<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission file number 1-7657
AMERICAN EXPRESS COMPANY
(Exact name of registrant as specified in its charter)
New York State 13-4922250
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
World Financial Center, 200 Vesey Street, New York, NY 10285
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 640-2000
None
- -----------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since
last report.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at April 30, 1997
- --------------------------------- -------------------------------
Common Shares (par value $.60 per share) 470,989,424 shares
<PAGE>
AMERICAN EXPRESS COMPANY
FORM 10-Q
INDEX
Part I. Financial Information:
Consolidated Statement of Income--Three 1
months ended March 31, 1997 and 1996
Consolidated Balance Sheet--March 31, 2
1997 and December 31, 1996
Consolidated Statement of Cash Flows--Three 3
months ended March 31, 1997 and 1996
Notes to Consolidated Financial Statements 4
Management's Discussion and Analysis of 5-15
Financial Condition and Results of Operations
Review Report of Independent Accountants 16
Part II. Other Information 17
<PAGE>
PART I--FINANCIAL INFORMATION
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENT OF INCOME
(dollars in millions, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
--------------------------
1997 1996
-------- --------
Net Revenues:
Discount revenue $1,306 $1,141
Interest and dividends, net 776 838
Net card fees 405 421
Travel commissions and fees 336 325
Other commissions and fees 345 305
Cardmember lending net finance charge
revenue 288 275
Management and distribution fees 331 279
Life insurance premiums 106 97
Other 271 228
------ ------
Total 4,164 3,909
------ ------
Expenses:
Human resources 1,127 1,022
Provisions for losses and benefits:
Annuities and investment certificates 347 351
Life insurance and other 132 137
Charge card 190 210
Cardmember lending 211 188
Interest:
Charge card 169 167
Other 26 124
Occupancy and equipment 272 288
Marketing and promotion 214 207
Professional services 214 202
Communications 112 102
Other 510 346
------ ------
Total 3,524 3,344
------ ------
Pretax income 640 565
Income tax provision 186 169
------ ------
Net income $ 454 $ 396
====== ======
Net income per common share $ 0.94 $ 0.80
====== ======
Average common and common equivalent
shares outstanding 482.1 490.6
====== ======
Cash dividends declared per
common share $0.225 $0.225
====== ======
See notes to Consolidated Financial Statements.
1<PAGE>
AMERICAN EXPRESS COMPANY
CONSOLIDATED BALANCE SHEET
(millions)
(Unaudited)
March 31, December 31,
1997 1996
--------------- -------------
Assets
- ------
Cash and cash equivalents $ 3,170 $ 2,677
Accounts receivable and accrued interest:
Cardmember receivables, less reserves:
1997, $642; 1996, $658 16,732 17,938
Other receivables, less reserves:
1997, $73; 1996, $64 2,432 2,553
Investments 38,140 38,339
Loans:
Cardmember lending, less reserves:
1997, $545; 1996, $482 12,368 12,194
International banking, less reserves:
1997, $131; 1996, $117 5,951 5,760
Other, net 863 564
Separate account assets 18,413 18,535
Deferred acquisition costs 2,728 2,660
Land, buildings and equipment--at cost, less
accumulated depreciation: 1997, $1,874;
1996, $1,852 1,568 1,675
Other assets 5,740 5,617
-------- --------
Total assets $108,105 $108,512
======== ========
Liabilities and Shareholders' Equity
- ------------------------------------
Customers' deposits $ 10,603 $ 9,555
Travelers Cheques outstanding 5,766 5,838
Accounts payable 4,909 4,601
Insurance and annuity reserves:
Fixed annuities 21,926 21,838
Life and disability policies 3,891 3,836
Investment certificate reserves 3,296 3,265
Short-term debt 17,324 18,402
Long-term debt 6,331 6,552
Separate account liabilities 18,413 18,535
Other liabilities 7,264 7,562
-------- --------
Total liabilities 99,723 99,984
Shareholders' equity:
Common shares, $.60 par value, authorized
1.2 billion shares; issued and outstanding
470.9 million shares in 1997 and 472.9
million shares in 1996 283 284
Capital surplus 4,219 4,191
Net unrealized securities gains 172 386
Foreign currency translation adjustment (88) (89)
Retained earnings 3,796 3,756
-------- --------
Total shareholders' equity 8,382 8,528
-------- --------
Total liabilities and shareholders' equity $108,105 $108,512
======== ========
See notes to Consolidated Financial Statements.
