3.2
percent in 1993 and approximately $7.7 billion at an average interest rate of
3.8 percent in 1992, and had available unused lines of credit of approximately
$4.4 billion at December 31, 1993 to support a portion of its commercial paper
borrowings.
Borrowings under bank lines of credit totaled $1.1 billion at
December 31, 1993 and $1.4 billion at December 31, 1992. Additionally, funding
provided by Centurion Bank's certificate of deposit program was $505 million
in 1993 and $841 million in 1992.
Total assets were $40.5 billion and $38.1 billion at December 31,
1993 and 1992, respectively. Accounts receivable and accrued interest totaled
$15.8 billion at December 31, 1993 and $13.8 billion at December 31, 1992.
Loans and discounts were $8.6 billion and $8.7 billion at December 31, 1993
and 1992, respectively. Average Travelers Cheques outstanding increased to
$5.0 billion at December 31, 1993 from $4.8 billion at December 31, 1992.
Travelers Cheques outstanding were $4.8 billion and $4.7 billion at December
31, 1993 and 1992, respectively.
<PAGE>
IDS Financial Services
Results of Operations
IDS Financial Services' (IDS) net income increased 21 percent to $358 million
in 1993, compared with $297 million before the accounting change in 1992 (net
income of $277 million after the accounting change) and $248 million in 1991.
Revenues increased 9.8 percent to $3.2 billion in 1993, compared with $2.9
billion and $2.6 billion in 1992 and 1991, respectively. Revenue and earnings
growth in 1993 and 1992 benefited primarily from an increase in management
fees and net investment income that resulted from higher asset levels. Results
in 1993 and 1992 also benefited from wider investment margins. Pretax income
totaled $518 million in 1993, compared with $408 million before the accounting
change in 1992 and $314 million in 1991.
IDS' financial planning field force totaled 7,655 at December 31,
1993, compared with 7,313 and 6,776 at December 31, 1992 and 1991,
respectively. Total product sales increased during 1993 and 1992. Product
sales generated from financial plans were approximately 58 percent of total
sales in 1993, compared with approximately 50 percent in 1992 and
approximately 48 percent in 1991. The IDS field force completed nearly 103,000
financial plans for clients in 1993, compared with over 85,000 in 1992 and
nearly 67,000 in 1991. Mutual fund sales increased 23 percent to $8.6 billion
in 1993, compared with $7.0 billion and $5.7 billion in 1992 and 1991,
respectively. The increases in mutual fund sales were broad based with
increases in sales of both equity and income funds. Annuity sales increased 15
percent to $4.1 billion in 1993, compared with $3.6 billion in 1992 and $2.5
billion in 1991. The increases in annuity sales reflected increased sales of
annuities with equity investment options. Sales of investment certificates
declined 13 percent in 1993, compared with a 27 percent decline in 1992,
reflecting an overall decline in short-term rates. Life and other insurance
sales increased 34 percent in 1993, compared with an increase of 24 percent in
1992, reflecting increased sales of universal life insurance in both years.
Investment income increased 5.7 percent to $2.0 billion in 1993,
compared with $1.9 billion in 1992 and $1.8 billion in 1991. The increases
primarily reflected higher asset levels, partly offset by lower investment
yields. Commissions and fees increased 22 percent to $727 million, compared
with $598 million and $468 million in 1992 and 1991, respectively. The
increases reflected management fees earned on a higher asset base and
distribution fees earned on higher mutual fund sales.
Total expenses were $2.6 billion in 1993, compared with $2.5 billion
in 1992 and $2.2 billion in 1991. The provision for annuity benefits, the
largest component of expenses, totaled $1.1 billion, compared with $1.0
billion and $939 million in 1992 and 1991, respectively. The increases
reflected higher annuities in force, partially offset by lower accrual rates.
The provision for insurance benefits totaled $321 million, compared with $308
million in 1992 and $276 million in 1991, reflecting increased life insurance
in force in 1993 and 1992. The provision for investment certificates declined
to $124 million, compared with $178 million in 1992 and $264 million in 1991.
The declines reflected lower investment certificates in force and lower
accrual rates. Human resources expense increased 19 percent to $757 million,
compared with $635 million and $541 million in 1992 and 1991, respectively.
The increases reflected an increase in the number of employees and financial
planners, and increased commissionable sales. Other operating expenses
increased to $172 million, compared with $130 million in 1992 and $42 million
in 1991. Other operating expenses for all years included provisions for
estimated insurance industry guarantee association assessments. Other
operating expenses for 1992 also reflected the effect of a $35 million legal
settlement.
Financial Condition
Total assets owned increased 17 percent to $37.4 billion at December 31, 1993
from $31.9 billion at December 31, 1992. Investments totaled $24.6 billion at
December 31, 1993, compared with $22.4 billion at December 31, 1992. IDS'
investments are comprised primarily of mortgage-backed securities and
corporate bonds and obligations, including below investment grade debt
securities of $2.1 billion and $1.6 billion in 1993 and 1992, respectively.
Investments are principally funded by sales of insurance and annuities, and by
reinvested income. Maturities of IDS' investments are matched, for the most
part, with the expected future payments of insurance and annuity obligations.
Assets under management increased 21 percent to $62.3 billion at December 31,
1993 from $51.4 billion at December 31, 1992, reflecting sales in excess of
redemptions and market appreciation.
Assets held in segregated accounts increased to $9.0 billion at
December 31, 1993 from $6.2 billion at December 31, 1992. These assets,
primarily 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.
Deferred annuities in force totaled $25.8 billion at December 31,
1993, compared with $21.1 billion at December 31, 1992. The face amount of
investment certificates outstanding was $3.6 billion and $3.9 billion at
December 31, 1993 and 1992, respectively. Life insurance in force increased 13
percent to $46.1 billion at December 31, 1993 from $40.9 billion at December
31, 1992.
<PAGE>
American Express Bank
Results of Operations
American Express Bank's (the Bank) net income was $81 million in 1993,
compared with $26 million before the accounting change in 1992 (net income of
$19 million after the accounting change) and $60 million in 1991. Results for
1993 included a $5.4 million benefit from the impact of the change in the U.S.
federal income tax rate on the Bank's net deferred tax assets. Results for
1993 also reflected a lower level of credit-related reserves, growth in fee
income and foreign exchange activities and benefits from continued lower
short-term funding costs. Results for 1992 reflected the recognition of
additional reserves on credit-related exposures, principally those associated
with discontinued commercial real estate lending activities in the United
Kingdom, as well as restructuring charges. Partially offsetting these items in
1992 were higher net revenues reflecting growth within the Asian/Pacific
markets and the net benefits associated with lower short-term funding costs.
The Bank's pretax income was $117 million in 1993, compared with $14 million
before the accounting change in 1992 and $38 million in 1991.
Net interest income totaled $292 million in 1993, compared with $286
million and $231 million in 1992 and 1991, respectively. Net interest income
in 1993 and 1992 reflected improved net interest earnings within the
Asian/Pacific markets and benefits realized from lower short-term funding
costs. The net yield on interest-earning assets (net interest income on a tax
equivalent basis as a percentage of total average interest-earning assets) was
2.48 percent in 1993, compared with 2.27 percent in 1992 and 1.90 percent in
1991. Noninterest income, consisting primarily of commissions, fees and other
revenues, totaled $299 million, compared with $260 million in 1992 and $239
million in 1991. The increase in 1993 primarily reflected growth in private
banking and correspondent banking fee income and improved foreign exchange
results. The 1992 increase primarily reflected lower writedowns of certain
investment assets, as well as growth in fees from correspondent banking
services.
Noninterest expenses, excluding the provision for credit losses,
totaled $440 million in 1993, compared with $438 million in 1992 and $407
million in 1991. The increase in 1993 and 1992 noninterest expenses reflected
additional expenses to support the Bank's ongoing investment in the
Asian/Pacific markets. Noninterest expenses in 1992 also included the
recognition of restructuring charges associated with the Bank's headquarters
operation and certain other overseas businesses.
The provision for credit losses was $34 million in 1993, compared
with $94 million and $25 million in 1992 and 1991, respectively. The 1992
provision reflected the recognition of a reserve on the Bank's U.K. commercial
real estate loan portfolio, additional reserves on other identified credit-
related exposures and an overall increase in credit loss reserve coverage. The
1991 provision included an $18 million benefit from the sale of the lesser
developed country term loan portfolio and significant write-offs on credit-
related nonperforming loans.
In 1993, the Bank recognized an income tax provision of $36 million,
compared with an income tax benefit of $12 million and $22 million in 1992 and
1991, respectively. A smaller proportion of the Bank's overall income was
derived from tax-exempt interest in 1993. In addition, tax benefits in 1991
included the recognition of previously unrecognized income tax benefits.
Financial Condition
The Bank's assets totaled $13.6 billion and $13.7 billion at December 31, 1993
and 1992, respectively.
Total loans were $5.1 billion at December 31, 1993, compared with
$4.8 billion at December 31, 1992. The reserve for credit losses was $111
million and $134 million at December 31, 1993 and 1992, respectively. The
Bank's credit loss reserve coverage was 2.2 percent of total loans at December
31, 1993, compared with 2.8 percent at December 31, 1992. The decline in
credit loss reserve coverage reflected improvement in nonperforming loans.
Total loan write-offs, net of recoveries, were $36 million in 1993 and $48
million in 1992. Total nonperforming loans were $43 million at December 31,
1993, compared with $102 million at December 31, 1992. The decline in
nonperforming loans primarily reflected improvement in the U.K. real estate
loan portfolio. The Bank's other nonperforming assets (in-substance
foreclosures, other real estate owned and assets acquired in loan settlements)
totaled $89 million and $83 million at December 31, 1993 and 1992,
respectively. The increase in nonperforming assets was principally related to
an in-substance foreclosure of a real estate loan, partially offset by sales
of previously foreclosed real estate properties.
American Express Bank Ltd.'s (AEBL) risk-based capital ratios were
6.3 percent for Tier 1 Capital and 10.2 percent for Total Capital at December
31, 1993, compared with 5.7 percent and 9.1 percent, respectively, at December
31, 1992. AEBL's leverage ratio was 4.4 percent and 4.3 percent at December
31, 1993 and 1992, respectively.
Corporate and Other
Corporate and Other reported net income of $271 million in 1993, compared with
net income of $12 million before accounting changes in 1992 (net income of
$151 million after accounting changes) and net expenses of $97 million in
1991. For purposes of this discussion, Other includes the Company's share of
FDC's net income. The above amounts for 1993 included $40 million reflecting
the Company's share of FDC's net income for such period (net of an $8.9
million expense from the impact of the tax rate change on the Company's gain
from the sale of FDC shares), compared with $92 million in 1992 and $118
million in 1991.
Before consideration of the Company's share of FDC's earnings, as
well as the gains on the sales of FDC common stock and the Balcor reserves
which are discussed below, Corporate and Other reported net expenses of $203
million in 1993, compared with net expenses of $205 million in 1992 and net
expenses of $215 million in 1991.
As a result of its public offering of FDC common stock in April 1992,
the Company's former 100 percent ownership interest in FDC was reduced to
approximately 54 percent. In March 1993, the Company further reduced its
ownership interest in FDC to approximately 22 percent by the sale of FDC
shares. As a result of the Company's reduced ownership, effective January 1,
1993, FDC is reported under the equity method of accounting. The Company's
equity in the net income of FDC is included in Other Expenses in the
Consolidated Statement of Income for 1993. Results for 1993 included a gain of
$433 million ($779 million pretax) on the Company's sale of FDC shares.
Results for 1992 reflected a $425 million ($706 million pretax) gain from the
FDC public offering and a $300 million ($388 million pretax) addition to
reserves at Balcor. The gains from the sales of FDC shares and the Balcor
reserves are included in Other Expenses in the Consolidated Statements of
Income.
1993 net income included a $2.3 million benefit from the impact of
the change in the U.S. federal income tax rate on Corporate and Other's net
deferred tax assets. Results for 1992 included a $147 million benefit related
to the adoption of SFAS No. 109 and an after-tax charge to earnings of $8.0
million representing the cumulative effect of adopting SFAS No. 106.
