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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File 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
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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 6, 1995 were 497,048,645.
The aggregate market value, as of March 6, 1995, of such common shares held by
non-affiliates of the registrant was approximately $16.5 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 1994 Annual Report to
Shareholders.
Part III: Portions of Registrant's Proxy Statement dated March 10, 1995.
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TABLE OF CONTENTS
Form 10-K
Item Number
Part I Page
1. Business. . . . . . . . . . . . . . . . . . . . . . . . . .1
Travel Related Services. . . . . . . . . . . . . . . . .1
American Express Financial Advisors. . . . . . . . . . .7
American Express Bank. . . . . . . . . . . . . . . . . 12
Discontinued Operations. . . . . . . . . . . . . . . . 19
Corporate. . . . . . . . . . . . . . . . . . . . . . . 20
Foreign Operations . . . . . . . . . . . . . . . . . . 20
Industry Segment Information and
Classes of Similar Services. . . . . . . . . . . . . 21
Executive Officers of the Registrant . . . . . . . . . 21
Employees. . . . . . . . . . . . . . . . . . . . . . . 23
2. Properties. . . . . . . . . . . . . . . . . . . . . . . . 23
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 24
4. Submission of Matters to a Vote of Security Holders . . . 25
Part II
5. Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . 25
6. Selected Financial Data . . . . . . . . . . . . . . . . . 26
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 26
8. Financial Statements and Supplementary Data . . . . . . . 26
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . 26
Part III
10. Directors and Executive Officers of the Registrant. . . . 26
11. Executive Compensation. . . . . . . . . . . . . . . . . . 26
12. Security Ownership of Certain Beneficial Owners
and Management. . . . . . . . . . . . . . . . . . . . . 26
13. Certain Relationships and Related Transactions. . . . . . 26
Part IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . 26
Signatures. . . . . . . . . . . . . . . . . . . . . . . . 28
Index to Financial Statements . . . . . . . . . . . . . .F-1
Exhibit Index . . . . . . . . . . . . . . . . . . . . . .E-1
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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, financial advisory services and international
banking services throughout the world.
On May 31, 1994, the registrant completed a tax-free spin-off of the common
stock of its 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. Lehman's results are reported as a
discontinued operation in the registrant's Consolidated Financial Statements
through the spin-off date. This transaction is described in more detail on
pages 35 and 36 of the registrant's 1994 Annual Report to Shareholders, which
description is 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. In addition, in certain countries
partly owned affiliates and independent operators offer some of these products
and services under licenses from TRS.
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 American Express-R Corporate Card, the Optima-SM
Card and the American Express-R Corporate Purchasing Card. Cards are currently
issued in 35 currencies. The Card, which is issued to individuals for their
personal account or through a corporate account established by their employer
for its business purposes, 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.
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 charge volume, the timing and method of payment
to the establishment, the method of submission of charges and, in certain
instances, the average charge amount and the amount of information provided.
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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, except that the Optima True Grace-SM Card is free of an annual fee upon
satisfaction of an annual usage requirement.
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.
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. 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
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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. 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. Outside the United States, consumer lending activities are engaged in
by other subsidiaries of the registrant where local regulations permit. The
Optima True Grace Card was launched in September 1994 and offers an interest-
free period on new purchases, even if the accountholder is carrying a balance
from month to month.
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. 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 grandfathered restrictions on its activities
under the Competitive Equality Banking Act of 1987 ("CEBA"). 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
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 Centurion Bank conducts business to assure its continued
grandfathered status, but has not had a material adverse effect on the
registrant. 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. Another subsidiary of TRS,
American Express Deposit Corporation, is a Utah-chartered, FDIC-insured
industrial loan corporation.
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
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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 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. TRS has also focused on
understanding key factors that influence service establishment satisfaction 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.
TRS anticipates that developments in payment systems will affect
competition in the Card and travelers check businesses. Such changes may
include increasing use of debit cards, stored value cards, "smart cards" or
other card-based or electronic forms of payment.
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 spending
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. In addition, TRS receives management fees from business
travel clients. In March 1995, following limits imposed by certain airlines on
commissions paid to travel agents, TRS introduced a new structure of service
fees covering bookings of lower-priced air tickets for nonbusiness consumers.
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 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
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developed On-Line Access, a user-friendly information service that can help
organizations obtain necessary travel management information and develop
customized reports through their office computers.
In 1994, TRS continued to implement its strategy of acquiring business
travel agencies on a worldwide basis to meet the needs of its multinational
business travel and Corporate Card customers. Acquisitions included the
worldwide corporate travel management business of The Thomas Cook Group Ltd., as
well as its U.S. travel licensee, Thomas Cook Partnership. In March 1995, TRS's
French travel subsidiary and Havas Voyages, the largest French travel agency,
agreed to combine their business travel operations in France in a jointly owned
company.
Vigorous competition is encountered in the travel business from more than
30,000 travel agents and direct sales by airlines and travel suppliers 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 competitive in providing travel services to
regional and national business travel clients and in other activities. In
addition, many companies have established in-house business travel departments.
More recently, changes in the travel agent compensation structure (i.e.,
the limits on airfare commissions discussed above) have been imposed by airlines
in an environment of heightened competition. As a consequence, transaction and
service fees charged by travel agencies to both retail and business customers
are becoming more common. In addition, it is possible customers will
increasingly seek alternative channels to make travel arrangements, such as
direct purchases of tickets from airlines. It is also expected that travel
agencies will continue to look for expense reduction opportunities, and marginal
agencies are likely to exit the business. Consolidation of travel agencies is
likely to continue as agencies seek to better serve national and multi-national
business travel clients and negotiate more effectively with the airlines with
respect to systems and compensation arrangements.
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, Dutch guilders, Australian dollars, 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. As of January
1995, Swiss franc cheques are being issued by a Swiss partnership in which TRS
has a partnership interest.
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
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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, from charge and
debit cards 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.
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") 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
exclusive career agents, as well as independent agents and brokers and American
Express affiliates. Other products are marketed through direct response methods
to Cardmembers.
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American Centurion Life Assurance Company, formerly a subsidiary of AMEX
Life, became a subsidiary of IDS Life Insurance Company, effective January 1,
1995.
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.
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 9 for a general discussion of the
extent of state insurance regulations.)
AMERICAN EXPRESS FINANCIAL ADVISORS
American Express Financial Corporation, formerly IDS Financial Corporation,
is engaged in providing a variety of financial products and services to help
individuals, businesses and institutions establish and achieve their financial
goals. American Express Financial Corporation's products and services include
financial planning and advice, insurance and annuities, a variety of investment
products, including investment certificates, mutual funds and limited
partnerships, investment advisory services, trust and employee plan
administration services, tax preparation and bookkeeping services, personal auto
and homeowner's insurance and retail securities brokerage services. At December
31, 1994, American Express Financial Advisors Inc. (formerly IDS Financial
Services Inc.), American Express Financial Corporation's principal marketing
subsidiary, maintained a nationwide financial planning field force of 8,054
persons. American Express Financial Corporation's marketing system consists
primarily of its field force operating in 50 states, the District of Columbia
and Puerto Rico, organized in 3 regions and 45 market areas.
FINANCIAL PLANNING
American Express Financial Advisors Inc. offers financial planning and
investment advisory services to individuals for which it charges a fee.
American Express Financial Advisors Inc. financial planning services provide
financial analyses addressing six basic areas of financial planning: financial
position, protection, investment, income tax, retirement and estate planning,
as well as asset allocation. To complete their financial plans, American
Express Financial Advisors Inc. financial advisors provide clients with
recommendations of products from the more than 100 products distributed by
subsidiaries and affiliates of American Express Financial Corporation, as well
as products of approved third parties.
First-year financial advisors are compensated primarily by salary, while
veteran financial advisors receive compensation based largely on sales. The
American Express Financial Advisors Inc. field force compensation is structured
to encourage advisor retention and product persistency, while adding stability
to the financial advisor's income. In attracting and retaining members of the
field force, American Express Financial Advisors Inc. competes with financial
planning firms, insurance companies, securities broker-dealers and other
financial institutions. American Express Financial Advisors Inc. has undertaken
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a major initiative called "IDS 1994" to make changes in its business processes,
field organization and compensation arrangements to improve advisor retention
and client satisfaction. American Express Financial Advisors Inc. has four
pilot market areas implementing the IDS 1994 recommendations and plans to
introduce elements of the IDS 1994 design nationwide in 1995. In December
1994, American Express Financial Corporation entered into a 10-year contract
with Information Systems Solutions Corporation for the outsourcing of systems
management and support services.
Although the use of a dedicated field force may entail higher initial costs
than other forms of marketing, such as direct-response marketing or independent
agency distribution, American Express Financial Advisors Inc. believes that its
ability to provide broad-based integrated services on a relationship basis is a
competitive advantage.
In addition to marketing through a dedicated sales force, American Express
Financial Advisors Inc. is actively pursuing alternative approaches for the
distribution of its financial planning services, and investment, insurance and
annuity products, including the implementation of multiple classes of shares of
its mutual fund products and networking arrangements with large financial
institutions such as Shawmut Bank, as well as community banks, credit unions and
agri-banks. American Express Financial Advisors Inc. believes that it is
important to provide these alternatives to enhance its competitiveness in the
marketplace.
The registrant and American Express Financial Advisors Inc. are developing
a separate distribution system which is complementary to the existing system of
American Express Financial Advisors Inc. It will operate under the name
American Express Financial Services Direct, and will include not only products
from American Express Financial Advisors Inc., but also from other parts of the
registrant and selected outside vendors. It will entail the offering of advice
by tele-advisors and helping prospects and clients select appropriate products.
American Express Financial Advisors Inc. does business as a broker-dealer
and investment adviser in all 50 states, the District of Columbia and Puerto
Rico. American Express Financial Corporation and American Express Financial
Advisors Inc. are registered as broker-dealers and investment advisors regulated
by the Securities and Exchange Commission ("SEC"), and are members of the
National Association of Securities Dealers, Inc. ("NASD"). American Express
Financial Advisors Inc. financial advisors must obtain state and NASD licenses
required for the businesses.
American Express Financial Advisors Inc. anticipates regulatory oversight
of the securities and commodities industries to increase at all levels. 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 and 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 American Express Financial Corporation
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.
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American Express Financial Corporation's business does not as a whole
experience significant seasonal fluctuations.
INSURANCE AND ANNUITIES
American Express Financial Corporation'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 American Express 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"),
which issues fixed and variable dollar annuity contracts to banks, thrift
institutions and stock brokerages. American Centurion Life Assurance Company
("American Centurion Life") formerly a subsidiary of TRS, became an IDS Life
subsidiary effective January 1, 1995. American Centurion Life is a New York
company that offers a fixed annuity called Privileged Assets to American Express
Cardmembers in New York. In Fortune magazine's May 1994 listing of the 50
largest life insurance companies as ranked by assets, IDS Life ranked fifteenth.
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 offers disability income and
long-term care insurance. IDS Life is one of the nation's largest issuers of
single premium and flexible premium deferred annuities on both a fixed and
variable dollar basis. Immediate annuities are offered as well. IDS Life
markets variable annuity contracts designed for retirement plans.
IDS Life's 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 and American Enterprise Life are subject to comprehensive
regulation by the Minnesota Department of Commerce (Insurance Division) and the
Indiana Department of Insurance, respectively. American Centurion Life and IDS
Life Insurance Company of New York are regulated by the New York Department of
Insurance. The laws of the other states in which these companies do business
also regulate such matters as the licensing of sales personnel and, in some
cases, the 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 American Express Financial
Corporation's insurance subsidiaries.
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<PAGE>
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.
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 seventeen of these
states and reinsured by IDS Property Casualty. IDS Property Casualty is
regulated by the Commissioner of Insurance for Wisconsin.
The insurance and annuity business is highly competitive, and IDS Life's
competitors consist of both stock and mutual insurance companies. Competitive
factors applicable to the insurance business include the interest rates credited
to its products, the charges deducted from the cash values of such products, the
financial strength of the organization and the services provided to
policyholders.
INVESTMENT CERTIFICATES
IDS Certificate Company ("IDSC"), a wholly-owned subsidiary of American
Express Financial Corporation, issues face-amount investment certificates. IDSC
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. American
Express Financial Corporation acts as investment manager for IDSC. IDSC's
certificates are sold primarily by American Express Financial Advisors 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 withdraw their
certificate investments at the end of an interest rate period. Some
certificates are marketed by American Express Bank Ltd. to its foreign
customers.
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
American Express Financial Advisors Inc. offers a variety of mutual funds,
for which it acts as principal underwriter (distributor of shares). American
Express Financial Corporation acts as investment manager and performs various
administrative services. These 35 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. American Express Financial
Corporation believes that the IDS MUTUAL FUND GROUP, with combined net assets at
December 31, 1994 of $37.1 billion, was the fourteenth largest mutual fund
organization and, excluding money market funds, was the eighth largest.
American Express Financial Advisors Inc., as principal underwriter, maintains a
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continuous public offering of shares of each fund. Front-end loaded shares are
sold at net asset value plus any applicable sales charge. The maximum sales
charge is five percent of the offering price with reduced sales charges for
larger purchases. Under the recently adopted multiple class of shares program,
shares are also sold with a rear load and for institutional clients at no load.
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
American Express Financial Corporation provides investment management
services for pension, profit-sharing, employee savings and endowment funds of
large- and medium-sized businesses and other institutions through the IDS
Advisory Group. International or global investment management is offered to
U.S.-based clients of this type by IDS International, Inc., a U.S. company with
offices in London and to non-U.S.-based clients of this type by IDS Fund
Management Ltd., an English company, with offices in Hong Kong and London. The
office in Hong Kong was opened in September 1994, with the hiring of regional
specialist staff. At December 31, 1994, the IDS Advisory Group managed
securities portfolios totaling $14.3 billion for 308 accounts, up from $12.3
billion at December 31, 1993 for 236 accounts. American Express Financial
Advisors Inc. also offers investment services for wealthy individuals and small
institutions. These services, including IDS Wealth Management Service, a wrap
account program, are marketed through American Express Financial Advisors Inc.
financial advisors and marketing employees and third-party referrals. The
market for the IDS Advisory Group's services is highly competitive, with
investment performance the most critical competitive factor.
American Express Trust Company, formerly known as 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, American Express Trust Company offers trust services to
individuals and organizations. American Express Trust Company is regulated by
the Minnesota Department of Commerce (Banking Division). On March 1, 1994,
American Express Trust Company and IDS Deposit Corp., a Utah industrial loan
corporation, assigned their deposits and sold their loans to American Express
Deposit Corporation, a subsidiary of TRS. Prior to that date, IDS Bank & Trust
and IDS Deposit Corp. made consumer loans and accepted certain kinds of
deposits. Effective March 28, 1994, IDS Bank & Trust ceased its status as an
FDIC-insured bank.
American Express Financial Advisors Inc. distributes a variety of real
estate, cable TV, equipment leasing, and venture capital limited partnership
investments issued by other companies. American Express Financial Advisors Inc.
also distributes from time to time managed futures limited partnerships in which
an American Express Financial Corporation subsidiary is a co-general partner.
American Express Financial Advisors Inc. has also distributed from time to time
in the past various real estate and cable TV limited partnerships in which
various American Express Financial Corporation subsidiaries are co-general
partners or are involved in providing services to such partnerships.
American Express Tax and Business Services Inc., formerly Tax and Business
Services, a subsidiary of American Express Financial Corporation, offers tax
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planning, tax preparation and small business consulting services to clients in
50 locations in 23 states.
In 1994, American Express Financial Corporation 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 American Express Securities
Services, a division of American Express Financial Advisors Inc. 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 banks through three
core businesses: private banking, correspondent banking and commercial banking.
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
banks and include processing services (such as check clearing, money transfers,
collections and remittances), electronic banking and trade finance, in addition
to deposit and investment services. Commercial banking is provided to
businesses, most of which are owned by wealthy entrepreneurs, and includes trade
finance products such as letters of credit, payment guaranties, working capital
loans and equipment finance. AEB also provides treasury services to all
segments of its customer base. These services 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. 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 with offices 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 and Miami. Three offices in
California were closed in 1994.
In part because of a structure that lacks scale in many markets, AEB
continues to focus on initiatives to reduce and control its expense base
worldwide.
In December 1994, AEB entered into a 10-year contract with Electronic Data
Systems Corporation for the outsourcing of AEB's global systems support and
development and data processing functions.
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<PAGE>
SELECTED FINANCIAL INFORMATION
AEB's prior years' financial information has been restated to reflect the
transfer in 1994 of certain international consumer financial services businesses
from TRS.
AEB provides banking services to the 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 $13.3 billion at December 31, 1994, compared with
$14.1 billion at December 31, 1993. Liquid assets, consisting of cash and
deposits with banks, trading account assets and investments, were $5.6 billion
at December 31, 1994, compared with $5.9 billion at December 31, 1993.
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, 1994 (dollars in
millions):
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<PAGE>
1994 1993 1992
---- ---- ----
Net financial revenues $652 $677 $657
Noninterest expenses 525 499 509
Income before cumulative effect of a
change in accounting principle 80 92 35
Cumulative effect of a change in
accounting for post-retirement
benefits other than pensions, net
of related income taxes - - (7)
Net income 80 92 28
-----------------------------------------------------------------------------
Cash and deposits with banks 2,605 2,668 2,081
Investments 2,765 2,819 2,782
Loans, net 4,881 5,488 5,204
Total assets 13,291 14,137 13,937
----------------------------------------------------------------------------
Customers' deposits and credit
balances 9,103 10,178 10,028
Shareholder's equity 758 755 694
-----------------------------------------------------------------------------
Return on average assets (a) 0.54% 0.65% 0.24%
Return on average common equity (a) 10.78% 13.67% 4.96%
-----------------------------------------------------------------------------
Total loans/deposits and credit
balances from customers 54.81% 55.16% 53.41%
Average common equity/average
assets (a) 4.76% 4.57% 4.11%
Risk-based capital ratios:
Tier 1 7.5% 6.3% 5.7%
Total 14.7% 10.2% 9.1%
Leverage ratio 4.8% 4.4% 4.3%
-----------------------------------------------------------------------------
Average interest rates earned: (b)
Loans (c) 7.58% 7.06% 9.00%
Investments (d) 9.54% 9.21% 9.13%
Deposits with banks 5.73% 5.67% 6.72%
-----------------------------------------------------------------------------
Total interest-earning assets (d) 7.62% 7.17% 8.29%
-----------------------------------------------------------------------------
Average interest rates paid: (b)
Deposits and credit balances from
customers 5.41% 5.73% 6.62%
Borrowed funds, including long-term
debt 4.99% 4.18% 5.38%
-----------------------------------------------------------------------------
Total interest-bearing liabilities 5.35% 5.46% 6.46%
-----------------------------------------------------------------------------
Net interest income/total average
interest-earning assets (d) 2.85% 2.92% 2.72%
-----------------------------------------------------------------------------
(a) Computed before the accounting change.
(b) Based upon average balances and related interest income and expense,
including the effect in 1994 of interest rate products where
appropriate and transactions with related parties.
(c) Interest rates have been calculated based upon average total loans,
including those on nonperforming status.
(d) On a tax equivalent basis.
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<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, 1994 (millions):
By Geographical Region (a) 1994 1993 1992 1991 1990
--------------------------------------------------------------------------------
Asia/Pacific $2,144 $2,186 $1,792 $1,891 $1,683
Europe 903 1,091 1,177 1,498 1,549
Indian Subcontinent 721 850 908 624 636
Latin America 589 749 675 546 653
North America 81 283 382 468 537
Middle East 345 368 357 365 340
Africa 207 87 65 61 38
Other - - - - -
--------------------------------------------------------------------------------
Total $4,990 $5,614 $5,356 $5,453 $5,436
================================================================================
1994
----------------------------
Due After
1 Year
Due Through Due
By Type Within 5 After 5
and Maturity 1 Year Years(b) Years(b) 1994 1993 1992 1991 1990
--------------------------------------------------------------------------------
Loans to $2,066 $232 $30 $2,328 $2,652 $2,628 $2,355 $2,431
businesses(c)
Real estate
loans 437 124 31 592 708 665 751 815
Loans to banks and
other financial
institutions 853 61 1 915 1,083 666 731 778
Equipment
financing(d) 28 51 - 79 105 386 501 509
Consumer loans 893 2 46 941 912 850 945 451
Loans to governments
and official 78 - 3 81 89 96 96 324
institutions
All other loans 54 - - 54 65 65 74 128
--------------------------------------------------------------------------------
Total $4,409 $470 $111 $4,990 $5,614 $5,356 $5,453 $5,436
==============================================================================
(a) Based primarily on the domicile of the borrower.
(b) Loans due after 1 year at fixed (predetermined) interest rates totaled
$119 million, while those at floating (adjustable) interest rates totaled
$462 million.
(c) Business loans, which accounted for approximately 47 percent of the
portfolio as of December 31, 1994, were distributed over 25 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. The total value of aircraft assets
leased to others at December 31, 1994 was approximately $400 million.
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<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, 1994 (millions):
1994 1993 1992 1991 1990
-------------------------------------------------------------------------
Credit $ 20 $ 43 $102 $ 38 $189
Lesser Developed Countries - - - - 238
-------------------------------------------------------------------------
Total (a) $ 20 $ 43 $102 $ 38 $427
=========================================================================
1994 1993 1992 1991 1990
------------------------------------------------------------------------
Loans to businesses $ 12 $ 24 $ 22 $ 21 $174
Real estate loans 4 19 69 5 15
Equipment financing 3 - 6 5 -
Loans to banks and other
financial institutions - - 4 4 -
Loans to governments
and official institutions 1 - 1 3 238
------------------------------------------------------------------------
Total (a) (b) $20 $ 43 $102 $ 38 $427
========================================================================
(a) AEB's other nonperforming assets totaled $56 million at December
31, 1994, $89 million at December 31, 1993 and $83 million at
December 31, 1992, and represent balances transferred from
nonperforming loans as a result of foreclosures and in-substance
foreclosures. The 1994 decrease primarily reflected the sale of
foreclosed properties. The increase in 1993 from 1992 was
primarily related to real estate exposures.
(b) Reduced rate loans were immaterial in amount.
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<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, 1994
(dollars in millions):
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Total loans at year end $4,990 $5,614 $5,356 $5,453 $5,436
====== ====== ====== ====== ======
Reserve for credit losses-
January 1, $ 126 $ 153 $ 116 $ 326 $ 452
Provision for credit losses 8 44 121 44 58
Translation and other (a) - (21) (1) 3 (3)
------- ---------------------------
Subtotal 134 176 236 373 507
------- ---------------------------
Write-offs:
Real estate loans 1 16 30 7 -
Loans to businesses 21 19 21 88 24
Loans to banks and other
financial institutions 3 - 4 18 3
Loans to governments and
official institutions - - 2 149 163
Consumer loans 19 20 40 4 3
All other loans - 6 1 - 1
Recoveries:
Loans to businesses (4) (4) (8) (6) (9)
Loans to banks and other
financial institutions (3) (1) (1) (1) (1)
Real estate loans - - - (1) -
Equipment financing (2) - - - -
Loans to governments and
official institutions - - - - (2)
Consumer loans (10) (6) (5) (1) -
All other loans - - (1) - (1)
------ ------ ------ ----- ------
Net write-offs 25 50 83 257 181
------ ------ ----- ----- ------
Reserve for credit losses-
December 31, $ 109 $ 126 $ 153 $ 116 $ 326
====== ======= ===== ===== ======
Reserve for credit losses/
total loans 2.19% 2.24% 2.85% 2.13% 6.00%
====== ====== ===== ===== =====
(a) 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, other than
consumer 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
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<PAGE>
principal, based upon management's judgment as to the collectibility of
principal. Consumer loans principally consist of lines of credit. These loans
are written-off against the reserve for credit losses generally on a formula
basis upon reaching specified contractual delinquency stages or earlier if the
loan is otherwise deemed uncollectible. Interest income assessed on customers
generally accrues until such time a loan is written-off.