2<PAGE>
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(millions)
(Unaudited)
Three
Months Ended
March 31,
-------------------------
1997 1996
---------- ---------
Cash Flows from Operating Activities
Net income $454 $ 396
Adjustments to reconcile net income to
net cash provided by operating activities:
Provisions for losses and benefits 560 617
Depreciation, amortization, deferred taxes and
other 94 37
Changes in operating assets and liabilities,
net of effects of acquisitions and dispositions:
Accounts receivable and accrued interest 258 500
Other assets 38 (468)
Accounts payable and other liabilities (39) (497)
(Decrease)/increase in Travelers Cheques
outstanding (70) 203
Increase in insurance reserves 34 66
------- -------
Net cash provided by operating activities 1,329 854
------- -------
Cash Flows from Investing Activities
Sale of investments 548 1,225
Maturity and redemption of investments 1,714 1,959
Purchase of investments (2,529) (2,367)
Net decrease in Cardmember receivables 745 1,299
Proceeds from repayment of loans 6,133 6,004
Issuance of loans (6,990) (6,341)
Purchase of land, buildings and equipment (55) (88)
Sale of land, buildings and equipment 65 69
------- -------
Net cash (used) provided by investing activities (369) 1,760
------- -------
Cash Flows from Financing Activities
Net increase (decrease) in customers' deposits 1,223 (516)
Sale of annuities and investment certificates 1,349 1,413
Redemption of annuities and investment
certificates (1,239) (1,579)
Net (decrease) increase in debt with maturities
of 3 months or less (249) 1,670
Issuance of debt 2,151 4,194
Principal payments on debt (3,369) (5,035)
Issuance of American Express common shares 70 110
Repurchase of American Express common shares (285) (333)
Dividends paid (106) (113)
------- -------
Net cash (used) provided by financing activities (455) (189)
Effect of exchange rate changes on cash (12) 4
------- -------
Net increase in cash and cash equivalents 493 2,429
Cash and cash equivalents at beginning of period 2,677 3,200
------- -------
Cash and cash equivalents at end of period $3,170 $5,629
======= =======
See notes to Consolidated Financial Statements.
3<PAGE>
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
1. The consolidated financial statements should be read in conjunction
with the financial statements in the Annual Report on Form 10-K of
American Express Company (the Company or American Express) for the year
ended December 31, 1996. Certain prior year's amounts have been
reclassified to conform to the current year's presentation.
Significant accounting policies disclosed therein have not changed.
The consolidated financial statements are unaudited; however, in the
opinion of management, they include all normal recurring adjustments
necessary for a fair presentation of the consolidated financial
position of the Company at March 31, 1997 and December 31, 1996, the
consolidated results of its operations for the three months ended March
31, 1997 and 1996 and cash flows for the three months ended March 31,
1997 and 1996. Results of operations reported for interim periods are
not necessarily indicative of results for the entire year.
2. Cardmember Lending Net Finance Charge Revenue is presented net of
interest expense of $143 million and $129 million for the three months
ended March 31, 1997 and 1996, respectively. Interest and Dividends is
presented net of interest expense of $136 million and $134 million for
the three months ended March 31, 1997 and 1996, respectively, related
to the Company's international banking operations.
3. The following is a summary of investments:
March 31, December 31,
(In millions) 1997 1996
---------- ------------
Held to Maturity, at amortized cost
(fair value: 1997, $12,633; 1996,
$13,439) $12,481 $13,063
Available for Sale, at fair value (cost:
1997, $21,108; 1996, $20,366) 21,369 20,978
Investment mortgage loans (fair value:
1997, $3,754; 1996, $3,827) 3,742 3,712
Trading 548 586
------------ -----------
$38,140 $38,339
============ ===========
4. Net income taxes paid during the three months ended March 31, 1997 were
approximately $213 million. Net income taxes refunded during the three
months ended March 31, 1996 were approximately $42 million. Interest
paid during the three months ended March 31, 1997 and 1996 was
approximately $617 million and $612 million, respectively.
4<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Consolidated Results Of Operations For The Three Months Ended March 31,
1997 and 1996
The Company's consolidated net income rose 15 percent in the first quarter
of 1997 compared with a year ago; net income per share increased 18
percent. These results exceeded the Company's long-term targets of
12-15 percent annual earnings per share improvement and return on equity
of 18-20 percent on average and over time. The Company also has targeted
at least two-thirds of that earnings growth, or 8-10 percent, to come from
higher revenues. Revenue growth for the quarter was somewhat below that
target. Consolidated revenues rose 6.5 percent compared with last year as
a result of higher worldwide billed business and Cardmember loans
outstanding as well as higher management and distribution fees. These
improvements were partially offset by revenue sacrifices resulting from
the Company's lending business building strategy and declines in card fees
and investment income. Consolidated expenses were 5.4 percent higher,
primarily due to human resource and operating expenses to support business
expansion and loyalty programs.
