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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, 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 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
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Common Shares (par value $.60 per Share) New York Stock Exchange
Boston Stock Exchange
Chicago Stock Exchange
Pacific 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. X
--
Common shares of the registrant outstanding at March 25, 1998 were
465,067,374. The aggregate market value, as of March 25, 1998, of voting shares
held by non-affiliates of the registrant was approximately $44.2 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 1997 Annual Report to Shareholders.
Part III: Portions of Registrant's Proxy Statement dated March 10, 1998.
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TABLE OF CONTENTS
Form 10-K
Item Number
Part I Page
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1. Business
Travel Related Services ......................................... 1
American Express Financial Advisors ............................. 12
American Express Bank ........................................... 19
Corporate and Other ............................................. 27
Foreign Operations .............................................. 28
Important Factors Regarding Forward-Looking Statements .......... 29
Industry Segment Information and Classes of Similar Services .... 32
Executive Officers of the Company ............................... 32
Employees ....................................................... 35
2. Properties ......................................................... 35
3. Legal Proceedings .................................................. 36
4. Submission of Matters to a Vote of Security Holders ................ 37
Part II
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5. Market for Company's Common Equity and Related Stockholder Matters.. 37
6. Selected Financial Data ............................................ 37
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ....................................... 37
7A. Quantitative and Qualitative Disclosures About Market Risk ......... 38
8. Financial Statements and Supplementary Data ........................ 38
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ............................................ 38
Part III
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10. Directors and Executive Officers of the Company ..................... 38
11. Executive Compensation .............................................. 38
12. Security Ownership of Certain Beneficial Owners and Management ...... 38
13. Certain Relationships and Related Transactions ...................... 38
Part IV
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14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .... 39
Signatures ....................................................... 40
Index to Financial Statements .................................... F-1
Consent of Independent Auditors .................................. F-2
Exhibit Index .................................................... E-1
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PART I
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ITEM 1. BUSINESS
American Express Company (including its subsidiaries, unless the
context indicates otherwise, the "Company") was founded in 1850 as a joint stock
association and was incorporated under the laws of the State of New York in
1965. The Company is primarily engaged in the business of providing travel
related services, financial advisory services and international banking services
throughout the world.*
TRAVEL RELATED SERVICES
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American Express Travel Related Services Company, Inc. (including its
subsidiaries, unless the context indicates otherwise, "TRS") provides a variety
of products and services, including, among others, the American Express(R) Card,
the Optima(R) Card and other consumer and corporate lending products, the
American Express(R) Travelers Cheque (the "Travelers Cheque" or the "Cheque")
and other stored value products, business expense management products and
services, corporate and consumer travel products and services, magazine
publishing, and merchant transaction processing, point of sale and back office
products and services. TRS offers products and services in approximately 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 quarters.
In the third quarter of 1997, management of the Travelers Cheque unit
was moved from TRS' Stored Value Group to the Chief Executive Officer of
American Express Bank, the head of the Company's international banking business.
The Company believes this will align better its travelers check business with
American Express Bank's strengths in the overseas markets, and improve its
ability to take advantage of synergies that can be realized by closer
cooperation between the Travelers Cheque unit and American Express Bank. In
accordance with Statement of Financial Accounting Standards ("FAS") No. 131,
which redefines how operating segments are determined and is effective for
fiscal years beginning after December 15, 1997, the Company's Travelers Cheque
operation, which historically has been included in this Travel Related Services
segment, will be reported in the same segment with American Express Bank
commencing in the first quarter of 1998.
* Various forward-looking statements are made in this 10-K Annual Report,
which generally include the words "believe," "expect," "anticipate,"
"optimistic," "intend," "aim," "will," and similar expressions. Certain
factors that may cause actual results to differ materially from these
forward-looking statements, as well as affect the Company's ability to
achieve its goals referred to herein, are discussed on pages 29-31.
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TRS places significant importance on its trademarks and service marks and
diligently protects its intellectual property rights around the world.
CONSUMER CARD SERVICES GROUP
TRS offers individual consumers charge cards such as the American Express(R)
Card, the American Express(R) Gold Card and the Platinum Card(R), revolving
credit cards such as the Optima(R) Card and the American Express Credit Card,
and a variety of cards sponsored by and co-branded with other corporations and
institutions (collectively, "Card" or "Cards"). Cards are currently issued in
45 currencies (including cards issued by independent operators) and permit
Cardmembers to charge purchases of goods or services in the United States and
in most countries around the world at establishments that have agreed to accept
them, and to access cash through automated teller machines at approximately
180,000 locations worldwide.
Charge Cards, which are marketed in the United States and many other
countries and carry no pre-set spending limit, are primarily designed as a
method of payment and not as a means of financing purchases of goods or
services. Charges are approved based on a variety of factors including a
Cardmember's account history, credit record and personal resources. Except in
the case of extended payment plans (such as Sign & Travel(R) and the Special
Purchase(SM) Accounts), Charge Cards require payment by the Cardmember of the
full amount billed each month, and no finance charges are assessed. Charge Card
accounts that are past due are subject, in most cases, to a delinquency
assessment and, if not brought to current status, subject to cancellation.
The Optima Card comprises a family of revolving credit cards marketed in
the United States and other countries. TRS makes a variety of Optima Cards with
different payment terms, grace periods and rate structures available to
customers. TRS also issues revolving credit cards which do not carry the Optima
brand, primarily outside the United States.
American Express Centurion Bank ("Centurion Bank") issues the Optima Card
in the United States and owns most of the receivables arising from the use of
these Cards. In addition, Centurion Bank extends lines of credit in association
with certain Charge Cards and offers unsecured loans to Cardmembers in
connection with their Sign & Travel Account and Special Purchase Account. The
Sign & Travel Account gives qualified United States Cardmembers the option of
extended payments for airline, cruise and certain travel charges that are
purchased with the Charge Card. The Special Purchase Account offers qualified
United States Cardmembers the option of extending payment for certain charges on
the Charge Card in excess of a specified amount. In several markets outside the
United States, other subsidiaries of TRS engage in consumer lending activities,
subject to local regulations.
Centurion Bank's deposits are insured by the Federal Deposit Insurance
Corporation ("FDIC") up to $100,000 per depositor. Centurion Bank is a
Utah-chartered industrial loan
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company regulated, supervised and regularly examined by the Utah Department
of Financial Institutions and the FDIC.
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. Many Optima
Cards are offered with no annual fee. Each Cardmember must meet standards and
criteria for creditworthiness which are applied through a variety of means both
at the time of initial solicitation or application and on an ongoing basis
during the Card relationship. The Company uses sophisticated credit models and
techniques in its risk management operations.
Cardmembers have access to a variety of special services and programs,
depending on the type of card they have, including: the Membership Rewards(R)
Program, Global Assist(R) Hotline, Buyer's Assurance Protection Plan, Car Rental
Loss and Damage Insurance Plan, Travel Accident Insurance Plan and Purchase
Protection Plan. Gold Card Cardmembers in the United States have access to
certain additional services, including a Year End Summary of Charges Report. The
Platinum Card, offered to certain Cardmembers in the United States and certain
other countries, provides access to additional and enhanced travel, financial,
insurance, personal assistance and other services. Under the Express Cash
program, enrolled Cardmembers can obtain cash or American Express Travelers
Cheques 24 hours a day from automated teller machines at participating financial
institutions worldwide. Personal, Gold and Platinum Cardmembers receive the
Customer Relationship Statement, which is used to communicate special offers for
products and services of both merchants and the Company.
American Express Credit Corporation and its subsidiaries ("Credco") purchase
most Charge Card receivables arising from the use of cards issued in the United
States and in designated currencies outside the United States. Credco finances
the purchase of receivables principally through the issuance of commercial
paper and the sale of medium- and long-term notes. Centurion Bank finances its
revolving credit receivables through the sale of short- and medium-term notes
and certificates. TRS and Centurion Bank also fund receivables through asset
securitization programs. The cost of funding Cardmember receivables is a major
expense of Card operations.
The Charge Card and consumer lending businesses are subject to extensive
regulation in the United States under a number of federal laws and regulations,
including the Equal Credit Opportunity Act, which generally prohibits
discrimination in the granting and handling of credit; the Fair Credit Reporting
Act, which, among other things, regulates use by creditors of consumer credit
reports and 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
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foreign countries have similar consumer credit protection and disclosure laws.
The application of federal and state bankruptcy and debtor relief laws affect
the Company to the extent such laws result in amounts owed being classified as
delinquent and/or charged off as uncollectible. The laws and regulations
discussed above have not had, and are not expected to have, a material adverse
effect on the Charge Card and consumer lending businesses either in the United
States or on a worldwide basis. Centurion Bank is subject to a variety of state
and federal laws and regulations applicable to FDIC-insured, state-chartered
financial institutions. Changes in such laws and regulations or judicial
interpretation thereof could impact the manner in which Centurion Bank conducts
its business.
In 1997, TRS introduced a number of new revolving credit card products and
features to meet the needs of specific customer segments and to increase
consumer loans outstanding, with a particular focus on international markets
(see TRS International below). TRS plans to continue to offer additional
revolving credit products. At the same time, TRS will seek to deepen its
relationships with existing Cardmembers, and enhance its focus on the
importance of the Charge Card to the overall franchise and brand strength.
TRS is continuing to make a significant investment in its card processing
system to allow faster introduction of products.
Over the past few years, TRS has expanded its Membership Rewards program
(formerly the Membership Miles(R) travel rewards program) to include a broader
range of travel rewards and retail merchandise and gourmet gifts. Membership
Rewards is an important part of TRS' strategy to increase Cardmember spending
and loyalty. Membership Rewards is one of the industry's most popular rewards
programs with nearly seven million enrollees worldwide. Enrollees now represent
a significant portion of Cardmember spending. TRS makes payments to merchants
pursuant to contractual arrangements when Cardmembers redeem their Membership
Rewards points and establishes reserves in connection with estimated future
redemptions. Due to higher charge volumes and reward redemption rates, the cost
of Membership Rewards has increased over the past several years. In 1997, TRS
took initial steps to reduce the overall cost of the program, and will continue
to look for ways to operate it more efficiently.
In May 1996, to increase the attractiveness of the American Express network
through additional charge volume, merchant coverage and American Express-branded
cards outstanding, the Company invited banks and other qualified institutions in
the United States and abroad to issue cards that would bear an American Express
logo and would be accepted at all merchant locations that accept the American
Express Card. In 1997, the Company established a separate internal organization
to manage its network business, bringing increased focus and resources to this
area. During 1997, TRS signed 10 agreements with new partners outside the United
States, adding to the 17 network arrangements already in place (see TRS
International below). However, because of rules and policies of VISA USA, Inc.
and MasterCard International, Incorporated ("MasterCard") in the United States
calling for expulsion of members who issue American Express-branded cards, no
banks in the United States have been willing to forfeit membership in both VISA
USA, Inc. and MasterCard to
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issue cards on the American Express network. These rules and policies are
currently under investigation by the Antitrust Division of the United States
Department of Justice.
TRS encounters substantial and increasingly intense competition worldwide
with respect to the Card business. As a Card issuer, TRS is faced with
competition from other financial institutions (such as MBNA, Citicorp and Bank
of America) that are members of VISA International Service Association, Inc. or
VISA USA, Inc. (collectively, "VISA") and/or MasterCard and that issue general
purpose cards, primarily under revolving credit plans, on one or both of those
systems. As a network, TRS also encounters intense competition from card systems
like VISA, MasterCard, Diners Club(R), Morgan Stanley Dean Witters' NOVUS(SM)
Network and JCB. TRS encounters some very limited competition from businesses
that issue their own cards or otherwise extend credit to their customers, such
as retailers and airline associations, although these products are not generally
substitutes for TRS' Card products due to their limited acceptance. Numerous
United States banks issuing credit cards under revolving credit plans charge
annual fees in addition to interest charges where permitted by state law.
However, the issuer of the Discover Card on the NOVUS Network, as well as many
issuers of VISA cards and MasterCard cards, generally charge no annual fees.
Competing card issuers offer a variety of products and services to attract
cardholders including premium cards with enhanced services or lines of credit,
airline frequent flyer program mileage credits and other reward or rebate
programs, "teaser" promotional rates for both card acquisition and balance
transfers, and co-branded arrangements with partners that offer benefits to
cardholders. Recent industry trends include mergers and consolidations among
banking and financial services companies, which have resulted in some issuers
becoming larger, with greater resources, economies of scale and potential brand
recognition to compete; and the increased use of debit cards for point of sale
purchases as many banks have replaced ATM cards with general purpose debit cards
bearing either the VISA or MasterCard logo.
The principal competitive factors that affect the Card business are (i) the
quality of the services and products, including rewards programs, provided to
Cardmembers and participating establishments; (ii) the number, spending
characteristics and credit performance 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; (viii) the success of targeted
marketing and promotional campaigns; and (ix) reputation and brand recognition.
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MERCHANT SERVICES
Over the past several years, TRS' Establishment Services Group has focused
on expanding the TRS network of merchants and increasing merchant acceptance,
both through internal personnel and third party sales agents. In 1997, TRS added
significantly more merchants to its network in industries such as supermarkets,
cable television, health care, charities and communications -- industries that
had traditionally not accepted Cards. The merchant network in the United States
can now accommodate about 93 percent of American Express Cardmembers' general
purpose plastic spending, up from 91 percent in 1996. TRS' objective is to
achieve merchant coverage that is at virtual parity with bankcard networks.
As a merchant processor, TRS accepts and processes 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. TRS generally charges higher discount rates to
participating establishments than its competitors. As a result, TRS has
encountered complaints from some establishments, as well as suppression of the
card's use, and continues to devote significant resources to respond to these
issues.
TRS focuses on understanding and addressing key factors that influence
merchant satisfaction, and on improving communication to merchants of the value
of American Express Card acceptance. TRS has adjusted its discount structure in
certain industries and locations. In addition, the Establishment Services Group
has concentrated on developing products and services that add value and deepen
the relationship with merchants to enhance the value of card acceptance to
merchants. In 1997 TRS expanded SE Workstation, a software product designed to
assist merchants with handling disputed transactions and back-office
reconciliation, and launched SE Insight, which tracks Cardmember spending.
On a global basis, the American Express network manages the acquiring
relationship with merchants, as well as the issuing side of the business. This
"closed loop", which distinguishes the American Express network from the
bankcard networks, provides a rich source of information at both ends of the
Card transaction and enables TRS to provide targeted marketing opportunities for
merchants and special offers to Cardmembers. In this regard, in 1997, TRS began
to implement the CustomExtras and Express Rewards programs, which are used to
make special offers of merchant products and services to Cardmembers in billing
statements and at the point of sale at participating establishments,
respectively.
STORED VALUE PRODUCTS
During 1997, TRS continued to develop new "stored value" products and
platforms. These include both more traditional magnetic stripe card products as
well as "smart cards," which are cards with computer chips that can both store
and process data. The Company's mission in this area is to provide an
alternative to cash with safe, convenient stored value payment systems that
satisfy specific customer needs.
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In 1997, TRS entered into a joint venture with Maritz Performance
Improvement Company to develop and market corporate incentive reward products to
businesses throughout the United States and abroad, including stored value
prepaid card products and corporate gift cheques. In addition, TRS completed a
stored value processing platform to be used in DisneyQuest, a 100,000 square
foot entertainment facility being developed by The Walt Disney Company scheduled
to open at Walt Disney World(R) Resort in 1998. In 1997, TRS sold American
Express Special Teams, Inc.
The Company is also expanding the scope of its paper-based stored value
products in the United States with the relaunch of Money Orders and Official
Checks and by renewing its focus on the TravelFunds Direct product, which
provides direct delivery of foreign bank notes and Travelers Cheques in selected
markets.
The Company's core stored value product continues to be American Express
Travelers Cheques, which are sold as a safe and convenient alternative to
currency. The Travelers 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. Travelers Cheques are issued
in ten currencies both directly by the Company and through joint venture
companies in which the Company generally holds an equity interest.
American Express Travelers Cheques are sold through a broad network of
outlets worldwide, including travel offices of the Company, its affiliates and
representatives, travel agents, commercial banks, savings banks, savings and
loan associations, credit unions and other financial, travel and commercial
businesses. The Company generally compensates selling agents for their sale of
Travelers Cheques.
The proceeds from sales of Travelers Cheques issued by the Company 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.
Although the Company believes it is the leading issuer of travelers checks,
its growth in sales of this product has been declining over the past few years.
Consumers have a choice of many forms of competitive payment instruments,
including other brands of travelers checks, cash, credit and debit cards and
national and international automated teller machine networks. The Company
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 availability to the
consumer of other forms of payment; (ii) the amount of the fee charged to the
consumer; (iii) the acceptability of the checks throughout the world as an
alternative to currency; (iv) the compensation paid to, and frequency of
settlement by, selling agents; (v) the accessibility of travelers check sales
and refunds; (vi) the success of marketing and promotional campaigns; and (vii)
the ability to service satisfactorily the check
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purchaser if the checks are lost or stolen. Other competitive factors affecting
stored value products generally include (a) the quality and rate of
introduction of stored value products of competitors; (b) the rate of consumer
acceptance of new products; (c) the rate of deployment of card and payment
systems worldwide; (d) the global interoperability of card and payment systems;
(e) the relative ability of an issuer to control fraud; and (f) the development
of governmental regulations relating to stored value products.
CORPORATE SERVICES, SMALL BUSINESS SERVICES AND TRAVEL
TRS, through its Corporate Services Group and Small Business Services
Group, is the leading provider to large and small businesses of expense
management systems and travel services.
The Corporate Services Group ("CSG") provides Corporate Charge Card expense
management services to large and mid-sized companies for travel and
entertainment spending. Companies are offered these services through the
American Express Corporate Card, which is a charge card issued to individuals
through a corporate account established by their employer for business purposes.
CSG integrates the Corporate Card and business travel services in the
United States and certain foreign countries to meet the competition for the
business traveler and to provide client companies with a customized approach to
managing their travel and entertainment budgets. Clients are provided an
information package to plan, account for and control travel and entertainment
expenses.
TRS continued to achieve substantial growth in Corporate Services in 1997;
however, competitors have increased their focus on the Corporate Card business.
For a discussion of competition relating to the Card business, see page 5.
CSG also continued to develop new electronic solutions to assist companies
in managing costs by leveraging technologies. TRS launched American Express
Interactive, or AXI(TM), an interactive business travel product jointly
developed with Microsoft Corporation. TRS also partnered with Portable
Software Corp. to bring an intranet-based, expense management software
product to corporate clients. In 1997, the Company also launched a
Corporate Services website for Corporate Cardmembers and travel customers.
TRS also provides American Express Government Card charge card services to
United States federal employees who travel on official government business
pursuant to an exclusive contract awarded in 1993 by the Federal Government. In
February 1998, TRS was one of several successful bidders awarded master
contracts for the Government Card, Government Purchasing Card and Government
Fleet Card businesses, commencing in November 1998. At such time, each United
States Government department will be able to contract for various services from
the successful bidders. TRS is partnering with Wright Express, the country's
leading provider of fleet cards, to bring such services to the United States
Government. While it will no longer have an exclusive contract with the Federal
Government, TRS views the new
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award as an opportunity to expand its services to the Federal Government
Purchasing Card and Fleet Card, which are not currently offered by TRS to
the Federal Government. In 1997, TRS began piloting a smart card for the
United States Marine Corps to help them improve travel and administrative
procedures. The American Express Corporate Card is now the business expense
management system used by many of the 50 states in the United States.
TRS also offers products to enhance client company management of non-travel
and entertainment business expenses through the Corporate Purchasing Card. This
product assists large companies in managing indirect spending including
traditional purchasing administration expenses. Employees can use the Purchasing
Card to order directly from manufacturers and 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.
TRS, through its Small Business Services Group, is also a leading provider
of expense management and certain other financial services to small businesses
(i.e., less than 100 employees). TRS continued to achieve substantial growth in
the Small Business Services Group in 1997. TRS has traditionally served the
needs of small businesses with a portfolio of charge card products. In addition,
TRS offers its customers a Privileged Rates program which includes specifically
negotiated rates on services such as car rental, gasoline, hotel and office
services. Early in 1998, Federal Express was added as a partner to this program
to provide discounts on its shipping services. TRS also maintains a website, the
American Express Small Business Exchange, through which it provides small
business owners with relevant information, expert advice and customer servicing
applications.
A key strategy for TRS is the creation of products to meet better the
credit needs of small business owners. In 1997, TRS continued to expand its
existing portfolio of revolving lending products with the introduction of the
Corporate Optima(R) Platinum Card. TRS also provides access to unsecured lines
of credit from $5,000 to $50,000 on a pre-approved basis to existing Charge Card
clients. At the beginning of 1997, TRS launched an equipment financing joint
venture with AT&T Capital, now owned by Newcourt Credit Group, for the purchase
of business equipment by small businesses. In March 1998, TRS also entered into
a marketing arrangement with, and purchased a minority investment in,
Administaff Inc., which will offer the Company's small business clients human
resource services on an outsourced basis.
During 1997, the American Express Tax and Business Services unit ("TBS")
was moved from American Express Financial Corporation to the Small Business
Services Group. TBS offers tax preparation, tax planning, preparation of
non-attest financial statements, bookkeeping, business management, financing
assistance, pension administration and other business consulting services to its
client base in approximately 56 locations in 20 states.
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
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information systems as well as 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, service
fees for certain transactions such as re-ticketing, courier services and
complex itineraries and management and transaction fees from certain business
travel accounts.
TRS' retail travel network of more than 1,700 owned and representative
offices is important in supporting the American Express brand and providing
customer service throughout the world. TRS continually evaluates this structure
to determine the best way to leverage the strength of the travel network. At the
same time, TRS is developing ways to better serve the travel consumer, including
1-800-type services, and Internet-based products and services.
More than 30,000 travel agents as well as direct sales by airlines and
travel suppliers in the United States and abroad provide vigorous competition.
This competition is mainly based on price, service, convenience and proximity to
the customer and has increased due to several factors in recent years, including
the acquisition of independent agencies by larger travel companies. Travel
agency groups and consortia also have increased in size, enabling participating
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, airlines have aggressively reduced their distribution
expenses, including travel agency commissions, through techniques such as caps
on commission fees and decreases in base commission rates. This has caused some
independent agencies to go out of business. In response, TRS has accelerated its
efforts to rely less on commissions by establishing more service fee-based
client relationships. 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. Customers may
increasingly seek alternative channels to make travel arrangements, such as
on-line vendors or "ticketless" airline services that require booking directly
with the airlines. It is also expected that travel agencies will continue to
look for expense reduction opportunities.
TRS INTERNATIONAL
The TRS International group is focusing on expanding its proprietary card
business and network alliances in key markets, expanding the network of
merchants that accept American Express Cards and reducing expenses to enable
more re-investment in its businesses.
In 1997, TRS continued to expand its alliances abroad. TRS signed or
implemented Independent Operator Agreements with Komercni Banka (Czech
Republic), Filanbanco (Ecuador), Banco Comercial Portugues (Portugal-Corporate
Card), and Credomatic International Corporation (Central America) establishing
them as independent Charge Card issuers and merchant acquirers and servicers in
their respective markets. During the year,
-10-
<PAGE>
Network Card Issuer Agreements were signed or implemented with Credit Saison
(Japan), Excel Economico Administradora De Cartoes Ltda. (Brazil), Banco
Popular (Puerto Rico), La Caixa (Spain), Sony Card Administradora Ltda.
(Brazil) and National Westminster Bank, Plc (United Kingdom), under which
these entities issue cards which carry an American Express logo and are
accepted worldwide on the American Express merchant network. TRS also
introduced a co-branded consumer card with the Air Miles Reward Program in
Canada and co-branded Corporate Cards with Banco Bital in Mexico, Credit
Lyonnais in France and Qantas Airways in Australia. At the end of 1997, TRS
had alliances with banks and other organizations in 18 countries. TRS expects
to continue establishing similar types of arrangements outside the United
States. In 1997, TRS also had successful launches of its own proprietary charge
and revolving credit cards, including a Corporate Card for Small Business in
Australia and the Canadian Government Card.
In early 1998, TRS appointed Credit Suisse to be the issuer of American
Express Cards in Switzerland, and also agreed to form a joint venture with the
Credit Suisse Group which would assume responsibility for a number of credit
card operations for all of the credit and charge cards issued by Credit Suisse.
In the fourth quarter of 1997, TRS experienced a slowdown in card billings
and travel sales in Southeast Asia as a result of the economic turmoil in that
region. While Southeast Asia does not represent a large portion of TRS' total
revenues, it is important to the Company's international growth strategies.