CONSOLIDATED STATEMENT OF INCOME
American Express Company
Years Ended December 31,
(millions, except per share amounts) 1993 1992 1991
- - ----------------------------------------------------------------------------
REVENUES
Commissions and fees $ 7,818 $ 8,817 $ 8,170
Interest and dividends 4,914 5,207 5,439
Life insurance premiums 702 776 711
Other 739 687 646
- - ----------------------------------------------------------------------------
Total 14,173 15,487 14,966
- - ----------------------------------------------------------------------------
EXPENSES
Human resources 3,380 3,714 3,225
Interest 1,783 2,171 2,761
Provisions for losses and benefits:
Banking, credit and other 1,238 1,901 2,304
Annuities 1,135 1,137 1,039
Life insurance 610 596 539
Investment certificates 124 178 264
Marketing and promotion 1,091 1,113 1,042
Occupancy and equipment 965 1,167 1,101
Professional services 598 526 458
Communications 357 419 374
Other 566 1,669 1,237
- - ----------------------------------------------------------------------------
Total 11,847 14,591 14,344
- - -----------------------------------------------------------------------------
Pretax income from continuing operations
before accounting changes 2,326 896 622
Income tax provision (benefit) 721 318 15
- - -----------------------------------------------------------------------------
Income from continuing operations
before accounting changes 1,605 578 607
Discontinued operations, net of
income taxes (127) (149) 182
- - -----------------------------------------------------------------------------
Income before accounting changes 1,478 429 789
Cumulative effect of accounting
changes, net of income taxes - 32 -
- - -----------------------------------------------------------------------------
Net income $ 1,478 $ 461 $ 789
=============================================================================
EARNINGS PER COMMON SHARE
Income from continuing operations before
accounting changes $ 3.17 $ 1.12 $ 1.21
Discontinued operations (.25) (.31) .38
- - -----------------------------------------------------------------------------
Income before accounting changes 2.92 .81 1.59
Cumulative effect of accounting changes - .07 -
- - -----------------------------------------------------------------------------
Net income $ 2.92 $ .88 $ 1.59
=============================================================================
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED BALANCE SHEET
American Express Company
December 31, (millions of dollars) 1993 1992
- - --------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 3,312 $ 3,408
Accounts receivable and accrued interest,
less reserves: 1993, $796; 1992, $1,124 16,142 15,293
Investments 39,308 37,629
Loans and discounts, less reserves:
1993, $655; 1992, $911 14,796 14,750
Land, buildings and equipment-at cost,
less accumulated depreciation:
1993, $1,441; 1992, $1,554 1,976 2,318
Assets held in segregated asset accounts 8,992 6,274
Deferred acquisition costs 2,025 1,825
Other assets 7,581 8,615
- - --------------------------------------------------------------------------
Total assets $94,132 $90,112
- - --------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Customers' deposits and credit balances $11,131 $11,637
Travelers Cheques outstanding 4,800 4,729
Accounts payable 3,737 3,858
Insurance and annuity reserves:
Fixed annuities 19,149 17,040
Life and disability policies 4,257 3,853
Investment certificate reserves 2,752 3,232
Short-term debt 12,489 11,163
Long-term debt 8,561 8,614
Liabilities related to segregated
asset accounts 8,992 6,274
Other liabilities 9,530 12,213
- - --------------------------------------------------------------------------
Total liabilities 85,398 82,613
- - --------------------------------------------------------------------------
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 1993 and 1992, stated at liquidation
value 200 200
$216.75 CAP Preferred shares, issued and
outstanding 122,448.98 shares in 1993
and 1992, stated at par value
(liquidation value of $300) 1 1
Common shares, $.60 par value, authorized
1,200,000,000 shares; issued and outstanding
489,827,852 shares in 1993 and 479,976,358
shares in 1992 294 288
Capital surplus 3,784 3,534
Net unrealized securities gains (losses) 7 (1)
Foreign currency translation adjustment (73) (83)
Deferred compensation (128) (137)
Retained earnings 4,649 3,697
- - --------------------------------------------------------------------------
Total shareholders' equity 8,734 7,499
- - --------------------------------------------------------------------------
Total liabilities and shareholders' equity $94,132 $90,112
===========================================================================
See notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
American Express Company
Years Ended December 31, (millions) 1993 1992 1991
- - ---------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations $ 1,605 $ 578 $ 607
Adjustments to reconcile income from
continuing operations to net cash
provided (used) by operating activities:
Provisions for losses and benefits 1,627 2,213 2,654
Depreciation, amortization, deferred
taxes and other 411 410 382
Changes in operating assets and
liabilities, net of effects of
acquisitions/dispositions:
Accounts receivable and accrued
interest (982) 199 (119)
Other assets (987) 184 (2,070)
Accounts payable and other liabilities 355 517 390
Increase in Travelers Cheques outstanding 72 481 145
Increase in insurance reserves 452 366 417
Restructuring charges - 492 177
Gain on sale of FDC (779) (706) -
Balcor reserves - 388 -
Net cash flows used by operating activities
of discontinued operations (1,361) (6,268) (3,107)
- - ----------------------------------------------------------------------------
Net cash provided (used) by operating
activities 413 (1,146) (524)
- - ----------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from FDC public offerings, net of
cash sold in 1993 871 1,057 -
Sale of investments 2,296 2,995 7,092
Maturity and redemption of investments 8,308 7,463 4,718
Purchase of investments (13,802) (14,785) (14,245)
Net increase in Cardmember receivables (1,924) (150) (1,631)
Proceeds from repayment of loans 18,817 13,670 10,239
Issuance of loans (19,465) (13,821) (11,961)
Sale of land, buildings and equipment 120 95 62
Purchase of land, buildings and equipment (286) (451) (575)
Acquisitions/dispositions, net of cash
acquired/sold 121 (94) (299)
Net cash flows provided by investing
activities of discontinued operations 2,467 23 3,357
- - ----------------------------------------------------------------------------
Net cash used by investing activities (2,477) (3,998) (3,243)
- - ----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in customers'
deposits and credit balances 29 (1,020) (985)
Sale of investment and annuity certificates 5,217 5,458 5,177
Redemption of investment and annuity
certificates (3,748) (3,283) (3,022)
Net increase (decrease) in short-term debt (253) 122 (1,193)
Issuance of long-term debt 13,561 8,938 12,084
Principal payments on long-term debt (11,397) (10,207) (8,577)
Issuance of American Express common shares 259 159 162
Issuance of American Express preferred shares - - 300
Redemption of American Express Money Market
Preferred shares - (150) (150)
Dividends paid (526) (518) (477)
Net cash flows provided (used) by financing
activities of discontinued operations (372) 4,913 157
- - ----------------------------------------------------------------------------
Net cash provided by financing activities 2,770 4,412 3,476
Net change in cash and cash equivalents of
discontinued operations 734 (1,332) 407
Effect of exchange rate changes on cash (68) (583) (188)
- - ----------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents (96) 17 (886)
Cash and cash equivalents at beginning
of year 3,408 3,391 4,277
- - ----------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 3,312 $ 3,408 $ 3,391
============================================================================
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
American Express Company
Three Years Ended December Preferred Common Capital Retained
31, 1993 (millions) Total Shares Shares Surplus Other Earnings
- - ------------------------------------------------------------------------------
Balances at December
31, 1990 $6,635 $ 500 $ 279 $ 2,893 $ (511) $ 3,474
- - ------------------------------------------------------------------------------
Net income 789 789
Change in net unrealized
securities gains (losses) 153 153
Foreign currency
translation adjustments 15 15
Redemption of Money Market
Preferred shares (150) (150)
Issuance of $216.75 CAP
Preferred shares 300 1 299
Other changes, primarily
benefit plans 214 4 178 47 (15)
Cash dividends declared:
Preferred (40) (40)
Common, $.96 per share (451) (451)
- - ------------------------------------------------------------------------------
Balances at December
31, 1991 7,465 351 283 3,370 (296) 3,757
- - ------------------------------------------------------------------------------
Net income 461 461
Change in net unrealized
securities gains (losses) 36 36
Foreign currency translation
adjustments 9 9
Redemption of Money Market
Preferred shares (150) (150)
Other changes, primarily
benefit plans 199 5 164 30
Cash dividends declared:
Preferred (43) (43)
Common, $1.00 per share (478) (478)
- - ------------------------------------------------------------------------------
Balances at December
31, 1992 7,499 201 288 3,534 (221) 3,697
- - ------------------------------------------------------------------------------
Net income 1,478 1,478
Change in net unrealized
securities gains (losses) 8 8
Foreign currency translation
adjustments 10 10
Other changes, primarily
benefit plans 268 6 250 9 3
Cash dividends declared:
Preferred (42) (42)
Common, $1.00 per share (487) (487)
- - ------------------------------------------------------------------------------
Balances at December
31, 1993 $ 8,734 $ 201 $ 294 $ 3,784 $ (194) $ 4,649
==============================================================================
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
American Express Company
Note 1 Summary of Significant Accounting Policies
Principles of Consolidation: The accompanying Consolidated Financial
Statements include the accounts of American Express Company and its
subsidiaries (the Company). All significant intercompany transactions are
eliminated. As discussed in Note 2, Lehman Brothers (Lehman), formerly
Shearson Lehman Brothers, is presented as a discontinued operation.
Accordingly, prior years' amounts have been restated.
As a result of the public offerings of First Data Corporation's (FDC)
common stock described in Note 3, the Company owns approximately 22 percent of
the outstanding shares of FDC common stock. Accordingly, effective January 1,
1993, FDC is no longer consolidated in the Company's financial statements, but
is accounted for under the equity method. Prior years' amounts have not been
restated.
Certain prior years' amounts have been reclassified to conform to the
current year's presentation.
Foreign Currency: Revenues and expenses are translated at average monthly
exchange rates during the year. Assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based upon exchange rates
prevailing at the end of each year. The resulting translation adjustment is a
component of Shareholders' Equity. In countries with highly inflationary
economies, foreign currency denominated nonmonetary items, primarily fixed
assets, are translated at historical exchange rates, with the remaining assets
and liabilities translated at prevailing year-end rates and the resulting
gains and losses recognized currently in income.
Net foreign currency transaction gains included in income from
continuing operations in 1993, 1992 and 1991 amounted to $148 million, $109
million and $113 million, respectively, net of income taxes. These amounts
exclude the effects of intermediary and trading activities at American Express
Bank, which are recorded in Commissions and Fees in the Consolidated Statement
of Income.
Net Income Per Share: Net income per share is computed on the basis of the
weighted monthly average number of common shares outstanding and common share
equivalents (dilutive stock options and $216.75 CAP Preferred shares, as well
as certain convertible debt) and after adjustment for dividends on preferred
shares and interest on the convertible debt. The weighted average shares used
in the computations were 500,138,000; 476,766,000; and 469,754,000 for 1993,
1992 and 1991, respectively.
Investments: Debt securities and investment mortgage loans are carried at
amortized cost, except where there is an other than temporary decline in
value, in which case the investments are carried at estimated realizable
value. The Company has the ability and, absent unforeseen circumstances, the
intent to recover the costs of these investments by holding them until
maturity. All non-redeemable preferred and common stocks owned by life
insurance subsidiaries are carried at market with unrealized appreciation or
depreciation included in Net Unrealized Securities Gains (Losses) in
Shareholders' Equity. Other preferred and common stocks are generally carried
at the lower of aggregate cost or market, except mandatorily redeemable
preferred stocks, which are carried at cost. In the event of an other than
temporary decline in value, preferred and common stocks are carried at their
estimated realizable value.
Securities Sold Under Agreements to Repurchase: Other Liabilities include
securities sold under repurchase agreements resulting from a financing
transaction between TRS and Lehman, that is collateralized by U.S. Government
obligations and is carried at the amount at which the securities will
subsequently be repurchased. At December 31, 1993 and 1992, the liability to
Lehman for securities sold under repurchase agreements totaled $3.4 billion
and $3.3 billion, respectively, at weighted average interest rates of 3.45%
and 4.22%, respectively.
Off-Balance-Sheet Financial Instruments: The Company primarily enters into
off-balance-sheet financial instruments in order to hedge its interest rate
and foreign currency exposures, as well as to satisfy the financing needs of
its clients.
Interest Rate Contracts: Interest rate contracts are primarily used
to manage interest rate exposures. Gains and losses from interest rate
contracts which are designated and effective as hedges are deferred and
recognized over the expected life of the hedged item.
Foreign Currency Products: Foreign currency products are used for
trading on behalf of customers and, to a lesser extent, for the Company's own
account, and primarily to hedge net monetary positions in foreign currencies,
net investments in foreign entities or identifiable firm foreign currency
commitments. Foreign currency trading products are valued at market, with
unrealized gains and losses recognized currently in income. Gains and losses
from foreign currency products designated and effective as hedges are
reflected in the measurement of the related hedged instruments.
Commitments and Guarantees: Commitments and guarantees are generally
recorded in the Consolidated Balance Sheet when the Company makes payment on
these obligations. Fees attributable to commitments and guarantees issued are
generally recognized in income over the life of the commitment.
Annuity and Life Insurance Accounting: Profits on annuity products are
recognized over the lives of the annuity contracts and represent the excess of
income earned from investment of contract considerations over interest
credited to contract owners and other expenses. For universal life-type and
single premium life insurance, the profits are recognized over the lives of
the policies in proportion to the estimated gross profits expected to be
realized. Premiums on traditional life insurance and disability income and
health insurance policies are recognized as revenues when collected or due,
and related benefits and expenses are associated with premium revenue in a
manner that results in recognition of profits over the lives of the insurance
policies.
For annuity products, deferred acquisition costs (principally sales
compensation and other costs of issuing new policies) are amortized in
proportion to investment margins. These costs for universal life-type and
single premium life insurance are amortized over the life of the policy as a
percentage of the estimated gross profits expected to be realized on the
policy. The deferred acquisition costs for traditional life insurance and
disability income and health insurance policies are amortized over an
appropriate period in proportion to premium revenue.
Assets and liabilities relating to segregated asset accounts
represent funds held for the exclusive benefit of the 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.
Statement of Cash Flows: The Company has defined cash and cash equivalents as
cash and time deposits, excluding those that are restricted by law or
regulation.
In 1993, 1992 and 1991, the Company paid interest (net of amounts
capitalized) of $1.9 billion, $1.9 billion and $2.1 billion, respectively. Net
income taxes paid during 1993, 1992 and 1991 were $639 million, $576 million
and $250 million, respectively, and include estimated tax payments, as well as
cash settlements relating to prior tax years.
Accounting Changes: Effective January 1, 1992, the Company adopted Statement
of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes". See Note 11.
Effective January 1, 1992, the Company adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," for
the Company's U.S. retiree health and other welfare benefit plans. See Note
10.
Note 2 Lehman Brothers Spin-Off
Summary of Proposed Transaction
On January 24, 1994, the Company's Board of Directors approved a plan to
complete a tax-free spin-off of the common stock of the Company's subsidiary,
Lehman Brothers Holdings Inc., through a special dividend to American Express
common shareholders. The final transaction, which is subject to a number of
conditions, is expected to close late in the second quarter of 1994. In
anticipation of this transaction, Lehman's results are reported as a
discontinued operation in the Consolidated Financial Statements for all
periods presented. The assets and liabilities of Lehman have been reported in
the Consolidated Balance Sheet as net assets of discontinued operations and
are included in Other Assets.
Prior to the spin-off, the Company will add approximately $1.1
billion of additional equity capital to Lehman, representing:
- - - The Company's purchase of $890 million of newly-issued Lehman common shares,
which will be included in the subsequent dividend to American Express common
shareholders.
- - - The Company's purchase of $200 million of newly-issued Lehman perpetual
voting preferred shares which will be held for investment purposes.
In addition, approximately $160 million of newly-issued Lehman common
shares will be purchased by Lehman employees. Approximately $60 million of
this amount will come from an employee ownership plan established in 1993.