Consolidated Liquidity and Capital Resources
In October 1996, the Company's Board of Directors authorized the Company
to repurchase up to 40 million common shares over the next two to three
years, subject to market conditions. This authorization is in addition to
two previous repurchase plans, beginning in 1994, under which the Company
repurchased a total of 60 million common shares. These plans are
primarily designed to allow the Company to systematically purchase shares
to offset the issuance of new shares as part of employee compensation
plans. Since inception of the initial plan in 1994 the Company has
repurchased 65.7 million common shares and canceled 57.8 million common
shares under the repurchase programs at an average price of $41.01 per
share. In the first quarter of 1997, the Company repurchased 5.2 million
common shares and canceled 8.9 million common shares under the repurchase
programs at an average price of $65.13 per share.
Accounting Development
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
which is effective and will be adopted by the Company at December 31, 1997.
No material effect on the earnings per share of the Company is expected.
5<PAGE>
Travel Related Services
Results of Operations For The Three Months Ended March 31, 1997 and 1996
Statement of Income
-------------------
(Unaudited)
(Amounts in millions, except percentages)
Quarter Ended
March 31,
--------------- Percentage
1997 1996 Inc/(Dec)
---- ---- ----------
Net Revenues:
Discount Revenue $1,306 $1,141 14.5%
Net Card Fees 405 421 (3.9)
Travel Commissions and Fees 336 325 3.9
Interest and Dividends 132 191 (30.7)
Other Revenues 503 424 18.2
------- -------
2,682 2,502 7.2
------- -------
Lending:
Finance Charge Revenue 431 404 6.5
Interest Expense 143 129 10.5
------- -------
Net Finance Charge Revenue 288 275 4.7
------- -------
Total Net Revenues 2,970 2,777 6.9
------- -------
Expenses:
Marketing and Promotion 202 200 1.1
Provision for Losses and Claims:
Charge Card 190 210 (9.4)
Lending 211 188 12.3
Other 24 24 (3.6)
------- -------
Total 425 422 0.6
------- -------
Interest Expense:
Charge Card 169 167 1.4
Other 35 95 (63.4)
------- -------
Total 204 262 (22.3)
Net Discount Expense 151 126 20.5
Human Resources 749 704 6.4
Other Operating Expenses 790 647 22.0
------- -------
Total Expenses 2,521 2,361 6.7
------- -------
Pretax Income 449 416 8.1
Income Tax Provision 134 130 3.8
------- -------
Net Income $315 $286 10.1
======= =======
6<PAGE>
Travel Related Services
Selected Statistical Information
---------------------------------
(Unaudited)
(Amounts in billions, except percentages and where indicated)
Quarter Ended
March 31,
-------------- Percentage
1997 1996 Inc/(Dec)
---- ---- ----------
Total Cards in Force (millions):
United States 29.6 27.1 9.1%
Outside the United States 12.3 11.6 6.4
------ ------
Total 41.9 38.7 8.3
====== ======
Basic Cards in Force (millions):
United States 22.9 20.5 12.0
Outside the United States 9.6 9.2 4.7
------ ------
Total 32.5 29.7 9.7
====== ======
Card Billed Business:
United States $34.6 $29.8 16.5
Outside the United States 13.3 11.8 12.4
------ ------
Total $47.9 $41.6 15.3
====== ======
Average Discount Rate* 2.75% 2.76% -
Average Basic Cardmember
Spending (dollars)* $1,498 $1,427 5.0
Average Fee per Card (dollars)* $39 $44 (11.4)
Travel Sales $3.9 $3.6 9.0
Travel Commissions and Fees/Sales** 8.6% 9.0% -
Travelers Cheque Sales $5.1 $5.3 (3.4)
Average Travelers Cheques Outstanding $5.8 $5.7 0.3
Owned and Managed Charge Card
Receivables:
Total Receivables $21.2 $18.8 12.9%
90 Days Past Due as a % of Total 3.5% 4.1% -
Loss Reserves (millions) $921 $991 (7.1)
% of Receivables 4.3% 5.3% -
% of 90 Days Past Due 124% 129% -
Net Loss Ratio 0.50% 0.51% -
Owned and Managed U.S. Cardmember
Lending:
Total Loans $12.9 $10.2 25.9
Past Due Loans as a % of Total:
30-89 Days 2.6% 2.5% -
90+ Days 1.0% 1.0% -
Loss Reserves (millions):
Beginning Balance $488 $443 10.0
Provision 201 170 18.3
Net Charge-Offs/Other (156) (130) 20.0
------ ------
Ending Balance $533 $483 10.2
====== ======
% of Loans 4.1% 4.7% -
% of Past Due 115% 136% -
Average Loans $12.8 $10.2 25.6
Net Write-Off Rate 5.1% 5.2% -
Net Interest Yield 8.7% 9.4% -
Note: Owned and managed Cardmember receivables and loans include securitized
assets not reflected in the consolidated balance sheet.