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, 1994, 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 certain other
derivative instruments. The counterparties to these financial instruments were
primarily unrelated to AEB, and principally consisted of banks and other
financial institutions and various commercial and industrial enterprises
operating geographically within the Asia/Pacific region, the Indian
Subcontinent, Europe and North America. AEB continuously monitors its credit
concentrations and actively manages to reduce the associated risk. 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 30, 1994, 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. On December 30, 1994, these investments were sold to the
registrant.
AEB's earnings are sensitive to fluctuations in interest rates, as it is
not always possible to match precisely the maturities of interest-related assets
and liabilities. However, strict limits have been established for both country
and total bank mismatching. On occasion, AEB may decide to mismatch in
anticipation of a change in future interest rates in accordance with these
guidelines. Term loans extended by AEB include both floating interest rate and
fixed interest rate loans.
For a discussion relating to AEB's use of derivative financial instruments,
see pages 28 and 29 under the caption "Risk Management," and Note 11 on pages 44
through 47, of the registrant's 1994 Annual Report to Shareholders, which
portions of such report are incorporated herein by reference.
COMPETITION
The banking services of AEB are subject to vigorous competition in all
markets in which AEB operates. Competitors include local and international
banks whose assets often exceed those of AEB, other financial institutions
(including certain other subsidiaries of the registrant) and, in certain cases,
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<PAGE>
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.
In addition, the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") regulates, supervises and examines AEBI. AEBI is
subject to a September 1993 agreement with the Federal Reserve Board pursuant to
which AEBI agreed to correct two alleged violations of regulations of the
Federal Reserve Board and amend certain internal policies and procedures.
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 well capitalized and adequately capitalized if it maintains
a Tier 1 risk-based capital ratio of at least 6.0 percent and 4.0 percent,
respectively, a total risk-based capital ratio of at least 10.0 percent and 8.0
percent, respectively, and a leverage ratio of at least 5.0 percent and 4.0
percent, respectively. Based on AEB's total risk-based capital and leverage
ratios, which are set forth on page 14, AEB is considered to be adequately
capitalized at December 31, 1994.
DISCONTINUED OPERATIONS
Lehman, through its 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
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<PAGE>
maker in all major fixed income and equity products in both the domestic and
international markets.
On May 31, 1994, the registrant completed a tax-free spin-off of the common
stock of Lehman through a special dividend to the registrant's common
shareholders. 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 35 and 36 of the registrant's 1994 Annual Report to
Shareholders, which description is incorporated herein by reference.
CORPORATE
The Balcor Company Holdings, Inc. and its subsidiaries (collectively,
"Balcor"), formerly operating as a diversified real estate investment and
management company, discontinued new commercial real estate activities in 1990
and began to liquidate its portfolio of real estate loans and properties. The
liquidation is expected to be substantially completed in 1996. In 1994, Balcor
sold its property management business. At December 31, 1994, Balcor's assets,
excluding cash and cash equivalents, totaled $843 million with related reserves
of $263 million. Balcor's assets at December 31, 1994 included investments in
real estate, interests in partnerships, real estate loans and advances to
limited partnerships originated by Balcor.
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.
American Express Financial Corporation 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.
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,
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<PAGE>
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 51 through 53 of the registrant's 1994 Annual Report to Shareholders,
which note is incorporated herein by reference.
EXECUTIVE OFFICERS OF THE REGISTRANT
All of the executive officers of the registrant as of March 30, 1995, 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 (56) 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 American Express Financial Corporation. Prior to July
1991, he had been Vice Chairman of the registrant and Chairman and Chief
Executive Officer of American Express Financial Corporation since September
1990. Prior thereto, he had been President and Chief Executive Officer of
American Express Financial Corporation.
JEFFREY E. STIEFLER - President
Mr. Stiefler (48) has been President of the registrant since August 1993.
Prior thereto, he had been President and Chief Executive Officer of American
Express Financial Corporation since July 1991, and President of American Express
Financial Corporation since September 1990. Prior thereto, he had been
Executive Vice President for Sales and Marketing of American Express Financial
Corporation.
-21-
<PAGE>
KENNETH I. CHENAULT - Vice Chairman; President, U.S.A, TRS
Mr. Chenault (43) has been Vice Chairman of the registrant since January
1995 and President, U.S.A. of TRS since August 1993. Prior thereto, he had been
President, Consumer Card Group, TRS.
JONATHAN S. LINEN - Vice Chairman
Mr. Linen (51) 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.
ROGER H. BALLOU - President, Travel Services Group, TRS
Mr. Ballou (43) has been President of TRS's Travel Services Group since May
1989.
STEVEN D. GOLDSTEIN - Chairman and Chief Executive Officer, American
Express Bank Ltd.
Mr. Goldstein (43) has been Chief Executive Officer of AEB since March
1991, and Chairman since March 1994. Prior thereto, he had been President of
Consumer Financial Services, American Express International.
R. CRAIG HOENSHELL - President, International, TRS
Mr. Hoenshell (50) 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, American
Express Financial Corporation
Mr. Hubers (52) has been President and Chief Executive Officer of American
Express Financial Corporation since August 1993. Prior thereto, he had been a
Senior Vice President of American Express Financial Corporation.
JOSEPH W. KEILTY - Executive Vice President
Mr. Keilty (57) has been Executive Vice President since November 1991.
Prior thereto, he had been Managing Director of Keilty, Goldsmith & Company, a
consulting company.
ALLAN Z. LOREN - Executive Vice President and Chief Information
Officer
Mr. Loren (56) has been Executive Vice President and Chief Information
Officer since May 1994. Prior thereto, he had been President and Chief
Executive Officer of Galileo International since January 1991. Prior thereto,
he had been President of Apple U.S.A., a division of Apple Computer Corp.
-22-
<PAGE>
MICHAEL P. MONACO - Executive Vice President, Chief Financial Officer
and Treasurer
Mr. Monaco (47) 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.
LOUISE M. PARENT - Executive Vice President and General Counsel
Ms. Parent (44) 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.
PHILLIP J. RIESE - President, Cardmember Financial Services Group,
TRS; Chairman of the Board of American Express
Centurion Bank
Mr. Riese (45) has been President, Cardmember Financial Services Group, TRS
since September 1993. He has been Chairman of the Board of American Express
Centurion Bank since August 1993. Prior to September 1993, he had been
Executive Vice President and General Manager of the Charge Card Group since June
1990. Prior thereto, he had been Executive Vice President, General Manager
of the Establishment Services Division.
THOMAS O. RYDER - President, Establishment Services Worldwide, TRS
Mr. Ryder (50) has been President, Establishment Services Worldwide, TRS
since 1993. Prior thereto, he had been President and General Manager of the
Establishment Services Division, TRS since 1990. Prior thereto, he had been
President and Worldwide Executive Publisher, American Express Publishing
Corporation.
THOMAS SCHICK - Executive Vice President
Mr. Schick (48) 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.
FRANK SKILLERN - President, Consumer Card Group, U.S., TRS
Mr. Skillern (58) has been President, Consumer Card Group, U.S. since
August 1993. Prior thereto he had been Executive Vice President, TRS Consumer
Lending and Chairman and President of American Express Centurion Bank since
November 1991. Prior thereto he had been Senior Vice President, American
Express Financial Advisors, Inc.
EMPLOYEES
The registrant had 72,412 employees on December 31, 1994.
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
-23-
<PAGE>
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 Operations 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. In 1994,
the registrant announced plans to close the Western Regional Operations Center
and the Optima Regional Operations Center and to consolidate the work performed
there into other operations centers.
American Express Financial Corporation's principal locations are its
headquarters, the IDS Tower, a portion of which the company leases until 2002,
and its Operations Center, which the company owns; both are in Minneapolis,
Minnesota. American Express Financial Corporation also owns Oak Ridge
Conference Center, its principal training facility, in Chaska, 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 consolidated, were brought in early 1991 in the 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 alleged 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 in the state court action seek a
declaratory judgment, unspecified money damages and an accounting. The federal
actions were dismissed in December 1993, and the dismissal was upheld by the
Second Circuit Court of Appeals in November 1994. One of the plaintiffs in the
federal action subsequently commenced another state court action raising the
same allegations as the consolidated state court complaint.
-24-
<PAGE>
FCH-RELATED ACTION
A purported shareholder derivative action was brought in June 1991 in the
United States District Court for the Eastern District of New York against the
then current directors of the registrant. In January 1992, this action was
transferred to the United State District Court for the Central District of
California for coordinated or consolidated proceedings with all other federal
actions related to First Capital Holdings Corp. ("FCH"). The complaint alleges
that the Board of Directors should have required Lehman to divest its investment
in FCH and to write down its 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. Lehman has agreed to
indemnify the registrant for any losses incurred in connection with this and
other actions that arose related to FCH.
AEBI SETTLEMENT
On June 2, 1994, two former employees of American Express Bank
International ("AEBI"), a wholly-owned subsidiary of American Express Bank Ltd.,
were convicted in a federal district court in Texas of money laundering, bank
fraud and misapplication of funds in connection with the account of a Mexican
client. AEBI was not a party in this case. However, the United States
Attorney's Office and a federal grand jury in the Southern District of Texas
continued the investigation. On November 21, 1994, AEBI reached an agreement
with the Justice Department to settle claims arising out of the case.
The settlement included the payment by AEBI of $7 million to settle a civil
action against AEBI and $7 million to settle forfeiture claims, both of which
related to activities of the former employees. AEBI and its affiliates will
also spend at least $3 million through the end of 1995 to continue to enhance
compliance programs. In addition, the terms of the settlement call for AEBI to
withdraw its claims to a $30 million client account that served as collateral
for $19 million in AEBI loans to the client. Under the settlement, AEBI did not
admit to any wrongdoing and the U.S. government released AEBI from any liability
arising out of this matter.
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, 1994.
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 60,520 common
shareholders of record at December 31, 1994. For price and dividend information
with respect to such Common Shares, see Note 18 to the Consolidated Financial
Statements on page 55 of the registrant's 1994 Annual Report to Shareholders,
which note is incorporated herein by reference.
-25-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The "Consolidated Five-Year Summary of Selected Financial Data" appearing
on page 57 of the registrant's 1994 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 1994 Annual Report to Shareholders is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The "Consolidated Financial Statements", the "Notes to Consolidated
Financial Statements" and the "Report of Ernst & Young LLP Independent Auditors"
appearing on pages 30 through 56 of the registrant's 1994 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 10, 1995 pursuant to
Regulation 14A, which involves the election of directors. The following
portions of such proxy statement are incorporated herein by reference: pages 3
and 4 under the heading "The Shares Voting," pages 4 through 7 under the
headings "Security Ownership of Directors and Executive Officers," and "Security
Ownership of Named Executives," pages 10 through 12 under the heading
"Directors' Fees and Other Compensation," pages 12, beginning at "Election of
Directors" through 32, ending at "Selection of Auditors" (excluding the portions
under the headings, "Board Compensation Committee Report on Executive
Compensation" appearing on pages 15 through 20 and "Performance Graph" appearing
on page 26), and page 38 under the heading "Certain Filings." In addition, the
registrant has provided, under the caption "Executive Officers of the
Registrant" at pages 20 through 23 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.
-26-
<PAGE>
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-5 hereof.
(b) Reports on Form 8-K:
1. Form 8-K, dated October 5, 1994, Item 5, reporting a
continuation of the registrant's reengineering program.
2. Form 8-K, dated October 24, 1994, Item 5, reporting earnings
for the quarter ended September 30, 1994.
3. Form 8-K, dated November 21, 1994, Item 5, reporting a
settlement with the Justice Department arising from the
conviction of two former employees of AEBI.
4. Form 8-K, dated January 23, 1995, Item 5, reporting earnings
for the quarter and year ended December 31, 1994.
-27-
<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 27, 1995 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/ Edwin L. Artzt By
Edwin L. Artzt Drew Lewis
Director Director
By /s/ William G. Bowen By/s/ Aldo Papone
William G. Bowen Aldo Papone
Director Director
By /s/ David M. Culver By
David M. Culver Roger S. Penske
Director Director
By /s/ Charles W. Duncan Jr. By /s/ Frank P. Popoff
Charles W. Duncan Jr. Frank P. Popoff
Director Director
March 27, 1995
-28-
<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
1994 Annual Report to Shareholders:
Report of independent auditors .......... 56
Consolidated statement of income for the
three years ended December 31, 1994 ..... 30
Consolidated balance sheet at December 31,
1994 and 1993 ........................... 31
Consolidated statement of cash flows for
the three years ended December 31, 1994 . 32
Consolidated statement of shareholders' equity
for the three years ended December 31, 1994 33
Notes to consolidated financial statements 34-55
Consent of independent auditors .............. F-2
Schedules:
I-- Condensed financial information of F-3-6
registrant
II-- Valuation and qualifying accounts for the
three years ended December 31, 1994 F-7
All other schedules for American Express Company and subsidiaries have been
omitted since the required information is not present or not present in
amounts sufficient to require submission of the schedule, or because the
information required is included in the respective financial statements or
notes thereto.
The consolidated financial statements of American Express Company
(including the report of independent auditors) listed in the above index,
which are included in the Annual Report for the year ended December 31,
1994, 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 1994 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 2, 1995 (hereinafter referred to as our Report), included
in the 1994 Annual Report to Shareholders of American Express
Company.
Our audits included the financial statement schedules of
American Express Company listed in Item 14(a). These schedules are
the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion, the
financial statement schedules referred to above, when considered in
relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in the
Registration Statements (Form S-8 No. 2-46918, No. 2-59230, No.
2-64285, No. 2-73954, No. 2-89680, No. 33-01771, No. 33-02980, No.
33-17133, No. 33-28721, No. 33-32876, No. 33-33552, No. 33-36422,
No. 33-38777, No. 33-43671, No. 33-48629, No. 33-62124, No. 33-
65008 and No. 33-53801; Form S-3 No. 2-89469, No. 33-06038, No.
33-07435, No. 33-17706, 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, 1994.
ERNST & YOUNG
/s/ Ernst & Young LLP
New York, New York
March 30, 1995
F-2
<PAGE>
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENT OF INCOME (A)
(Parent Company Only)
(millions)
Years Ended
December 31,
------------------------
1994 1993 1992
---- ---- ----
Revenues $ 187 $ 123 $ 146
---- ---- ----
Expenses:
Interest 216 181 174
Human resources 84 82 84
Other (B) 164 (659) (592)
---- ---- ----
Total 464 (396) (334)
---- ---- ----
Pretax (loss) income from continuing operations
before accounting changes (277) 519 480
Income tax provision (benefit) (110) 271 237
---- ---- ----
Net (loss) income before equity in net income
of subsidiaries and affiliates (167) 248 243
Equity in net income of subsidiaries (C)
and affiliates 1,547 1,357 228
----- ----- -----
Income from continuing operations
before accounting changes 1,380 1,605 471
Equity in income (loss) of discontinued
operations 33 (127) (149)
Cumulative effect of changes in accounting
principles, net of income taxes - - 139
----- ----- -----
Net income $1,413 $1,478 $ 461
===== ===== =====
(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-3
<PAGE>
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEET
(Parent Company Only)
(millions, except share amounts)
ASSETS
December 31,
--------------
1994 1993
---- ----
Cash and cash equivalents $ 164 $ 8
Investment securities 246 1,304
Securities purchased under agreement to resell - 746
Equity in net assets of subsidiaries and affiliates
- continuing operations 7,415 6,875
Investment in discontinued operations - 1,540
Accounts receivable and accrued interest, less reserves 13 14
Land, buildings and equipment--at cost, less
accumulated depreciation: 1994, $64; 1993, $65 91 95
Due from subsidiaries (net) 1,863 1,363
Other assets 630 804
------ ------
Total assets $ 10,422 $12,749
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and other liabilities $ 1,116 $ 762
Long-term debt 2,773 3,153
Short-term debt 100 100
------ ------
Total liabilities 3,989 4,015
Shareholders' equity:
Preferred shares, $1.66 2/3 par value, authorized
20,000,000 shares
Convertible Exchangeable Preferred shares, issued and
outstanding 4,000,000 shares in 1994 and 1993, stated
at liquidation value 200 200
$216.75 CAP Preferred Shares, issued and
outstanding 122,448.98 shares in 1993,
stated at par value (liquidation value of $300) - 1
Common shares, $.60 par value, authorized
1,200,000,000 shares; issued and outstanding
495,865,678 shares in 1994 and 489,827,852 shares
in 1993 298 294
Capital surplus 3,754 3,784
Net unrealized securities (losses) gains (389) 7
Foreign currency translation adjustment (77) (73)
Deferred compensation (103) (128)
Retained earnings 2,750 4,649
------ ------
Total shareholders' equity 6,433 8,734
------ ------
Total liabilities and shareholders' equity $ 10,422 $12,749
====== ======
See Notes to Condensed Financial Information of Registrant
F-4
<PAGE>
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOWS
(Parent Company Only)
(millions)
Years Ended December 31,
------------------------
1994 1993 1992
---- ---- ----
Cash flows from operating activities:
Net income $1,413 $1,478 $ 461
Adjustments to reconcile net income to cash
provided by operating activities:
Equity in net income of subsidiaries
and affiliates (1,547) (1,357) (228)
Equity in (income) loss of discontinued
operations (33) 127 149
Dividends received from subsidiaries
and affiliates 877 868 492
Gain on sale of First Data Corporation - (779) (706)
Changes in accounting - - (139)
Other (net) 25 42 (12)
---- ---- ----
Net cash provided by operating activities 735 379 17
---- ---- ----
Net cash provided (used) by investing
activities 1,536 (655) 309
----- ---- ----
Cash flows from financing activities:
Issuance of American Express common shares 179 259 159
Repurchase of American Express common shares (555) - -
Redemption of American Express Money Market
Preferred shares - - (150)
Dividends paid (504) (526) (518)
Cash infusion to Lehman Brothers (904) - -
Net (decrease) increase in debt (331) 524 128
---- ---- ----
Net cash provided (used) by financing
activities (2,115) 257 (381)
----- ---- ----
Net increase (decrease) in cash and cash 156 (19) (55)
equivalents ---- ---- ----
Cash and cash equivalents at beginning
of year 8 27 82
---- ---- ----
Cash and cash equivalents at end of year $ 164 $ 8 $ 27
==== ==== ====
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest (net of amounts capitalized) in 1994, 1993, and 1992
was $169 million, $105 million and $129 million, respectively. Net cash
received for income taxes was $185 for 1994; net cash paid for income taxes
was $256 and $113 for 1993 and 1992, respectively.
F-5
<PAGE>
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
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.
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,
-------------
1994 1993
---- ----
Floating Medium-Term Note Due June 28, 1996 945 945
6 1/4% DECS Due October 15, 1996 868 868
8 5/8% Notes due July 15, 1994 - 300
8 1/2% Notes due August 15, 2001 298 298
8 3/4% Notes due June 15, 1996 200 199
8 5/8% Senior Debentures Due 2022 198 197
Employee Stock Ownership Plan 63 83
9% Convertible Notes due April 1, 1994 - 58
11.95% Private Placement Notes due 1995 102 102
WFC Series C 12 1/5% Guaranteed Notes due December 12, 1997 15 19
WFC Series D 11 5/8% Guaranteed Notes due December 12, 2000 22 22
WFC Series Z Zero Coupon Notes due December 12, 2000 33 30
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 4 7
12 3/4% Industrial Revenue Bonds due October 31, 2001 5 5
----- -----
$2,773 $3,153
===== =====
Aggregate annual maturities of long-term debt for the five years ending
December 31, 1999 are as follows (millions): 1995, $170; 1996, $2,038;
1997, $6; 1998, $6; 1999, $11.
F-6
<PAGE>
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1994
(millions)
<TABLE>
<CAPTION>
Reserve for credit losses, Reserve for doubtful
loans and discounts accounts receivable
-------------------------- ------------------------
1994 1993 1992 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning
of period $ 655 $ 911 $ 847 $ 796 $ 1,124 $1,306
Additions:
Charges to income 362 535 1,044 1,104(a) 1,020(a) 1,143(a)
Recoveries of amounts
previously written-off 150 26 14 - - -
Other credits (debits) (19) (85) 3 - - -
Deductions:
Charges for which
reserves were
provided (603) (732) (997) (1,093) (1,348) (1,325)
---- ---- ---- ----- ----- -----
Balance at end of
period $ 545 $ 655 $ 911 $ 807 $ 796 $1,124
==== ==== ==== ===== ===== =====
</TABLE>
(a) Before recoveries on accounts previously written-off, which are
credited to income: 1994--$332, 1993--$333, 1992--$243.
F-7
<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 10.20 and 10.31 through 10.42 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
3.2 of the registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994.)
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* Description of American Express Pay for Performance Deferral Program.
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 Agreement dated March 3, 1994 between the registrant and
Aldo Papone Consulting (incorporated by reference to Exhibit 10.8 of
the registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993).
10.9 Written description of consulting agreement between American Express
Company and Kissinger Associates, Inc. (incorporated by reference to
E-1
<PAGE>
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).
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 Written description of certain pension arrangements with 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).
10.20 Consulting Agreement dated March 3, 1994 between American Express
Travel Related Services Company, Inc. and Aldo Papone Consulting
(incorporated by reference to Exhibit 10.23 of the registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993).
10.21 Restated and Amended Agreement of Tenants-In-Common, dated May 27,
1994, by and among the registrant, American Express Bank Ltd., American
Express Travel Related Services Company, Inc., Lehman Brothers Inc.,
Lehman Government Securities, Inc. and Lehman Commercial Paper
Incorporated (incorporated by reference to Exhibit 10.1 of Lehman
E-2
<PAGE>
Brothers Holdings Inc.'s Transition Report on Form 10-K for the
transition period from January 1, 1994 to November 30, 1994 (File No.
1-9466)).
10.22 Tax Allocation Agreement, dated May 27, 1994, between Lehman Brothers
Holdings Inc. and the registrant (incorporated by reference to Exhibit
10.2 of Lehman Brothers Holdings Inc.'s Transition Report on Form 10-K
for the transition period from January 1, 1994 to November 30, 1994
(File No. 1-9466)).
10.23 Intercompany Agreement, dated May 27, 1994, between the registrant and
Lehman Brothers Holdings Inc. (incorporated by reference to Exhibit
10.3 of Lehman Brothers Holdings Inc.'s Transition Report on Form 10-K
for the transition period from January 1, 1994 to November 30, 1994
(File No. 1-9466)).
10.24 Purchase and Exchange Agreement, dated April 28, 1994, between Lehman
Brothers Holdings Inc. and the registrant (incorporated by reference to
Exhibit 10.29 of Lehman Brothers Holdings Inc.'s Transition Report on
Form 10-K for the transition period from January 1, 1994 to November
30, 1994 (File No. 1-9466)).