Subsequent to the spin-off, the Company will receive 50 percent of
any Lehman net income over $400 million per year, not to exceed $50 million
per year, for each of the next eight years. In addition, the Company will
receive the revenue and earnings-related participations due to Lehman from
Travelers Corporation as part of the sale of certain Lehman Brothers Inc.
retail and asset management businesses (SLB) in 1993. The Travelers
participations will yield a maximum of $50 million pretax annually for the
next three years, depending on the revenues of Smith Barney Shearson, plus ten
percent of after-tax profits of Smith Barney Shearson in excess of $250
million per year over a five-year period.
The special dividend to American Express common shareholders would
represent all of the common shares of Lehman held by the Company, including
common shares that will be received in exchange for $250 million of Lehman
Money Market Preferred Stock currently held by the Company. Subsequent to the
spin-off, the Company will not be represented on Lehman's Board of Directors
and there will be no directors in common between the two companies.
Discontinued Operations
Discontinued operations include Lehman's continuing core businesses, the
income of two businesses sold by Lehman in 1993, SLB and The Boston Company
(TBC), as well as the net loss incurred by Lehman related to those sales.
Discontinued operations are summarized as follows:
Years ended December 31, (millions) 1993 1992 1991
- - -----------------------------------------------------------------
Net revenues $ 5,431 $5,993 $5,405
Income (loss) before accounting changes (102) (116) 207
=================================================================
Components of income (loss) before
accounting changes:
Income (loss) from Lehman's continuing
core businesses 376 (248) 168
TBC operations 24 77 10
SLB operations 63 55 29
Gain on sale of TBC 165 - -
Loss on sale of SLB (630) - -
Non-core business reserves (100) - -
- - -----------------------------------------------------------------
Income (loss) before accounting changes (102) (116) 207
Accounting changes - (8) -
- - -----------------------------------------------------------------
(102) (124) 207
Preferred dividends (25) (25) (25)
- - -----------------------------------------------------------------
Discontinued operations $ (127) $ (149) $ 182
=================================================================
Lehman's balance sheet is summarized as follows:
December 31, (millions) 1993 1992
- - -----------------------------------------------------------------
Assets
Cash and segregated cash $ 2,406 $ 2,767
Receivables 10,398 11,249
Securities purchased under
agreements to resell 26,046 26,476
Securities and commodities owned 35,699 35,570
Other assets 5,925 16,274
- - -----------------------------------------------------------------
Total assets $80,474 $92,336
- - -----------------------------------------------------------------
Liabilities and Stockholders' Equity
Short-term borrowings $10,208 $14,863
Securities sold under agreements to
repurchase 39,191 37,185
Securities and commodities sold but
not yet purchased 8,313 11,442
Long-term debt 9,899 7,680
Other liabilities 10,811 18,805
- - -----------------------------------------------------------------
Total liabilities 78,422 89,975
Stockholders' equity 2,052 2,361
- - -----------------------------------------------------------------
$80,474 $92,336
=================================================================
Pro Forma Effects of Transaction
On a pro forma basis, the spin-off would have reduced 1993 income from
continuing operations by $7 million ($19 million pretax), or $.01 per share.
This reduction is due to the loss of $23 million ($35 million pretax) interest
income on $1,090 million of funds assumed to have been infused into Lehman by
the Company as of January 1, 1993 at the rate of approximately two percent
after-tax (the Company's average return on short-term investments for 1993),
offset by preferred dividend income of $16 million on the new $200 million
preferred stock of Lehman to be received by the Company at an assumed dividend
rate of eight percent. On a pro forma basis, the impact on the December 31,
1993 Consolidated Balance Sheet would be to: reduce Cash and Cash Equivalents
by $890 million, representing the purchase of Lehman common stock to be spun
off; reduce Cash and Cash Equivalents and increase Investments by $200 million
representing the investment in the newly-issued Lehman preferred stock; reduce
Other Assets by $1,544 million representing the dividend of the Company's
current investment in Lehman; and reduce Retained Earnings by $2,434 million
representing the dividend of the Company's pro forma investment in Lehman,
after giving effect to the additional $890 million of common stock to be
purchased prior to the transaction.
Note 3 First Data Corporation
In April 1992, the Company and FDC completed an initial public offering of
50.6 million shares of FDC's common stock at $22 per share. The offering
included 46.6 million shares sold by the Company and four million shares sold
by FDC. The transaction raised a total of $1.1 billion. The Company received
net proceeds of $974 million, which were used for general corporate purposes,
while FDC received net proceeds of $83 million. The Company recognized a $706
million pretax gain from the sale ($425 million after-tax), which is included
in Other Expenses in the 1992 Consolidated Statement of Income. The
outstanding common stock of FDC after the offering totaled approximately 110
million shares. As a result of the offering, the Company's ownership interest
in FDC was reduced from 100 percent to approximately 54 percent of FDC's
outstanding common shares.
In March 1993, the Company further reduced its ownership interest in FDC
to approximately 22 percent through a public offering of 34.6 million shares
of FDC common stock at $32 per share. The Company received net proceeds of
approximately $1.1 billion, which are being used for general corporate
purposes. The Company recognized a $779 million pretax gain from the sale
($433 million after-tax), which is included in Other Expenses in the 1993
Consolidated Statement of Income.
As a result of the Company's reduced ownership, effective January 1,
1993, FDC is reported under the equity method of accounting and, therefore, is
not consolidated in the Company's 1993 Consolidated Financial Statements.
Prior years' financial statements have not been restated. The Company's equity
in the 1993 net income of FDC was $40 million and is included in Other
Expenses in the 1993 Consolidated Statement of Income. FDC's revenues were
$1.2 billion and $1.0 billion in 1992 and 1991, respectively. FDC's expenses
were $1.0 billion and $0.8 billion in 1992 and 1991, respectively. The
Company's investment in FDC, which is included in Other Assets in the 1993
Consolidated Balance Sheet, had a net book value of $201 million at December
31, 1993. The Consolidated Balance Sheet at December 31, 1992 includes FDC
assets of $3.9 billion and liabilities of $3.1 billion. Under a management
agreement between FDC and Travel Related Services (TRS), FDC has agreed to
indemnify TRS against any losses, damages and costs with respect to FDC's
payment instruments and consumer funds transfer business which FDC manages on
TRS' behalf. FDC's assets and liabilities relative thereto are consolidated in
the Company's Consolidated Balance Sheet at December 31, 1992.
In October 1993, the Company issued Debt Exchangeable for Common Stock
of FDC. See Note 12.
Note 4 Cash and Cash Equivalents
Cash includes interest bearing deposits, which generally can be withdrawn in
less than 30 days, amounting to approximately $1.2 billion and $666 million at
December 31, 1993 and 1992, respectively. Time deposits at December 31, 1993
and 1992, which have original maturities of 90 days or less, had weighted
average interest rates of 4.17 percent and 4.85 percent, respectively.
Note 5 Investments
Investments at Cost
Investments carried at amortized cost are distributed by type and maturity as
presented below. Annual yields related to state and municipal obligations and
preferred stocks have been increased to reflect the tax equivalent basis at
the U.S. statutory rate.
<PAGE>
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1992
Gross Gross Weighted Gross Gross Weighted
Unreal- Unreal- Average Tax Unreal- Unreal- Average Tax
ized ized Equivalent ized ized Equivalent
(dollars in millions) Cost Market Gains Losses Yield* Cost Market Gains Losses Yield*
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and
agencies obligations $ 3,640 $ 3,641 $ 3 $ 2 3.6% $ 3,297 $ 3,299 $ 2 - 3.7%
State and municipal
obligations 4,943 5,367 425 1 7.9% 6,300 6,657 358 $ 1 10.6%
Corporate bonds and
obligations 12,935 13,773 893 55 7.9% 11,393 11,798 542 137 8.4%
Foreign government
obligations 1,508 1,538 38 8 9.7% 844 857 21 8 8.2%
Mortgage-backed
securities 11,413 11,724 377 66 7.8% 11,086 11,447 420 59 8.7%
Investment mortgage
loans and other 3,695 3,851 168 12 9.3% 3,590 3,636 70 24 9.5%
- - ---------------------------------------------------------------------------------------------------------------------
Total $38,134 $39,894 $1,904 $ 144 7.6% $36,510 $37,694 $1,413 $229 8.6%
=====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1992
Cost Market Cost Market
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due within 1 year $ 5,669 $ 5,682 $ 5,275 $ 5,313
Due after 1 year
through 5 years 4,819 5,085 4,352 4,487
Due after 5 years
through 10 years 8,470 9,177 8,433 8,849
Due after 10 years 4,068 4,375 3,774 3,962
- - --------------------------------------------------------------------------------------------------------------------
23,026 24,319 21,834 22,611
Mortgage-backed
securities 11,413 11,724 11,086 11,447
Investment mortgage loans
and other 3,695 3,851 3,590 3,636
- - ---------------------------------------------------------------------------------------------------------------------
Total $38,134 $39,894 $ 36,510 $ 37,694
=====================================================================================================================
*Calculated on securities cost.
</TABLE>
<PAGE>
Notes: Proceeds from sales of investments held at cost were $2,061 million in
1993 and $2,134 million in 1992. Gross gains realized on those sales were $119
million for 1993 and $141 million for 1992. Gross losses on sales related to
these investments were $111 million and $144 million in 1993 and 1992,
respectively, and provisions for losses were $16 million for 1992.
Mortgage-backed securities include GNMA, FNMA and FHLMC securities totaling
$11,231 million in 1993 and $10,936 million in 1992.
The market value of these investments equals fair value and is based on quoted
market prices, where available. If quoted market prices are not available,
fair value is based on quoted market prices of comparable instruments.
Other Investments
Investments carried at lower of cost or market were $343 million and $301
million at cost, and $362 million and $319 million at market for 1993 and
1992, respectively. Investments carried at market were $831 million and $818
million for 1993 and 1992, respectively.
Note 6 Loans and Discounts
December 31, (millions) 1993 1992
- - -------------------------------------------------------------------
Consumer Loans:
Installment and revolving credit $ 9,348 $9,608
Other 171 224
Commercial Loans:
Commercial and industrial 2,744 2,941
Mortgage and real estate 931 1,290
Loans to banks and other financial
institutions 1,075 666
Loans to governments and official
institutions 89 96
Other Loans 1,093 836
- - -------------------------------------------------------------------
15,451 15,661
Less: Reserve for credit losses 655 911
- - -------------------------------------------------------------------
Total $14,796 $ 14,750
===================================================================
Note: IDS Financial Services' mortgage loans of $2,231 million and $1,816
million in 1993 and 1992, respectively, are included in Investment Mortgage
Loans and are reflected in Note 5.
At December 31, 1993 and 1992, the fair value of loans and discounts was
$14.5 billion and $14.3 billion, respectively. For variable rate loans that
reprice within a year where there has been no significant change in the
counterparties' creditworthiness, fair values were based on carrying values.
The fair values for all other loans were estimated using discounted cash
flows, based on interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality. Estimates of fair values for
loans with significant credit deterioration were based on revised estimates of
future cash flows discounted at rates commensurate with the risk inherent in
the revised cash flow projections.
Note 7 Preferred Shares
In August 1991, the Company sold 122,448.98 non-transferable $216.75 CAP
Preferred shares (CAP Preferred shares) to Berkshire Hathaway Inc. for $300
million. The securities have a maturity of three years, unless extended for an
additional year, and pay a fixed dividend of $216.75 per share. The Company
also has the option to redeem the CAP Preferred shares prior to maturity. The
redemption price will be paid in common shares. If the CAP Preferred shares
are not redeemed prior to maturity, the Company would exchange approximately
12 million common shares for such shares at maturity in payment of the
redemption price. This amount is subject to adjustment in connection with the
spin-off of Lehman discussed in Note 2. The number of common shares to be
issued upon an earlier optional redemption would be fewer if the market price
of the Company's common shares at that time exceeded the optional redemption
price, which was initially $37.53 and will decline ratably to $33.79.
In January 1990, the Company sold to Nippon Life Insurance Company
for $200 million, four million of the Company's $3.875 Convertible
Exchangeable Preferred shares (Convertible Preferred shares) having a
liquidation preference of $50 per share and paying dividends at an annual rate
of 7.75 percent. The shares are convertible at the option of the holder into
the Company's common shares at an initial conversion price of $42.50 per
share. The Convertible Preferred shares are redeemable in whole at the option
of the Company, for the Company's 7.75% Convertible Subordinated Debentures
due 2015 at $1,000 principal amount of Debentures for each $1,000 liquidation
preference of Convertible Preferred shares. The Company also has the option of
redeeming the Convertible Preferred shares for cash at $52.33 and at prices
declining to $50 per share on and after January 2000.
The Board of Directors is authorized to permit the Company to issue up
to approximately 16 million additional preferred shares without further
shareholder approval.
Note 8 Common Shares
Of the common shares authorized but unissued at December 31, 1993, 128,443,694
shares were reserved for issuance with respect to employee stock plans,
employee benefit plans, convertible preferred stock and debentures, CAP
Preferred shares, the dividend reinvestment plan and warrants.
In 1991, the Company's Board of Directors approved an arrangement to
satisfy certain obligations of the Company and its subsidiaries over a five-
year period by making contributions to various existing employee benefit plans
and by making stock-based awards under existing compensation plans by the
issuance of common shares. The Company has reserved up to 25 million common
shares for such purposes to be issued through 1996.
The common shares activity for the three years ended December 31, 1993
is as follows:
1993 1992 1991
- - --------------------------------------------------------------------
Shares outstanding at
beginning of year 479,976,358 472,165,838 464,473,929
Employee benefit plans,
compensation and other 9,851,494 7,810,520 7,691,909
- - --------------------------------------------------------------------
Shares outstanding at
end of year 489,827,852 479,976,358 472,165,838
====================================================================
Note 9 Employee Stock Plans
Under the 1989 Long-Term Incentive Plan (the 1989 Plan), awards may be granted
to officers, 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, Benefits and
Nominating 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 Director's Stock Option Plan. Stock options are granted at a price
generally not less than the fair market value of the common shares at the date
of grant. In addition, under the 1979 Long-Term Incentive Plan, which expired
in April 1989 as to new grants, certain earned and outstanding awards can be
paid in the form of debt convertible into the Company's common shares. At
December 31, 1993, the face value of these debentures was $6,888,000 and the
conversion price was $35.25 per share. No debentures were redeemed or
converted in 1993.