* Computed excluding Cards issued by strategic alliance partners and
independent operators as well as business billed on those Cards.
** Computed from information provided herein.
7<PAGE>
Travel Related Services' (TRS) net income rose 10 percent from last year's
first quarter. Net revenues increased 7 percent, primarily due to higher
worldwide billed business and growth in Cardmember loans outstanding.
This increase was partially offset by lower card fees and interest
revenues. Excluding the impact of securitizing a portion of the card
portfolios and a reduction in investments related to the consolidation of
certain legal entities within the consumer lending business, revenues rose
9 percent from last year's first quarter. The improvement in discount
revenue is due to an increase in billed business, which reflects a greater
number of cards outstanding and higher spending per Cardmember, in part
due to the benefits of rewards programs and expanded merchant coverage.
The growth in cards is largely attributable to the introduction of new
consumer and small business credit card products consistent with the
Company's strategy of building its lending portfolio through the issuance
of low- and no-fee credit cards. This strategy and a decline in
consumer charge cards outstanding led to a 4 percent decrease in net card
fees. Interest and dividends declined primarily as a result of a reduction in
investments related to the consolidation of certain legal entities within
the consumer lending business. This consolidation resulted in a decrease in
both interest revenue and other interest expense by approximately $36 million.
Lending net finance charge revenue was reduced by the effect of the $1 billion
asset securitization in the second quarter of 1996. Excluding this asset
securitization, lending net finance charge revenue rose by 16 percent
primarily as a result of a 25 percent growth in worldwide lending
balances. The growth in balances was partially offset by lower net
interest yields on the U.S. portfolio, as a higher portion of the
portfolio is subject to introductory rates.
The charge card provision for losses declined, particularly in Latin
America and the small business card portfolio. The lending provision for
losses rose primarily because of growth in outstanding loans. Human
resource expenses rose due to merit increases and higher contract
programmer costs for technology related projects. Other operating expenses
were above the prior year due to the cost of Cardmember loyalty programs,
business growth and investment spending.
TRS' charge card securitization program resulted in net discount expense
of $151 million and $126 million in the first quarter of 1997 and 1996,
respectively. For the first quarter of 1997 and 1996, the charge card
securitization reduced charge card provision by $62 million and $54
million, respectively, and charge card interest expense by $58 million and
$41 million, respectively. The second quarter 1996 loan securitization
program decreased lending net finance charge revenue and the lending
provision by $30 million and $11 million, respectively in the first
quarter of 1997. The asset securitization programs resulted in fee revenue
of $50 million and $31 million in the first quarter of 1997 and 1996,
respectively. Securitizations did not have a material effect on net income.
8<PAGE>
Travel Related Services
Liquidity and Capital Resources
Selected Balance Sheet Information
-----------------------------------
(Unaudited)
(Amounts in billions, except percentages)
March 31, December 31, Percentage March 31, Percentage
1997 1996 Inc/(Dec) 1996 Inc/(Dec)
--------- ------------ ----------- --------- ---------
Accounts Receivable, net $18.1 $19.5 (7.2)% $16.5 9.9%
Investments $ 6.1 $ 6.5 (5.7) $ 9.0 (32.2)
U.S. Cardmember Lending
Balances $11.9 $11.7 1.5 $10.2 16.1
Total Assets $41.7 $43.1 (3.2) $45.2 (7.8)
Travelers Cheques
Outstanding $ 5.8 $ 5.8 (1.2) $ 5.9 (2.3)
Short-term debt $17.3 $18.4 (6.4) $18.5 (7.0)
Long-term debt $ 4.8 $ 5.0 (4.1) $ 4.6 5.6
Total Liabilities $36.9 $38.4 (3.8) $40.3 (8.4)
Total Shareholder's Equity $ 4.8 $ 4.7 1.9 $ 4.9 (2.4)
Return on Average Equity* 26.3% 25.6% - 24.7% -
Return on Average Assets* 2.9% 2.8% - 2.5% -
* Excluding the effect of SFAS #115 and the fourth quarter 1996 restructuring
charge of $125 million after-tax.