OTHER PRODUCTS AND SERVICES
American Express Relationship Services ("AERS") sells products and services
which address some of the information, access, security, financial and
telecommunications needs of American Express customers. Fee Services offered to
Cardmembers include travel, health and credit insurance products, credit card
registry, credit bureau monitoring and telecommunication services. In addition,
AERS offers merchandise directly to Cardmembers, who may elect to pay in
installments with no finance charges. It also markets educational loans to
students and parents.
In December of 1997, AERS was assigned responsibility for the Company's
enterprise-wide interactive strategy, with a focus on providing internet and
interactive capabilities to meet customers' needs. In 1997, the Company made
minority investments in USA.net, an e-mail service providing customers with
permanent e-mail addresses, and in InfoBeat, the world's largest personalized
e-mail publisher. The Company also continued to participate in cross-industry
initiatives such as the Secure Electronic Transaction Protocol (SET), a system
to help ensure secure commerce on the Internet.
Currently through the Company's website, Cardmembers can access account
information, pay their American Express Card bills and apply for certain Card
products. Cardmembers may also utilize the Quicken(R) software offered by
Intuit(R) and Microsoft
-11-
<PAGE>
Money(R), a software offered by Microsoft(R) Corporation, to view their
American Express Card account information. TRS anticipates further
developments in this area in 1998, which may include, among others, increasing
use of card acceptance over the Internet.
TRS also publishes Travel & Leisure(R), Travel & Leisure-Golf(R), Food &
Wine(R), Departures(TM) and Your Company(TM) magazines. Various financial
products are also offered to Cardmembers through American Express Financial
Direct (see page 13 for a discussion of this business).
AMERICAN EXPRESS FINANCIAL ADVISORS
-----------------------------------
American Express Financial Corporation ("AEFC") provides 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, personal auto and homeowner's insurance and retail
securities brokerage services. At December 31, 1997, American Express Financial
Advisors Inc. ("AXP Advisors"), AEFC's principal marketing subsidiary,
maintained a nationwide financial planning field force of 8,776 persons.
DISTRIBUTION OF PRODUCTS AND SERVICES
AXP Advisors has three primary financial service distribution channels:
retail, consisting of financial advisors and direct access (via telephone, fax
and the Internet), institutional or workplace, and third party.
AXP Advisors' primary distribution channel is its corps of financial
advisors. Through this channel, AXP Advisors offers financial planning and
investment advisory services (for which it charges a fee) to individuals and
business owners which address six basic areas of financial planning: financial
position, protection, investment, income tax, retirement and estate planning, as
well as asset allocation. AXP Advisors' financial advisors provide clients with
recommendations 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; veteran
financial advisors receive compensation based largely on sales. The compensation
system 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. During 1997, AXP Advisors continued a major initiative
to improve advisor retention and client satisfaction. In connection with this
program, AXP Advisors rolled out the Seminar Solutions program to advisors, a
comprehensive series of 15 seminars targeted to various market segments. It
also piloted Advisor Link(SM) which consists,
-12-
<PAGE>
in part, of computer-based tools for advisors, including a new desktop
financial planning system, e-mail and access to client data, and plans to
implement such tools nationwide in 1998.
The use of a dedicated field force may entail higher initial costs than
other forms of marketing, such as direct-response or independent agency
distribution. However, AXP Advisors believes that its ability to provide
broad-based integrated services on a relationship basis is a competitive
advantage. At the same time, AXP Advisors recognizes that it needs to continue
its efforts to increase the size of its dedicated field force due to its main
competitors' larger sales forces and more developed alternative distribution
channels.
To enhance its ability to retain advisors, AXP Advisors is working on plans
to add choices to how advisors fit into the organization, with various levels
of support, compensation and branding. This includes providing options to the
current American Express-branded advisor network, with full support for
advisors who choose it and a lower level of support (and higher commissions)
for advisors with this preference; creating an independent broker/dealer
network; and developing a salaried employee advisor network. AXP Advisors
took a step toward implementing this plan when it acquired in March 1998
Securities America, an independent broker-dealer servicing 1,200 financial
advisors.
During 1997 the American Express Financial Direct unit ("Financial
Direct"), the Company's other financial services retail distribution channel,
was moved into the AXP Advisors' organization to more closely align Financial
Direct with AXP Advisors' product manufacturing capabilities and to provide
Financial Direct's clients with alternative methods to access investment
products, such as meeting with a financial advisor. To date, results for
Financial Direct have been below the Company's expectations and below scale.
Financial Direct uses direct marketing and on-line services to help prospects
and clients select appropriate products and services. Products developed by AXP
Advisors as well as other businesses of the Company and selected outside vendors
are offered through Financial Direct. These products are distributed by American
Express Service Corporation and other affiliates, and include payment, credit,
insurance and investment products such as no load mutual funds from 12 leading
fund families (including the Strategist Funds from American Express referred to
below); money market funds; certificates of deposit; annuities; and brokerage
services (over the Internet or through telephone or mail). The Financial Direct
product line also offers Investment Rewards, which are points based upon the
value of new deposits after opening an Investment Management Account that may be
redeemed for airline travel and other rewards.
To enhance the institutional distribution channel, during 1997 AXP Advisors
continued development of Workplace Financial Services, which provides financial
products and services to employees at their places of work. It provides medium
and large companies with money management services for defined benefit
retirement plans, as well as employee education, 401(k) and other retirement
plan services.
In addition to the retail and institutional distribution channels, AXP
Advisors has a third-party channel, which distributes financial planning
services and investment, insurance
-13-
<PAGE>
and annuity products through alliances with financial institutions, such as
banks and credit unions.
The move to multiple distribution channels has implications for how AXP
Advisors services its clients. In order to provide clients with an integrated
experience, it will be necessary to build the capability to recognize and
service the client's entire relationship with the institution regardless of
which channel or channels they have used. This will require, among other things,
investment in both technology infrastructure and the service organization. In
addition, the distribution of proprietary products outside of the traditional
advisor channel will require, among other things, that the organization modify
its product systems so they can interface according to industry standards with
distributors outside of AXP Advisors.
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
all required state and NASD licenses.
AXP Advisors has experienced, and believes it will continue to encounter,
increased regulatory oversight of the securities and commodities industries at
all levels. Among other powers, 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.
Competition in the financial services industry focuses primarily on cost,
investment performance, yield, convenience, service, reliability, safety,
distribution systems, reputation and brand recognition. Competition in this
industry is very intense. AEFC competes with a variety of financial institutions
such as banks, securities brokers, mutual funds and insurance companies. Some of
these institutions are larger and more global than AEFC, and the current trend
towards consolidation and globalization in the financial services industry may
increase the number of these competitors. Many of these financial institutions
also have products and services that increasingly cross over the traditional
lines that previously differentiated one type of institution from another,
thereby heightening competition in many of AEFC's markets. Reflecting the
competitive environment, certain financial institutions have continued to seek
to hire AXP Advisors' financial advisors.
AEFC's business does not as a whole experience significant seasonal
fluctuations.
-14-
<PAGE>
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 is the fifteenth largest life insurance
company in the United States, with consolidated assets at December 31, 1997 of
$53.0 billion. 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 for sale through banks,
thrift institutions and stock brokerages. American Centurion Life Assurance
Company ("American Centurion Life") is an IDS Life subsidiary that offers fixed
and variable annuities to American Express Cardmembers and others in New York,
as well as fixed and variable annuities for sale through banks, thrift
institutions and stock brokerages in New York. IDS Life owns American Partners
Life Insurance Company ("American Partners Life"), which offers fixed and
variable annuity contracts to American Express Cardmembers and others 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), 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 fixed deferred annuities guarantee a relatively low annual
interest rate during the accumulation period (the time before annuity payments
begin). However, the company has the option of paying a higher rate reflective
of current market rates. IDS Life also offers a variable annuity, the "Flexible
Portfolio 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. Over the
past five years, IDS Life's variable annuity sales have had an increasing impact
on total annuity sales.
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 State 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 marketing
and contents of insurance policies and annuity contracts. The purpose of such
regulation and supervision is primarily to protect the interests of
policyholders. Recently there has been an increased focus on the variable
annuity business by regulators. Virtually all states mandate participation
in insurance guaranty associations, which assess insurance companies in order to
fund claims of policyholders of insolvent insurance
-15-
<PAGE>
companies. On the federal level, there is periodic interest in enacting new
regulations relating to various aspects of the insurance industry including
taxation of variable annuities and life insurance policies, 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 29 states. This insurance
is also underwritten by AMEX Assurance Company, a subsidiary of the Company, 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. IDSC currently offers eight types of
face-amount certificates. 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 is the largest issuer of face-amount certificates in the United States.
At December 31, 1997, it had approximately $4 billion in assets. IDSC's
certificates compete 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.
-16-
<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 38 retail mutual funds, with varied investment objectives, and
includes, for example, money market, tax-exempt, bond and stock funds. The IDS
MUTUAL FUND GROUP, with combined net assets at December 31, 1997 of $71.3
billion, was the fourteenth largest mutual fund organization in the United
States and, excluding money market funds, was the eighth largest. The uneven
performance in the global financial markets in 1997 impacted the results of many
of the funds in the IDS MUTUAL FUND GROUP, and investment results for the year
were mixed overall.
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. Fifteen of the IDS funds
are structured as feeder funds investing in the Preferred Master Trust Group, a
group of fifteen master funds, advised by AEFC. A second family of fifteen
funds, the no-load Strategist Funds, distributed by American Express Service
Corporation, also invests in the Preferred Master Trust Group. This structure
provides for potential development of additional channels of distribution.
In addition to full-commission and discount brokerage firms, competitors
include other financial institutions, such as banks and insurance companies.
Recent growth trends in the market, including the increasing sales of mutual
funds to retail investors, have expanded the number of competitors in the
industry. Some competitors are larger, more diversified and offer a greater
number of products, and may have an advantage in their ability to attract and
retain customers on the basis of one-stop shopping. 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), funds distributed through independent
brokerage firms and those distributed by other "exclusive" sales forces.
OTHER PRODUCTS AND SERVICES
American Express Asset Management Group Inc. ("AEAMG"), formerly IDS
Advisory Group Inc., a subsidiary of AEFC, is an SEC registered investment
advisor that provides investment management services for pension, profit
sharing, employee savings and endowment funds of large- and medium-sized
businesses and other institutions ("institutional clients"). AEAMG through its
Portfolio Management Division ("PMG") also offers discretionary investment
management services to wealthy individuals and small institutions with account
sizes between $1 million and $10 million. Advisory Capital Strategies Group,
Inc. ("ACSG"), a subsidiary of AEAMG, is registered with the Commodity Futures
Trading
-17-
<PAGE>
Commission as a Commodity Pool Operator and Commodity Trading Advisor
and provides investment management services to private investment vehicles such
as limited partnerships or limited liability companies. ACSG acts as general
partner to Advisory U.S. Equity Fund I, L.P., a partnership that seeks to
achieve superior capital appreciation and is offered privately to qualified
eligible participants. This partnership employs various investment strategies,
including, among other things, the use of leverage, short selling of securities
and investment in options, futures and other derivative instruments. At December
31, 1997, AEAMG managed securities portfolios totaling $18.9 billion for 383
accounts. International or global investment management is offered to United
States-based institutional clients by American Express Asset Management
International Inc. ("AEAMI"), formerly IDS International, Inc., a United States
company with offices in Hong Kong, London and Singapore, and to non-United
States based institutional clients by American Express Asset Management Ltd.
("AEAML"), formerly IDS Fund Management Ltd., a U.K. company, with offices in
Hong Kong, London and Singapore. At December 31, 1997, AEAMI managed securities
portfolios totaling $7.4 billion for 31 accounts; and AEAML managed securities
portfolios totaling $1.7 billion for 28 accounts. AEAMI and AEAML are
wholly-owned subsidiaries of AEFC. The institutional investment management
business is highly competitive and AEAMG and its affiliates must compete against
a substantial number of larger firms in seeking to acquire and maintain assets
under management. Competitive factors in this business include fees, investment
performance and client service.
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. IDS
Wealth Management Service, American Express Strategic Portfolio Services and PMG
are operating divisions of AXP Advisors.
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 365 benefit plans which represent
approximately $15 billion in assets and 731,000 participants. AETC has assets
under custody in excess of $100 billion and provides non-trusteed, investment
management of assets in excess of $5.0 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.
In 1997, AEFC continued to expand its securities brokerage services.
American Enterprise Investment Services Inc., a wholly-owned subsidiary of
AEFC, provides securities execution and clearance services for approximately
202,000 retail and institutional clients of AXP Advisors and American Express
Service Corporation. American Enterprise Investment
-18-
<PAGE>
Services holds over $6 billion in assets for clients. 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.
In 1997 AEFC and American Express Bank Ltd. organized a jointly owned
subsidiary. American Express International Deposit Company ("AEIDC"), in the
Cayman Islands to accept deposits from foreign clients of American Express Bank
Ltd. AEIDC is not regulated as a bank in the Cayman Islands.
During 1997, the American Express Tax and Business Services unit was moved
from AEFC to TRS' Small Business Services Group (see page 9 above).
AMERICAN EXPRESS BANK
---------------------
The Company's wholly-owned subsidiary, American Express Bank Ltd. (together
with its subsidiaries, where appropriate, "AEB"), offers products that meet the
financial service needs of four client groups: corporations, financial
institutions, affluent individuals and retail customers. AEB does not directly
or indirectly do business in the United States except as an incident to its
activities outside the United States. Accordingly, the following discussion
relating to AEB generally does not distinguish between United States and
non-United States based activities.
AEB's five primary business lines are corporate banking and finance,
correspondent banking, private banking, personal financial services and global
trading. Corporate banking and finance is provided to corporations principally
in emerging markets and includes trade finance and working capital loans.
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. Private banking focuses on wealthy individuals by
providing such customers with investment management, trust and estate planning,
deposit instruments and secured lending. Personal financial services provides
consumer products in direct response to specific financial needs of retail
customers and includes interest-bearing deposits, unsecured lines of credit,
installment loans, money market funds, mortgage loans, and mutual fund and life
insurance products. Through global trading, AEB provides treasury and capital
market products and services, including foreign exchange, foreign exchange
options, derivatives and trading, with a focus on emerging markets.
AEB has begun to work more closely with other parts of the Company while
building its core capabilities. AXP Advisors has contracted with AEB to manage
most of AEB's Worldfolio and Epic mutual funds. AEB also has contracted with
IDSC to market IDSC's investment certificates, and has set up a joint venture
with AEFC in the Cayman Islands to issue investment certificates. TRS makes
Platinum Cards available to AEB's private banking clients. In 1997, AEB began
offering credit lines to Gold and Personal Cardmembers in Hong Kong.
The Epic mutual funds are also being selectively marketed to TRS Cardmembers
-19-
<PAGE>
outside the United States, and in selected countries, AEB markets a wide
range of other investment, savings and credit products to TRS Cardmembers.
In 1997, AEB made progress in several businesses. It expanded its
relationship manager force, which helped boost private banking assets, expanded
its origination and distribution business, increased global trading results, and
continued to develop cross-selling opportunities in the Personal Financial
Services unit with newly launched mortgage, mutual fund and life insurance
products, as well as a multi-currency checking account.
In 1994, AEB entered into a 10-year contract with Electronic Data Systems
Corporation ("EDS") for the outsourcing of AEB's global systems support and
development and data processing functions. Under the contract, EDS is to
maintain and operate AEB's existing technology systems and to develop certain,
other systems. The major focus of EDS in 1998 will be the remediation of
AEB's computer systems for year 2000 compliance. Accordingly, the ability of
AEB to become Year 2000 compliant will depend in part upon the efforts of EDS.
AEB has a global network with offices in 37 countries. Its worldwide
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 headquartered in
Miami, Florida and has branches in New York City and Miami. In 1998, AEB
established a facility office in Redwood City, California.
AEB's business does not as a whole experience significant seasonal
fluctuations.
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 Company and its subsidiaries. AEB is
only one of many international and local banks used by the Company and its other
subsidiaries, which constitute only a few of AEB's many customers.
In the third quarter of 1997, management of the Company's Travelers Cheque
unit was moved from TRS' Stored Value Group to the Chief Executive Officer of
AEB, the head of the Company's international banking business. In accordance
with FAS 131, commencing in the first quarter of 1998, the Company's Travelers
Cheque operations will be reported in the same segment as American Express Bank.
See page 1 above for more detail regarding this change, which information is
incorporated herein by reference.
AEB's 1997 total assets of $12.8 billion increased from $12.3 billion in
1996. Liquid assets, consisting of cash and deposits with banks, trading account
assets and investments, were $4.4 billion at December 31, 1997 and $4.5 billion
at December 31, 1996.
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<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, 1997 (dollars in
millions):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net financial revenues $637 $591 $643
Non-interest expenses 487 463 521
Net income 82 68 77
- ------------------------------------------------------------------------------
Cash and deposits with banks 2,150 1,709 1,992
Investments 2,265 2,835 2,537
Loans, net 6,062 5,760 5,317
Total assets 12,868 12,350 12,324
- ------------------------------------------------------------------------------
Customers' deposits 8,547 8,653 8,480
Shareholder's equity (a) 830 799 837
- ------------------------------------------------------------------------------
Return on average assets (b) 0.64% 0.57% 0.59%
Return on average common equity (b) 10.83% 9.22% 9.99%
- ------------------------------------------------------------------------------
Total loans/deposits from customers 72.45% 67.92% 64.00%
Average common equity/average assets (b) 5.61% 5.82% 5.57%
Risk-based capital ratios:
Tier 1 8.8% 8.8% 8.9%
Total 12.3% 12.5% 13.0%
Leverage ratio 5.3% 5.6% 5.8%
- ------------------------------------------------------------------------------
Average interest rates earned: (c)
Loans (d) 8.59% 8.48% 8.68%
Investments (e) 8.22% 8.57% 8.71%
Deposits with banks 7.07% 7.52% 6.65%
- ------------------------------------------------------------------------------
Total interest-earning assets (e) 8.18% 8.25% 8.15%
- ------------------------------------------------------------------------------
Average interest rates paid: (c)
Deposits from customers 6.04% 6.28% 6.10%
Borrowed funds, including long-term debt 6.98% 6.66% 5.55%
- ------------------------------------------------------------------------------
Total interest-bearing liabilities 6.16% 6.33% 6.00%
- ------------------------------------------------------------------------------
Net interest income/total average
interest-earning assets (e) 2.91% 3.03% 2.88%
- ------------------------------------------------------------------------------
</TABLE>
(a) AEB declared and paid a special dividend of $75 million to the Company on
January 31, 1996.
(b) Calculated excluding the effect of SFAS No. 115.
(c) Based upon average balances and related interest income and expense,
including the effect 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 non-performing status.
(e) On a tax equivalent basis.
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<PAGE>
The following tables set forth the composition of AEB's loan portfolio at
year end for each of the five years in the period ended December 31, 1997
(millions):
<TABLE>
<CAPTION>
By Geographical Region (a) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Asia/Pacific $2,789 $2,543 $2,151 $2,144 $2,186
Europe 1,055 821 876 903 1,091
Indian Subcontinent 629 833 970 721 850
Latin America 1,082 916 617 589 749
North America 51 67 76 81 283
Middle East 482 580 614 345 368
Africa 105 117 124 207 87
- -----------------------------------------------------------------------------------------------------
Total $6,193 $5,877 $5,428 $4,990 $5,614
=====================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1997
-------------------------------
Due After 1 Due
Due Year After 5
Within 1 Through 5 Years
By Type and Maturity Year Years (b) (b) 1997 1996 1995 1994 1993
- ------------------------ ------------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans to businesses (c) $2,256 $463 $68 $2,787 $2,636 $2,614 $2,328 $2,652
Real estate loans 205 114 174 493 423 501 592 708
Loans to banks and other
financial institutions 1,747 146 33 1,926 1,860 1,240 915 1,083
Equipment financing (d) - - - - 1 43 79 105
Consumer loans 856 65 2 923 869 917 941 912
Loans to governments and
official institutions 33 4 4 41 64 60 81 89
All other loans 19 4 - 23 24 53 54 65
=========================== ====== ====== ====== ====== ====== ====== ====== ======
Total $5,116 $796 $281 $6,193 $5,877 $5,428 $4,990 $5,614
=========================== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
(a) Based primarily on the domicile of the borrower.
(b) Loans due after 1 year at fixed (predetermined) interest rates totaled $94
million, while those at floating (adjustable) interest rates totaled $983
million.
(c) Business loans, which accounted for approximately 45 percent of the
portfolio as of December 31, 1997, were distributed over 26 commercial and
industrial categories.
(d) During 1993, $163 million of equipment finance (aircraft) loans were
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 Company 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, which was repaid as of December 31, 1997. The remainder
was paid in cash.
-22-
<PAGE>
The following table sets forth AEB's non-performing loans at year end for
each of the five years in the period ended December 31, 1997 (millions):
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
- -------------------------------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loans to businesses $34 $29 $20 $12 $24
Real estate loans 9 5 1 4 19
Equipment financing - - 1 3 -
Loans to banks and other financial institutions 3 - 8 - -
Loans to governments and official institutions - - 1 1 -
Consumer loans 1 1 3 - -
================================================== ==== ==== ==== ==== ====
Total $47 $35 $34 $20 $43
================================================== ==== ==== ==== ==== ====
</TABLE>
In addition to the above, AEB owned real estate totaling $4 million at
December 31, 1997, $36 million at December 31, 1996 and $44 million at December
31, 1995, representing balances transferred from non-performing loans as a
result of foreclosures. The 1997 decrease as well as the decrease from 1995 to
1996 primarily reflected the sale of foreclosed properties.
Reduced rate loans were immaterial in amount.
-23-
<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, 1997
(dollars in millions):
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
======= ======= ======= ======= =======
<S> <C> <C> <C> <C> <C>
Total loans at year end $ 6,193 $ 5,877 $ 5,428 $ 4,990 $ 5,614
======= ======= ======= ======= =======
Reserve for credit losses -
January 1, 117 111 109 126 153
Provision for credit losses (a) 20 23 7 8 44
Translation and other (b) (8) (1) - - (21)
------- ------- ------- ------- -------
Subtotal 129 133 116 134 176
------- ------- ------- ------- -------
Writeoffs:
Real estate loans - 2 - 1 16
Loans to businesses 17 7 3 21 19
Loans to banks and other
financial institutions - 1 1 3 -
Equipment financing - - 1 - -
Loans to governments and
official institutions - - 1 - -
Consumer loans 13 13 9 19 20
All other loans - - - - 6
Recoveries:
Loans to businesses (3) (2) (5) (4) (4)
Loans to banks and other
financial institutions - (1) (3) (3) (1)
Equipment financing - - (1) (2) -
Loans to governments and
official institutions (c) (18) (1) - - -
Consumer loans (11) (3) (1) (10) (6)
All other loans - - - - -
------- ------- ------- ------- -------
Net (recoveries) write-offs (2) 16 5 25 50
------- ------- ------- ------- -------
Reserve for credit losses -
December 31, $ 131 $ 117 $ 111 $ 109 $ 126
======= ======= ======= ======= =======
Reserve for credit losses/
total loans 2.11% 1.99% 2.04% 2.19% 2.24%
======= ======= ======= ======= =======
</TABLE>
(a) The increase in 1996 was primarily due to loan growth, slightly higher
consumer and commercial write-offs and lower commercial banking recoveries.
(b) The 1993 amount was primarily due to the transfer of reserves relating to
loans reclassified to other performing assets upon foreclosure.
(c) The increase in 1997 was mainly due to a loan recovery from Peru.
-24-
<PAGE>
Interest income is recognized on the accrual basis. Loans other than
certain consumer loans are placed on non-performing status when payments of
principal or interest are 90 days past due or if, in management's opinion, the
borrower is unlikely to meet its contractual obligations. When loans are placed
on non-performing status, all previously accrued but unpaid interest is reversed
against current interest income. Cash receipts of interest on non-performing
loans are recognized either as interest income or as a reduction of principal,
based upon management's judgment as to the ultimate collectibility of principal.
A non-performing loan may be returned to performing status when all contractual
amounts due are reasonably assured of repayment within a reasonable period and
the borrower shows sustained repayment performance, or when the loan has become
well secured and is in the process of collection. Consumer loans principally
consist of lines of credit and installment loans. These loans are written off
against the reserve for credit losses upon reaching specified contractual
delinquency stages, or earlier in the event of the borrower's personal
bankruptcy or if the loan is otherwise deemed uncollectible. Interest income on
these loans generally accrues until the 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, including historical credit loss experience in relation to outstanding
credits, a continuous assessment of the collectibility of each credit, and
management 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, 1997, AEB had significant investments in certain on- and off-
balance sheet financial instruments, which were primarily represented by
deposits with banks, securities, loans, forward contracts, 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.