10.25 Registration Rights Agreement, dated as of May 27, 1994, between the
registrant and Lehman Brothers Holdings Inc. (incorporated by reference
to Exhibit 10.30 of Lehman Brothers Holdings Inc.'s Transition Report
on Form 10-K for the transition period from January 1, 1994 to November
30, 1994 (File No. 1-9466)).
10.26 Option Agreement, dated May 27, 1994, by and among the registrant,
American Express Bank Ltd., American Express Travel Related Services
Company, Inc., Lehman Brothers Holdings Inc., Lehman Brothers Inc.,
Lehman Government Securities, Inc. and Lehman Brothers Commercial Paper
Inc. (incorporated by reference to Exhibit 10.31 of Lehman Brothers
Holdings Inc.'s Transition Report on Form 10-K for the transition
period from January 1, 1994 to November 30, 1994 (File No. 1-9466)).
10.27 1994 Agreement, dated April 28, 1994, between the registrant, Lehman
Brothers Holdings Inc. and Nippon Life Insurance Company (incorporated
by reference to Exhibit 10.32 of Lehman Brothers Holdings Inc.'s
Transition Report on Form 10-K for the transition period from January
1, 1994 to November 30, 1994 (File No. 1-9466)).
10.28 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).
10.29 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).
10.30 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
E-3
<PAGE>
10.16 of Shearson Lehman Brothers Holdings Inc.'s Annual Report on Form
10-K for the fiscal year ended December 31, 1992).
10.31 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).
10.32 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 (incorporated by reference to Exhibit 10.33 of the registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1993).
10.34 American Express Senior Executive Severance Plan (incorporated by
reference to Exhibit 10.1 of the registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1994).
10.35 Amendment of American Express Senior Executive Severance Plan.
(incorporated by reference to Exhibit 10.1 of the registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1994).
10.36 Amendment of American Express Company Executives' Incentive
Compensation Plan (incorporated by reference to Exhibit 10.2 of the
registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994).
10.37 Amendment of American Express Company Key Executive Life Insurance Plan
(incorporated by reference to Exhibit 10.3 of the registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1994).
10.38 Amendment of American Express Salary/Bonus Deferral Plan (incorporated
by reference to Exhibit 10.4 of the registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994).
10.39 Amendment of American Express Supplementary Pension Plan (incorporated
by reference to Exhibit 10.5 of the registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994).
10.40 Amendment of Long-Term Incentive Awards under the American Express
Company 1979 and 1989 Long-Term Incentive Plans (incorporated by
reference to Exhibit 10.6 of the registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1994).
10.41* IDS Supplemental Retirement Plan.
10.42* IDS Current Service Deferred Compensation Plan.
10.43* Agreement dated February 27, 1995 between the registrant and Berkshire
Hathaway Inc.
11* Computation of Earnings Per Share.
E-4
<PAGE>
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 1994 Annual Report to Shareholders that
are incorporated herein by reference.
21* Subsidiaries of the registrant.
23* Consent of Ernst & Young LLP (contained on page F-2 hereof).
27* Financial Data Schedule
E-5
<PAGE>
Exhibit 10.5
Description of Pay for Performance Deferral Program
The Pay for Performance Deferral Program permits eligible
participants to defer annual compensation up to a maximum of one times base
salary. The program annually credits interest equivalents to, or reduces the
value of, deferred amounts according to a schedule based on the reported
annual return on equity ("ROE") of American Express Company (the "Company").
The Compensation and Benefits Committee of the Board of Directors (the
"Committee") may adjust the schedule for major accounting changes, if the
Company's ROE objectives change significantly, or if the annual return on a
benchmark treasury note falls below or rises above a specified level.
Deferred balances are reduced in value if the annual ROE is zero or less for a
given year. If a participant elects to defer any compensation under this
program, he or she must defer such compensation for a least five years. The
Committee may delay payments under the program until they are fully deductible
under Section 162(m) of the U.S. Internal Revenue Code of 1986, as amended.
Deferred amounts are linked to Company performance until paid out.<PAGE>
<PAGE>
Exhibit 10.41
THE IDS SUPPLEMENTAL RETIREMENT PLAN
Amended and Restated Effective January 1, 1989
The IDS Supplemental Retirement Plan ("Plan") is amended and restated
effective January 1, 1989.
1. Introduction
On December 29, 1987, the Executive Committee of the Board of Directors
of IDS Financial Corporation ("IDS") empowered the Senior Vice President
- Human Resources to create the IDS Supplemental Retirement Plan, (the
"Plan"), effective January 1, 1988. The Plan is intended to supplement
the retirement benefits of the IDS Retirement Plan, the IDS Incentive and
Thrift Plan, and the IDS Savings Plan through the payment of benefits to
those participants in such plans, and their surviving spouses and
beneficiaries, as to whom benefits otherwise payable under such plans are
restricted in accordance with Section 3(36) of the Employee Retirement
Income Security Act of 1974 and is to be construed accordingly.
2. Administration of the Plan
The Plan shall be administered by the Senior Vice President - Human
Resources ("Administrator"). The Administrator shall have full power and
authority to interpret, construe and administer the Plan, including the
discretion to determine the amounts payable and the time of any such
payments so as to conform with the intent as well as the terms of this
Plan, and such interpretation and construction thereof and actions taken
thereunder shall be binding on all persons for the purposes. The
Administrator may correct any defect, supply any omission or reconcile
any inconsistency in the Plan in the manner and to the extent the
Administrator deems desirable to carry it into effect. Any decision of
the Administrator in the administration of the Plan shall be final and
conclusive.
3. Eligibility
a. Participation in the Plan shall be limited to officers and other key
employees of IDS and its subsidiaries who are designated by the
Administrator, on a case-by-case basis, as eligible to participate
in the Plan. In any case, participation will not extend to
employees whose inclusion, in the opinion of counsel, could
jeopardize the Company's position that the agreements made within
the parameters of this Plan are private offerings, exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933.
The term "Participant" as used throughout shall refer to eligible
employees designated to participate in the Plan.
b. The Administrator is authorized to approve, on behalf of IDS,
deferred compensation agreements, and amendments thereto, with
eligible employees.
c. Employees who meet the eligibility requirements pursuant to Section
3.a., due to promotion or new employment during the calendar year,
can request participation in the Plan, if they request to defer no
later than 30 days after they receive written confirmation of their
eligibility.
4. Benefits
a. If an employee, under the IDS Retirement Plan ("Retirement Plan")
retires, becomes disabled, dies or otherwise terminates employment
such that he or she or his or her beneficiary becomes entitled to
benefits under the Retirement Plan, and if any benefit was not
accrued for him or her under the terms of the Retirement Plan
because of the limitations of Section 415 and Section 401(a)(17) of
the Internal Revenue Code of 1986, as it may be amended from time to
time, and the respective regulations issued thereunder ("Code"),
then IDS hereby agrees and promises to pay to such employee or his
or her beneficiary an amount, if any, equal to the difference
between the benefit payable to him or her or his or her beneficiary
under the Retirement Plan but for the applicability of the
limitations of Code Section 401(a)(17) and Section 415.
Notwithstanding anything to the contrary in this Plan or the
Retirement Plan, each person who is otherwise entitled to receive
benefits commencing on or after January 1, 1988 hereunder, shall be
entitled, to an additional benefit hereunder, if any, as would have
been payable to him or her under the Retirement Plan if he or she
had not elected to defer receipt of compensation pursuant to the IDS
Current Service Deferred Compensation Plan ("CSDC").
The benefits payable under this Section 4.a. shall be paid in cash
from the general assets of IDS in the same manner and over the same
period of time as benefits are paid to such employee or beneficiary
from the Retirement Plan. The beneficiary or beneficiaries entitled
to receive any benefits under this Section 4.a. shall be the
beneficiary or beneficiaries designated by the employee under the
Retirement Plan.
b. IDS shall establish a book reserve account to which shall be
credited when earned or otherwise payable the following:
(i) An amount equal to that portion of the contribution by IDS
under the IDS Incentive and Thrift Plan which would have
been made and allocated to Participant but for the deferral
of compensation pursuant to the CSDC. In determining this
amount, the contribution limitations of Code Section 415 and
Code Section 401(a)(17) shall be disregarded.
(ii) An amount equal to the contributions which would have been
made by IDS as a Matching Contribution (as defined in the
IDS Savings Plan) on behalf of Participant under the IDS
Savings Plan with respect to that portion of Participant's
base salary which is deferred pursuant to the CSDC, and
assuming (i) such salary portion had not been deferred, and
(ii) Participant had received appropriate benefit credits
under the IDS Flexible Compensation Plan and had elected to
make elective contributions under the IDS Savings Plan equal
to 5% and IDS had made matching contributions equal to 2
1/2% of such Participant's salary deferred under the CSDC.
(iii) An amount equal to any employer contributions which cannot
be allocated under the IDS Incentive and Thrift Plan (with
respect to Participant's regular, basic compensation) on
account of the limitations specified in Code Section 415 and
Section 401(a)(17).
(iv) Any portion or all of (i) the first 5% of elective
contributions under the IDS Savings Plan, with respect to
Participant's adjusted compensation used to determine
contributions thereunder; and (ii) any matching
contributions relating to such elective contributions; which
cannot be allocated for Participant's benefit under such
Savings Plan on account of the limitations specified in Code
Section 415.
(v) An amount equal to that amount, previously credited on
behalf of such Participant under Section 4.b.(1) and Section
4.b.(2) of the Current Service Deferred Compensation Plan as
of and as in effect on December 31, 1987 which is scheduled
to be paid in 1989 and later years.
(vi) Amounts a Participant may otherwise be entitled to under
this Section 4.b. shall be offset by any benefits payable
from any other Plan provision or IDS benefit program the
Plan payment was intended to replace.
Amounts described in this subsection "b" shall be credited to the
book reserve account, with the exception of amounts in paragraph (v)
which shall be immediately credited, at the time contributions which
are made by IDS on behalf of the Participants under the IDS
Incentive and Thrift Plan and the IDS Savings Plan, as the case may
be, are allocated to participants under such plans.
c. Payment
(i) Any benefits payable under Section 4.b. shall be paid in
cash from the general assets of IDS in the manner
irrevocably designated, in a form and manner acceptable to
the Administrator, at the time of retirement.
(ii) Notwithstanding (i) above, upon Participant's termination of
employment for reasons other than retirement, death, or
disability his or her deferred compensation shall be paid to
him or her in a lump sum of cash no later than December 31,
of the subsequent year. For purposes of this section
"termination of employment" shall not include the
discontinuance of services with IDS if Participant continues
to perform services as an employee of American Express or
its subsidiaries or affiliates.<PAGE>
(iii) The deferred amount(s) to be paid pursuant to Section
4.b.(i) and Section 4.b.(iii) shall be restricted to the
Participant's vested portion with respect to the vesting
schedule from the IDS Incentive and Thrift Plan. Any
nonvested portion of such deferred compensation to be paid
shall be forfeited.
(iv) The beneficiary or beneficiaries entitled to receive
benefits under (i) above shall be those as the Participant
shall designate by filing a written notice of such
designation with the Administrator in such form as the
Administrator may prescribe. The Participant may revoke or
modify that designation at any time by a further written
designation.
The Participant's beneficiary designation shall be deemed
automatically revoked in the event of the death of the
beneficiary or, if the beneficiary is the Participant's
spouse, in the event of dissolution of marriage.
If no designation is in effect at the time when benefits
payable under Agreement become due, the beneficiary shall be
the spouse of the Participant, or if no spouse is then
living, the Participant's children and their issue by right
of representation or, if none, the legal representatives of
the Participant's estate.
d. Notwithstanding anything herein contained to the contrary, upon the
request of a Participant and based on a showing of an unanticipated
emergency caused by an event beyond the control of the Participant
or beneficiary that would result in severe financial hardship to the
individual if early withdrawal were not permitted, the IDS Board of
Directors may, in its sole discretion, vary the manner and time of
making the distributions provided in this Section 4.
e. The book reserve account for amounts credited under subsection "b"
above, shall contain four subaccounts. Solely for the purposes of
determining the amount to be paid a Participant pursuant to the
Plan, a Participant may designate one or more subaccounts to be used
by IDS to reflect increases, decreases, interest and dividends,
other income gains and losses as may, from time to time, be
experienced by such reserve account. If more than one subaccount is
used with respect to any amount credited under the Plan, a
Participant must designate, on a form acceptable to the
Administrator, in 5% increments, the allocation of amounts credited
in each subaccount. A Participant is allowed to amend such
designation four times during a given Plan year. All Participant
designations under this subsection shall be subject to the approval
and subject to change in the sole discretion of the Administrator
pursuant to Section 3.b.
The experience of the four subaccounts shall reflect, in as similar
manner as administratively feasible, those four investments
available to Participants of the IDS Savings Plan, namely:
(i) Subaccount A shall reflect the experience of IDS Trust
Balanced A Fund, a collective fund maintained by IDS Bank &
Trust ("IBT");<PAGE>
(ii) Subaccount B shall reflect the experience of IDS Trust
Equity A Fund, a collective fund maintained by IBT;
(iii) Subaccount C shall reflect the experience of IDS Trust
Income Fund, a collective fund maintained by IBT; and
(iv) Subaccount D shall reflect the experience of the American
Express Stock "Fund" as the term is applied to investments
in the IDS Savings Plan.
The subaccounts shall be valued subject to such reasonable rules and
procedures as the Administrator shall adopt and apply to all
Participants similarly situated with an effort to value such
subaccounts as if amounts designated were invested in as similar
time and manner, subject to administrative convenience, as amounts
are invested, and subject to the same market fluctuation factors as
used in valuing such investments in the IDS Savings Plan.
5. General Provisions
a. Nothing in this Plan shall create, or be construed to create, a
trust of any kind or fiduciary relationship between IDS and the
Participant, his or her designated beneficiary, or any other person.
Any funds deferred under the provisions of this Plan shall be
construed for all purposes as a part of the general funds of IDS,
and any right to receive payments from IDS under this Plan shall be
no greater than the right of any unsecured general creditor. IDS
may, but need not, purchase any securities or instruments as a means
of hedging its obligations to any Participant under this Plan.
b. The right of any Participant, or other person, to the payment of
deferred compensation under this Plan shall not be assigned,
transferred, pledged or encumbered except by the laws of descent and
distribution.
c. Participation in the Plan shall not be construed as conferring upon
the Participant the right to continue in the employ of IDS as an
executive or any other capacity. IDS expressly reserves the right
to dismiss any employee at any time without liability for the effect
such dismissal might have upon him or her hereunder.
d. Any deferred compensation payable under this Plan shall not be
deemed salary or other compensation to the Participant for the
purpose of computing the benefits under any qualified pension or
profit sharing plan.
e. IDS makes no representations or warranties and assumes no
responsibility as to the tax consequences to any Participant who
enters into a deferred compensation agreement with IDS pursuant to
this Plan. Further, payment by IDS to Participant, or to
Participant's beneficiary or beneficiaries in accordance with the
written designation of beneficiary on file with the Administrator at
the time of Participant's death, shall be binding on all interested
parties and persons, including Participant's heirs, executors,
administrators and assigns, and shall discharge IDS, its directors,<PAGE>
officers and employees from all claims, demands, actions or causes
of action of every kind arising out of or on account of
Participant's participation in this Plan, known or unknown, for
himself or herself, his or her heirs, executors, administrators and
assigns. Any agreement executed pursuant to this Plan shall include
the above provision of this Section 5.e.
f. The Board of Directors may, at any time, amend or terminate the
Plan, provided that the Board may not reduce or modify the amount of
any benefit payable to a Participant or any beneficiary receiving
benefit payments at the time the Plan is amended or terminated. The
President or Senior Vice President - Human Resources may, at any
time, make non-material amendments to the Plan subject to the above
condition.
Examples of non-material amendments include, but are not limited to,
such items as (a) amendments necessary to comply with changes in
federal or state law or regulations, or to obtain initial or
continuing IRS approval of the Plan, (b) amendments which ease the
administration of the Plan but do not have significant immediate or
long-term material financial impact, or (c) amendments having a non-
material effect on the Company's financial commitment to the Plan.
g. The Administrator may prescribe a form of agreement to be used by
Participant and IDS to defer compensation under the Plan.
6. Effective Date
Provisions of this amended and restated Plan shall be effective on and
after January 1, 1989. The original Plan was adopted on December 29,
1987, with its provisions effective as of January 1, 1988.
Notwithstanding the language of 3.c., during the first Plan Year,
employees eligible to participate in the Plan, and so designated pursuant
to 3.a., shall have thirty (30) days from the date of adoption of this
Plan in which to elect to participate.
<PAGE>
Exhibit 10.42
IDS CURRENT SERVICE
DEFERRED COMPENSATION PLAN
Amended and Restated Effective January 1, 1989
The IDS Current Service Deferred Compensation Plan ("Plan") is amended and
restated effective January 1, 1989. Any compensation deferred pursuant to the
Plan or any agreement between any employee and IDS Financial Corporation
("IDS") or one of its subsidiaries prior to January 1, 1989 and thereafter
shall be governed by the provisions of this 1989 amended and restated Plan as
provided herein.
1. Purpose of the Plan
The purpose of this Plan is to provide a means for certain key executives
of IDS and its subsidiaries to defer a portion of their compensation from
IDS and its subsidiaries in order to derive additional supplemental pre-
retirement savings opportunities and retirement and estate planning
benefits.
2. Administration of the Plan
The Plan shall be administered by the Senior Vice President - Human
Resources ("Administrator"). The Administrator shall have full power and
authority to interpret, construe and administer the Plan, and such
interpretation and construction thereof and actions taken thereunder
shall be binding on all persons for the purposes. The Administrator may
correct any defect, supply any omission or reconcile any inconsistency in
the Plan in the manner and to the extent the Administrator deems
desirable to carry it into effect. Any decision of the Administrator in
the administration of the Plan shall be final and conclusive.
3. Eligibility
a. Participation in the Plan shall be limited to officers and other key
employees of IDS and its subsidiaries who are designated by the
Administrator, on a case-by-case basis, as eligible to participate
in the Plan. In any case, participation will not extend to
employees whose inclusion, in the opinion of counsel, could
jeopardize the Company's position that the agreements made within
the parameters of this Plan are private offerings exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933.
The term "Participant" as used throughout shall refer to eligible
employees designated to participate in the Plan.
b. The Administrator is authorized to approve, on behalf of IDS,
deferred compensation agreements, and amendments thereto, with
eligible employees.
4. Prescribed Provisions of Deferred Compensation Agreements
<PAGE>
Any Deferred Compensation Agreement ("Agreement") entered into between an
eligible employee and IDS pursuant to this Plan shall be subject to the
following requirements and conditions:
a. IDS shall establish a book reserve account to which shall be
credited when earned or otherwise payable the following, to the
extent elected by an eligible employee pursuant to Section 4.f.:
(1) The basic compensation deferred which must be stated as a
specific dollar amount determined on the date of the
Agreement.
(2) Awards under the Key Management Incentive Plan or any similar
bonus plan, if included as a deferred item.
b. The book reserve account for amounts deferred under subsection "a"
above shall contain two subaccounts (Subaccount A and Subaccount B).
Participants can designate one or both subaccounts to be used by IDS
to reflect and credit increases, decreases, interest, dividends,
other income, gains and losses as may, from time to time, be
experienced by such reserve account. If both subaccounts are used
with respect to any agreement of deferral, 50% of the compensation
to be deferred under such agreement must be credited to each of the
subaccounts. Such designations shall be irrevocable. If
compensation has been credited to the stock equivalent account,
however, the Participant can elect to have any number of stock
equivalent units transferred from Subaccount B to Subaccount A at
any time. The stock equivalent units will be valued for transfer
purposes by multiplying the applicable number of units to be
transferred by the average American Express common stock closing
price for the 60 trading days prior to transfer date. Any transfer
shall be effective at the close of the business day during which
written notice of such transfer is received before the close of the
business day by the Administrator. In contrast, once an amount is
credited to Subaccount A, either on account of an initial deferral
or a transfer, that amount cannot be transferred to Subaccount B.
(1) Subaccount A - Cash Equivalent Account
Amounts designated by Participant to be held in Subaccount A
shall be credited with interest at the end of each calendar
quarter at a rate equal to the average interest rate earned on
26-week U.S. Treasury bills auctioned during such calendar
quarter. If the book reserve account is reduced during a
calendar year due to payments made pursuant to Section 4.c.,
interest accruals shall be credited to the account on the date
prior to the payment date and shall be based on the average
interest rate earned on 26-week U.S. Treasury Bills auctioned
during the preceding calendar quarter.
(2) Subaccount B - American Express Common Stock
Equivalent Account
With respect to compensation deferred in Section 4.a.(1)
amounts designated to be held in Subaccount B shall be
credited to an American Express common stock equivalent
<PAGE>
account. Such deferred amounts credited to the stock
equivalent account during any calendar quarter shall be
converted to stock equivalent units (by dividing the total of
such deferred amount by the average American Express common
stock closing price for the quarter) only at the end of such
calendar quarter. Based on the number of stock equivalent
units credited to the account on any American Express common
stock dividend record date, quarterly dividend equivalents,
i.e., the dollar value of any dividends payable with respect
to American Express common stock, will be converted into stock
equivalent units on such dividend record date by using the
closing stock price on that dividend record date. On the date
that amounts deferred hereunder are paid out pursuant to
Subsection "c" below, the stock equivalent units then held in
the stock equivalent account will be valued for payment by
multiplying the applicable number of units payable by the
average American Express common stock closing price for the 60
trading days before the payment date. With respect to
compensation deferred pursuant to Section 4.a.(2), the
deferred award amount will be converted to stock equivalent
units by dividing the deferred award amount by the average
American Express common stock closing price for the 60 trading
days prior to the date on which such bonus is deferred under
the Plan.
Once the awards pursuant to Section 4.a.(2) are converted to
stock equivalent units, the units will be handled in the same
manner as stock equivalent units from deferred compensation
referenced above in this paragraph.
(3) The book reserve account may contain additional
subaccounts that the Administrator may, in the Administrator's
discretion, designate from time to time. The procedures to
reflect and credit increases, decreases, interest, dividends,
other income, gains and losses, conversion rights and
transferability will be determined by the Administrator in his
or her discretion.
c. IDS shall pay to Participant, or his or her beneficiary designated
in accordance with subsection "d" below, his or her deferred
compensation in cash in accordance with such payout schedule as the
Participant shall irrevocably elect at the time the Agreement
deferring such compensation is executed by Participant and IDS,
subject to the following:
(1) Payout may not extend beyond the earlier of the year the
Participant reaches or would have reached age 90 or 15 years
after payout commences, unless otherwise determined by the
Administrator in his or her sole discretion.
(2) Payments will be made annually during the first quarter.
(3) Upon Participant's termination of employment for reasons other
than retirement, death, or disability his or her deferred
compensation shall be paid to him or her in a lump sum of cash
no later than December 31, of the subsequent year. For
purposes of this Section "termination of employment" shall not
include the discontinuance of services with IDS if Participant
continues to perform services as an employee of American
Express or its subsidiaries or affiliates.
(4) Upon Participant's death any amount held under this Plan shall
be payable in cash, in accordance with Participant's elected
payout schedule unless otherwise determined by the
Administrator, to his or her beneficiary designated pursuant
to subsection "d" below.