Growth in the U.S. Small Business and Consumer Lending portfolios led to
an increase in Cardmember loans since year end. During the quarter,
management responsibility for approximately $300 million of consumer loans
sold through American Express Financial Advisors (AEFA) was transferred to
that unit; therefore, the balances are no longer reported within TRS.
9<PAGE>
American Express Financial Advisors
Results of Operations For The Three Months Ended March 31, 1997 and 1996
Statement of Income
--------------------
(Unaudited)
(Amounts in millions, except percentages and where indicated)
Quarter Ended
March 31,
------------------ Percentage
1997 1996 Inc/(Dec)
---- ---- ----------
Revenues:
Investment Income $570 $569 0.1%
Management and Distribution Fees 331 279 18.6
Other Revenues 183 155 18.4
------ ------
Total Revenues 1,084 1,003 8.1
------ ------
Expenses:
Provision for Losses and Benefits:
Annuities 305 298 2.6
Insurance 104 109 (4.0)
Investment Certificates 42 53 (21.8)
------ ------
Total 451 460 (1.8)
Human Resources 300 246 21.6
Other Operating Expenses 97 101 (4.0)
------ ------
Total Expenses 848 807 5.1
------ ------
Pretax Income 236 196 20.5
Income Tax Provision 79 66 19.4
------ ------
Net Income $157 $130 21.0
====== ======
Revenues, Net of Provisions $633 $544 16.4%
Life Insurance in Force (billions) $69.2 $61.2 13.1
Deferred Annuities in Force (billions) $38.0 $33.4 13.5
Assets Owned and/or Managed (billions):
Assets managed for institutions $36.4 $32.7 11.4
Assets owned and managed for individuals:
Owned Assets:
Separate Account Assets 18.4 15.8 16.8
Other Owned Assets 34.9 33.2 4.9
----- ------
Total Owned Assets 53.3 49.0 8.7
Managed Assets 60.0 51.4 16.6
----- ------
Total $149.7 $133.1 12.4
===== ======
Market Appreciation (Depreciation) During
the Period:
Owned Assets:
Separate Account Assets $(544) $458 -
Other Owned Assets $(244) $(283) (13.8)
Total Managed Assets $(1,624) $1,165 -
Sales of Selected Products:
Mutual Funds $4,029 $3,569 12.9
Annuities $870 $1,155 (24.6)
Investment Certificates $190 $136 40.1
Life and Other Insurance Sales $103 $95 8.1
Number of Financial Advisors 8,426 7,954 5.9
Fees From Financial Plans(thousands) $13,336 $11,623 14.7
Product Sales Generated from
Financial Plan as a Percentage
of Total Sales 64.6% 63.3% -
10<PAGE>
American Express Financial Advisors' (AEFA) revenue and earnings growth for
the first quarter of 1997 was due to increased management fees from higher
managed asset levels, including separate account assets, and greater
distribution fees driven by record mutual fund sales. The growth in managed
assets was caused by net sales and market appreciation since the year ago
period. The first quarter 1997 results are consistent with a shift in the mix
of product sales from fixed-return to fee generating variable return
products, as well as maturities and calls of higher yielding investments.
Investment revenues were even with a year ago, as a slight increase in
investments was offset by lower yields. Other revenues rose primarily as a
result of higher life insurance premiums, as well as growth in financial
planning and tax preparation fees.
Provisions for annuities increased in the first quarter of 1997 reflecting
higher business in force; accrual rates remained constant. The provision
for insurance declined resulting from favorable claims experience. The
provision for investment certificates fell due to lower certificates in
force and accrual rates. Human resources expense rose due to volume-
driven growth in sales compensation and rising home office expenses
reflecting growth within the technology and client service organizations
and from recent acquisitions. The decline in other operating expenses is
primarily due to lower accruals for state insurance guarantee assessments.
11
<PAGE>
American Express Financial Advisors
Liquidity and Capital Resources
American Express Financial Advisors
-----------------------------------
Selected Statistical Information
--------------------------------
(Unaudited)
(Amounts in billions, except percentages)
March 31, December 31, Percentage March 31, Percentage
1997 1996 Inc./(Dec) 1996 Inc./(Dec)
-------- ----------- ---------- --------- ----------
Investments $28.9 $28.6 0.7% $28.2 2.3%
Separate Account Assets $18.4 $18.5 (0.7) $15.8 16.8
Total Assets $53.3 $52.7 1.2 $49.0 8.7
Client Contract Reserves $29.1 $28.9 0.6 $28.6 1.8
Total Liabilities $50.1 $49.5 1.4 $46.1 8.9
Total Shareholder's Equity $3.1 $3.2 (2.1) $2.9 6.4
Return on Average Equity* 20.8% 20.4% - 19.6% -
* Excluding the effect of SFAS #115.