During the second half of 1997 certain countries in Asia began experiencing
economic pressures that created liquidity constraints associated with public and
private sector debt service. While AEB had no significant change in
non-performing loans and other credit exposure in the fourth quarter of 1997, it
had exposures throughout the Asia/Pacific region, including in Hong Kong,
Indonesia, Korea, Singapore and Thailand, among other countries.
-25-
<PAGE>
AEB had approximately $2.8 billion outstanding in loans in the entire
Asia/Pacific region at year-end. In addition to these loans, there are other
banking activities, such as forward contracts, various contingencies and market
placements, which added another approximately $1.5 billion to the credit
exposures in the region at year-end. AEB is carefully monitoring its credit
exposures as well as actions being taken by government entities to address and
resolve currency and liquidity issues. Conditions in many countries in the
region seem to have stabilized in response to actions taken there. However, the
current situation in Indonesia has impacted the ability of some of AEB's
customers to perform, which is expected to result in increased reserves at AEB
for the first quarter of 1998.
AEB's earnings are sensitive to fluctuations in interest rates, as it is
not always possible to match precisely the maturities of interest-related assets
and liabilities. However, strict limits have been established for both country
and total bank mismatching. On occasion, AEB may decide to mismatch in
anticipation of a change in future interest rates in accordance with these
guidelines. Term loans extended by AEB include both floating interest rate and
fixed interest rate loans.
For a discussion relating to AEB's use of derivative financial instruments,
see pages 28 through 30 under the caption "Risk Management," and Note 11 on
pages 45 through 48, of the Company's 1997 Annual Report to Shareholders, which
portions of such report are incorporated herein by reference.
COMPETITION
The banking services of AEB are subject to vigorous competition in all
markets in which AEB operates. Competitors include local and international banks
whose assets often exceed those of AEB, other financial institutions (including
certain other subsidiaries of the Company) 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, is AEB dominant.
REGULATION
AEB is a wholly-owned subsidiary of the Company. AEB's global network of
offices and subsidiaries is subject to the consolidated supervision and
examination of the New York State Banking Department ("NYSBD") pursuant to a
voluntary arrangement. In 1998, AEB obtained approval from the NYSBD to
create a new holding company structure, pursuant to which AEB would become
a wholly-owned subsidiary of American Express Banking Corp ("AEBC"). AEBC is
a New York investment company organized in 1998 under Article XII of the New
York Banking Law. Once the new holding company structure is put into effect,
the NYSBD would become the mandatory supervisory authority of AEBC and the
AEB global network pursuant to New York Banking Law. AEBC does not directly
engage in banking activities.
-26-
<PAGE>
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. Within the United States,
AEB's New York agency is supervised and regularly examined by the NYSBD.
In addition, the Florida Department of Banking and Finance supervises and
examines AEB's Miami agency, the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board") regulates, supervises and examines AEBI
and the California Department of Financial Institutions supervises and
examines AEB's California facility office.
Since AEB does not do business in the United States except as an incident
to its activities outside the United States, the Company's affiliation with AEB
neither causes the Company 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 Federal Deposit Insurance
Corporation ("FDIC"), and is not subject to any of the restrictions imposed on
grandfathered non-bank 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 FDIC 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 21, AEB is considered
to be well capitalized at December 31, 1997.
CORPORATE AND OTHER
-------------------
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 was substantially completed in 1997. Balcor and its subsidiaries
still serve as general partners in numerous public limited partnerships that
have not yet been liquidated.
The Year 2000 issue is the result of computer programs having been written
using two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which could have a material impact on the operations of the Company and any of
its businesses or subsidiaries, including TRS, AEFC or AEB. All of the Company's
major businesses are heavily dependent upon internal computer systems, and many
have significant interaction with systems of third parties.
-27-
<PAGE>
A comprehensive review of the Company's computer systems and business
processes has been conducted to identify the major systems that could be
affected by the Year 2000 issue. Steps are being taken to resolve any
potential problems including modifications to existing software and the
purchase of new software. These measures are scheduled to be completed and
tested on a timely basis. The Company's goal is to complete internal
remediation and testing of each of its critical systems by the end of 1998
and to continue compliance efforts, including the testing of systems on an
integrated basis, through 1999.
The costs related to the Year 2000 issue, which are expensed as incurred,
are not expected to have a material impact on the Company's results of
operations or financial condition. This expectation is subject to uncertainties
that could cause actual results to differ materially. Factors that could
influence the total costs to be incurred by the Company in connection with the
Year 2000 issue include the ability of the Company to successfully identify
systems containing two-digit year codes, the nature and amount of programming
required to fix the affected programs, the related labor and consulting costs
for such remediation, and the ability of third parties that interface with the
Company to successfully address their Year 2000 issues.
The Company is evaluating the Year 2000 readiness of merchants, customers
and other third parties whose system failures could have an impact on the
Company's operations. The potential materiality of any such impact is not known
at this time.
On January 1, 1999, certain European countries plan to adopt a single
currency (the "euro"). For countries adopting the euro, the exchange rate
between their local currency and the euro will be fixed as of June 30, 1998.
The Company has carried out an assessment and identified business requirements
for the introduction of the euro. The Company is making systems modifications
to comply with euro requirements to maintain its competitiveness in the
marketplace. The related costs, which are expensed as incurred, are not
expected to have a material impact on the Company's earnings.
FOREIGN OPERATIONS
------------------
The Company derives a significant portion of its revenues from the use of
the Card, Travelers Cheques and travel services in countries outside the United
States and continues to broaden the use of these products and services outside
the United States. Political and economic conditions in these countries,
including the availability of foreign exchange for the payment by the local
card issuer of obligations arising out of local Cardmembers' spending outside
such country, for the payment of card bills by Cardmembers who are billed in
other than their local currency and for the remittance of the proceeds of
Travelers Cheque sales, can have an effect on the Company's revenues.
Substantial and sudden devaluation of local Cardmembers' currency can also
affect their ability to make payments to the local issuer of the card on
account of spending outside the local country. The major portion of AEB's
banking revenues is from business conducted in countries outside the United
States. Some of the risks attendant to those operations include currency
fluctuations and changes in political, economic and legal environments in
each such country.
-28-
<PAGE>
As a result of its foreign operations, the Company is exposed to the
possibility that, because of foreign exchange rate fluctuations, assets and
liabilities denominated in currencies other than the United States dollar
may be realized in amounts greater or lesser than the United States dollar
amounts at which they are currently recorded in the Company'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 Company's
operations.
The Company'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 United States dollars for their spending outside
their local country. The Company's investments in foreign operations are
hedged by forward exchange contracts or by identifiable transactions, where
appropriate.
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
------------------------------------------------------
Various forward-looking statements have been made in this Form 10-K Annual
Report. Forward-looking statements may also be made in the Company's other
reports filed under the Securities Exchange Act of 1934, in its press releases
and in other documents. In addition, from time to time, the Company through its
management may make oral forward-looking statements. Forward-looking statements
are subject to risks and uncertainties, including those identified below, which
could cause actual results to differ materially from such statements. The words
"believe", "expect", "anticipate", "optimistic", "intend", "aim", "will" or
similar expressions are intended to identify forward-looking statements. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date on which they are made. The Company undertakes
no obligation to update publicly or revise any forward-looking statements.
Important factors that could cause actual results to differ materially from the
Company's forward-looking statements, as well as affect the Company's ability to
achieve its financial and other goals, include, but are not limited to, the
following:
- The Company's inability to extend the value of the American
Express brand, which historically has been associated with the
card and travel businesses (e.g., perception of trust, security
and quality service), to a broad range of
-29-
<PAGE>
financial products and services in the financial services
industry. This could depend in part on the Company's ability to
manage the potential conflicts inherent in its growing multi-
channel delivery systems.
- The Company's inability to succeed in its ongoing reengineering
efforts and in achieving best-in-class economics, while also
maintaining high service levels.
- The Company's inability to successfully create, and increase
distribution channels for, financial, travel, card and other
products and services.
- The Company's inability to participate in payment and other
systems material to its businesses on a fair and competitive
basis.
- The Company's inability to successfully invest in, and compete
at the leading edge of, technology developments across all
businesses, e.g., transaction processing, data management,
customer interactions and communications, travel reservations
systems, stored value products, risk management systems.
- The Company's inability to adequately remediate all internal
computer software and operational systems, and ensure that the
software and systems owned or leased by customers, suppliers,
vendors and other third-parties that American Express relies
upon or interfaces with are adequately remediated, on a timely
and cost-effective basis to avoid Year 2000 problems.
- The Company's inability to successfully modify its computer
software and business systems to ensure proper and timely
accommodation of the European single currency in its business and
operations.
- TRS' inability to expand its overall revenues, which depends in
part on its ability to increase consumer and/or business spending
and borrowing on its credit and charge cards, expand market share
and develop new or enhanced products that capture greater share of
customers' total spending on American Express Cards or other cards
issued on its network.
- TRS' inability to enhance significantly its international
operations, which will depend in part on its ability to reduce
expenses for re-investment in the international business, expand
the proprietary and third party-issued Card businesses and
increase its network of merchants.
- TRS' inability to retain Cardmembers in consumer lending products
after low introductory rate periods have expired.
- TRS' inability to sustain premium discount rates or increase
merchant coverage, both of which will depend in part on its
ability to maintain a customer base that appeals to merchants and
to develop deeper merchant relationships through creation of new
products and services.
-30-
<PAGE>
- The inability of TRS and AEB to manage credit risk related to
consumer debt, business loans and other credit exposures, both in
the United States and abroad, including unseasoned balances in
TRS' lending portfolios, all of which could be affected by general
political and economic conditions, including interest rates and
consumer credit trends, the rate of bankruptcies and movements in
currency valuations.
- The inability of AXP Advisors to maintain a growing field force.
- A short-term financial market crash, or a longer term financial
market decline or stagnation, which could impact the sale of
investment products at AXP Advisors and the market value of AXP
Advisors' managed assets, resulting in lower management and
distribution fees.
- The impact of changing interest rates, which could affect AXP
Advisors' spreads between revenues from owned investments and
benefits credited to clients fixed income accounts, TRS' borrowing
costs and TRS' and AEB's return on lending products.
- Changes in laws or government regulations that either restrict
the businesses of the Company, or allow a wider range of
institutions to compete in such businesses, e.g., banks being
allowed to sell products competing with AXP Advisors, non-banking
institutions selling bank products in competition with AEB; and
changes in tax laws affecting the Company's businesses. See also
pages 2 through 4, 7, 14 through 16, 18, 19, 26 and 27 of this
10-K Report for a discussion of various regulations affecting the
Company.
- Global developments that could affect the Company's operations
abroad, such as political or economic instability in key markets
of the Company's businesses or restrictions on convertibility of
certain currencies. See also pages 10, 11, 25, 26, 28 and 29 of
this 10-K Report for a discussion of risks relating to foreign
operations.
- Competitive pressures in all of the Company's major businesses,
including those competitive issues referred to on pages 4 through
8, 10, 12 through 14, 16 through 18, 26 and 28 in this 10-K
Report.
- Unforeseen litigation or compliance costs.
-31-
<PAGE>
INDUSTRY SEGMENT INFORMATION AND CLASSES OF SIMILAR SERVICES
------------------------------------------------------------
Information with respect to the Company's industry segments, geographical
operations and classes of similar services is set forth in Note 15 to the
Consolidated Financial Statements of the Company, which appears on pages 52
through 54 of the Company's 1997 Annual Report to Shareholders, which Note is
incorporated herein by reference.
EXECUTIVE OFFICERS OF THE COMPANY
---------------------------------
All of the executive officers of the Company as of March 30, 1998, 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, TRS
Mr. Golub (59) has been Chief Executive Officer of the Company since February
1993, Chairman of the Company since August 1993 and Chairman, TRS since November
1991. Prior to February 1997 he had been Chief Executive Officer of TRS since
November 1991. Prior to August 1993, he had been President of the Company since
July 1991.
KENNETH I. CHENAULT - President and Chief Operating Officer;
President and Chief Executive Officer, TRS
Mr. Chenault (46) has been President and Chief Operating Officer of the
Company and President and Chief Executive Officer of TRS since February 1997.
Prior to February 1997 he had been Vice Chairman of the Company 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 (57) has been Vice Chairman of the Company since May 1995. Prior
thereto, he had been a director of McKinsey & Company.
-32-
<PAGE>
RICHARD KARL GOELTZ - Vice Chairman and Chief Financial Officer
Mr. Goeltz (55) has been Vice Chairman and Chief Financial Officer of the
Company since September 1996. Prior thereto, he had been Group Chief Financial
Officer and a member of the Board of Directors of NatWest Group.
JONATHAN S. LINEN - Vice Chairman
Mr. Linen (54) has been Vice Chairman of the Company since August 1993. Prior
thereto, he had been President and Chief Operating Officer of TRS since March
1992.
STEVEN W. ALESIO - President, Small Business Services, TRS
Mr. Alesio (43) has been President, Small Business Services, TRS since
February 1996. Prior thereto, he had been President, Government Services, TRS
since February 1996. 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.
ANNE M. BUSQUET - President, American Express Relationship Services, TRS
Mrs. Busquet (48) 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.
URSULA F. FAIRBAIRN - Executive Vice President, Human Resources and Quality
Mrs. Fairbairn (55) has been Executive Vice President, Human Resources and
Quality of the Company since December 1996. Prior thereto, she had been Senior
Vice President, Human Resources of Union Pacific Corporation.
EDWARD P. GILLIGAN - President, Corporate Services, TRS
Mr. Gilligan (38) 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.
-33-
<PAGE>
JOHN D. HAYES - Executive Vice President, Global Advertising
Mr. Hayes (43) has been Executive Vice President, Global Advertising since
May 1995. Prior thereto, he had been President of Lowe & Partners/SMS since
January 1991.
DAVID C. HOUSE - President, Establishment Services Worldwide, TRS
Mr. House (48) 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 United States Establishment
Services Group since January 1993.
DAVID R. HUBERS - President and Chief Executive Officer,
American Express Financial Corporation
Mr. Hubers (55) 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.
ALLAN Z. LOREN - Executive Vice President and Chief Information Officer
Mr. Loren (59) has been Executive Vice President and Chief Information
Officer of the Company since May 1994. Prior thereto, he had been President and
Chief Executive Officer of Galileo International since January 1991.
LOUISE M. PARENT - Executive Vice President and General Counsel
Ms. Parent (47) has been Executive Vice President and General Counsel of the
Company since May 1993. Prior thereto, she had been Deputy General Counsel of
the Company since January 1992.
PHILLIP J. RIESE - President, Consumer Card Services Group, TRS;
Chairman of the Board of American Express Centurion Bank
Mr. Riese (48) 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,
TRS.
-34-
<PAGE>
THOMAS O. RYDER - President, TRS International
Mr. Ryder (53) 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.
THOMAS SCHICK - Executive Vice President, Corporate Affairs
and Communications
Mr. Schick (51) has been Executive Vice President, Corporate Affairs and
Communications of the Company since March 1993. Prior thereto, he had been
Executive Vice President, TRS since October 1992.
JOHN A. WARD, III - Chairman and Chief Executive Officer,
American Express Bank Ltd.
Mr. Ward (51) 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 Company had approximately 73,620 employees on December 31, 1997.
ITEM 2. PROPERTIES
The Company's headquarters is in a 51-story, 2.2 million square foot
building located in lower Manhattan, 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. is
also headquartered at, and owns 52% of, the building.
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; the American Express Canada, Inc.
headquarters in Markham, Ontario, Canada, all of which are owned by the Company
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. AXP
-35-
<PAGE>
Advisors also owns Oak Ridge Conference Center, a training facility and
conference center, in Chaska, Minnesota.
AEFC has entered into a contract with a developer to construct a 30-story
office tower in Minneapolis which should be ready for occupancy in February
2000. At that time, the new tower will become AEFC's headquarters. AEFC's lease
term is for 20 years with several options to extend the term. The annual rent is
approximately $16 million.
Generally, the Company and its subsidiaries lease the premises they occupy in
other locations. Facilities owned or occupied by the Company and its
subsidiaries are believed to be adequate for the purposes for which they are
used and are well maintained.
ITEM 3. LEGAL PROCEEDINGS
The Company 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 Company believes it has
meritorious defenses to each of these actions and intends to defend them
vigorously. The Company believes that it is not a party to, nor are any of its
properties the subject of, any pending legal or arbitration proceedings which
would have a material adverse effect on the Company's consolidated financial
condition, although it is possible that the outcome of any such proceedings
could have a material impact on the Company's net income in any particular
period. Certain legal proceedings involving the Company are set forth below.
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.
The Company commenced an action, American Express Company v. The United
States on September 16, 1997 in the United States Court of Federal Claims
seeking a refund from the United States of Federal income taxes paid (plus
related interest) for the year 1987. The Company contends that the Internal
Revenue Service abused its discretion by denying the Company's request to
include annual fees from Cardmembers in
-36-
<PAGE>
taxable income ratably over the twelve-month period to which the fees
relate rather than in full at the time they are billed. The defendant
filed an answer on January 16, 1998, and pre-trial discovery proceedings
are now underway. If the Company's position is sustained, it would receive
interest on $198,649,152 of taxes paid for 1987 that should have been
deferred to a subsequent period.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the last quarter of its fiscal year ended December 31, 1997.
PART II
-------
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The principal market for the Company's Common Shares is The New York Stock
Exchange. Its Common Shares are also listed on the Boston, Chicago, Pacific,
London, Swiss, Dusseldorf, Frankfurt, Paris and Brussels Stock Exchanges. The
Company had 53,576 common shareholders of record at December 31, 1997. For
price and dividend information with respect to such Common Shares, see Note 18
to the Consolidated Financial Statements on page 55 of the Company's 1997
Annual Report to Shareholders, which Note is incorporated herein by reference.
On December 16, 1997, the Company issued to Nippon Life Insurance Company
("Nippon Life") 4,398,568 common shares in exchange for 9,163,683 shares of
Cumulative Convertible Voting Preferred Stock, Series B issued by Lehman
Brothers Holdings Inc. ("Series B Shares"). Nippon Life exchanged the Series B
Shares for Company common shares pursuant to exchange rights granted by the
Company to Nippon Life in 1990. The common shares were issued in a private
placement pursuant to Section 4(2) of the Securities Act of 1933.
ITEM 6. SELECTED FINANCIAL DATA
The "Consolidated Five-Year Summary of Selected Financial Data" appearing
on page 57 of the Company's 1997 Annual Report to Shareholders is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information set forth under the heading "Financial Review" appearing on
pages 22 through 30 of the Company's 1997 Annual Report to Shareholders is
incorporated herein by reference.
-37-
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information set forth under the heading "Risk Management" appearing on
pages 28 through 30 of the Company's 1997 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 31 through 56 of the Company's 1997 Annual Report to Shareholders are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
--------
ITEMS 10, 11, 12 and 13. DIRECTORS AND EXECUTIVE OFFICERS OF
THE COMPANY; EXECUTIVE
COMPENSATION; SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT; CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
The Company filed with the SEC, within 120 days after the close of its last
fiscal year, a definitive proxy statement dated March 10, 1998 pursuant to
Regulation 14A, which involves the election of directors. The following
portions of such proxy statement are incorporated herein by reference: pages 2
and 3 under the heading "The Shares Voting," pages 3 through 5 under the
headings "Security Ownership of Directors and Executive Officers" and
"Security Ownership of Named Executives," pages 7 and 8 under the heading
"Directors' Fees and Other Compensation," pages 9 beginning at "Election
of Directors" through 24 ending at "Selection of Auditors (excluding the
portions under the headings, "Board Compensation Committee Report on Executive
Compensation" appearing on pages 11 through 15 and "Performance Graph"
appearing on page 20). In addition, the Company has provided, under the
caption "Executive Officers of the Company" at pages 32 through 35 above,
the information regarding executive officers called for by Item 401(b) of
Regulation S-K.
-38-
<PAGE>
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-6 hereof.
(b) Reports on Form 8-K:
1. Form 8-K, dated October 27, 1997, Item 5, reporting the
Company's earnings for the quarter ended September 30, 1997.
2. Form 8-K, dated January 26, 1998, Item 5, reporting the
Company's earnings for the quarter and year ended December 31,
1997.
3. Form 8-K dated February 4, 1998, Item 5, reporting certain
information from a February 4, 1998 speech presented by
Harvey Golub, the Company's Chairman and Chief Executive
Officer, to the financial community.
4. Form 8-K dated February 10, 1998, Item 5, reporting the
Company's adoption of Statement of Financial Accounting
Standards No. 128, "Earnings per Share", effective for
the quarter and year ended December 31, 1997.
-39-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMERICAN EXPRESS COMPANY
March 30, 1998 By Richard Karl Goeltz
-----------------------
Richard Karl Goeltz
Vice Chairman 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
Company and in the capacities and on the date indicated.
By /s/Harvey Golub By /s/Charles W. Duncan, Jr
---------------------------- ----------------------------
Harvey Golub Charles W. Duncan, Jr.
Chairman, Chief Executive Director
Officer and Director
By /s/Kenneth I. Chenault By /s/Beverly Sills Greenough
---------------------------- ----------------------------
Kenneth I. Chenault Beverly Sills Greenough
President, Chief Operating Director
Officer and Director
By /s/Richard Karl Goeltz By /s/F. Ross Johnson
---------------------------- ----------------------------
Richard Karl Goeltz F. Ross Johnson
Vice Chairman 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/Jan Leschly
---------------------------- ----------------------------
Daniel F. Akerson Jan Leschly
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
March 30, 1998
-40-
<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
1997 Annual Report to Shareholders:
Report of independent auditors 56
Consolidated statements of income for the
three years ended December 31, 1997 31
Consolidated balance sheets at December 31,
1997 and 1996 32
Consolidated statements of cash flows for
the three years ended December 31, 1997 33
Consolidated statements of shareholders' equity
for the three years ended December 31, 1997 34
Notes to consolidated financial statements 35-55
Consent of independent auditors F-2
Schedules:
I-- Condensed financial information of
registrant F-3-6
II-- Valuation and qualifying accounts for the
three years ended December 31, 1997 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 to Shareholders for the year ended December 31,
1997, 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 1997 Annual Report to Shareholders 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 5, 1998
(hereinafter referred to as our Report), included in the 1997 Annual Report to
Shareholders of American Express Company.
Our audits included the financial statement schedules of American Express
Company listed in Item 14(a). These schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in the Registration
Statements (Form S-8 No. 2-46918, No. 2-59230, No. 2-64285, No. 2-73954,
No. 2-89680, No. 33-01771, No. 33-02980, No. 33-28721, No. 33-33552,
No. 33-36422, No. 33-48629, No. 33-62124, No. 33-65008, No. 33-53801,
No. 333-12683 and No. 333-41779; Form S-3 No. 2-89469, No. 33-43268,
No. 33-50997, No. 333-32525, No. 333-45445, and No. 333-47085) 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, 1997.
/s/ Ernst & Young LLP
New York, New York
March 30, 1998
F-2
<PAGE>
<TABLE>
<CAPTION>
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF THE COMPANY
CONDENSED STATEMENTS OF INCOME
(Parent Company Only)
(millions)
Years Ended
December 31,
-----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues $ 236 $ 245 $ 254
----- ----- -----
Expenses:
Interest 224 261 245
Human resources 68 71 85
Other (A) 314 (310) 218
----- ----- -----
Total 606 22 548
----- ----- -----
Pretax (loss) income (370) 223 (294)
Income tax (benefit) provision (193) 43 (132)
----- ----- -----
Net (loss) income before equity in net income
of subsidiaries and affiliates (177) 180 (162)
Equity in net income of subsidiaries
and affiliates 2,168 1,721 1,726
----- ----- -----
Net income $1,991 $1,901 $1,564
===== ===== =====
</TABLE>
(A) 1996 includes a pretax gain of $480 million ($300 million after-tax)
on the exchange of DECS (Debt Exchangeable for Common Stock) for FDC
common stock.
