<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 10-K
---------------------------
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-7657
AMERICAN EXPRESS COMPANY
(Exact name of registrant as specified in its charter)
New York 13-4922250
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
World Financial Center
200 Vesey Street
New York, New York 10285
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (212) 640-2000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Shares (par value $.60 per Share) New York Stock Exchange
Boston Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
6 1/4% Exchangeable Notes Due October 15, 1996 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K / /.
<PAGE>
Common shares of the registrant outstanding at March 4, 1996 were 479,695,263.
The aggregate market value, as of March 4, 1996, of such common shares held by
non-affiliates of the registrant was approximately $22.4 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 1995 Annual Report to
Shareholders.
Part III: Portions of Registrant's Proxy Statement dated March 11, 1996.
=============================================================================
<PAGE>
TABLE OF CONTENTS
Form 10-K
Item Number
Part I Page
1. Business
Travel Related Services . . . . . . . . . . . . . . . 1
American Express Financial Advisors. . . . . . . . . . 8
American Express Bank. . . . . . . . . . . . . . . . 13
Corporate. . . . . . . . . . . . . . . . . . . . . . 20
Foreign Operations . . . . . . . . . . . . . . . . . 20
Industry Segment Information and
Classes of Similar Services. . . . . . . . . . . . 21
Executive Officers of the Registrant . . . . . . . . 21
Employees. . . . . . . . . . . . . . . . . . . . . . 25
2. Properties. . . . . . . . . . . . . . . . . . . . . . . 25
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . 25
4. Submission of Matters to a Vote of Security Holders . . 26
Part II
5. Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . 26
6. Selected Financial Data . . . . . . . . . . . . . . . . 27
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 27
8. Financial Statements and Supplementary Data . . . . . . 27
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . 27
Part III
10. Directors and Executive Officers of the Registrant. . . 27
11. Executive Compensation. . . . . . . . . . . . . . . . . 27
12. Security Ownership of Certain Beneficial Owners
and Management. . . . . . . . . . . . . . . . . . . . 27
13. Certain Relationships and Related Transactions. . . . . 27
Part IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . 28
Signatures. . . . . . . . . . . . . . . . . . . . . . . 29
Index to Financial Statements . . . . . . . . . . . . . F-1
Consent of Independent Auditors . . . . . . . . . . . . F-2
Exhibit Index . . . . . . . . . . . . . . . . . . . . . E-1
i<PAGE>
PART I
ITEM 1. BUSINESS
American Express Company (the "registrant") was founded in 1850 as a joint
stock association and was incorporated under the laws of the State of New York
in 1965. The registrant and its subsidiaries are primarily engaged in the
business of providing travel related services, financial advisory services and
international banking services throughout the world.
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") and other stored value products, corporate and consumer travel
products and services, magazine publishing, database marketing and management
and Card-related insurance products. TRS offers products and services in over
160 countries. In certain countries, partly owned affiliates and independent
operators offer some of these products and services under licenses from TRS.
TRS' business as a whole has not experienced significant seasonal
fluctuation, although Travelers Cheque sales and Travelers Cheques outstanding
tend to be greatest each year in the summer months, peaking in the third
quarter, and Card billed business tends to be moderately higher in the fourth
quarter than in other calendar quarters.
TRS places significant importance on its trademarks and service marks.
TRS diligently protects its intellectual property rights around the world.
CONSUMER CARD SERVICES GROUP
TRS offers various Card products to individual consumers, including charge
cards such as the American Express Personal Card, the American Express-R Gold
Card and the Platinum Card-R; and the Optima-R Card, a revolving credit card.
Cards are currently issued in 35 currencies and permit Cardmembers to charge
purchases of goods and services in the U.S. 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.
Charge Cards are primarily designed for use as a method of payment and not
as a means of financing purchases of goods and services and carry 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 extended payment plans (such as Sign & Travel-R accounts), charge Cards
require payment by the Cardmember of the full amount billed each month, 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 and, if
not brought to current status, subject to cancellation.
-1-<PAGE>
The Optima Card comprises a family of revolving credit cards marketed to
individuals in the U.S. and several other countries. The Optima Card was
initially issued only to existing Cardmembers. In 1994, the Optima True
Grace-SM Card was issued in the U.S. on a stand-alone basis. Since then, a
variety of other Optima Cards with different payment terms, grace periods and
rate structures have been made available to customers. American Express
revolving credit cards which do not carry the Optima brand are also issued
outside the U.S.
American Express Centurion Bank ("Centurion Bank") issues the Optima Card
in the U.S. and owns substantially all receivables arising from the use of
Optima Cards issued in the U.S. In addition, Centurion Bank extends lines of
credit in association with certain American Express Cards and offers unsecured
loans to Cardmembers in connection with their Sign & Travel 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 charge Card. Outside the U.S., consumer lending activities
are engaged in by other subsidiaries of the registrant where local regulations
permit.
Cardmembers generally are charged an annual fee, which varies based on the
type of Card, the number of Cards for each account, the currency in which the
Card is denominated and the country of residence of the Cardmember. Certain
Optima Cards are offered with no annual fee.
Cardmembers generally have access to a variety of special services,
depending on the type of Card, including: the Membership Rewards-SM 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
U.S. has access to certain additional services, including a Year End Summary
of Charges Report; in many instances, the ability to draw on a line of credit;
and a lowest price guarantee on most retail purchases. The Platinum Card,
offered to certain Cardmembers in the U.S. 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.
American Express Credit Corporation ("Credco") purchases most Cardmember
receivables arising from the use of Cards (other than Optima Cards) issued in
the U.S. and Cardmember receivables in designated currencies arising from the
use of Cards outside the U.S. 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.
In 1995, TRS introduced a number of new revolving credit and charge Card
products and features pursuant to its strategy of developing a larger
selection of products targeted to the needs of specific customer segments and
of growing loans outstanding in its consumer lending portfolio. During the
year, TRS announced two co-branded Optima Card products, the Hilton-R Optima
Card and the Delta-R SkyMiles-TM Credit Card from American Express, which offer
-2-<PAGE>
rewards provided by the co-branded partners. TRS also introduced other Card
products such as the Gold Optima Card and Optima Card for students. TRS plans
to continue its strategy and offer additional co-branded and other Card
products in the future, and is making a significant investment in a new card
processing system to allow the introduction of products in a much shorter time
frame.
The American Express Card and consumer lending businesses are subject to
extensive regulation in the U.S. 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 U.S. or on a worldwide basis.
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 ("AEDC"), is a Utah-chartered, FDIC-insured
industrial loan corporation. In the second quarter of 1996, TRS expects to
merge Centurion Bank into AEDC. AEDC would thereafter be the issuer of the
Optima Card in the U.S. and conduct the activities currently being performed
by Centurion Bank.
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-R cards issued by
members of VISA International Service Association, Inc. or VISA USA, Inc.
(collectively, "VISA"), and MasterCard-R 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.
This competition exists among issuers of general purpose charge and credit
cards (intrasystem competition) as well as among card systems like VISA,
MasterCard and to a lesser extent, Diners Club-R, Dean Witter's NOVUS-SM
Network and JCB (intersystem competition). TRS also encounters competition,
to a much lesser extent, from businesses that issue their own cards or
otherwise extend credit to their customers, such as retailers and airline
associations. These products are not generally substitutes for TRS' Card
products due to their limited acceptance. Many 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
competing issuers offer premium cards with enhanced services or lines of credit.
Certain issuers also offer mileage credit to card holders under airline
frequent flyer programs or other types of reward programs or rebates. In
1995, TRS expanded its Membership Miles-R travel rewards program in the U.S. to
-3-<PAGE>
include retail merchandise and gourmet gifts and renamed the program
Membership Rewards. The program is also offered outside the U.S. Membership
Rewards is an important part of TRS' strategy to increase Cardmember spending
and loyalty. More than five million Cardmembers in 27 countries participate
in the Membership Rewards program. Due to the success of the program,
enrollees now represent a significant portion of Cardmember spending.
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 and addressing key factors that influence service
establishment satisfaction and has expanded its efforts in successfully
handling and resolving suppression problems. TRS' objective is to achieve
merchant coverage that is at virtual parity with bankcard networks. TRS has
expanded its efforts to increase the number of merchants accepting the Card by
utilizing independent sales agents in addition to its own sales force.
In 1995, TRS expanded the on-line services it provides to Cardmembers, and
plans to add more services in the future. Through ExpressNet-SM, Cardmembers
may now access account information, pay their American Express Card bills and
apply for Cards directly from their computers through America Online, among
other available services. TRS also anticipates further developments in payment
products and systems. Such changes may include increasing use of debit cards,
Card acceptance and other payment vehicles on the Internet, 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
nature and quality of expense management data capture and reporting
capability; (vii) the number and quality of other payment instruments
available to Cardmembers and participating establishments; and (viii) the
success of marketing and promotion campaigns.
STORED VALUE GROUP
In light of changing technologies and customer needs, in 1995 the
Travelers Cheque Group expanded its product offerings to other "stored value"
products and was renamed the Stored Value Group. The mission of the Stored
Value Group is to replace cash with safe, convenient stored value payment
systems that satisfy specific customer needs. To support that mission, in
1995 TRS acquired Special Teams, Inc., a company that specializes in
delivering stored value university card systems that centralize numerous
administrative and financial functions. TRS is also testing the FirstClass-SM
PhoneCard, a prepaid telephone card, with the U.S. Postal Service.
-4-<PAGE>
The core of the Stored Value Group's business, however, continues to be
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 U.S. 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.
Swiss franc cheques are being issued by a Swiss partnership in which TRS has a
partnership interest. In 1995, Spanish Peseta Travelers Cheques, issued by
Banco Central Hispano ("BCH"), were made available to American Express
Travelers Cheque customers under a joint promotional agreement between TRS and
BCH.
American Express Travelers Cheques are sold through a broad network of
outlets worldwide, including offices of TRS, its affiliates and
representatives, travel agents, commercial banks, savings banks, savings and
loan associations, credit unions and other financial, travel and commercial
businesses. TRS generally pays compensation to selling agents for their sale
of Travelers Cheques.
The proceeds from sales of Cheques issued by TRS are remitted to TRS and
are invested predominantly in highly-rated debt securities consisting
primarily of intermediate- and long-term state and municipal obligations. The
investment of these proceeds is regulated by various state laws.
TRS also issues the Corporate Travelers Cheque, a cash access product for
business travelers, Cheques for Two-R, 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-counter- signature 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, consumers have a choice of many forms of payment instruments,
including other brands of travelers checks, charge and debit cards and national
and international automated teller machine networks. TRS expects increasing
developments in stored value cards, smart cards and other electronic forms of
payment, and plans to offer a range of new stored value and other products in
the future to compete in this area. The principal competitive factors affecting
the travelers check industry are (i) the 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.
-5-<PAGE>
CORPORATE CARD AND TRAVEL BUSINESSES
The American Express Corporate Card is a charge card issued to individuals
through a corporate account established by their employer for business
purposes. TRS, through its Corporate Card program, is the leading provider to
large and small businesses of travel and expense management systems, and
services such as the Business Travel Accident Insurance Plan offered to large
businesses and the Accident Disability Plan provided to small businesses. In
1995, TRS enhanced its expense management system for large Corporate accounts
and expanded the range of products for small businesses with the launch of the
Corporate Platinum Card. TRS achieved substantial growth in the Corporate
Card businesses in 1995.
TRS also provides American Express Government Card charge card services to
federal employees who travel on official government business. In addition,
the American Express Corporate Card is the business expense management system
used by 36 of the 50 states.
In recent years, there has been increased focus by competitors on the
Corporate Card business. For a discussion of competition relating to the Card
business, see pages 3 and 4 above.
In 1994, TRS launched the American Express Corporate Purchasing Card.
This charge 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 and retail store
purchasing. TRS pays the suppliers and submits a single monthly billing
statement to the company. Due to the needs of companies in implementing the
Purchasing Card, growth in this product has been much slower than originally
planned.
TRS provides a wide variety of travel services to customers traveling for
business and personal purposes and is the leading business travel provider
worldwide. Travel services include trip planning, reservations, ticketing,
and other incidental services. In addition, for business travel accounts, TRS
provides corporate travel policy consultation and management information
systems and group and incentive travel services. TRS receives commissions and
fees for travel bookings and arrangements from airlines, hotels, car rental
companies and other travel suppliers. In 1995, TRS introduced a new structure
of service fees for certain transactions such as re-ticketing, courier
services and complex itineraries. TRS also receives management fees from
certain business travel accounts.
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 U.S. and certain
foreign countries. TMS offers to its client companies services to manage
their travel and entertainment budgets. 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. New software was introduced during 1995 for large
Corporate accounts which allows Corporate cardholders to access current
account data via E-mail to create their own expense reports in a short period
of time.
-6-<PAGE>
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
U.S. 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, including the fact that 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) have been imposed by airlines in an
environment of heightened competition, which has caused some independent
agencies to go out of business. It is also possible that customers may
increasingly seek alternative channels to make travel arrangements, such as
on-line vendors or in some cases "ticketless" airline services that require
booking directly with the airlines. It is anticipated that travel agents will
continue to provide value by making available fare and ticketing information
for competing airlines on a timely basis. It is also expected that travel
agencies will continue to look for expense reduction opportunities.
Consolidation of travel agencies is likely to continue as agencies seek to
better serve national and multinational business travel clients and negotiate
more effectively with the airlines with respect to computer reservation
systems and compensation and pricing arrangements.
In 1995, TRS launched Express Reservations on ExpressNet, which allows
customers to make airline reservations and order tickets on-line. TRS plans
to offer other new services in the future in response to changes in the
traditional travel agent distribution channel.
TRS INTERNATIONAL
In 1995, TRS took several steps to enhance its international businesses in
recognition of the importance of markets outside the U.S. to the registrant's
long-term growth strategy.
In the past, TRS generally has issued its own Cards and processed service
establishment charges internally. However, in selected countries outside the
U.S. where TRS has not established operations or issued Cards denominated in
local currencies (including Croatia, South Africa and Venezeula), TRS has,
since the early 1970's, appointed banks or other third parties to be
Independent Operators handling the domestic aspects of all Card service
functions in such countries, including issuing the Card. In 1995, TRS signed
Independent Operator Agreements with Banco Commercial Portugues in Portugal,
Bank Hapoalim in Israel, Alpha Credit Bank in Greece and Tong Yang Group in
Korea, establishing such parties as charge Card issuers in their respective
markets. TRS expects to establish additional types of arrangements with banks
outside the U.S. in selected markets where it believes that such arrangements
will enhance Card distribution and expand the merchant base. In January 1996,
TRS filed a complaint with the European Commission against the contemplated
adoption by Visa International Service Association, Inc. of a by-law that
would result in the automatic termination of Association membership of any
member bank issuing the Card.
-7-<PAGE>
In 1995, TRS also launched a credit card in the United Kingdom, its first
stand-alone revolving credit card issued outside the U.S. Similar revolving
credit cards are now also being tested in other countries. In addition,
during 1995, TRS expanded programs outside the U.S., such as Membership
Rewards and Relationship Statementing, which links rewards directly to
Cardmembers' spending patterns.
TRS also 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. In 1995, TRS' 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. TRS also
acquired Bel Air Viagens, the largest business travel agency in Brazil.
OTHER PRODUCTS AND SERVICES
TRS publishes Travel & Leisure-R, Food & Wine-R, Departures-TM and Your
Company-TM magazines.
American Express Relationship Services ("AERS") was created in 1994 to
deliver nontraditional American Express products and services which address
the information, access, security and telecommunications needs of new and
existing customers. AERS includes TRS' existing Merchandise Services and Fee
Services units as well as new telecommunications and business development
units. Through AERS, TRS offers merchandise directly to Cardmembers, who
may elect to pay for the products they purchase in installments with no
finance charges. Products can now also be purchased through computer via
America Online.
TRS also provides through its subsidiary, Epsilon Data Management, Inc.,
proprietary database marketing and management.
In 1995, TRS sold AMEX Life Assurance Company ("Amex Life") to General
Electric Capital Corporation ("GE Capital"). GE Capital acquired Amex Life's
long-term care insurance business, as well as its long-term disability,
corporate owned life insurance and other group insurance (primarily accidental
death insurance) businesses. The transaction did not include American Express
Card- related insurance products, including Automatic Air Flight insurance and
a deferred annuity marketed under the name Privileged AssetsR. These products
are marketed to Cardmembers through direct response methods.
AMERICAN EXPRESS FINANCIAL ADVISORS
American Express Financial Corporation ("AEFC") is engaged in providing a
variety of financial products and services to help individuals, businesses and
institutions establish and achieve their financial goals. AEFC's products and
services include financial planning and advice, insurance and annuities, a
variety of investment products, including investment certificates, mutual
funds and limited partnerships, investment advisory services, trust and
employee plan administration services, tax preparation and bookkeeping
services, personal auto and homeowner's insurance and retail securities
brokerage services. At December 31, 1995, American Express Financial Advisors
Inc. ("AXP Advisors"), AEFC's principal marketing subsidiary, maintained a
nationwide financial planning field force of 7,945 persons. AEFC's marketing
system consists primarily of AXP Advisors field force operating in 50 states,
the District of Columbia and Puerto Rico, organized in five regions and 45
market areas.
-8-<PAGE>
DISTRIBUTION OF PRODUCTS AND SERVICES
AXP Advisors offers financial planning and investment advisory services to
individuals for which it charges a fee. AXP Advisors 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, AXP Advisors' financial advisors provide clients with recommendations
of products from the more than 100 products distributed by subsidiaries and
affiliates of AEFC as well as products of approved third parties.
First-year financial advisors are compensated primarily by salary, while
veteran financial advisors receive compensation based largely on sales. AXP
Advisors' 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, AXP
Advisors competes with financial planning firms, insurance companies,
securities broker-dealers and other financial institutions. AXP Advisors has
undertaken 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. Pursuant to this initiative, in 1995, AEFA
tested certain computer-based tools for advisors, including a new desktop
financial planning system, and plans to commence implementation of such tools
nationwide in 1996. AEFA also implemented new training programs in 1995 to
help advisors enhance client service and increase productivity.
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, AXP Advisors 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, AXP Advisors is
actively pursuing alternative approaches for the distribution of its financial
planning services, and investment, insurance and annuity products, including
networking arrangements with community banks, credit unions and lending
entities in the Farm Credit System. AXP Advisors believes that it is
important to provide these alternatives to enhance its competitiveness in the
marketplace.
AXP Advisors does business as a broker-dealer and investment advisor in
all 50 states, the District of Columbia and Puerto Rico. AEFC and AXP
Advisors are registered as broker-dealers and investment advisors regulated by
the Securities and Exchange Commission ("SEC"), and are members of the
National Association of Securities Dealers, Inc. ("NASD"). AXP Advisors'
financial advisors must obtain state and NASD licenses required for the
businesses.
AXP Advisors 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 advisor 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,
-9-<PAGE>
reliability, safety and distribution system. Competition in the financial
services market is very intense and AEFC 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.
Competition has also extended to individuals working in the financial services
industry and certain financial institutions have recently shown increased
interest in seeking to hire AXP Advisors' financial advisors.
AEFC's business does not as a whole experience significant seasonal
fluctuations.
INSURANCE AND ANNUITIES
AEFC's insurance business is carried on primarily by IDS Life Insurance
Company ("IDS Life"), a stock life insurance company organized under the laws
of the State of Minnesota. IDS Life is a wholly-owned subsidiary of AEFC and
serves all states except New York. IDS Life 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") is another IDS Life subsidiary
that offers fixed and variable annuities to American Express Cardmembers in
New York, as well as fixed and variable annuities to banks, thrift
institutions and stock brokerages in New York. IDS Life also owns American
Partners Life Insurance Company ("American Partners Life"), which offers fixed
and variable annuity contracts to American Express Cardmembers who reside in
states other than New York.
IDS Life's products include whole life, universal life (fixed and
variable), single premium life and term products (including waiver of premium
and accidental death benefits). 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.