(5) If Participant elects to have his or her deferred compensation
paid in annual installments, the payout shall be subject to
the following:
Installment payments with respect to compensation which has
been credited into Subaccount A shall be computed by dividing
the outstanding account balance by the number of payments
remaining, including the current payment. For compensation
which has been credited into Subaccount B, annual
installment payments shall be computed by dividing the
outstanding number of stock equivalent units by the number of
payments remaining, including the current payment, and then
multiplying the applicable number of units payable by the
average American Express common stock closing price for the 60
trading days prior to the payment date. The balance that
remains after each installment payment shall continue to be
credited with interest or dividend equivalents in accordance
with this Plan and the provisions affecting the subaccounts.
Installment payments with respect to compensation which has
been credited into a subaccount other than Subaccount A or
Subaccount B will be valued in a manner determined by the
Administrator in his or her discretion at the time the
Agreement deferring such compensation is executed by
Participant and IDS.
(6) Notwithstanding anything to the contrary contained in the Plan
or any Agreement entered into thereunder or the Key Management
Incentive Compensation Plan (the "KMIC"), following the
occurrence of a Change of Control, as defined in paragraph E
of Article VI of the KMIC, any amount held pursuant to the
Plan to the credit of any Participant shall be paid to the
Participant within five days following the date of such Change
of Control.
(7) The definition of a "Change in Control", as provided in
paragraph E of Article VI of the KMIC, as may be amended from
time to time, is hereby incorporated into this Plan.
d. The Participant shall designate a beneficiary by filing a written
notice of such designation with the Administrator in such form as
the Administrator may prescribe. The Participant may revoke or
modify that designation at any time by a further written
designation.
The Participant's beneficiary designation shall be deemed
automatically revoked in the event of the death of the beneficiary
or, if the beneficiary is the Participant's spouse, in the event of
dissolution of marriage.<PAGE>
If no designation is in effect at the time when benefits payable
under Agreement become due, the beneficiary shall be the spouse of
the Participant, or if no spouse is then living, the Participant's
children and their issue by right of representation or, if none, the
legal representatives of the Participant's estate.
e. Notwithstanding anything herein contained to the contrary, upon the
request of a Participant and based on a showing of an unanticipated
emergency caused by an event beyond the control of the Participant
or beneficiary that would result in severe financial hardship to the
individual if early withdrawal were not permitted, the IDS Board of
Directors may, in its sole discretion, vary the manner and time of
making the distributions provided in this Section 4.
f. The Administrator may prescribe a form of Agreement to be used by
Participant and IDS to defer compensation under the Plan. Any
Agreement between Participant and IDS shall conform to the
following:
(1) With respect to the deferral of basic compensation, the
Agreement shall be entered into by the parties no later than
December 31, immediately prior to the calendar year during
which deferral is to be effective, or at such other date,
which shall precede the rendition of services for the basic
compensation that is being deferred hereunder, as the
Administrator shall determine. Employees who meet the
eligibility requirements pursuant to Section 3.a., due to
promotion or new employment during the calendar year, can
request participation in the Plan, if they request to defer no
later than 30 days after they receive written confirmation of
their eligibility.
(2) With respect to awards under the Key Management Incentive Plan
or any similar bonus plan, the Agreement shall be entered into
by the parties no later than December 31, immediately prior to
the calendar year(s) during which the bonus is earned, or at
such other date, which shall precede the period during which
the award or bonus is earned, as the Administrator shall
determine.
g. As of the effective date of the IDS Supplemental Retirement Plan,
amounts credited to this Plan pursuant to Sections 4.b.(1) and
4.b.(2) as in effect prior to January 1, 1988, shall be governed by
the provisions of the IDS Supplemental Retirement Plan as it may be
amended from time to time.
5. General Provisions:
a. Nothing in this Plan shall create, or be construed to create, a
trust of any kind or fiduciary relationship between IDS and the
Participant, his or her designated beneficiary, or any other person.
Any funds deferred under the provisions of this Plan shall be
construed for all purposes as a part of the general funds of IDS,
and any right to receive payments from IDS under this Plan shall be
no greater than the right of any unsecured general creditor. IDS
may, but need not, purchase any securities or instruments as a means
of hedging its obligations to any Participant under this Plan.
b. The right of any Participant, or other person, to the payment of
deferred compensation under this Plan shall not be assigned,
transferred, pledged or encumbered except by the laws of descent and
distribution.
c. Participation in the Plan shall not be construed as conferring upon
the Participant the right to continue in the employ of IDS as an
executive or any other capacity.
d. Any deferred compensation payable under this Plan shall not be
deemed salary or other compensation to the Participant for the
purpose of computing the benefits under any qualified pension or
profit sharing plan.
e. IDS makes no representations or warranties and assumes no
responsibility as to the tax consequences to any Participant who
enters into a deferred compensation agreement with IDS pursuant to
this Plan. Further, payment by IDS to Participant, or to
Participant's beneficiary or beneficiaries in accordance with the
written designation of beneficiary on file with the Administrator at
the time of Participant's death, shall be binding on all interested
parties and persons, including Participant's heirs, executors,
administrators and assigns, and shall discharge IDS, its directors,
officers and employees from all claims, demands, actions or causes
of action of every kind arising out of or on account of
Participant's participation in this Plan, known or unknown, for
himself or herself, his or her heirs, executors, administrators and
assigns. Any agreement executed pursuant to this Plan shall include
the above provision of this Section 5.e.
f. The Board of Directors may, at any time, amend or terminate the
Plan, provided that the Board may not reduce or modify the amount of
any benefit payable to a Participant or any beneficiary receiving
benefit payments at the time the Plan is amended or terminated. The
President or Senior Vice President - Human Resources may, at any
time, make non-material amendments to the Plan subject to the above
condition.
Examples of non-material amendments include, but are not limited to,
such items as (a) amendments necessary to comply with changes in
federal or state law or regulations, or to obtain initial or
continuing IRS approval of the Plan, (b) amendments which ease the
administration of the Plan but do not have significant immediate or
long-term material financial impact, or (c) amendments having a non-
material effect on the Company's financial commitment to the Plan.
6. Effective Date
Provisions of this amended and restated Plan shall be effective on and
after January 1, 1989. With regard to Section 4.g., prior to January 1,
1985, such agreement shall be entered into by parties no later than July
1st for basic compensation which would otherwise be payable to
Participant during the next following six calendar month period.
<PAGE>
Exhibit 10.43
February 27, 1995
Mr. Harvey Golub
Chairman of the Board
American Express Company
American Express Tower
World Financial Center
New York, New York 10285-5170
Dear Mr. Golub:
In consideration of the payment of $1.00 and other valuable
consideration, this will serve as the agreement of Berkshire Hathaway Inc., on
behalf of itself and its subsidiaries (collectively, "Berkshire"), that, if
Berkshire should acquire 10% or more of the voting securities of American
Express Company ("American Express"), and so long as Berkshire shall
beneficially own 5% or more of the outstanding voting securities of American
Express.
1. Berkshire will not dispose of any shares of voting securities
of American Express without the prior consent of American Express to any
person who Berkshire knows or should know (i) has made a filing with the
Securities and Exchange Commission with respect to ownership of 5% or more of
American Express voting securities, or (ii) would be required to do so as
result of the purchase from Berkshire, or (iii) seeks to change the control of
American Express in any manner; provided, however, that notwithstanding the
above, Berkshire may dispose of its American Express securities in the
following circumstances:
(a) in a sale between Berkshire Hathaway Inc. and a
subsidiary company or between two subsidiary companies of Berkshire Hathaway
Inc.; or
(b) in a sale by Berkshire to American Express or a
subsidiary thereof; or
(c) in a tender or exchange offer for American Express
approved or not opposed by the Board of Directors of American Express; or
(d) in one or more open market transactions effected on the
New York Stock Exchange, any other national securities exchange, or in the
over-the-counter market (which may include a sale to one or more broker-
dealers acting as market makers or otherwise intending to resell the shares
sold to it or them in accordance with its or their normal business practices),
so long as Berkshire does not knowingly violate subsections (i), (ii) or (iii)
above.
2. So long as Harvey Golub is Chief Executive Officer of American
Express, Berkshire shall vote, or cause to be voted, all voting securities of
American Express now or hereafter beneficially owned by it at any and all
meetings of the shareholders of American Express and any adjournments thereof,
or in any written consent solicitation or similar situation in which the
voting rights associated with securities of American Express may be exercised,
in accordance with the recommendation of the Board of Directors of American
Express (if such recommendation is made) with respect to every matter upon
which a vote is taken or consent solicited.
If the foregoing meets with your approval, please sign the duplicate
original of this letter agreement and return it to me.
Very truly yours,
/s/ Warren E. Buffett
Warren E. Buffett
WEB/kcn
Accepted and Agreed
AMERICAN EXPRESS COMPANY
By /s/ Harvey Golub
Harvey Golub
Chairman of the Board
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
Five Years Ended December 31, 1994
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
1. Weighted average number of
common shares issued and
outstanding 497,281,258 484,754,771 476,047,601 468,950,425 438,110,325
2. Weighted average number of
shares In-Lieu/LOI 510,109 414,904 463,128 465,383 462,784
3. Common shares assuming
exercise of stock options 3,084,114 2,777,899 255,139 331,756 495,716
4. Common share equivalents
for Variable Rate
Convertible Notes - - - 6,117 178,228
5. Berkshire Hathaway 7,939,686 12,190,155 - - -
--------- ---------- ---------- ---------- ----------
6. Primary common shares and
common share equivalents 508,815,167 500,137,729 476,765,868 469,753,681 439,247,053
7. Additional common shares
assuming exercise of stock
options based on year-end
market price 312,691 474,233 - - -
8. Common shares reserved for
conversion of 9% Convertible
Debentures 538,409 3,519,727 - 3,865,733 4,033,880
9. Common shares reserved for
conversion of 7 1/2%
Convertible Debentures 142,984 195,406 - 198,582 198,582
10.Common shares reserved for
conversion of 7 3/4%
Convertible Debentures -
Preferred shares to Nippon-
5% Dividend 6,239,872 - - - 28,794
----------- ---------- ----------- ---------- -----------
11.Fully diluted common
shares and common share
equivalents 516,049,123 504,327,095 476,765,868 473,817,996 443,508,309
=========== =========== =========== =========== ===========
12.Income from continuing
operations before
accounting changes
($ millions) $ 1,380 $ 1,605 $ 578 $ 607 $ 1,148
13.Less:
Dividends on Money
Market Preferred Shares - - - (14) (19)
Dividends on Convertible
Exchangeable Preferred
Shares (16) (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
--------- ----------- ---------- --------- ----------
15.Income from continuing
operations before accounting
change applicable to primary
common shares and common
share equivalents 1,364 1,589 535 567 1,114
16.Discontinued operations,
net of income taxes 33 (127) (149) 182 (967)
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 1,397 1,462 418 749 147
19.Add back:
Interest on convertible
debt, net of income tax
benefit 1 4 - 4 4
--------- ---------- --------- -------- ---------
20.Net income applicable to
fully diluted common shares
and common share equivalents $ 1,398 $ 1,466 $ 418 $ 753 $ 151
========= ========== ========= ======== =========
21.Income from continuing
operations before accounting
change applicable to fully
diluted common shares and
common share equivalents
(20 - (16+17)) $ 1,365 $ 1,593 $ 535 $ 571 $ 1,118
========= ========== ========= ======== ========
22.Income from continuing
operations before
accounting changes per share:
Primary (15/6) $ 2.68 $ 3.17 $ 1.12 $ 1.21 $ 2.54
Fully diluted (21/11) $ 2.65 $ 3.16 $ 1.12 $ 1.21 $ 2.52
23.Income (loss) from
discontinued operations
per share:
Primary (16/6) $ .07 $ (.25) $ (.31) $ .38 $ (2.20)
Fully diluted (16/11) $ .06 $ (.25) $ (.31) $ .38 $ (2.18)
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) $ 2.75 $ 2.92 $ .88 $ 1.59 $ .34
Fully diluted (20/11) $ 2.71 $ 2.91 $ .88 $ 1.59 $ .34
</TABLE>
Note: The above amounts reflect changes in accounting principles relating to
income taxes and postretirement benefits other than pensions in 1992.
<PAGE>
EXHIBIT 12.1
AMERICAN EXPRESS COMPANY
COMPUTATION IN SUPPORT OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
Years Ended December 31,
--------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Earnings:
Pretax income from
continuing operations $1,891 $2,326 $ 896 $ 622 $1,578
Interest expense 1,925 1,783 2,171 2,761 3,160
Other adjustments 103 88 196 142 209
----- ----- ----- ----- -----
Total earnings (a) $3,919 $4,197 $3,263 $3,525 $4,947
----- ----- ----- ----- -----
Fixed charges:
Interest expense $1,925 $1,783 $2,171 $2,761 $3,160
Other adjustments 142 130 154 147 143
----- ----- ----- ----- -----
Total fixed charges (b) $2,067 $1,913 $2,325 $2,908 $3,303
----- ----- ----- ----- -----
Ratio of earnings to
fixed charges (a/b) 1.90 2.19 1.40 1.21 1.50
Included in interest expense in the above computation is interest expense
related to the Company's international banking operations and Travel
Related Services' consumer lending activities, which is netted against
interest and dividends in the Consolidated Statement of Income.
For purposes of the "earnings" computation, other adjustments include
adding the amortization of capitalized interest, the net loss of
affiliates accounted for at equity whose debt is not guaranteed by the
Company, the minority interest in the earnings of majority-owned
subsidiaries with fixed charges, and the interest component of rental
expense and subtracting undistributed net income of affiliates accounted
for at equity.
For purposes of the "fixed charges" computation, other adjustments include
capitalized interest costs and the interest component of rental expense.
On May 31, 1994, the Company completed the spin-off of Lehman Brothers
through a dividend to American Express common shareholders. Accordingly,
Lehman Brothers' results are reported as a discontinued operation and are
excluded from the above computation for all periods presented. In March
1993, the Company reduced its ownership in First Data Corporation to
approximately 22 percent through a public offering. As a result,
beginning in 1993 FDC is reported as an equity investment in the above
computation.
<PAGE>
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,
--------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Earnings:
Pretax income from
continuing operations $1,891 $2,326 $ 896 $ 622 $1,578
Interest expense 1,925 1,783 2,171 2,761 3,160
Other adjustments 103 88 196 142 209
----- ----- ----- ----- -----
Total earnings (a) $3,919 $4,197 $3,263 $3,525 $4,947
----- ----- ----- ----- -----
Fixed charges and
preferred share
dividends:
Interest expense $1,925 $1,783 $2,171 $2,761 $3,160
Dividends on preferred
shares 50 66 65 61 74
Other adjustments 142 130 154 147 143
----- ----- ----- ----- -----
Total fixed charges and
preferred share
dividends (b) $2,117 $1,979 $2,390 $2,969 $3,377
----- ----- ----- ----- -----
Ratio of earnings to
fixed charges and
preferred share
dividends (a/b) 1.85 2.12 1.37 1.19 1.46
Included in interest expense in the above computation is interest expense
related to the Company's international banking operations and Travel
Related Services' consumer lending activities, which is netted against
interest and dividends in the Consolidated Statement of Income.
For purposes of the "earnings" computation, other adjustments include
adding the amortization of capitalized interest, the net loss of
affiliates accounted for at equity whose debt is not guaranteed by the
Company, the minority interest in the earnings of majority-owned
subsidiaries with fixed charges, and the interest component of rental
expense and subtracting undistributed net income of affiliates accounted
for at equity.
For purposes of the "fixed charges and preferred share dividends"
computation, dividends on outstanding preferred shares have been increased
to an amount representing the pretax earnings required to cover such
dividend requirements. Other adjustments include capitalized interest
costs and the interest component of rental expense.
On May 31, 1994, the Company completed the spin-off of Lehman Brothers
through a dividend to American Express common shareholders. Accordingly,
Lehman Brothers' results are reported as a discontinued operation and are
excluded from the above computation for all periods presented. In March
1993, the Company reduced its ownership in First Data Corporation to
approximately 22 percent through a public offering. As a result,
beginning in 1993 FDC is reported as an equity investment in the above
computation.
<PAGE>
Exhibit 13
FINANCIAL REVIEW
CONSOLIDATED RESULTS OF OPERATIONS
American Express Company's (the Company) consolidated income from continuing
operations increased 18 percent to $1.4 billion in 1994, compared with $1.2
billion in 1993 before a $433 million gain on the sale of First Data
Corporation (FDC) stock, and compared with $578 million in 1992. Consolidated
net income totaled $1.4 billion in 1994, compared with $1.5 billion in 1993 and
$461 million in 1992. Income from continuing operations per common share was
$2.68 in 1994, compared with $2.30 in 1993 before the FDC gain, and $1.12 in
1992. Net income per common share was $2.75 in 1994, compared with $2.92 in
1993 and $0.88 in 1992.
On May 31, 1994, the Company completed the spin-off of its subsidiary,
Lehman Brothers Holdings Inc. Accordingly, the results of Lehman Brothers
(Lehman) are reported as a discontinued operation in the Consolidated Financial
Statements through the spin-off date.
Results for 1993 included a $433 million ($779 million pretax) gain on
the secondary public offering of FDC shares. 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. See
Notes 9 and 10 to the Consolidated Financial Statements.
Consolidated net revenues were $14.3 billion in 1994, compared with $13.3
billion in 1993 and $14.3 billion in 1992. Consolidated expenses were $12.4
billion in 1994, compared with $10.9 billion and $13.4 billion in 1993 and
1992, respectively. Effective January 1, 1993, FDC is accounted for under the
equity method; 1992 amounts have not been restated. Excluding FDC, consolidated
net revenues for 1992 were $13.1 billion and consolidated expenses were $12.4
billion.
In October 1994, the Company announced a series of decisions that
represent a continuation of a reengineering program launched in 1992 to provide
better customer value at significantly lower costs. These decisions will result
in significant staff reductions throughout the Company over the next several
years. Costs related to these initiatives are not expected to have a material
impact on current or future earnings. Future savings generated by these actions
will be reinvested in the business and help facilitate the achievement of the
Company's business objectives.
CONSOLIDATED FINANCIAL CONDITION
Over the past several years, the Company has been focused on building
shareholder value by strengthening its overall financial position and
allocating resources to growing its core businesses. The spin-off of Lehman
through a dividend to shareholders in May 1994 was a major step towards
achieving this goal. The Company believes capital allocation to businesses with
a return on risk-adjusted equity in excess of its cost of equity and sustained
earnings growth in its core businesses will build shareholder value.
Investments are made in programs that are expected to offer superior value to
our customers, achieve best-in-class economics and enhance the American Express
brand.
The Company's dividend philosophy is to retain enough earnings to sustain
growth in the 12 percent to 15 percent range. Therefore, the Company has
targeted a payout ratio of 25 percent to 30 percent of earnings. To the extent
retained earnings exceed investment opportunities, the Company will return
excess capital to shareholders in the form of share repurchases. During 1994,
the Company has moved from the point several years ago when it needed to
strengthen its capital position to where the Company has the capital to support
its credit ratings, fund growth opportunities in its core businesses and return
capital to shareholders through a share buyback program approved by the Board.
Lehman Brothers Spin-Off
On April 29, 1994, the Company's Board of Directors declared a dividend to the
Company's common shareholders of all of the Lehman Brothers Holdings Inc.
common stock held by the Company on the dividend distribution date. On May 31,
1994, the Company's investment in Lehman was $2.4 billion. The dividend was
distributed on May 31, 1994 to shareholders of record on May 20, 1994 and
represented approximately 98.2 million shares of Lehman common stock.
Shareholders of the Company received one share of Lehman common stock for each
five common shares of the Company that they held on the record date. Prior to
the distribution, the Company added approximately $1.1 billion of additional
equity capital to Lehman. As a result of the spin-off, Lehman's results are
reported as a discontinued operation in the Consolidated Financial Statements
through the spin-off date and for all prior years. The assets and liabilities
of Lehman are reported in the Consolidated Balance Sheet as net assets of
discontinued operations and included in Other Assets for all prior years. See
Note 2 to the Consolidated Financial Statements.
Share Repurchase Program
In September 1994, the Company's Board of Directors authorized the Company to
repurchase up to 20 million shares of its common stock, subject to market
conditions. The plan aims to reduce the number of outstanding common shares and
common share equivalents to less than 500 million shares and to target the
number of shares at that level. In November 1994, in connection with the share
repurchase program, the Company sold four million put options with maturities
ranging from approximately one to twelve months and a weighted average strike
price of $30.81 per share. Upon issuing these put options, the Company received
a weighted average premium of $1.83 per share, or $7.3 million, resulting in
an effective repurchase price of $28.98 per share. As of December 31, 1994, the
Company had repurchased and cancelled 14,601,055 shares under this program at
an average price of $30.37 per share. See Note 7 to the Consolidated Financial
Statements.
Risk Management
The Company manages substantial daily cash flows, investment portfolios,
receivables and loans and related financing requirements, as well as the
related market, credit and operational risks. Management controls the risk
profile of the Company through ongoing assessments of risk exposures and by
retaining, hedging or transferring risk to third parties. In addition to
management of the Company's aggregate risk exposures, management establishes
and oversees implementation of Board-approved policies covering the Company's
funding, investments and use of derivative financial instruments. The Company's
objective is to manage risk in order to minimize earnings volatility and to
assure that the Company's returns are appropriate for the level of risk
assumed. See the Financial Review of each business segment for a discussion of
their respective Risk Management activities. See Note 11 to the Consolidated
Financial Statements for a discussion of the Company's use of derivatives.
Financing Activities
The Company monitors liquidity and has implemented procedures to effect the
immediate transfer of short-term funds within the Company if necessary to meet
liquidity needs. These internal transfer mechanisms are subject to and comply
with various contractual and regulatory constraints.
The parent company generally meets its short-term funding needs through
the issuance of commercial paper. The Board of Directors has authorized a
parent company commercial paper program that is supported by standby credit
facilities with a number of banks. These facilities provide approximately $1.2
billion in committed funds at maturities through 1997. No borrowings have been
made under any of these credit facilities. Average commercial paper outstanding
was $100 million during 1994 and $193 million during 1993. Commercial paper
outstanding was $100 million at December 31, 1994 and 1993.
Total parent company long-term debt outstanding was $2.8 billion at
December 31, 1994 and $3.2 billion at December 31, 1993. At December 31, 1994,
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. See the Financial Review of each business segment for a discussion
of 1994 financing activities of subsidiaries.
Accounting Developments
The Financial Accounting Standards Board's SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan-Income Recognition and Disclosures," are effective
January 1, 1995. The new rules are not expected to have a material impact on
the Company's results of operations or financial condition.
TRAVEL RELATED SERVICES
Results of Operations
TRS' net income increased 13 percent to $998 million in 1994, compared with
$884 million in 1993 and $234 million in 1992 including a restructuring charge
of $342 million ($492 million pretax) and before the accounting change (net
income of $155 million after the accounting change). Pretax income totaled $1.4
billion in 1994, compared with $1.2 billion in 1993 and $264 million in 1992.
TRS' prior years' results have been restated to reflect the transfer of certain
international consumer financial services businesses to American Express Bank
(the Bank) in 1994.
Worldwide Card billed business increased to $141 billion in 1994,
compared with $124 billion in 1993 and $118 billion in 1992. The increases
resulted from higher average spending per Cardmember, growth in Corporate Card
billed business and an increase in the average number of Cards outstanding.
U.S. Card billed business was $101.2 billion in 1994, $89.8 billion in 1993 and
$82.0 billion in 1992. Card billed business outside the U.S. was $39.7 billion
in 1994, compared with $34.3 billion and $35.6 billion in 1993 and 1992,
respectively.