See Notes to Condensed Financial Information of the Company
F-3
<PAGE>
<TABLE>
<CAPTION>
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF THE COMPANY
CONDENSED BALANCE SHEETS
(Parent Company Only)
(millions, except share amounts)
ASSETS
------ December 31,
-------------
1997 1996
---- ----
<S> <C> <C>
Cash and cash equivalents $ 13 $ 31
Investments 114 239
Equity in net assets of subsidiaries and affiliates 9,731 8,763
Accounts receivable and accrued interest, less
reserves 13 36
Land, buildings and equipment--at cost, less
accumulated depreciation: 1997, $61; 1996,$61 67 69
Due from subsidiaries (net) 1,285 922
Other assets 552 489
------ ------
Total assets $11,775 $10,549
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Accounts payable and other liabilities $ 1,122 $ 1,355
Long-term debt 1,079 666
------ ------
Total liabilities 2,201 2,021
Shareholders' equity:
Common shares, $.60 par value, authorized
1.2 billion shares; issued and outstanding
466.4 million shares in 1997 and 472.9 million
shares in 1996 280 284
Capital surplus 4,624 4,191
Net unrealized securities gains 579 386
Foreign currency translation adjustment (97) (89)
Retained earnings 4,188 3,756
------ ------
Total shareholders' equity 9,574 8,528
------ ------
Total liabilities and shareholders' equity $11,775 $10,549
====== ======
</TABLE>
See Notes to Condensed Financial Information of the Company
F-4
<PAGE>
<TABLE>
<CAPTION>
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF THE COMPANY
STATEMENTS OF CASH FLOWS
(Parent Company Only)
(millions)
Years Ended December 31,
------------------------
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,991 $ 1,901 $ 1,564
Adjustments to reconcile net income to cash
provided by operating activities:
Equity in net income of subsidiaries
and affiliates (2,168) (1,721) (1,726)
Dividends received from subsidiaries
and affiliates 1,489 1,426 941
----- ----- -----
(FDC Gain)/Restructuring - (287) -
----- ----- -----
Net cash provided by operating activities 1,312 1,319 779
----- ----- -----
Net cash provided(used) by investing
activities 51 124 (32)
----- ----- -----
Cash flows from financing activities:
Issuance of American Express common shares 168 176 286
Repurchase of American Express common shares (1,259) (1,041) (891)
Dividends paid (423) (436) (458)
Net increase (decrease) in debt 411 (427) (864)
Other (278) 297 1,035
----- ----- -----
Net cash used by financing activities (1,381) (1,431) (892)
----- ----- -----
Net (decrease) increase in cash and cash
equivalents (18) 12 (145)
----- ----- -----
Cash and cash equivalents at beginning of year 31 19 164
----- ------ -----
Cash and cash equivalents at end of year $ 13 $ 31 $ 19
===== ===== =====
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest (net of amounts capitalized) in 1997, 1996, and
1995 was $88 million, $216 million and $190 million, respectively.
Net cash paid for income taxes was $98 million for 1997; net cash received
for income taxes was $296 million for 1996 and $127 million for 1995.
F-5
<PAGE>
<TABLE>
<CAPTION>
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF THE COMPANY
NOTES TO CONDENSED FINANCIAL INFORMATION OF THE COMPANY
(Parent Company Only)
1. Principles of Consolidation
The accompanying financial statements include the accounts of American Express
Company and on an equity basis its subsidiaries and affiliates. 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,
------------
1997 1996
---- ----
<S> <C> <C>
8 1/2% Notes due August 15, 2001 $ 299 $ 299
Floating Medium-Term Note due December 31, 2000 88 150
8 5/8% Senior Debentures due 2022 122 132
WFC Series Z Zero Coupon Notes due December 12, 2000 46 42
WFC Series D 11 5/8% Guaranteed Notes due December 12, 2000 - 12
6 3/4% Senior Debentures due June 23, 2004 499 -
Other Fixed and Floating rate notes maturing 1999-2001 25 31
----- -----
$1,079 $ 666
===== =====
</TABLE>
Aggregate annual maturities of long-term debt for the five years ending
December 31, 2002 are as follows (millions): 1998, $4; 1999, $5; 2000, $163;
2001, $305, 2002, $0.
F-6
<PAGE>
<TABLE>
<CAPTION>
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1997
(millions)
Reserve for credit losses, Reserve for doubtful
loans and discounts accounts receivable
-------------------------- ------------------------------
1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning
of period $ 601 $ 602 $ 545 $ 722 $ 829 $ 807
Additions:
Charges to income 837 658 529 1,153(a) 1,081(a) 1,156(a)
Recoveries of amounts
previously written-off 159 136 134 - - -
Deductions:
Charges for which
reserves were provided (890) (795) (606) (1,163) (1,188) (1,134)
----- ----- ----- ------- ------- -------
Balance at end of period $ 707 $ 601 $ 602 $ 712 $ 722 $ 829
==== ===== ===== ======= ======= =======
</TABLE>
(a) Before recoveries on accounts previously written-off, which are credited
to income (millions): 1997--$237, 1996--$232 and 1995--$219.
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 10.17 and 10.30 through 10.40 are management contracts or compensatory
plans or arrangements.
3.1 Company's Restated Certificate of Incorporation (incorporated by
reference to Exhibit 4.1 of the Company's Registration Statement
on Form S-3, dated July 31, 1997 (Commission File No. 333-32525)).
*3.2 Company's By-Laws, as amended through February 23, 1998.
4 The instruments defining the rights of holders of long-term debt
securities of the Company and its subsidiaries are omitted
pursuant to Section (b)(4)(iii)(A) of Item 601 of Regulation S-K.
The Company 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 Company's Annual
Report on Form 10-K (Commission File No. 1-7657) for the fiscal
year ended December 31, 1987).
10.2 American Express Company 1989 Long-Term Incentive Plan, as amended
and restated (incorporated by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q (Commission File No.
1-7657) for the quarter ended March 31, 1996).
10.3 American Express Company Deferred Compensation Plan for Directors,
as amended effective July 28, 1997 (incorporated by reference to
Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q
(Commission File No. 1-7657) for the quarter ended June 30, 1997).
10.4 Description of American Express Pay for Performance Deferral
Program (incorporated by reference to Exhibit 10.5 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657)
for the fiscal year ended December 31, 1994).
10.5 American Express Company 1983 Stock Purchase Assistance Plan, as
amended (incorporated by reference to Exhibit 10.6 of the Company's
Annual Report on Form 10-K (Commission File No. 1-7657) for the
fiscal year ended December 31, 1988).
E-1
<PAGE>
10.6 Consulting Agreement dated March 3, 1994 between the Company and Aldo
Papone Consulting (incorporated by reference to Exhibit 10.8 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657) for
the fiscal year ended December 31, 1993).
10.7 American Express Company Retirement Plan for Non-Employee
Directors, as amended (incorporated by reference to Exhibit 10.12
of the Company's Annual Report on Form 10-K (Commission File No.
1-7657) for the fiscal year ended December 31, 1988).
10.8 Certificate of Amendment of the American Express Company Retirement
Plan for Non-Employee Directors dated March 21, 1996 (incorporated
by reference to Exhibit 10.11 of the Company's Annual Report on
Form 10-K (Commission File No. 1-7657) for the fiscal year ended
December 31, 1995).
10.9 American Express Key Executive Life Insurance Plan, as amended
(incorporated by reference to Exhibit 10.12 of the Company's Annual
Report on Form 10-K (Commission File No. 1-7657) for the fiscal
year ended December 31, 1991).
10.10 American Express Key Employee Charitable Award Program for
Education (incorporated by reference to Exhibit 10.13 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657)
for the fiscal year ended December 31, 1990).
10.11 American Express Directors' Charitable Award Program (incorporated
by reference to Exhibit 10.14 of the Company's Annual Report on
Form 10-K (Commission File No. 1-7657) for the fiscal year ended
December 31, 1990).
10.12 Description of separate pension arrangement and loan agreement
between the Company and Harvey Golub (incorporated by reference to
Exhibit 10.17 of Company's Annual Report on Form 10-K (Commission
File No. 1-7657) for the fiscal year ended December 31, 1988).
10.13 Shearson Lehman Brothers Capital Partners I Amended and Restated
Agreement of Limited Partnership (incorporated by reference to
Exhibit 10.18 of Company's Annual Report on Form 10-K (Commission
File No. 1-7657) for the fiscal year ended December 31, 1988).
10.14 Shearson Lehman Hutton Capital Partners II, L.P. Amended and
Restated Agreement of Limited Partnership (incorporated by
reference to Exhibit 10.19 of Company's Annual Report on Form 10-K
(Commission File No. 1-7657) for the fiscal year ended December 31,
1988).
E-2
<PAGE>
10.15 American Express Company Salary/Bonus Deferral Plan (incorporated
by reference to Exhibit 10.20 of Company's Annual Report on Form
10-K (Commission File No. 1-7657) for the fiscal year ended
December 31, 1988).
10.16 Written description of certain pension arrangements with Jonathan
S. Linen (incorporated by reference to Exhibit 10.14 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657)
for the fiscal year ended December 31, 1991).
10.17 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 Company's Annual
Report on Form 10-K (Commission File No. 1-7657) for the fiscal
year ended December 31, 1993).
10.18 Restated and Amended Agreement of Tenants-In-Common, dated May 27,
1994, by and among the Company, 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 (Commission File No. 1-9466) for the transition period from
January 1, 1994 to November 30, 1994).
10.19 Tax Allocation Agreement, dated May 27, 1994, between Lehman
Brothers Holdings Inc. and the Company (incorporated by reference
to Exhibit 10.2 of Lehman Brothers Holdings Inc.'s Transition
Report on Form 10-K (Commission File No. 1-9466) for the transition
period from January 1, 1994 to November 30, 1994).
10.20 Intercompany Agreement, dated May 27, 1994, between the Company and
Lehman Brothers Holdings Inc. (incorporated by reference to Exhibit
10.3 of Lehman Brothers Holdings Inc.'s Transition Report on Form
10-K 1994 (Commission File No. 1-9466) for the transition period
from January 1, 1994 to November 30, 1994).
10.21 Purchase and Exchange Agreement, dated April 28, 1994, between
Lehman Brothers Holdings Inc. and the Company (incorporated by
reference to Exhibit 10.29 of Lehman Brothers Holdings Inc.'s
Transition Report on Form 10-K (Commission File No. 1-9466) for the
transition period from January 1, 1994 to November 30, 1994).
10.22 Registration Rights Agreement, dated as of May 27, 1994, between
the Company and Lehman Brothers Holdings Inc. (incorporated by
reference to Exhibit 10.30 of Lehman Brothers Holdings Inc.'s
Transition Report on Form 10-K (Commission File No. 1-9466) for the
transition period from January 1, 1994 to November 30, 1994).
E-3
<PAGE>
10.23 Option Agreement, dated May 27, 1994, by and among the Company,
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 (Commission File No. 1-9466) for the transition period from
January 1, 1994 to November 30, 1994).
*10.24 Letter Agreement, dated January 22, 1997, between the Company and
Nippon Life Insurance Company.
*10.25 Letter, dated July 7, 1997, from the Company to Nippon Life Insurance
Company.
*10.26 Letter Agreement, dated January 30, 1998, between the Company and
Nippon Life Insurance Company.
10.27 1994 Agreement, dated April 28, 1994, between the Company, 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 (Commission File No.
1-9466) for the transition period from January 1, 1994 to November
30, 1994).
10.28 1990 Agreement, dated as of June 12, 1990, by and between the
Company and Nippon Life Insurance Company (incorporated by
reference to Exhibit 10.25 of Shearson Lehman Brothers Holdings
Inc.'s Annual Report on Form 10-K (Commission File No. 1-9466) for
the fiscal year ended December 31, 1990).
10.29 Asset Purchase Agreement dated as of March 12, 1993 between Smith
Barney, Harris Upham & Co. Incorporated, Primerica Corporation and
Shearson Lehman Brothers Inc. (incorporated by reference to Exhibit
10.16 of Shearson Lehman Brothers Holdings Inc.'s Annual Report on
Form 10-K (Commission File No. 1-9466) for the fiscal year ended
December 31, 1992).
10.30 American Express Company 1993 Directors' Stock Option Plan
(incorporated by reference to Exhibit 28.2 of the Company's
Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the
quarter ended March 31, 1993).
10.31 Description of separate pension arrangement between the Company and
George L. Farr (incorporated by reference to Exhibit 10.33 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657)
for the fiscal year ended December 31, 1995).
E-4
<PAGE>
10.32 American Express Senior Executive Severance Plan (incorporated by
reference to Exhibit 10.1 of the Company's Quarterly Report on Form
10-Q (Commission File No. 1-7657) for the quarter ended June 30,
1994).
10.33 Amendment of American Express Senior Executive Severance Plan
(incorporated by reference to Exhibit 10.1 of the Company's
Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the
quarter ended September 30, 1994).
10.34 Amendment of American Express Company Key Executive Life Insurance
Plan (incorporated by reference to Exhibit 10.3 of the Company's
Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the
quarter ended September 30, 1994).
10.35 Amendment of American Express Company Salary/Bonus Deferral Plan
(incorporated by reference to Exhibit 10.4 of the Company's
Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the
quarter ended September 30, 1994).
10.36 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 Company's Quarterly Report on
Form 10-Q (Commission File No. 1-7657) for the quarter ended
September 30, 1994).
*10.37 Amendments of (i) Long-Term Incentive Awards under the American
Express Company 1979 and 1989 Long-Term Incentive Plans, (ii) the
American Express Senior Executive Severance Plan, (iii) the
American Express Supplemental Retirement Plan, (iv) the American
Express Salary/Bonus Deferral Plan, (v) the American Express Key
Executive Life Insurance Plan and (vi) the IDS Current Service
Deferred Compensation Plan.
10.38 IDS Current Service Deferred Compensation Plan (incorporated by
reference to Exhibit 10.42 of the Company's Annual Report on Form
10-K (Commission File No. 1-7657) for the fiscal year ended
December 31, 1994).
10.39 Amended and Restated American Express Supplemental Retirement Plan
(incorporated by reference to Exhibit 10.1 of the Company's
Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the
quarter ended March 31, 1995).
10.40 American Express Directors' Stock Plan (incorporated by reference
to Exhibit 4.4 of the Company's Registration Statement on from S-8,
dated December 9, 1997 (Commission File No. 333-41779)).
10.41 Agreement dated February 27, 1995 between the Company and Berkshire
Hathaway Inc. (incorporated by reference to Exhibit 10.43 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657)
for the fiscal year ended December 31, 1994).
E-5
<PAGE>
10.42 Agreement dated July 20, 1995 between the Company and Berkshire
Hathaway Inc. and its subsidiaries (incorporated by reference to
Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q
(Commission File No. 1-7657) for the quarter ended September 30,
1995).
*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 Company's 1997 Annual Report to Shareholders that are
incorporated herein by reference.
*21 Subsidiaries of the Company.
*23 Consent of Ernst & Young LLP (contained on page F-2 of this Annual
Report on Form 10-K).
*27 Financial Data Schedule.
E-6
<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, 1997 Commission File No. 1-7657
------------------------
American Express Company
(Exact name of Company as specified in charter)
EXHIBITS
===============================================================================
<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 10.17 and 10.30 through 10.40 are management contracts or compensatory
plans or arrangements.
3.1 Company's Restated Certificate of Incorporation (incorporated by
reference to Exhibit 4.1 of the Company's Registration Statement
on Form S-3, dated July 31, 1997 (Commission File No. 333-32525)).
*3.2 Company's By-Laws, as amended through February 23, 1998.
4 The instruments defining the rights of holders of long-term debt
securities of the Company and its subsidiaries are omitted
pursuant to Section (b)(4)(iii)(A) of Item 601 of Regulation S-K.
The Company 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 Company's Annual
Report on Form 10-K (Commission File No. 1-7657) for the fiscal
year ended December 31, 1987).
10.2 American Express Company 1989 Long-Term Incentive Plan, as amended
and restated (incorporated by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q (Commission File No.
1-7657) for the quarter ended March 31, 1996).
10.3 American Express Company Deferred Compensation Plan for Directors,
as amended effective July 28, 1997 (incorporated by reference to
Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q
(Commission File No. 1-7657) for the quarter ended June 30, 1997).
10.4 Description of American Express Pay for Performance Deferral
Program (incorporated by reference to Exhibit 10.5 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657)
for the fiscal year ended December 31, 1994).
10.5 American Express Company 1983 Stock Purchase Assistance Plan, as
amended (incorporated by reference to Exhibit 10.6 of the Company's
Annual Report on Form 10-K (Commission File No. 1-7657) for the
fiscal year ended December 31, 1988).
E-1
<PAGE>
10.6 Consulting Agreement dated March 3, 1994 between the Company and Aldo
Papone Consulting (incorporated by reference to Exhibit 10.8 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657) for
the fiscal year ended December 31, 1993).
10.7 American Express Company Retirement Plan for Non-Employee
Directors, as amended (incorporated by reference to Exhibit 10.12
of the Company's Annual Report on Form 10-K (Commission File No.
1-7657) for the fiscal year ended December 31, 1988).
10.8 Certificate of Amendment of the American Express Company Retirement
Plan for Non-Employee Directors dated March 21, 1996 (incorporated
by reference to Exhibit 10.11 of the Company's Annual Report on
Form 10-K (Commission File No. 1-7657) for the fiscal year ended
December 31, 1995).
10.9 American Express Key Executive Life Insurance Plan, as amended
(incorporated by reference to Exhibit 10.12 of the Company's Annual
Report on Form 10-K (Commission File No. 1-7657) for the fiscal
year ended December 31, 1991).
10.10 American Express Key Employee Charitable Award Program for
Education (incorporated by reference to Exhibit 10.13 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657)
for the fiscal year ended December 31, 1990).
10.11 American Express Directors' Charitable Award Program (incorporated
by reference to Exhibit 10.14 of the Company's Annual Report on
Form 10-K (Commission File No. 1-7657) for the fiscal year ended
December 31, 1990).
10.12 Description of separate pension arrangement and loan agreement
between the Company and Harvey Golub (incorporated by reference to
Exhibit 10.17 of Company's Annual Report on Form 10-K (Commission
File No. 1-7657) for the fiscal year ended December 31, 1988).
10.13 Shearson Lehman Brothers Capital Partners I Amended and Restated
Agreement of Limited Partnership (incorporated by reference to
Exhibit 10.18 of Company's Annual Report on Form 10-K (Commission
File No. 1-7657) for the fiscal year ended December 31, 1988).
10.14 Shearson Lehman Hutton Capital Partners II, L.P. Amended and
Restated Agreement of Limited Partnership (incorporated by
reference to Exhibit 10.19 of Company's Annual Report on Form 10-K
(Commission File No. 1-7657) for the fiscal year ended December 31,
1988).
E-2
<PAGE>
10.15 American Express Company Salary/Bonus Deferral Plan (incorporated
by reference to Exhibit 10.20 of Company's Annual Report on Form
10-K (Commission File No. 1-7657) for the fiscal year ended
December 31, 1988).
10.16 Written description of certain pension arrangements with Jonathan
S. Linen (incorporated by reference to Exhibit 10.14 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657)
for the fiscal year ended December 31, 1991).
10.17 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 Company's Annual
Report on Form 10-K (Commission File No. 1-7657) for the fiscal
year ended December 31, 1993).
10.18 Restated and Amended Agreement of Tenants-In-Common, dated May 27,
1994, by and among the Company, 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 (Commission File No. 1-9466) for the transition period from
January 1, 1994 to November 30, 1994).
10.19 Tax Allocation Agreement, dated May 27, 1994, between Lehman
Brothers Holdings Inc. and the Company (incorporated by reference
to Exhibit 10.2 of Lehman Brothers Holdings Inc.'s Transition
Report on Form 10-K (Commission File No. 1-9466) for the transition
period from January 1, 1994 to November 30, 1994).
10.20 Intercompany Agreement, dated May 27, 1994, between the Company and
Lehman Brothers Holdings Inc. (incorporated by reference to Exhibit
10.3 of Lehman Brothers Holdings Inc.'s Transition Report on Form
10-K 1994 (Commission File No. 1-9466) for the transition period
from January 1, 1994 to November 30, 1994).
10.21 Purchase and Exchange Agreement, dated April 28, 1994, between
Lehman Brothers Holdings Inc. and the Company (incorporated by
reference to Exhibit 10.29 of Lehman Brothers Holdings Inc.'s
Transition Report on Form 10-K (Commission File No. 1-9466) for the
transition period from January 1, 1994 to November 30, 1994).
10.22 Registration Rights Agreement, dated as of May 27, 1994, between
the Company and Lehman Brothers Holdings Inc. (incorporated by
reference to Exhibit 10.30 of Lehman Brothers Holdings Inc.'s
Transition Report on Form 10-K (Commission File No. 1-9466) for the
transition period from January 1, 1994 to November 30, 1994).
E-3
<PAGE>
10.23 Option Agreement, dated May 27, 1994, by and among the Company,
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 (Commission File No. 1-9466) for the transition period from
January 1, 1994 to November 30, 1994).
*10.24 Letter Agreement, dated January 22, 1997, between the Company and
Nippon Life Insurance Company.
*10.25 Letter, dated July 7, 1997, from the Company to Nippon Life Insurance
Company.
*10.26 Letter Agreement, dated January 30, 1998, between the Company and
Nippon Life Insurance Company.
10.27 1994 Agreement, dated April 28, 1994, between the Company, 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 (Commission File No.
1-9466) for the transition period from January 1, 1994 to November
30, 1994).
10.28 1990 Agreement, dated as of June 12, 1990, by and between the
Company and Nippon Life Insurance Company (incorporated by
reference to Exhibit 10.25 of Shearson Lehman Brothers Holdings
Inc.'s Annual Report on Form 10-K (Commission File No. 1-9466) for
the fiscal year ended December 31, 1990).
10.29 Asset Purchase Agreement dated as of March 12, 1993 between Smith
Barney, Harris Upham & Co. Incorporated, Primerica Corporation and
Shearson Lehman Brothers Inc. (incorporated by reference to Exhibit
10.16 of Shearson Lehman Brothers Holdings Inc.'s Annual Report on
Form 10-K (Commission File No. 1-9466) for the fiscal year ended
December 31, 1992).
10.30 American Express Company 1993 Directors' Stock Option Plan
(incorporated by reference to Exhibit 28.2 of the Company's
Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the
quarter ended March 31, 1993).
10.31 Description of separate pension arrangement between the Company and
George L. Farr (incorporated by reference to Exhibit 10.33 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657)
for the fiscal year ended December 31, 1995).
E-4
<PAGE>
10.32 American Express Senior Executive Severance Plan (incorporated by
reference to Exhibit 10.1 of the Company's Quarterly Report on Form
10-Q (Commission File No. 1-7657) for the quarter ended June 30,
1994).
10.33 Amendment of American Express Senior Executive Severance Plan
(incorporated by reference to Exhibit 10.1 of the Company's
Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the
quarter ended September 30, 1994).
10.34 Amendment of American Express Company Key Executive Life Insurance
Plan (incorporated by reference to Exhibit 10.3 of the Company's
Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the
quarter ended September 30, 1994).
10.35 Amendment of American Express Company Salary/Bonus Deferral Plan
(incorporated by reference to Exhibit 10.4 of the Company's
Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the
quarter ended September 30, 1994).
10.36 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 Company's Quarterly Report on
Form 10-Q (Commission File No. 1-7657) for the quarter ended
September 30, 1994).
*10.37 Amendments of (i) Long-Term Incentive Awards under the American
Express Company 1979 and 1989 Long-Term Incentive Plans, (ii) the
American Express Senior Executive Severance Plan, (iii) the
American Express Supplemental Retirement Plan, (iv) the American
Express Salary/Bonus Deferral Plan, (v) the American Express Key
Executive Life Insurance Plan and (vi) the IDS Current Service
Deferred Compensation Plan.
10.38 IDS Current Service Deferred Compensation Plan (incorporated by
reference to Exhibit 10.42 of the Company's Annual Report on Form
10-K (Commission File No. 1-7657) for the fiscal year ended
December 31, 1994).
10.39 Amended and Restated American Express Supplemental Retirement Plan
(incorporated by reference to Exhibit 10.1 of the Company's
Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the
quarter ended March 31, 1995).
10.40 American Express Directors' Stock Plan (incorporated by reference
to Exhibit 4.4 of the Company's Registration Statement on from S-8,
dated December 9, 1997 (Commission File No. 333-41779)).
10.41 Agreement dated February 27, 1995 between the Company and Berkshire
Hathaway Inc. (incorporated by reference to Exhibit 10.43 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657)
for the fiscal year ended December 31, 1994).
E-5
<PAGE>
10.42 Agreement dated July 20, 1995 between the Company and Berkshire
Hathaway Inc. and its subsidiaries (incorporated by reference to
Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q
(Commission File No. 1-7657) for the quarter ended September 30,
1995).
*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 Company's 1997 Annual Report to Shareholders that are
incorporated herein by reference.
*21 Subsidiaries of the Company.