IDS Life, American Enterprise Life and American Partners Life are subject
to comprehensive regulation by the Minnesota Department of Commerce (Insurance
Division), the Indiana Department of Insurance, and the Arizona Department of
Insurance, respectively. American Centurion Life and IDS Life Insurance
Company of New York are regulated by the New York 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
-10-<PAGE>
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 relating 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
AEFC's insurance subsidiaries.
As a distributor of variable annuity and life insurance contracts, IDS
Life is registered as a broker-dealer and is a member of the NASD. As
investment manager of various investment companies, IDS Life is registered as
an investment advisor under applicable federal requirements.
IDS Property Casualty Insurance Company ("IDS Property Casualty") provides
personal auto and homeowner's coverage to clients in 19 states. This
insurance is underwritten to some extent by AMEX Assurance Company, a
subsidiary of the registrant, in 17 of these states and reinsured by IDS
Property Casualty. IDS Property Casualty is regulated by the Commissioner of
Insurance for Wisconsin. AMEX Assurance Company, which also provides certain
American Express Card related insurance products, is regulated by the
Commissioner of Insurance for Illinois.
The insurance and annuity business is highly competitive, and IDS Life's
competitors consist of both stock and mutual insurance companies. Competitive
factors applicable to the insurance business include the interest rates
credited to its products, the charges deducted from the cash values of such
products, the financial strength of the organization and the services provided
to policyholders.
INVESTMENT CERTIFICATES
IDS Certificate Company ("IDSC"), a wholly-owned subsidiary of AEFC,
issues face-amount investment certificates. IDSC is registered as an
investment company under the Investment Company Act of 1940. Owners of IDSC
certificates are entitled to receive, at maturity, a stated amount of money
equal to the aggregate investments in the certificate plus interest at rates
declared from time to time by IDSC. In addition, persons owning one type of
certificate may have their interest calculated in whole or in part based on
any upward movement in a broad-based stock market index. The certificates
issued by IDSC are not insured by any government agency. AEFC acts as
investment manager for IDSC. IDSC's certificates are sold primarily by AXP
Advisors' field force. Certificates are also marketed by American Express
Bank Ltd. to its foreign customers.
IDSC 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 owners can withdraw their
certificate investments at the end of an interest rate period.
IDSC is the largest issuer of face-amount certificates in the U.S. 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.
-11-<PAGE>
MUTUAL FUNDS
AXP Advisors offers a variety of mutual funds, for which it acts as
principal underwriter (distributor of shares). AEFC acts as investment
manager and performs various administrative services. The "IDS MUTUAL FUND
GROUP" consists of 32 publicly-offered mutual funds, with varied investment
objectives, and includes, for example, money market, tax-exempt, bond and
stock funds. AEFC believes that the IDS MUTUAL FUND GROUP, with combined net
assets at December 31, 1995 of $48.1 billion, was the eleventh largest mutual
fund organization in the U.S. and, excluding money market funds, was the
seventh largest. AXP Advisors, as principal underwriter, maintains a
continuous public offering of shares of each fund. For most funds, shares are
sold in three classes. Class A shares are sold at net asset value plus any
applicable sales charge. The maximum sales charge is five percent of the
offering price with reduced sales charges for larger purchases. Class B
shares are sold with a rear load. The maximum sales charge is five percent
declining to no charge for shares held over six years. Class Y shares are
sold to institutional clients with no load.
The competitive factors affecting the sale of mutual funds include sales
charges ("loads") paid, administrative expenses, services received, investment
performance, the variety of products and services offered and the convenience
to the investor. The funds compete with other investment products, including
funds that have no sales charge (known as "no load" funds), and with funds
distributed through independent brokerage firms, as well as with those
distributed by other "exclusive" sales forces.
OTHER PRODUCTS AND SERVICES
IDS Advisory Group Inc. ("IDSA"), a subsidiary of AEFC, provides
investment management services for pension, profit sharing, employee savings
and endowment funds of large- and medium-sized businesses and other
institutions ("institutional clients"). At December 31, 1995, IDSA managed
securities portfolios totaling $12.1 billion for 187 accounts. International
or global investment management is offered to U.S.-based institutional clients
by IDS International, Inc., a U.S. company with offices in London, and to
non-U.S. based institutional clients by IDS Fund Management Ltd., an English
company, with offices in Hong Kong, Singapore and London. At December 31,
1995, IDS International, Inc. managed securities portfolios totaling $5.1
billion for 32 accounts; and IDS Fund Management Ltd. managed securities
portfolios totaling $1.2 billion for 22 accounts. IDS International, Inc.
and IDS Fund Management Ltd. are wholly-owned subsidiaries of AEFC.
AXP Advisors also offers investment management services for wealthy
individuals and small institutions. IDS Wealth Management Service offers a
wrap program marketed to wealthy individuals through AXP Advisors' financial
advisors and marketing employees and third-party referrals. American Express
Strategic Portfolio Services offers a mutual fund wrap program to wealthy
individuals. Portfolio Management Group ("PMG") offers discretionary
investment management services to the above types of clients with account
sizes between $1 million and $10 million. As of December 31, 1995, PMG
managed securities portfolios totaling $700 million for 132 accounts. IDS
Wealth Management Service, American Express Strategic Portfolio Services and
PMG are operating divisions of AXP Advisors.
-12-<PAGE>
American Express Trust Company ("AETC") provides trustee, custodial,
recordkeeping and investment management services for pension, profit sharing,
401(k) and other qualified and non-qualified employee benefit plans. AETC,
through its personal trust division, offers trust services to individuals and
organizations. AETC is trustee of over 800 benefit plans which represent
approximately $11 billion in assets and 550,000 participants. AETC has assets
under custody in excess of $71 billion and provides non-trusteed, investment
management of assets in excess of $5 billion. AETC is regulated by the
Minnesota Department of Commerce (Banking Division).
AXP Advisors distributes a variety of real estate limited partnership
investments issued by other companies. AXP Advisors also distributes from
time to time managed futures limited partnerships in which an AEFC subsidiary
is a co- general partner.
American Express Tax and Business Services Inc., a subsidiary of AEFC,
offers tax planning, tax preparation and small business consulting services to
clients in 55 locations in 20 states, and expects to expand this business
through acquisitions in the future.
In 1995, AEFC continued to expand its securities brokerage services.
American Express Securities Services, a division of AXP Advisors, holds $2.3
billion in assets for clients. American Enterprise Investment Services Inc.,
a wholly-owned subsidiary of AEFC, provides securities execution and clearance
services for 80,000 retail and institutional clients of American Express
Securities Services. 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.
The registrant and AXP Advisors are continuing to develop a separate
distribution system which is complementary to the existing system of AXP
Advisors operating under the name American Express Financial Services Direct.
It will include not only products from AXP Advisors, but also from other
businesses of the registrant and selected outside vendors. Payment, credit,
insurance and investment products will be offered. American Express Financial
Services Direct intends to use direct marketing, financial consultants and
on-line services to help prospects and clients select appropriate products and
services.
In 1995, the registrant and AXP Advisors also developed a number of
strategies to pursue several different opportunities to provide financial
products and services to employees at their places of work. These
opportunities include expanding a number of existing businesses, including
401(k) retirement and other benefits services, tax and business services,
securities brokerage and financial education services.
AMERICAN EXPRESS BANK
The registrant's wholly-owned subsidiary, American Express Bank Ltd.
(together with its subsidiaries, where appropriate, "AEB"), offers products
that meet the financial service needs of three client groups: wealthy
entrepreneurs and their companies, financial institutions and retail
customers. AEB does not directly or indirectly do business in the U.S. except
as an incident to its activities outside the U.S. Accordingly, the following
discussion relating to AEB generally does not distinguish between U.S. and
non-U.S. based activities.
-13-<PAGE>
Historically managed on a geographic basis, AEB is implementing a global
line-of-business organizational structure begun in 1995. AEB's four business
lines are correspondent, commercial and private banking, and consumer
financial services. Correspondent banking serves leading local banks
primarily in emerging markets and includes transaction payments and a wide
range of trade finance products such as letters of credit and payment
guarantees, collections, check clearing and bankers acceptances. Commercial
banking is provided to businesses, most of which are owned by wealthy
entrepreneurs, and includes trade finance, working capital loans and equipment
finance. Private banking focuses on wealthy entrepreneurs by providing such
customers with investment management, trust and estate planning, deposit
instruments and secured lending. Consumer financial services is primarily a
direct response business. Products include interest- bearing deposits,
unsecured lines of credit, installment loans and money market funds. AEB also
provides treasury services to all segments of its customer base which include
spot and forward foreign exchange, interest rate and currency swaps and
various other derivative instruments.
In certain countries outside the U.S. 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 more
fully integrate its business with other parts of the registrant, including
serving a greater role as an international platform to support TRS' business
globally.
AEB has a global network with offices in 36 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.
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 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.
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 $12.3 billion at December 31, 1995, compared with
$13.3 billion at December 31, 1994. Liquid assets, consisting of cash and
deposits with banks, trading account assets and investments, were $4.5 billion
at December 31, 1995, compared with $5.6 billion at December 31, 1994.
-14-<PAGE>
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, 1995 (dollars in
millions):
1995 1994 1993
---- ---- ----
Net financial revenues $643 $652 $677
Noninterest expenses 521 525 499
Net income 77 80 92
- -----------------------------------------------------------------------------
Cash and deposits with banks 1,992 2,605 2,668
Investments 2,537 2,765 2,819
Loans, net 5,317 4,881 5,488
Total assets 12,324 13,291 14,137
- ----------------------------------------------------------------------------
Customers' deposits and credit
balances 8,480 9,103 10,178
Shareholder's equity (a) 837 758 755
- -----------------------------------------------------------------------------
Return on average assets 0.59% 0.54% 0.65%
Return on average common equity (b) 9.99% 10.89% 13.67%
- -----------------------------------------------------------------------------
Total loans/deposits and credit
balances from customers 64.00% 54.81% 55.16%
Average common equity/average
assets (b) 5.57% 4.71% 4.57%
Risk-based capital ratios:
Tier 1 8.9% 7.5% 6.3%
Total 13.0% 14.7% 10.2%
Leverage ratio 5.8% 4.8% 4.4%
- -----------------------------------------------------------------------------
Average interest rates earned: (c)
Loans (d) 8.68% 7.58% 7.06%
Investments (e) 8.71% 9.54% 9.21%
Deposits with banks 6.65% 5.73% 5.67%
- -----------------------------------------------------------------------------
Total interest-earning assets (e) 8.15% 7.62% 7.17%
- -----------------------------------------------------------------------------
Average interest rates paid: (c)
Deposits and credit balances from
customers 6.10% 5.41% 5.73%
Borrowed funds, including long-term
debt 5.55% 4.99% 4.18%
- -----------------------------------------------------------------------------
Total interest-bearing liabilities 6.00% 5.35% 5.46%
- -----------------------------------------------------------------------------
Net interest income/total average
interest-earning assets (e) 2.88% 2.85% 2.92%
- ----------------------------------------------------------------------------
(a) AEB declared and paid a special dividend of $75 million to the
registrant on January 31, 1996.
(b) ROE is calculated excluding the effect of SFAS No. 115 in 1995 and 1994.
(c) Based upon average balances and related interest income and expense,
including the effect in 1995 and 1994 of interest rate products where
appropriate and transactions with related parties.
(d) Interest rates have been calculated based upon average total loans,
including those on nonperforming status.
(e) On a tax equivalent basis.
-15-<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, 1995
(millions):
By Geographical Region (a) 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------
Asia/Pacific $2,151 $2,144 $2,186 $1,792 $1,891
Europe 876 903 1,091 1,177 1,498
Indian Subcontinent 970 721 850 908 624
Latin America 617 589 749 675 546
North America 76 81 283 382 468
Middle East 614 345 368 357 365
Africa 124 207 87 65 61
- ------------------------------------------------------------------------------
Total $5,428 $4,990 $5,614 $5,356 $5,453
==============================================================================
1995
---------------------------------
Due After
1 Year
Due Through Due
By Type Within 5 After 5
and Maturity 1 Year Years(b)Years(b) 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------
Loans to $2,344 $258 $12 $2,614 $2,328 $2,652 $2,628 $2,355
businesses(c)
Real estate
loans 342 153 6 501 592 708 665 751
Loans to banks and
other financial
institutions 1,207 32 1 1,240 915 1,083 666 731
Equipment
financing(d) 15 27 1 43 79 105 386 501
Consumer loans 829 84 4 917 941 912 850 945
Loans to governments
and official 56 - 4 60 81 89 96 96
institutions
All other loans 53 - - 53 54 65 65 74
- -------------------------------------------------------------------------------
Total $4,846 $554 $28 $5,428 $4,990 $5,614 $5,356 $5,453
===============================================================================
(a) Based primarily on the domicile of the borrower.
(b) Loans due after 1 year at fixed (predetermined) interest rates totaled
$131 million, while those at floating (adjustable) interest rates totaled
$451 million.
(c) Business loans, which accounted for approximately 48 percent of the
portfolio as of December 31, 1995, were distributed over 26 commercial and
industrial categories.
(d) The decrease from December 31, 1992 to December 31, 1993 reflects $163
million of equipment finance (aircraft) loans transferred to other
performing assets upon foreclosure (as aircraft assets leased to others).
The total value of aircraft assets leased to others at December 31, 1995
was approximately $361 million. In January of 1996, AEB transferred to
the registrant its aircraft assets leased to others which consisted of
aircraft on operating leases as well as loans secured by commercial
aircraft. The transfer price of $286 million, which is net of assumed
liabilities, was partially financed through a $120 million, three-year
note. The remainder was paid in cash.
-16-<PAGE>
The following table sets forth AEB's nonperforming loans at year end for
each of the five years in the period ended December 31, 1995 (millions):
1995 1994 1993 1992 1991
------------------------------------------------------------------------
Loans to businesses $ 20 $ 12 $ 24 $ 22 $ 21
Real estate loans 1 4 19 69 5
Equipment financing 1 3 - 6 5
Loans to banks and other
financial institutions 8 - - 4 4
Loans to governments
and official institutions 1 1 - 1 3
Consumer loans 3 - - - -
------------------------------------------------------------------------
Total (a) (b) $ 34 $ 20 $ 43 $102 $ 38
========================================================================
(a) AEB's real estate owned totaled $44 million at December 31, 1995,
$56 million at December 31, 1994 and $89 million at December 31,
1993, and represent balances transferred from nonperforming loans
as a result of foreclosures. The 1995 decrease as well as the
decrease from 1993 to 1994 primarily reflected the sale of
foreclosed properties.
(b) Reduced rate loans were immaterial in amount.
-17-<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, 1995
(dollars in millions):
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Total loans at year end $5,428 $4,990 $5,614 $5,356 $5,453
====== ====== ====== ====== ======
Reserve for credit losses-
January 1, $ 109 $ 126 $ 153 $ 116 $ 326
Provision for credit losses 7 8 44 121 44
Translation and other (a) - - (21) (1) 3
------- ---------------------------
Subtotal 116 134 176 236 373
------- ---------------------------
Write-offs:
Real estate loans - 1 16 30 7
Loans to businesses 3 21 19 21 88
Loans to banks and other
financial institutions 1 3 - 4 18
Equipment financing 1 - - - -
Loans to governments and
official institutions 1 - - 2 149
Consumer loans 19 19 20 40 4
All other loans - - 6 1 -
Recoveries:
Loans to businesses (5) (4) (4) (8) (6)
Loans to banks and other
financial institutions (3) (3) (1) (1) (1)
Real estate loans - - - - (1)
Equipment financing (1) (2) - - -
Consumer loans (11) (10) (6) (5) (1)
All other loans - - - (1) -
------ ------------------- ------
Net write-offs 5 25 50 83 257
------ ------ ------------ ------
Reserve for credit losses-
December 31, $ 111 $ 109 $ 126$ 153 $ 116
============= ============ ======
Reserve for credit losses/
total loans 2.04% 2.19% 2.24% 2.85% 2.13%
====== ====== ============ ======
(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
certain 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
-18-<PAGE>
interest on nonperforming loans are recognized either as income or as a
reduction of principal, based upon management's judgment as to the ultimate
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 maintained to absorb losses inherent in the
loan portfolio and in other credit-related on- and off- balance sheet
financial instruments. The reserve is established by charging a provision for
credit losses against income. The amount charged to income is based upon
several factors, 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. Management's assessment of the adequacy of the reserve
is inherently subjective, as significant estimates are required. Loans
determined to be uncollectible, as well as other credit losses, are charged
against the reserve, with any subsequent recoveries credited to the reserve.
RISKS
The global nature of AEB's business activities are such that
concentrations of credit to particular industries and geographic regions are
not unusual. At December 31, 1995, AEB had significant investments in certain
on- and off- balance sheet financial instruments, which were primarily
represented by deposits with banks, securities, loans, contractual amounts of
letters of credit (standby and commercial) and guarantees. The counterparties
to these financial instruments were primarily unrelated to AEB, and
principally consisted of banks and other financial institutions and various
commercial and industrial enterprises operating geographically within the
Asia/Pacific region, the Indian Subcontinent, Europe and North America. AEB
continuously monitors its credit concentrations and actively manages to reduce
the associated risk. AEB does not anticipate any material losses as a result
of these concentrations.
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 27 and 28 under the caption "Risk Management," and Note
11 on pages 42 through 45, of the registrant's 1995 Annual Report to
Shareholders, which portions of such report are incorporated herein by
reference.
-19-<PAGE>
COMPETITION
The banking services of AEB are subject to vigorous competition in all
markets in which AEB operates. Competitors include local and international
banks whose assets often exceed those of AEB, other financial institutions
(including certain other subsidiaries of the registrant) and, in certain
cases, governmental agencies. In some countries, AEB may be one of the more
substantial financial institutions offering banking services; in no country,
however, has AEB been a major factor.
REGULATION
AEB's branches, representative offices and subsidiaries are licensed and
regulated in the jurisdictions in which they do business and are subject to
the same local requirements as other competitors. AEB's New York Agency is
supervised and regularly examined by the Superintendent of Banks of the State
of New York. At the request of management, the New York State Banking
Department has extended its supervision and examination of the New York Agency
to cover AEB's global network of branches and subsidiaries. The Florida
Department of Banking and Finance supervises and examines the Miami Agency.
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 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 U.S. except as an incident to its
activities outside the U.S., 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
the Competitive Equality Banking Act of 1987 other than anti-tie-in rules
with respect to transactions involving products and services of certain of its
affiliates.
As a matter of policy, AEB actively monitors compliance with regulatory
capital requirements. These requirements are essentially represented by the
Federal Reserve Board's risk-based capital guidelines and complementary
leverage constraint. Pursuant to the Federal Deposit Insurance Corporation
Improvement Act of 1991, the Federal Reserve Board, among other federal
banking agencies, adopted regulations defining levels of capital adequacy.
Under these regulations, a bank is deemed to be well capitalized if it
maintains a Tier 1 risk-based capital ratio of at least 6.0 percent, a total
risk-based capital ratio of at least 10.0 percent, and a leverage ratio of at
least 5.0 percent. Based on AEB's total risk-based capital and leverage
ratios, which are set forth on page 15, AEB is considered to be well
capitalized at December 31, 1995.
-20-
<PAGE>
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, 1995, Balcor's
assets, excluding cash and cash equivalents, totaled $382 million with related
reserves of $109 million. Balcor's assets at December 31, 1995 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 U.S. and
continues to broaden the use of these products and services outside the U.S.
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' revenues. Substantial and sudden
devaluation of local Cardmembers' currency can also affect their ability to
make payments to the local issuer of the Card on account of spending outside
the local country.
The major portion of AEB's banking revenues is from business conducted in
countries outside the U.S. 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, 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.
-21-<PAGE>
INDUSTRY SEGMENT INFORMATION AND CLASSES OF SIMILAR SERVICES
Information with respect to the registrant's industry segments,
geographical operations and classes of similar services is set forth in Note
15 to the Consolidated Financial Statements of the registrant, which appears
on pages 48 through 50 of the registrant's 1995 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 29, 1996, 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 (57) 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.