AEFA's total assets rose slightly from year end as net sales and the
transfer of approximately $300 million of consumer loans to AEFA from TRS
were partially offset by market depreciation.
12
<PAGE>
American Express Bank
Results of Operations For The Three Months Ended March 31, 1997 and 1996
Statement of Income
--------------------
(Unaudited)
(Amounts in millions, except percentages)
Quarter Ended
March 31,
------------- Percentage
1997 1996 Inc/(Dec)
---- ---- ----------
Net Revenues:
Interest Income $218 $211 3.2%
Interest Expense 136 134 1.6%
------ ------
Net Interest Income 82 77 6.1%
Commissions, Fees and
Other Revenues 52 49 7.2%
Foreign Exchange Income 19 20 (2.3)%
------ ------
Total Net Revenues 153 146 5.3%
------ ------
Provision for Credit Losses 2 4 (45.4)%
------ ------
Expenses:
Human Resources 58 56 3.2%
Other Operating Expenses 61 57 8.3%
------ ------
Total Expenses 119 113 5.7%
------ ------
Pretax Income 32 29 10.5%
Income Tax Provision 12 10 14.7%
------ ------
Net Income $20 $19 8.2%
====== ======
The improvement in American Express Bank's (the Bank) first quarter 1997
earnings primarily reflects higher revenues due to increased net interest
income on loans and investments. These were largely offset by growth in
operating expenses, principally due to technology systems investments.
13
<PAGE>
American Express Bank
Liquidity and Capital Resources
Selected Statistical Information
---------------------------------
(Unaudited)
(Amounts in billions, except percentages and where indicated)
March 31, December 31, Percentage March 31, Percentage
1997 1996 Inc/(Dec) 1996 Inc/(Dec)
----------- ----------- ---------- -------- ---------
Investments $2.8 $2.8 (1.8)% $2.4 17.5%
Total Loans $6.1 $5.9 3.5 $5.3 14.2
Reserve for Credit
Losses (millions) $131 $117 12.4 $110 19.3
Reserves as a Percentage
of Total Loans 2.2% 2.0% - 2.1% -
Total Nonperforming
Loans (millions) $46 $35 31.7 $35 31.0
Other Real Estate
Owned (millions) $35 $36 (2.6) $43 (19.8)
Total Assets $12.7 $12.3 2.7 $11.8 7.8
Deposits $9.1 $8.7 4.8 $8.1 12.3
Total Liabilities $11.9 $11.6 3.0 $11.0 8.0
Total Shareholder's
Equity (millions) $787 $799 (1.5) $746 5.5
Risk-Based Capital Ratios:
Tier 1 8.7% 8.8% - 9.0% -
Total 11.8% 12.5% - 12.9% -
Leverage Ratio 5.6% 5.6% - 5.5% -
Return on Average Assets* 0.69% 0.55% - 0.64% -
Return on Average Common
Equity* 11.14% 8.89% - 10.57% -
* Excluding the effect of SFAS #115.
During the first quarter of 1997, the Bank had an $18 million loan
recovery from Peru, which was used to increase the reserve for credit
losses. The Bank also received an unfavorable court ruling relating to
the collapse of the Bank of Credit and Commerce International (BCCI) in
1991. When BCCI assets were forfeited to the Federal Government, the Bank
turned over funds that it held in accounts of BCCI, including
approximately $24 million in funds it claimed as setoffs against
obligations of BCCI then outstanding to the Bank. The recent court ruling,
in effect, denied the Bank's claims to the funds that were taken as
setoffs. This matter is not expected to have a material impact on the
Bank's results.**
**This is a forward-looking statement which is subject to risks and
uncertainties. Important factors that could cause results to differ
materially from the forward looking statement include, among other things,
unanticipated events at the Bank during the remainder of the year such as
other litigation and credit losses.