There were 23,528,235; 3,437,116 and 8,478,073 common shares available
for grant at December 31, 1993, 1992 and 1991, respectively, under various
employee stock plans.
At December 31, 1993, options outstanding had an average exercise price
of $28.73 per share and expiration dates ranging from February 26, 1994 to
November 21, 2003.
The Company also has employee savings and thrift plans under which
purchases of the Company's common shares are made by or for participating
employees. In November 1993, the Company's Board of Directors authorized the
termination of the Company's Stock Ownership Plan (SOP) and the Lehman
Brothers Holdings Inc. Board of Directors authorized the termination of the
Lehman Brothers Holdings Inc. Stock Ownership Plan (ESOP), subject to approval
by the Internal Revenue Service (IRS). Allocations of contributions to the SOP
and the ESOP will cease as of the plan year ending December 31, 1993 and, if
IRS approval is received, each of the plans will be terminated in 1994. The
ESOP loan was paid off during 1993. The unpaid loan balance for the SOP will
be repaid from trust assets and any additional amounts due on the loan will be
repaid by the Company. The unpaid loan balance is recorded as a liability in
the Consolidated Balance Sheet and an equal amount, representing deferred
compensation, has been recorded as a reduction of Shareholders' Equity. The
SOP deferred compensation amount has been reduced when payments were made on
the debt. Total expenses associated with the repayments of the borrowings and
the related allocation of shares to the employees' accounts vary due to the
number of eligible employees and the number of shares allocated. These
expenses were $15.0 million, $20.7 million and $8.6 million for 1993, 1992 and
1991, respectively. After all liabilities and expenses of the plan have been
provided for, any remaining funds in the trust fund will be allocated among
eligible employees' accounts.
The details of transactions provided in the following table include the
plans described above.
<PAGE>
1993 1992 1991
- - -----------------------------------------------------------------------------
Restricted stock awarded 1,584,052 1,321,448 937,364
Options outstanding at
beginning of year 28,690,159 25,983,322 22,194,722
Option price $10.00 to $67.09 $10.00 to $67.09 $ 4.08 to $67.09
Options granted 4,818,473 5,518,000 5,808,022
Option price $22.59 to $35.63 $18.83 to $23.06 $18.81 to $27.13
Options exercised 4,526,835 561,889 442,582
Exercise price $10.00 to $34.81 $10.30 to $23.88 $ 4.08 to $28.88
Options expired or
canceled 3,248,122 2,249,274 1,576,840
Options outstanding at
end of year 25,733,675 28,690,159 25,983,322
Option price $10.30 to $67.09 $10.00 to $67.09 $10.00 to $67.09
Options exercisable
at end of year 16,774,856 18,136,786 15,133,301
==============================================================================
Certain equitable adjustments may be made with respect to the Company's
employee stock plans in connection with the Lehman spin-off discussed in Note
2, which could affect the information presented in the table above.
Note 10 Retirement Plans
Pension Plans
The Company and certain subsidiaries have plans under which the cost of
retirement benefits for eligible employees in the United States, measured by
length of service, compensation and other factors, is currently being funded
through trusts established under these plans. In addition, the Company
sponsors certain unfunded, unqualified supplemental plans for which the
aggregate accrued liability is not material. Funding of retirement costs for
these plans complies with the applicable minimum funding requirements
specified by the Employee Retirement Income Security Act of 1974, as amended.
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 labor
laws are generally not funded. Plan assets consist principally of equities and
fixed income securities.
Net pension cost for 1993, 1992 and 1991 consisted of the following
components (millions):
1993 1992 1991
- - --------------------------------------------------------------------------
Service cost $ 59 $ 69 $ 55
Interest cost 65 71 59
Actual return on plan assets (116) (45) (99)
Net amortization and deferral 67 6 53
- - --------------------------------------------------------------------------
Net periodic pension cost $ 75 $ 101 $ 68
==========================================================================
The following table sets forth the funded status and amounts recognized
in the Consolidated Balance Sheet for the Company's defined benefit plans,
including certain unfunded, nonqualified supplemental plans, at December 31,
1993 and 1992:
<PAGE>
1993 1992
--------------------------- ---------------------------
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 $(438) $(106) $(348) $(155)
- - ------------------------------------------------------------------------------
Accumulated benefit
obligation $(478) $(125) $(385) $(177)
- - ------------------------------------------------------------------------------
Projected benefit
obligation $(738) $(220) $(640) $(266)
Plan assets at fair value 708 24 616 87
- - -----------------------------------------------------------------------------
Projected benefit obligation
in excess of plan assets (30) (196) (24) (179)
Unrecognized net loss 19 11 11 1
Unrecognized prior service
cost - 21 28 5
Unrecognized net (asset) or
obligation at transition 11 22 (10) 27
Adjustment required to recog-
nize minimum liability - (11) - (6)
- - -----------------------------------------------------------------------------
Pension asset (liability)
included in the Consolidated
Balance Sheet $ - $(153) $ 5 $(152)
=============================================================================
The range of assumptions used in the majority of the Company's plans at
December 31, 1993 and 1992 was:
1993 1992
- - -----------------------------------------------------------------------------
Weighted average discount rates 7.0% to 8.0% 8.0% to 9.5%
Rates of increase in compensation
levels 4.0% to 7.0% 6.0% to 7.5%
Expected long-term rate of return
on assets 7.0% to 10.0% 9.0% to 11.5%
=============================================================================
Other Postretirement Benefits
The Company sponsors postretirement benefit plans that provide health care,
life insurance and other postretirement benefits to retired U.S. employees.
The health care plans include participant contributions, deductibles, co-
insurance provisions, limitations on the Company's obligation and service-
related eligibility requirements. The Company generally pays these benefits as
they are incurred.
Effective January 1, 1992, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," for the Company's
U.S. retiree health and other welfare benefit plans. SFAS No. 106 requires the
accrual method of accounting for these benefits, rather than the Company's
previous policy, which was to record these benefits as they were paid. The
cumulative effect on 1992 results of adopting SFAS No. 106 was an after-tax
charge of $114 million ($0.23 per share). In 1991, the amount paid was $6.1
million. Postretirement benefits other than pension benefits for non-U.S.
employees are immaterial.
Net periodic postretirement benefit cost consisted of the following
components:
<PAGE>
(millions) 1993 1992
- - -----------------------------------------------------------------------------
Service cost $ 3 $ 4
Interest cost 15 14
- - -----------------------------------------------------------------------------
Net periodic postretirement
benefit cost $ 18 $ 18
=============================================================================
The following table sets forth the amount recognized in the
Consolidated Balance Sheet for the Company's defined postretirement benefit
plans (other than pension plans) at December 31, 1993 and 1992:
(millions) 1993 1992
- - -----------------------------------------------------------------------------
Accumulated postretirement
benefit obligation:
Retirees $(154) $(119)
Fully eligible active plan
participants (30) (33)
Other active plan participants (28) (29)
- - -----------------------------------------------------------------------------
(212) (181)
Unrecognized net loss 26 2
- - -----------------------------------------------------------------------------
Postretirement benefit liability included
in the Consolidated Balance Sheet $(186) $(179)
=============================================================================
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation for 1993 and 1992 was 7.25 percent and 8.50
percent, respectively. The rate of increase in the per capita cost of covered
benefits was assumed to be 13 percent for 1994 and 15 percent for 1993; the
rate in both years was assumed to decrease one percent per year to seven
percent in 2000 and 2001, respectively, and remain at that level thereafter.
An increase in the assumed health care cost trend rates by one percentage
point in each year would increase the accumulated postretirement benefit
obligation as of December 31, 1993 by $18 million and the aggregate of service
and interest cost for 1993 by $1.3 million.
Note 11 Income Taxes
The Company adopted SFAS No. 109, "Accounting for Income Taxes," effective
January 1, 1992. The cumulative effect of adopting SFAS No. 109 was an
increase to 1992 income from continuing operations of $147 million ($0.30 per
share).
<PAGE>
The provision for income taxes consists of the following:
(millions) 1993 1992 1991
- - -----------------------------------------------------------------------------
Federal $ 551 $ 145 $(142)
State and local 72 62 25
Foreign 98 111 132
- - -----------------------------------------------------------------------------
Total $ 721 $ 318 $ 15
=============================================================================
Accumulated net earnings of certain foreign subsidiaries, which
totaled $314 million at December 31, 1993, are intended to be permanently
reinvested outside the United States. Accordingly, federal taxes, which would
have aggregated $110 million, have not been provided.
Deferred income tax assets and liabilities result from the
recognition of temporary differences. Temporary differences are differences
between the tax bases of assets and liabilities and their reported amounts in
the financial statements that will result in differences between income for
tax purposes and income for financial statement purposes in future years. The
current and deferred components of the provision for income taxes consist of
the following:
(millions) 1993 1992 1991
- - -----------------------------------------------------------------------------
Current $ 677 $ 604 $ 215
Deferred 44 (286) (200)
- - -----------------------------------------------------------------------------
Total $ 721 $ 318 $ 15
=============================================================================
At December 31, 1993 and 1992, the Company's net deferred tax assets
consisted of the following:
(millions) 1993 1992
- - -----------------------------------------------------------------------------
Gross deferred tax assets $2,246 $2,359
Less: Valuation allowance 45 44
- - -----------------------------------------------------------------------------
Deferred tax assets net of valuation allowance 2,201 2,315
Gross deferred tax liabilities 1,060 1,057
- - -----------------------------------------------------------------------------
Net deferred tax assets $1,141 $1,258
=============================================================================
Gross deferred tax assets for 1993 and 1992 consist primarily of:
reserves not yet deducted for tax purposes of $1,418 million and $1,553
million, respectively, and deferred Cardmember fees of $184 million and $178
million, respectively. Gross deferred tax liabilities for 1993 and 1992
consist primarily of: deferred acquisition costs of $632 million and $571
million, respectively, and accelerated depreciation of $145 million and $124
million, respectively.
The Company's valuation allowance relates to certain deferred tax
assets for which realization requires taxable income in the subsidiary which
gave rise to the deferred tax asset.
The aggregate income tax provision in 1993, 1992 and 1991 is
different than that computed by using the U.S. statutory rate of 35 percent in
1993 and 34 percent in 1992 and 1991. The principal causes of the difference
in each year are shown below:
(millions) 1993 1992 1991
- - -----------------------------------------------------------------------------
Combined tax at U.S. statutory rate $ 814 $ 305 $ 211
Changes in taxes resulting from:
Tax-exempt interest income (148) (139) (149)
Tax-exempt element of dividend income (37) (42) (39)
Change in unrecognized deferred
tax benefits - - (42)
Change in valuation allowance - 44 -
Reserves and charge-offs related to
loans to lesser developed countries - - (22)
FDC public offering 74 42 -
Foreign income taxed at rates
other than U.S. statutory rate (25) 17 27
State and local income taxes 25 36 17
Non-deductible amortization 4 19 8
Minority interest - 17 -
Impact of rate change on net
deferred tax assets (30) - -
All other 44 19 4
- - ----------------------------------------------------------------------------
Income tax provision $ 721 $ 318 $ 15
============================================================================
Effective January 1, 1993, the U.S. federal income tax rate was
increased from 34 percent to 35 percent. The Company's results for 1993
include a one-time benefit of $30 million from the impact of the rate change
on the Company's net deferred tax assets.
Note 12 Long-Term Debt and Borrowing Agreements
December 31, (millions) 1993 1992
- - -----------------------------------------------------------------------------
Floating Medium-Term Note due
June 28, 1996 $945 $945
6.25% DECS due October 15, 1996 868 -
Floating Medium-Term Senior Notes
due 1994-1997 424 444
8.625% Notes due July 15, 1994 300 299
6.125% Notes due June 15, 2000 300 -
8.50% Notes due August 15, 2001 298 297
5% Swiss Franc Bonds due October
14, 1996 to December 16, 1996 246 247
Other Senior Notes due 1994-2022
(7.97% and 8.38% weighted average
interest rates at year-end 1993
and 1992, respectively) 1,798 2,991
Other fixed rate notes due 1994-2020
(6.29% and 6.99% weighted average
interest rates at year-end 1993 and
1992, respectively) 2,524 2,433
Other floating rate notes due 1994-2011
at various interest rates 858 958
- - -----------------------------------------------------------------------------
Total $8,561 $8,614
=============================================================================
Aggregate annual maturities of long-term debt for the five years
ending December 31, 1998 are as follows (millions): 1994, $2,372; 1995, $897;
1996, $3,097; 1997, $332; and 1998, $110.
Approximately $262 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.
The Floating Medium-Term Note due June 28, 1996 is payable to Lehman and
relates to the Company's 1991 purchase of The Balcor Company from Lehman.
As of December 31, 1993, the parent company had standby credit
facilities with a number of banks that provide approximately $1.0 billion in
committed funds at various maturities through 1994. No borrowings have been
made under any of these facilities.
In addition to the credit facilities discussed above, the Company has
various facilities to obtain short-term credit, including borrowing agreements
with banks and the issuance of commercial paper. Unused lines of credit in
support of commercial paper borrowing arrangements were approximately $4.6
billion at December 31, 1993.
In October 1993, the Company issued 23,618,500 DECS (Debt
Exchangeable for Common Stock), in the form of 6 1/4 percent Exchangeable
Notes due October 15, 1996. The DECS were issued at a principal amount of
$36.75 per DECS, resulting in net proceeds of approximately $842 million. At
maturity, holders of DECS will receive, in exchange for the principal amount
thereof, shares of FDC common stock, or at the Company's option, an equivalent
amount of cash in lieu of such shares. The number of such shares or the amount
of such cash will be based on the average market price of FDC stock calculated
during a period shortly before the maturity of the DECS. If the Company elects
to deliver shares of FDC at maturity, the Company's holdings of FDC will be
reduced to between zero (if the average market price of FDC shares is at or
below $36.75) and approximately 4.3 million shares if the average market price
of FDC shares is at or above $44.875. The market value of the Company's
holdings in FDC at December 31, 1993 was approximately $962 million. The
proceeds from the DECS offering are being used for general corporate purposes.