KENNETH I. CHENAULT - Vice Chairman
Mr. Chenault (44) has been Vice Chairman of the registrant since January
1995. Prior to May 1995, he had also been President, U.S.A. of TRS since
August 1993. Prior thereto, he had been President, Consumer Card Group, TRS.
GEORGE L. FARR - Vice Chairman
Mr. Farr (56) has been Vice Chairman of the registrant since May 1995.
Prior thereto, he had been a director of McKinsey & Company.
JONATHAN S. LINEN - Vice Chairman
Mr. Linen (52) 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.
STEVEN W. ALESIO - President, Travel Services Group, TRS
Mr. Alesio (41) has been President, Travel Services Group, TRS since
February 1996. Prior thereto, he had been Executive Vice President, Travel
Services Group, TRS since June 1995. Prior thereto, he had been Executive
Vice President, Corporate Card, TRS since November 1993. Prior thereto, he
had been Senior Vice President of the Consumer Travel Network, TRS.
-22-<PAGE>
ANNE M. BUSQUET - President, American Express Relationship Services,
TRS
Mrs. Busquet (45) has been President, American Express Relationship
Services, TRS since October 1995. Prior thereto, she had been Executive Vice
President, Consumer Card Group since November 1993. Prior thereto, she had
been Senior Vice President and General Manager, Merchandise Services.
EDWARD P. GILLIGAN - President, Corporate Services, TRS
Mr. Gilligan (36) has been President, Corporate Services, TRS since
February 1996. Prior thereto, he had been Executive Vice President, Travel
Management Services, TRS since June 1995. Prior thereto, he had been Senior
Vice President and General Manager Eastern Region of Travel Management
Services, TRS since June 1992. Prior thereto, he had been Vice President,
Corporate Client Services, TRS.
JOHN D. HAYES - Executive Vice President, Global Advertising
Mr. Hayes (41) has been Executive Vice President, Global Advertising since
May 1995. Prior thereto, he had been President of Lowe & Partners/SMS since
January 1991. Prior thereto, he had been President and Chief Executive
Officer of Greer Du Bois.
WILLIAM J. HERON, JR. - President, American Express Financial Services
Direct
Mr. Heron (54) has been President of American Express Financial Services
Direct since July 1995. Prior thereto, he had been Chief Executive Officer of
The Swig Investment Company since April 1993. Prior thereto, he had been
Group Executive, U.S. Consumer Business, Citicorp and Division Executive, New
York Business, Citibank.
DAVID C. HOUSE - President, Establishment Services Worldwide, TRS
Mr. House (46) has been President, Establishment Services Worldwide, TRS
since October 1995. Prior thereto, he had been Senior Vice President of Sales
and Field Marketing for the U.S. Establishment Services Group since January
1993. Prior thereto, he had been Senior Vice President of Reebok
International, Inc.
DAVID R. HUBERS - President and Chief Executive Officer, American
Express Financial Corporation
Mr. Hubers (53) 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.
-23-<PAGE>
JOSEPH W. KEILTY - Executive Vice President, Quality & Human
Resources, Chief Quality Officer
Mr. Keilty (58) has been Executive Vice President since November 1991.
Prior thereto, he had been Managing Director of Keilty, Goldsmith & Company, a
consulting company.
CARL B. LEHMANN, III - President, Stored Value Group, TRS
Mr. Lehmann (42) has been President, Stored Value Group, TRS since October
1993. Prior thereto, he had been Senior Vice President, Cheque Products, TRS.
ALLAN Z. LOREN - Executive Vice President and Chief Information
Officer
Mr. Loren (57) 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.
MICHAEL P. MONACO - Executive Vice President and Chief Financial
Officer
Mr. Monaco (48) has been Executive Vice President and Chief Financial
Officer since September 1990. Prior to July 1995, he had also been Treasurer
since April 1992.
LOUISE M. PARENT - Executive Vice President and General Counsel
Ms. Parent (45) 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, Consumer Card Services Group, TRS;
Chairman of the Board of American Express
Centurion Bank
Mr. Riese (46) has been President, Consumer Card Services Group, TRS since
September 1995. Prior thereto, he had been President, Cardmember Financial
Services Group, TRS since September 1993. He has been Chairman of the Board
of American Express Centurion Bank since August 1993. Prior to September
1993, he had been Executive Vice President and General Manager of the Charge
Card Group.
THOMAS O. RYDER - President, TRS International
Mr. Ryder (51) has been President, TRS International since October 1995.
Prior thereto, he had been President, Establishment Services Worldwide, TRS
since 1993. Prior thereto, he had been Executive Vice President and General
Manager of the Establishment Services Division, TRS.
-24-<PAGE>
THOMAS SCHICK - Executive Vice President, Corporate Affairs and
Communications
Mr. Schick (49) has been Executive Vice President since March 1993. Prior
thereto, he had been Executive Vice President of TRS since October 1992.
Prior thereto, he had been Senior Executive Vice President of Shearson Lehman
Brothers Inc.
JOHN A. WARD, III - Chairman and Chief Executive Officer, American
Express Bank Ltd.
Mr. Ward (49) has been Chairman and Chief Executive Officer, American
Express Bank Ltd. since January 1996. Prior thereto, he had been Executive
Vice President of Chase Manhattan Bank since September 1993 and Chief
Executive Officer of Chase BankCard Services since July 1993. Prior thereto,
he had been President of Chase Personal Financial Services.
EMPLOYEES
The registrant had 70,347 employees on December 31, 1995.
ITEM 2. PROPERTIES
The registrant's headquarters are in a 51-story, 2.2 million square foot
building located in lower Manhattan, known as American Express Tower, which
also serves as the headquarters for TRS and AEB. This building, which is on
land leased from the Battery Park City Authority for a term expiring in 2069,
is one of four office buildings in a complex known as the World Financial
Center. Lehman Brothers Holdings Inc. ("Lehman") is also headquartered at the
building and is a co-owner.
Other principal locations of TRS include: the American Express Service
Centers in Fort Lauderdale, Florida, Phoenix, Arizona, Greensboro, North
Carolina and Salt Lake City, Utah, and American Express Canada, Inc.
headquarters, Markham, Ontario, Canada, all of which are owned by the
registrant or its subsidiaries.
AEFC's principal locations are its headquarters, the IDS Tower, a portion
of which the company leases until 2002, and its Operations Center, which the
company owns; both are in Minneapolis, Minnesota. AEFC also owns Oak Ridge
Conference Center, a training facility and conference center, 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.
-25-<PAGE>
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 U.S.
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.
FCH-RELATED ACTION
A purported shareholder derivative action was brought in June 1991 in the
U.S. 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.
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, 1995.
-26-<PAGE>
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
and Brussels Stock Exchanges. The registrant had 57,010 common shareholders of
record at December 31, 1995. For price and dividend information with respect
to such Common Shares, see Note 18 to the Consolidated Financial Statements on
page 51 of the registrant's 1995 Annual Report to Shareholders, which note is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The "Consolidated Five-Year Summary of Selected Financial Data" appearing
on page 53 of the registrant's 1995 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 21 through 28 of the registrant's 1995 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 29 through 52 of the registrant's 1995 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 11, 1996 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 5 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 34, ending at "Selection of Auditors"
(excluding the portions under the headings, "Board Compensation Committee
-27-<PAGE>
Report on Executive Compensation" appearing on pages 15 through 20 and
"Performance Graph" appearing on pages 26 and 27), and page 44 under the
heading "Certain Filings." In addition, the registrant has provided, under
the caption "Executive Officers of the Registrant" at pages 22 through 25
above, the information regarding executive officers called for by Item 401(b)
of Regulation S-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
See Index to Financial Statements on page F-1 hereof.
2. Financial Statement Schedules:
See Index to Financial Statements on page F-1 hereof.
3. Exhibits:
See Exhibit Index on pages E-1 through E-5 hereof.
(b) Reports on Form 8-K:
1. Form 8-K, dated October 16, 1995, Item 5, announcing the end
of discussions of a possible sale of American Express Bank.
2. Form 8-K, dated October 23, 1995, Item 5, reporting the
registrants's earnings for the quarter ended September 30,
1995.
3. Form 8-K, dated January 9, 1996, Item 5, reporting the
appointment of John A. Ward as Chairman and Chief Executive
Officer of American Express Bank.
4. Form 8-K, dated January 22, 1996, Item 5, reporting the
registrant's earnings for the quarter and year ended
December 31, 1995.
-28-<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 29, 1996 By /s/ Michael P. Monaco
Michael P. Monaco
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By /s/ Harvey Golub By /s/ Beverly Sills Greenough
Harvey Golub Beverly Sills Greenough
Chairman, Chief Executive Director
Officer and Director
By /s/ Michael P. Monaco By /s/ F. Ross Johnson
Michael P. Monaco F. Ross Johnson
Executive Vice President and Director
Chief Financial Officer
By /s/ Daniel T. Henry By /s/ Vernon E. Jordan Jr.
Daniel T. Henry Vernon E. Jordan Jr.
Senior Vice President Director
and Comptroller
By /s/ Daniel F. Akerson By/s/ Henry A. Kissinger
Daniel F. Akerson Henry A. Kissinger
Director Director
By /s/ Anne L. Armstrong By /s/ Drew Lewis
Anne L. Armstrong Drew Lewis
Director Director
By /s/ Edwin L. Artzt By /s/ Aldo Papone
Edwin L. Artzt Aldo Papone
Director Director
By /s/ William G. Bowen By/s/ Frank P. Popoff
William G. Bowen Frank P. Popoff
Director Director
-29-<PAGE>
By /s/ David M. Culver
David M. Culver
Director
By /s/ Charles W. Duncan Jr.
Charles W. Duncan Jr.
Director
March 29, 1996
-30-<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
1995 Annual Report to Shareholders:
Report of independent auditors .......... 52
Consolidated statement of income for the
three years ended December 31, 1995 ..... 29
Consolidated balance sheet at December 31,
1995 and 1994 ........................... 30
Consolidated statement of cash flows for
the three years ended December 31, 1995 . 31
Consolidated statement of shareholders' equity
for the three years ended December 31, 1995 32
Notes to consolidated financial statements 33-51
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, 1995 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, 1995, 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 1995 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 8, 1996 (hereinafter referred to as our Report), included
in the 1995 Annual Report to Shareholders of American Express
Company.
Our audits included the financial statement schedules of
American Express Company listed in Item 14(a). These schedules are
the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion, the
financial statement schedules referred to above, when considered in
relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in
Registration Statements (Form S-8 No. 2-46918, No. 2-59230, No.
2-64285, No. 2-73954, No. 2-89680, No. 33-01771, No. 33-02980, No.
33-28721, No. 33-33552, No. 33-36422, No. 33-38777, No. 33-48629,
No. 33-62124, No. 33-65008 and No. 33-53801; Form S-3 No. 2-89469,
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, 1995.
/s/ Ernst & Young LLP
New York, New York
March 29, 1996
F-2<PAGE>
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENT OF INCOME
(Parent Company Only)
(millions)
Years Ended
December 31,
---------------------------
1995 1994 1993
---- ---- ----
Revenues $ 254 $ 187 $ 123
----- ----- -----
Expenses:
Interest 245 216 181
Human resources 85 84 82
Other (A) 218 164 (659)
----- ----- -----
Total 548 464 (396)
----- ----- -----
Pretax (loss) income from continuing operations (294) (277) 519
Income tax provision (benefit) (132) (110) 271
----- ----- -----
Net (loss) income before equity in net income
of subsidiaries and affiliates (162) (167) 248
Equity in net income of subsidiaries
and affiliates 1,726 1,547 1,357
----- ----- -----
Income from continuing operations 1,564 1,380 1,605
Equity in income (loss) of discontinued
operations - 33 (127)
----- ----- -----
Net income $1,564 $1,413 $1,478
===== ===== =====
(A) Includes pretax gain on the sale of First Data Corporation of $779
million ($433 million after-tax) in 1993.
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,
---------------
1995 1994
----- -----
Cash and cash equivalents $ 19 $ 164
Investments 661 246
Securities purchased under agreement to resell 319 -
Equity in net assets of subsidiaries and affiliates 9,451 7,415
Accounts receivable and accrued interest, less reserves 44 13
Land, buildings and equipment--at cost, less
accumulated depreciation: 1995, $69; 1994, $64 74 91
Due from subsidiaries (net) 988 1,863
Other assets 418 630
------ ------
Total assets $ 11,974 $ 10,422
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Accounts payable and other liabilities $ 1,314 $ 1,116
Long-term debt 2,340 2,773
Short-term debt 100 100
------ ------
Total liabilities 3,754 3,989
Shareholders' equity:
Preferred shares, $1.66 2/3 par value, authorized
20 million shares
Convertible Exchangeable Preferred shares, issued and
outstanding 4 million shares, stated
at liquidation value 200 200
Common shares, $.60 par value, authorized
1.2 billion shares; issued and outstanding
483.1 million shares in 1995 and 495.9 million
shares in 1994 290 298
Capital surplus 3,781 3,651
Net unrealized securities gains (losses) 875 (389)
Foreign currency translation adjustment (85) (77)
Retained earnings 3,159 2,750
------ ------
Total shareholders' equity 8,220 6,433
------ ------
Total liabilities and shareholders' equity $ 11,974 $ 10,422
====== ======
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,
-------------------------
1995 1994 1993
---- ---- ----
Cash flows from operating activities:
Net income $ 1,564 $ 1,413 $ 1,478
Adjustments to reconcile net income to cash
provided by operating activities:
Equity in net income of subsidiaries
and affiliates (1,726) (1,547) (1,357)
Equity in (income) loss of discontinued
operations - (33) 127
Dividends received from subsidiaries
and affiliates 941 877 868
Gain on sale of First Data Corporation - - (779)
----- ----- -----
Net cash provided by operating activities 779 710 337
----- ----- -----
Net cash (used) provided by investing
activities (32) 1,536 (655)
----- ----- -----
Cash flows from financing activities:
Issuance of American Express common shares 286 179 259
Repurchase of American Express common shares (891) (555) -
Dividends paid (458) (504) (526)
Cash infusion to Lehman Brothers - (904) -
Net (decrease) increase in debt (864) (331) 524
Other (primarily Due from subsidiaries) 1,035 25 42
----- ----- -----
Net cash (used) provided by financing
activities (892) (2,090) 299
----- ----- -----
Net (decrease) increase in cash and cash
equivalents (145) 156 (19)
----- ----- -----
Cash and cash equivalents at beginning
of year 164 8 27
----- ----- -----
Cash and cash equivalents at end of year $ 19 $ 164 $ 8
===== ===== =====
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest (net of amounts capitalized) in 1995, 1994, and 1993
was $190 million, $169 million and $105 million, respectively. Net cash
received for income taxes was $127 and $185 for 1995 and 1994 respectively;
net cash paid for income taxes was $256 for 1993.
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 in 1994 and 1993.
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,
-------------
1995 1994
---- ----
6 1/4% DECS due October 15, 1996 1,294 868
8 1/2% Notes due August 15, 2001 298 298
Floating Medium-Term Note due December 31, 2000 208 945
8 3/4% Notes due June 15, 1996 200 200
8 5/8% Senior Debentures due 2022 198 198
Senior Floating Rate Note due September 30, 1996 55 -
Employee Stock Ownership Plan - 63
11.95% Private Placement Notes due 1995 - 102
WFC Series C 12 1/5% Guaranteed Notes due December 12, 1997 - 15
WFC Series D 11 5/8% Guaranteed Notes due December 12, 2000 22 22
WFC Series Z Zero Coupon Notes due December 12, 2000 37 33
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 3 4
12 3/4% Industrial Revenue Bonds due October 31, 2001 5 5
----- -----
$2,340 $2,773
===== =====
Aggregate annual maturities of long-term debt for the five years ending
December 31, 2000 are as follows (millions): 1996, $1,626; 1997, $0; 1998,
$25; 1999, $31, 2000, $184.
F-6<PAGE>
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1995
(millions)
<TABLE>
<CAPTION>
Reserve for credit losses, Reserve for doubtful
loans and discounts accounts receivable
-------------------------- -----------------------
1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning
of period $ 545 $ 655 $ 911 $ 807 $ 796 $1,124
Additions:
Charges to income 529 362 535 1,327(a) 1,104(a) 1,020(a)
Recoveries of amounts
previously written-
off 134 150 26 - - -
Other - (19) (85) - - -
Deductions:
Charges for which
reserves were
provided (606) (603) (732) (1,305) (1,093) (1,348)
----- ----- ----- ----- ----- -----
Balance at end of
period $ 602 $ 545 $ 655 $ 829 $ 807 $ 796
===== ===== ===== ===== ===== =====
</TABLE>
(a) Before recoveries on accounts previously written-off, which are credited
to income: 1995--$333, 1994--$332 and 1993--$333.
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 10.21 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
(incorporated by reference to Exhibit 10.5 of the registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994).
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).
E-1<PAGE>
10.9 Written description of consulting agreement between the registrant and
Kissinger Associates, Inc. (incorporated by reference to Exhibit 10.20
of the registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1984).
10.10 American Express Company Retirement Plan for Non-Employee Directors, as
amended (incorporated by reference to Exhibit 10.12 of the registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1988).
*10.11 Certificate of Amendment of the American Express Company Retirement
Plan for Non-Employee Directors dated March 21, 1996.
10.12 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).
10.13 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).
10.14 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).
10.15 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).
10.16 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).
10.17 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).
10.18 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).
10.19 American Express Company Salary/Bonus 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).
10.20 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).
10.21 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).
E-2<PAGE>
10.22 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
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 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)).
10.24 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)).
10.25 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)).
10.26 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)).
10.27 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 Commercial Paper
Incorporated (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)).
10.28 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)).
10.29 1990 Agreement, dated as of June 12, 1990, by and between the
registrant 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).
10.30 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
10.16 of Shearson Lehman Brothers Holdings Inc.'s Annual Report on Form
10-K for the fiscal year ended December 31, 1992).
E-3<PAGE>
*10.31 Advisor Agreement between the registrant and Dr. Henry Kissinger dated
February 2, 1996.
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 Description of separate pension arrangement between the registrant and
George L. Farr.
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 Company 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 Company 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 Current Service Deferred Compensation Plan (incorporated by
reference to Exhibit 10.42 of the registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1994).
10.42 Amended and Restated American Express Supplemental Retirement Plan
(incorporated by reference to Exhibit 10.1 of the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995).
10.43 Agreement dated February 27, 1995 between the registrant and Berkshire
Hathaway Inc. (incorporated by reference to Exhibit 10.43 of the
registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994).
E-4<PAGE>
10.44 Agreement dated July 20, 1995 between the registrant and Berkshire
Hathaway Inc. and its subsidiaries (incorporated by reference to
Exhibit 10.1 of the registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995).
*11 Computation of Earnings Per Share.
*12.1 Computation in Support of Ratio of Earnings to Fixed Charges.
*12.2 Computation in Support of Ratio of Earnings to Fixed Charges and
Preferred Share Dividends.
*13 Portions of the registrant's 1995 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 of this Annual
Report on Form 10-K).
*27 Financial Data Schedule
E-5<PAGE>
===========================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 Commission File No. 1-7657
-------------------------------------
American Express Company
(Exact name of registrant as specified in charter)
E X H I B I T S
===========================================================================
<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 10.21 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
(incorporated by reference to Exhibit 10.5 of the registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994).
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).
E-1<PAGE>
10.9 Written description of consulting agreement between the registrant and
Kissinger Associates, Inc. (incorporated by reference to Exhibit 10.20
of the registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1984).
10.10 American Express Company Retirement Plan for Non-Employee Directors, as
amended (incorporated by reference to Exhibit 10.12 of the registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1988).
*10.11 Certificate of Amendment of the American Express Company Retirement
Plan for Non-Employee Directors dated March 21, 1996.
10.12 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).
10.13 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).
10.14 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).
10.15 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).
10.16 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).
10.17 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).
10.18 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).