Worldwide Cards in force increased to 36.3 million in 1994, compared with
35.4 million in 1993 and 34.7 million in 1992. The 1994 increase reflected, in
part, the introduction of the Optima True Grace Card. Total Cards in force for
1993 included the addition of approximately 900,000 Cards issued to U.S.
government employees late in the year. U.S. Cards in force were 25.3 million
in 1994, 24.7 million in 1993 and 24.3 million in 1992. Cards in force outside
the U.S. were 11.0 million, compared with 10.7 million and 10.4 million in 1993
and 1992, respectively. Basic Cards in force totaled 26.7 million, compared
with 26.0 million in 1993 and 25.5 million in 1992. TRS continues to focus on
retaining the most profitable Cardmembers. The number of service establishments
increased 9.6 percent to 3.9 million at December 31, 1994, compared with 3.6
million and 3.4 million at December 31, 1993 and 1992, respectively.
Travelers Cheque sales increased 5.1 percent to $24.9 billion in 1994,
compared with $23.6 billion and $24.0 billion in 1993 and 1992, respectively.
Travel sales increased to $10.7 billion in 1994, compared with $8.0 billion in
1993 and $7.0 billion in 1992. The increases were due, in part, to
acquisitions.
Net revenues (total revenues net of lending interest expense) increased
8.8 percent to $10.3 billion in 1994, compared with $9.4 billion and $9.6
billion in 1993 and 1992, respectively. The 1994 increase in net revenues
reflected an increase in worldwide billed business and growth in travel sales.
The 1993 decline reflected discount rate reductions, a decrease in net Card fee
revenue, lower insurance premium revenue and lower net finance charge revenue.
These declines were 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.
Discount revenue increased 10 percent to $4.0 billion, compared with $3.6
billion in 1993 and $3.7 billion in 1992. The increase in 1994 primarily
resulted from an increase in Card billed business, marginally offset by a lower
average discount rate. The 1993 decline in discount revenue reflected a lower
average discount rate, substantially offset by increased Cardmember spending.
Net Card fees were $1.7 billion in both 1994 and 1993 and $1.8 billion in 1992.
Lending finance charge revenue was $1.3 billion, compared with $1.2 billion in
1993 and $1.3 billion in 1992. Lending net finance charge revenue totaled $948
million, compared with $928 million in 1993 and $994 million in 1992. The
decline in 1993 reflected lower average balances, partly offset by higher net
interest spreads. Interest and dividend revenue totaled $776 million, compared
with $724 million and $720 million in 1993 and 1992, respectively. Other
revenues increased 16 percent to $2.8 billion in 1994, compared with $2.4
billion in 1993 and $2.5 billion in 1992. The increase in 1994 primarily
reflected the increase in travel business. Recent changes in the level of
commissions paid by airlines to travel agents have underscored the need to
continue reengineering the travel business. Management believes its
reengineering plans will ensure that these changes will not have a significant
impact on TRS.
Total expenses, excluding lending interest expense, were $8.9 billion in
1994, compared with $8.3 billion in 1993 and $9.4 billion in 1992. The increase
in 1994 reflected business travel acquisitions and growth, and investments in
certain business initiatives. 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 1992
included the restructuring charge discussed above.
The provision for losses and claims was $1.5 billion in both 1994 and
1993 and $2.2 billion in 1992. The 1994 provision reflected continuing improved
credit experience. The decline in 1993 reflected actions taken in 1992 to
restructure the portfolio, as well as ongoing improvements in credit
management. The worldwide charge Card provision was $633 million, compared with
$702 million in 1993 and $956 million in 1992. The declines reflected continued
improvement in Card credit experience and a higher level of securitized
receivables, partly offset by an increase in billed business. The worldwide
lending provision was $378 million in 1994, $417 million in 1993 and $765
million in 1992. 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 $831 million,
compared with $799 million in 1993 and $899 million in 1992. The 1994 increase
reflected increased funding requirements, partly offset by lower borrowing
rates. The decline in 1993 reflected lower borrowing rates. Worldwide charge
Card interest expense totaled $681 million, compared with $662 million and $788
million in 1993 and 1992, respectively. Human resources expense increased to
$2.6 billion, compared with $2.2 billion in both 1993 and 1992. The 1994
increase primarily reflected growth in the business travel and Corporate Card
products and the impact of travel acquisitions. Marketing and promotion expense
totaled $1.04 billion in 1994, compared with $1.07 billion in 1993 and $1.08
billion in 1992. Other operating expenses increased to $2.6 billion from $2.4
billion in 1993 and 1992, before the restructuring charge discussed above. The
1994 increase was due to business acquisitions, investments to increase
technology capacity and investments in software to support new products.
TRS' asset securitization program, which began in the third quarter of
1992, resulted in net discount expense of $326 million in 1994, $219 million
in 1993 and $100 million in 1992 and fee revenue of $79 million in 1994, $54
million in 1993 and $35 million in 1992, reduced the provision for credit
losses by $127 million in 1994, $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, 1994, 1993 or 1992. Increases in individual categories
reflect a higher volume of securitized receivables.
Risk Management
TRS employs a variety of interest rate and foreign exchange hedging strategies
to protect its balance sheet and statement of income from market risk. TRS'
hedging policies are established, maintained and monitored by a central
treasury function. TRS generally hedges its exposure along product lines.
For its Card product, TRS funds its Cardmember receivables using both on-
and off-balance-sheet sources such as long-term debt, medium-term notes,
commercial paper and other debt, as well as an off-balance-sheet asset
securitization program. Such funding is provided by American Express Credit
Corporation (Credco) and for the asset securitization program by American
Express Receivables Financing Corporation (RFC). Interest rate exposure arising
from this funding is managed through the issuance of long-term debt, short-term
debt and interest rate swaps to achieve a targeted 30 percent to 40 percent
fixed and 60 percent to 70 percent floating mix. From time to time, TRS may
review and change this ratio. Foreign exchange risk arising from cross-currency
charges and balance sheet exposures are managed primarily by entering into
agreements to buy and sell currencies on a spot or forward basis.
For its lending products, TRS funds its consumer loans using a mixture
of short- and long-term debt, primarily through American Express Centurion Bank
(Centurion Bank). TRS' lending products are linked to a floating rate base and
reprice at fixed intervals. TRS enters into interest rate swaps for
predominantly all of its consumer loans to lock in its funding cost for the
period between each repricing, thereby locking in the interest rate spread.
Foreign exchange risk arising from cross-currency charges and balance sheet
exposures are managed primarily by entering into agreements to buy and sell
currencies on a spot or forward basis.
For its Travelers Cheque, travel and other businesses, which are
predominantly self-funding, foreign exchange risk is hedged using a combination
of spot foreign exchange transactions and forward foreign exchange contracts
and options.
Financial Condition
In 1994, TRS sold additional Cardmember receivables to RFC, which transferred
such receivables to a trust. The trust issued $900 million of trust
certificates in a public offering, in three series of $300 million due 1998,
2001 and 2004, respectively. Trust certificates outstanding totaled $2.5
billion at December 31, 1994, compared with $1.6 billion and $1.0 billion at
December 31, 1993 and 1992, respectively.
Total debt outstanding at December 31, 1994 and 1993 was $18.5 billion
and $16.8 billion, respectively, of which $16.0 billion and $14.1 billion,
respectively, was due within one year. Through Credco and Centurion Bank, TRS
issued in 1994 approximately $429 million 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. At December 31, 1994, 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 commercial paper outstanding
of approximately $10.2 billion at an average interest rate of 5.8 percent and
approximately $8.8 billion at an average interest rate of 3.2 percent at
December 31, 1994 and 1993, respectively. Unused lines of credit of
approximately $4.9 billion were available at December 31, 1994 to support a
portion of TRS' commercial paper borrowings. Borrowings under bank lines of
credit totaled $1.4 billion at December 31, 1994 and $1.1 billion at December
31, 1993.
Total assets were $42.5 billion and $38.8 billion at December 31, 1994
and 1993, respectively. TRS' prior year's assets have been restated to reflect
the transfer of certain international consumer financial services businesses
to the Bank. The increase in total assets reflected higher accounts receivable,
consumer lending balances and investments related to the Travelers Cheques and
insurance businesses. Accounts receivable and accrued interest totaled $16.8
billion at December 31, 1994 and $15.7 billion at December 31, 1993. Loans and
discounts were $9.2 billion and $8.2 billion at December 31, 1994 and 1993,
respectively. In 1994, TRS issued the first of a series of stand-alone
revolving credit products which are expected to increase significantly the size
of its lending portfolio over time. TRS believes that it has sufficient capital
to support the growth of this business. Average Travelers Cheques outstanding
increased to $5.3 billion at December 31, 1994 from $5.0 billion at December
31, 1993. Travelers Cheques outstanding were $5.3 billion and $4.8 billion at
December 31, 1994 and 1993, respectively.
AMERICAN EXPRESS FINANCIAL ADVISORS
Results of Operations
American Express Financial Advisors', formerly IDS Financial Services, net
income increased 20 percent to $428 million in 1994, compared with $358 million
in 1993 and $297 million before the accounting change in 1992 (net income of
$277 million after the accounting change). Revenues increased 3.6 percent to
$3.3 billion in 1994, compared with $3.2 billion and $2.9 billion in 1993 and
1992, respectively. Revenue and earnings growth in 1994 benefited from an
increase in management fees, as well as an increase in life insurance in force.
For the full year, investment margins were relatively even with 1993, although
margins during the fourth quarter of 1994 were below prior year levels. It is
expected that this trend will continue through the first half of 1995. As a
result, earnings are expected to grow at a somewhat slower pace than historical
rates. Revenue and earnings growth in 1993 benefited from higher asset levels
and wider investment margins compared with 1992. Pretax income totaled $631
million in 1994, compared with $518 million in 1993 and $408 million in 1992.
American Express Financial Advisors' financial advisory field force
totaled 8,054 at December 31, 1994, compared with 7,655 and 7,313 at December
31, 1993 and 1992, respectively. Total product sales increased during 1994 and
1993. Product sales generated from financial plans were 62 percent of total
sales in 1994, compared with 58 percent and 50 percent in 1993 and 1992,
respectively. Fees from financial plans were $40 million in 1994, compared with
$37 million in 1993 and $34 million in 1992. Mutual fund sales increased 4.2
percent to $8.9 billion in 1994, compared with $8.6 billion and $7.0 billion
in 1993 and 1992, respectively. The 1994 increase reflected higher sales of
equity funds and money market funds. The increase in 1993 reflected increased
sales of both equity and income funds. Annuity sales increased 6.2 percent to
$4.4 billion in 1994, compared with $4.1 billion in 1993 and $3.6 billion in
1992. The increases reflected increased sales of annuities with variable
investment options. Sales of investment certificates increased 86 percent to
$1.1 billion in 1994, compared with a 13 percent decline in 1993. The 1994
increase resulted from higher interest rates. The decline in 1993 reflected an
overall decline in short-term rates compared with 1992. Life and other
insurance sales increased 5.0 percent in 1994, compared with an increase of 34
percent in 1993. Both years reflected increased sales of variable universal
life insurance.
Investment income totaled $2.0 billion in both 1994 and 1993 and $1.9
billion in 1992. The increase in 1993 primarily reflected higher invested
assets, partly offset by lower yields. Commissions and fees increased 11
percent to $806 million, compared with $727 million in 1993 and $598 million
in 1992. The increases reflected management fees earned on a higher asset base
and, in 1993, higher distribution fees earned on higher mutual fund sales.
Total expenses were $2.6 billion in both 1994 and 1993 and $2.5 billion
in 1992. The provision for annuity benefits, the largest component of expenses,
totaled $1.0 billion, compared with $1.1 billion in 1993 and $1.0 billion in
1992. The decline in 1994 reflected lower accrual rates, partly offset by
higher annuities in force. The 1993 increase reflected higher annuities in
force, partially offset by lower accrual rates. The provision for insurance
benefits totaled $370 million, compared with $321 million and $308 million in
1993 and 1992, respectively. The increases reflected increased life insurance
in force. The provision for investment certificates declined to $107 million,
compared with $124 million in 1993 and $178 million in 1992. The declines
reflected lower investment certificates in force, and lower accrual rates in
1993 and the first half of 1994. Human resources expense increased 8.8 percent
to $823 million in 1994, compared with $757 million in 1993 and $635 million
in 1992. The increases reflected an increase in the number of employees and
financial advisors, and increased commissionable sales. Other operating
expenses declined to $311 million in 1994, compared with $366 million and $309
million in 1993 and 1992, respectively. The 1994 decline primarily reflected
a lower provision for insurance industry guarantee association assessments.
Risk Management
American Express Financial Advisors' owned investment securities are, for the
most part, held by its life insurance and investment certificate subsidiaries.
These subsidiaries primarily invest in long-term and intermediate-term fixed
income securities for the purpose of providing their fixed annuity and
investment certificate clients with a competitive rate of return on their
investments while minimizing risk, as well as to provide American Express
Financial Advisors with a dependable and consistent margin between the interest
rate earned on investments and the interest rate credited to clients' accounts.
American Express Financial Advisors does not invest in securities to generate
trading profits for its own account.
The life insurance and investment certificate subsidiaries have
investment committees that hold regularly scheduled meetings and, when
necessary, special meetings. At these meetings, the committees review models
projecting different interest rate scenarios and their impact on the
profitability of each subsidiary. The objective of the committees is to
structure their investment security portfolios based upon the type and behavior
of products in their liability portfolios so as to achieve targeted levels of
profitability.
Rates credited to customers' accounts are generally reset at shorter
intervals than the maturity of underlying investments. Therefore, American
Express Financial Advisors' margins may be negatively impacted by increases in
the general level of interest rates. Part of the committees' strategy includes
the purchase of some types of derivatives, such as interest rate caps and
corridors, for hedging purposes. These derivatives protect margins by
increasing investment returns if there is a sudden and severe rise in interest
rates, thereby mitigating the impact of an increase in rates credited to
clients' accounts.
Financial Condition
Total owned assets increased 7.5 percent to $40.2 billion at December 31, 1994
from $37.4 billion at December 31, 1993. Investments totaled $25.2 billion and
$24.6 billion at December 31, 1994 and 1993, respectively. American Express
Financial Advisors' investments are comprised primarily of mortgage-backed
securities, and corporate bonds and obligations, including below investment
grade debt securities of $2.1 billion in 1994 and 1993. Investments are
principally funded by sales of insurance and annuities, and by reinvested
income. Maturities of these investments are matched, for the most part, with
the expected future payments of insurance and annuity obligations. Assets held
in segregated asset accounts increased to $10.9 billion at December 31, 1994
from $9.0 billion at December 31, 1993. These assets, primarily investments
carried at market value, are held for the exclusive benefit of variable annuity
and variable life insurance contract holders. American Express Financial
Advisors earns investment management and administration fees from the related
funds.
Assets under management increased 4.9 percent to $65.3 billion at
December 31, 1994 from $62.3 billion at December 31, 1993, reflecting strong
net sales, partly offset by market depreciation.
In 1994, American Express Financial Corporation, formerly IDS Financial
Corporation, issued and sold $70 million of 6.5% Medium-Term Notes due 2004 and
$50 million of 6.625% Medium-Term Notes due 2006. The Notes were sold in
private placements to institutional investors. The proceeds from these
issuances were used for general corporate purposes.
Deferred annuities in force totaled $28.2 billion and $25.8 billion at
December 31, 1994 and 1993, respectively. Investment certificate reserves were
$2.9 billion at December 31, 1994 and $2.8 billion at December 31, 1993. Life
insurance in force increased 14 percent to $52.7 billion at December 31, 1994
from $46.1 billion at December 31, 1993.
AMERICAN EXPRESS BANK
Results of Operations
The Bank's net income totaled $80 million in 1994, compared with $92 million
in 1993 and $35 million before the accounting change in 1992 (net income of $28
million after the accounting change). Results for 1994 reflected lower net
revenues and higher operating expenses, in part due to spending related to
systems technology. The decline in 1994 results was partially offset by a
reduction in the provision for credit losses. Effective January 1, 1993, the
U.S. federal income tax rate was increased from 34 percent to 35 percent. The
Bank's results for 1993 included a $5 million benefit from the impact of the
tax rate change on its net deferred tax assets as of January 1, 1993. The
earnings increase in 1993 as compared with 1992 reflected a lower level of
credit-related reserves, growth in fee income and benefits from continued lower
short-term funding costs. The Bank's pretax income was $119 million in 1994,
compared with $134 million in 1993 and $27 million in 1992. The Bank's prior
years' results have been restated to reflect the transfer of certain
international consumer financial services businesses from TRS to the Bank in
1994.
Net interest income totaled $348 million in 1994, compared with $365
million in 1993 and $370 million in 1992. The declines in net interest income
reflected higher short-term funding costs in 1994 and lower investment income.
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
2.85 percent in 1994, compared with 2.92 percent and 2.72 percent in 1993 and
1992, respectively. Noninterest income, consisting primarily of commissions,
fees and other revenues, totaled $304 million in 1994, compared with $312
million in 1993 and $287 million in 1992. The 1994 decline reflected a lower
level of revenues from the Bank's trading portfolio. The increase in 1993
primarily reflected growth in private banking and correspondent banking fee
income and improved foreign exchange results.
Noninterest expenses, excluding the provision for credit losses, totaled
$525 million in 1994, compared with $499 million in 1993 and $509 million in
1992. The 1994 increase in noninterest expenses primarily reflected spending
related to systems technology and higher human resources expense. Noninterest
expenses in 1992 included the recognition of restructuring charges associated
with the Bank's headquarters operation and certain other overseas businesses.
Excluding these restructuring charges, noninterest expenses increased in 1993
compared with 1992 reflecting additional expenses to support the Bank's ongoing
investment in the Asian/Pacific markets.
The provision for credit losses was $8.3 million in 1994, compared with
$44 million in 1993 and $121 million in 1992. The 1994 decline reflected a
lower level of nonperforming loans and overall lower loan balances. 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.
In 1994, the Bank recognized an income tax provision of $39 million,
compared with $42 million in 1993 and an income tax benefit of $8.2 million in
1992. A smaller proportion of the Bank's overall income was derived from
tax-exempt interest in 1994 and 1993 in comparison with 1992.
Risk Management
The Bank employs a variety of on-balance-sheet and derivative financial
instruments in managing its exposure to fluctuations in interest and currency
rates. The derivative instruments consist principally of foreign exchange spot
and forward contracts, interest rate swaps, currency options and forward rate
agreements. Generally, these derivative instruments are used to manage specific
on-balance-sheet interest rate and foreign exchange exposures related to
deposits, long-term debt, loans and securities holdings.
The Bank utilizes foreign exchange and interest rate products to meet the
needs of its customers. In the common scenario, a Bank customer desires to
enter into a foreign exchange or other derivatives contract and contacts the
Bank. If the pricing is acceptable to both the Bank and the customer, the Bank
enters into two transactions: the contract desired by the customer and an
offsetting contract with a third party dealer; therefore, the Bank has no
market risk. Customer positions are not always offset. They are evaluated in
terms of the Bank's overall interest rate or foreign exchange exposure. If they
naturally offset an exposure, an offsetting contract with a dealer will not be
executed. Furthermore, to a limited extent, the Bank will take short-term
proprietary positions.
Asset/liability management is supervised by the Bank's Asset and
Liability Committee (ALCO) which is comprised of senior business managers. ALCO
meets at least monthly and monitors (a) interest rate sensitivity and liquidity
gaps, (b) foreign exchange trading and translation exposures, and (c)
investment securities portfolios. ALCO evaluates current market conditions and
determines the Bank's strategy within monetary and maturity risk limits
approved by the Bank's Board of Directors. The Bank's treasurer issues policies
and control procedures and delegates risk limits throughout the Bank's country
treasury operations.
The Bank's overall credit policies are approved by the Finance and Credit
Policy Committee of the Bank's Board of Directors. Credit lines are approved
using a tiered approval authorities ladder with levels of authority delegated
to each country, geographic area, the Bank's Credit Approval Committee, and
Board of Directors. Approval authorities are based on characteristics such as
type of borrower, nature of transaction, nature of collateral, and overall risk
rating. The Loan Quality Control department reviews all significant exposures
periodically. The Bank controls the credit risk arising from derivative
transactions through the same credit procedures as it uses for traditional
lending products. Risk amount factors for all foreign exchange and derivative
transactions are reviewed by the Bank on a regular basis.
Financial Condition
The Bank's assets totaled $13.3 billion at December 31, 1994 and $14.1 billion
at December 31, 1993. The Bank's prior year's assets have been restated to
reflect the transfer of certain international consumer financial services
businesses from TRS.
Total loans were $5.0 billion at December 31, 1994, compared with $5.6
billion at December 31, 1993. The reserve for credit losses was $109 million
at December 31, 1994, compared with $126 million at December 31, 1993. The
Bank's credit loss reserve coverage was 2.2 percent of total loans at both
December 31, 1994 and 1993. Total loan write-offs, net of recoveries, were $25
million in 1994 and $50 million in 1993. Nonperforming loans totaled $20
million at December 31, 1994 and $43 million at December 31, 1993, while other
nonperforming assets (in-substance foreclosures, other real estate owned and
assets acquired in loan settlements) totaled $56 million at December 31, 1994
and $89 million at December 31, 1993. The decline in nonperforming loans and
other nonperforming assets primarily reflected the sale of foreclosed
properties, write-offs and repayments.
The Bank's risk-based capital ratios were 7.5 percent for Tier 1 Capital
and 14.7 percent for Total Capital at December 31, 1994, compared with 6.3
percent and 10.2 percent, respectively, at December 31, 1993. The Bank's
leverage ratio was 4.8 percent and 4.4 percent at December 31, 1994 and 1993,
respectively. The increase in the Total Capital ratio was primarily due to the
issuance and sale outside the United States of $250 million of Floating Rate
Subordinated Notes due 2004. The proceeds of this issuance were used for
general corporate purposes. The Tier 1 and leverage ratios increased primarily
due to reductions in total assets.
CORPORATE AND OTHER
Corporate and Other reported net expenses of $126 million in 1994, compared
with net income of $271 million in 1993 and net income of $12 million before
accounting changes in 1992 (net income of $151 million after accounting
changes). For purposes of this discussion, Other includes the Company's share
of FDC's net income.
Before consideration of the gains on the sales of FDC common stock and
the Balcor reserves which are discussed below, Corporate and Other reported net
expenses of $162 million in 1993 and $113 million in 1992.
Results for 1994 included income from the Company's share of the
Travelers Inc. (Travelers) revenue participation, in accordance with an
agreement related to the 1993 sale of certain Lehman Brothers Inc. retail and
asset management businesses, as well as a capital gain on the sale of Travelers
preferred stock and warrants which were acquired as part of the 1993 sale.
These gains were offset by the Company's costs associated with the Lehman
spin-off and certain business building initiatives.
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 Statements of Income for 1994 and 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 included in Other Expenses in the Consolidated Statement
of Income.