The fair value of long-term debt was $8.8 billion at December 31, 1993
and 1992. For variable rate long-term debt that reprices within a year, fair
value approximates carrying amounts. For other long-term debt, fair value was
estimated using either quoted market prices or discounted cash flow analysis,
based on the Company's current borrowing rates for similar types of borrowing
arrangements.
Note 13 Financial Instruments With Off-Balance-Sheet Risk
The Company enters into transactions involving off-balance-sheet financial
instruments to manage its exposure to credit and market risks, to satisfy the
financing needs of its clients and to conduct trading activities. The Company
has extensive control procedures regarding the extent of its transactions with
counterparties, the manner in which transactions are settled and the ongoing
assessment of counterparty creditworthiness.
Interest Rate Products: Interest rate products, including swaps, caps and
floors, options and financial futures and forwards, are used by the Company as
an integral part of its interest rate risk management. Interest rate products
are used, for the most part, to hedge the Company's debt used in funding its
charge Card and consumer lending businesses.
Foreign Currency Products: Foreign currency products, primarily forward
contracts to purchase and sell currencies at specific rates on preestablished
dates and foreign currency options, are used extensively as part of the
Company's client-related trading activities and, to a lesser extent, for the
Company's own account. Client-related trading positions are generally matched,
resulting in minimal market exposure. In addition, foreign currency products
are primarily used to hedge net monetary positions in foreign currencies, net
investments in foreign entities or identifiable firm foreign currency
commitments.
The following notional amounts, which exceed the related amount of credit
risk, provide an objective measure of the Company's involvement in financial
instruments with off-balance-sheet risk.
(millions) 1993 1992
- - -----------------------------------------------------------------------------
Interest Rate Products $ 15,528 $ 16,012
Foreign Currency Products $ 23,131 $ 13,477
Options Written $ 1,020 $ 296
=============================================================================
Maximum credit risk on interest rate and foreign currency products
was quantified by the replacement cost of those contracts for which gross
unrealized gains exist at the balance sheet date. At December 31, 1993 and
1992, gross unrealized gains for interest rate and foreign currency products
were $243 million and $352 million, respectively.
Commitments and Guarantees: The Company is committed to extend credit to
certain Cardmembers as part of established contractual agreements. The
Company's right to approve all charges, the ability to cancel the right to
incur new charges and sophisticated analysis of credit risk limit its
exposure. The Company, through its account and Card issuing subsidiaries,
establishes credit limits for spending on its consumer lending products,
whereas its charge Card products have no preset spending limit. Since many of
the commitments extended to Cardmembers are not expected to be drawn upon,
unused credit available to Cardmembers does not represent future cash
requirements. Collateral is generally not required to support these credit
arrangements. The Company does not charge a specific fee to Cardmembers for
providing available credit, and therefore, believes that the fair value of
unused credit available to Cardmembers is nil.
The Company primarily issues commercial and other letters of credit
to facilitate the short-term trade-related needs of its clients. When
necessary, collateral is required in support of the various types of letters
of credit and guarantees. This collateral primarily consists of cash,
securities, counterguarantees and title to or the right to insurance proceeds
on the underlying goods. At December 31, 1993 and 1992, the Company held $577
million and $767 million, respectively, of collateral supporting standby
letters of credit and guarantees and $464 million and $633 million,
respectively, of collateral supporting commercial and other letters of credit.
In addition, the Company is contingently liable, principally as general
partner, for the obligations of various public and private real estate limited
partnerships.
The following contractual amounts are representative of the amount of
the Company's credit risk related to commitments and guarantees.
(millions) 1993 1992
- - -----------------------------------------------------------------------------
Unused Credit Available to Cardmembers $18,919 $20,432
Loan Commitments $ 526 $ 281
Standby Letters of Credit and Guarantees $ 1,367 $ 1,277
Commercial and Other Letters of Credit $ 933 $ 906
==============================================================================
Management does not anticipate any material adverse effect on the
Company's financial position to result from these activities.
Significant Concentrations of Credit Risk: The Company's businesses generate
significant investments in both on-and off-balance-sheet financial
instruments. The counterparties in these investments, as reflected below,
operate in diverse sectors of the global economy. Certain distinctions between
categories require management's judgment.
Total Credit Exposure
-----------------------
(dollars in millions) 1993 1992
- - -----------------------------------------------------------------------------
Financial institutions (a) $ 12,575 $ 11,137
Individuals (b) 44,186 43,788
Government and agencies (c) 17,977 19,465
All other 23,345 23,582
- - -----------------------------------------------------------------------------
Total $ 98,083 $ 97,972
- - -----------------------------------------------------------------------------
Composition:
On-balance-sheet 78% 75%
Off-balance-sheet 22 25
- - -----------------------------------------------------------------------------
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 risk includes only the Card receivables recorded in
the Consolidated Balance Sheet.
(c) Government and agencies include the U.S. Government and its agencies,
states and municipalities, and quasi-government agencies.
At December 31, 1993 and 1992, the fair value of interest rate and
foreign currency products, options and commitments and guarantees was an
unrecognized asset of $76 million and $183 million, respectively. The fair
value of interest rate and foreign currency products and options was based on
market values, dealer quotes or pricing models. The fair value of commitments
and guarantees was estimated using the fees currently charged to enter into
similar agreements.
Note 14 Fair Values of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of the fair values of most on- and off-balance-sheet
financial instruments for which it is practicable to estimate that value. SFAS
No. 107 excludes certain financial instruments, such as trade receivables and
payables when the carrying amount approximates the fair value (e.g.,
Cardmember receivables and customer accounts), life insurance obligations,
employee benefit obligations and all non-financial instruments, such as land,
buildings and equipment, deferred acquisition costs and goodwill. The
Company's off-balance-sheet intangible assets, such as the American Express
Company name and the future earnings of core businesses, are also excluded.
The fair values of financial instruments are estimates based upon market
conditions and perceived risks at December 31, 1993 and 1992 and require
varying degrees of management judgment. The fair value of the Company,
therefore, cannot be estimated by aggregating the amounts presented. The fair
values of the financial instruments presented are not necessarily indicative
of their future fair values.
For Cash and Cash Equivalents, Accounts Receivable and Accrued
Interest, Investments carried at market and at lower of cost or market, Assets
Held in Segregated Accounts, applicable Other Assets, Customers' Deposits and
Credit Balances, Travelers Cheques Outstanding, Accounts Payable, Short-Term
Debt, and applicable Other Liabilities, the carrying amounts in the
Consolidated Balance Sheet approximate the fair values.
The fair value and methods and assumptions used in estimating the
fair value of investments carried at cost, loans and discounts, long-term debt
and financial instruments with off-balance-sheet risk are discussed in Notes
5, 6, 12 and 13, respectively. The following methods and assumptions were used
to estimate the fair value of the financial instruments not discussed
elsewhere in the Notes.
Annuity Reserves: The fair value of annuities in deferral status was
estimated as the accumulated value less applicable surrender charges and
loans. For annuities in payout status, fair value was estimated using
discounted cash flow analysis, based on current interest rates. The fair value
of these reserves, after excluding life insurance-related elements of $1.6
billion in 1993 and $1.5 billion in 1992, was $16.9 billion and $14.9 billion
at December 31, 1993 and 1992, respectively.
Investment Certificate Reserves: For variable rate investment
certificates that reprice within a year, fair values are based on carrying
amounts. For other investment certificates, fair value was estimated using
discounted cash flow analysis, based on interest rates currently being
offered. The valuations were reduced by the amount of applicable surrender
charges and related loans. The fair value of these reserves was $2.7 billion
and $3.2 billion at December 31, 1993 and 1992, respectively.
Liabilities Related to Segregated Asset Accounts: The fair value of
these liabilities, after excluding life insurance-related elements of $0.3
billion in 1993 and $0.2 billion in 1992, was estimated as the accumulated
value less applicable surrender charges and was $8.3 billion and $5.8 billion
at December 31, 1993 and 1992, respectively.
Note 15 Industry Segments and Geographic Operations
Industry Segments
The Company is principally in the business of providing travel related
services, investors diversified financial services and international banking
services throughout the world. The following table presents certain
information regarding these industry segments at December 31, 1993, 1992 and
1991 and for the years then ended.
Pretax income (loss) from continuing operations and income (loss) from
continuing operations amounts reflect the Company's results before the
accounting changes discussed in Note 1. For 1993, FDC is reported under the
equity method of accounting and, therefore, is no longer consolidated in the
Company's Financial Statements. The Company's equity in the net income of FDC
is included in Corporate and Other for 1993. Prior years' segment amounts have
not been restated.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Travel IDS American First Adjustments
Related Financial Express Data Corporate and
(millions) Services Services Bank Corporation and Other Eliminations Consolidated
- - ------------------------------------------------------------------------------------------------------------
1993
Revenues $ 9,835 $ 3,156 $ 1,192 - $ 163 $ (173) $14,173
Pretax income from continu-
ing operations before
general corporate expenses $ 1,190 $ 518 $ 117 - - - $ 1,825
General corporate expenses - - - - 501 - 501
- - ------------------------------------------------------------------------------------------------------------
Pretax income from continuing
operations $ 1,190 $ 518 $ 117 - $ 501 - $ 2,326
Income from continuing
operations $ 895 $ 358 $ 81 - $ 271 - $ 1,605
Assets $40,464 $37,351 $13,559 - $ 6,555 $(3,797) $94,132
============================================================================================================
1992
Revenues $10,205 $ 2,874 $ 1,328 $ 1,205 $ 232 $ (357) $15,487
Pretax income (loss) from
continuing operations before
general corporate expenses $ 277 $ 408 $ 14 $ 183 $ (1) - $ 881
General corporate expenses - - - - 15 - 15
- - ------------------------------------------------------------------------------------------------------------
Pretax income from continuing
operations $ 277 $ 408 $ 14 $ 183 $ 14 - $ 896
Income (loss) from continuing
operations $ 243 $ 297 $ 26 $ 92 $ (80) - $ 578
Assets $38,139 $31,949 $13,658 $ 3,916 $ 5,606 $(3,156) $90,112
============================================================================================================
1991
Revenues $10,055 $ 2,554 $ 1,503 $ 1,026 $ 90 $ (262) $14,966
Pretax income (loss) from
continuing operations
before general corporate
expenses $ 415 $ 314 $ 38 $ 191 $ (32) - $ 926
General corporate expenses - - - - (304) - (304)
- - -----------------------------------------------------------------------------------------------------------
Pretax income (loss) from
continuing operations $ 415 $ 314 $ 38 $ 191 $ (336) - $ 622
Income (loss) from continuing
operations $ 396 $ 248 $ 60 $ 118 $ (215) - $ 607
Assets $37,912 $27,660 $14,367 $ 3,172 $ 4,577 $(3,147) $84,541
============================================================================================================
</TABLE>
<PAGE>
Revenues include interest earned on the investment of funds
attributable to each industry segment. Pretax income (loss) from continuing
operations before general corporate expenses is total revenues less operating
expenses, including interest, related to each industry segment's revenues.
Income (loss) from continuing operations includes a provision for income
taxes calculated on a separate return basis; however, additional 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.
Assets are those that are used or generated exclusively by each industry
segment. The adjustments and eliminations required to arrive at the
consolidated amounts shown above consist principally of the elimination of
intersegment financial revenues and assets.
Geographic Operations
The following table presents certain information regarding the Company's
operations in different geographic regions at December 31, 1993, 1992 and 1991
and for the years then ended. Pretax income (loss) from continuing operations
amounts reflect the Company's results before the accounting changes discussed
in Note 1.
<PAGE>
<TABLE>
<CAPTION>
United All Adjustments and
(millions) States Europe Asia/Pacific Other Eliminations Consolidated
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1993
Revenues $ 10,490 $ 1,811 $ 1,328 $ 1,041 $ (497) $ 14,173
Pretax income from
continuing operations before
general corporate expenses $ 1,262 $ 221 $ 202 $ 140 - $ 1,825
General corporate expenses 501 - - - - 501
- - -----------------------------------------------------------------------------------------------------------
Pretax income from
continuing operations $ 1,763 $ 221 $ 202 $ 140 - $ 2,326
Assets 68,399 $ 8,221 $ 7,188 $ 3,715 $ 54 $ 87,577
Corporate assets 6,555
- - -----------------------------------------------------------------------------------------------------------
Total assets $ 94,132
============================================================================================================
1992
Revenues $ 11,254 $ 2,114 $ 1,268 $ 1,110 $ (259) $ 15,487
Pretax income from
continuing operations before
general corporate expenses $ 574 $ 5 $ 140 $ 162 - $ 881
General corporate expenses 15 - - - - 15
- - -----------------------------------------------------------------------------------------------------------
Pretax income from
continuing operations $ 589 $ 5 $ 140 $ 162 - $ 896
Assets $ 64,674 $ 9,000 $ 5,943 $ 3,393 $ 1,496 $ 84,506
Corporate assets 5,606
- - -----------------------------------------------------------------------------------------------------------
Total assets $ 90,112
============================================================================================================
1991
Revenues $ 10,883 $ 2,000 $ 1,282 $ 1,095 $ (294) $ 14,966
Pretax income (loss) from
continuing operations before
general corporate expenses $ 613 $ (10) $ 142 $ 181 - $ 926
General corporate expenses (304) - - - - (304)
- - ---------------------------------------------------------------------------------------------------------
Pretax income (loss) from
continuing operations $ 309 $ (10) $ 142 $ 181 - $ 622
Assets $ 59,508 $ 9,930 $ 6,037 $ 3,229 $ 1,260 $ 79,964
Corporate assets 4,577
- - ----------------------------------------------------------------------------------------------------------
Total assets $ 84,541
============================================================================================================
</TABLE>
<PAGE>
Most services of the Company are provided on an integrated worldwide
basis. Because of the integration of U.S. and non-U.S. services, it is not
practical to separate precisely the U.S. oriented services from services
resulting from operations outside the United States and performed for
customers outside the United States; accordingly, the separation set forth in
the above table is based upon internal allocations, which necessarily involve
certain management judgments.