10.19 American Express Company Salary/Bonus 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).
10.20 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).
10.21 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).
E-2<PAGE>
10.22 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
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 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)).
10.24 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)).
10.25 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)).
10.26 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)).
10.27 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 Commercial Paper
Incorporated (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)).
10.28 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)).
10.29 1990 Agreement, dated as of June 12, 1990, by and between the
registrant 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).
10.30 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
10.16 of Shearson Lehman Brothers Holdings Inc.'s Annual Report on Form
10-K for the fiscal year ended December 31, 1992).
E-3<PAGE>
*10.31 Advisor Agreement between the registrant and Dr. Henry Kissinger dated
February 2, 1996.
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 Description of separate pension arrangement between the registrant and
George L. Farr.
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 Company 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 Company 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 Current Service Deferred Compensation Plan (incorporated by
reference to Exhibit 10.42 of the registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1994).
10.42 Amended and Restated American Express Supplemental Retirement Plan
(incorporated by reference to Exhibit 10.1 of the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995).
10.43 Agreement dated February 27, 1995 between the registrant and Berkshire
Hathaway Inc. (incorporated by reference to Exhibit 10.43 of the
registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994).
E-4<PAGE>
10.44 Agreement dated July 20, 1995 between the registrant and Berkshire
Hathaway Inc. and its subsidiaries (incorporated by reference to
Exhibit 10.1 of the registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995).
*11 Computation of Earnings Per Share.
*12.1 Computation in Support of Ratio of Earnings to Fixed Charges.
*12.2 Computation in Support of Ratio of Earnings to Fixed Charges and
Preferred Share Dividends.
*13 Portions of the registrant's 1995 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 of this Annual
Report on Form 10-K).
*27 Financial Data Schedule
E-5<PAGE>
Exhibit 10.11
CERTIFICATE OF AMENDMENT OF THE AMERICAN EXPRESS COMPANY
RETIREMENT PLAN FOR NON-EMPLOYEE DIRECTORS
WHEREAS, the Board of Directors of American Express Company (the "Company")
at its meeting of February 25, 1996 directed that the American Express Company
Retirement Plan for Non-Employee Directors (the "Plan") be amended to provide
that persons elected to serve as directors of the Company after March 31, 1996,
will not be eligible to participate in the Plan.
NOW THEREFORE, pursuant to such direction, the Plan is hereby amended as
follows:
A new article, Article IX, is hereby added to the Plan to read in its
entirety as follows:
"IX. DIRECTORS ELECTED AFTER MARCH 31, 1996
Persons elected after March 31, 1996 to initiate service as a director of
the Company shall not be eligible to participate in the Plan."
The foregoing amendment shall be effective as of March 31, 1996.
AMERICAN EXPRESS COMPANY
By: /s/ Stephen P. Norman
________________________
Stephen P. Norman
Its: Secretary
Dated: March 21, 1996
<PAGE>
Exhibit 10.31
AMERICAN EXPRESS COMPANY
American Express Tower, New York, N.Y. 10285-5100
February 2, 1996
Harvey Golub
Chairman and Chief Executive Officer
Dear Henry:
I'm delighted that you have agreed to serve as an Advisor to
the Board of Directors of American Express Company and the Board is
delighted as well. We are all pleased that we'll continue to have
access to your unique knowledge and experience and we look forward
to the continuing benefit of our association with you. The
following information is offered to set forth your role as Advisor:
Duties
As Advisor to the Board of Directors you are invited to
share your advice and views from time to time with me and with the
Board of Directors on matters of interest to American Express
Company. These matters may include international economic and
political developments, financial market conditions, competitive
developments, and other information of relevance to the Company's
businesses or plans.
Attendance at Meetings
As an Advisor to the Board you are invited to attend all
meetings of the Board whenever it is convenient for you to do so.
We propose to continue our pattern of 9 scheduled meetings per year
(no meetings scheduled in June, August and December) and would hope
that your schedule would permit you to attend 6 or 7 meetings per
year.
Fee and Expenses
As compensation for your services as Advisor, the Company
proposes to pay you an annual fee of $100,000. The fee will be
paid in quarterly installments of $25,000 at the end of each
quarter. In addition, the Company will reimburse you for the
expenses you incur in traveling to and from meetings of the Board
or in connection with American Express Company business, including
hotels, meals and incidental expenses.
<PAGE>
Dr. H. A. Kissinger
February 2, 1996
Page 2
If the Company were to ask you to perform duties outside of
your Advisory role, such as speaking engagements or attendance at
functions not connected to Board meetings, we agree to compensate
you additionally for such events on terms that we may agree to at the
time.
Receipt of Information
In order to keep you informed of the major developments
involving American Express, we will furnish you on a monthly basis
with the same information that we furnish to directors. This
material includes monthly earnings statements, major press
releases, analyst reports and other materials relating to
significant developments within the Company.
Terms
Your services as Advisor to the Board shall commence on May
1, 1996 and shall continue through April 1997, provided, however,
that the relationship will automatically renew itself for
successive one-year periods unless either of us gives notice of intention
not to renew no later than 60 days prior to the April 30 expiration
date of the initial term or any renewal thereof.
This advisory relationship will supersede the year-to-year
consulting arrangement that the Company has maintained with you
since May 1, 1984, and the consulting arrangement will cease on
April 30, 1996.
The Company's Secretary's Office will continue to serve as
your contact point for communications, including the distribution
of material, providing information about meetings, payment of fees,
and reimbursement of expenses.
<PAGE>
Dr. H. A. Kissinger
February 2, 1996
Page 3
Please indicate your agreement with these terms by signing
and returning the attached copy of this letter.
Best regards,
/s/ Harvey
Dr. Henry A. Kissinger
Kissinger Associates
350 Park Avenue, 26th Floor
New York, NY 10022
Agreed: /s/ Henry A. Kissinger
(Date)
2/22/96
<PAGE>
Exhibit 10.33
The Compensation and Benefits Committee of the Board of
Directors (the "Committee") of American Express Company (the
"Company") approved an unfunded, nonqualified benefit arrangement
for Mr. Farr to replace benefit opportunities lost upon the
termination of employment with his prior employer. The arrangement
provides for an additional service credit applied to the American
Express Retirement Plan (the "Plan") upon the completion of five
years of actual service with the Company. At the end of five years
of service, Mr. Farr's eligibility for Plan benefits and Plan
benefit value will be determined using a hire date five years prior
to his actual hire date. The Company will pay to Mr. Farr on an
unfunded basis to the extent of any difference between such
calculation and the amounts he is eligible to receive under the
Plan and the Company's Supplemental Retirement Plan based on his
actual years of service under these plans.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
Five Years Ended December 31, 1995
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
1. Weighted average number
of common shares issued
and outstanding 489,692,167 497,281,258 484,754,771 476,047,601 468,950,425
2. Weighted average number
of shares In-Lieu/LOI 504,044 510,109 414,904 463,128 465,383
3. Common shares assuming
exercise of stock options 7,756,607 3,084,114 2,777,899 255,139 331,756
4. Common share equivalents
for Variable Rate
Convertible Notes - - - - 6,117
5. Berkshire Hathaway - 7,939,686 12,190,155 - -
---------- ---------- ---------- ---------- ----------
6. Primary common shares and
common share equivalents 497,952,818 508,815,167 500,137,729 476,765,868 469,753,681
7. Additional common shares
assuming exercise of
stock options based on
year-end market price 1,619,795 312,691 474,233 - -
8. Common shares reserved
for conversion of 9%
Convertible Debentures - 538,409 3,519,727 - 3,865,733
9. Common shares reserved
for conversion of 7 1/2%
Convertible Debentures 126,337 142,984 195,406 - 198,582
10.Preferred shares to
Nippon - 5% Dividend 6,239,872 6,239,872 - - -
---------- ---------- ---------- ---------- ----------
11.Fully diluted common
shares and common
share equivalents 505,938,822 516,049,123 504,327,095 476,765,868 473,817,996
=========== =========== =========== =========== ===========
12.Income from continuing
operations before
accounting changes
($ millions) $ 1,564 $ 1,380 $ 1,605 $ 578 $ 607
13.Less:
Dividends on Money
Market Preferred Shares - - - - (14)
Dividends on Convertible
Exchangeable Preferred
Shares (16) (16) (16) (16) (16)
Dividends on $216.75
CAP Preferred Shares - - - (27) (10)
<PAGE>
14.Income from continuing
operations before accounting
change applicable to primary
common shares and common
share equivalents 1,548 1,364 1,589 535 567
15.Discontinued operations,
net of income taxes - 33 (127) (149) 182
16.Cumulative effect of
changes in accounting
principles, net of
income taxes - - - 32 -
---------- ---------- ---------- ---------- ----------
17.Net income applicable to
primary common shares and
common share equivalents 1,548 1,397 1,462 418 749
18.Add back:
Interest on convertible debt,
net of income tax benefit - 1 4 - 4
---------- ---------- ---------- ---------- ----------
19.Net income applicable to
fully diluted common
shares and common
share equivalents $ 1,548 $ 1,398 $ 1,466 $ 418 $ 753
=========== =========== =========== =========== ===========
20.Income from continuing
operations before accounting
change applicable to fully
diluted common shares and
common share equivalents
(19 - (15+16)) $ 1,548 $ 1,365 $ 1,593 $ 535 $ 571
=========== =========== =========== =========== ===========
21.Income from continuing
operations before accounting
changes per share:
Primary (14/6) $ 3.11 $ 2.68 $ 3.17 $ 1.12 $ 1.21
Fully diluted (20/11) $ 3.06 $ 2.65 $ 3.16 $ 1.12 $ 1.21
22.Income (loss) from discontinued
operations per share:
Primary (15/6) $ - $ .07 $ (.25) $ (.31) $ .38
Fully diluted (15/11) $ - $ .06 $ (.25) $ (.31) $ .38
23.Cumulative effect of
accounting changes per
share:
Primary (16/6) $ - $ - $ - $ .07 $ -
Fully diluted (16/11) $ - $ - $ - $ .07 $ -
24.Net income per share:
Primary (17/6) $ 3.11 $ 2.75 $ 2.92 $ .88 $ 1.59
Fully diluted (19/11) $ 3.06 $ 2.71 $ 2.91 $ .88 $ 1.59
</TABLE>
Note: The above amounts reflect changes in accounting
principles relating to income taxes and post-
retirement 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,
--------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Earnings:
Pretax income from
continuing operations $2,183 $1,891 $2,326 $ 896 $ 622
Interest expense 2,343 1,925 1,776 2,171 2,761
Other adjustments 95 103 88 196 142
----- ----- ----- ----- -----
Total earnings (a) $4,621 $3,919 $4,190 $3,263 $3,525
----- ----- ----- ----- -----
Fixed charges:
Interest expense $2,343 $1,925 $1,776 $2,171 $2,761
Other adjustments 135 142 130 154 147
----- ----- ----- ----- -----
Total fixed charges (b) $2,478 $2,067 $1,906 $2,325 $2,908
----- ----- ----- ----- -----
Ratio of earnings to
fixed charges (a/b) 1.86 1.90 2.20 1.40 1.21
Included in interest expense in the above computation is interest expense
related to the international banking operations of American Express Company
(the "Company") and Travel Related Services' Cardmember lending activities,
which is netted against interest and dividends and Cardmember lending net
finance charge revenue, respectively, in the Consolidated 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
<PAGE>
approximately 22 percent through a public offering. As a result, beginning
in 1993, FDC was reported as an equity investment in the above computation.
In the fourth quarter of 1995, the Company's ownership was further reduced
to approximately 10 percent as a result of shares issued by FDC in connection
with a merger transaction. Accordingly, as of December 31, 1995, the
Company's investment in FDC is accounted for as Investments - Available
for Sale.
<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,
--------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Earnings:
Pretax income from
continuing operations $2,183 $1,891 $2,326 $ 896 $ 622
Interest expense 2,343 1,925 1,776 2,171 2,761
Other adjustments 95 103 88 196 142
----- ----- ----- ----- -----
Total earnings (a) $4,621 $3,919 $4,190 $3,263 $3,525
----- ----- ----- ----- -----
Fixed charges and
preferred share
dividends:
Interest expense $2,343 $1,925 $1,776 $2,171 $2,761
Dividends on preferred
shares 24 50 66 65 61
Other adjustments 135 142 130 154 147
----- ----- ----- ----- -----
Total fixed charges and
preferred share
dividends (b) $2,502 $2,117 $1,972 $2,390 $2,969
----- ----- ----- ----- -----
Ratio of earnings to
fixed charges and
preferred share
dividends (a/b) 1.85 1.85 2.12 1.37 1.19
Included in interest expense in the above computation is interest expense
related to the international banking operations of American Express Company
(the "Company") and Travel Related Services' Cardmember lending activities,
which is netted against interest and dividends and Cardmember lending net
finance charge revenue, respectively, in the Consolidated 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.
<PAGE>
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 was reported as an equity investment in the above computation.
In the fourth quarter of 1995, the Company's ownership was further reduced
to approximately 10 percent as a result of shares issued by FDC in
connection with a merger transaction. Accordingly, as of December 31,
1995, the Company's investment in FDC is accounted for as Investments -
Available for Sale.
<PAGE>
EXHIBIT 13
FINANCIAL REVIEW
AMERICAN EXPRESS COMPANY
CONSOLIDATED RESULTS OF OPERATIONS
American Express Company's (the Company) consolidated net income increased 13
percent to $1.6 billion in 1995, compared with income from continuing
operations of $1.4 billion in 1994 and $1.2 billion in 1993 before a $433
million gain on the sale of First Data Corporation (FDC) stock. Consolidated
net income increased 11 percent to $1.6 billion in 1995, compared with $1.4
billion in 1994 and $1.5 billion in 1993.
Net income per share for 1995 increased 16 percent to $3.11, compared with per
share income from continuing operations of $2.68 in 1994 and $2.30 in 1993
before the FDC gain. The 1995 growth in earnings per share was primarily
driven by revenue growth, as well as a reduction in average shares
outstanding. The 1994 growth in earnings per share resulted from revenue
growth and improving margins. Net income per share was $2.75 in 1994 and $2.92
in 1993.
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.
Consolidated net revenues increased 11 percent to $15.8 billion in 1995,
compared with $14.3 billion in 1994 and $13.3 billion in 1993. The 1995
increase in revenues was driven by growth in several Travel Related Services'
businesses, including the Consumer Card businesses and Corporate Card and
travel businesses, and at American Express Financial Advisors. The Company's
goal is to achieve at least two-thirds of its earnings per share growth by
increasing revenues and the remainder by reducing costs and shares
outstanding.
In October 1994, the Company announced a series of decisions that represented
a continuation of a reengineering program launched in 1992 to provide better
customer value at significantly lower costs. These decisions have resulted in
significant staff reductions throughout the Company. Costs related to these
initiatives are not expected to have a material impact on current or future
earnings. Savings generated by these actions have been, and will continue to
be, reinvested in the business and help facilitate the achievement of the
Company's business objectives.
Consolidated Liquidity and Capital Resources
During 1995, the Company continued to focus on building shareholder value by
maintaining a strong capital position and funding profitable growth
opportunities in its core businesses. 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 continue to
-1- (1995 Annual Report p. 21)<PAGE>
build shareholder value. Investments are made in programs that are expected to
offer superior value to customers, achieve best-in-class economics and
enhance the American Express brand. The Company's objective is to perform in
such a way that it will be recognized as a growth company. Consistent with its
capital allocation policy, the Company completed the tax-free spin-off of
Lehman to shareholders in 1994. In 1995, the Company also sold AMEX Life
Assurance Company.
The Company's dividend philosophy is to retain enough earnings to sustain
earnings per share growth in the 12 percent to 15 percent range. The Company
does not anticipate an increase in its dividend. To the extent retained
earnings exceed investment opportunities, the Company will return excess
capital to shareholders in the form of share repurchases. The Company believes
this is more tax-efficient to its shareholders and provides greater financial
flexibility. Since the Company began its repurchase programs in 1994, it has
returned approximately $1.3 billion in capital to shareholders, in excess of
dividends.
Share Repurchase Program
Beginning in 1994, the Company put in place two share repurchase programs
authorized by the Board of Directors, which permit the repurchase of up to 60
million common shares over the next several years as market conditions allow.
The share repurchases are intended to reduce the number of outstanding common
shares and common share equivalents to less than 500 million. The average
number of outstanding common shares and common share equivalents was 498
million for the year ended December 31, 1995 and 493 million for the fourth
quarter of 1995. Since inception of the initial repurchase plan in 1994, the
Company has repurchased and cancelled 38.3 million shares under the repurchase
programs at an average price of $34.56 per share. In both 1995 and 1994, the
Company sold put options as a means of reducing the cost of the repurchase
programs.
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 assure that the Company's
returns are appropriate for the level of risk assumed while achieving
consistent earnings growth. 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.
-2- (1995 Annual Report pp. 21-22)<PAGE>
The parent company generally meets its short-term funding needs through an
intercompany dividend policy, whereby each business unit remits approximately
50 percent of its earnings, and the issuance of commercial paper. The Board of
Directors has authorized a parent company commercial paper program that is
supported by a $1.2 billion multi-purpose credit facility. In 1995, the parent
company restructured this facility, reducing its cost and extending the multi-
year portion from three years to five years under more favorable terms. No
borrowings have been made under this facility. Average commercial paper
outstanding was $177 million during 1995 and $100 million during 1994.
Commercial paper outstanding was $100 million at both December 31, 1995 and
1994.
Total parent company long-term debt outstanding was $2.3 billion at December
31, 1995 and $2.8 billion at December 31, 1994. During 1995, the parent
company paid down $700 million of a $945 million Floating Medium-Term Senior
Note due 1996 in exchange for an extension and modification of terms on the
remaining balance through the year 2000. At December 31, 1995, 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 1995
financing activities of subsidiaries.
Accounting Developments
The Financial Accounting Standards Board's Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of," and SFAS No. 123, "Accounting
for Stock-Based Compensation," are effective January 1, 1996. SFAS No. 121 is
not expected to have a material impact on the Company's results of operations
or financial condition. SFAS No. 123 encourages but does not require expense
recognition for certain stock-based compensation awards. The Company does not
expect to adopt the expense recognition accounting provision of this
Statement.
-3- (1995 Annual Report p. 22)<PAGE>
<TABLE>
<CAPTION>
TRAVEL RELATED SERVICES
Results of Operations
Statement of Income
(Amounts in millions) Year Ended December 31,
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Net Revenues:
Discount Revenue $4,457 $3,984 $3,621
Net Card Fees 1,742 1,727 1,727
Travel Commissions and Fees 1,288 948 710
Interest and Dividends 969 776 724
Other Revenues 2,054 1,873 1,722
Lending:
Finance Charge Revenue 1,529 1,258 1,185
Interest Expense 497 310 257
------ ------ ------
Net Finance Charge Revenue 1,032 948 928
------ ------ ------
Total Net Revenues 11,542 10,256 9,432
------ ------ ------
Expenses:
Marketing and Promotion 950 1,036 1,068
Provision for Losses
and Claims:
Charge Card 835 633 702
Lending 522 378 417
Other 416 471 429
------ ------ ------
Total 1,773 1,482 1,548
------ ------ ------
Interest Expense:
Charge Card 673 535 534
Other 453 296 265
------ ------ ------
Total 1,126 831 799
Net Discount Expense 414 326 219
Human Resources 2,829 2,583 2,227
Other Operating Expenses 2,871 2,602 2,398
------ ------ ------
Total Expenses 9,963 8,860 8,259
------ ------ ------
Pretax Income 1,579 1,396 1,173
Income Tax Provision 454 398 289
------ ------ ------
Net Income $1,125 $998 $884
====== ====== ======
</TABLE>
Travel Related Services' (TRS) net revenues increased in both 1995 and 1994
reflecting an increase in worldwide business billed on American Express Cards
and higher business travel sales. The increase in billed business in both
years resulted from higher spending per Cardmember, due in part to increased
merchant coverage and the benefits of rewards programs, as well as an increase
in the number of Cards outstanding. The 1995 and 1994 increase in billed
-4- (1995 Annual Report p. 23)<PAGE>
business also reflected strong growth in Corporate Card billed business.