*23 Consent of Ernst & Young LLP (contained on page F-2 of this Annual
Report on Form 10-K).
*27 Financial Data Schedule.
E-6
<PAGE>
Exhibit 3.2
BY-LAWS
OF
AMERICAN EXPRESS COMPANY
(A New York Corporation)
(as amended through February 23, 1998)
<PAGE>
BY-LAWS
OF
AMERICAN EXPRESS COMPANY
ARTICLE I
OFFICES
SECTION 1.1 PRINCIPAL OFFICE. The principal office of the corporation
within the State of New York shall be located in the City of New York, County
of New York.
SECTION 1.2 OTHER OFFICES. The corporation may have such other offices
and places of business within and without the State of New York as the business
of the corporation may require.
ARTICLE II
SHAREHOLDERS
SECTION 2.1 ANNUAL MEETING. The annual meeting of the shareholders for
the election of directors and for the transaction of other business shall be
held at the principal office of the corporation within the State of New York,
or at such other place either within or without the State of New York as may
be fixed by the Board of Directors (hereinafter referred to as the "Board")
from time to time. The annual meeting shall be held on such full business day
in each year not earlier than March 15 nor later than April 30 and at such hour
as shall be fixed by the Board. If the election of directors shall not be held
on the date so fixed for the annual meeting, a special meeting of the
shareholders for the election of directors shall be called forthwith in the
manner provided herein for special meetings, or as may otherwise be provided
by law. (B.C.L. Section 602.)<F1>
SECTION 2.2 SPECIAL MEETINGS. Special Meetings of the shareholders may
be held for such purpose or purposes (other than for the election of directors,
except as provided in Section 2.1) as shall be specified in a call for such
meeting made by resolution of the Board or by a majority of the directors then
in office or by the Chief Executive Officer, or by the Secretary upon written
demand by the holder or holders of a majority of shares of the corporation then
outstanding and entitled to vote in the election of directors. Any such demand
by shareholders shall be delivered to the Secretary at the principal executive
offices of the corporation, and shall set forth (i) the purpose or purposes of
the meeting, and a description of each proposed matter to be approved or
addressed at such meeting, including the text of any proposed amendments to the
certificate of incorporation or these by-laws, (ii) the name and record address
of the shareholder or shareholders demanding the special meeting and (iii) the
number of shares of each class of stock of the corporation that are
beneficially owned by such shareholders. Upon receiving a demand for a special
- ------------------
<F1> This and other references to the New York Business Corporation Law are
not part of the by-laws, but are included solely for convenience in locating
relevant portions of the statute.
<PAGE>
meeting by shareholders that conforms to the requirements set forth herein, the
Secretary shall call, and in accordance with these by-laws, give notice of the
special meeting, and shall fix a date of any such meeting not less than sixty
(60) days nor more than ninety (90) days after the receipt by the Secretary of
the demand by shareholders. At any such special meeting only such business may
be transacted which is related to the purpose or purposes set forth in the
notice of meeting. (B.C.L. Section 602(c).)
SECTION 2.3 NOTICE OF MEETINGS. Notice of all meetings of shareholders
shall be in writing and shall state the place, date and hour of the meeting and
such other matters as may be required by law. Notice of any special meeting
shall also state the purpose or purposes for which the meeting is called and
shall indicate that it is being issued by or at the direction of the person or
persons calling the meeting. A copy of the notice of any meeting, shall be
given, personally or by mail, not less than ten nor more than sixty days before
the date of the meeting, provided that a copy of such notice may be given by
third class mail not less than twenty-four nor more than sixty days before the
date of the meeting, to each shareholder entitled to vote at such meeting. If
mailed, such notice shall be deemed given when deposited in the United States
mail, with postage thereon prepaid, directed to the shareholder at his address
as it appears on the record of shareholders, or, if he shall have filed with
the Secretary of the corporation a written request that notices to him be
mailed at some other address, then directed to him at such other address.
Notice of any adjourned meeting of the shareholders shall not be required if
the time and place to which the meeting is adjourned are announced at the
meeting at which the adjournment is taken, but if after the adjournment the
Board or Chief Executive Officer fixes a new record date for the adjourned
meeting, notice of the adjourned meeting shall be given to each shareholder of
record on the new record date. (B.C.L. Section 605.)
SECTION 2.4 QUORUM AND VOTING. Except as otherwise provided by law or
the certificate of incorporation, the holders of a majority of the votes of the
shares entitled to vote thereat shall constitute a quorum at any meeting of the
shareholders for the transaction of any business, but a lesser interest may
adjourn any meeting from time to time and from place to place until a quorum
is obtained. Any business may be transacted at any adjourned meeting that might
have been transacted at the original meeting. When a quorum is once present
to organize a meeting of shareholders, it is not broken by the subsequent
withdrawal of any shareholders. Directors shall, except as otherwise required
by law or the certificate of incorporation or a by-law adopted by the
shareholders, be elected by a plurality of the votes cast in favor of or
against such action at a meeting of shareholders by the holders of shares
entitled to vote in the election. Any other corporate action taken by vote of
the shareholders shall, except as otherwise required by law or the certificate
of incorporation, be authorized by a majority of the votes cast at a meeting
of shareholders by the holders of shares entitled to vote thereon. Every
shareholder of record shall be entitled at every meeting of shareholders to one
vote for each share standing in his name on the record of shareholders, unless
otherwise provided in the certificate of incorporation. Neither treasury
shares, nor shares held by any other corporation, if a majority of the shares
entitled to vote in the election of directors of such other corporation is held
by the corporation, shall be voted at any meeting or counted in determining the
total number of outstanding shares then entitled to vote. (B.C.L. Sections 608,
614.)
2
<PAGE>
SECTION 2.5 PROXIES. Every shareholder entitled to vote at a meeting of
the shareholders may authorize another person to vote for him by proxy executed
in writing (or in such manner permitted by law) by the shareholder or his
attorney-in-fact. No proxy shall be valid after the expiration of eleven
months from the date thereof, unless otherwise provided in the proxy. Every
proxy shall be revocable at the pleasure of the shareholder executing it,
except that a proxy which is entitled "irrevocable proxy" and which states that
it is irrevocable shall be irrevocable when and to the extent permitted by law.
(B.C.L. Section 609.)
SECTION 2.6 LIST OF SHAREHOLDERS AT MEETINGS. A list of shareholders as
of the record date, certified by the Secretary or by the transfer agent of the
corporation, shall be produced at any meeting of shareholders upon the request
thereat or prior thereto of any shareholder. If the right to vote at any
meeting is challenged, the inspectors of election or person presiding thereat
shall require such list of shareholders to be produced as evidence of the right
of the persons challenged to vote at such meeting, and all persons who appear
from such list to be shareholders entitled to vote thereat may vote at such
meeting. (B.C.L. Section 607.)
SECTION 2.7 WAIVER OF NOTICE. Notice of a shareholders' meeting need not
be given to any shareholder who submits a signed waiver of notice, in person
or by proxy, whether before or after the meeting. The attendance of any
shareholder at a meeting, in person or by proxy, without protesting prior to
the conclusion of the meeting the lack of notice of such meeting, shall
constitute a waiver of notice by him. (B.C.L. Section 606.)
SECTION 2.8 INSPECTORS AT SHAREHOLDERS' MEETINGS. The Board, in advance
of any shareholders' meeting, may appoint one or more inspectors to act at the
meeting or any adjournment thereof and to perform such duties thereat as are
prescribed by law. If inspectors are not so appointed, the person presiding
at a shareholders' meeting shall appoint one or more inspectors. In case any
person appointed fails to appear or act, the vacancy may be filled by
appointment made by the Board in advance of the meeting or at the meeting by
the person presiding thereat. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector at such meeting with strict impartiality and according to
the best of his ability. (B.C.L. Section 610.)
SECTION 2.9 BUSINESS TO BE TRANSACTED AT SHAREHOLDERS' MEETINGS. No
business shall be transacted at any annual meeting of shareholders, except as
may be (i) specified in the notice of the meeting given by or at the direction
of the Board (including, if so specified, any shareholder proposal submitted
pursuant to the rules and regulations of the Securities and Exchange
Commission), (ii) otherwise brought before the meeting by or at the direction
of the Board or (iii) otherwise brought before the meeting in accordance with
the procedure set forth in the following paragraph, by a shareholder of the
corporation entitled to vote at such meeting.
For business to be brought by a shareholder before an annual meeting of
shareholders pursuant to clause (iii) above, the shareholder must have given
written notice thereof to the Secretary of the corporation, such notice to be
received at the principal executive offices of the corporation not less than
90 nor more than 120 days prior to the one year anniversary of the date of the
annual meeting of shareholders of the previous year; provided, however, that
3
<PAGE>
in the event that the annual meeting of shareholders is called for a date that
is not within 30 days before or after such anniversary date, notice by the
shareholder must be received at the principal executive offices of the
corporation not later than the close of business on the tenth day following the
day on which the corporation's notice of the date of the meeting is first given
or made to the shareholders or disclosed to the general public (which
disclosure may be effected by means of a publicly available filing with the
Securities and Exchange Commission), whichever occurs first. A shareholder's
notice to the Secretary shall set forth, as to each matter the shareholder
proposes to bring before the annual meeting of shareholders, (i) a brief
description of the business proposed to be brought before the annual meeting
of shareholders and of the reasons for bringing such business before the
meeting and, if such business includes a proposal to amend either the
certificate of incorporation or these by-laws, the text of the proposed
amendment, (ii) the name and record address of the shareholder proposing such
business, (iii) the number of shares of each class of stock of the corporation
that are beneficially owned by such shareholder, (iv) any material interest of
the shareholder in such business and (v) such other information relating to the
proposal that is required to be disclosed in solicitations pursuant to the
Securities Exchange Act of 1934, as amended, and the rules and regulations of
the Securities and Exchange Commission or other applicable law.
Notwithstanding anything in these by-laws to the contrary, no business shall
be conducted at an annual meeting of shareholders except in accordance with the
procedures set forth in this Section 2.9; provided, however, that nothing in
this Section 2.9 shall be deemed to preclude discussion by any shareholder of
any business properly brought before the annual meeting of shareholders in
accordance with such procedures. The chairman of an annual meeting of
shareholders shall, if the facts warrant, determine and declare to the meeting
that the business was not properly brought before the meeting in accordance
with the provisions of this Section 2.9, and if he should so determine, he
shall so declare to the meeting and any such business not properly brought
before the annual meeting of shareholders shall not be transacted.
ARTICLE III
DIRECTORS
SECTION 3.1 POWERS, NUMBER, QUALIFICATIONS AND TERM OF OFFICE. The
business of the corporation shall be managed by its Board, which shall consist
of not less than seven persons, each of whom shall be at least twenty-one years
of age. Subject to such limitation, the number of directors shall be fixed and
may be increased or decreased from time to time by a majority of the entire
Board. Directors need not be shareholders. Except as otherwise provided by
law or these by-laws, the directors shall be elected at the annual meetings of
the shareholders, and each director shall hold office until the next annual
meeting of shareholders, and until his successor has been elected and
qualified. Newly created directorships resulting from an increase in the
number of directors and any vacancies occurring in the Board for any reason,
including vacancies occurring by reason of the removal of any of the directors
with or without cause, may be filled by vote of a majority of the directors
then in office, although less than a quorum exists. No decrease in the number
of directors shall shorten the terms of any incumbent director. A director
4
<PAGE>
elected to fill a vacancy shall be elected to hold office for the unexpired
term of his predecessor. If the Board has not elected a Chairman of the Board
as an officer, it may choose a Chairman of the Board from among its members to
preside at its meetings. (B.C.L. Sections 701, 702, 703, 705.)
SECTION 3.2 REGULAR MEETINGS. There shall be regular meetings of the
Board, which may be held on such dates and without notice or upon such notice
as the Board may from time to time determine. Regular meetings shall be held
at the principal office of the corporation within the State of New York or at
such other place either within or without the State of New York and at such
specific time as may be fixed by the Board from time to time. There shall also
be a regular meeting of the Board, which may be held without notice or upon
such notice as the Board may from time to time determine, after the annual
meeting of the shareholders or any special meeting of the shareholders at which
an election of directors is held. (B.C.L. Sections 710, 711.)
SECTION 3.3 SPECIAL MEETINGS. Special meetings of the Board may be held
at any place within or without the State of New York at any time when called
by the Chairman of the Board or the President or four or more directors.
Notice of the time and place of special meetings shall be given to each
director by serving such notice upon him personally within the City of New York
at least one day prior to the time fixed for such meeting, or by mailing or
telegraphing it, prepaid, addressed to him at his post office address, as it
appears on the books of the corporation, at least three days prior to the time
fixed for such meeting. Neither the call or notice nor any waiver of notice
need specify the purpose of any meeting of the Board. (B.C.L. Sections 710,
711.)
SECTION 3.4 WAIVER OF NOTICE. Notice of a meeting need not be given to
any director who signs a waiver of notice whether before or after the meeting,
or who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to him. (B.C.L. Section 711(c).)
SECTION 3.5 QUORUM AND VOTING. One-third of the entire Board shall
constitute a quorum. A majority of the directors present, whether or not a
quorum is present, may adjourn any meeting to another time and place. Notice
of any adjournment shall be given to the directors who were not present at the
time of the adjournment and, unless the time and place of such adjournment are
announced at the meeting, to the other directors. The vote of a majority of
the directors present at the time of the vote, if a quorum is present at such
time, shall be the act of the Board, except where a larger vote is required by
law, the certificate of incorporation or these by-laws. (B.C.L. Sections 701,
708, 711(d).)
SECTION 3.6 ACTION BY THE BOARD. Any reference in these by-laws to
corporate action to be taken by the Board shall mean such action at a meeting
of the Board. However, any action required or permitted to be taken by the
Board or any committee thereof may be taken without a meeting if all members
of the Board or the committee consent in writing to the adoption of a
resolution authorizing the action. The resolution and the written consent
thereto by the members of the Board or committee shall be filed with the
minutes of the proceedings of the Board or committee. Any one or more members
of the Board or any committee thereof may participate in a meeting of such
Board or committee by means of a conference telephone or similar communications
equipment allowing all persons participating in the meeting to hear each other
at the same time. Participation by such means shall constitute presence in
person at the meeting. (B.C.L. Section 708.)
5<PAGE>
SECTION 3.7 COMMITTEES OF THE BOARD. The Board by resolution adopted by
a majority of the entire Board may designate from among its members one or more
committees, each consisting of three or more directors. Each such committee
shall have all the authority of the Board to the extent provided in such
resolution, except as limited by law. No such committee shall exercise its
authority in a manner inconsistent with any action, direction, or instruction
of the Board.
The Board may appoint a Chairman of any committee (except for the
Executive Committee, if one is established, in the case where the Chairman of
the Executive Committee has been elected pursuant to Section 4.1 of these
by-laws), who shall preside at meetings of their respective committees. The
Board may fill any vacancy in any committee and may designate one or more
directors as alternate members of such committee, who may replace any absent
member or members at any meeting of such committee. Each such committee shall
serve at the pleasure of the Board, but in no event beyond its first meeting
following the annual meeting of the shareholders.
All acts done and powers conferred by any committee pursuant to the
foregoing authorization shall be deemed to be and may be certified as being
done or conferred under authority of the Board.
A record of the proceedings of each committee shall be kept and submitted
at the next regular meeting of the Board.
At least one-third but not less than two of the members of any committee
shall constitute a quorum for the transaction of business, and the vote of a
majority of the members present at the time of the vote, if a quorum is present
at such time, shall be the act of the committee. If a committee or the Board
shall establish regular meetings of any committee, such meetings may be held
without notice or upon such notice as the committee may from time to time
determine. Notice of the time and place of special meetings of any committee
shall be given to each member of the committee in the same manner as in the
case of special meetings of the Board. Notice of a meeting need not be given
to any member of a committee who signs a waiver of notice whether before or
after the meeting, or who attends the meeting without protesting, prior thereto
or at its commencement, the lack of notice to him. Except as otherwise
provided in these by-laws, each committee shall adopt its own rules of
procedure. (B.C.L. Section 712.)
SECTION 3.8 COMPENSATION OF DIRECTORS. The Board shall have authority
to fix the compensation of directors for services in any capacity. (B.C.L.
Section 713(e).)
SECTION 3.9 RESIGNATION AND REMOVAL OF DIRECTORS. Any director may
resign at any time by giving written notice thereof to the Chief Executive
Officer or to the Board, and such resignation shall take effect at the time
therein specified without the necessity of further action. Any director may
be removed with or without cause by vote of the shareholders, or with cause by
action of the Board. (B.C.L. Section 706.)
SECTION 3.10 THE "ENTIRE BOARD". As used in these by-laws the term "the
entire Board" or "the entire Board of Directors" means the total number of
directors which the corporation would have if there were no vacancies. (B.C.L.
Section 702.)
6
<PAGE>
SECTION 3.11 NOMINATION OF DIRECTORS. Subject to the rights of holders
of any class or series of stock having a preference over the common shares as
to dividends or upon liquidation, nominations for the election of directors may
only be made (i) by the Board or a committee appointed by the Board or (ii) by
a shareholder of the corporation entitled to vote at the meeting at which a
person is to be nominated in accordance with the procedure set forth in the
following paragraph.
A shareholder may nominate a person or persons for election as directors
only if the shareholder has given written notice of its intent to make such
nomination to the Secretary of the corporation, such notice to be received at
the principal executive offices of the corporation (i) with respect to an
annual meeting of shareholders, not less than 90 nor more than 120 days prior
to the one year anniversary of the date of the annual meeting of shareholders
of the previous year; provided, however, that in the event that the annual
meeting of shareholders is called for a date that is not within 30 days before
or after such anniversary date, notice by the shareholder must be received at
the principal executive offices of the corporation not later than the close of
business on the tenth day following the day on which the corporation's notice
of the date of the meeting is first given or made to the shareholders or
disclosed to the general public (which disclosure may be effected by means of
a publicly available filing with the Securities and Exchange Commission),
whichever occurs first and (ii) with respect to a special meeting of
shareholders called for the purpose of electing directors, not later than the
close of business on the tenth day following the day on which the corporation's
notice of the date of the meeting is first given or made to the shareholders
or disclosed to the general public (which disclosure may be effected by means
of a publicly available filing with the Securities and Exchange Commission),
whichever occurs first. A shareholder's notice to the Secretary shall set
forth (i) the name and record address of the shareholder who intends to make
such nomination, (ii) the name, age, business and residence addresses and
principal occupation of each person to be nominated, (iii) the number of
shares of each class of stock of the corporation that are beneficially owned
by the shareholder, (iv) a description of all arrangements and understandings
between the shareholder and each proposed nominee and any other person or
persons (including their names) pursuant to which the nomination(s) are to be
made by such shareholder, (v) such other information relating to the person(s)
that is required to be disclosed in solicitations for proxies for election of
directors pursuant to the Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Securities and Exchange Commission or other
applicable law and (vi) the written consent of each proposed nominee to be
named as a nominee and to serve as a director of the corporation if elected,
together with an undertaking, signed by each proposed nominee, to furnish to
the corporation any information it may request upon the advice of counsel for
the purpose of determining such proposed nominee's eligibility to serve as a
director. The chairman of the meeting shall, if the facts warrant, determine
and declare to the meeting that a nomination was not made in accordance with
the foregoing procedures and if he should so determine, he shall so declare to
the meeting and the defective nomination shall be disregarded.
7
<PAGE>
ARTICLE IV
OFFICERS AND OFFICIALS
SECTION 4.1 OFFICERS. The Board shall elect a Chairman of the Board or
a President or both, and a Secretary, a Treasurer and a Comptroller and may
elect such other officers, including a Chairman of the Executive Committee and
one or more Vice Chairmen of the Board, as the Board shall determine. Each
officer shall have such powers and perform such duties as are provided in these
by-laws and as may be provided from time to time by the Board or by the Chief
Executive Officer. Each officer shall at all times be subject to the control
of the Board, and any power or duty assigned to an officer by these by-laws or
the Board or the Chief Executive Officer shall be subject to control,
withdrawal or limitation by the Board. (B.C.L. Section 715.)
SECTION 4.2 QUALIFICATIONS. Any person may hold two or more offices,
except that neither the Chairman nor the President shall be Secretary or
Treasurer. The Board may require any officer to give security for the
faithful performance of his duties. (B.C.L. Sections 715(e) and (f).)
SECTION 4.3 ELECTION AND TERMINATION. The Board shall elect officers at
the meeting of the Board following the annual meeting of the shareholders and
may elect additional officers and fill vacancies at any other time. Unless the
Board shall otherwise specify, each officer shall hold office until the meeting
of the Board following the next annual meeting of the shareholders, and until
his successor has been elected and qualified, except as hereinafter provided.
The Board may remove any officer or terminate his duties and powers, at any
time, with or without cause. Any officer may resign at any time by giving
written notice thereof to the Chief Executive Officer or to the Board, or by
retiring or by leaving the employ of the corporation (without being employed
by a subsidiary or affiliate) and any such action shall take effect as a
resignation without necessity of further action. The Chief Executive Officer
may suspend any officer until the next meeting of the Board. (B.C.L. Sections
715, 716.)
SECTION 4.4 DELEGATION OF POWERS. Each officer may delegate to any other
officer and to any official, employee or agent of the corporation, such
portions of his powers as he shall deem appropriate, subject to such
limitations and expirations as he shall specify, and may revoke such delegation
at any time.
SECTION 4.5 CHAIRMAN OF THE BOARD. The Chairman of the Board may be, but
need not be, a person other than the Chief Executive Officer of the
corporation. The Chairman of the Board may be, but need not be, an officer or
employee of the corporation. The Chairman of the Board shall preside at
meetings of the Board of Directors and shall establish agendas for such
meetings. In addition, he shall assure that matters of significant interest
to shareholders and the investment community are addressed by management. The
Chairman of the Board shall be an ex-officio member of each of the standing
committees of the Board, except for the Executive Committee, of which he shall
be a member.
SECTION 4.6 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall,
subject to the direction of the Board, have general and active control of the
affairs and business of the corporation and general supervision of its
8
<PAGE>
officers, officials, employees and agents. He shall preside at all meetings
of the shareholders. He shall also preside at all meetings of the Board and
any committee thereof of which he is a member, unless the Board or such
committee shall have chosen another chairman. He shall see that all orders and
resolutions of the Board are carried into effect, and in addition he shall have
all the powers and perform all the duties generally appertaining to the office
of the Chief Executive Officer of a corporation.
The Chief Executive Officer shall designate the person or persons who
shall exercise his powers and perform his duties in his absence or disability
and the absence or disability of the President.
SECTION 4.7 PRESIDENT. The President may be Chief Executive Officer if
so designated by the Board. If not, he shall have such powers and perform such
duties as are prescribed by the Chief Executive Officer or by the Board, and,
in the absence or disability of the Chief Executive Officer, he shall have the
powers and perform the duties of the Chief Executive Officer, except to the
extent that the Board shall have otherwise provided.
SECTION 4.8 CHAIRMAN OF THE EXECUTIVE COMMITTEE. The Chairman of the
Executive Committee shall be a member of the Executive Committee. He shall
preside at meetings of the Executive Committee and shall have such other powers
and perform such other duties as are prescribed by the Board or by the Chief
Executive Officer.
SECTION 4.9 VICE CHAIRMAN OF THE BOARD. Each Vice Chairman of the Board
shall have such powers and perform such duties as are prescribed by the Chief
Executive Officer or by the Board.
SECTION 4.10 SECRETARY. The Secretary shall attend all meetings and keep
the minutes of all proceedings of the shareholders, the Board, the Executive
Committee and any other committee unless it shall have chosen another
secretary. He shall give notice of all such meetings and all other notices
required by law or by these by-laws. He shall have custody of the seal of the
corporation and shall have power to affix it to any instrument and to attest
thereto. He shall have charge of the record of shareholders required by law,
which may be kept by any transfer agent or agents under his direction. He
shall maintain the records of directors and officers as required by law. He
shall have charge of all documents and other records, except those for which
some other officer or agent is properly accountable, and shall generally
perform all duties appertaining to the office of secretary of a corporation.
(B.C.L. Sections 605, 624, 718.)
SECTION 4.11 TREASURER. The Treasurer shall have the care and custody
of all of the funds, securities and other valuables of the corporation, except
to the extent they shall be entrusted to other officers, employees or agents
by direction of the Chief Executive Officer or the Board. The Treasurer may
hold the funds, securities and other valuables in his care in such vaults or
safe deposit facilities, or may deposit them in and entrust them to such bank,
trust companies and other depositories, all as he shall determine with the
written concurrence of the Chief Executive Officer or his delegate. The
Treasurer shall account regularly to the Comptroller for all of his receipts,
disbursements and deliveries of funds, securities and other valuables.