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)
1994 1993 1992
---- ---- ----
NET REVENUES
Commissions and fees $ 8,591 $ 7,818 $ 8,817
Interest and dividends, net 4,120 3,995 3,975
Life insurance premiums 783 702 776
Other 788 739 687
------- ------- -------
Total 14,282 13,254 14,255*
------- ------- -------
EXPENSES
Human resources 3,769 3,380 3,714
Provisions for losses and benefits:
Annuities and investment certificates 1,173 1,259 1,315
Credit, banking and other 1,066 1,238 1,901
Life insurance 757 610 596
Marketing and promotion 1,063 1,091 1,113
Occupancy and equipment 1,058 965 1,167
Interest 1,011 864 939
Professional services 687 598 526
Communications 376 357 419
Other 1,431 1,345 2,375
Gain on sale of FDC - (779) (706)
------- ------- -------
Total 12,391 10,928 13,359*
------- ------- -------
Pretax income from continuing operations
before accounting changes 1,891 2,326 896
Income tax provision 511 721 318
------- ------- -------
Income from continuing operations
before accounting changes 1,380 1,605 578
Discontinued operations, net of
income taxes 33 (127) (149)
------- ------- -------
Income before accounting changes 1,413 1,478 429
Cumulative effect of accounting
changes, net of income taxes - - 32
------- ------- -------
Net income $ 1,413 $ 1,478 $ 461
======= ======= =======
EARNINGS PER COMMON SHARE
Income from continuing operations
before accounting changes $ 2.68 $ 3.17 $ 1.12
Discontinued operations .07 (.25) (.31)
------- ------- -------
Income before accounting changes 2.75 2.92 .81
Cumulative effect of accounting changes - - .07
------- ------- -------
Net income $ 2.75 $ 2.92 $ .88
======= ======= =======
See notes to consolidated financial statements.
*Includes FDC revenues of $1,205 million and expenses of $1,023 million.
CONSOLIDATED BALANCE SHEET
American Express Company
December 31, (millions of dollars) 1994 1993
----- -----
ASSETS
Cash and cash equivalents $ 3,433 $ 3,312
Accounts receivable and accrued interest,
less reserves: 1994, $807; 1993, $796 17,147 16,142
Investments 40,108 39,308
Loans and discounts, less reserves:
1994, $545; 1993, $655 14,722 14,796
Land, buildings and equipment-at cost,
less accumulated depreciation:
1994, $1,563; 1993, $1,441 1,840 1,976
Assets held in segregated asset accounts 10,881 8,992
Deferred acquisition costs 2,280 2,025
Other assets 6,595 7,581
------ -------
Total assets $97,006 $94,132
------- -------
LIABILITIES AND SHAREHOLDER'S EQUITY
Customers' deposits and credit balances $10,013 $11,131
Travelers Cheques outstanding 5,271 4,800
Accounts payable 4,228 3,737
Insurance and annuity reserves:
Fixed annuities 20,163 19,149
Life and disability policies 4,686 4,257
Investment certificate reserves 2,866 2,752
Short-term debt 14,810 12,489
Long-term debt 7,162 8,561
Liabilities related to segregated asset
accounts 10,881 8,992
Other liabilities 10,493 9,530
------- -------
Total liabilities 90,573 85,398
------- -------
SHAREHOLDERS' EQUITY:
Preferred shares, $1.66 2/3 par value,
authorized 20,000,000 shares
Convertible Exchangeable Preferred shares,
issued and outstanding 4,000,000 shares,
stated at liquidation value 200 200
$216.75 CAP Preferred shares, issued
and outstanding 122,448.98 shares in
1993, stated at par value (liquidation
value of $300) - 1
Common shares, $.60 par value, authorized
1,200,000,000 shares; issued and outstanding
495,865,678 shares in 1994 and 489,827,852
shares in 1993 298 294
Capital surplus 3,754 3,784
Net unrealized securities gains (losses) (389) 7
Foreign currency translation adjustment (77) (73)
Deferred compensation (103) (128)
Retained earnings 2,750 4,649
------- -------
Total shareholders' equity 6,433 8,734
------- -------
Total liabilities and shareholders' equity $97,006 $94,132
======= =======
See notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
American Express Company
Years Ended December 31, (millions) 1994 1993 1992
----- ----- -----
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations $ 1,380 $ 1,605 $ 578
Adjustments to reconcile income from
continuing operations to net cash
provided (used) by operating
activities:
Provisions for losses and benefits 1,456 1,627 2,213
Depreciation, amortization, deferred
taxes and other 378 411 410
Changes in operating assets and
liabilities, net of effects of
acquisitions/dispositions:
Accounts receivable and accrued
interest (180) (982) 199
Other assets 525 (987) 184
Accounts payable and other liabilities 969 355 517
Increase in Travelers Cheques outstanding 471 72 481
Increase in insurance reserves 471 452 366
Restructuring charges - - 492
Gain on sale of FDC - (779) (706)
Balcor reserves - - 388
Net cash flows used by operating
activities of discontinued operations (3,656) (1,361) (6,268)
------- ------ ------
Net cash provided (used) by operating
activities 1,814 413 (1,146)
------- ------- ------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from FDC public offerings, net
of cash sold in 1993 - 871 1,057
Sale of investments 4,757 2,296 2,995
Maturity and redemption of investments 6,794 8,308 7,463
Purchase of investments (13,224) (13,802) (14,785)
Net increase in Cardmember receivables (3,189) (2,524) (1,150)
Cardmember accounts receivable sold
to Trust 900 600 1,000
Proceeds from repayment of loans 21,282 18,817 13,670
Issuance of loans (21,037) (19,465) (13,821)
Purchase of land, buildings and equipment (333) (286) (451)
Sale of land, buildings and equipment 122 120 95
(Acquisitions) dispositions, net of cash
acquired/sold (310) 121 (94)
Net cash flows (used) provided by investing
activities of discontinued operations (36) 2,467 23
------- ------ -------
Net cash used by investing activities (4,274) (2,477) (3,998)
------- ------ -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in customers'
deposits and credit balances (1,089) 29 (1,020)
Sale of annuities and investment
certificates 5,994 5,217 5,458
Redemption of annuities and investment
certificates (5,004) (3,748) (3,283)
Net increase (decrease) in debt with
maturities of 3 months or less 5,494 (253) 122
Issuance of debt 3,921 13,561 8,938
Principal payments on debt (8,729) (11,397) (10,207)
Issuance of American Express common shares 179 259 159
Redemption of American Express Money Market
Preferred shares - - (150)
Repurchase of American Express common
shares (555) - -
Cash infusion to Lehman Brothers (904) - -
Dividends paid (504) (526) (518)
Net cash flows provided (used) by
financing activities of discontinued
operations 3,737 (372) 4,913
------- ------ ------
Net cash provided by financing activities 2,540 2,770 4,412
Net change in cash and cash equivalents of
discontinued operations 45 734 (1,332)
Effect of exchange rate changes on cash 86 (68) (583)
------- ------ ------
Net increase (decrease) in cash and cash
equivalents 121 (96) 17
Cash and cash equivalents at beginning
of year 3,312 3,408 3,391
------- ------ ------
Cash and cash equivalents at end of year $ 3,433 $ 3,312 $ 3,408
======= ====== =======
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
American Express Company
Net
Unrealized
Securities
Preferred Common Capital Gains/ Retained
Total Shares Shares Surplus (Losses) Other Earnings
----- --------- ------ ------- ----------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Three Years Ended December 31, 1994
(millions)
Balances at December 31, 1991 $7,465 $ 351 $ 283 $3,370 $ (37) $ (259) $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 (1) (220) (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 7 (201) 4,649
----- ------ ------ ------ ------ ------ ------
Net income 1,413 1,413
Repurchase of common shares (555) (11) (144) (400)
Issuance of put options, net (104) (104)
Impact of Lehman spin-off (2,410) (4) 11 (2,417)
Conversion of 9% Notes 58 2 56
Change in net unrealized securities
gains (losses) (396) (396)
Foreign currency translation
adjustments (15) (15)
Other changes, primarily benefit
plans 202 (1) 13 166 25 (1)
Cash dividends declared:
Preferred (32) (32)
Common, $.925 per share (462) (462)
------ ------ ------ ------ ------ ------ ------
Balances at December 31, 1994 $6,433 $ 200 $ 298 $3,754 $ (389) $(180)$2,750
====== ====== ====== ====== ====== ====== ======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, the Company
completed the spin-off of Lehman Brothers (Lehman) on May 31, 1994.
Accordingly, Lehman's results are reported as a discontinued operation through
the spin-off date and for all prior years.
As a result of the public offerings of First Data Corporation's (FDC)
common stock described in Note 3, 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 Translation
Revenues and expenses denominated in foreign currencies are translated at
average monthly exchange rates during the year. Assets and liabilities 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.
Income Per Share
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 certain convertible debt, as well as $216.75 CAP Preferred
shares through August 1994), after adjustment for dividends on preferred
shares and interest on the convertible debt. The weighted average shares used
in the computations were 508,815,000; 500,138,000; and 476,766,000 for 1994,
1993 and 1992, respectively.
Investments
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Under SFAS No. 115, debt securities that the
Company has both the positive intent and ability to hold to maturity are
carried at amortized cost. Other debt securities and all marketable equity
securities are classified as either Available for Sale or Trading and carried
at fair value. The Available for Sale classification does not mean that the
Company expects to sell these securities, but that under SFAS No. 115 positive
intent criteria, these securities are available to meet possible liquidity
needs should there be significant changes in market interest rates, customer
demand, funding sources and terms, or foreign currency risk. Unrealized gains
and losses on securities classified as Available for Sale are reported, net of
income taxes, as a separate component of Shareholders' Equity. Trading
securities consist of debt and equity securities that are held primarily for
resale in the short term, usually to benefit from short-term market movements.
Gains and losses, both realized and unrealized, on securities classified as
Trading are recognized in earnings. In the event of an other than temporary
decline in value, investments are carried at their estimated realizable value
with the amount of the writedown included in income. See Note 4.
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.
Net Revenues
Revenues are presented net of interest expense related to the Company's
international banking operations and Travel Related Services' (TRS) consumer
lending activities. Interest expense netted against Interest and Dividends
revenue was $914 million, $919 million and $1,232 million for the years ended
December 31, 1994, 1993 and 1992, respectively.
Marketing and Promotion
The Company expenses advertising costs in the year in which the advertising
first takes place.
Cash and Cash Equivalents
The Company has defined cash and cash equivalents as cash and time deposits
with original maturities of 90 days or less, excluding those that are
restricted by law or regulation. Cash includes interest-bearing deposits,
which generally can be withdrawn in less than 30 days, amounting to
approximately $1.3 billion and $1.2 billion at December 31, 1994 and 1993,
respectively.
Accounting Changes
Effective January 1, 1992, the Company adopted new accounting rules related to
postretirement benefits other than pensions and income taxes. See Notes 9 and
10, respectively. The Company's adoption of SFAS No. 115 is discussed under
Investments above.
NOTE 2 Lehman Brothers Spin-Off
On April 29, 1994, the Company's Board of Directors declared a dividend to the
Company's common shareholders of all of the Lehman Brothers Holdings Inc.
common stock held by the Company on the dividend distribution date. On May 31,
1994, the Company's investment in Lehman was $2.4 billion. The dividend was
distributed on May 31, 1994 to shareholders of record on May 20, 1994 and
represented approximately 98.2 million shares of Lehman common stock.
Shareholders of the Company received one share of Lehman common stock for each
five common shares of the Company that they held on the record date. Prior to
the distribution, the Company added approximately $1.1 billion of additional
equity capital to Lehman representing:
-- The Company's purchase of approximately $904 million of Lehman common
stock, which was included in the dividend to the Company's common
shareholders. The Company sold approximately $11 million of Lehman common
stock from its holdings to certain Lehman executive officers; and
-- The Company's purchase of $200 million of Lehman cumulative voting
preferred stock, which is being held for investment purposes.
In connection with the spin-off, the Company also acquired 928 shares
and Nippon Life Insurance Company (Nippon Life) acquired 72 shares of Lehman
redeemable voting preferred stock for a nominal dollar amount. The redeemable
voting preferred stock entitles its holders to receive an aggregate annual
dividend of 50 percent of Lehman net income in excess of $400 million for each
of eight years ending in May 2002, with a maximum of $50 million in any one
year. In addition, the Company and Nippon Life will be entitled to receive
92.8 percent and 7.2 percent, respectively, of certain contingent revenue and
earnings-related payouts from Travelers Inc. (Travelers), which were assigned
by Lehman to the Company and Nippon Life in connection with the spin-off
transaction. The Travelers participations will yield a maximum of $50 million
pretax annually for three years, depending on the revenues of Smith Barney
($50 million was received in 1994), plus 10 percent of after-tax profits of
Smith Barney in excess of $250 million per year over a five-year period ($19
million was received in 1994).
Discontinued Operations
Discontinued operations represents the results of Lehman through May 31, 1994,
the spin-off date. Discontinued operations are summarized as follows:
Period ending Years ended
May 31, December 31,
------------- ---------------
(millions) 1994 1993 1992
------- ----- ------
Net revenues $1,311 $5,431 $5,993
====== ====== ======
Income (loss) before accounting changes $ 57 $ (102) $ (116)
Accounting changes (13) - (8)
------ ------ ------
44 (102) (124)
Preferred dividends (11) (25) (25)
----- ------ ------
Discontinued operations $ 33 $ (127) $ (149)
====== ====== ======
Lehman's assets, liabilities and stockholders' equity at December 31, 1993
were $80 billion, $78 billion and $2 billion, respectively. The Company's
investment in Lehman at December 31, 1993 was $1.5 billion and is included
in Other Assets in the Consolidated Balance Sheet.
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 Company recognized
a $706 million pretax gain from the sale ($425 million after-tax). 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 recognized a $779 million
pretax gain from the sale ($433 million after-tax).
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 1994 and 1993 Consolidated Financial
Statements. The 1992 Consolidated Financial Statements have not been restated.
The Company's investment in FDC, which is included in Other Assets in the
Consolidated Balance Sheet, had a book value of $240 million and $201
million at December 31, 1994 and 1993, respectively.
In October 1993, the Company sold Debt Exchangeable for Common Stock of
FDC. See Note 12.
NOTE 4 Investments
In May 1993, the Financial Accounting Standards Board (FASB) issued SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity Securities,"
which the Company adopted as of January 1, 1994.
The following is a summary of investments included in the Consolidated
Balance Sheet at December 31:
(millions) 1994 1993
Held to Maturity, at
amortized cost $21,909
Available for Sale, at Amortized cost $38,134
fair value 15,293 Lower of Cost or Market
Trading 225 (fair value $362) 343
Investment mortgage loans 2,681 Market 831
------- -------
$40,108 $39,308
Investments classified as Held to Maturity and Available for Sale at
December 31, 1994 are distributed by type and maturity as presented below:
<TABLE>
<CAPTION>
Held to Maturity Available for Sale
-------------------------------------- ----------------------------------
Gross Gross Gross Gross
Fair Unrealized Unrealized Fair Unrealized Unrealized
(millions) Cost Value Gains Losses Cost Value Gains Losses
------ ------ ---------- ---------- ------ ------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and
agencies obligations $ 3,450 $ 3,445 - $ 5 $ 355 $ 344 - $ 11
State and municipal
obligations 4,816 4,841 $ 115 90 312 321 $ 10 1
Corporate debt securities 10,627 10,294 172 505 3,014 3,007 31 38
Foreign government bonds
and obligations 104 105 3 2 1,618 1,592 11 37
Mortgage-backed securities 2,596 2,386 13 223 8,515 7,977 125 50
Equity securities - - - - 732 691 15 56
Other 316 316 - - 1,366 1,361 8 13
------- ------ ------- ------- ------- ------- ------ ----
Total $21,909 $21,387 $ 303 $ 825 $15,912 $15,293 $ 87 $706
======= ======= ======= ======= ======= ======= ====== =====
</TABLE>
Held to Maturity Available for Sale
---------------- ------------------
Fair Fair
Cost Value Cost Value
------ ------ ------ ------
Due within 1 year $ 4,220 $ 4,208 $ 1,736 $ 1,742
Due after 1 year through 5 years 3,367 3,483 3,188 3,155
Due after 5 years through 10 years 7,922 7,743 1,330 1,316
Due after 10 years 3,804 3,567 411 412
------ ------- ------- -------
19,313 19,001 6,665 6,625
Mortgage-backed securities 2,596 2,386 8,515 7,977
Equity securities - - 732 691
------ -------- ------- -------
Total $21,909 $21,387 $15,912 $15,293
====== ======== ======= =======
Mortgage-backed securities include GNMA, FNMA and FHLMC securities
totaling $11 billion in 1994.
The fair value of investments 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. The fair value of investment
mortgage loans of $2.6 billion is estimated using discounted cash flows, based
on interest rates currently being offered for mortgage loans.
To reflect the adoption of SFAS No. 115, the opening balance of
Shareholders' Equity was increased by $325 million (net of deferred taxes)
representing the net unrealized gains on securities classified as Available for
Sale. For the year ended December 31, 1994, the change in net unrealized gains
on Available for Sale securities was a decrease of $721 million (net of
deferred taxes). The decline in market value of the Company's investment
portfolio during 1994 was primarily due to rising interest rates. The net
unrealized gains on Trading securities included in income was $10 million
(pretax) at December 31, 1994.
During the year ended December 31, 1994, securities Available for Sale
were sold with proceeds of $3.8 billion and gross realized gains and losses on
such sales were $28 million and $30 million, respectively. The average cost
method was used to determine the realized gain or loss.
In addition, $73 million of securities Held to Maturity were sold during
the year ended December 31, 1994, resulting in gross realized gains and losses
of $1 million and $4 million, respectively. These sales were due to credit
deterioration.
The table below includes the purchases, sales and maturities of
investments classified as Held to Maturity and Available for Sale for the year
ended December 31, 1994:
Held to Available
(millions) Maturity for Sale
-------- --------
Purchases $14,344 $10,498
Sales $ 73 $ 3,833
Maturities $15,866 $ 3,945
======== ========
Investments carried at amortized cost at December 31, 1993 are
distributed by type and maturity as presented below:
Gross Gross
Fair Unrealized Unrealized
(millions) Cost Value Gains Losses
------ ---------- ---------- ----------
U.S. Government and agencies
obligations $ 3,640 $ 3,641 $ 3 $ 2
State and municipal obligations 4,943 5,367 425 1
Corporate bonds and obligations 12,935 13,773 893 55
Foreign government obligations 1,508 1,538 38 8
Mortgage-backed securities 11,413 11,724 377 66
Investment mortgage loans and other 3,695 3,851 168 12
------ ------- ------ -----
Total $38,134 $39,894 $1,904 $ 144
======= ======= ====== =====
Fair
Cost Value
------- -------
Due within 1 year $ 5,669 $ 5,682
Due after 1 year through 5 years 4,819 5,085
Due after 5 years through 10 years 8,470 9,177
Due after 10 years 4,068 4,375
------- -------
23,026 24,319
Mortgage-backed securities 11,413 11,724
Investment mortgage loans and other 3,695 3,851
------- -------
Total $38,134 $39,894
======= =======
Proceeds from sales of investments held at cost were $2 billion in 1993.
Gross gains and gross losses realized on those sales were $119 million and $111
million, respectively.
Mortgage-backed securities include GNMA, FNMA and FHLMC securities
totaling $11 billion in 1993.
NOTE 5 Loans and Discounts
Loans and discounts at December 31 consist of:
(millions) 1994 1993
------- -------
Consumer Loans $10,183 $ 9,519
Commercial Loans:
Commercial and industrial 2,407 2,744
Mortgage and real estate 693 931
Loans to banks and other institutions 996 1,164
Other Loans 988 1,093
------- -------
15,267 15,451
Less: Reserve for credit losses 545 655
------- -------
Total $14,722 $14,796
======= =======
Note: American Express Financial Advisors' mortgage loans of $2.7 billion and
$2.2 billion in 1994 and 1993, respectively, are included in Investment
Mortgage Loans and are reflected in Note 4.
NOTE 6 Preferred Shares
In August 1991, the Company sold 122,448.98 non-transferable $216.75 CAP
Preferred shares (CAP Preferred shares) to subsidiaries of Berkshire Hathaway
Inc. for $300 million. In August 1994, the Company mandatorily redeemed the CAP
Preferred shares through the issuance of 13,997,141 common shares to such
subsidiaries (adjusted to reflect the Lehman spin-off).
In January 1990, the Company sold to Nippon Life 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 $51.94 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 7 Common Shares
In September 1994, the Company's Board of Directors authorized the Company to
repurchase up to 20,000,000 shares of its common stock, subject to market
conditions. As part of this plan, the Company intends to fund contributions to
various employee plans with cash, and offset the issuance of new shares as part
of employee compensation plans by repurchasing an equivalent number of shares
in the open market. As of December 31, 1994, the Company had repurchased and
cancelled 14,601,055 shares under this program at an average price of $30.37
per share.
In November 1994, in connection with the share repurchase program, the
Company sold four million put options with maturities ranging from
approximately one to twelve months and a weighted average strike price of
$30.81 per share. Upon issuing these put options, the Company received a
weighted average premium of $1.83 per share, or $7.3 million, which is included
in Shareholders' Equity, resulting in an effective repurchase price of $28.98
per share. The aggregate strike price of approximately $111 million related to
3.6 million put options outstanding at year-end has been reclassified from
Shareholders' Equity to Temporary Equity and is included in Other Liabilities
in the Consolidated Balance Sheet at December 31, 1994.
In 1994, the Company repurchased and cancelled four million shares of its
common stock at an average price of $27.67, primarily to offset the issuance
of new shares resulting from the conversion of American Express Company 9%
Convertible Notes Series A-G due April 1, 1994.
Of the common shares authorized but unissued at December 31, 1994,
81,200,682 shares were reserved for issuance with respect to employee stock
plans, employee benefit plans, convertible preferred stock and debentures and
the dividend reinvestment plan.
The common shares activity for the three years ended December 31, 1994
is as follows:
1994 1993 1992
----- ----- -----
Shares outstanding at
beginning of year 489,827,852 479,976,358 472,165,838
Repurchase of common shares (18,601,055) - -
Conversion of CAP Preferred shares 13,997,141 - -
Conversion of 9% Notes 3,273,062 - -
Employee benefit plans, compensation
and other 7,368,678 9,851,494 7,810,520
----------- ------------ -----------
Shares outstanding at end of year 495,865,678 489,827,852 479,976,358
=========== =========== ===========
NOTE 8 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 and Benefits Committee of
the Board of Directors to be consistent with the purposes of the 1989 Plan. The
Company also has options outstanding pursuant to the Director's Stock Option
Plans. Stock options are granted at a price not less than the fair market value
of the common shares at the date of grant.
The Company adjusted its outstanding restricted stock and stock options
by 799,027 shares and 4,027,120 shares, respectively, to reflect the Lehman
spin-off discussed in Note 2. The respective stock options had exercise prices
ranging from $10.30 to $67.09, which were adjusted to $9.03 to $58.83. In
addition, all outstanding restricted stock and stock options held by Lehman
employees were cancelled.
There were 15,731,259; 23,528,235; and 3,437,116 common shares available
for grant at December 31, 1994, 1993 and 1992, respectively, under various
employee stock plans.
At December 31, 1994, options outstanding had an average exercise price
of $24.89 per share and expiration dates ranging from February 24, 1995 to
November 27, 2004.
The Company also has an Incentive Savings Plan (ISP) under which
purchases of the Company's common shares are made by or for participating
employees. The Company did not, as originally authorized, terminate its Stock
Ownership Plan (SOP), but merged the SOP into the ISP as of December 1, 1994.
The unpaid SOP loan balance was repaid on January 31, 1995. The SOP's remaining
deferred compensation of $48 million was reduced with the repayment of the
loan. Expenses related to share allocations from the SOP were $15 million and
$21 million for 1993 and 1992, respectively. There was no share allocation to
employee accounts for 1994.