Note 16 Lease Commitments and Other Contingent Liabilities
The Company leases certain office facilities and operating equipment under
noncancelable and cancelable agreements. Total rental expense amounted to $391
million in 1993, $461 million in 1992 and $443 million in 1991. At December
31, 1993, the minimum aggregate rental commitment under all noncancelable
leases (net of subleases) was (millions): 1994, $196; 1995, $166; 1996, $133;
1997, $100; 1998, $71; and $349 for years thereafter. Many of these leases
provide for additional rentals based on increases in property taxes or the
general cost of living index, or for payment of property taxes or other
operating expenses by the lessee; in addition, many leases contain renewal
clauses.
The Company is not a party to, nor are any of its properties the subject
of, any pending legal proceedings that, in the opinion of management, would
have a material adverse effect on the Company's financial position.
In addition to the off-balance-sheet risks discussed in Note 13, the
Company has various other commitments and contingent liabilities not reflected
in the Consolidated Balance Sheet. The Company also has certain commitments
and contingent liabilities related to Lehman, including guarantees of debt,
which are expected to continue following the spin-off discussed in Note 2. The
Company does not anticipate any material adverse effect on its financial
position resulting from these commitments and contingent liabilities.
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.
Principal restrictions exist under debt agreements and regulatory
requirements of certain of the Company's subsidiaries. In addition, American
Express Bank is prohibited from making loans, the proceeds of which are to be
used for a U.S. domestic purpose. 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, 1993, the aggregate amount of net assets of subsidiaries
that may be transferred to the parent company was approximately $4.5 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.
<PAGE>
Note 18 Quarterly Financial Data (Unaudited)
Summarized quarterly financial data is as follows
(millions, except per share amounts):
<TABLE>
<CAPTION>
1993 1992
------------------------------------------------------------------------------
Quarter Ended 12/31 9/30 6/30 3/31 12/31 9/30 6/30 3/31
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 3,709 $ 3,583 $ 3,524 $ 3,357 $ 3,968 $ 3,936 $ 3,834 $ 3,749
Pretax income (loss) from
continuing operations
before accounting changes 392 416 417 1,101 373 (280) 561 242
Income (loss) from continu-
ing operations before
accounting changes 291 312 301 701 255 (173) 312 184
Net income (loss) 399 420 416 243 82 (205) 310 274
Income (loss) from continu-
ing operations before
accounting changes
per common share .57 .61 .60 1.41 .51 (.38) .63 .37
Net income (loss) per share .78 .83 .83 .48 .15 (.45) .63 .56
Cash dividends declared per
common share .25 .25 .25 .25 .25 .25 .25 .25
Common share prices:
High 36 1/4 36 5/8 32 3/8 29 25 3/8 24 5/8 24 5/8 24 1/4
Low 29 3/4 30 1/2 26 1/2 22 3/8 20 20 1/4 21 1/2 20
- - -----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Notes: Amounts have been restated to reflect Lehman as a discontinued
operation. 1992 revenues excluding FDC revenues were $3,470; $3,546; $3,633
and $3,647 for the first, second, third and fourth quarters, respectively.
First quarter 1993 results reflected a gain of $433 million ($779 million
pretax) on the sale of FDC shares.
Third quarter 1992 results reflected a TRS restructuring charge of $342
million ($492 million pretax).
Second quarter 1992 results reflected a gain of $425 million ($706 million
pretax) from the initial public offering of FDC shares and a $300 million
($388 million pretax) addition to reserves at Balcor.
<PAGE>
REPORT OF ERNST & YOUNG 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, 1993 and 1992, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1993. 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, 1993 and 1992, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1993, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the financial statements, in 1992 the Company
changed its method of accounting for income taxes and postretirement benefits.
/s/ Ernst & Young
New York, New York
February 3, 1994
<PAGE>
CONSOLIDATED FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
American Express Company
(millions, except Common Share
Statistics and Other 1993 1992 1991 1990 1989
Statistics)
- - ------------------------------------------------------------------------------
Operating Results
Revenues $14,173 $ 15,487 $ 14,966 $14,587 $ 13,143
Percent increase (decrease) (8)% 3% 3% 11% 23%
Expenses 11,847 14,591 14,344 13,009 11,720
Income tax provision 721 318 15 430 324
Income from continuing
operations before accounting
changes 1,605 578 607 1,148 1,099
Percent increase (decrease) 178% (5)% (47)% 4% 17%
Net income 1,478 461 789 181 1,157
Percent increase (decrease) 220% (42)% 335% (84)% 11%
Return on average
shareholders' equity 18% 6% 11% 3% 21%
- - ------------------------------------------------------------------------------
Assets and Liabilities
Cash and cash equivalents $ 3,312 $ 3,408 $ 3,391 $ 4,277 $ 5,803
Accounts receivable and
accrued interest, net 16,142 15,293 16,866 16,852 15,495
Investments 39,308 37,629 32,634 30,532 28,965
Loans and discounts, net 14,796 14,750 15,670 13,948 12,403
Total assets 94,132 90,112 84,541 77,989 73,316
Customers' deposits and
credit balances 11,131 11,637 12,693 14,360 17,976
Travelers Cheques outstanding 4,800 4,729 4,375 4,225 3,834
Insurance and annuity
reserves 23,406 20,893 17,741 14,789 12,207
Short-term debt 12,489 11,163 12,396 11,555 8,177
Long-term debt 8,561 8,614 8,734 7,276 7,626
Shareholders' equity 8,734 7,499 7,465 6,635 5,691
- - ------------------------------------------------------------------------------
Common Share Statistics
Income per share from
continuing operations
before accounting changes $ 3.17 $ 1.12 $ 1.21 $ 2.54 $ 2.56
Net income per share $ 2.92 $ .88 $ 1.59 $ .34 $ 2.70
Cash dividends declared
per share $ 1.00 $ 1.00 $ .96 $ .92 $ .86
Book value per share $ 16.81 $ 14.58 $ 14.43 $ 13.21 $ 12.90
Market price per share:
High $36 5/8 $25 3/8 $30 3/8 $35 1/4 $39 3/8
Low $22 3/8 $20 $18 $17 1/2 $26 3/8
Close $30 7/8 $24 7/8 $20 1/2 $20 5/8 $34 7/8
Average shares outstanding
for income per share 500 477 470 439 421
Shares outstanding at
year end 490 480 472 464 418
Number of shareholders
of record 58,179 54,526 54,960 54,368 55,294
- - ------------------------------------------------------------------------------
<PAGE>
Other Statistics
Number of employees at year end
United States 40,342 38,266 37,018 36,605 32,920
Outside United States 24,151 24,388 24,090 23,687 22,746
- - ------------------------------------------------------------------------------
Total 64,493 62,654 61,108 60,292 55,666
==============================================================================
Number of offices at year end
American Express offices
worldwide 1,142 1,243 1,222 1,032 1,091
Representative offices 1,135 1,059 1,017 882 847
- - ------------------------------------------------------------------------------
Total 2,277 2,302 2,239 1,914 1,938
==============================================================================
Note: Prior year amounts have been restated to present Lehman Brothers as a
discontinued operation. In addition, the number of employees and offices
have been restated to exclude First Data Corporation, which is accounted for
as an equity investment as of January 1, 1993. Excluding FDC from 1992, 1991,
1990 and 1989, revenues were $14.3 billion, $14.0 billion, $13.7 billion and
$12.5 billion, respectively, and expenses were $13.5 billion, $13.4 billion,
$12.2 billion and $11.1 billion, respectively.
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. Companies engaged in travel related services
American Express Travel Related New York
Services Company, Inc.
Amex Canada, Inc. (94.4% owned) Canada
1001674 Ontario, Inc. Canada
1001675 Ontario, Inc. Canada
Amex Bank of Canada Canada
American Express Deposit Corporation Utah
American Express Company (Mexico) S.A. de C.V. Mexico
American Express Centurion Bank Delaware
American Express Centurion Services Corporation Delaware
American Express Credit Corporation Delaware
American Express Overseas Credit Jersey, Channel
Corporation, Ltd. Islands
AEOCC Management Co., Ltd. Jersey, Channel
American Express Overseas Finance Netherlands
Company, N.V. Antilles
American Express Overseas Credit Netherlands
Corporation, N.V. Antilles
American Express Overseas Credit Belgium
Corporation, S.A.
Credco Receivables Corp. Delaware
American Express Direct Response Corporation Delaware
American Express Financial Services Ltd. England
American Express Receivables Financing Corp. Delaware
American Express do Brazil Tempo & Cia, Inc. Delaware
American Express do Brasil Servicos Brazil
Internacionais, Ltda. (90% owned)
American Express do Brazil Tempo & Cia (90% owned) Brazil
American Express do Brasil S.A. Brazil
Turismo (90% owned)
American Express International (B) SDN.BHD (Brunei) Brunei
American Express Limited Delaware
American Express Argentina, S.A. Argentina
American Express (Malaysia) Sdn. Bhd. Malaysia
American Express (Thai) Co. Ltd. (77.5% owned) Thailand
TRS Card International Inc. Delaware
(75% owned, 25% by CFS, Ltd.)
American Express D'Espana, S.A. Spain
American Express Viajes, S.A. Spain
Amex Asesores de Seguros SA Spain
Centurion Finance, Ltd. New Zealand
American Express International, Inc. Delaware
American Express Hungary KFT Hungary
American Express Reisebyria A/S Norway
American Express Company A/S Norway
AMEX Services Inc. Delaware
American Express Company, S.P.A. Italy
American Express Factoring, Srl. Italy
American Express Locazioni Italy
Finanziarie, Sr1.
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
American Express Daro Voyages France, S.A. France
AllCard Service GmbH Germany
American Express Bureau de Change S.A. Greece
Amex (Gulf States) E.C. (50% owned) Bahrain
American Express Exposure Management, Ltd Jersey, Channel
Islands
American Express Travel Poland Sp.Zo.O Poland
American Express Czechoslovakia, Spol.SRO. Czechoslovakia
American Express Company A/B Sweden
American Express Resebyra A/B Sweden
American Express Services Sweden A/B Sweden
American Express Services Finland OY Finland
Sociedad Internacional de Servicios Panama
de Panama, S.A.
Amex Sumigin Service Company, Ltd. (40% owned) Japan
American Express Russia Limited Russia
American Express Holdings AB Sweden
TMG Intressenter Sweden
Nyman & Schultz AB (95.4% owned) Sweden
Book Hotel AB Sweden
Forsakringsaktiebolaget Viator Sweden
Nyman & Schultz Affarsresor AB Sweden
First Card AB Sweden
Nyman & Schultz Grupp och Konferens AB Sweden
Nyman & Schultz Travel, Inc. Delaware
Nyman & Schultz UK Plc England
Nyman & Schultz, Ltd. England
IEL Travel Ltd. England
IEL Travel (Swindon) Ltd. England
IEL Travel (Groups) Ltd. England
IEL Travel (Leisure) Ltd. England
Pluresor AB (67% owned) Sweden
Profil Rejser A/S (30% owned) Denmark
Resespecialisterna Enkoping AB (26% owned) Sweden
Resespecialisterna Syd AB (84% owned) Sweden
Resespecialisterna Helsingborg AB Sweden
(84% owned)
Scandinavian Express AB Sweden
Destination Kiruna AB (22% owned) Sweden
Oy Scandinavian Express Finland AB Sweden
(95% owned)
SvenskKinesiskan Resebyran AB (21% owned) Sweden
TeleTravel Scandinavia AB Sweden
Fastighets AB Ostanan Sweden
Stockholm Central Hotel AB Sweden
TMG Forvaltning HB (60% owned) Sweden
TMG International B.V. Netherlands
Nyman & Schultz Norge A/S Norway
Nyman & Schultz Forretningsreiser A/S Norway
Nyman & Schultz Gruppe-of Spesialreiser A/S Norway
American Express Publishing Corp. New York
Soutwest Media Corporation Texas
Amexco, Inc. Delaware
Societe Francaise du Cheque de Voyage, S.A. France
(34% owned)
Repertoire International, Inc. Delaware
Travellers Cheque Associates, Ltd. (54% owned) England
American Express Service Corporation Delaware
Banamsa S,A, de CV (49% owned, 51% owned by Banamex) Mexico
Bansamex S.A. (50% owned, 50% owned by Banco Spain
Santander)
American Express Europe, Ltd. Delaware
Travel Places (City) Ltd. England
Travel Places (Incentives) Ltd. England
American Express Services, Ltd. England
American Express Ireland, Ltd. Ireland
American Express Insurance Services, Ltd. England
Amex Services Europe Limited England
Amex Marketing Japan Ltd. Delaware
American Express Realty Mgt. Co. California
American Express Group and Incentive Michigan
Services, Inc. (90% owned)
American Express TRS, Inc. Florida
Cardmember Financial Services, Ltd. Jersey, Channel
Islands
AMEX Life Assurance Company California
American Centurion Life Assurance Company New York
Holdinsco, Inc. Delaware
AMEX Assurance Company Illinois
Integrated Travel Systems, Inc. Texas
The AYCO Corporation New York
The AYCO Development Corporation New York
Mercer Allied Corporation New York
ADRAC Realty Corp. New York
Albion Real Estate Corporation New York
Ayco Real Estate Services, Inc. New York
Ayco Program Services, Inc. New York
Ayco Maryland Realty Investors, Inc. Maryland
Ayco Jacksonville Associates II, Inc. New York
Ayco Los Angeles Office Associates I, Inc. New York
Ayco Services Insurance Agency, Inc. New York
Ayco Greensboro Associates I, Inc. Delaware
Ayco Hedge Corporation New York
The Ayco Services Agency of Alabama, Inc. Alabama
The MBS Agency of Ohio, Inc. (50% owned) Ohio
Epsilon Data Management, Inc. Delaware
Epsilon Master Software Corporation Delaware
Controlled Airspace Corporation Texas
Tour and Incentive Management Corporation Delaware
Lifeco Management (Canada), Inc. Canada
Lifeco Travel (Canada), Inc. Canada
Lifeco Travel Management S.A.R.L. France
Lifeco Travel Management, Ltd. United Kingdom
Mark Allan Travel Inc. California
Competitive Technologies, Inc. Texas
II. Companies engaged in investors diversified financial services
IDS Financial Corporation Delaware
IDS Financial Services Inc. Delaware
IDS Real Estate Services, Inc. Delaware
IDS Securities Corporation Delaware
IDS Bank & Trust Minnesota
IDS International, Inc. Delaware
IDS Life Insurance Company Minnesota
IDS Life Insurance Company of New York New York
American Enterprise Life Insurance Company Indiana
IDS Certificate Company Delaware
Investors Syndicate Development Corp. Nevada
IDS Fund Management Limited England
IDS Insurance Agency of North Carolina Inc. North Carolina
IDS Insurance Agency of Arkansas Inc. Arkansas
IDS Insurance Agency of Alabama Inc. Alabama
IDS Insurance Agency of New Mexico Inc. New Mexico
IDS Insurance Agency of Utah Inc. Utah
IDS Insurance Agency of Wyoming Inc. Wyoming
IDS Insurance Agency of Nevada Inc. Nevada
IDS Insurance Agency of Ohio Inc. Ohio
IDS Insurance Agency of Massachussetts Inc. Massachusetts
IDS Advisory Group Inc. Minnesota
IDS Capital Holdings Inc. Minnesota
IDS Management Corporation Minnesota
IDS Partnership Services Corporation Minnesota
IDS Cable Corporation Minnesota
IDS Futures Corporation Minnesota
IDS Realty Corporation Minnesota
IDS Futures III Corporation Minnesota
IDS Cable II Corporation Minnesota
IDS Property Casualty Insurance Company Wisconsin
American Express Minnesota Foundation Minnesota
IDS Deposit Corp. Utah
IDS Sales Support Inc. Minnesota
IDS Plan Services of California, Inc. Minnesota
American Enterprise Investment Services Inc. Minnesota
IDS Aircraft Services Corporation Minnesota
III. Companies engaged in international banking services
American Express Bank Ltd. Connecticut
American Express International Netherlands
Finance Corporation B.V. Antilles
American Express International Thailand
Investment Limited
American Express Management Services Inc. Delaware
Amex Human Resources (Japan) Inc. Delaware
Amex Holdings, Inc. Delaware
American Express International Finance Netherlands
Corporation N.V. Antilles
American Express Bank GmbH Germany
Amex Grundstuecksverwaltung GmbH Germany
American Express International Development Cayman Islands
Company (Cayman) Limited
Egyptian American Bank (49% owned) Egypt
Guaramex, Inc. Delaware
Paramex, Inc. Delaware
Amtrade Holdings, Inc. (100% owned) Delaware
American Express Bank (Switzerland) S.A. Switzerland
Cristal Trust Services S.A.-Geneva Switzerland
AEB Aviation Services, Inc. Delaware
International Trade Services Pte Ltd. Singapore
Dash 200 + Ltd. (50% owned) Cayman Islands
Queens House Properties Limited (36.97% owned) Guernsey
Amex Broker Assicurativo Srl. Italy
Amex International Trust (Guernsey) Limited Guernsey
AMEX Insurance Marketing, Inc. Taiwan
January Real Estate Cayman Islands
Etoral Finance, Inc. Panama
Sociedad Del Desarrollo Mercantil Chile
Ltda. (50% owned by each of Amex
Holdings, Inc. and Etoral Finance, Inc.)