9<PAGE>
The Treasurer or his delegate, jointly with the Chief Executive Officer
or his delegate, may designate in writing and certify to any bank, trust
company, safe deposit company or other depository the persons (including
themselves) who are authorized, singly or jointly as they shall specify in each
case, to open accounts in the name of the corporation with banks, trust
companies and other depositories, to deposit therein funds, instruments and
securities belonging to the corporation, to draw checks or drafts on such
accounts in amounts not exceeding the credit balances therein, to order the
delivery of securities therefrom, to rent safe deposit boxes or vaults in the
name of the corporation, to have access to such facility and to deposit therein
and remove therefrom securities and other valuables. Any such designation and
certification shall contain the regulations, terms and conditions applicable
to such authority and may be amended or terminated at any time.
Such powers may also be granted to any other officer, official, employee
or agent of the corporation by resolution of the Board or by power of attorney
authorized by the Board.
SECTION 4.12 COMPTROLLER. The Comptroller shall be the chief accounting
officer of the corporation and shall have control of all its books of account.
He shall see that correct and complete books and records of account are kept
as required by law, showing fully, in such form as he shall prescribe, all
transactions of the corporation, and he shall require, keep and preserve all
vouchers relating thereto for such period as may be necessary.
The Comptroller shall render periodically such financial statements and
such other reports relating to the corporation's business as may be required
by the Chief Executive Officer or the Board. He shall generally perform all
duties appertaining to the office of comptroller of a corporation. (B.C.L.
Section 624.)
SECTION 4.13 OFFICIALS AND AGENTS. The Chief Executive Officer or his
delegate may appoint such officials and agents of the corporation as the
conduct of its business may require and assign to them such titles, powers,
duties and compensation as he shall see fit and may remove or suspend or modify
such titles, powers, duties or compensation at any time with or without cause.
ARTICLE V
SHARES
SECTION 5.1 CERTIFICATES. The shares of the corporation shall be
represented by certificates or shall be uncertificated shares. Certificates
shall be in such form, consistent with law, as prescribed by the Board, and
signed and sealed as provided by law. (B.C.L. Section 508.)
SECTION 5.2 TRANSFER OF SHARES. Except as provided in the certificate
of incorporation, upon surrender to the corporation or to its transfer agent
of a certificate representing shares, duly endorsed or accompanied with proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto and to cancel the old certificate. The corporation shall be entitled
to treat the holder of record of any shares as the holder in fact thereof, and,
10<PAGE>
accordingly, shall not be bound to recognize any equitable or other claim to
or interest in such shares on the part of any other person, whether or not the
corporation shall have express or other notice thereof, except as may be
required by law. (B.C.L. Section 508(d).)
SECTION 5.3 RECORD OF SHAREHOLDERS. The corporation shall keep at its
principal office within the State of New York, or at the office of its transfer
agent or registrar in the State of New York, a record in written form, or in
any other form capable of being converted into written form within a reasonable
time, which shall contain the names and addresses of all shareholders, the
numbers and class of shares held by each, and the dates when they respectively
became the owners of record thereof. (B.C.L. Section 624(a).)
SECTION 5.4 LOST OR DESTROYED CERTIFICATES. In case of the alleged loss,
destruction or mutilation of a certificate or certificates representing shares,
the Board may direct the issuance of a new certificate or certificates in lieu
thereof upon such terms and conditions in conformity with law as the Board may
prescribe. (B.C.L. Section 508(e).)
SECTION 5.5 FIXING RECORD DATE. The Board or the Chief Executive Officer
may fix, in advance, a date as the record date for the purpose of determining
the shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or for the purpose of determining
shareholders entitled to receive payment of any dividend or the allotment of
any rights, or for the purpose of any other action. Such date shall not be
more than sixty nor less than ten days before the date of such meeting, nor
more than sixty days prior to any other action. (B.C.L. Section 604.)
ARTICLE VI
INDEMNIFICATION OF CORPORATION PERSONNEL
SECTION 6.1 DIRECTORS AND OFFICERS. The corporation shall, to the
fullest extent permitted by applicable law as the same exists or may hereafter
be in effect, indemnify any person who is or was or has agreed to become a
director or officer of the corporation and who is or was made or threatened to
be made a party to, and may, in its discretion, indemnify, any person who is
or was or has agreed to become a director or officer and is otherwise involved
in, any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative, legislative or investigative, including an
action by or in the right of the corporation to procure a judgment in its favor
and an action by or in the right of any other corporation of any type or kind,
domestic or foreign, or any partnership, joint venture, trust, employee benefit
plan or other enterprise, which such person is serving or has served or has
agreed to serve in any capacity at the request of the corporation, by reason
of the fact that he is or was or has agreed to become a director or officer of
the corporation, or is or was serving or has agreed to serve such other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise in any capacity, against judgments, fines, amounts paid or to be
paid in settlement, penalties, costs, charges and expenses, including
attorneys' fees, incurred in connection with such action or proceeding or any
appeal thereof; provided, however, that no indemnification shall be provided
to any such person if a judgment or other final adjudication adverse to the
director or officer establishes that (i) his acts were committed in bad faith
11
<PAGE>
or were the result of active and deliberate dishonesty and, in either case,
were material to the cause of action so adjudicated, or (ii) he personally
gained in fact a financial profit or other advantage to which he was not
legally entitled. The benefits of this Section 6.1 shall extend to the heirs,
executors, administrators and legal representatives of any person entitled to
indemnification under this Section. (B.C.L. Sections 721, 722.)
SECTION 6.2 OTHER PERSONNEL. The Board in its discretion may authorize
the corporation to indemnity any person, other than a director or officer, for
expenses incurred or other amounts paid in any civil or criminal action, suit
or proceeding, to which such person was, or was threatened to be, made a party
by reason of the fact that he, his testator or intestate is or was an employee
of the corporation.
SECTION 6.3 OTHER INDEMNIFICATION. The corporation may indemnify any
person to whom the corporation is permitted by applicable law or these by-laws
to provide indemnification or the advancement of expenses, whether pursuant to
rights granted pursuant to, or provided by, the New York Business Corporation
Law or any other law or these by-laws or other rights created by (i) a
resolution of shareholders, (ii) a resolution of directors, or (iii) an
agreement providing for such indemnification, it being expressly intended that
these by-laws authorize the creation of other rights in any such manner. The
right to be indemnified and to the reimbursement or advancement of expenses
incurred in defending a proceeding in advance of its final disposition
authorized by this Section 6.3, shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, provision of the
certificate of incorporation, by-laws, agreement, vote of shareholders or
disinterested directors or otherwise. (B.C.L. Sections 721, 723(c).)
SECTION 6.4 MISCELLANEOUS. The right to indemnification conferred by
Section 6.1, and any indemnification extended under Section 6.3, (i) is a
contract right pursuant to which the person entitled thereto may bring suit as
if the provisions thereof were set forth in a separate written contract between
the corporation and such person, (ii) is intended to be retroactive to events
occurring prior to the adoption of this Article VI, to the fullest extent
permitted by applicable law, and (iii) shall continue to exist after the
rescission or restrictive modification thereof with respect to events occurring
prior thereto.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1 FISCAL YEAR. The fiscal year of the corporation shall be the
calendar year.
SECTION 7.2 VOTING OF SHARES OF OTHER CORPORATIONS. The Board may
authorize any officer, agent or proxy to vote shares of any domestic or foreign
corporation of any type or kind standing in the name of this corporation and
to execute written consents respecting the same, but in the absence of such
specific authorization the Chief Executive Officer of this corporation or his
delegate may vote such shares and may execute proxies and written consents with
relation thereto.
12
<PAGE>
ARTICLE VIII
AMENDMENTS
SECTION 8.1 GENERAL. Except as otherwise provided by law, these by-laws
may be amended or repealed or new by-laws may be adopted by the Board of
Directors, or by vote of the holders of the shares at the time entitled to vote
in the election of any directors, except that the Board may not amend or repeal
any by-law, or adopt any new by-law with respect to the subject matter of any
by-law, which specifically states that it may be amended or repealed only by
the shareholders. (B.C.L. Section 601.)
SECTION 8.2 AMENDMENT OF THIS ARTICLE. This Article VIII may be amended
or repealed only by the shareholders entitled to vote hereon as provided in
Section 8.1 above.
13
<PAGE>
Exhibit 10.24
[Letterhead of Nippon Life Insurance Company]
January 22, 1997
Mr. Richard K. Goeltz
Vice Chairman and Chief Financial Officer
American Express Company
American Express Tower
World Financial Center
New York, New York 10285
Dear Mr. Goeltz:
We refer to the 1990 Agreement, by and between American
Express and us, dated as of June 12, 1990.
We are discussing with Lehman the possibility of Lehman
issuing to us in exchange for our Cumulative Convertible Voting
Preferred Stock, Series A ("Series A Preferred Stock") an equal
number of shares of a new series of preferred stock ("New
Preferred Stock"). The terms, rights and privileges of the New
Preferred Stock would be identical to the terms, rights and
privileges of the Series A Preferred Stock in all respects except
that there would no longer be any minimum number of shares that
must be converted into Lehman common stock at any one time.
Lehman would make a representation to Nippon to the effect that
the New Preferred Stock would be legally and validly issued, free
of all liens and we would place no liens on the New Preferred
Stock. Immediately following this transaction, we would own no
shares of Series A Preferred Stock. At the time of the
transaction, the foregoing would be the only change involving our
equity investments in Lehman.
If the transaction described above is completed, the parties
agree that the rights in Section 5.5 and Exhibit 12 of the 1990
Agreement will apply to the New Preferred Stock to the same
extent that they currently apply to the Series A Preferred Stock.
In addition, Section 10.6 of the 1990 Agreement will apply to the
New Preferred Stock. The foregoing is an expression of our
mutual intent, but remains subject to American Express' right to
review the final terms of the New Preferred Stock to ensure that
the terms of and the rights provided by the New Preferred Stock
are identical to the terms and rights of the Series A Preferred
Stock except the for the minimum conversion requirement.
Except as described herein, the 1990 Agreement will remain
unchanged.<PAGE>
Please confirm the foregoing by signing a counterpart of
this letter and returning it to us, whereupon this letter will
become a binding agreement between American Express and us.
Very truly yours,
Nippon Life Insurance Company
By: /s/ Kiyoshi Ujihara
-----------------------
Name: Kiyoshi Ujihara
Title: Chief Representative
Agreed as of the date
set forth above:
American Express Company
By: /s/ Richard K. Goeltz
------------------------
Name: Richard K. Goeltz
Title: Vice Chairman
and Chief Financial Officer
<PAGE>
Exhibit 10.25
[Letterhead of American Express Company]
July 7, 1997
Mr. Hideichiro Kobayashi
Nippon Life Insurance Company
1251 Avenue of the Americas, Suite 5210
New York, NY 10020-1198
Dear Mr. Kobayashi:
We refer to your letters of January 22, 1997 and June 5,
1997.
As you noted in your June 5 letter, the exchange right in
the 1990 agreement permits Nippon to exchange at any one time a
minimum of 250,000 shares of Series A Preferred Stock for
American Express common shares. In our January 22 letter we
indicated we would permit the exchange right to apply to shares
of New Preferred Stock to the same extent as the right applies to
shares of Series A Preferred Stock. We now agree further that
Nippon may aggregate shares of Series A Preferred Stock with
shares of New Preferred Stock for purpose of satisfying the
250,000 share minimum.
Very truly yours,
/s/ Richard K. Goeltz
--------------------
Richard K. Goeltz
Vice Chairman and
Chief Financial Officer
<PAGE>
Exhibit 10.26
[Letterhead of American Express Company]
January 30, 1998
Nippon Life Insurance Company
1251 Avenue of the Americas
New York, New York 10029-1198
Attention: Mr. Hideichiro Kobayashi
Ladies and Gentlemen:
We refer to the Investment Agreement, dated as of April 15,
1987, among American Express Company ("Amex"), Lehman Brothers
Holdings Inc. ("Lehman") and Nippon Life Insurance Company
("Nippon Life"), the 1990 Agreement, dated as of June 12, 1990,
between Amex and Nippon Life, the 1994 Agreement, dated April 28,
1994, among Amex, Lehman and Nippon Life and the letters dated
January 22, 1997 and July 7, 1997, each between Amex and Nippon
Life (collectively, the "Agreements").
We agree that all remaining rights, obligations and
agreements between Amex and Nippon Life contained in the
Agreements and the exhibits and schedules thereto are terminated,
including but not limited to any rights to exchange shares of
Lehman preferred stock for Amex common shares contained in
Section 5.5 of the 1990 Agreement; provided, that (i) the
registration rights contained in Exhibit 10 to the 1990 Agreement
will continue in accordance with its terms with respect to one
registration on Form S-3 relating to the 4,398,568 Amex common
shares received by Nippon Life from Amex on December 16, 1997
under Section 5.5 of the 1990 Agreement and (ii) Section 10.6 of
the 1990 Agreement shall survive and shall apply to Amex' payment
described below.
Amex and Nippon Life each waive, release and forever
discharge each other from every claim, whether known or unknown,
that it has or might have under any of the Agreements, except
that the foregoing does not apply to any claim relating to the
remaining registration right and the survival of Section 10.6 of
the 1990 Agreement referred to in the prior paragraph.
As consideration for such agreements, Amex agrees to pay to
Nippon Life at the time this letter is executed the sum of
$15,050,000.
This letter does not affect or address any other agreements
between the parties (including but not limited to the letter
agreement dated May 27, 1994 relating to certain tax
reimbursements) or our affiliates or any rights, obligations and
agreements between one of us and any third party.
<PAGE>
This letter may not be varied orally, constitutes the entire
agreement between the parties with respect to the subject matter
contained herein and will be governed by the laws of the State of
New York, without regard to principles of conflicts of laws.
Please confirm your agreement with the above by signing a
counterpart of this letter and returning it to us, at which point
this letter will become a binding agreement between us.
Very truly yours,
AMERICAN EXPRESS COMPANY
By: /s/ Richard K. Goeltz
---------------------
Richard K. Goeltz
Vice Chairman and
Chief Financial Officer
Agreed:
NIPPON LIFE INSURANCE COMPANY
By: /s/ Hideichiro Kobayashi
------------------------
Hideichiro Kobayashi
Chief Representative
<PAGE>
Exhibit 10.37
The amended definition of "Change in Control"
for the Long-Term Incentive Awards under the American
Express Company 1979 and 1989 Long-Term Incentive Plans,
the American Express Senior Executive Severance Plan, the
American Express Supplemental Retirement Plan, the American
Express Salary/Bonus Deferral Plan, the American Express Key
Executive Life Insurance Plan and the IDS Current Service
Deferred Compensation Plan follows:
Attachment A
Definition of "Change in Control"
--------------------------------
A "Change in Control" means the happening of any of the
following:
(a) Any individual, entity or group (a "Person") (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) becomes
the beneficial owner (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 25% or more of either (i)
the then outstanding common shares of the Company (the
"Outstanding Company Common Shares") or (ii) the combined voting
power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that
such beneficial ownership shall not constitute a Change in
Control if it occurs as a result of any of the following
acquisitions of securities: (i) any acquisition directly from
the Company, (ii) any acquisition by the Company or any
corporation, partnership, trust or other entity controlled by the
Company (a "Subsidiary"), (iii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the
Company or any Subsidiary or (iv) any acquisition by any
corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or
consolidation, the conditions described in clauses (i), (ii) and
(iii) of subsection (c) of this "Change in Control" Section are
satisfied. Notwithstanding the foregoing, a Change in Control
shall not be deemed to occur solely because any Person (the
"Subject Person") became the beneficial owner of 25% or more of
the Outstanding Company Common Shares or Outstanding Company
Voting Securities as a result of the acquisition of Outstanding
Company Common Shares or Outstanding Company Voting Securities by
the Company which, by reducing the number of Outstanding Company
Common Shares or Outstanding Company Voting Securities, increases
the proportional number of shares beneficially owned by the
Subject Person; provided, that if a Change in Control would be
deemed to have occurred (but for the operation of this sentence)
as a result of the acquisition of Outstanding Company Common
Shares or Outstanding Company Voting Securities by the Company,
and after such share acquisition by the Company, the Subject
Person becomes the beneficial owner of any additional Outstanding
Company Common Shares or Outstanding Company Voting Securities
which increases the percentage of the Outstanding Company Common
<PAGE>
Shares or Outstanding Company Voting Securities beneficially
owned by the Subject Person, then a Change in Control shall then
be deemed to have occurred; or
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof
whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result
of either an actual or threatened election contest or other
actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board, including by reason of
agreement intended to avoid or settle any such actual or
threatened contest or solicitation; or
(c) The consummation of a reorganization, merger or
consolidation, in each case, unless, following such
reorganization, merger or consolidation, (i) more than 60% of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Shares and
Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation in substantially the same
proportions as their ownership immediately prior to such
reorganization, merger or consolidation of such Outstanding
Company Common Shares and Outstanding Company Voting Shares, as
the case may be, (ii) no Person (excluding the Company, any
employee benefit plan (or related trust) of the Company, a
Subsidiary or such corporation resulting from such
reorganization, merger or consolidation or any subsidiary
thereof, and any Person beneficially owning, immediately prior to
such reorganization, merger or consolidation, directly or
indirectly, 25% or more of the Outstanding Company Common Shares
or Outstanding Company Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 25% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors and (iii) at least a
majority of the members of the board of directors of the
corporation resulting from such reorganization, merger or
consolidation were members of the Incumbent Board at the time of
the execution of the initial agreement or action of the Board
providing for such reorganization, merger or consolidation; or
(d) The consummation of the sale, lease, exchange or other
disposition of all or substantially all of the assets of the
Company, unless such assets have been sold, leased, exchanged or<PAGE>
disposed of to a corporation with respect to which following
such sale, lease, exchange or other disposition (A) more than
60% of, respectively, the then outstanding shares of common
stock of such corporation and the combined voting power of
the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company
Common Shares and Outstanding Company Voting Securities
immediately prior to such sale, lease, exchange or other
disposition in substantially the same proportions as their
ownership immediately prior to such sale, lease, exchange or
other disposition of such Outstanding Company Common Shares and
Outstanding Company Voting Shares, as the case may be, (B) no
Person (excluding the Company and any employee benefit plan (or
related trust) of the Company or a Subsidiary or such corporation
or a subsidiary thereof and any Person beneficially owning,
immediately prior to such sale, lease, exchange or other
disposition, directly or indirectly, 25% or more of the
Outstanding Company Common Shares or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or
indirectly, 25% or more of, respectively, the then outstanding
shares of common stock of such corporation and the combined
voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of
directors and (C) at least a majority of the members of the board
of directors of such corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or
action of the Board providing for such sale, lease, exchange or
other disposition of assets of the Company; or
(e) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 12.1
AMERICAN EXPRESS COMPANY
COMPUTATION IN SUPPORT OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
Years Ended December 31,
----------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings:
Pretax income from
continuing operations $ 2,750 $ 2,664 $ 2,183 $ 1,891 $ 2,326
Interest expense 2,122 2,160 2,343 1,925 1,776
Other adjustments 127 139 95 103 88
------ ------ ------ ------ ------
Total earnings (a) $ 4,999 $ 4,963 $ 4,621 $ 3,919 $ 4,190
------ ------ ------ ------ ------
Fixed charges:
Interest expense $ 2,122 $ 2,160 $ 2,343 $ 1,925 $ 1,776
Other adjustments 129 130 135 142 130
------ ------ ------ ------ ------
Total fixed charges (b) $ 2,251 $ 2,290 $ 2,478 $ 2,067 $ 1,906
------ ------ ------ ------ ------
Ratio of earnings to
fixed charges (a/b) 2.22 2.17 1.86 1.90 2.20
</TABLE>
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 Statements 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 ("FDC") 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>
<TABLE>
<CAPTION>
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,
----------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings:
Pretax income from
continuing operations $ 2,750 $ 2,664 $ 2,183 $ 1,891 $ 2,326
Interest expense 2,122 2,160 2,343 1,925 1,776
Other adjustments 127 139 95 103 88
------ ------ ------ ------ ------
Total earnings (a) $ 4,999 $ 4,963 $ 4,621 $ 3,919 $ 4,190
------ ------ ------ ------ ------
Fixed charges and
preferred share
dividends:
Interest expense $ 2,122 $ 2,160 $ 2,343 $ 1,925 $ 1,776
Dividends on preferred
shares - 8 24 50 66
Other adjustments 129 130 135 142 130
------ ------ ------ ------ ------
Total fixed charges and
preferred share
dividends (b) $ 2,251 $ 2,298 $ 2,502 $ 2,117 $ 1,972
------ ------ ------ ------ ------
Ratio of earnings to
fixed charges and
preferred share
dividends (a/b) 2.22 2.16 1.85 1.85 2.12
</TABLE>
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 Statements 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 ("FDC") 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
CONSOLIDATED RESULTS OF OPERATIONS
1997 was an outstanding year for American Express. Our financial results were
good and our competitive position improved. During the year we introduced a wide
range of new card products with particular focus on international markets,
signed a large number of merchants worldwide, expanded the number and range of
alliances and partnerships with financial institutions and travel businesses,
and increased market share slightly in charge and credit volume in the United
States, travel and Travelers Cheques. At the core of our strong performance is a
continued focus on three basic operating principles: offering superior value to
customers, continually driving toward best-in-class economics and building the
American Express brand.
American Express Company (the company) reported record 1997 net income of
$1.99 billion, 14 percent higher than operating income of $1.74 billion in 1996;
net income was $1.56 billion in 1995. The 1996 operating income excluded two
fourth quarter items: a $300 million gain (after-tax) on the exchange of Debt
Exchangeable for Common Stock (DECS) for shares of common stock of First Data
Corporation (FDC) and a $138 million restructuring charge (after-tax). See Note
3 to the Consolidated Financial Statements for a discussion of this charge. The
company's 1997 results exceeded its long-term targets of achieving on average
and over time: 12-15 percent earnings per share growth, at least 8 percent
growth in revenues and a return on equity of 18-20 percent.
Primary earnings per share were $4.16, $3.57 and $3.11, basic earnings per
share were $4.29, $3.67 and $3.19 and diluted earnings per share were $4.15,
$3.56 and $3.10 in 1997, 1996 and 1995, respectively. All earnings per share
amounts increased 17 percent over the corresponding 1996 amounts. 1996 earnings
per share excluded the restructuring charge and the DECS gain referred to above,
as discussed in Notes 3 and 4 to the Consolidated Financial Statements,
respectively. The rise in earnings per share for 1997 and 1996 reflects revenue
growth, margin improvement and a reduction in average shares outstanding in both
years.
Consolidated net revenues rose 8 percent in 1997 to $17.8 billion, compared
with $16.4 billion and $15.5 billion in 1996 and 1995, respectively, excluding
revenues of American Express Life Assurance Company (AMEX Life) which was sold
in 1995. Contributing to the 1997 results were increases in worldwide billed
business, growth and wider interest margins in Cardmember loans outstanding, as
well as higher management and distributions fees. The improvement in 1996
resulted from growth in billed business and management and distribution fees.
The Year 2000 issue is the result of computer programs having been written
using two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in a major system failure or miscalculations which
could have a material impact on the operations of the company. A comprehensive
review of the company's computer systems and business processes has been
conducted to identify the major systems that could be affected by the Year 2000
issue. Steps are being taken to resolve any potential problems including
modifications to existing software and the purchase of new software. These
modifications are scheduled to be completed and tested on a timely basis. The
-1- (1997 Annual Report p. 22)
<PAGE>
costs related to the Year 2000 issue, which are expensed as incurred, are not
expected to have a material impact on the company's results of operations or
financial condition. The company is also evaluating the Year 2000 readiness of
merchants, customers and other third parties whose systems failures could have
an impact on the company's operations. The potential materiality of any such
impact is not known at this time.
On January 1, 1999, certain European countries plan to adopt a single
currency (the euro). For countries adopting the euro, the exchange rate between
their local currency and the euro will be fixed as of June 30, 1998. The company
has carried out an assessment and identified business requirements for the
introduction of the euro. The company is making systems modifications to comply
with euro requirements and maintain its competitiveness in the marketplace. The
related costs, which are expensed as incurred, are not expected to have a
material impact on the company's earnings.
Accounting Developments
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which is effective for fiscal
years beginning after December 15, 1997 and redefines how operating segments
are determined. The company will adopt the provisions of SFAS No. 131 in the
first quarter of 1998. As a result, the Travelers Cheque operations which
currently are included in the Travel Related Services segment will be reported
in the same segment as American Express Bank, consistent with our management
structure.