14
<PAGE>
Corporate and Other
Corporate and Other reported first quarter 1997 net expenses of $38
million which was level with the past year. The first quarter of 1997
includes a $7 million pretax benefit from an earnings payout by Lehman
Brothers Holdings, Inc. (related to its 1994 spin-off by the Company)
which was fully offset by costs associated with the Company's business
initiatives such as Financial Direct and Workplace Services. The first
quarter of 1996 included a $46 million pretax benefit from a revenue
payout by Travelers Inc. (related to the sale of the Shearson Lehman Brothers
Division in 1993) which was also fully offset by costs associated with the
Company's business initiatives. 1996 was the last year the Company was
eligible to receive this revenue payout.
15
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Shareholders and Board of Directors
American Express Company
We have reviewed the accompanying consolidated balance sheet of American
Express Company (the "Company") as of March 31, 1997 and the related
consolidated statements of income and cash flows for the three-month periods
ended March 31, 1997 and 1996. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data, and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, which will
be performed for the full year with the objective of expressing an opinion
regarding the consolidated financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of the Company as of December 31,
1996, and the related consolidated statements of income, shareholders' equity,
and cash flows for the year then ended (not presented herein), and in our
report dated February 7, 1997, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth
in the accompanying consolidated balance sheet as of December 31, 1996 is
fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
/s/ Ernst & Young LLP
New York, New York
May 15, 1997
16
<PAGE>
PART II. OTHER INFORMATION
AMERICAN EXPRESS COMPANY
Item 1. Legal Proceedings
Several shareholder derivative actions were brought in 1990 and in early
1991 in the New York Federal District Court (Lewis v. Robinson, et al.) and
in New York State Supreme Court (Seinfeld v. Robinson) against all of the
then current directors, certain former directors and certain former officers
and employees of the registrant. The federal actions were dismissed in
1993. The consolidated state actions were settled with the state
court's approval in February 1997 with the implementation of certain internal
procedures. The state court denied the request of plaintiffs' counsel
for attorneys' fees and expenses payable by the registrant, which denial
was appealed by the plaintiffs on May 1, 1997.
On December 13, 1996, an action entitled Lesa Benacquisto and
Daniel Benacquisto vs. IDS Life Insurance Company ("IDS Life") and
American Express Financial Corporation was commenced in Minnesota state
court. The action is brought by individuals who replaced an existing IDS
Life insurance policy with a new IDS Life policy. The plaintiffs purport
to represent a class consisting of all persons who replaced existing IDS
Life policies with new IDS Life policies from and after January 1, 1985.
The complaint puts at issue various alleged sales practices and
misrepresentations, alleged breaches of fiduciary duties and alleged
violations of consumer fraud statutes. Plaintiffs seek damages in an
unspecified amount and also seek to establish a claims resolution facility
for the determination of individual issues. IDS Life and AEFC filed an
answer to the complaint on February 18, 1997, denying the allegations.
A second action, entitled Arnold Mork, Isabella Mork, Ronald Melchert and Susan
Melchert v. IDS Life Insurance Company and American Express Financial
Corporation was commenced in the same court on March 21, 1997. In addition
to claims that are included in the Benacquisto lawsuit, the second action
includes an allegation of improper replacement of an existing IDS Life
annuity contract.
Both matters described above were previously reported in the registrant's
Annual Report on Form 10-K for the year ended December 31, 1996.
17
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
The registrant's annual meeting of shareholders was held on April 28,
1997. The matters that were voted upon at the meeting, and the number of
votes cast for, against or withheld, as well as the number of abstentions and
broker non-votes, as to each such matter, where applicable, are set forth
below.
Votes Votes Votes Broker
For Against Withheld Abstentions Non-Votes
----- ------- -------- ----------- ---------
Selection of
Ernst & Young LLP
as independent
auditors 400,745,454 794,065 - 920,188 -
Proposal relating
to amendment of the
Certificate of Incorp-
oration 393,674,764 2,517,722 - 6,267,221 -
Shareholder proposal
relating to cumula-
tive voting 81,259,859 222,949,438 - 50,056,610 48,193,800
Shareholder proposal
relating to compensation
of executives over
$250,000 11,486,606 337,796,742 - 4,982,559 48,193,800
Shareholder proposal
relating to the
CERES Principles 26,725,478 300,407,311 - 27,133,118 48,193,800
Shareholder proposal
relating to charitable
contributions 7,265,848 328,847,250 - 18,151,966 48,194,643
Election of Directors:
D.F. Akerson 401,289,046 - 1,170,661 - -
A.L. Armstrong 401,076,639 - 1,383,068 - -
E.L. Artzt 401,165,594 - 1,294,113 - -
W.G. Bowen 401,239,567 - 1,220,140 - -
K.I. Chenault 401,267,110 - 1,192,597 - -
C.W. Duncan Jr. 401,110,465 - 1,349,242 - -
H. Golub 401,281,313 - 1,178,394 - -
B. Sills Greenough 400,937,888 - 1,521,819 - -
F.R. Johnson 400,730,446 - 1,729,261 - -
V.E. Jordan Jr. 397,192,362 - 5,267,345 - -
J. Leschly 398,959,809 - 3,499,898 - -
D. Lewis 401,120,877 - 1,338,830 - -
A. Papone 397,554,677 - 4,905,030 - -
F.P. Popoff 401,254,204 - 1,205,503 - -
18
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on page E-1 hereof.