Worldwide Cards in force increased in 1995 and 1994 reflecting, in part, the
introduction of new products, including the Optima True Grace Card which was
introduced late in 1994. Higher business travel sales in both years resulted
from acquisitions and growth. Discount revenue increased in 1995 and 1994
primarily reflecting an increase in Card billed business, marginally offset
by a lower average discount rate. The lower discount rate in both years
reflects a change in the mix of Cardmember spending, as well as increasing
electronic merchant data capture in selected international markets. Lending
net finance charge revenue increased in 1995 and 1994 reflecting higher
average receivables, which were partially offset by lower net interest
spreads.
<TABLE>
Selected Statistical Information
<CAPTION>
(Amounts in millions, except where indicated) Year Ended December 31,
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Total Cards in Force:
United States 26.7 25.3 24.7
Outside the United States 11.1 11.0 10.7
------ ------ ------
Total 37.8 36.3 35.4
====== ====== ======
Basic Cards in Force:
United States 20.0 18.6 18.0
Outside the United States 8.7 8.1 8.0
------ ------ ------
Total 28.7 26.7 26.0
====== ====== ======
Card Billed Business (billions):
United States $115.2 $101.2 $89.8
Outside the United States 46.4 39.7 34.3
------ ------ ------
Total $161.6 $140.9 $124.1
====== ====== ======
Travelers Cheque Sales (billions) $25.6 $24.9 $23.6
Average Travelers Cheques
Outstanding (billions) $6.0 $5.3 $5.0
Travel Sales (billions) $15.1 $10.7 $8.0
</TABLE>
Marketing and promotion expense decreased in both 1995 and 1994 primarily
reflecting reengineering saves. The worldwide Charge Card provision increased
in 1995 reflecting volume growth, as well as higher loss rates particularly in
Latin America and, more recently, in the small business Corporate Card
portfolio. The worldwide Charge Card provision declined in 1994 reflecting
improvement in Card credit experience and a higher level of securitized
receivables, partly offset by an increase in billed business. The worldwide
lending provision increased in 1995 due to higher loss rates, as well as
portfolio growth since TRS establishes reserves for future losses at the time
loans are recorded. The worldwide lending provision declined in 1994
reflecting continued improvement in the credit quality of the worldwide
lending portfolio. Charge Card interest expense increased in 1995 reflecting
higher borrowing rates and increased volume, while in 1994 increased volume
was offset by lower borrowing rates compared with 1993. The increase in human
-5- (1995 Annual Report p. 23)<PAGE>
resources expense in both years reflected the impact of business travel
acquisitions and growth to support increased business volumes. Other operating
expenses in 1995 and 1994 increased reflecting a number of factors, including:
business travel acquisitions and growth; ongoing spending for new business
initiatives and technology enhancements; and funding new Card products and
loyalty initiatives. The increase in 1995 also reflected up-front costs
related to reengineering activities.
TRS' asset securitization program resulted in net discount expense of $414
million, $326 million and $219 million and fee revenue of $84 million, $80
million and $54 million in 1995, 1994 and 1993, respectively. The program
reduced the Charge Card provision by $167 million, $127 million and $89
million in 1995, 1994 and 1993, respectively, and reduced Charge Card interest
expense. There was no impact on net income for 1995, 1994 or 1993.
In October 1995, TRS completed the sale of AMEX Life Assurance Company (AMEX
Life), which did not materially impact net income. Excluding AMEX Life from
both years, TRS' net revenues and expenses would have increased approximately
14 percent in 1995.
Risk Management
TRS employs a variety of interest rate and foreign exchange hedging strategies
to protect its balance sheet and statement of income from interest rate and
foreign currency risk. TRS' hedging policies are established, maintained and
monitored by a central treasury function. TRS generally hedges its exposures
along product lines.
For its Charge 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 predominantly provided by American
Express Credit Corporation (Credco). Interest rate exposure is managed through
the issuance of long-term and short-term debt and the use of 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 Cardmember 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
generally reprice each month. TRS enters into interest rate swaps to convert
fixed and floating rate debt to floating rate debt which matches the terms of
Cardmember loans. 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 Stored Value Group, 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.
-6- (1995 Annual Report pp. 23-24)<PAGE>
<TABLE>
<CAPTION>
Liquidity and Capital Resources
Selected Balance Sheet Information
(Amounts in billions, except percentages)
December 31,
1995 1994
------ ------
<S> <C> <C>
Accounts Receivable, net $18.9 $16.8
Investments $9.2 $10.7
U.S. Cardmember Lending Balances $10.0 $8.1
Total Assets $45.2 $42.5
Travelers Cheques Outstanding $5.7 $5.3
Short-term Debt $17.9 $15.1
Long-term Debt $4.4 $3.4
Total Liabilities $40.3 $38.2
Total Shareholder's Equity $4.9 $4.3
Return on Average Equity 24.6% 23.9%
</TABLE>
At December 31, 1995 and 1994, TRS had securitized $2.5 billion of receivables
that are not reflected in the Consolidated Balance Sheet. TRS intends to fund
up to 25 percent of its receivables and loans through off-balance-sheet
asset securitization programs over time.
Through Credco and Centurion Bank, TRS issued in 1995 approximately $1.0
billion of medium- and long-term debt at various rates and maturities. The
proceeds were used to fund Cardmember receivables and Cardmember loans. At
December 31, 1995, Credco had approximately $1.0 billion 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 $12.7 billion at an average interest rate of 5.6 percent and
approximately $10.2 billion at an average interest rate of 5.8 percent at
December 31, 1995 and 1994, respectively. Unused lines of credit of
approximately $5.8 billion were available at December 31, 1995 to support a
portion of TRS' commercial paper borrowings. Borrowings under bank lines of
credit totaled $1.5 billion at December 31, 1995 and $1.4 billion at December
31, 1994.
U.S. Cardmember lending balances increased primarily reflecting growth in
traditional products and the introduction of new products. The decline in
investments reflects the sale of AMEX Life.
-7- (1995 Annual Report p. 24)<PAGE>
<TABLE>
<CAPTION>
AMERICAN EXPRESS FINANCIAL ADVISORS
Results of Operations
Statement of Income
(Amounts in millions) Year Ended December 31,
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Revenues:
Investment Income $2,209 $1,994 $2,049
Management and
Distribution Fees 935 806 727
Other Income 547 470 380
------ ------ ------
Total Revenues 3,691 3,270 3,156
------ ------ ------
Expenses:
Provision for Losses
and Benefits:
Annuities 1,156 1,028 1,065
Insurance 401 370 321
Investment Certificates 205 107 124
------ ------ ------
Total 1,762 1,505 1,510
Human Resources 877 823 757
Other Operating Expenses 297 311 371
------ ------ ------
Total Expenses 2,936 2,639 2,638
------ ------ ------
Pretax Income 755 631 518
Income Tax Provision 252 203 160
------ ------ ------
Net Income $503 $428 $358
====== ====== ======
</TABLE>
American Express Financial Advisors' revenue and earnings growth in both 1995
and 1994 benefited primarily from higher fee revenues due to an increase in
managed assets, as well as an increase in life insurance in force. These
increases were partially offset by the impact of lower investment margins in
1995.
The change in investment income in both 1995 and 1994 reflected higher asset
levels, offset in 1994 by the impact of lower investment yields compared with
1993. Management and distribution fees in both years increased reflecting
increased management fee revenue due to a higher asset base. The increase in
management fees in 1995 was partly offset by a decline in distribution fees
due to the availability, beginning in 1995's second quarter, of a broader
range of rear-load funds. The growth in managed assets in 1995 reflects strong
market appreciation and positive net sales. Managed assets increased in 1994
reflecting strong net sales, partly offset by market depreciation. Other
income increased in both years primarily due to higher life insurance contract
charges and premiums.
Provisions for losses and benefits increased in 1995 reflecting increased
business in force and higher accrual rates for all products. The provision for
annuity benefits declined in 1994 reflecting lower accrual rates, partly
offset by higher annuities in force. The 1994 increase in the provision for
-8- (1995 Annual Report p. 25)<PAGE>
insurance benefits reflected increased life insurance in force. The 1994
decline in the provision for investment certificates reflected lower
investment certificates in force and lower accrual rates in the first half of
1994. Human resources expense increased in 1995 reflecting higher financial
advisors' compensation and, to a lesser extent, an increase in the number of
employees. The 1994 increase in human resources expense reflected an increase
in the number of employees and financial advisors and increased commissionable
sales. Other operating expenses declined slightly in 1995 from 1994, which
included accelerated amortization of deferred acquisition costs due to
surrenders as a result of an annuity exchange plan. The decline in 1994
compared with 1993 primarily reflected a lower provision for insurance
industry guarantee association assessments.
<TABLE>
<CAPTION>
Selected Statistical Information
(Amounts in millions, except percentages and where indicated)
Year Ended December 31,
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Life Insurance
in Force (billions) $59.4 $52.7 $46.1
Deferred Annuities
in Force (billions) $32.9 $28.2 $25.8
Assets Owned and/or
Managed (billions):
Assets managed
for institutions $32.0 $27.4 $25.0
Assets owned and managed
for individuals:
Owned Assets 48.3 40.2 37.4
Managed Assets 49.2 37.9 37.3
------ ------ ------
Total $129.5 $105.5 $99.7
====== ====== ======
Sales of Selected Products:
Mutual Funds $10,202 $8,940 $8,583
Annuities $3,520 $4,360 $4,105
Investment Certificates $1,467 $1,068 $575
Life and Other
Insurance Sales $383 $324 $309
Number of Financial Advisors 7,945 8,054 7,655
Fees from Financial
Plans (thousands) $40,828 $39,651 $37,382
Product Sales Generated
from Financial Plans as a
Percentage of Total Sales 64.1% 61.7% 57.5%
</TABLE>
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. In addition, investment in fixed income
-9- (1995 Annual Report pp. 25-26)<PAGE>
securities provides American Express Financial Advisors with a dependable and
targeted 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 and
meet contractual obligations.
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' strategies include
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.
<TABLE>
<CAPTION>
Liquidity and Capital Resources
Selected Balance Sheet Information
(Amounts in billions, except percentages)
December 31,
1995 1994
------ ------
<S> <C> <C>
Investments $28.8 $25.2
Assets Held in Segregated
Asset Accounts $15.0 $10.9
Total Assets $48.3 $40.2
Reserves for Losses and Benefits $28.6 $25.6
Total Liabilities $45.2 $38.0
Total Shareholder's Equity $3.1 $2.1
Return on Average Equity 19.4% 18.6%
</TABLE>
American Express Financial Advisors' total assets increased primarily
reflecting increases in assets held in segregated asset accounts and
investments. These increases reflected strong market appreciation and positive
net sales. American Express Financial Advisors' investments are comprised
primarily of corporate bonds and obligations and mortgage-backed securities,
including below investment grade debt securities of $2.3 billion in 1995 and
$2.1 billion in 1994. Investments also include mortgage loans of $3.2 billion
in 1995 and $2.7 billion in 1994. 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,
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.
-10- (1995 Annual Report p. 26)<PAGE>
<TABLE>
<CAPTION>
AMERICAN EXPRESS BANK
Results of Operations
Statement of Income
(Amounts in millions)
Year Ended December 31,
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Net Revenues:
Interest Income $925 $952 $960
Interest Expense 604 604 595
------ ------ ------
Net Interest Income 321 348 365
Commissions, Fees and
Other Revenues 243 232 236
Foreign Exchange Income 79 72 76
------ ------ ------
Total Net Revenues 643 652 677
------ ------ ------
Provision for Credit Losses 7 8 44
------ ------ ------
Expenses:
Human Resources 248 250 236
Other Operating Expenses 273 275 263
------ ------ ------
Total Expenses 521 525 499
------ ------ ------
Pretax Income 115 119 134
Income Tax Provision 38 39 42
------ ------ ------
Net Income $77 $80 $92
====== ====== ======
</TABLE>
American Express Bank's (the Bank) results for 1995 reflected lower net
interest income, partially offset by growth in foreign exchange and
correspondent banking revenues and lower operating expenses. Results for 1994
reflected lower net revenues and higher operating expenses. 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.
Net interest income in both years declined reflecting narrower spreads on the
investment portfolio. 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 2.88 percent in 1995, compared with 2.85 percent and 2.92
percent in 1994 and 1993, respectively. The higher net yield in 1995 reflects
a reduction in low-yielding placements with banks and a corresponding decrease
in customers' deposits. Commissions, fees and other revenues increased in 1995
primarily reflecting growth in correspondent banking fee income. Foreign
exchange income increased in 1995 reflecting higher trading volumes. The 1994
decline in noninterest income reflected a lower level of revenues from the
Bank's trading portfolio.
-11- (1995 Annual Report p. 27)<PAGE>
Operating expenses decreased slightly in 1995 as a result of a focused cost
reduction program. The 1994 increase in operating expenses primarily reflected
spending related to systems technology and higher human resources expense. The
provision for credit losses declined in 1994 reflecting a lower level of
nonperforming loans and overall lower loan balances.
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, foreign 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, equity, loans and securities holdings.
The Bank utilizes foreign exchange and interest rate products to meet the
needs of its customers. Typically, 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 would enter
into two transactions: the contract desired by the customer and an offsetting
contract with a third party dealer; therefore, the Bank would have 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, the Bank will take limited 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
monthly and monitors (a) interest rate and foreign exchange exposures, (b)
liquidity, (c) capital levels, and (d) investment 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
treasury and global trading management issues policies and control procedures
and delegates risk limits throughout the Bank's country trading operations.
The Bank's overall credit policies are approved by the Finance and Credit
Policy Committee of the Bank's Board of Directors. Credit lines are approved
using a tiered approval 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.
-12- (1995 Annual Report pp. 27-28)<PAGE>
Liquidity and Capital Resources
Selected Balance Sheet Information
<TABLE>
<CAPTION>
(Amounts in billions, except percentages and where indicated)
December 31,
1995 1994
------ ------
<S> <C> <C>
Investments $2.5 $2.8
Total Loans $5.4 $5.0
Reserve for Credit Losses (millions) $111 $109
Reserves as a Percentage of Total Loans 2.0% 2.2%
Total Nonperforming Loans (millions) $34 $20
Other Real Estate Owned (millions) $44 $56
Total Assets $12.3 $13.3
Deposits $8.5 $9.1
Total Liabilities $11.5 $12.5
Total Shareholder's Equity (millions) $837 $758
Risk-Based Capital Ratios:
Tier 1 8.9% 7.5%
Total 13.0% 14.7%
Leverage Ratio 5.8% 4.8%
Return on Average Assets .59% .54%
Return on Average Common Equity 9.99% 10.89%
</TABLE>
The Bank's total assets declined as modest loan growth was more than offset by
declines in cash and cash equivalents and investments reflecting a lower level
of client deposits. Total loan write-offs, net of recoveries, were $4.8
million in 1995 and $25 million in 1994. The increase in nonperforming loans
primarily reflects newly classified exposures, partly offset by repayments.
The decline in other real estate owned primarily reflects the sale of
foreclosed assets. The increase in the Bank's Tier 1 Capital ratio primarily
relates to an increase in retained earnings, general balance sheet reductions
and a decrease in deferred tax assets. The decline in the Total Capital ratio
reflects the revocation of the convertible feature of certain subordinated
debt and the repurchase of subordinated debt. The increase in the Leverage
ratio is due to an increase in retained earnings and decreases in average
assets and deferred tax assets.
CORPORATE AND OTHER
Corporate and Other reported net expenses of $141 million in 1995, compared
with net expenses of $126 million in 1994 and net income of $271 million in
1993.
Results for both 1995 and 1994 included the Company's share of the Travelers
Inc. (Travelers) revenue participation in accordance with an agreement related
to the 1993 sale of the Shearson Lehman Brothers Division (the 1993 sale).
Results for 1995 also included a gain from the sale of common stock and
warrants of Mellon Bank Corporation. Results for 1994 also included a capital
gain on the sale of Travelers preferred stock and warrants which were acquired
as part of the 1993 sale. In both years, these gains were offset by the
Company's costs associated with certain business building initiatives and, in
1994, costs related to the Lehman spin-off. Net income in 1993 reflected a
gain of $433 million on the Company's sale of FDC shares.
-13- (1995 Annual Report p. 28)<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
American Express Company
Years Ended December 31, (millions, except per share amounts) 1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Net Revenues
Discount revenue $ 4,457 $ 3,984 $ 3,621
Interest and dividends, net 3,499 3,172 3,067
Net card fees 1,742 1,727 1,727
Travel commissions and fees 1,288 948 710
Other commissions and fees 1,254 1,126 1,033
Cardmember lending net finance charge revenue 1,032 948 928
Management and distribution fees 935 806 727
Life insurance premiums 735 783 702
Other 899 788 739
------ ------ ------
Total 15,841 14,282 13,254
------ ------ ------
Expenses
Human resources 4,039 3,769 3,380
Provisions for losses and benefits:
Annuities and investment certificates 1,392 1,173 1,259
Life insurance 727 757 610
Charge card 835 633 702
Cardmember lending 522 378 417
Other 66 55 119
Interest:
Charge card 673 535 534
Other 569 476 390
Occupancy and equipment 1,094 1,058 965
Marketing and promotion 977 1,063 1,091
Professional services 834 687 598
Communications 407 376 357
Other 1,523 1,431 1,285
Gain on sale of FDC - - (779)
------ ------ ------
Total 13,658 12,391 10,928
------ ------ ------
Pretax income from continuing operations 2,183 1,891 2,326
Income tax provision 619 511 721
------ ------ ------
Income from continuing operations 1,564 1,380 1,605
Discontinued operations, net of income taxes - 33 (127)
------ ------ ------
Net income $1,564 $1,413 $1,478
====== ====== ======
Earnings Per Common Share
Income from continuing operations $3.11 $2.68 $3.17
Discontinued operations - .07 (.25)
------ ------ ------
Net income $3.11 $2.75 $2.92
====== ====== ======
Average common and common equivalent shares outstanding 498.0 508.8 500.1
====== ====== ======
</TABLE>
See notes to consolidated financial statements.
-14- (1995 Annual Report p. 29)<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
American Express Company
December 31, (millions) 1995 1994
-------- --------
<S> <C> <C>
Assets
Cash and cash equivalents $ 3,200 $ 3,433
Accounts receivable and accrued interest:
Cardmember receivables, less reserves: 1995, $753; 1994, $691 17,154 14,506
Other receivables, less reserves: 1995, $76; 1994, $116 2,760 2,641
Investments 42,561 40,108
Loans:
Cardmember lending, less reserves: 1995, $489; 1994, $407 10,268 8,834
International banking, less reserves: 1995, $111; 1994, $109 5,317 4,881
Other, net 506 1,007
Assets held in segregated asset accounts 14,974 10,881
Deferred acquisition costs 2,262 2,280
Land, buildings and equipment-at cost,
less accumulated depreciation: 1995, $1,763; 1994, $1,563 1,783 1,840
Other assets 6,620 6,595
------- --------
Total assets $107,405 $97,006
======== ========
Liabilities and Shareholders' Equity
Customers' deposits and credit balances $9,889 $10,013
Travelers Cheques outstanding 5,697 5,271
Accounts payable 4,686 4,228
Insurance and annuity reserves:
Fixed annuities 21,405 20,163
Life and disability policies 3,752 4,686
Investment certificate reserves 3,606 2,866
Short-term debt 17,654 14,810
Long-term debt 7,570 7,162
Liabilities related to segregated asset accounts 14,974 10,881
Other liabilities 9,952 10,493
-------- --------
Total liabilities 99,185 90,573
-------- --------
Shareholders' Equity
Preferred shares, $1.66 2/3 par value, authorized
20 million shares Convertible Exchangeable
Preferred shares, issued and outstanding
4 million shares, stated at liquidation value 200 200
Common shares, $.60 par value, authorized 1.2 billion
shares; issued and outstanding 483.1 million
shares in 1995 and 495.9 million shares in 1994 290 298
Capital surplus 3,781 3,651
Net unrealized securities gains (losses) 875 (389)
Foreign currency translation adjustment (85) (77)
Retained earnings 3,159 2,750
-------- --------
Total shareholders' equity 8,220 6,433
-------- --------
Total liabilities and shareholders' equity $107,405 $97,006
======== ========
</TABLE>
See notes to consolidated financial statements.