The details of transactions provided in the following table include the
plans described above.
1994 1993 1992
--------- ----------- --------
Restricted stock awarded 1,349,400 1,584,052 1,321,448
Options outstanding at
beginning 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 granted 5,175,049 4,818,473 5,518,000
Option price $26.13 to $30.94 $22.59 to $35.63 $18.83 to $23.06
Options exercised 3,326,731 4,526,835 561,889
Exercise price $9.82 to $31.64 $10.00 to $34.81 $10.30 to $23.88
Options expired or
cancelled 2,610,878 3,248,122 2,249,274
Option adjustment pursuant
to Lehman spin-off 4,027,120 - -
Options outstanding at
end of year 28,998,235 25,733,675 28,690,159
Option price $9.03 to $58.83 $10.30 to $67.09 $10.00 to $67.09
Options exercisable at
end of year 18,331,687 16,774,856 18,136,786
=============== ================ ================
NOTE 9 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. In 1994, the
Company's Board of Directors approved an amendment of the American Express
Retirement Plan (the Plan) which covers U.S. employees. The amendment, which
is expected to be effective July 1995, converts the discounted accrued benefits
to a lump sum individual account balance and credits annual additions equal to
a percentage of base pay plus annual incentives, based on age plus service. The
employees' account will be credited with interest based on published 5-year
Treasury rates. Lump sum payout at termination or retirement will be available.
The changes are initially expected to significantly decrease the Plan's
projected benefit obligation and annual pension cost. This decrease will be
largely offset by higher expense associated with amendments to the Company's
ISP, which include a profit-sharing component as of July 1, 1994.
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 1994, 1993 and 1992 consisted of the following
components:
(millions) 1994 1993 1992
---- ---- ----
Service cost $ 71 $ 59 $ 69
Interest cost 71 65 71
Actual return on plan assets (22) (116) (45)
Net amortization and deferral (31) 67 6
---- ---- ----
Net periodic pension cost $ 89 $ 75 $101
==== ==== ====
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,
1994 and 1993:
1994 1993
----------------------- ------------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
(millions) Benefits Assets Benefits Assets
----------- ----------- ------------ -----------
Actuarial present value of
benefit obligations:
Vested benefit obligation $(453) $(106) $(438) $(106)
------ ------ ------ ------
Accumulated benefit obligation $(490) $(123) $(478) $(125)
------ ------ ------ ------
Projected benefit obligation $(724) $(213) $(738) $(220)
Plan assets at fair value 774 16 708 24
------ ------ ------ ------
Projected benefit obligation
(in excess of) or less than
plan assets 50 (197) (30) (196)
Unrecognized net (gain) loss (70) 3 19 11
Unrecognized prior service cost 3 19 - 21
Unrecognized net obligation at
transition 9 10 11 22
Adjustment required to recognize
minimum liability - (5) - (11)
------ ------ ------ ------
Pension (liability) included in
the Consolidated Balance Sheet $ (8) $(170) $ - $(153)
====== ====== ====== ======
The range of assumptions used in the majority of the Company's plans at
December 31, 1994 and 1993 was:
1994 1993
------------ -------------
Weighted average discount rates 7.5% to 9.0% 7.0% to 8.0%
Rates of increase in compensation levels 4.5% to 7.0% 4.0% to 7.0%
Expected long-term rates of return on assets 7.5% to 12.0% 7.0% to 10.0%
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 $114 million ($.23 per share). Postretirement benefits other than
pension benefits for non-U.S. employees are immaterial.
Net periodic postretirement benefit cost consisted of the following
components:
(millions) 1994 1993 1992
---- ---- ----
Service cost $ 4 $ 3 $ 4
Interest cost 15 15 14
---- ---- ----
Net periodic postretirement benefit cost $19 $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, 1994 and 1993:
(millions) 1994 1993
---- ----
Accumulated postretirement benefit obligation:
Retirees $137 $154
Fully eligible active plan participants 26 30
Other active plan participants 20 28
---- ----
183 212
Unrecognized prior service cost 5 -
Unrecognized net gain (loss) 7 (26)
---- ----
Postretirement benefit liability included
in the Consolidated Balance Sheet $195 $186
==== ====
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation for 1994 and 1993 was 8.75 percent and 7.25
percent, respectively. The rate of increase in the per capita cost of covered
benefits was assumed to be 12 percent for 1995 and 13 percent for 1994; the
rate in both years was assumed to decrease one percent per year to seven
percent in 2000 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,
1994 by $8 million and the aggregate of service and interest cost for 1994 by
$1 million.
NOTE 10 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 $147 million ($.30 per share).
The provision for income taxes consists of the following:
(millions) 1994 1993 1992
---- ---- ----
Federal $316 $551 $145
State and local 42 72 62
Foreign 153 98 111
---- ---- ----
Total $511 $721 $318
==== ==== ====
Accumulated net earnings of certain foreign subsidiaries, which totaled
$397 million at December 31, 1994, are intended to be permanently reinvested
outside the United States. Accordingly, federal taxes, which would have
aggregated $127 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) 1994 1993 1992
---- ---- ----
Current $596 $677 $604
Deferred (85) 44 (286)
---- ---- ----
Total $511 $721 $318
==== ==== ====
At December 31, 1994 and 1993, the Company's net deferred tax assets
consisted of the following:
(millions) 1994 1993
------ ------
Gross deferred tax assets $2,621 $2,246
Less: Valuation allowance 45 45
------ ------
Deferred tax assets net of valuation
allowance 2,576 2,201
Gross deferred tax liabilities 1,162 1,060
------ ------
Net deferred tax assets $1,414 $1,141
====== ======
Gross deferred tax assets for 1994 and 1993 consist primarily of:
reserves not yet deducted for tax purposes of $1.6 billion and $1.4 billion,
respectively, and deferred Cardmember fees of $184 million for both years.
Gross deferred tax assets for 1994 also includes $209 million related to SFAS
No. 115. Gross deferred tax liabilities for 1994 and 1993 consist primarily of:
deferred acquisition costs of $688 million and $632 million, respectively, and
accelerated depreciation of $159 million and $145 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 1994, 1993 and 1992 is different
from that computed by using the U.S. statutory rate of 35 percent in 1994 and
1993 and 34 percent in 1992. The principal causes of the difference in each
year are shown below:
(millions) 1994 1993 1992
----- ----- -----
Combined tax at U.S. statutory rate $662 $814 $305
Changes in taxes resulting from:
Tax-exempt interest income (150) (148) (139)
Tax-exempt element of dividend income (33) (37) (42)
Change in valuation allowance - - 44
FDC public offering - 74 42
Foreign income taxed at rates
other than U.S. statutory rate (13) (25) 17
State and local income taxes 26 25 36
Non-deductible amortization 9 4 19
Minority interest - - 17
Impact of rate change on opening
net deferred tax assets - (30) -
All other 10 44 19
----- ----- -----
Income tax provision $511 $721 $318
===== ===== =====
Net income taxes paid by the Company during 1994, 1993 and 1992 were $289
million, $639 million and $576 million, respectively, and include estimated tax
payments, as well as cash settlements relating to prior tax years.
NOTE 11 Derivative and Other Off-Balance-Sheet Financial Instruments
In 1994, the FASB issued SFAS No. 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments," which expanded disclosure
requirements for financial instruments.
The Company enters into transactions involving derivative financial
instruments as an end user, as well as for trading purposes at American Express
Bank (the Bank). The Company uses derivatives for end user (nontrading)
purposes to manage its exposure to interest and foreign exchange rate risks and
to manage its funding costs. These instruments are used when providing a more
efficient means for the Company to manage its risk exposure than if the Company
entered into the cash marketplace. For trading purposes, the Bank enters into
derivative contracts on behalf of its clients, and to a lesser extent, takes
proprietary positions. The Company manages risks associated with derivatives
as described below.
Market risk is the possibility that the value of the derivative financial
instrument will change due to fluctuations in a factor from which the
instrument derives its value, primarily an interest rate or a foreign exchange
rate. The Company is not impacted by market risk related to derivatives held
for nontrading purposes beyond that inherent in cash market transactions.
Foreign currency and certain interest rate products that manage related risks
have cash flow and income effects that are inverse to the effects of the
underlying transactions. The Bank is generally not subject to market risk when
it enters into a contract on a client's behalf as it enters into an offsetting
contract or uses the position to offset an existing exposure. The Bank takes
proprietary positions within approved limits. These positions are monitored
daily at the local level and reviewed for compliance centrally. The Company
does not enter into derivative contracts with imbedded options or other complex
features that would expose it to additional market risk.
Credit exposure is the possibility that the counterparty will not fulfill
the terms of the contract. The Company monitors credit exposure related to
derivative financial instruments through established approval procedures,
including setting concentration limits by counterparty and industry, reviewing
credit ratings and requiring collateral where appropriate. For its trading
activities, the Bank requires collateral when it is not willing to assume
credit exposure to counterparties for either contract mark-to-market risk or
delivery risk. The majority of the Company's counterparties are rated A or
better by nationally recognized credit rating agencies. Wherever possible, the
Company's credit exposure is further reduced through the use of master netting
agreements, which allow the Company to settle all contracts under the agreement
in one net receipt or payment in the event of counterparty default.
The notional or contract amount of a derivative financial instrument is
generally used to calculate the cash flows that are received or paid over the
life of the agreement. Notional amounts do not represent market risk or credit
exposure. At December 31, 1994, the aggregate notional amount of the Company's
derivative instruments was $57 billion. The related credit exposure
approximates the fair value of contracts in a gain position (asset) totaling
$375 million. Including contracts in a loss position, the Company's net
exposure was $16 million. The fair value represents the replacement cost and
is determined by market values, dealer quotes or pricing models.
The following tables detail information regarding the Company's
derivatives:
Non-Trading
-----------------------------------------------
Notional Carrying Value Fair Value
December 31, 1994 Amount Asset Liability Asset Liability
(millions) ------- ---------------- ------------------
Interest Rate Products
Interest rate swaps $17,374 $ 57 $ 62 $131 $249
Interest rate caps and
corridors purchased 5,420 44 - 67 -
Interest rate options 706 3 2 5 -
Forward rate agreements 675 - - - 2
------ ------ ---- ---- -----
Total Interest Rate
Products 24,175 104 64 203 251
------ ------ ---- ---- -----
Foreign Currency Products
Forward and spot contracts 8,030 39 12 59 27
Foreign currency options
purchased 128 2 - 2 -
------ ------ ---- ---- -----
Total Foreign Currency
Products 8,158 41 12 61 27
------ ------ ----- ---- -----
Other Products 533 16 2 19 -
------ ------ ----- ---- -----
Total $32,866 $161 $ 78 $283 $278
======= ===== ==== ====== =====
Trading
------------------------------------------------
Notional Carrying/Fair Value Average Fair Value
December 31, 1994 Amount Asset Liability Asset Liability
(millions) ------- ------------------- ------------------
Interest Rate Products
Interest rate swaps $ 722 $11 $ 8 $ 8 $ 6
Forward rate agreements 359 1 1 1 -
Other 94 - - - -
------- ----- ----- ----- -----
Total Interest Rate
Products 1,175 12 9 9 6
------- ----- ----- ----- -----
Foreign Currency Products*
Forward and spot contracts 20,574 71 63 77 72
Foreign currency options
written 1,114 - 9 - 11
Foreign currency options
purchased 1,062 9 - 11 -
------- ----- ----- ----- -----
Total Foreign Currency
Products 22,750 80 72 88 83
------- ----- ----- ----- -----
Total $23,925 $92 $81 $97 $89
======= ===== ===== ===== =====
*These are predominantly contracts with clients and the related hedges of
those client contracts. The Company's net trading foreign currency exposure
was approximately $7 million at December 31, 1994.
The average aggregate fair values of derivative financial instruments
held for trading purposes during the year were computed based on quarterly
information. Net derivative trading gains of $66 million for 1994 were
primarily due to trading in foreign currency forward and spot contracts and
were included in Commissions and Fees.
Notional Total Credit
December 31, 1993 (millions) Amount Exposure
-------- ------------
Interest Rate Products
Interest rate swaps $13,105 $138
Interest rate options 2,330 -
Forward rate agreements 1,064 -
------ -----
Total Interest Rate Products 16,499 138
------ -----
Foreign Currency Products
Forward and spot contracts 22,275 105
Foreign currency options written 812 -
------ -----
Total Foreign Currency
Products 23,087 105
------ -----
Other Products 208 -
------ -----
Total $39,794 $243
------ -----
Interest Rate Products
The Company uses interest rate products, for the most part, to manage funding
costs related to TRS' charge Card and consumer lending businesses. The
principal products used are interest rate swaps, which involve the exchange for
a specified period of time of fixed or floating rate interest payments based
on a notional or contractual amount.
TRS uses interest rate swaps to obtain the most cost effective and
flexible funding structure to fund its charge Card and consumer lending
receivables, as well as to lock in the spread on consumer lending receivables.
TRS uses interest rate swaps to achieve a targeted, predetermined mix of fixed
and floating rate debt on its charge Card receivables.
Interest rates charged on TRS' consumer lending receivables are linked
to a floating rate base and reprice every six months. TRS generally enters into
interest rate swaps paying a rate that reprices when the base rate of the
underlying receivables changes. At December 31, 1994, the notional amount for
interest rate swaps in the nontrading table above includes $5.7 billion of
swaps that go into effect in January and February of 1995. These swaps replace
swaps that mature at that time and, accordingly, are not reflected in the
notional amount of swaps disclosed in Note 12. In addition, the Bank uses
interest rate swaps to manage the interest characteristics of loans, deposits
and, to a lesser extent, securities holdings. The termination dates of these
swaps are generally matched with the maturity dates of the underlying assets
and liabilities.
For interest rate swaps that are used for nontrading purposes and meet
the criteria for hedge accounting, interest is accrued and reported in Accounts
Receivable and Accrued Interest, and Interest and Dividends or Accounts Payable
and Interest Expense, as appropriate. Products used for trading purposes are
reported at fair value in Other Assets or Other Liabilities, as appropriate,
with unrealized gains and losses recognized currently in Other Revenues.
In addition,interest rate caps and corridors limit the Company's exposure
to rising interest rates. These instruments are used primarily by American
Express Financial Advisors to protect the margin between the interest rate
earned on investments and the interest rate accrued to related certificate and
annuity holders. Interest rate caps and corridors generally mature within five
years. The costs of interest rate caps and corridors are reported in Other
Assets and amortized into Interest and Dividends on a straight line basis over
the term of the contract; benefits are recognized in income when earned.
See Note 12 for further information related to the Company's use of
interest rate products to modify its short- and long-term debt.
Foreign Currency Products
As an end user, the Company uses foreign currency products to hedge primarily
net investments in foreign operations and to manage transactions denominated
in foreign currencies. For trading purposes, the Bank enters into contracts on
behalf of its clients, and to a lesser extent, takes proprietary positions. The
increase in the aggregate notional amount of all forward and spot contracts
from December 31, 1993 to December 31, 1994 was caused primarily by
client-related contracts.
Foreign currency exposures are hedged, where practicable, through foreign
currency forward and spot contracts. Foreign currency forward and spot
contracts involve the purchase and sale of a designated currency at an agreed
upon rate for settlement on a specified date. Foreign currency forward
contracts generally mature within one year, whereas foreign currency spot
contracts generally settle within two days. At December 31, 1994, the Company
had no significant unhedged foreign currency exposures; the Company's largest
foreign currency exposure was a net investment of $96 million in India.
For foreign currency products used to hedge net investments in foreign
operations, unrealized gains and losses as well as related premiums and
discounts are reported in Shareholders' Equity. For foreign currency contracts
that manage transactions denominated in foreign currencies, unrealized gains
and losses are reported in Other Assets and Commissions and Fees or Other
Liabilities and Other Expenses, as appropriate. Related premiums and discounts
are reported in Other Assets or Other Liabilities, as appropriate, and
amortized into Interest Expense and Other Expenses over the term of the
contract. Foreign currency products used for trading purposes are reported at
fair value in Other Assets or Other Liabilities, as appropriate, with
unrealized gains and losses recognized currently in Commissions and Fees.
To a limited extent, the Company uses foreign currency forward contracts
to hedge its firm commitments primarily related to its travel programs. In
addition, for selected major overseas markets, the Company uses foreign
currency forward contracts to hedge future income generally for periods not
exceeding one year; related unrealized gains and losses are recognized
currently in income. The impact of these activities was not material.
Other Off-Balance-Sheet Financial Instruments
The Company primarily enters into other off-balance-sheet financial instruments
to extend credit to satisfy the needs of its clients. The contractual amount
of these instruments represents the maximum accounting loss the Company would
record assuming the contract amount is fully utilized, the counterparty
defaults and collateral held is worthless. Management does not expect any
material adverse impact to the Company's financial position to result from
these contracts.
December 31, (millions) 1994 1993
------- -------
Unused Credit Available to Cardmembers $19,018 $18,919
Loan Commitments $ 354 $ 526
Standby Letters of Credit and Guarantees $ 1,668 $ 1,367
Commercial and Other Letters of Credit $ 969 $ 933
======= =======
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
credit analysis limit its exposure. The Company, through its account and Card
issuing subsidiaries, establishes credit limits for spending on its consumer
lending products. However, the Company's charge Card products have no preset
spending limit, and are not reflected in unused credit available to
Cardmembers. In addition, since the Company does not charge a specific fee to
Cardmembers for providing available credit, the fair value of unused credit
available to Cardmembers is nil. 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 may require collateral in support of its loan commitments
based on the creditworthiness of the borrower.
Standby letters of credit and guarantees primarily represent conditional
commitments to insure the performance of the Company's customers to third
parties. These commitments generally expire within one year.
The Company primarily issues commercial and other letters of credit to
facilitate the short-term trade-related needs of its clients. These letters of
credit typically mature within six months. When necessary, collateral is
required in support of the various letters of credit and guarantees. This
collateral primarily consists of cash, securities and counterguarantees. At
December 31, 1994 and 1993, the Company held $852 million and $577 million,
respectively, of collateral supporting standby letters of credit and guarantees
and $447 million and $464 million, respectively, of collateral supporting
commercial and other letters of credit.
Other financial institutions have extended lines of credit to the Company
of $7.9 billion and $6.9 billion at December 31, 1994 and 1993, respectively.
Commitments, letters of credit 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.
NOTE 12 Short- and Long-Term Debt and Borrowing Agreements
The Company has various borrowing agreements, both fixed and floating rate and
short- and long-term. The Company manages interest rate risk associated with
these borrowings, in part, through the use of interest rate products,
principally interest rate swaps. In addition, TRS uses interest rate swaps to
achieve a targeted, predetermined mix of fixed and floating rate debt. See Note
11 for further information related to the Company's use of interest rate
products.
Short-Term Debt
The Company has various facilities to obtain short-term credit, including
borrowing agreements with banks and the issuance of commercial paper. At
December 31, 1994 and 1993, the Company's total short-term debt outstanding was
$14.8 billion and $12.5 billion, respectively, with weighted average interest
rates of 6.13% and 3.09%, respectively. At December 31, 1994, $7.6 billion of
short-term debt outstanding was modified by interest rate swaps, resulting in
a year-end weighted average effective interest rate of 5.93%. The Company
generally pays a fixed rate on these swaps, which are primarily used to achieve
a targeted, predetermined fixed to floating funding mix on charge Card
receivables and to lock in the spread on its consumer lending products. Unused
lines of credit in support of commercial paper borrowing arrangements were
approximately $6.1 billion at December 31, 1994.
Long-Term Debt
<TABLE>
<CAPTION>
1994 1993
-------------------------------------------------------------- -------------------------
Year-End
Effective
Notional Year-End Interest Year-End
Outstanding Amount of Stated Rate Rate with Maturity of Outstanding Stated Rate
December 31, (dollars in millions) Balance Swaps on Debt(a,b) Swaps (a,b) Swaps Balance on Debt (a,b)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Floating Medium-Term Note due
June 28, 1996 $ 945 - 6.63% - - $ 945 3.90%
DECS due October 15, 1996 868 - 6.25% - - 868 6.25%
Notes due June 15, 2000 299 $ 299 6.125% 7.11% 2000 299 6.125%
Notes due August 15, 2001 298 - 8.50% - - 298 8.50%
Swiss franc Bonds due
October 14, 1996 to December 16, 1996 (c) 272 272 5.00% 4.13% 1996 246 5.00%
Floating Medium-Term Senior Notes
due 1994-1997 270 - 5.40% - - 424 5.40%
Notes due July 15, 1994 - - - - - 300 8.625%
Other Fixed Senior Notes due 1995-2022 2,380 903 8.35% 8.47% 1995-2000 3,324 7.88%
Other Floating Senior Notes due 1995-1998 569 424 6.00% 6.04% 1995-1998 988 4.76%
Other floating rate notes due 1995-2004 906 425 6.04% 6.00% 1996-2004 498 4.52%
Other fixed rate notes due 1995-2006 355 - 6.75% - - 371 7.42%
------ ------ ------ ------ --------- ------ -----
Total $7,162 $2,323 $8,561
====== ====== ====== ====== ========= ====== =====
</TABLE>
(a) For floating rate debt issuances, the stated and effective interest rates
were based on the respective rates at December 31, 1994 and 1993; these
rates are not an indication of future interest rates.
(b) Weighted average rates were determined where appropriate.
(c) Debt hedged through Swiss franc to U.S. dollar cross-currency interest
rate swaps.
The above interest rate swaps generally require the Company to pay a
floating rate, with a predominant index of LIBOR (London Interbank Offered
Rate).
Aggregate annual maturities of long-term debt for the five years ending
December 31, 1999 are as follows (millions): 1995, $1,205; 1996, $3,237; 1997,
$349; 1998, $235; and 1999, $676.
The Company paid interest (net of amounts capitalized) of $1.7 billion
in 1994 and $1.9 billion in both 1993 and 1992.
Approximately $260 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.
In 1993, the Company issued 23,618,500 DECS (Debt Exchangeable for Common
Stock), in the form of 6-1/4% 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 common 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 3.3
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, 1994
was approximately $1.1 billion.
NOTE 13 Fair Values of Financial Instruments
The Company is required to disclose fair value information for most on- and
off-balance-sheet financial instruments for which it is practicable to estimate
that value. Certain financial instruments, such as life insurance obligations,
employee benefit obligations, investments accounted for under the equity method
and all non-financial instruments, such as land, buildings and equipment,
deferred acquisition costs and goodwill, are excluded from required disclosure.
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
Company's management believes the value of these excluded assets is
significant. The fair value of the Company, therefore, cannot be estimated by
aggregating the amounts presented below.
The fair values of financial instruments are estimates based upon market
conditions and perceived risks at December 31, 1994 and 1993 and require
varying degrees of management judgment. The fair values of the financial
instruments presented may not be indicative of their future fair values.