-2- (1997 Annual Report p. 22)
<PAGE>
<TABLE>
<CAPTION>
TRAVEL RELATED SERVICES
Results of Operations
STATEMENT OF INCOME
(Amounts in millions)
Years Ended December 31, 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net Revenues:
Discount Revenue $ 5,666 $ 5,024 $ 4,457
Net Card Fees 1,604 1,668 1,742
Travel Commissions and Fees 1,489 1,422 1,368
Interest and Dividends 561 724 969
Other Revenues 2,103 1,867 2,054
Lending:
Finance Charge Revenue 1,848 1,575 1,529
Interest Expense 604 507 497
------- -------- --------
Net Finance Charge
Revenue 1,244 1,068 1,032
------- -------- --------
Total Net Revenues 12,667 11,773 11,622
======= ======== ========
Expenses:
Marketing and Promotion 1,062 998 950
Provision for Losses and Claims:
Charge Card 858 743 835
Lending 817 635 522
Other 88 101 416
-------- -------- --------
Total 1,763 1,479 1,773
Interest Expense:
Charge Card 743 688 673
Other 177 347 453
-------- -------- --------
Total 920 1,035 1,126
Net Discount Expense 597 554 414
Human Resources 3,154 2,984 2,829
Other Operating Expenses 3,266 3,004 2,951
-------- -------- --------
Total Expenses 10,762 10,054 10,043
-------- -------- --------
Pretax Income 1,905 1,719 1,579
Income Tax Provision 551 489 454
-------- -------- --------
Operating Income 1,354 1,230 1,125
Restructuring Charge (net of tax) - 125 -
-------- -------- --------
Net Income $ 1,354 $ 1,105 $ 1,125
======== ======== ========
</TABLE>
Travel Related Services (TRS) reported earnings of $1.35 billion in 1997, a 10
percent increase from $1.23 billion in 1996, excluding a $125 million
restructuring charge ($196 million pretax). 1995 earnings excluding the income
of AMEX Life were $1.09 billion.
-3- (1997 Annual Report p. 23)<PAGE>
TRS' net revenues rose 8 percent in 1997 compared with 1996. In the past two
years, TRS' net revenues benefited from growth in worldwide billed business and
Cardmember loans outstanding. Additionally, 1997 included wider interest margins
and increased recognition of recoveries on abandoned property related to the
Travelers Cheque business; these recoveries are included in other revenues and
were largely offset by higher investment spending on business building
initiatives. In both years, growth in billed business resulted from greater
spending per basic Cardmember, due in part to rewards programs and expanded
merchant coverage, and a larger number of cards outstanding. The increase in
worldwide cards in force in both years is primarily attributable to new credit
card product launches and a broader product portfolio.
Discount revenue rose in 1997 and 1996 from growth in billed business. Net
card fees decreased in both years due to declines in consumer charge cards and
the effect of TRS' strategy of building its lending portfolio through the
issuance of low- and no-fee credit cards. Travel commissions and fees improved
in 1997 and 1996 as a result of increased sales volumes, offset in part by the
continued efforts by airlines to reduce distribution costs and by corporate
travel and entertainment expense containment efforts. Interest and dividends
declined in 1997 and 1996, primarily as a result of a reduction in investments
related to the consolidation of certain legal entities within the U.S.
Consumer Lending business. The consolidation reduced interest revenue by
approximately $82 million and $119 million in 1997 and 1996, respectively, but
had no effect on net income as other interest expense decreased by a
corresponding amount. The remaining decline in 1997 is attributable to a
smaller investment pool at American Express Credit Corporation (Credco). In
addition, interest and dividends and other revenues declined in 1996 as a
result of the sale of AMEX Life. Lending net finance charge revenue was
reduced by the $1 billion asset securitization in the second quarter of 1996
and an additional $1 billion securitization in the third quarter of 1997.
(See TRS' Liquidity and Capital Resources discussion.) Excluding these,
lending net finance charge revenue rose 24 percent and 11 percent in 1997 and
1996, respectively. The increase in 1997 is due to higher worldwide lending
balances and a widening of interest margins on the U.S. portfolio resulting
from a smaller portion of the portfolio being subject to lower introductory
interest rates. The growth in 1996 resulted from larger worldwide lending
balances, partially offset by reduced interest margins on the U.S. portfolio
due to introductory interest rates on new products.
-4- (1997 Annual Report p. 23)
<PAGE>
<TABLE>
<CAPTION>
SELECTED STATISTICAL INFORMATION
(Amounts in billions, except percentages and where indicated)
Years Ended December 31, 1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Total Cards in Force (millions):
United States 29.6 29.2 26.7
Outside the United States 13.1 12.3 11.6
------- ------- -------
Total 42.7 41.5 38.3
======= ======= =======
Basic Cards in Force (millions):
United States 23.3 22.5 20.0
Outside the United States 10.0 9.6 9.2
------- ------- -------
Total 33.3 32.1 29.2
======= ======= =======
Card Billed Business:
United States $ 150.5 $ 131.0 $ 115.2
Outside the United States 58.7 53.3 47.3
------- ------- -------
Total $ 209.2 $ 184.3 $ 162.5
======= ======= =======
Average Discount Rate* 2.73% 2.75% 2.76%
Average Basic Cardmember
Spending (dollars)* $ 6,473 $ 6,074 $ 5,829
Average Fee per Card (dollars)* $ 39 $ 42 $ 47
Travel Sales $ 17.4 $ 15.8 $ 15.1
Travel Commissions and
Fees/Sales 8.6% 9.0% 9.1%
Travelers Cheque:
Sales $ 25.0 $ 26.0 $ 25.6
Average Outstanding $ 5.9 $ 6.0 $ 6.0
Tax Equivalent Yield 9.2% 9.4% 9.7%
Owned and Managed Charge Card
Receivables:**
Total Receivables $ 23.5 $ 22.5 $ 20.5
90 Days Past Due as a
% of Total 3.1% 3.2% 3.5%
Loss Reserves (millions) $ 951 $ 923 $ 952
% of Receivables 4.0% 4.1% 4.6%
% of 90 Days Past Due 132% 128% 131%
Net Loss Ratio 0.50% 0.51% 0.51%
Owned and Managed U.S. Cardmember
Lending:**
Total Loans $ 14.6 $ 12.7 $ 10.0
Past Due Loans as a % of Total:
30-89 Days 2.4% 2.4% 2.8%
90+ Days 1.1% 0.9% 1.0%
Loss Reserves (millions):
Beginning Balance $ 488 $ 443 $ 357
Provision 867 607 477
Net Charge-Offs/Other (766) (562) (391)
------- ------- -------
-5- (1997 Annual Report p. 24)
<PAGE>
Ending Balance $ 589 $ 488 $ 443
======== ======= =======
% of Loans 4.0% 3.8% 4.5%
% of Past Due 116% 117% 116%
Average Loans $ 13.3 $ 10.8 $ 8.8
Net Write-Off Rate 6.0% 5.2% 4.4%
Net Interest Yield 9.1% 8.8% 9.9%
</TABLE>
* Computed excluding Cards issued by strategic alliance partners and
independent operators as well as business billed on those Cards.
** Owned and managed Cardmember receivables and loans include securitized
assets not reflected in the Consolidated Balance Sheets.
The growth in marketing and promotion expense in 1997 reflected higher media
and merchant-related advertising costs. The increase in 1996 resulted from new
product activity. The worldwide Charge Card provision rose in 1997 primarily
driven by volume growth. In 1996, the Charge Card provision declined due to
improved credit quality, particularly in Latin America. The worldwide lending
provision increased in 1997 and 1996 as a result of portfolio growth as well as
higher loss rates. The growth in the lending provision was partly offset by the
securitizations of U.S. Cardmember loans in 1997 and 1996. The other provision
for losses declined in 1996 due to the sale of AMEX Life. Charge Card interest
expense rose in 1997 and 1996 as a result of higher volumes, partly offset by
lower borrowing rates. The decline in other interest expense mirrors the
decrease in interest revenue as a result of the reduction in investments
discussed previously. The growth in human resources expense primarily reflected
higher systems programmers' costs for technology projects and merit increases in
both years. Other operating expenses rose in 1997 and 1996 due to Cardmember
loyalty programs, business growth and investment spending. The increase in 1996
was partially offset as a result of the sale of AMEX Life.
The 1996 restructuring charge primarily related to a series of reengineering
initiatives in the card and travel businesses implemented in 1997. Approximately
two-thirds of the restructuring charge applied to TRS' international businesses.
It included $109 million pretax in severance costs and $87 million pretax to
close certain leased facilities, to consolidate or outsource certain operations,
and to write down certain assets. Approximately $125 million of the pretax
charge required cash outlays for severance, lease obligations and other
facilities costs.
TRS' asset securitization programs increased fee revenue by $195 million,
$157 million and $84 million in 1997, 1996 and 1995, respectively. The Charge
Card securitization program resulted in net discount expense of $597 million,
$554 million and $414 million in 1997, 1996 and 1995, respectively. The program
also reduced the Charge Card provision by $247 million, $246 million and $167
million in 1997, 1996 and 1995, respectively, and Charge Card interest expense
by $230 million, $183 million and $163 million in 1997, 1996, and 1995,
respectively. The revolving credit securitization program also reduced lending
net finance charge revenue by $167 million and $75 million and the lending
provision by $120 million and $43 million, in 1997 and 1996, respectively.
These securitizations had no material effect on net income for any year
presented.
-6- (1997 Annual Report p. 24)
<PAGE>
<TABLE>
<CAPTION>
Liquidity and Capital Resources
SELECTED BALANCE SHEET INFORMATION
(Amounts in billions, except percentages)
December 31, 1997 1996
------ ------
<S> <C> <C>
Accounts Receivable, net $ 20.9 $ 19.5
Travelers Cheque Investments $ 5.6 $ 5.6
U.S. Cardmember Lending Balances $ 12.6 $ 11.7
Total Assets $ 47.2 $ 43.1
Travelers Cheques Outstanding $ 5.6 $ 5.8
Short-term Debt $ 20.9 $ 18.4
Long-term Debt $ 6.0 $ 5.0
Total Liabilities $ 42.2 $ 38.4
Total Shareholder's Equity $ 5.0 $ 4.7
Return on Average Equity* 27.9% 25.6%
Return on Average Assets* 3.0% 2.8%
</TABLE>
* Excluding the effect of SFAS No. 115 and the fourth quarter 1996 restructuring
charge of $125 million after-tax.
In 1996, American Express Centurion Bank (Centurion Bank) and American Express
Receivables Financing Corporation II, a newly formed wholly owned subsidiary of
TRS, created a new trust, the American Express Credit Account Master Trust
(the Trust), to securitize revolving credit loans. The Trust securitized $1
billion of loans in 1996 and an additional $1 billion in August 1997, through
the public issuance of two classes of investor certificates and a privately
placed collateral interest in the assets of the Trust. The securitized assets
consist of loans arising in a portfolio of designated Optima Card, Optima Line
of Credit and Sign & Travel revolving credit accounts owned by Centurion Bank.
These securitized loans are not in the Consolidated Balance Sheets.
In addition, the American Express Master Trust securitizes charge card
receivables generated under designated American Express Card, Gold Card and
Platinum Card consumer accounts through the issuance of trust certificates. At
December 31, 1997 and 1996, TRS had securitized $3.25 billion and $3.75 billion,
respectively, of receivables, which are not in the Consolidated Balance Sheets.
In 1997, Credco issued and sold exclusively outside the United States and to
non-U.S. persons, $400 million Floating Rate Notes and an additional $400
million of 6.5% Fixed Rate Notes. These notes are listed on the Luxembourg Stock
Exchange and will mature in 2002. At December 31, 1997, Credco had approximately
$2.5 billion of medium and long-term debt and warrants available for issuance
under shelf registrations filed with the Securities and Exchange Commission.
TRS, primarily through Credco, maintained commercial paper outstanding of
approximately $14.5 billion at an average interest rate of 6.0 percent and
approximately $13.0 billion at an average interest rate of 5.7 percent at
December 31, 1997 and 1996, respectively. Unused lines of credit of
approximately $7.3 billion, which expire in increments from 1998 through 2002,
were available at December 31, 1997 to support a portion of TRS' commercial
paper borrowings.
-7- (1997 Annual Report p. 25)
<PAGE>
Borrowings under bank lines of credit totaled $1.7 billion at December 31,
1997 and $1.4 billion at December 31, 1996.
<TABLE>
<CAPTION>
AMERICAN EXPRESS FINANCIAL ADVISORS
Results of Operations
STATEMENT OF INCOME
(Amounts in millions)
Years Ended December 31, 1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Revenues:
Investment Income $2,339 $2,267 $2,209
Management and Distribution Fees 1,486 1,205 935
Other Revenues 774 638 547
------ ------ ------
Total Revenues 4,599 4,110 3,691
------ ------ ------
Expenses:
Provision for Losses and Benefits:
Annuities 1,214 1,208 1,156
Insurance 452 420 401
Investment Certificates 200 197 205
------ ------ ------
Total 1,866 1,825 1,762
Human Resources 1,229 1,034 877
Other Operating Expenses 482 366 297
------ ------ ------
Total Expenses 3,577 3,225 2,936
------ ------ ------
Pretax Income 1,022 885 755
Income Tax Provision 315 291 252
------ ------ ------
Net Income $ 707 $ 594 $ 503
====== ====== ======
</TABLE>
American Express Financial Advisors (AEFA) reported increases in revenues of 12
and 11 percent, and earnings of 19 and 18 percent for 1997 and 1996,
respectively. Revenue and earnings in both years benefited primarily from higher
fees due to growth in managed assets and record mutual fund sales.
The improvement in investment income reflected higher average investments of
4 and 5 percent in 1997 and 1996, respectively, partly offset by lower
investment yields in 1996. Management and distribution fees rose in both years
due to greater management fee revenue from higher managed and separate account
assets. The increase in these assets in both years was due to strong market
appreciation and positive net sales. Distribution fees improved in both years
reflecting strong mutual fund sales. Other revenues rose in both years from
increased life insurance contract charges and premiums and from higher
financial planning and tax preparation fees in 1997.
-8- (1997 Annual Report p. 25)
<PAGE>
Provisions for losses and benefits for annuities and insurance grew in both
years due to higher business in force, partially offset by lower credited rates.
Human resources expense rose in both years, reflecting rising financial
advisors' compensation from growth in sales and asset levels, and a greater
number of employees to support business expansion. The growth in other operating
expenses in both years primarily resulted from higher data processing,
technology spending and advertising expenditures. In 1997, there also were
increased occupancy and equipment costs. The lower effective tax rate in 1997 is
due to tax credits from low income housing investments.
<TABLE>
<CAPTION>
SELECTED STATISTICAL INFORMATION
(Amounts in millions, except percentages and where indicated)
Years Ended December 31, 1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Revenues, Net of Provisions $ 2,732 $ 2,285 $ 1,929
Life Insurance
in Force (billions) $ 74.5 $ 67.3 $ 59.4
Deferred Annuities
in Force (billions) $ 41.7 $ 37.5 $ 34.1
Assets Owned and/or
Managed (billions):
Assets managed
for institutions $ 40.8 $ 37.3 $ 32.0
Assets owned and managed
for individuals:
Owned Assets:
Separate Account Assets 23.2 18.5 15.0
Other Owned Assets 36.6 34.2 33.3
------- ------- -------
Total Owned Assets 59.8 52.7 48.3
------- ------- -------
Managed Assets 72.8 59.4 49.2
------- ------- -------
Total $ 173.4 $ 149.4 $ 129.5
======= ======= =======
Market Appreciation (Depreciation)
During the Period:
Owned Assets:
Separate Account Assets $ 3,170 $ 1,937 $ 2,839
Other Owned Assets $ 262 $ (232) $ 927
Managed Assets $11,735 $ 9,063 $12,246
Sales of Selected Products:
Mutual Funds $17,179 $14,331 $10,202
Annuities $ 3,473 $ 4,311 $ 3,520
Investment Certificates $ 1,194 $ 736 $ 1,467
Life and Other
Insurance Products $ 421 $ 449 $ 383
Number of Financial Advisors 8,776 8,340 7,945
Fees from Financial
Plans (thousands) $60,809 $48,072 $40,828
Product Sales Generated
from Financial Plans as a
Percentage of Total Sales 65.7% 64.0% 64.1%
------- ------- -------
</TABLE>
-9- (1997 Annual Report p. 26)<PAGE>
<TABLE>
<CAPTION>
Liquidity and Capital Resources
SELECTED BALANCE SHEET INFORMATION
(Amounts in billions, except percentages)
December 31, 1997 1996
------ ------
<S> <C> <C>
Investments $ 30.7 $ 28.6
Assets Held in Segregated
Asset Accounts $ 23.2 $ 18.5
Total Assets $ 59.8 $ 52.7
Client Contract Reserves $ 30.2 $ 28.9
Total Liabilities $ 56.1 $ 49.5
Total Shareholder's Equity $ 3.7 $ 3.2
Return on Average Equity* 21.8% 20.4%
</TABLE>
* Excluding the effect of SFAS No. 115.
AEFA's total assets and liabilities grew primarily due to separate accounts as a
result of market appreciation and positive net sales. Investments comprised
primarily of corporate bonds and mortgage-backed securities, including $3.0
billion and $2.6 billion in below investment grade debt securities as well as
$3.8 billion and $3.7 billion in mortgage loans at December 31, 1997 and 1996,
respectively. 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. Separate account assets, primarily investments carried at market
value, are for the exclusive benefit of variable annuity and variable life
insurance contract holders. AEFA earns investment management and administration
fees from the related accounts.
-10- (1997 Annual Report p. 26)
<PAGE>
<TABLE>
<CAPTION>
AMERICAN EXPRESS BANK
Results of Operations
STATEMENT OF INCOME
(Amounts in millions)
Years Ended December 31, 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net Revenues:
Interest Income $897 $842 $925
Interest Expense 579 536 604
---- ---- ----
Net Interest Income 318 306 321
Commissions, Fees and
Other Revenues 218 213 243
Foreign Exchange Income 101 72 79
---- ---- ----
Total Net Revenues 637 591 643
---- ---- ----
Provision for Credit Losses 20 23 7
---- ---- ----
Expenses:
Human Resources 242 224 248
Other Operating Expenses 245 239 273
---- ---- ----
Total Expenses 487 463 521
---- ---- ----
Pretax Income 130 105 115
Income Tax Provision 48 37 38
---- ---- ----
Net Income $ 82 $ 68 $ 77
==== ==== ====
</TABLE>
American Express Bank's (the Bank) 1997 net income was higher than last year
as a result of increased foreign exchange trading and net interest income,
partially offset by larger operating expenses. 1996 net income was below 1995 as
a result of lower revenues and a higher provision for losses, partly offset by
reduced expenses.
Net interest income grew in 1997 due to higher average balances in loans and
trading securities; in 1996 net interest income fell due to higher borrowing
rates and decreased business volumes. Commissions, fees and other revenues
increased in 1997 driven by higher fees from new product launches; the decrease
in 1996 was primarily due to exiting nonstrategic businesses. Foreign exchange
income rose significantly in 1997, reflecting very strong trading results.
The provision for credit losses rose in 1996 due to loan growth, slightly
higher consumer and commercial write-offs and lower commercial banking
recoveries. Human resources expense grew in 1997 as a result of merit increases
and higher incentive compensation; the improvement in 1996 reflected cost
reduction initiatives. Other operating expenses rose in 1997 with increased
systems technology expenses; the decline in 1996 was due to the transfer of
aircraft assets to the Bank's parent.
-11- (1997 Annual Report p. 27)
<PAGE>
The Bank has exposures throughout the Asia/Pacific region, including
Indonesia, Korea, Thailand as well as Hong Kong and Singapore. Our Risk
Management group has been monitoring the Asian financial crisis as it has
evolved. The Bank had approximately $2.8 billion in loans outstanding in the
entire region at December 31, 1997. In addition to these, there are other
banking activities, such as forward contracts, various contingencies and market
placements, which add another approximately $1.5 billion to the regional number
at year-end. We should be in a better position to estimate any reserve
requirements in the relatively near future.
<TABLE>
<CAPTION>
Liquidity and Capital Resources
SELECTED BALANCE SHEET INFORMATION
(Amounts in billions, except percentages and where indicated)
December 31, 1997 1996
----- -----
<S> <C> <C>
Investments $ 2.3 $ 2.8
Total Loans $ 6.2 $ 5.9
Reserve for Credit Losses (millions) $ 131 $ 117
Reserves as a Percentage of Total Loans 2.1% 2.0%
Total Nonperforming Loans (millions) $ 47 $ 35
Other Real Estate Owned (millions) $ 4 $ 36
Total Assets $12.8 $12.3
Deposits $ 8.5 $ 8.7
Total Liabilities $12.0 $11.6
Total Shareholder's Equity (millions) $ 830 $ 799
Risk-Based Capital Ratios:
Tier 1 8.8% 8.8%
Total 12.3% 12.5%
Leverage Ratio 5.3% 5.6%
Return on Average Assets* .64% .57%
Return on Average Common Equity* 10.83% 9.22%
</TABLE>
* Excluding the effect of SFAS No. 115.
The reserve for credit losses rose as a result of a loan recovery in 1997. The
Bank had net loan recoveries of $1.6 million and net loan write-offs of $16.2
million in 1997 and 1996, respectively. Other real estate owned declined
primarily due to a property sale.
CORPORATE AND OTHER
Corporate and Other net expenses were $152 million, $153 million and $141
million in 1997, 1996 and 1995, respectively. The 1996 amount excludes a $300
million after-tax gain on the exchange of the company's DECS ($480 million
pretax) and a $13 million after-tax charge ($20 million pretax) primarily
related to the early retirement of debt. Including the above items in 1996,
Corporate and Other had net income of $134 million.
Results for all three years include a benefit from an earnings payout from
Travelers Inc. (Travelers), related to the 1993 sale of the Shearson Lehman
Brothers Division (the 1993 sale). Results for 1997 also reflect preferred
dividends received from Lehman Brothers Holdings, Inc. Results for 1996 and 1995
-12- (1997 Annual Report pp. 27-28)
<PAGE>
also include the company's share of the participation in Travelers' revenue in
accordance with the 1993 sale. Results for 1995 also included a gain from the
sale of common stock and warrants of Mellon Bank Corporation. In each year,
these gains were offset by certain business building initiatives.
CONSOLIDATED LIQUIDITY AND CAPITAL RESOURCES
The company believes allocating capital to businesses with a return on
risk-adjusted equity in excess of its cost of equity and sustained earnings
growth in its core business will continue to build shareholder value.
The company's philosophy is to retain enough earnings to help achieve its
goals of earnings per share growth in the 12 to 15 percent range. As further
described in Note 7 to the Consolidated Financial Statements, the company has
undertaken a systematic share repurchase program to offset new share issuances.
To the extent retained earnings exceed investment opportunities, the company has
returned excess capital to shareholders.
Financing Activities
The company has procedures to transfer immediately short-term funds within
the company to meet liquidity needs. These internal transfer mechanisms are
subject to and comply with various contractual and regulatory constraints.
The parent company generally meets its short-term funding needs through an
intercompany dividend policy and by the issuance of commercial paper. The Board
of Directors has authorized a parent company commercial paper program that is
supported by a $1.3 billion multi-purpose credit facility that expires in
increments from 1998 through 2002. No borrowings have been made under this
credit facility. There was no parent company commercial paper outstanding during
1997 and at December 31, 1996.
Total parent company long-term debt outstanding was $1,079 million at
December 31, 1997 and $666 million at December 31, 1996. In June 1997, the
parent company issued $500 million of 6.75% Global Notes due June 23, 2004. The
proceeds from this issuance were used for general corporate purposes. At
December 31, 1997 and 1996, the parent company had $550 million and $1.1
billion, respectively, of debt or equity securities available for issuance under
a shelf registration filed with the Securities and Exchange Commission. In
addition, TRS, Credco, American Express Overseas Credit Corporation Limited and
the Bank have established programs for the issuance, outside the United States,
of debt instruments to be listed on the Luxembourg Stock Exchange. In 1997,
Centurion Bank was added to this program. The maximum aggregate principal amount
of debt instruments outstanding at any one time under the program will not
exceed $3 billion. At December 31, 1997 and 1996, $1.1 billion and $300 million
of debt, respectively, has been issued under this program.