-15- (1995 Annual Report p. 30)<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
American Express Company
Years Ended December 31, (millions) 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Income from continuing operations $1,564 $1,380 $1,605
Adjustments to reconcile income from continuing
operations to net cash provided (used) by
operating activities:
Provisions for losses and benefits 2,086 1,456 1,627
Depreciation, amortization, deferred taxes and other 367 378 411
Changes in operating assets and liabilities, net
of effects of acquisitions and dispositions:
Accounts receivable and accrued interest (353) (180) (982)
Other assets (1,236) 525 (987)
Accounts payable and other liabilities (241) 969 355
Increase in Travelers Cheques outstanding 427 471 72
Increase in insurance reserves 440 471 452
Gain on sale of FDC - - (779)
Net cash flows used by operating
activities of discontinued operations - (3,656) (1,361)
-------- -------- --------
Net cash provided by operating activities 3,054 1,814 413
-------- -------- --------
Cash Flows from Investing Activities
Proceeds from FDC public offering, net of cash sold - - 871
Sale of investments 2,236 4,757 2,296
Maturity and redemption of investments 8,274 6,794 8,308
Purchase of investments (11,242) (13,224) (13,802)
Net increase in Cardmember receivables (4,140) (3,189) (2,524)
Cardmember receivables sold to Trust - 900 600
Proceeds from repayment of loans 21,603 21,282 18,817
Issuance of loans (23,574) (21,037) (19,465)
Purchase of land, buildings and equipment (347) (333) (286)
Sale of land, buildings and equipment 91 122 120
(Acquisitions) dispositions, net of
cash acquired/sold 357 (310) 121
Net cash flows (used) provided by investing
activities of discontinued operations - (36) 2,467
-------- -------- --------
Net cash used by investing activities (6,742) (4,274) (2,477)
-------- -------- --------
-16- (1995 Annual Report p. 31)<PAGE>
Cash Flows from Financing Activities
Net (decrease) increase in customers' deposits
and credit balances (125) (1,089) 29
Sale of annuities and investment certificates 5,729 5,994 5,217
Redemption of annuities and investment certificates (3,957) (5,004) (3,748)
Net (decrease) increase in debt with
maturities of 3 months or less (4,700) 5,494 (253)
Issuance of debt 23,012 3,921 13,561
Principal payments on debt (15,454) (8,729) (11,397)
Issuance of American Express common shares 286 179 259
Repurchase of American Express common shares (891) (555) -
Cash infusion to Lehman Brothers - (904) -
Dividends paid (458) (504) (526)
Net cash flows provided (used) by financing
activities of discontinued operations - 3,737 (372)
-------- -------- --------
Net cash provided by financing activities 3,442 2,540 2,770
Net change in cash and cash equivalents of
discontinued operations - 45 734
Effect of exchange rate changes on cash 13 86 (68)
-------- -------- --------
Net (decrease) increase in cash and cash equivalents (233) 121 (96)
Cash and cash equivalents at beginning of year 3,433 3,312 3,408
-------- -------- --------
Cash and cash equivalents at end of year $3,200 $3,433 $3,312
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
-17- (1995 Annual Report p. 31)<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
American Express Company
<TABLE>
<CAPTION> Net
Unrealized
Securities
Three Years Ended December 31, 1995 Preferred Common Capital Gains Retained
(millions) Total Shares Shares Surplus (Losses) Other Earnings
-------- -------- ------- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1992 $7,499 $201 $288 $3,397 $(1) $(83) $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 employee plans 268 6 259 3
Cash dividends declared:
Preferred (42) (42)
Common, $1.00 per share (487) (487)
-------- -------- ------- -------- -------- ------ --------
Balances at December 31, 1993 8,734 201 294 3,656 7 (73) 4,649
-------- -------- ------- -------- -------- ------ --------
Net income 1,413 1,413
Repurchase of common shares (555) (11) (144) (400)
Net put options activity (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 employee plans 202 (1) 13 191 (1)
Cash dividends declared:
Preferred (32) (32)
Common, $.925 per share (462) (462)
-------- -------- ------- -------- -------- ------ --------
Balances at December 31, 1994 6,433 200 298 3,651 (389) (77) 2,750
-------- -------- ------- -------- -------- ------ --------
Net income 1,564 1,564
Repurchase of common shares (891) (14) (180) (697)
Net put options activity (1) (1)
Change in net unrealized securities
gains (losses) 1,264 1,264
Foreign currency translation adjustments (8) (8)
Other changes, primarily employee plans 313 6 311 (4)
Cash dividends declared:
Preferred (15) (15)
Common, $.90 per share (439) (439)
-------- -------- ------- ------- -------- ------ --------
Balances at December 31, 1995 $8,220 $200 $290 $3,781 $875 $(85) $3,159
======== ======== ======= ======= ======== ====== ========
</TABLE>
See notes to consolidated financial statements.
-18- (1995 Annual Report p. 32)<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
American Express Company
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying Consolidated Financial Statements include the accounts of
American Express Company and its subsidiaries (the Company). All significant
intercompany transactions are eliminated. 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.
The Company's financial statements include amounts determined using estimates
and assumptions. For example, estimates and assumptions are used in
determining the reserves related to Accounts Receivable and Accrued Interest
and Loans; Deferred Acquisition Costs; and Insurance and Annuity Reserves.
While these estimates are based on the best judgment of management, actual
results could differ from these estimates.
Certain prior years' amounts have been reclassified to conform to the current
year's presentation.
Assets and Liabilities Related to Segregated Accounts
- -----------------------------------------------------
Assets and liabilities related to segregated accounts represent funds held
for the exclusive benefit of variable annuity and variable life insurance
contract holders. The Company receives investment management fees, mortality
and expense assurance fees, minimum death benefit guarantee fees and cost of
insurance charges from the related accounts.
Net Revenues
Cardmember Lending Net Finance Charge Revenue is presented net of interest
expense of $497 million, $310 million and $257 million for the years ended
December 31, 1995, 1994 and 1993, respectively. Interest and Dividends
is presented net of interest expense of $604 million for the years ended
December 31, 1995 and 1994 and $595 million for the year ended December 31,
1993 related to the Company's international banking operations.
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.
-19- (1995 Annual Report p. 33)<PAGE>
NOTE 2
LEHMAN BROTHERS SPIN-OFF
On May 31, 1994, the Company distributed to its common shareholders a dividend
of all of the Lehman Brothers Holdings Inc. common stock held by the Company
(approximately 98.2 million shares). At that date, the Company's investment
in Lehman was $2.4 billion. Shareholders of the Company received one share of
Lehman common stock for each five common shares of the Company that they
owned. 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, and $200
million of Lehman cumulative voting preferred stock (such preferred stock was
purchased by Lehman Brothers Holdings Inc. on February 15, 1996).
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
($46 million was received by the Company in both 1995 and 1994), plus 10
percent of after-tax profits of Smith Barney in excess of $250 million per
year over a five-year period ($24 million and $18 million was received by the
Company in 1995 and 1994, respectively).
Discontinued Operations
Discontinued operations represents the results of Lehman
through May 31, 1994, the spin-off date. Discontinued operations are
summarized as follows:
<TABLE>
<CAPTION>
Period ending Year ended
May 31, December 31,
(millions) 1994 1993
------------ ------------
<S> <C> <C>
Net revenues $1,311 $5,431
====== ======
Income (loss) before accounting changes $57 $(102)
Accounting changes (13) -
------ ------
44 (102)
Preferred dividends (11) (25)
------ ------
Discontinued operations $33 $(127)
====== ======
</TABLE>
-20- (1995 Annual Report pp. 33-34)<PAGE>
NOTE 3
FIRST DATA CORPORATION
In March 1993, the Company reduced its 54 percent ownership interest in First
Data Corporation (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
was reported under the equity method of accounting. The Company's investment
in FDC at December 31, 1994 had a book value of $240 million and is included
in Other Assets in the 1994 Consolidated Balance Sheet.
In the fourth quarter of 1995, the Company's ownership was further reduced to
approximately 10 percent as a result of shares issued by FDC in connection
with a merger transaction. Accordingly, as of December 31, 1995, the
Company's investment in FDC is accounted for as Investments-Available for
Sale.
In October 1993, the Company sold Debt Exchangeable for Common Stock of FDC.
See Note 12.
NOTE 4
<TABLE>
<CAPTION>
INVESTMENTS
The following is a summary of investments included in the Consolidated Balance
Sheet at December 31:
(millions) 1995 1994
------- -------
<S> <C> <C>
Held to Maturity, at amortized cost $16,790 $21,909
Available for Sale, at fair value 22,435 15,293
Investment mortgage loans (fair
value: 1995, $3,434; 1994, $2,615) 3,180 2,681
Trading 156 225
------- -------
$42,561 $40,108
======= =======
</TABLE>
-21- (1995 Annual Report p. 34)<PAGE>
Investments classified as Held to Maturity and Available for Sale at December
31 are distributed by type and maturity as presented below:
<TABLE>
<CAPTION>
Held to Maturity
1995 1994
----------------------------------------------- ---------------------------
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 $2,695 $2,698 $3 - $3,450 $3,445 - $5
State and municipal obligations 1,560 1,638 78 - 4,816 4,841 $115 90
Corporate debt securities 10,019 10,655 672 $36 10,627 10,294 172 505
Foreign government bonds
and obligations 63 69 6 - 104 105 3 2
Mortgage-backed securities 2,324 2,360 46 10 2,596 2,386 13 223
Other 129 129 - - 316 316 - -
------- ------- ------- ------- ------- ------- ------- -------
Total $16,790 $17,549 $805 $46 $21,909 $21,387 $303 $825
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Available for Sale
1995 1994
----------------------------------------------- ---------------------------
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 $370 $377 $8 $1 $355 $344 - $11
State and municipal
obligations 3,749 4,027 278 - 312 321 $10 1
Corporate debt securities 4,200 4,410 217 7 3,014 3,007 31 38
Foreign government bonds
and obligations 1,655 1,664 25 16 1,618 1,592 11 37
Mortgage-backed securities 8,731 8,932 227 26 8,515 7,977 12 550
Equity securities 863 2,140 1,278 1 732 691 15 56
Other 884 885 1 - 1,366 1,361 8 13
------- ------- ------- ------- ------- ------- ------- -------
Total $20,452 $22,435 $2,034 $51 $15,912 $15,293 $87 $706
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
-22- (1995 Annual Report p. 35)<PAGE>
<TABLE>
<CAPTION>
Held to Maturity Available for Sale
Fair Fair
December 31, 1995 (millions) Cost Value Cost Value
------- ------- -------- --------
<S> <C> <C> <C> <C>
Due within 1 year $ 3,285 $ 3,293 $ 2,197 $ 2,204
Due after 1 year through 5 years 2,781 2,928 3,044 3,180
Due after 5 years through 10 years 6,063 6,464 3,207 3,413
Due after 10 years 2,337 2,504 2,410 2,566
------- ------- -------- -------
14,466 15,189 10,858 11,363
Mortgage-backed securities 2,324 2,360 8,731 8,932
Equity securities - - 863 2,140
------- ------- -------- -------
Total $16,790 $17,549 $20,452 $22,435
======= ======= ======== =======
</TABLE>
Mortgage-backed securities primarily include GNMA, FNMA and FHLMC securities
at December 31, 1995 and 1994.
The table below includes purchases, sales and maturities of investments
classified as Held to Maturity and Available for Sale for the year ended
December 31:
<TABLE>
<CAPTION>
(millions) 1995 1994
Held to Available Held to Available
Maturity for Sale Maturity for Sale
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Purchases $16,460 $6,895 $14,344 $10,498
Sales $372 $1,863 $73 $ 3,833
Maturities $17,256 $3,641 $15,866 $3,945
</TABLE>
Investments classified as Held to Maturity were sold during 1995 and 1994 due
to credit deterioration, resulting in gross realized gains and losses on sales
that were negligible.
To reflect the adoption of Statement of Financial Accounting Standards (SFAS)
No. 115, "Accounting for Certain Investments in Debt and Equity Securities,"
the 1994 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.
-23- (1995 Annual Report pp. 35-36)<PAGE>
The change in the Net Unrealized Securities Gains (Losses) component of
Shareholders' Equity was an increase of $1.3 billion and a decrease of $721
million for the years ended December 31, 1995 and 1994, respectively. The
changes in market value during 1995 and 1994 reflect fluctuations in the
general level of interest rates and the reclassification of the Company's
investment in FDC in 1995 to Investments-Available for Sale. This
reclassification resulted in a $400 million unrealized gain, net of the change
in the market value of the Company's DECS liability. See Note 12.
Gross realized gains and losses on sales of securities classified as Available
for Sale were $46 million and $12 million and $28 million and $30 million for
the years ended December 31, 1995 and 1994, respectively. The specific
identification method was used to determine the realized gain or loss. The
Available for Sale classification does not mean that the Company expects to
sell these securities, but that 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. As a result of adopting the Financial Accounting Standards
Board Special Report, "Guide to Implementation of Statement 115 on Accounting
for Certain Investments in Debt and Equity Securities," in December 1995, the
Company reclassified securities with a book value of approximately $3.6 billion
and a market value of $3.8 billion from Held to Maturity to Available for Sale.
Net unrealized gains on Trading securities included in income were $12 million
(pretax) and $10 million (pretax) for the years ended December 31, 1995 and
1994, respectively.
<TABLE>
<CAPTION>
NOTE 5
LOANS
Loans at December 31 consisted of:
(millions) 1995 1994
------- -------
<S> <C> <C>
Consumer Loans $11,677 $10,183
Commercial Loans:
Commercial and industrial 2,657 2,407
Mortgage and real estate 514 693
Loans to banks and other institutions 1,300 996
Other, principally policyholders' loans 545 988
------- -------
16,693 15,267
Less: Reserves for credit losses 602 545
------- -------
Total $16,091 $14,722
======= =======
</TABLE>
Note: American Express Financial Advisors' mortgage loans of $3.2 billion and
$2.7 billion in 1995 and 1994, respectively, are included in Investment
Mortgage Loans and are reflected in Note 4.
-24- (1995 Annual Report p. 36)<PAGE>
The following table presents changes in Reserves for Credit Losses related to
loans:
(millions) 1995
______
Balance, January 1 $545
Provision for credit losses 529
Recoveries of amounts previously written-off 134
Write-offs (606)
------
Balance, December 31 $602
======
As of January 1, 1995, the Company adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan," as amended by SFAS No. 118, "Accounting
by Creditors for Impairment of a Loan-Income Recognition and Disclosures."
The adoption of the new rules did not have a material impact on the Company's
results of operations or financial condition.
NOTE 6
PREFERRED SHARES
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 as of December 31, 1995 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 16
million additional preferred shares without further shareholder approval.
NOTE 7
COMMON SHARES
In March 1995, the Company's Board of Directors authorized the Company to
repurchase up to 40 million common shares, subject to market conditions. This
authorization is in addition to a plan announced in September 1994, whereby
the Company was authorized to repurchase up to 20 million common shares. In
connection with these plans, the Company intends to fund contributions to
various employee benefit 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. Since inception of the initial repurchase
plan in 1994, the Company has repurchased and cancelled 38,345,990 shares
under the repurchase programs at an average price of $34.56 per share. In the
fourth quarter of 1995, 12,313,500 common shares were cancelled, reducing
stated capital by $7.4 million.
-25- (1995 Annual Report p. 37)<PAGE>
In connection with the share repurchase programs, the Company sold 5.3 million
and 4.0 million put options in 1995 and 1994, respectively, with maturities
ranging from one to twelve months. The weighted average strike price for the
put options was $38.64 and $30.81 per share in 1995 and 1994, respectively.
Upon issuing these put options, the Company received a weighted average
premium of $2.05 per share, or $10.9 million, in 1995 and $1.83 per share, or
$7.3 million, in 1994, which amounts are included in Shareholders' Equity. The
average effective strike price was $36.59 and $28.98 per share in 1995 and
1994, respectively. Through December 31, 1995, 4.1 million put options expired
unexercised. Put options outstanding at December 31, 1995 and 1994 were 3.3
million and 3.6 million, respectively. The aggregate strike prices relating to
the outstanding put options at December 31, 1995 and 1994 of $123 million and
$111 million, respectively, are included as temporary equity in Other
Liabilities in the Consolidated Balance Sheet.
In addition to the above repurchase programs, 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, 1995, 74,455,059
shares were reserved for issuance with respect to employee stock plans,
employee benefit plans, convertible preferred stock and debentures and the
dividend reinvestment plan.
Common shares activity for each of the years ended December 31 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Shares outstanding at beginning
of year 495,865,678 489,827,852 479,976,358
Repurchase of common shares (23,744,935) (18,601,055) -
Conversion of CAP Preferred shares - 13,998,141 -
Conversion of 9% Notes - 3,273,062 -
Employee compensation plans,
benefit plans and other 10,987,346 7,368,678 9,851,494
----------- ----------- -----------
Shares outstanding at end of year 483,108,089 495,865,678 489,827,852
=========== =========== ===========
</TABLE>
In 1987, Nippon Life purchased 13 million shares of Lehman 5% Series A
Preferred Stock for $508 million. The preferred shares are convertible at the
option of Nippon Life into shares of Lehman common stock at a conversion price
of $122.94, or an aggregate of 4.1 million Lehman shares. The preferred shares
are also exchangeable at the option of Nippon Life for the Company's common
shares at an exchange price of $81.46, or an aggregate of approximately 6.2
million common shares. The exchange right terminates in December 1999.
-26- (1995 Annual Report pp. 37-38)<PAGE>
NOTE 8
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 Directors'
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.
In 1994, 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 14,061,595; 19,833,442; and 23,528,235 common shares available for
grant at December 31, 1995, 1994 and 1993, respectively, under various
employee and director stock plans.
At December 31, 1995, options outstanding had an average exercise price of
$27.41 per share and expiration dates ranging from March 31, 1996 to November
30, 2005.
<TABLE>
<CAPTION>
The details of transactions provided in the following
table include the plans described above.
1995 1994 1993
--------------- ---------------- ----------------
<S> <C> <C> <C>
Restricted stock awarded 1,742,850 1,349,400 1,584,052
Options outstanding at
beginning 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 granted 6,045,455 5,175,049 4,818,473
Option price $29.55 to $43.31 $26.13 to $30.94 $22.59 to $35.63
Options exercised 10,397,398 3,326,731 4,526,835
Exercise price $9.03 to $41.45 $9.82 to $31.64 $10.00 to $34.81
Options expired or cancelled 1,167,621 2,610,878 3,248,122
Option adjustment pursuant to
Lehman spin-off - 4,027,120 -
Options outstanding at
end of year 23,478,671 28,998,235 25,733,675
Option price $9.03 to $58.83 $9.03 to $58.83 $10.30 to $67.09
Options exercisable at
end of year 12,591,312 18,331,687 16,774,856
</TABLE>
-27- (1995 Annual Report pp. 38-39)<PAGE>
The Company also sponsors the American Express Incentive Savings Plan under
which purchases of the Company's common shares are made by or for
participating employees.