Remor and Associates Inc. Panama
Republic Leasing Do Brasil S/A Brazil
Arrendamento Mercantil (49.8% owned)
Anangel-American Shipholdings Limited (3.7% owned) Cayman Islands
American Express Bank Asset Management Jersey, Channel
(Jersey) Ltd. Islands
Priory Centre Investments Limited (31.02% owned) Guernsey
American Express Bank (Luxembourg) S.A. Luxembourg
Multistakes Company S.A. Luxembourg
American Express Bank (Uruguay) S.A. Uruguay
Tribute Royalties, Inc. Delaware
Lehman Brothers S.A. Switzerland
Amex International Trust (Cayman) Ltd. Cayman Islands
International Capital Corporation Delaware
Intercapital Comercio e Participacoes Ltda. Brazil
Conepar Compania Nordestina de Brazil
Participacoes S.A. (36.67% owned)
Convertible Holding Ltd. Cayman Islands
CTH Common Holdings Ltd. Cayman Islands
Complejos Turisticos Huatulco, Mexico
S.A. de C.V. (15% of common stock)
CTH Preferred Holdings Ltd. Cayman Islands
Complejos Turisticos Huatulco, Mexico
S.A. de C.V. (84% of preferred stock)
Turcan Holdings Ltd. Cayman Islands
TC Holdings Ltd. Cayman Islands
Turistica Cancun, S.A. de C.V. (28% owned)Mexico
Acamex Holdings Ltd. Cayman Islands
Etisa Holdings Ltd. Cayman Islands
Empresas Turisticas Integradas, Mexico
S.A. de C.V. (92.35% owned)
Asesoria Empresarial ICC, S.A. de C.V. Mexico
Agricola Las Dos Mercedes Limitada Chile
Agricola Amalia de Paine Limitada Chile
Agricola Santa Filomena de Huelquen Limitada Chile
Agrotrade Amalia Ltda. Chile
Floriano Representacoes Ltda. Brazil
Amex Distribuidora De Titulos E Valores Brazil
Mobiliarios Ltda (90% owned)
OLP Investments Ltd. Cayman Islands
American Express Leasing Corporation Delaware
AELC Jinoriwon S.A. Panama
AELC Australia Proprietary Limited Australia
AMP-Amex Leasing Limited Australia
(50% owned)
AMP-Amex Securities Pty. Ltd. Australia
American Express Leasing Corporation, Brazil
S.A. - Arrendamento Mercantil
(50% owned by American Express Leasing
Corporation and 50% owned by ANIF
Comercio, Empreendimento e Negocios Ltda.)
Reedco Leasing, Inc. Delaware
Mark Leasing Inc. Delaware
Carter Leasing Inc. Delaware
JBB Leasing Inc. Delaware
Ashley Leasing Inc. Delaware
Aries Aircraft Leasing Limited Cayman Islands
Aries Aircraft Leasing (US), Inc. New York
Daniel Leasing Corporation Delaware
Nora Leasing, Inc. New York
Nora 737 Leasing, Inc. New York
Gemini Leasing Ltd. Cayman Islands
Wings Aircraft Leasing Corp. Belgium
(Amex Holdings, Inc. - 1 share of 1250 shares)
AKW Aircraft Leasing Corporation Limited England
Jesem Aviation Corp. New York
MME Leasing Corp. New York
C Power, Inc. New York
AEB World Folio Management 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
Amex Asia Limited Hong Kong
Amex Finance Japan Ltd. Hong Kong
Bexim International S.A. (45% owned) Panama
American Express Middle East Development Lebanon
Company, S.A.L.
American Express Nominees Private Limited India
The American Express Nominees Limited England
Argentamex S.A. Argentina
Amex do Brasil Empreendimentos e Participacoes Ltda. Brazil
INAF Incorporated Delaware
INAF Comercio, Empreendimentos e Negocios Ltda. Brazil
ANIF Comercio, Empreendimentos e Brazil
Negocios Ltda. (37.4% owned, and
47.3% owned by American Express Bank Ltd.
and 15.3% by Amex Do Brazil)
Banco American Express Brazil
Amex Capital Investments (UK) Ltd. England
Maineye Limited England
Logicfull Limited England
Amexnet Limited England
AEB (UK) P.L.C. England
Grahams Rintoul Investment Trust PLC England
(22.5% owned and 14.96% owned by The
American Express Nominees Limited)
Amex Nominees (S) Pte Ltd. Singapore
Amex Bank Nominee Hong Kong Limited Hong Kong
First International Investment Bank Ltd. Pakistan
(23.62% owned)
Investment and Capital Corporation (20% owned) Philippines
American Express (Poland) Ltd. Delaware
Exatco Limited (50% owned) Bermuda
Sociedad Gestinver de Fundos de Pensiones (40% owned) Spain
Far East Leasing Ltd. Cayman Islands
Geneva Nominees Limited England
747-2, Inc. New York
Tata Finance Ltd. India
Purbeck Petroleum Limited (25.1% owned) England
American Express Bank CFS, Ltd. Guernsey
American Express Bank Asset Management (Cayman) Ltd. Cayman Islands
Historic Houston, Inc. Delaware
Columbus Real Estate Corp. New York
American Express Bank S.A. Argentina
(56,810,000 shares owned by AEBL, 1 share owned
by American Express Limited)
IV. General
Acuma Financial Services Ltd. Delaware
Acuma Ltd. Delaware
Ainwick Corporation Texas
Alair Holdings, Inc. Delaware
American Express Asset Management Holdings, Inc. Delaware
American Express Corporation Delaware
Amexco Insurance Company Delaware
Amexco Risk Financing Holding Company Delaware
Brighton Corporation Delaware
National Express Company, Inc. New York
The Balcor Company Holdings, Inc. Delaware
Balcor Real Estate Holdings,Inc. Illinois
The Balcor Company Delaware
Balcor Securities Company Illinois
Balcor Development Company Illinois
Balcor Institutional Realty Advisors, Inc. Illinois
Allegiance Realty Group Illinois
Balcor Financial Resources, Inc. Delaware
Allegiance Realty Group, Inc. Illinois
Balcor Capital Markets, Inc. Illinois
Balcor Consulting Group Illinois
Balcor Realty Company Illinois
Balcor Management Services, Inc. Illinois
Rexport, Inc. Delaware
Drillamex, Inc. Delaware
UMPAWAUG I Corporation Delaware
UMPAWAUG II Corporation Delaware
UMPAWAUG III Corporation Delaware
UMPAWAUG IV Corporation Delaware
WGT Leasing Corporation Delaware
V. Companies engaged in investment services
Lehman Brothers Holdings Inc. Delaware
(voting stock 93% owned, common stock 100% owned)
AEP Premiere Corporation Delaware
AEP Premiere Corporation II Delaware
AFC I Bldg. Corp. Georgia
AFC II Bldg. Corp. Georgia
AFC III Bldg. Corp. Georgia
ALI Inc. Delaware
ASAS Investment Company Delaware
Americal GP Corp. Delaware
American Entertainment Depositary Corp. Delaware
American Entertainment Depositary Corp. II Delaware
American Marketing Industries Holdings Inc. Delaware
American Marketing Industries Inc. Delaware
B.H. Venture, Inc. Delaware
BBC Land Company Georgia
Banque Lehman Brothers S.A. France
Beaver Creek Corporate Center, Inc. Delaware
Broad OK Corp. Delaware
CA Claremont Associates Inc. Delaware
CA Claremont Inc. Delaware
CA Victory Assignor Corp. Delaware
CA Victory Inc. Delaware
CG California Commercial Lending Inc. Delaware
CG Realty Funding Inc. Delaware
CG Zero Coupon Depositary Corp. Delaware
CPR Group Inc. Delaware
Cable Income Services Inc. Delaware
Capital Preservation and Restructuring, Inc. Delaware
Chief Auto Parts Inc. Delaware
Client Account Protection Insurance Company Vermont
Commerce Square Corporation Delaware
E.H.P. Depositary Corp. Delaware
EHP/GP Inc. Delaware
Eastern Avenue Inc. Delaware
Economic Advisors, Inc. Massachusetts
F & J Fruit Orchard Limited Delaware
FIMI I Liquidation Inc. Delaware
FIMI II Liquidation Inc. Delaware
Fiduciaria Lehman Brothers SpA Italy
Finanziaria Lehman Brothers S.R.L. Italy
Freedom GP Inc. Delaware
G & P Cable-1, Inc. Delaware
Growth Partners Inc. Delaware
HBLP Acquisition Corp. Delaware
Heritage Park II Inc. Delaware
HillCreste Properties Inc. Delaware
Industrial Holdings Corporation New York
J & F Apple Corporation Delaware
L-B Associates Inc. Georgia
LB Energy Inc. Delaware
LB Investment Inc. Delaware
LB Real Properties Corp. Delaware
LB/FW Inc. Delaware
LB/MB Inc. Delaware
LB/MMG Inc. Delaware
Laurel Centre Depositary Corp. Delaware
Laurel Centre Inc. Delaware
Lehman Atlanta Properties Inc. Georgia
Lehman Brothers (China) Limited Hong Kong
Lehman Brothers (Luxembourg) S.A. Luxembourg
Lehman Brothers (Taiwan) Ltd. Taiwan
Lehman Brothers (Thailand) Ltd. Thailand
Lehman Brothers Asset Trading Inc. Delaware
Lehman Brothers Bank (Switzerland) Switzerland
Lehman Brothers Bankhaus Aktiengesellschaft (A.G.) Germany
Lehman Brothers Capital Co. (H.K.) Limited Hong Kong
Lehman Brothers Capital GMBH Germany
Lehman Brothers Commercial Corporation Delaware
Lehman Brothers Commodities (Japan) Ltd. Japan
Lehman Brothers Commodities Ltd. United Kingdom
Lehman Brothers Conseil S.A. France
Lehman Brothers Fiduciaria Di Amministrazione S.R.L. Italy
Lehman Brothers Finance S.A. Switzerland
Lehman Brothers Futures Asset Management Corp. Delaware
Lehman Brothers Gilts Ltd. United Kingdom
Lehman Brothers Global Asset Management Inc. Delaware
Lehman Brothers Global Asset Management Limited United Kingdom
Lehman Brothers Group Inc. Delaware
Lehman Brothers Holdings Inc. Delaware
Lehman Brothers Holdings Plc United Kingdom
Lehman Brothers II Investment Inc. Delaware
Lehman Brothers Inc. Delaware
Advantaged Housing Associates Inc. Delaware
Aircraft Depositary Inc. Delaware
Area Assignor Corp. Delaware
Area Depositary Corporation Delaware
Area GP Corporation Delaware
Assisted Housing Associates Inc. Delaware
Assisted Housing Inc. Delaware
BK I Realty Inc. New York
BK II Properties Inc. New York
BK III Restaurants Inc. New York
Battery Park Credit Company Delaware
Blue Jay Realty Corporation Delaware
Boulevard Investors, Inc. Delaware
Boulevard Real Estate Corp. Delaware
Brookson Corp. Delaware
Brookwood Energy & Properties, Inc. Delaware
Burlington Investors Inc. Delaware
Buttonwood Leasing Corporation Delaware
CA Pacific Inc. Delaware
CA Rosemead Inc. Delaware
CA Village Green Inc. California
CA Westlake Inc. California
CDF85 Real Estate Services Inc. Delaware
CFB Realty Inc. Texas
CHP Real Estate Services Inc. Delaware
CP1 Real Estate Services Inc. Delaware
CP4 Real Estate Services Inc. Delaware
CPR Realty Brokerage Inc. New York
CR Properties, Inc. Delaware
CS Housing II Inc. Delaware
Canope Credit Corp. Delaware
Capital Park Real Estate Services Inc. Delaware
Casitas Associates, Inc. California
Catcon Corp. Delaware
Central Funding (Concord) Corporation Delaware
Commerce Credit Corp. Delaware
Corcon Corp. Delaware
Creekside Inc. Delaware
DG Realty Corp. Delaware
DL Mortgage Corporation Delaware
DRA Management, Inc. New York
Dimont Corporation Delaware
Dixon Mill Properties Inc. Delaware
EB Realty Corp. Delaware
EIP Holdings Inc. Delaware
EIP I Inc. Delaware
Energy Services I Inc. Delaware