1994 1993
----------------- ------------------
Carrying Fair Carrying Fair
December 31, (millions) Value Value Value Value
-------- ------- -------- -------
Financial Assets
Assets for which carrying values
approximate fair values $31,078 $31,078 $28,342 $28,342
Investments $40,108 $39,520 $39,308 $41,087
Loans and discounts $14,282 $14,370 $14,378 $14,464
Other assets $ 2,122 $ 2,122 $ 2,334 $ 2,334
Derivative financial instruments,
net $ 94 $ 16 $ 57 $ 81
------- ------- ------- -------
Financial Liabilities
Liabilities for which carrying
values approximate fair values $34,105 $34,105 $32,131 $32,131
Fixed annuity reserves $18,390 $17,652 $17,579 $16,882
Investment certificate reserves $ 2,866 $ 2,800 $ 2,752 $ 2,680
Long-term debt $ 7,112 $ 7,025 $ 8,493 $ 8,812
Liabilities related to segregated
asset accounts $10,399 $ 9,944 $ 8,645 $ 8,305
Other liabilities $ 5,330 $ 5,330 $ 6,140 $ 6,140
======= ======= ====== =======
The carrying and fair values of other off-balance-sheet financial
instruments are not material as of December 31, 1994 and 1993. See Notes 4 and
11 for carrying and fair value information regarding investments and derivative
financial instruments, respectively. The following methods were used to
estimate the fair values of financial assets and financial liabilities:
Financial Assets
Assets for which Carrying Values Approximate Fair Values: The carrying values
of Cash and Cash Equivalents, Accounts Receivable and Accrued Interest, and
Assets Held in Segregated Accounts approximate their fair values.
Loans and Discounts: For variable rate loans that reprice within a year
where there has been no significant change in counterparties' creditworthiness,
fair values are based on carrying values. The fair values of all other loans,
except for loans with significant credit deterioration, are estimated using
discounted cash flow analysis, based on current interest rates for loans with
similar terms to borrowers of similar credit quality. For loans with
significant credit deterioration, fair values are based on revised estimates
of future cash flows discounted at rates commensurate with the risk inherent
in the revised cash flow projections, or for collateral dependent loans, on
collateral values.
Other Assets: The carrying values of applicable Other Assets which
primarily include securities purchased under agreements to resell and
customers' acceptance liabilities approximate their fair values.
Financial Liabilities
Liabilities for which Carrying Values Approximate Fair Values: The carrying
values of Customers' Deposits and Credit Balances, Travelers Cheques
Outstanding, Accounts Payable and Short-Term Debt approximate their fair
values.
Fixed Annuity Reserves: Fair values of annuities in deferral status are
estimated as the accumulated value less applicable surrender charges and loans.
For annuities in payout status, fair value is estimated using discounted cash
flow analysis, based on current interest rates. The fair value of these
reserves excludes life insurance-related elements of
$1.8 billion in 1994 and $1.6 billion in 1993.
Investment Certificate Reserves: For variable rate investment
certificates that reprice within a year, fair values approximate carrying
values. For other investment certificates, fair value is estimated using
discounted cash flow analysis, based on current interest rates. The valuations
are reduced by the amount of applicable surrender charges and related loans.
Long-Term Debt: For variable rate long-term debt that reprices within a
year, fair values approximate carrying values. For other long-term debt, fair
value is estimated using either quoted market prices or discounted cash flow
analysis based on the Company's current borrowing rates for similar types of
borrowing arrangements.
Liabilities Related to Segregated Accounts: Fair values of these
liabilities, after excluding life insurance-related elements of $482 million
in 1994 and $347 million in 1993, are estimated as the accumulated value less
applicable surrender charges.
Other Liabilities: The carrying values of applicable Other Liabilities
which primarily include securities sold under agreements to repurchase,
acceptances outstanding and income taxes payable approximate their fair values.
NOTE 14 Significant Credit Concentrations
A credit concentration exists if the Company's customers are involved in
similar industries. The Company's businesses generate significant investments
in both on- and off-balance-sheet financial instruments. The counterparties in
these investments operate in diverse economic sectors. Therefore, management
does not expect any material adverse impact to the Company's financial position
to result from credit concentrations. Certain distinctions between categories
required management judgment.
December 31, (dollars in millions) 1994 1993
------- -------
Financial institutions (a) $11,591 $12,575
Individuals (b) 45,165 44,186
U.S. Government and agencies (c) 18,491 17,977
All other 23,918 23,345
------- -------
Total $99,165 $98,083
======= =======
Composition:
On-balance-sheet 78% 78%
Off-balance-sheet 22 22
------- -------
Total 100% 100%
======= =======
(a) Financial institutions primarily include banks, broker-dealers,
insurance companies and savings and loan associations.
(b) Charge Card products have no preset spending limit; therefore, the
quantified credit amount includes only the Card receivables recorded in
the Consolidated Balance Sheet.
(c) U.S. Government and agencies represent the U.S. Government and its
agencies, states and municipalities, and quasi-government agencies.
NOTE 15 Industry Segments and Geographic Operations
Industry Segments
The Company is principally in the business of providing travel related
services, financial advisory services and international banking services
throughout the world. The following table presents certain information
regarding these industry segments at December 31, 1994, 1993 and 1992 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 accounting
changes. For 1994 and 1993, FDC is reported under the equity method of
accounting and, therefore, is not consolidated in the Company's Financial
Statements. The Company's equity in the net income of FDC is included in the
Corporate and Other segment for 1994 and 1993; 1992 has not been restated.
Prior years' segment amounts have been restated to reflect the transfer
of certain international consumer financial services businesses from TRS to the
Bank.
<PAGE>
<TABLE>
<CAPTION>
American
Travel Express American Adjustments
Related Financial Express First Data Corporate and
(millions) Services Advisors Bank Corporation and Other Eliminations Consolidated
-------- --------- -------- ----------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994
Net revenues $10,256 $ 3,270 $ 652 - $ 188 $ (84) $14,282
Pretax income from
continuing operations before
general corporate expenses $ 1,396 $ 631 $ 119 - - - $ 2,146
------ ------ ------ ------ ------ ------ ------
General corporate expenses - - - - $ (255) - $ (255)
Pretax income (loss) from
continuing operations $ 1,396 $ 631 $ 119 - $ (255) - $ 1,891
Income (loss) from
continuing operations $ 998 $ 428 $ 80 - $ (126) - $ 1,380
Assets $42,483 $40,155 $13,281 - $4,467 $(3,380) $97,006
====== ====== ====== ====== ===== ====== ======
1993
Net revenues $ 9,432 $ 3,156 $ 677 - $ 163 $ (174) $13,254
Pretax income from
continuing operations before
general corporate expenses $ 1,173 $ 518 $ 134 - - - $ 1,825
General corporate expenses - - - - $ 501 - $ 501
------- ------- ------- ------ ------ ------ ------
Pretax income from
continuing operations $ 1,173 $ 518 $ 134 - $ 501 - $ 2,326
Income from continuing
operations $ 884 $ 358 $ 92 - $ 271 - $ 1,605
Assets $38,804 $37,351 $14,137 - $6,555 $(2,715) $94,132
====== ====== ====== ===== ===== ====== ======
1992
Net revenues $ 9,643 $ 2,874 $ 658 $1,205 $ 232 $ (357) $14,255
Pretax income (loss) from
continuing operations before
general corporate expenses $ 264 $ 408 $ 27 $ 183 $ (1) - $ 881
General corporate expenses - - - - $ 15 - $ 15
------- ------- ------- ------ ------ ------- -------
Pretax income from
continuing operations $ 264 $ 408 $ 27 $ 183 $ 14 - $ 896
Income (loss) from
continuing operations $ 234 $ 297 $ 35 $ 92 $ (80) - $ 578
Assets $36,412 $31,949 $13,937 $3,916 $5,606 $(1,708) $90,112
======= ======= ======= ====== ====== ======= =======
</TABLE>
Net revenues includes interest earned on the investment of funds
attributable to each industry segment. Pretax income (loss) from continuing
operations before general corporate expenses is net revenues less operating
expenses, including interest, related to each industry segment's revenues.
Net 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, 1994, 1993 and 1992
and for the years then ended. Pretax income from continuing operations amounts
reflect the Company's results before the accounting changes discussed in Note 1.
<PAGE>
<TABLE>
<CAPTION>
Adjustments
United Asia/ All and
(millions) States Europe Pacific Other Eliminations Consolidated
------- ------ ------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1994
Net revenues $10,801 $1,858 $1,220 $1,028 $ (625) $14,282
Pretax income from continuing
operations before general
corporate expenses $1,405 $ 364 $ 225 $ 152 $ - $ 2,146
General corporate expenses (255) - - - - (255)
------ ------ ------ ------ ------ -------
Pretax income from
continuing operations $ 1,150 $ 364 $ 225 $ 152 $ - $ 1,891
Assets $72,447 $9,361 $7,119 $3,669 $ (57) $92,539
Corporate assets 4,467
------ ------ ------ ------ ------- -------
Total assets $97,006
====== ====== ====== ====== ======= =======
1993
Net revenues $10,163 $1,562 $1,087 $ 939 $ (497) $13,254
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
Net revenues $10,818 $1,695 $1,000 $1,001 $ (259) $14,255
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
====== ====== ====== ====== ======= =======
</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
noncancellable and cancellable agreements. Total rental expense amounted to
$425 million in 1994, $391 million in 1993 and $461 million in 1992. At
December 31, 1994, the minimum aggregate rental commitment under all
noncancellable leases (net of subleases) was (millions): 1995, $281; 1996,
$239; 1997, $180; 1998, $106; 1999, $87; and $393 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 11, the
Company has various other commitments and contingent liabilities not reflected
in the Consolidated Balance Sheet. 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, the 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, 1994, the aggregate amount of net assets of subsidiaries
that may be transferred to the parent company was approximately $5.8 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>
1994 1993
--------------------------- ----------------------------
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>
Net revenues $3,802 $3,604 $3,506 $3,370 $3,478 $3,369 $3,297 $3,110
Pretax income from
continuing operations 475 498 478 440 392 416 417 1,101
Income from continuing
operations 335 369 359 317 291 313 301 701
Net income 335 369 357 353 399 420 416 243
Income from continuing
operations per common share .65 .71 .70 .62 .57 .61 .60 1.41
Net income per common share .65 .71 .69 .69 .78 .83 .83 .48
Cash dividends declared per
common share .225 .225 .225 .25 .25 .25 .25 .25
Common share prices:
High 31.63 32.00 28.88 29.23 31.99 32.32 28.57 25.59
Low 28.13 25.25 23.17 23.28 26.25 26.92 23.39 19.75
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
Notes: Historical common share prices have been adjusted to reflect the Lehman
spin-off at a ratio based on the trading prices of the Company's common shares
and shares of Lehman common stock on May 31, 1994.
First quarter 1993 results reflected a gain of $433 million ($779 million
pretax) on the sale of FDC shares.
REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
The Shareholders and Board of Directors of
American Express Company
We have audited the accompanying consolidated balance sheets of American
Express Company as of December 31, 1994 and 1993, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1994. 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, 1994 and 1993, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the financial statements, the Company changed
its method of accounting for certain investments in debt and equity securities
in 1994 and for income taxes and postretirement benefits other than pensions
in 1992.
/s/ Ernst & Young LLP
New York, New York
February 2, 1995
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
(millions, except per share amounts
and where italicized) 1994 1993 1992 1991 1990
---- ---- ---- ---- ----
OPERATING RESULTS
<S> <C> <C> <C> <C> <C>
Net revenues $14,282 $13,254 $14,255 $13,244 $12,600
Percent increase (decrease) 8% (7)% 8% 5% 15%
Expenses 12,391 10,928 13,359 12,622 11,022
Income from continuing operations
before accounting changes:
As reported 1,380 1,605 578 607 1,148
Adjusted* 1,380 1,172 153 607 1,148
Percent increase (decrease):
As reported (14)% 178% (5)% (47)% 4%
Adjusted* 18% 666% (75)% (47)% 4%
Net income 1,413 1,478 461 789 181
Percent increase (decrease) (4)% 220% (42)% 335% (84)%
Return on average shareholders'
equity** 20.5% 20.9% 3.1% 13.2% 30.8%
ASSETS AND LIABILITIES
Cash and cash equivalents $ 3,433 $ 3,312 $ 3,408 $ 3,391 $ 4,277
Accounts receivable and accrued
interest, net 17,147 16,142 15,293 16,866 16,852
Investments 40,108 39,308 37,629 32,634 30,532
Loans and discounts, net 14,722 14,796 14,750 15,670 13,948
Total assets 97,006 94,132 90,112 84,541 77,989
Customers' deposits and credit
balances 10,013 11,131 11,637 12,693 14,360
Travelers Cheques outstanding 5,271 4,800 4,729 4,375 4,225
Insurance and annuity reserves 24,849 23,406 20,893 17,741 14,789
Short-term debt 14,810 12,489 11,163 12,396 11,555
Long-term debt 7,162 8,561 8,614 8,734 7,276
Shareholders' equity 6,433 8,734 7,499 7,465 6,635
COMMON SHARE STATISTICS
Income per share from continuing
operations before accounting changes $ 2.68 $ 3.17 $ 1.12 $ 1.21 $ 2.54
Net income per share $ 2.75 $ 2.92 $ .88 $ 1.59 $ .34
Cash dividends declared per share $ .925 $ 1.00 $ 1.00 $ .96 $ .92
Book value per share $ 12.57 $ 16.81 $ 14.58 $ 14.43 $ 13.21
Cash dividends declared per share
- pro forma $ .90 $ .90 $ .90 $ .864 $ .828
Book value per share - pro forma $ 12.57 $ 11.81 $ 8.84 $ 8.62 $ 7.99
Market price per share:
High $ 32.00 $ 32.32 $ 22.39 $ 26.81 $ 31.11
Low $ 23.17 $ 19.75 $ 17.65 $ 15.89 $ 15.44
Close $ 29.50 $ 27.25 $ 21.95 $ 18.09 $ 18.20
Average shares outstanding for
income per share 509 500 477 470 439
Shares outstanding at year end 496 490 480 472 464
Number of shareholders of record 60,520 58,179 54,526 54,960 54,368
------ ------ ------ ------ ------
OTHER STATISTICS
Number of employees at year end
United States 43,421 40,342 38,266 37,018 36,605
Outside United States 28,991 24,151 24,388 24,090 23,687
Total 72,412 64,493 62,654 61,108 60,292
</TABLE>
<PAGE>
* Adjusted to exclude the gains on the sale of FDC in 1993 and 1992 of
$433 million and $425 million,
respectively.
** Based on adjusted income from continuing operations before accounting
changes.
Note: Prior year amounts have been restated to present Lehman as a
discontinued operation. Historical common share prices have been adjusted to
reflect the Lehman spin-off at a ratio based on the trading prices of the
Company's common shares and shares of Lehman common stock on May 31, 1994. Pro
forma cash dividends declared and book value per share have also been
adjusted to reflect the Lehman spin-off. For purposes of the pro forma book
value per share calculation, it is assumed that the spin-off includes the
book value of the Company's investment in Lehman at the balance sheet date
plus the capital infusion of approximately $904 million that was made
immediately prior to the spin-off. In addition, the number of employees has
been restated to exclude FDC, which is accounted for as an equity investment
as of January 1, 1993. Excluding FDC from 1992, 1991 and 1990, net revenues
were $13.1 billion, $12.3 billion and $11.8 billion, respectively, and expenses
were $12.4 billion, $11.8 billion and $10.4 billion, respectively.
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Unless otherwise indicated, all of the voting securities of these
subsidiaries are directly or indirectly owned by the registrant. Where the
name of the subsidiary is indented, the voting securities of such subsidiary
are owned directly by the company under which its name is indented. Certain
subsidiaries have been omitted which, if considered in the aggregate as a
single subsidiary, would not constitute a significant subsidiary as defined in
Rule 1-02(v) of Regulation S-X.
Jurisdiction
Name of Subsidiary of Incorporation
I. American Express Travel Related Services Company,
Inc. and its Subsidiaries
American Express Travel Related New York
Services Company, Inc.
Amex Canada, Inc. Canada
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 International Credit Corporation Delaware
American Express Overseas Credit Jersey, Channel
Corporation, Ltd. Islands
AEOCC Management Co., Ltd. Jersey, Channel
Islands
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.(50% owned) England
American Express Receivables Financing Corp. Delaware
American Express do Brasil Tempo & Cia, Inc. Delaware
American Express do Brasil Servicos Brazil
Internacionais, Ltda. (90% owned)
American Express do Brazil Brazil
Tempo & Cia (61% owned)
American Express do Brasil S.A. Brazil
Turismo (50.50% owned)
American Express International (B) SDN.BHD (Brunei) Brunei
(50% owned by American Express
International, Inc.)
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 de 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
Amex TGP One Inc. Delaware
Amex TGP Two Inc. Delaware
American Express Travel Partnership (99% owned Massachusetts
by Amex TGP One Inc. and 1% owned by Amex
TGP Two Inc.)
American Express Hungary KFT Hungary
American Express Company A/S Norway
American Express Reisebyria 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.
Amex Broker Assicurativo Srl. (2.5% owned) Italy
American Express Int'l A.E. (Greece) Greece
American Express Int'l (Taiwan), Inc. Taiwan
American Express of Egypt, Ltd. Delaware
American Express Carte France, S.A. France
American Express Daro Voyages France, S.A. France
AllCard Service GmbH Germany
Schenker Rhenus Reisen (51% owned) Germany
American Express Bureau de Change S.A. Greece
Amex (Middle East) E.C. (50% owned) Bahrain
American Express Exposure Management, Ltd Jersey, Channel
Islands
American Express Travel Poland Sp.Zo.O Poland
American Express Czechoslovakia, Spol.SRO. Czechoslovakia
AMEX Insurance Marketing, Inc. Taiwan
American Express Company A/B Sweden
American Express Resebyra A/B Sweden
Amex 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 International Services Limited Russia
American Express Holdings AB Sweden
Nyman & Schultz Resebyraer AB Sweden
Nyman & Schultz UK Plc England
TMG Intressenter AB Sweden
Nyman & Schultz AB (95% owned 5% TMG Sweden
Intressenter AB)
Book Hotel AB Sweden
Forsakringsaktiebolaget Viator Sweden
Nyman & Schultz Affarsresor AB Sweden
First Card AB Sweden
Nyman & Schultz Grupp och Konferens AB Sweden
Pluresor AB (67% owned) Sweden
Profil Rejser A/S (30% owned 20% Denmark
Resespecialisterna Syd AB)
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 (30% owned) Sweden
Oy Scandinavian Express Finland AB Sweden
Svensk-Kinesiskan Resebyran AB (21% owned) Sweden
Fastighetsaktiebolaget AB Ostanan Sweden
Central Hotel AB Sweden
Nyman & Schultz Norge A/S Norway
Nyman & Schultz Forretningsreiser A/S Norway
Nyman & Schultz Gruppe-og Norway
Spesialreiser A/S
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
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
Holdinsco, Inc. Delaware
AMEX Assurance Company Illinois
Integrated Travel Systems, Inc. Texas
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. American Express Financial Corporation and
its Subsidiaries
American Express Financial Corporation Delaware
American Express Financial Advisors Inc. Delaware
IDS Real Estate Services, Inc. Delaware
IDS Securities Corporation Delaware
American Express Trust Company Minnesota
American Express Tax and Business Services, Inc
IDS International, Inc. Delaware
IDS Life Insurance Company Minnesota
American Partners Life Insurance Company Arizona
IDS Life Insurance Company of New York New York
American Enterprise Life Insurance Company Indiana
American Centurion Life Assurance Company New York
IDS Certificate Company Delaware
Investors Syndicate Development 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 Massachusetts 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. American Express Bank Ltd. and its Subisidiaries
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. 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 International Trust (Guernsey) Limited Guernsey
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
Anangel-American Shipholdings Limited
(3.7% owned) Cayman Islands
American Express Bank Asset Management Jersey, Channel
(Jersey) Ltd. Islands
Priory Centre Investments Limited (35.7% 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
Amex International Trust (Cayman) Ltd. Cayman Islands
OLP Investments Ltd. Cayman Islands
American Express Leasing Corporation Delaware
AELC-Jinoriwon A.S. Panama
AELC Australia Proprietary Limited Australia
AMP-Amex Leasing Limited Australia
(50% owned - joint venture)
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 Worldfolio Management Company Luxembourg
American Express Bank (France) S.A. France
Amex Gestion S.A. France
American Express Bank International United States
American Express Leasing (UK) Limited England
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
(57.84% owned, 42.15% AHI, 0.01% Amex
International Inc.)
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)
Amex Capital Investments (UK) Ltd. England
Maineye Limited England
Logicfull Limited England
Amexnet Limited England
AEB (UK) P.L.C. England
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
Far East Leasing Ltd. Cayman Islands
Geneva Nominees Limited England
747-2, Inc. New York
Tata Finance Ltd. (3.2% owned) India
Purbeck Petroleum Limited (25.1% owned) England
American Express Bank CFS, Ltd. Jersey Channel
Islands
American Express Bank Asset Management (Cayman) Ltd. Cayman Islands
Columbus Real Estate Corp. New York
American Express Bank S.A. Argentina
(56,810,000 shares owned by American Express Bank
Ltd., 1 share owned by American Express Limited)
IV. Other Subsidiaries of the Registrant
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 Vermont
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
Balcor Financial Resources, Inc. Delaware
Balcor Capital Markets, Inc. Illinois
Balcor Consulting Group Illinois
Balcor Realty Company Illinois
Balcor Management Services, Inc. Illinois
International Capital Corporation Delaware
Intercapital Comercio e Participacoes Ltda. Brazil
Conepar Compania Nordestina de Brazil
Participacoes S.A. (31.92% 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. (68% of preferred stock)
Banco American Express (5.80% Amex do Brasil, 94.2% Brazil
Intercapital Comercio e Participacoes Ltda.)
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
Floriano Representacoes Ltda. Brazil
Amex Distribuidora De Titulos E Valores Brazil
Mobiliarios Ltda (90% owned)
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
<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 2, 1995 (hereinafter referred to as our Report), included
in the 1994 Annual Report to Shareholders of American Express
Company.
Our audits included the financial statement schedules of
American Express Company listed in Item 14(a). These schedules are
the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion, the
financial statement schedules referred to above, when considered in
relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in the
Registration Statements (Form S-8 No. 2-46918, No. 2-59230, No.
2-64285, No. 2-73954, No. 2-89680, No. 33-01771, No. 33-02980, No.
33-17133, No. 33-28721, No. 33-32876, No. 33-33552, No. 33-36422,
No. 33-38777, No. 33-43671, No. 33-48629, No. 33-62124, No. 33-
65008 and No. 33-53801; Form S-3 No. 2-89469, No. 33-06038, No.
33-07435, No. 33-17706, 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, 1994.
ERNST & YOUNG
/s/ Ernst & Young LLP
New York, New York
March 30, 1995
F-2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Consolidated Balance Sheet at December 31, 1994 and Consolidated
Statement of Income for the year ended December 31, 1994 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 3,433
<SECURITIES> 40,108
<RECEIVABLES> 17,954
<ALLOWANCES> 807
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,403
<DEPRECIATION> 1,563
<TOTAL-ASSETS> 97,006
<CURRENT-LIABILITIES> 0
<BONDS> 21,972
<COMMON> 298
0
200
<OTHER-SE> 5,935
<TOTAL-LIABILITY-AND-EQUITY> 97,006
<SALES> 0
<TOTAL-REVENUES> 14,282
<CGS> 0
<TOTAL-COSTS> 6,953
<OTHER-EXPENSES> 1,431
<LOSS-PROVISION> 2,996
<INTEREST-EXPENSE> 1,011
<INCOME-PRETAX> 1,891
<INCOME-TAX> 511
<INCOME-CONTINUING> 1,380
<DISCONTINUED> 33
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,413
<EPS-PRIMARY> 2.75
<EPS-DILUTED> 0
</TABLE>