NOTE 9
RETIREMENT PLANS
Pension Plans
The Company has noncontributory defined benefit 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 became effective July 1, 1995, converted the discounted
accrued benefits to lump sum individual account balances. Employees' accounts
are credited with additions equal to a percentage, based on age plus service,
of base pay plus annual incentives. Employees' accounts are also credited with
interest based on published five-year Treasury rates. Lump sum payout at
termination or retirement is available. The initial impact of the changes was
to significantly decrease the Plan's projected benefit obligation and annual
pension cost. This decrease is largely offset by higher expense associated
with amendments to the American Express Incentive Savings Plan, which includes
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 consisted of the following components:
<TABLE>
<CAPTION>
(millions) 1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Service cost $66 $71 $59
Interest cost 76 71 65
Actual return on plan assets (153) (22) (116)
Net amortization and deferral 78 (31) 67
------ ------ ------
Net periodic pension cost $67 $89 $75
====== ====== ======
</TABLE>
-28- (1995 Annual Report p. 39)<PAGE>
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. The underfunded plans
relate to foreign and supplemental executive plans.
<TABLE>
<CAPTION>
December 31, 1995 1994
--------------------------------- -------------------------------
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
(millions) Benefits Exceed Assets Benefits Exceed Assets
------------- ------------- ------------- -------------
Actuarial present value of benefit obligations:
<S> <C> <C> <C> <C>
Vested benefit obligation $(686) $(121) $(453) $(106)
------------- ------------- ------------- -------------
Accumulated benefit
obligation $(722) $(150) $(490) $(123)
------------- ------------- ------------- -------------
Projected benefit
obligation $(795) $ (210) $(724) $(213)
Plan assets at fair value 950 6 774 16
------------- ------------- ------------- -------------
Projected benefit obligation
(in excess of) or less
than plan assets 155 (204) 50 (197)
Unrecognized net (gain) loss (58) 9 (54) (7)
Unrecognized prior service
cost (95) (5) 3 19
Unrecognized net (asset)
obligation at transition (5) 20 (7) 20
Adjustment required to
recognize minimum liability - (11) - (5)
------------- ------------- ------------ -------------
Pension liability included
in the Consolidated
Balance Sheet $(3) $(191) $(8) $(170)
============= ============= ============ =============
</TABLE>
The range of assumptions used in the majority of the Company's plans at
December 31 was:
1995 1994
------------- -------------
Weighted average discount rates 6.5% to 8.5% 7.5% to 9.0%
Rates of increase in compensation levels 4.5% to 7.0% 4.5% to 7.0%
Expected long-term rates of return
on assets 7.5% to 11.0% 7.5% to 12.0%
-29- (1995 Annual Report p. 40)<PAGE>
Other Postretirement Benefits
The Company sponsors postretirement benefit plans that provide health care,
life insurance and other postretirement benefits to retired U.S. employees.
Net periodic postretirement benefit expense was $19 million in 1995 and 1994
and $18 million in 1993.
The liabilities recognized in the Consolidated Balance Sheet for the Company's
defined postretirement benefit plans (other than pension plans) at December
31, 1995 and 1994 were $202 million and $195 million, respectively.
<TABLE>
<CAPTION>
NOTE 10
INCOME TAXES
The provision for income taxes consisted of the following:
(millions) 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Federal $416 $316 $551
State and local 18 42 72
Foreign 185 153 98
----- ----- -----
Total $619 $511 $721
===== ===== =====
</TABLE>
Accumulated net earnings of certain foreign subsidiaries, which totaled $534
million at December 31, 1995, are intended to be permanently reinvested
outside the United States. Accordingly, federal taxes, which would have
aggregated $149 million, have not been provided.
The current and deferred components of the provision for income taxes
consisted of the following:
<TABLE>
<CAPTION>
(millions) 1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Current $654 $596 $677
Deferred (35) (85) 44
------ ------ ------
Total $619 $511 $721
====== ====== ======
The Company's net deferred tax assets at December 31
consisted of the following:
(millions) 1995 1994
------ ------
Deferred tax assets $2,348 $2,576
Deferred tax liabilities 1,638 1,162
------ ------
Net deferred tax assets $710 $1,414
====== ======
</TABLE>
-30- (1995 Annual Report pp. 40-41)<PAGE>
Deferred tax assets for 1995 and 1994 consisted primarily of: reserves not yet
deducted for tax purposes of $1.5 billion and $1.6 billion, respectively, and
deferred Cardmember fees of $239 million and $184 million, respectively.
Deferred tax assets for 1994 also included $209 million related to SFAS No.
115. Deferred tax assets are presented net of a $45 million valuation
allowance that relates to certain deferred tax assets for which realization
requires taxable income in the subsidiary that gave rise to the deferred tax
asset. Deferred tax liabilities for 1995 and 1994 consisted primarily of:
deferred acquisition costs of $654 million and $688 million, respectively, and
accelerated depreciation of $157 million and $159 million, respectively.
Deferred tax liabilities for 1995 also included $514 million related to SFAS
No. 115.
The aggregate income tax provision is different from that computed by using
the U.S. statutory rate of 35 percent. The principal causes of the difference
in each year are shown below:
<TABLE>
<CAPTION>
(millions) 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Combined tax at U.S. statutory rate $764 $662 $814
Changes in taxes resulting from:
Tax-exempt interest income (157) (150) (148)
Tax-exempt element of dividend income (29) (33) (37)
FDC public offering - - 74
Foreign income taxed at rates other
than U.S. statutory rate 1 (13) (25)
State and local income taxes 11 26 25
Impact of rate change on opening net
deferred tax assets - - (30)
All other 29 19 48
----- ----- -----
Income tax provision $619 $511 $721
===== ===== =====
</TABLE>
Net income taxes paid by the Company during 1995, 1994 and 1993 were $595
million, $289 million and $639 million, respectively, and include estimated
tax payments, as well as cash settlements relating to prior tax years.
NOTE 11
DERIVATIVE AND OTHER OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The Company 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
they provide 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 to meet the needs of its
clients. To a limited extent, the Bank takes proprietary positions. The
Company manages risks associated with derivatives as described below.
-31- (1995 Annual Report pp. 41-42)<PAGE>
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. 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 with a client as it
usually enters into an offsetting contract or uses the position to offset an
existing exposure. The Bank takes proprietary positions within approved
limits. These positions are monitored daily at the local level and reviewed
for compliance centrally. The Company does not enter into derivative contracts
with embedded options or other features that would leverage or multiply its
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 country, 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. A significant portion of the Company's credit risk is with
counterparties 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 multiple contracts with a single counterparty 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, 1995 and 1994, the aggregate notional amount of the
Company's derivative instruments was $40 billion and $57 billion,
respectively. The related credit exposure approximates the fair value of
contracts in a gain position (asset) totaling $381 million at December 31,
1995 and $375 million at December 31, 1994. Including contracts in a loss
position, the Company was in a net liability position of $11 million at
December 31, 1995, compared with a net exposure of $16 million at December
31, 1994. The fair value represents the replacement cost and is determined by
market values, dealer quotes or pricing models.
-32- (1995 Annual Report p. 42)<PAGE>
<TABLE>
<CAPTION>
The following tables detail information regarding the Company's derivatives at
December 31:
NONTRADING 1995
-----------------------------------------------------
Notional Carrying Value Fair Value
(millions) Amount Asset Liability Asset Liability
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Interest Rate Products:
Interest rate swaps $7,709 $83 $105 $126 $220
Interest rate caps and corridors
purchased 6,070 - 30 - 10
Forward rate agreements 686 - - - -
-------- -------- -------- -------- --------
Total Interest Rate Products 14,465 113 105 136 220
-------- -------- -------- -------- --------
Foreign Currency Products:
Forward and spot contracts 7,110 40 21 57 35
Other Products 369 32 9 29 10
-------- -------- -------- -------- --------
Total $21,944 $185 $135 $222 $265
======== ======== ======== ======== ========
1994
----------------------------------------------------
Notional Carrying Value Fair Value
(millions) Amount Asset Liability Asset Liability
-------- -------- -------- -------- ---------
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
======== ======== ======== ======== ========
</TABLE>
-33- (1995 Annual Report pp. 42-43)<PAGE>
<TABLE>
<CAPTION>
TRADING 1995
-----------------------------------------------------
Notional Carrying/Fair Value Average Fair Value
(millions) Amount Asset Liability Asset Liability
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Interest Rate Products:
Interest rate swaps $1,621 $25 $26 $19 $16
Forward rate agreements 785 1 1 3 2
Other 267 - - - -
-------- -------- -------- -------- --------
Total Interest Rate Products 2,673 26 27 22 18
-------- -------- -------- -------- --------
Foreign Currency Products*:
Forward and spot contracts 13,073 115 80 175 168
Foreign currency options written 1,103 - 20 - 28
Foreign currency options purchased 1,099 18 - 27 -
-------- -------- -------- -------- --------
Total Foreign Currency Products 15,275 133 100 202 196
-------- -------- -------- -------- --------
Total $17,948 $159 $127 $224 $214
======== ======== ======== ======== ========
1994
-----------------------------------------------------
Notional Carrying/Fair Value Average Fair Value
(millions) Amount Asset Liability Asset Liability
-------- -------- -------- -------- --------
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
======== ======== ======== ======== ========
</TABLE>
*These are predominantly contracts with clients and the related hedges of
those client contracts. The Company's net trading foreign currency exposure
was approximately $62 million and $7 million at December 31, 1995 and 1994,
respectively.
The average aggregate fair values of derivative financial instruments held for
trading purposes were computed based on monthly information in 1995 and
quarterly information in 1994. Net derivative trading gains of $79 million for
1995 and $66 million for 1994 were primarily due to trading in foreign currency
forward and spot contracts and are included in Other Commissions and Fees.
-34- (1995 Annual Report p. 43)<PAGE>
Interest Rate Products
The Company uses interest rate products, for the most part, to manage funding
costs related to TRS' Charge Card and Cardmember 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 a cost effective and flexible funding
structure to fund its Cardmember receivables and Cardmember loans, as well as
to match Cardmember loans with funding of the same repricing terms. TRS uses
interest rate swaps to achieve a targeted, predetermined mix of fixed and
floating rate funding of its Cardmember receivables.
Interest rates charged on TRS' Cardmember loans are linked to a floating rate
base and generally reprice each month. TRS generally enters into interest rate
swaps paying rates that reprice when the base rate of the underlying loans
changes. The decline in the notional amount of interest rate swaps at December
31, 1995 is primarily due to the change in the terms of Cardmember loans from
semi-annual to monthly repricing in 1995. At December 31, 1994, the notional
amount for interest rate swaps in the nontrading table above included $5.7
billion of swaps that went into effect in January and February of 1995. These
swaps replaced swaps that matured at that time and, accordingly, are not
reflected in the notional amount of swaps at December 31, 1994 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 Other
Receivables and Interest and Dividends or Accounts Payable and Interest
Expense, as appropriate. Products used for trading purposes are reported at
fair value in Other Assets or Other Liabilities, as appropriate, with
unrealized gains and losses recognized currently in Other Revenues.
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 rates earned on
investments and the interest rates accrued to related investment certificate
and fixed 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.
-35- (1995 Annual Report p. 44)<PAGE>
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 to
meet the needs of its clients, and to a limited extent, takes proprietary
positions. The decrease in the aggregate notional amount of all forward and
spot contracts in 1995 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 both December 31, 1995 and
1994, the Company had no significant unhedged foreign currency exposures; the
Company's largest unhedged foreign currency exposure in 1995 and 1994 was a
net investment of $82 million and $96 million, respectively, 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 Other Commissions and Fees or
Other Liabilities and Other Expenses, as appropriate. Related premiums and
discounts are reported in Other Assets or Other Liabilities, as appropriate,
and amortized into Interest Expense and Other Expenses over the term of the
contract. Foreign currency products used for trading purposes are reported at
fair value in Other Assets or Other Liabilities, as appropriate, with
unrealized gains and losses recognized currently in Other Commissions and
Fees.
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) 1995 1994
_______ _______
Unused Credit Available to Cardmembers $21,694 $19,018
Loan Commitments and Other Lines of Credit $521 $354
Standby Letters of Credit and Guarantees $1,609 $1,668
Commercial and Other Letters of Credit $936 $969
-36- (1995 Annual Report pp. 44-45)<PAGE>
The Company is committed to extend credit to certain Cardmembers as part of
established Cardmember lending product agreements. 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.
The Company's Charge Card products have no preset spending limit, and are not
reflected in unused credit available to Cardmembers.
The Company may require collateral 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. At December 31, 1995 and 1994, the
Company held $1.0 billion and $852 million, respectively, of collateral
supporting standby letters of credit and guarantees and $515 million and $447
million, respectively, of collateral supporting commercial and other letters
of credit.
Other financial institutions have committed to extend lines of credit to the
Company of $8.6 billion and $7.7 billion at December 31, 1995 and 1994,
respectively.
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 funding of
its Cardmember receivables. See Note 11 for a further description of 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, 1995 and 1994, the Company's total short-term debt outstanding
was $17.7 billion and $14.8 billion, respectively, with weighted average
interest rates of 6.14% and 6.13%, respectively. At December 31, 1995 and
1994, $1.0 billion and $7.6 billion, respectively, of short-term debt
outstanding was modified by interest rate swaps, resulting in a year-end
weighted average effective interest rate of 6.12% and 5.93%, respectively. The
Company generally pays floating rates of interest under the terms of interest
rate swaps which are primarily used to achieve a targeted, predetermined fixed
to floating funding mix on Cardmember receivables and to match Cardmember
loans with funding of the same repricing terms. In 1994, the Company paid
fixed rates of interest under the terms of interest rate swaps used to match
the terms of Cardmember loans. Unused lines of credit in support of commercial
paper borrowing arrangements were approximately $5.9 billion at December 31,
1995.
-37- (1995 Annual Report p. 45)<PAGE>
<TABLE>
<CAPTION>
Long-Term Debt
December 31, (dollars in millions)
1995
-----------------------------------------------------------------------
Year-End
Year-End Effective
Notional Stated Interest
Outstanding Amount of Rate on Rate with Maturity of
Balance Swaps Debt (a,b) Swaps (a,b) Swaps
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
DECS due October 15, 1996 $1,294 - 6.25% - -
Swiss franc Bonds due
October 14, 1996 to
December 16, 1996 (c) 309 $292 5.00% 3.34% 1996
Notes due June 15, 2000 299 299 6.125% 6.80% 2000
Notes due November 15, 2001 299 299 6.125% 4.93% 2001
Notes due August 15, 2001 298 - 8.50% - -
Floating Medium-Term Senior
Note due December 31, 2000 208 - 5.83% - -
Fixed Medium-Term Senior
Notes due 1995-1997 61 - 7.34% - -
Other Fixed Senior Notes
due 1995-2022 2,766 1,410 7.89% 7.55% 1996-2005
Other Floating Senior Notes
due 1995-1998 1,223 524 5.98% 6.14% 1996-1998
Other floating rate notes
due 1995-2004 413 150 6.40% 6.62% 2004
Other fixed rate notes
due 1995-2006 400 - 5.64% - -
-------- ---------
Total $7,570 $2,974
======== =========
</TABLE>
-38- (1995 Annual Report p. 46)<PAGE>
<TABLE>
<CAPTION>
Long-Term Debt
December 31, (dollars in millions)
1994
-------------------------------------------------------------------------
Year-End
Year-End Effective
Notional Stated Interest
Outstanding Amount of Rate on Rate with Maturity of
Balance Swaps Debt (a,b) Swaps (a,b) Swaps
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
DECS due October 15, 1996 $868 - 6.25% - -
Swiss franc Bonds due
October 14, 1996 to
December 16, 1996 (c) 272 $263 5.00% 3.65% 1996
Notes due June 15, 2000 299 299 6.125% 7.11% 2000
Notes due November 15, 2001 - - - - -
Notes due August 15, 2001 298 - 8.50% - -
Floating Medium-Term Senior
Note due December 31, 2000 945 - 6.63% - -
Fixed Medium-Term Senior
Notes due 1995-1997 270 - 5.40% - -
Other Fixed Senior Notes
due 1995-2022 2,555 1,078 8.20% 8.29% 1995-2000
Other Floating Senior Notes
due 1995-1998 569 424 6.00% 6.04% 1995-1998
Other floating rate notes
due 1995-2004 731 250 5.99% 6.03% 2004
Other fixed rate notes
due 1995-2006 355 - 6.75% - -
--------- ---------
Total $7,162 $2,314
========= =========
</TABLE>
(a) For floating rate debt issuances, the stated and effective interest rates
were based on the respective rates at December 31, 1995 and 1994; 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, 2000 are as follows (millions): 1996, $3,112; 1997, $1,048; 1998,
$359; 1999, $705; and 2000, $1,007.
The Company paid interest (net of amounts capitalized) of $2.6 billion in
1995, $1.7 billion in 1994 and $1.9 billion in 1993.
Approximately $217 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.
-39- (1995 Annual Report p. 46)<PAGE>
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). In January 1996, the Company
entered into a derivative transaction to lock in its gain on approximately 2.5
million of the residual FDC shares, at a minimum FDC share price of
approximately $66. The value of the DECS is linked to the Company's investment
in FDC. As stated in Note 3, the Company now carries its investment in FDC at
market value rather than under the equity method of accounting; therefore, the
Company is also carrying the DECS liability at market value. Changes in the
DECS market value, net of income taxes, are recorded in the Net Unrealized
Securities Gains (Losses) component of Shareholders' Equity.
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, 1995 and 1994 and require
varying degrees of management judgment. The fair values of the financial
instruments presented may not be indicative of their future fair values.
-40- (1995 Annual Report pp. 46-47)<PAGE>
<TABLE>
<CAPTION>
1995 1994
----------------------- --------------------
Carrying Fair Carrying Fair
December 31, (millions) Value Value Value Value
------- ------- ------- -------
<S> <C> <C> <C> <C>
Financial Assets
Assets for which carrying values
approximate fair values $38,640 $38,640 $31,078 $31,078
Investments $42,561 $43,574 $40,108 $39,520
Loans $16,223 $16,194 $14,282 $14,370
Other assets $ 3,458 $ 3,458 $ 2,122 $ 2,122
Derivative financial instruments, net $ 82 $ (11) $ 94 $ 16
------- ------- ------- -------
Financial Liabilities
Liabilities for which carrying values
approximate fair values $37,716 $37,716 $34,105 $34,105
Fixed annuity reserves $20,334 $19,603 $19,189 $18,451
Investment certificate reserves $ 3,555 $ 3,592 $ 2,808 $ 2,800
Long-term debt $ 7,570 $ 7,740 $ 7,112 $ 7,025
Liabilities related to segregated
asset accounts $14,209 $13,666 $10,399 $ 9,944
Other liabilities $ 5,854 $ 5,854 $ 5,330 $ 5,330
------- ------- ------- -------
</TABLE>
The carrying and fair values of other off-balance-sheet financial instruments
are not material as of December 31, 1995 and 1994. 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 Asset Accounts approximate their fair values.
Loans: For variable rate loans that reprice within a year where there has been
no significant change in counterparties' creditworthiness, fair values are
based on carrying values. The fair values of all other loans, except for loans
with significant credit deterioration, are estimated using discounted cash flow
analysis, based on current interest rates for loans with similar terms to
borrowers of similar credit quality. For loans with significant credit
deterioration, fair values are based on revised estimates of future cash flows
discounted at rates commensurate with the risk inherent in the revised cash
flow projections, or for collateral dependent loans, on collateral values.
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.
-41- (1995 Annual Report p. 47)<PAGE>
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 $1.1 billion in
1995 and $1.0 billion in 1994.
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 Asset Accounts: Fair values of these
liabilities, after excluding life insurance-related elements of $765 million
in 1995 and $482 million in 1994, 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.
-42- (1995 Annual Report pp. 47-48)<PAGE>
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.
<TABLE>
<CAPTION>
December 31, (dollars in millions) 1995 1994
-------- -------
<S> <C> <C>
Financial institutions (a) $11,696 $11,591
Individuals (b) 54,280 45,165
U.S. Government and agencies (c) 13,994 18,491
All other 29,484 23,918
-------- -------
Total $109,454 $99,165
======== =======
Composition:
On-balance-sheet 77% 78%
Off-balance-sheet 23 22
-------- -------
Total 100% 100%
======== =======
</TABLE>
(a) Financial institutions primarily include banks, broker-dealers, insurance
companies and savings and loan associations.