(b) Reports on Form 8-K:
Form 8-K, dated April 25, 1997, Item 5, relating to the
registrant's earnings for the quarter ended March 31, 1997.
Form 8-K/A, dated April 28, 1997, Item 5, amending the
Form 8-K dated April 25, 1997.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
AMERICAN EXPRESS COMPANY
------------------------
(Registrant)
Date: May 15, 1997 By /s/ Richard Karl Goeltz
----------------------- ------------------------
Richard Karl Goeltz
Vice Chairman and
Chief Financial Officer
Date: May 15, 1997 /s/ Daniel T. Henry
----------------------- -----------------------
Daniel T. Henry
Senior Vice President and
Comptroller
(Chief Accounting Officer)
20
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as part of this Quarterly
Report:
Exhibit Description
12 Computation in Support of Ratio of Earnings to Fixed
Charges.
15 Letter re Unaudited Interim Financial Information.
27 Financial Data Schedule.
E-1
<PAGE>
EXHIBIT 12
AMERICAN EXPRESS COMPANY
COMPUTATION IN SUPPORT OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
Three Months Years Ended December 31,
Ended March 31, ----------------------------------------
1997
(Unaudited) 1996 1995 1994 1993 1992
----------- ---- ---- ---- ---- ----
Earnings:
Pretax income from
continuing
operations $ 640 $2,664 $2,183 $1,891 $2,326 $ 896
Interest expense 474 2,160 2,343 1,925 1,776 2,171
Other adjustments 32 139 95 103 88 196
------ ------ ------ ------ ------ ------
Total earnings (a) $1,146 $4,963 $4,621 $3,919 $4,190 $3,263
------ ------ ------ ------ ------ ------
Fixed charges:
Interest expense $ 474 $2,160 $2,343 $1,925 $1,776 $2,171
Other adjustments 33 130 135 142 130 154
------ ------ ------ ------ ------ ------
Total fixed charges (b) $ 507 $2,290 $2,478 $2,067 $1,906 $2,325
------ ------ ------ ------ ------ ------
Ratio of earnings to
fixed charges (a/b) 2.26 2.17 1.86 1.90 2.20 1.40
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
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 15
May 15, 1997
The Shareholders and Board of Directors
American Express Company
We are aware of the incorporation by reference in the Registration Statements
(Form S-8 No. 2-46918, No. 2-59230, No. 2-64285, No. 2-73954,
No. 2-89680, No. 33-01771, No. 33-02980, No. 33-28721, No. 33-33552,
No. 33-36422, No. 33-48629, No. 33-62124, No. 33-65008, No. 33-53801 and
No. 333-12683; Form S-3 No. 2-89469, No. 33-43268, and No. 33-50997) of
American Express Company of our report dated May 15, 1997 relating to the
unaudited consolidated interim financial statements of American Express
Company which are included in its Form 10-Q for the three-month period
ended March 31, 1997.
Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not a part
of the registration statement prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
/s/ Ernst & Young LLP
New York, New York
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Consolidated Balance Sheet at March 31, 1997 and Consolidated
Statement of Income for the three months ended March 31, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,170
<SECURITIES> 38,140
<RECEIVABLES> 19,879
<ALLOWANCES> 715
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,442
<DEPRECIATION> 1,874
<TOTAL-ASSETS> 108,105
<CURRENT-LIABILITIES> 0
<BONDS> 23,655
0
0
<COMMON> 283
<OTHER-SE> 8,099
<TOTAL-LIABILITY-AND-EQUITY> 108,105
<SALES> 0
<TOTAL-REVENUES> 4,164
<CGS> 0
<TOTAL-COSTS> 1,939
<OTHER-EXPENSES> 510
<LOSS-PROVISION> 880
<INTEREST-EXPENSE> 195
<INCOME-PRETAX> 640
<INCOME-TAX> 186
<INCOME-CONTINUING> 454
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 454
<EPS-PRIMARY> 0.94
<EPS-DILUTED> 0
</TABLE>