Energy Services II Inc. Delaware
Energy Services III Inc. Delaware
Equipment Management Inc. Delaware
Ethanol Services Inc. Delaware
FRAH Special Services Inc. Delaware
Financial Advisory Corporation Delaware
First Dallas Associates Inc. Delaware
First Ward Properties, Inc. Delaware
Forest Management Corp. Delaware
Fort Bend Inc. Delaware
Funds Distributor Inc. Massachusetts
GA Dekalb Inc. Delaware
GP Real Estate Services II Inc. Delaware
Government Assisted Properties, Inc. Delaware
Grass Valley/Marguerite, Inc. California
HEI Corporation Delaware
HRH 1, Inc. Delaware
HRH Depositary Corporation Delaware
Heritage Park Inc. Delaware
Historic Properties Inc. Delaware
Housing Programs Corporation II Delaware
Housing Services, Inc. Delaware
Hutton Manufactured Housing
Communities III Inc. Delaware
Hutton Technology Services 1 Inc. Delaware
IL Lombard Inc. Delaware
Indian Oaks Inc. Delaware
Insured Mortgage Equities Inc. Delaware
Intermodal Equipment Leasing Corporation Delaware
Investment Properties II Inc. Delaware
Jackson Capitol Inc. Delaware
Jet Aircraft Leasing Inc. Delaware
K. Acquisition Corp. Delaware
KCP Corp. Delaware
KM-I Real Estate Company VII Delaware
Kandel Kansas, Inc. Kansas
Kandel Properties I Inc. Delaware
Kulo Corp. Connecticut
LB I Group Inc. Delaware
LB Leasing Inc. Delaware
LB Offshore Vessels Inc. Delaware
LB Orlando Properties IV, Inc. Delaware
LB Research Inc. Delaware
LB/EJV Inc. Delaware
LBKL Properties Inc. Delaware
LM Kansas Partners Inc. Delaware
LRH Warehousing, Inc. Delaware
LW-GP2A, Inc. Delaware
LW-GP2B, Inc. Delaware
LW-GP2C, Inc. Delaware
LW-GP2D, Inc. Delaware
LW-LP, Inc. Delaware
LW-RTC, Inc. Delaware
LW-SSP3, Inc. Delaware
LW-SSP4, Inc. Delaware
LW-SSP5, Inc. Delaware
LW-SSP6, Inc. Delaware
LW-SSP7, Inc. Delaware
La Jolla GP Inc. Delaware
Lebwab, Inc. Delaware
Lehman ABS Corporation Delaware
Lehman Brothers (PTE) Ltd. Singapore
Lehman Brothers Asia Holdings Limited Hong Kong
Lehman Brothers Asia Limited Hong Kong
Lehman Brothers Asset Management Asia, Inc. Delaware
Lehman Brothers Commercial Corporation
Asia Limited Hong Kong
Lehman Brothers De Venezuela C.A. Venezuela
Lehman Brothers Europe Inc. Delaware
Lehman Brothers Finance (Japan) Inc. Delaware
Lehman Brothers Finance Limited Hong Kong
Lehman Brothers GMBH Germany
Lehman Brothers Global Asset Management K.K. Japan
Lehman Brothers Holdings International Inc. New York
Lehman Brothers International Services, Inc. Delaware
Lehman Brothers Investment Holding
Company Inc. Delaware
Lehman Brothers LBO Inc. Delaware
Lehman Brothers Nominees (H.K.) Limited Hong Kong
Lehman Brothers Overseas Inc. Delaware
Lehman Brothers Pte Ltd. Singapore
Lehman Brothers Puerto Rico Inc. Puerto Rico
Lehman Brothers Realty Investment
Corporation Delaware
Lehman Brothers S.A. [Spain] Spain
Lehman Brothers S.A.E. Spain
Lehman Brothers Securities Asia Limited Hong Kong
Lehman Brothers Services SNC France
Lehman Brothers Special Financing Inc. Delaware
Lehman Brothers Sudamerica S.A. Argentina
Lehman Brothers Systems Zero, Inc. Delaware
Lehman Brothers Uruguay S.A. Uruguay
Lehman Brothers de Chile, S.A. Chile
Lehman CMO Inc. Maryland
Lehman Commercial Paper Inc. New York
Lehman Energy Inc. Delaware
Lehman Enterprises Inc. Delaware
Lehman Government Securities Inc. New York
Lehman Insurance Company Arizona
Lehman Pass-Through Securities Inc. Delaware
Lehman Phase II Inc. New York
Lehman Realty & Development Corp. New York
Lehman Risk Management, Inc. Delaware
Liberty Corner Inc. Delaware
Lombard Realty Corporation Delaware
Low Income Housing Inc. Delaware
Lowell Investors Inc. Delaware
Lowell Real Estate Corp. Delaware
MTGCO Inc. Delaware
Manufactured Housing Communities I Inc. Delaware
Manufactured Housing Communities II Inc. Delaware
Manufactured Housing Services Inc. Delaware
Metro Realty Corporation Delaware
Mountainview Hotels I Inc. Delaware
Mukilteo GP Inc. Washington
N.P. Holdco, Inc. Delaware
N.P. Investment I Co. Delaware
N.P. Investment II Co. Delaware
NGP Inc. Delaware
NJ Atlantic Inc. Delaware
NPC Inc. Delaware
NY Real Estate Services 1 Inc. Delaware
NY Real Estate Services 2 Inc. Delaware
Newark Properties One Inc. Delaware
Novacorp Realty/GP Inc. Canada
One Commerce Inc. Delaware
Ophthalmic Research Services I Inc. Delaware
Ophthalmic Research Services II Inc. Delaware
PAC Aircraft Management Inc. New York
PREP 2 Preferred Properties Inc. Delaware
Pacific Village Inc. Delaware
Panagora Asset Management, Inc. Massachusetts
Participating Properties Inc. Delaware
Phoenix Lease Properties II Inc. Delaware
Phoenix Lease Properties Inc. Delaware
Playa Blanca Inc. Delaware
Polaris Industries Holdings Inc. Delaware
Prochi Corp. Chile
Project North Corporation Delaware
Prometheus GP Inc. Delaware
Prometheus II Inc. Delaware
QP80 Real Estate Services Inc. Delaware
RI 2 Real Estate Services Inc. Delaware
RI 3-4 Real Estate Services, Inc. Delaware
RI 5 Real Estate Services, Inc. Delaware
RI 81 Real Estate Services Inc. Delaware
RJS Leasing Inc. Delaware
RN Properties Corp. Delaware
RPI Real Estate Services, Inc. Delaware
Raintree GP Inc. Delaware
Real Estate Equity Partners Inc. Delaware
Real Estate Investors Inc. Delaware
Real Estate Services I Inc. Delaware
Real Estate Services VII Inc. Delaware
Real Estate Services XIII Inc. Delaware
Renaissance Tower Associates Inc. Connecticut
Research Partners Inc. Washington
Rock Hill Investors, Inc. Delaware
Rock Hill Real Estate, Inc. Delaware
SEI II Equipment Inc. Delaware
SFWY Corporation Delaware
SM4 Real Estate Investors, Inc. Texas
SM7 Apartment Investors Inc. Texas
Sacam Corp. Delaware
Sambar Properties Inc. Delaware
Sanmars Acquisition Corp. Delaware
Scranzay, Inc. Delaware
Selective Funding Inc. Delaware
Semiahmoo Marina Corporation Washington
Sharpstown Center Inc. New York
Shearson/KM, Inc. Ohio
Southern Timber Resources Corp. Delaware
Spear Tower Inc. Delaware
Special Media Inc. Delaware
Stamford Investment Realty Inc. Delaware
Stamford Real Estate Corporation Delaware
Storage Services Inc. Delaware
Structured Asset Securities Corporation Delaware
Subsidized Housing Services II Inc. Delaware
Subsidized Housing Services Inc. Delaware
TE 2 Enterprises Inc. Delaware
TX Tower Inc. Delaware
Texas Self Storage Inc. Texas
Third-Sixth Mont Corporation Delaware
Timber Resources Corp. II Delaware
Tower Investors, Inc. Delaware
Tower Real Estate Corporation Delaware
Trans Orbital Sciences Inc. Delaware
Tustin Arms, Inc. California
Ult Development Inc. Delaware
VT, Inc. California
Venture Investment Partners Inc. Delaware
Viewmount Inc. Delaware
Xebec Technology Inc. Delaware
Lehman Brothers International (Europe) United Kingdom
Lehman Brothers International Investments Inc. Delaware
Lehman Brothers International S.A. Spain
Lehman Brothers International S.P.A. Italy
Lehman Brothers Investments Pte Limited Singapore
Lehman Brothers Japan Inc. Delaware
Lehman Brothers Limited United Kingdom
Lehman Brothers Merchant Banking Advisors Inc. Delaware
Lehman Brothers Merchant Banking Partners Inc. Delaware
Lehman Brothers Middle East Inc. Delaware
Lehman Brothers Money Brokers Ltd. United Kingdom
Lehman Brothers N.V. Curacao, N.A.
Lehman Brothers N.V. Holdings Inc. Delaware
Lehman Brothers Nominees Limited United Kingdom
Lehman Brothers Offshore Partners Ltd. Bermuda
Lehman Brothers Pera Inc. Delaware
Lehman Brothers Realty Corp. Delaware
Lehman Brothers S.P.A. Societa' Italy
Di Intermediazione Mobiliare
Lehman Brothers Securities United Kingdom
Lehman Brothers Securities SpA - Societa' Di Italy
Intermediazone Mobiliare
Lehman Brothers UK Holdings Limited Delaware & U.K
Lehman Brothers Verwaltungs-und Germany
Beteiligungsgesellschaft mbH
Lehman Brothers/FW Inc. Delaware
Lehman Brothers/GP Inc. Delaware
Lehman Brothers/MBGP Inc. Delaware
Lehman Brothers/MBLP Inc. Delaware
Lehman Brothers/Rosecliff Inc. Delaware
Lehman Capital Corporation New York
Lehman Electric Inc. Delaware
Lehman Funding Corp. Delaware
Lehman Global Financial Services Co., Ltd. United Kingdom
Lehman Hollywood Partners Inc. Delaware
Lehman Investments Inc. Delaware
Lehman Lending Corp. Delaware
Lehman Ltd. I Inc. Delaware
Lehman Q. C. Garage Inc. Delaware
Lehman Queens Center Inc. Delaware
Lehman Queens Limited Inc. Delaware
Lehman SFA Inc. Delaware
Lehman Special Securities Inc. New York
Lehman Structured Assets Inc. Delaware
Lehman-Global Financial Services Co., Ltd. Taiwan
Lehman/SDI Inc. Delaware
Liberty GP II Inc. Delaware
Liberty GP III Inc. Delaware
Liberty GP Inc. Delaware
Manhattan Beach Commercial Properties III
Depositary Inc. Delaware
Manhattan Beach Commercial Properties III Inc. Delaware
Medical Office Properties Depositary Inc. Delaware
Medical Office Properties Inc. Delaware
Messel (Foreign) Nominees Limited United Kingdom
Messel Nominees Limited United Kingdom
Midwest Centers Depositary Inc. Delaware
Midwest Centers Inc. Delaware
NJ Somerset Inc. Delaware
NL GP Inc. Delaware
Northstar Equipment Leasing Income Inc. Delaware
O.M.B. Limited Partner Ltd. Bermuda
PDF86 Depositary Corp. Delaware
PDF86 Real Estate Services Inc. Delaware
Panagora Asset Management Limited United Kingdom
Platform Mortgage Limited United Kingdom
Prime Depositary Corp. Delaware
Principal Growth Depositary Corp. Delaware
Principal Growth Mortgage Investors Depositary Corp. Delaware
Principal Growth Realty Funding, Inc. Delaware
Principal Growth Realty Management Inc. Delaware
Property Asset Management Inc. Delaware
R-H Wildwood-I, Inc. Georgia
RAIA Depositary Corp. Delaware
Regional Malls Depositary Corp. Delaware
Regional Malls Inc. Delaware
Senior Income Depositary, Inc. Delaware
Senior Income Fund Inc. Delaware
South Cobb Land Inc. Georgia
South Olive Services Company Delaware
Stamford Towers Depositary Corp. Delaware
Stamford Towers Inc. Delaware
Storage Inc. Delaware
Sun Distributors, Inc. Pennsylvania
Union Square Depositary Corp. Delaware
Union Square/GP Corp. Delaware
Walnut Grove GP Corp. Delaware
Warner Center Inc. Delaware
Warren Atlantic Inc. Delaware
Wellington-Medford III Properties, Inc. Massachusetts
Working Interest Inc. Delaware