(b) Charge Card products have no preset spending limit; therefore, the
quantified credit amount includes only Cardmember receivables recorded in the
Consolidated Balance 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,
financial advisory and international banking services throughout the world.
TRS' products include Charge Cards, revolving credit products and Travelers
Cheques, as well as travel services, including trip planning, reservations,
ticketing and management information. American Express Financial Advisors'
services and products include financial planning, insurance and annuities,
investment certificates and mutual funds. The Bank serves the financial needs
of wealthy entrepreneurs and financial service institutions by providing
-43- (1995 Annual Report p. 48)<PAGE>
correspondent, commercial and private banking and consumer financial services.
The predominant market for the travel related and financial advisory services
is the United States, while the principal markets for international banking
services are Europe and Asia/Pacific.
The following table presents certain information regarding these industry
segments at December 31, 1995, 1994 and 1993 and for each of the years then
ended.
<TABLE>
<CAPTION>
American
Travel Express American Corporate Adjustments
Related Financial Express and and
(millions) Services Advisors Bank Other Eliminations Consolidated
-------- -------- -------- -------- ------------ ------------
1995
<S> <C> <C> <C> <C> <C> <C>
Net revenues $11,542 $3,691 $643 $ 139 $(174) $15,841
Pretax income from
continuing operations before
general corporate expenses $1,579 $755 $115 - - $2,449
General corporate expenses - - - $(266) - (266)
-------- -------- -------- -------- --------- ---------
Pretax income (loss) from
continuing operations $1,579 $755 $115 $(266) - $2,183
Income (loss) from continuing
operations $1,125 $503 $77 $(141) - $1,564
Assets $45,188 $48,250 $12,324 $4,358 $(2,715) $107,405
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 $67 $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 operation $884 $358 $92 $271 - $1,605
Assets $38,804 $37,351 $14,137 $6,555 $(2,715) $94,132
</TABLE>
-44- (1995 Annual Report pp. 48-49)<PAGE>
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.
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 revenues and assets.
-45- (1995 Annual Report p. 49)<PAGE>
<TABLE>
Geographic Operations
The following table presents certain information regarding the Company's
operations in different geographic regions at December 31 and for each of the
years then ended.
<CAPTION>
Adjustments
United Asia/ All and
(millions) States Europe Pacific Other Eliminations Consolidated
-------- -------- -------- -------- ------------ ------------
1995
<S> <C> <C> <C> <C> <C> <C>
Net revenues $11,916 $2,098 $1,294 $1,487 $(954) $15,841
Pretax income from
continuing operations
before general
corporate expenses $1,762 $359 $239 $89 - $2,449
General corporate expenses (266) - - - - (266)
-------- -------- -------- -------- ------------ ------------
Pretax income from
continuing operations $1,496 $359 $239 $89 - $2,183
Assets $83,216 $8,900 $7,026 $4,169 $(264) $103,047
Corporate Assets 4,358
-------- -------- -------- -------- ------------ ------------
Total Assets $107,405
1994
Net revenues $10,801 $1,858 $1,220 $1,028 $(625) $14,282
Pretax income from
continuing opera-
tions 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
</TABLE>
-46- (1995 Annual Report p. 50)<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
$415 million in 1995, $425 million in 1994 and $391 million in 1993. At
December 31, 1995, the minimum aggregate rental commitment under all
noncancellable leases (net of subleases) was (millions): 1996, $300; 1997,
$248; 1998, $162; 1999, $111; 2000, $88; and $379 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 any pending legal proceedings that, in the
opinion of management, would have a material adverse effect on the Company's
financial position.
NOTE 17
TRANSFER OF FUNDS FROM SUBSIDIARIES
The Securities and Exchange Commission requires the disclosure of certain
restrictions on the flow of funds to a parent company from its subsidiaries in
the form of loans, advances or dividends.
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, 1995, the aggregate amount of net assets of subsidiaries that
may be transferred to the parent company was approximately $6.5 billion.
Should specific additional needs arise, procedures exist to permit immediate
transfer of short-term funds between the Company and its subsidiaries, while
complying with the various contractual and regulatory constraints on the
internal transfer of funds.
-47- (1995 Annual Report pp. 50-51)<PAGE>
<TABLE>
<CAPTION>
NOTE 18
QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data is as follows:
(millions, except per share amounts)
1995 1994
------------------------------------ ---------------------------------
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 $4,048 $4,054 $3,967 $3,771 $3,802 $3,604 $3,506 $3,370
Pretax income from
continuing operations 541 571 572 498 475 498 478 440
Income from continuing
operations 384 416 410 353 335 369 359 317
Net income 384 416 410 353 335 369 357 353
Income from continuing
operations per
common share .77 .83 .81 .70 .65 .71 .70 .62
Net income per
common share .77 .83 .81 .70 .65 .71 .69 .69
Cash dividends declared per
common share .225 .225 .225 .225 .225 .225 .225 .25
Common share prices:
High 45.13 45.13 37.00 36.00 31.63 32.00 28.88 29.23
Low 38.50 34.75 34.13 29.00 28.13 25.25 23.17 23.28
</TABLE>
Note: Historical common share prices have been adjusted to reflect the Lehman
spin-off in 1994 at a ratio based on the trading prices of the Company's
common shares and shares of Lehman common stock on May 31, 1994.
-48- (1995 Annual Report p. 51)<PAGE>
REPORT OF MANAGEMENT
Responsibility for Preparation of Financial Statements
The management of American Express Company is responsible for the preparation
and fair presentation of its financial statements. The financial statements
have been prepared in conformity with generally accepted accounting principles
appropriate in the circumstances, and include amounts based on the best
judgment of management. The Company's management is also responsible for the
accuracy and consistency of other financial information included in this
annual report.
In recognition of its responsibility for the integrity and objectivity of data
in the financial statements, the Company maintains a system of internal
control over financial reporting. The system is designed to provide
reasonable, but not absolute, assurance with respect to the reliability of the
Company's financial statements. The concept of reasonable assurance is based
on the notion that the cost of the internal control system should not exceed
the benefits derived.
The internal control system is founded on an ethical climate and includes an
organizational structure with clearly defined lines of responsibility,
policies and procedures, a Code of Conduct, and the careful selection and
training of employees. Internal auditors monitor and assess the effectiveness
of the internal control system and report their findings to management and the
Board of Directors throughout the year. The Company's independent auditors are
engaged to express an opinion on the year-end financial statements and, with
the coordinated support of the internal auditors, review the financial records
and related data and test the internal control system over financial
reporting.
The Audit Committee of the Board of Directors, composed solely of outside
directors, meets regularly with the internal auditors, management and
independent auditors to review their work and discuss the Company's financial
controls and audit and reporting practices. The independent auditors and the
internal auditors independently have full and free access to the Committee,
without the presence of management, to discuss any matters which they feel
require attention.
-49- (1995 Annual Report p. 52)<PAGE>
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, 1995 and 1994, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1995. 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, 1995 and 1994, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in Note 4 to the financial statements, the Company changed its
method of accounting for certain investments in debt and equity securities in
1994.
/s/ Ernst & Young LLP
New York, New York
February 8, 1996
-50- (1995 Annual Report p. 52)<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
American Express Company
(millions, except per share amounts and where italicized)
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
OPERATING RESULTS
<S> <C> <C> <C> <C> <C>
Net revenues $15,841 $14,282 $13,254 $14,255 $13,244
Percent increase (decrease) 11% 8% (7%) 8% 5%
Expenses 13,658 12,391 10,928 13,359 12,622
Income from continuing operations before
accounting changes:
As reported 1,564 1,380 1,605 578 607
Adjusted* 1,564 1,380 1,172 153 607
Net income 1,564 1,413 1,478 461 789
Return on average shareholders'
equity** 22.0% 20.3% 20.9% 3.1% 13.2%
------- ------- ------- ------- -------
ASSETS AND LIABILITIES
Cash and cash equivalents $3,200 $3,433 $3,312 $3,408 $3,391
Accounts receivable and accrued
interest, net 19,914 17,147 16,142 15,293 16,866
Investments 42,561 40,108 39,308 37,629 32,634
Loans, net 16,091 14,722 14,796 14,750 15,670
Total assets 107,405 97,006 94,132 90,112 84,541
Customers' deposits and credit
balances 9,889 10,013 11,131 11,637 12,693
Travelers Cheques outstanding 5,697 5,271 4,800 4,729 4,375
Insurance and annuity reserves 25,157 24,849 23,406 20,893 17,741
Short-term debt 17,654 14,810 12,489 11,163 12,396
Long-term debt 7,570 7,162 8,561 8,614 8,734
Shareholders' equity 8,220 6,433 8,734 7,499 7,465
------- ------- ------- ------- -------
COMMON SHARE STATISTICS
Income per share from continuing operations
before accounting changes:
As reported $3.11 $2.68 $3.17 $ 1.12 $1.21
Adjusted* $3.11 $2.68 $2.30 $.23 $1.21
Percent increase (decrease):
As reported 16% (15%) 183% (7%) (52%)
Adjusted* 16% 17% 900% (81%) (52%)
Net income per share $3.11 $2.75 $2.92 $ .88 $1.59
Cash dividends declared per share:
Actual $.90 $.925 $1.00 $1.00 $ .96
Proforma $.90 $.90 $.90 $.90 $ .86
Book value per share:
Actual $16.60 $12.57 $16.81 $14.58 $14.43
Pro forma** $14.79 $13.35 $11.81 $8.84 $8.62
Market price per share:
High $45.13 $32.00 $32.32 $22.39 $26.81
Low $29.00 $23.17 $19.75 $17.65 $15.89
Close $41.38 $29.50 $27.25 $21.95 $18.09
-51- (1995 Annual Report p. 53)<PAGE>
Average common shares outstanding
for income per share 498 509 500 477 470
Shares outstanding at year end 483 496 490 480 472
Number of shareholders of record 57,010 60,520 58,179 54,526 54,960
OTHER STATISTICS
Number of employees at year end:
United States 41,700 43,421 40,342 38,266 37,018
Outside United States 28,647 28,991 24,151 24,388 24,090
------- ------- ------- ------- -------
Total 70,347 72,412 64,493 62,654 61,108
======= ======= ======= ======= =======
</TABLE>
Note: Historical common share prices have been adjusted to reflect the Lehman
spin-off at a ratio based on the trading prices of the Company's common shares
and shares of Lehman common stock on May 31, 1994. Pro forma cash dividends
declared and book value per share have also been adjusted to reflect the
Lehman spin-off. For purposes of the pro forma book value per share
calculation, it is assumed that the spin-off includes the book value of the
Company's investment in Lehman at the balance sheet date plus the capital
infusion of approximately $904 million that was made immediately prior to the
spin-off. Excluding FDC from 1992 and 1991, net revenues were $13.1 billion
and $12.3 billion, respectively, and expenses were $12.4 billion and $11.8
billion, respectively.
*Adjusted to exclude the gains on the sale of FDC in 1993 and 1992 of $433
million and $425 million, respectively.
**Return on average shareholders' equity is based on adjusted income from
continuing operations before accounting changes and excludes the effect of
SFAS No. 115 in 1995 and 1994. In addition, book value per share excludes the
effect of SFAS No. 115 in 1995 and 1994.
-52- (1995 Annual Report p. 53)<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 Overseas Credit Jersey, Channel
Corporation Limited Islands
AEOCC Management Company, Ltd. Jersey, Channel
Islands
American Express Overseas Finance Netherlands
Company N.V. Antilles
American Express Overseas Credit Netherlands
Corporation N.V. Antilles
Credco Receivables Corp. Delaware
American Express Financial Services Ltd.(50% owned) England & Wales
American Express Receivables Financing Corp. Delaware
American Express Receivables Financing Corp. II Delaware
American Express do Brasil Tempo & Cia, Inc. Delaware
American Express do Brasil Servicos Brazil
Internacionais, Ltda. (90% owned)
American Express do Brazil Brazil
Tempo & Cia
American Express do Brasil S.A. Brazil
Turismo
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.)
<PAGE>
American Express de Espana, S.A. Spain
American Express Viajes, S.A. Spain
Amex Asesores de Seguros, SA Spain
American Express International (B) SDN.BHD (Brunei) Brunei
(50% owned by American Express International, Inc.)
Centurion Finance, Ltd. New Zealand
American Express International, Inc. Delaware
American Express Hungary KFT Hungary
American Express Company A/S Norway
American Express Reisebyra A/S Norway
AMEX Services, Inc. Delaware
American Express Company, S.p.A. 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
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
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.
American Express Voyages Tourisme France
Havas Voyages American Express (20% owned) France
Amex Sumigin Service Company, Ltd. (40% owned) Japan
American Express International Services Limited Russia
Amex Marketing Japan Ltd. Delaware
American Express Holdings AB Sweden
Nyman & Schultz Resebyraer AB Sweden
Nyman & Schultz AB (95% owned 5% TMG Sweden
Intressenter AB)
Nyman & Schultz Grupp och Konferens AB Sweden
Resespecialisterna Syd AB (84% owned) Sweden
Resespecialisterna Helsingborg AB Sweden
(84% owned)
Nyman & Schultz Group AB Sweden
Book Hotel AB Sweden
Forsakringsaktiebolaget Viator Sweden
First Card AB Sweden
Profil Rejser A/S (30% owned 20% Denmark
Resespecialisterna Syd AB)
Resespecialisterna Enkoping AB (26% owned) Sweden
Resepecialisterne ApS Sweden
Scandinavian Express AB Sweden
Oy Scandinavian Express Finland AB Sweden
-2-<PAGE>
Central Hotel AB Sweden
Nyman & Schultz Forretningsreiser A/S Norway
American Express Insurance Marketing, Inc. Taiwan
American Express Publishing Corp. New York
Southwest Media Corporation Texas
Societe Francaise du Cheque de Voyage, S.A. France
(34% owned)
Repertoire International, Inc. Delaware
Travellers Cheque Associates, Ltd. (54% owned) England & Wales
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 & Wales
Travel Places (Incentives) Ltd. England & Wales
American Express Services Europe Limited England & Wales
& Delaware
American Express Ireland, Ltd. Ireland
American Express Insurance Services, Ltd. England & Wales
Amex Services Europe Limited England & Wales
American Express Group and Incentive Michigan
Services, Inc. (90% owned)
American Express TRS, Inc. Florida
Cardmember Financial Services, Ltd. Jersey, Channel
Islands
Holdinsco, Inc. Delaware
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 Travel Management, Ltd. England & Wales
Mark Allan Travel Inc. California
American Express (China) Ltd. Utah
American Express Special Teams, Inc. South Dakota
American Express General Insurance Agency Taiwan
American Express Telecom, Inc. Delaware
American Express Bank (Mexico), S.A. Mexico
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. Minnesota
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
-3-<PAGE>
IDS Certificate Company Delaware
Investors Syndicate Development Corp. Nevada
IDS Fund Management Limited England & Wales
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
American Express Insurance Agency of Nevada Inc. Nevada
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 Subsidiaries
American Express Bank Ltd. Connecticut
American Express International Netherlands
Finance Corporation B.V. Antilles
American Express International Finance Netherlands
Corporation N.V. Antilles
American Express Management Services Inc. Delaware
Amex Human Resources (Japan) Inc. Delaware
Amex Holdings, Inc. Delaware
American Express Bank GmbH Germany
Amex Grundstuecksverwaltung GmbH Germany
AEB - International Portfolios
Management Company Luxembourg
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
International Trade Services Pte Ltd. Singapore
Amex International Trust (Guernsey) Limited Guernsey
January Real Estate Cayman Islands
Etoral Finance, Inc. Panama
-4-<PAGE>
Sociedad Del Desarrollo Mercantil Chile
Ltda. (50% owned by each of Amex
Holdings, Inc. and Etoral Finance, Inc.)
Remor and Associates Inc. Panama
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
AEB WorldFolio Capital Preservation
Management Co. S.A. Luxembourg
American Express Bank (Uruguay) S.A. Uruguay
Amex International Trust (Cayman) Ltd. Cayman Islands
OLP Investments Ltd. Cayman Islands
American Express Leasing Corporation Delaware
Aires Aircraft Leasing (US), 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 & Wales
Bexim International S.A. (45% owned) Panama
American Express Nominees Private Limited India
The American Express Nominees Limited England & Wales
Argentamex S.A. Argentina
Amex do Brasil Empreendimentos e Participacoes Ltda. Brazil
(57.84% owned, 42.15% AHI, 0.01% Amex
International Inc.)
Amex Capital Investments (UK) Ltd. England & Wales
Logicfull Limited England & Wales
Amexnet Limited England & Wales
AEB (UK) PLC England & Wales
Amex Nominees (S) Pte Ltd. Singapore
Amex Bank Nominee Hong Kong Limited Hong Kong
First International Investment Bank Ltd. Pakistan
(20% owned)
American Express (Poland) Ltd. Delaware
Geneva Nominees Limited England & Wales
Tata Finance Ltd. (3.2% owned) India
Purbeck Petroleum Limited (25.1% owned) England & Wales
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
Ainwick Corporation Texas
Alair Holdings, Incorporated Delaware
American Express Asset Management Holdings, Inc. Delaware
American Express Corporation Delaware
Amexco Insurance Company Vermont
Amexco Risk Financing Holding Company Delaware
AMEX Assurance Company Illinois
-5-<PAGE>
Union Bancaire Privee CBI-TDB (20% owned) Switzerland
National Express Company, Inc. New York
The Balcor Company Holdings, Inc. Delaware
Balcor Real Estate Holdings, Inc. Delaware
The Balcor Company Delaware
Balcor Securities Company Illinois
Balcor Development Company Illinois
Balcor Institutional Realty Advisors, Inc. Illinois
Balcor Financial Resources, Inc. Delaware
Balcor Capital Markets, Inc. Illinois
Balcor Consulting Group Illinois
Balcor Realty Company Illinois
Balcor Management Services, Inc. Illinois
International Capital Corporation Delaware
Intercapital Comercio e Participacoes Ltda. Brazil
Conepar Compania Nordestina de Brazil
Participacoes S.A. (31.92% owned)
Convertible Holding Ltd. Cayman Islands
CTH Common Holdings Ltd. Cayman Islands
CTH Preferred Holdings Ltd. Cayman Islands
Complejos Turisticos Huatulco, Mexico
S.A. de C.V. (84% of preferred stock)
Acamex Holdings 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
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
Daedalus Leasing Corp. New York
Dash 200 + Ltd. (50% owned) Cayman Islands
Carter Leasing Inc. Delaware
Aries Aircraft Leasing Limited Cayman Islands
Nora Leasing, Inc. New York
Nora 737 Leasing, Inc. New York
Gemini Leasing Ltd. Cayman Islands
Wings Aircraft Leasing Corp. Belgium
AKW Aircraft Leasing Corporation Limited England & Wales
Jesem Aviation Corp. New York
MME Leasing Corp. New York
C Power, Inc. New York
Exatco Limited (50% owned) Bermuda
Far East Leasing Ltd. Cayman Islands
747-2, Inc. New York
-6-<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Consolidated Balance Sheet at December 31, 1995 and Consolidated
Statement of Income for the year ended December 31, 1995 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,200
<SECURITIES> 42,561
<RECEIVABLES> 20,743
<ALLOWANCES> 829
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,546
<DEPRECIATION> 1,763
<TOTAL-ASSETS> 107,405
<CURRENT-LIABILITIES> 0
<BONDS> 25,224
0
200
<COMMON> 290
<OTHER-SE> 7,730
<TOTAL-LIABILITY-AND-EQUITY> 107,405
<SALES> 0
<TOTAL-REVENUES> 15,841
<CGS> 0
<TOTAL-COSTS> 7,351
<OTHER-EXPENSES> 1,523
<LOSS-PROVISION> 3,542
<INTEREST-EXPENSE> 1,242
<INCOME-PRETAX> 2,183
<INCOME-TAX> 619
<INCOME-CONTINUING> 1,564
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,564
<EPS-PRIMARY> 3.11
<EPS-DILUTED> 0
</TABLE>