Risk Management
Management establishes and oversees implementation of Board-approved policies
covering the company's funding, investments and use of derivative financial
instruments and monitors aggregate risk exposures on an ongoing basis. The
company's objective is to realize returns commensurate with the level of risk
assumed while achieving consistent earnings growth. Individual business segments
are responsible for managing their respective exposures within the context of
Board-approved policies. See Note 11 to the Consolidated Financial Statements
for a discussion of the company's use of derivatives.
-13- (1997 Annual Report p. 28)
<PAGE>
The sensitivity analysis of three different tests of market risk in the
following sections estimate the effects of hypothetical sudden and sustained
changes in the applicable market conditions on the ensuing year's earnings. The
market changes, assumed to occur as of December 31, 1997, are a 100 basis point
increase in market interest rates, a 10% strengthening of the U.S. dollar versus
all other currencies, and a 10% decline in the value of equity securities under
management at AEFA. Computations of the prospective effects of hypothetical
interest rate, foreign exchange rate and equity market changes are based on
numerous assumptions, including relative levels of market interest rates,
foreign exchange rates and equity prices, as well as the levels of assets and
liabilities. The hypothetical changes and assumptions will be different from
what actually occurs in the future. Furthermore, the computations do not
anticipate actions that may be taken by management if the hypothetical market
changes actually occurred over time. As a result, actual earnings effects in the
future will differ from those quantified below.
A variety of interest rate and foreign exchange hedging strategies are
employed to manage interest rate and foreign currency risks. TRS' hedging
policies are established, maintained and monitored by a central treasury
function. TRS generally manages its exposures along product lines.
For Charge Card products, TRS funds its Cardmember receivables using both
on-balance sheet sources such as long-term debt, medium-term notes, commercial
paper and other debt, and an asset securitization program. Such funding is
predominantly obtained by Credco and its subsidiaries. Interest rate exposure is
managed through the issuance of long- and short-term debt and the use of
interest rate swaps to achieve a targeted mix of fixed and floating rate
funding. TRS currently targets this mix to be approximately 100 percent floating
rate. In early 1998, TRS purchased interest rate caps to limit the adverse
effect of an interest rate increase on substantially all Charge Card funding
costs. The majority of the caps will mature by the end of 1998. TRS periodically
reviews and may change this policy.
For its lending products, TRS funds its Cardmember loans using a mixture of
long- and short-term debt, and an asset securitization program, primarily
through Centurion Bank. The interest rates on TRS' lending products are linked
to a floating rate base and typically reprice each month. TRS generally enters
into interest rate swaps, paying rates that reprice similarly with changes in
the base rate of the underlying loans.
The detrimental effect on TRS earnings of the hypothetical 100 basis point
increase in interest rates described above would be approximately $164 million
pretax. This effect, which is primarily due to the variable rate funding of the
Charge Card products, is based on December 31, 1997 positions. The interest rate
caps purchased in early 1998 would reduce that effect by nearly half.
TRS' foreign exchange risk arising from cross-currency charges and balance
sheet exposures is managed primarily by entering into agreements to buy and sell
currencies on a spot or forward basis. In the latter part of 1997, foreign
currency forward contracts were both sold ($562 million) and purchased ($92
million) to manage a majority of anticipated 1998 cash flows in major overseas
markets.
Based on the year-end 1997 foreign exchange positions, but excluding the
forward contracts managing the anticipated 1998 overseas cash flows, the effect
on TRS' earnings of the hypothetical 10% strengthening of the U.S. dollar would
-14- (1997 Annual Report pp. 28-29)
<PAGE>
be immaterial. With respect to the forward contracts related to anticipated
1998 cash flows, the 10% strengthening would create a hypothetical net pretax
gain of $41 million. Such a gain, if any, would mitigate the negative impact
that a strengthening U.S. dollar would have on 1998 overseas earnings.
AEFA owned investment securities are, for the most part, held by its life
insurance and investment certificate subsidiaries which primarily invest in
long-term and intermediate-term fixed income securities to provide their clients
with a competitive rate of return on their investments while minimizing risk.
Investment in fixed income securities provides AEFA with a dependable and
targeted margin between the interest rate earned on investments and the interest
rate credited to clients' accounts. AEFA does not invest in securities to
generate trading profits for its own account.
AEFA's life insurance and investment certificate subsidiaries' investment
committees meet regularly to review models projecting different interest rate
scenarios and their impact on the profitability of each subsidiary. The
committees' objective is to structure their investment security portfolios based
upon the type and behavior of the products in the liability portfolios, 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, AEFA's margins
may be impacted by changes in the general level of interest rates. Part of the
committees' strategies include the purchase of derivatives, such as interest
rate caps, swaps and floors, for hedging purposes.
The negative effect on AEFA's earnings of the 100 basis point increase in
interest rates would be approximately $40 million pretax. It assumes repricings
and customer behavior based on the application of proprietary models to the book
of business at December 31, 1997 and also includes a small decline in AEFA's
fees earned on managed fixed income assets.
AEFA's fees earned on the management of equity securities in variable
annuities and mutual funds are generally based on the value of the portfolios.
To manage the level of 1998 fee income, AEFA has entered into a series of stock
index option transactions designed to mitigate, for a substantial portion of the
portfolios, the negative effect on fees that would result from a decline in the
equity market. The negative effect on AEFA's earnings of the 10% decline in
equity markets discussed above would be approximately $20 million pretax, net of
the impact of the index options.
The Bank employs a variety of on- and off-balance sheet financial
instruments in managing its exposure to fluctuations in interest and currency
rates. Derivative instruments consist principally of foreign exchange spot and
forward contracts, interest rate swaps, foreign currency options and forward
rate agreements. Generally, they are used to manage specific on-balance sheet
interest rate and foreign exchange exposures related to deposits and long-term
debt, equity, loans and securities holdings.
The negative effect of the 100 basis point increase in interest rates on the
Bank's earnings would be approximately $9 million pretax. The impact of the 10%
strengthening of the U.S. dollar described above would be negligible on earnings
and, with respect to translation exposure of foreign operations, would result in
a $14 million pretax charge against equity.
-15- (1997 Annual Report pp. 29-30)
<PAGE>
The Bank also utilizes foreign exchange and interest rate products to meet
the needs of its customers. Customer positions are usually, but not always,
offset. They are evaluated in terms of the Bank's overall interest rate or
foreign exchange exposure. The Bank also takes limited proprietary positions.
Potential daily negative earnings effects from these activities are estimated
using a Value at Risk model that employs a parametric technique using a
correlation matrix based on historical data. At December 31, 1997, there was a
99.0% probability that any potential loss for one day would be less than $1
million.
Asset/liability and market risk management at the Bank is supervised by the
Asset and Liability (ALCO) and Risk Management Committees, respectively. These
committees are comprised of senior business managers and the Chairman of the
Bank. Both committees meet monthly and monitor (a) liquidity, (b) capital levels
and (c) investment portfolios. Both committees evaluate current market
conditions and determine the Bank's tactics within risk limits approved by the
Bank's Board of Directors. The Bank's treasury and global trading management
issues policies and control procedures and delegate 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 based on a
tiered approval ladder, with levels of authority delegated to each country,
geographic area, the Bank's Senior management, and the Bank's Board of
Directors. Approval authorities are based on factors such as type of borrower,
nature of transaction, collateral, and overall risk rating. The Bank controls
the credit risk arising from derivative transactions through the same
procedures. The Credit Audit department reviews all significant exposures
periodically. Risk of all foreign exchange and derivative transactions are
reviewed by the Bank on a regular basis.
-16- (1997 Annual Report p. 30)
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
American Express Company
Years Ended December 31, (millions, except per share amounts)
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Net Revenues
Discount revenue $ 5,666 $ 5,024 $ 4,457
Interest and dividends, net 3,175 3,289 3,499
Net card fees 1,604 1,668 1,742
Travel commissions and fees 1,489 1,422 1,368
Other commissions and fees 1,475 1,261 1,254
Cardmember lending net finance charge revenue 1,244 1,068 1,032
Management and distribution fees 1,486 1,205 935
Life and other insurance premiums 424 395 735
Other 1,197 1,048 899
------- ------- -------
Total 17,760 16,380 15,921
======= ======= =======
Expenses
Human resources 4,700 4,325 4,039
Provisions for losses and benefits:
Annuities and investment certificates 1,414 1,405 1,392
Life insurance and other 567 544 793
Charge card 858 743 835
Cardmember lending 817 635 522
Interest:
Charge card 743 688 673
Other 181 428 569
Occupancy and equipment 1,139 1,126 1,094
Marketing and promotion 1,118 1,071 977
Professional services 1,028 951 834
Communications 450 445 407
Other 1,995 1,355 1,603
------- ------- -------
Total 15,010 13,716 13,738
======= ======= =======
Pretax income 2,750 2,664 2,183
Income tax provision 759 763 619
------- ------- -------
Net income $ 1,991 $ 1,901 $ 1,564
======= ======= =======
Earnings Per Common Share
Basic $ 4.29 $ 4.02 $ 3.19
Diluted $ 4.15 $ 3.89 $ 3.10
------- ------- -------
Average common shares outstanding for
earnings per common share (millions):
Basic 464 472 485
Diluted 479 488 499
</TABLE>
See notes to consolidated financial statements.
-17- (1997 Annual Report p. 31)
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
American Express Company
December 31, (millions) 1997 1996
--------- ---------
<S> <C> <C>
Assets
Cash and cash equivalents $ 4,179 $ 2,677
Accounts receivable and accrued interest:
Cardmember receivables, less reserves:
1997, $640; 1996, $658 19,275 17,938
Other receivables, less reserves:
1997, $72; 1996, $64 2,499 2,553
Investments 39,648 38,339
Loans:
Cardmember lending, less reserves:
1997, $576; 1996, $482 13,183 12,194
International banking, less reserves:
1997, $131; 1996, $117 6,062 5,760
Other, net 864 564
Separate account assets 23,215 18,535
Deferred acquisition costs 2,894 2,660
Land, buildings and equipment-- at cost,
less accumulated depreciation:
1997, $1,838; 1996, $1,852 1,533 1,675
Other assets 6,651 5,617
--------- ---------
Total assets $ 120,003 $ 108,512
========= =========
Liabilities and Shareholders' Equity
Customers' deposits $ 9,444 $ 9,555
Travelers Cheques outstanding 5,634 5,838
Accounts payable 4,876 4,601
Insurance and annuity reserves:
Fixed annuities 22,112 21,838
Life and disability policies 4,053 3,836
Investment certificate reserves 4,149 3,265
Short-term debt 20,570 18,402
Long-term debt 7,873 6,552
Separate account liabilities 23,215 18,535
Other liabilities 8,503 7,562
-------- --------
Total liabilities 110,429 99,984
======== ========
Shareholders' Equity
Common shares, $.60 par value,
authorized 1.2 billion shares; issued and
outstanding 466.4 million shares in 1997
and 472.9 million shares in 1996 280 284
Capital surplus 4,624 4,191
Net unrealized securities gains 579 386
Foreign currency translation adjustment (97) (89)
Retained earnings 4,188 3,756
-------- --------
Total shareholders' equity 9,574 8,528
-------- --------
Total liabilities and shareholders' equity $120,003 $108,512
======== ========
</TABLE>
See notes to consolidated financial statements.
-18- (1997 Annual Report p. 32) <PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
American Express Company
Years Ended December 31, (millions) 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations $ 1,991 $ 1,901 $ 1,564
Adjustments to reconcile income from continuing operations
to net cash provided by operating activities:
Provisions for losses and benefits 2,307 2,009 2,086
Depreciation, amortization, deferred taxes and other 187 266 367
Changes in operating assets and liabilities, net of effects of
acquisitions and dispositions:
Accounts receivable and accrued interest (227) 290 (353)
Other assets 334 567 (1,157)
Accounts payable and other liabilities 517 (297) (280)
(Decrease) increase in Travelers Cheques outstanding (111) 141 427
Increase in insurance reserves 172 224 440
(FDC Gain)/restructuring - (162) -
--------- --------- ---------
Net cash provided by operating activities 5,170 4,939 3,094
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of investments 1,778 4,634 2,236
Maturity and redemption of investments 4,827 6,573 8,274
Purchase of investments (7,898) (10,896) (11,242)
Net increase in Cardmember receivables (2,575) (2,770) (3,754)
Cardmember loans/receivables sold to Trust, net 516 2,242 -
Proceeds from repayment of loans 25,591 22,696 21,603
Issuance of loans (29,304) (27,277) (23,960)
Purchase of land, buildings and equipment (343) (438) (347)
Sale of land, buildings and equipment 164 238 91
Dispositions (acquisitions), net of cash sold/acquired 23 (4) 357
--------- --------- ---------
Net cash used by investing activities (7,221) (5,002) (6,742)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in customers' deposits 733 (133) (125)
Sale of annuities and investment certificates 5,888 5,411 5,729
Redemption of annuities and investment certificates (4,965) (5,508) (3,957)
Net increase (decrease) in debt with maturities of 3 months or less 3,823 4,885 (4,700)
Issuance of debt 11,439 13,578 23,012
Principal payments on debt (11,604) (17,384) (15,454)
Issuance of American Express common shares 168 176 246
Repurchase of American Express common shares (1,259) (1,041) (891)
Dividends paid (423) (436) (458)
--------- --------- ---------
Net cash provided (used) by financing activities 3,800 (452) 3,402
Effect of exchange rate changes on cash (247) (8) 13
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 1,502 (523) (233)
Cash and cash equivalents at beginning of year 2,677 3,200 3,433
--------- --------- ---------
Cash and cash equivalents at end of year $ 4,179 $ 2,677 $ 3,200
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
-19- (1997 Annual Report p. 33) <PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
American Express Company
Net
Unrealized
Securities
Three Years Ended December 31, 1997 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, 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
------- ------- ------- ------- ------- ------- --------
Net income 1,901 1,901
Repurchase of common shares (1,041) (13) (177) (851)
Net put options activity 124 124
Change in net unrealized securities
gains (losses) (489) (489)
Conversion of preferred shares into
common - (200) 3 197
Foreign currency translation adjustments (4) (4)
Other changes, primarily employee plans 252 4 266 (18)
Cash dividends declared:
Preferred (6) (6)
Common, $.90 per share (429) (429)
------- ------- ------- ------- ------- ------- --------
BALANCES AT DECEMBER 31, 1996 8,528 - 284 4,191 386 (89) 3,756
------- ------- ------- ------- ------- ------- --------
Net income 1,991 1,991
Repurchase of common shares (1,259) (10) (153) (1,096)
Change in net unrealized securities
gains (losses) 193 193
Foreign currency translation adjustments (8) (8)
Exchange of Lehman Brothers Holdings, Inc.
preferred shares for American Express
common shares 337 3 334
Other changes, primarily employee plans 213 3 252 (42)
Cash dividends declared:
Common, $.90 per share (421) (421)
------- ------- ------- ------- ------- ------- --------
BALANCES AT DECEMBER 31, 1997 $ 9,574 $ - $ 280 $ 4,624 $ 579 $ (97) $4,188
------- ------- ------- ------- ------- ------- --------
</TABLE>
See notes to consolidated financial statements.
-20- (1997 Annual Report p. 34) <PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. Some amounts are based on estimates
and assumptions, e.g., reserves for Cardmember Receivables and Loans; Deferred
Acquisition Costs; and Insurance and Annuity Reserves. These reflect the best
judgment of management and actual results could differ.
Certain amounts from prior years have been reclassified to conform to the
current presentation.
Net Revenues
Cardmember Lending Net Finance Charge Revenue is presented net of interest
expense of $604 million, $507 million and $497 million for the years ended
December 31, 1997, 1996 and 1995, respectively. Interest and Dividends is
presented net of interest expense related primarily to the company's
international banking activities of $594 million, $536 million and $604 million
for the years ended December 31, 1997, 1996 and 1995, respectively.
Marketing and Promotion
The company expenses advertising costs in the year in which the advertising
first takes place.
Cash and Cash Equivalents
The company has defined cash equivalents to include time deposits with
original maturities of 90 days or less, excluding those that are restricted by
law or regulation.
Separate Account Assets and Liabilities
Separate account assets and liabilities are 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.
NOTE 2 EARNINGS PER COMMON SHARE
The company adopted Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings per Share," effective for the quarter and year-ended December 31,
1997. SFAS No. 128 requires the presentation of basic and diluted earnings per
common share (EPS) in the income statement. Under the new requirements, basic
EPS is computed using the average actual shares outstanding during the period.
Diluted EPS is basic EPS adjusted for the dilutive effect of stock options,
restricted stock awards (RSAs) and other securities that may be converted into
common shares. The following is a reconciliation of the numerators and
denominators of the basic and diluted EPS computations:
-21- (1997 Annual Report p. 35)
<PAGE>
<TABLE>
<CAPTION>
(millions, except per share amounts) 1997 1996 1995
------- -------- --------
<S> <C> <C> <C>
Numerator:
Net income $ 1,991 $ 1,901 $ 1,564
Less: Preferred dividends - 5 16
------- -------- --------
Numerator for basic EPS $ 1,991 $ 1,896 $ 1,548
Effect of dilutive securities:
7.75% Convertible Preferred Shares(a) - 5 -
------- -------- --------
Numerator for diluted EPS $ 1,991 $ 1,901 $ 1,548
Denominator:
Denominator for basic EPS - weighted-average shares 464.2 472.2 484.8
Effect of dilutive securities:
Stock Options and RSAs 8.8 8.2 8.1
5% Exchangeable Lehman Brothers Holdings, Inc.
Preferred Shares (See Note 7) 6.1 6.2 6.2
7.75% Convertible Preferred Shares(a) - 1.6 -
Other 0.1 0.1 0.1
------- -------- --------
Potentially dilutive common shares 15.0 16.1 14.4
------- -------- --------
Denominator for diluted EPS 479.2 488.3 499.2
------- -------- --------
Basic EPS $ 4.29 $ 4.02 $ 3.19
------- -------- --------
Diluted EPS $ 4.15 $ 3.89 $ 3.10
------- -------- --------
</TABLE>
(a) $200 million of 7.75% convertible preferred shares were outstanding during
1995 but were not included in the computation of diluted EPS, as the
effect would be antidilutive. These shares were converted into common
stock of the company in May 1996.
NOTE 3 RESTRUCTURING CHARGE
In the fourth quarter of 1996, the company recorded a $138 million charge
($216 million pretax) primarily for restructuring costs related to a series of
reengineering initiatives that were implemented in 1997. Of the total charge,
$125 million ($196 million pretax) related to Travel Related Services (TRS),
approximately two-thirds of which applied to international businesses. Most of
the remaining $13 million ($20 million pretax) was due to the early retirement
of debt at the Corporate level. The pretax charge was included in Other Expenses
in the Consolidated Statements of Income. The TRS restructuring charge included
$109 million pretax in severance costs and $87 million pretax to close certain
leased facilities, to consolidate or outsource certain operations and to
write-down certain assets. As of December 31, 1997, the company has
substantially completed all restructuring activities.
-22- (1997 Annual Report pp. 35-36)
<PAGE>
NOTE 4 INVESTMENTS
The following is a summary of investments included in the Consolidated Balance
Sheets at December 31:
(millions) 1997 1996
------- -------
Held to Maturity, at amortized cost $11,871 $13,063
Available for Sale, at fair value 23,727 20,978
Investment mortgage loans (fair value:
1997, $4,026; 1996, $3,827) 3,831 3,712
Trading 219 586
------- -------
Total $39,648 $38,339
======= =======
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
----------------------------------------------------------------------------------
1997 1996
--------------------------------------- ---------------------------------------
Gross Gross Gross Gross
Unrealized Unrealized Fair Unrealized Unrealized Fair
(millions) Cost Gains Losses Value Cost Gains Losses Value
------- ---------- ---------- ------- ------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and agencies obligations $ 53 $ 3 - $ 56 $ 45 $ 1 $ 2 $ 44
State and municipal obligations 1,224 75 - 1,299 1,410 52 3 1,459
Corporate debt securities 8,226 452 $ 8 8,670 9,085 392 48 9,429
Foreign government bonds
and obligations 118 11 - 129 371 7 - 378
Mortgage-backed securities 1,992 27 8 2,011 2,152 23 46 2,129
Other 258 7 1 264 - - - -
------- ---------- ---------- ------- ------- ---------- ---------- -------
Total $11,871 $ 575 $ 17 $12,429 $13,063 $ 475 $ 99 $13,439
======= ========== ========== ======= ======= ========== ========== =======
-23- (1997 Annual Report p. 36)
<PAGE>
Available for Sale
----------------------------------------------------------------------------------
1997 1996
--------------------------------------- ---------------------------------------
Gross Gross Gross Gross
Unrealized Unrealized Fair Unrealized Unrealized Fair
(millions) Cost Gains Losses Value Cost Gains Losses Value
------- ---------- ---------- ------- ------- ---------- ---------- -------
U.S. Government and agencies obligations $ 46 $ 1 - $ 47 $ 46 - - $ 46
State and municipal obligations 4,273 311 - 4,584 3,964 $182 - 4,146
Corporate debt securities 7,667 266 $37 7,896 5,441 139 $ 28 5,552
Foreign government bonds
and obligations 956 27 6 977 1,227 24 11 1,240
Mortgage-backed securities 9,027 200 7 9,220 8,641 125 71 8,695
Equity securities 467 159 3 623 465 259 6 718
Other 380 - - 380 582 - 1 581
------- ----- ----- ------- ------- ----- ------ -------
Total $22,816 $964 $53 $23,727 $20,366 $729 $117 $20,978
======= ==== ===== ======= ======= ===== ====== =======
</TABLE>
<TABLE>
<CAPTION>
Held to Maturity Available for Sale
----------------- ------------------
Fair Fair
December 31, 1997 (millions) Cost Value Cost Value
------- ------- ------- -------
<S> <C> <C> <C> <C>
Due within 1 year $ 597 $ 603 $ 851 $ 862
Due after 1 year through 5 years 3,605 3,800 3,332 3,438
Due after 5 years through 10 years 3,901 4,108 5,058 5,240
Due after 10 years 1,776 1,907 4,081 4,344
------- ------- ------- -------
9,879 10,418 13,322 13,884
Mortgage-backed securities 1,992 2,011 9,027 9,220
Equity securities - - 467 623
------- ------- ------- -------
Total $11,871 $12,429 $22,816 $23,727
======= ======= ======= =======
</TABLE>
Mortgage-backed securities primarily include GNMA, FNMA and FHLMC
securities at December 31, 1997 and 1996.
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>
1997 1996
---------------------- ----------------------
Held to Available Held to Available
(millions) Maturity for Sale Maturity for Sale
- ---------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Purchases $ 64 $ 7,323 $11,281 $ 9,340
Sales $ 274 $ 1,504 $ 312 $ 4,315
Maturities $ 1,513 $ 2,965 $14,673 $ 4,918
</TABLE>
-24- (1997 Annual Report p. 37)
<PAGE>
Investments classified as Held to Maturity were sold during 1997 and 1996 due to
credit deterioration. Gross realized gains and losses on sales were negligible.
The change in the Net Unrealized Securities Gains (Losses) component of
Shareholders' Equity was an increase of $193 million, a decrease of $489 million
and an increase of $1.3 billion for the years ended December 31, 1997, 1996 and
1995, respectively. The decrease in 1996 primarily reflected the exchange of the
company's Debt Exchangeable for Common Stock (DECS) for shares of First Data
Corporation (FDC) held by the company, which resulted in the realization of a
$300 million after-tax gain. An increase in the general level of interest rates
also contributed to the decline in 1996. The rise in market value during 1995
reflected a decline in the general level of interest rates and the
reclassification of the company's investment in FDC to Available for Sale
securities.
Gross realized gains and (losses) on sales of securities classified as
Available for Sale, using the specific identification method, were $67 million
and ($10 million), $65 million and ($25 million) and $46 million and ($12
million) for the years ended December 31, 1997, 1996 and 1995, respectively.
The change in Net Unrealized Gains on Trading securities, which is included
in income, was $24 million, $28 million and $12 million for the years ended
December 31, 1997, 1996 and 1995, respectively.
In connection with the spin-off of Lehman Brothers Holdings Inc. (Lehman)
in 1994, the company acquired 928 shares and Nippon Life Insurance Company
(Nippon Life) acquired 72 shares of Lehman's redeemable voting preferred stock
for a nominal dollar amount. This security entitles its holders to receive an
aggregate annual dividend of 50 percent of Lehman's 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. Prior to 1997, the company received no dividends in
connection with the earnout. In 1997, the company received a dividend of $7
million on these shares. In addition, the company and Nippon Life are 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 revenue-related payout was for three years
and ended in 1996. The company received $46 million in 1996 and 1995. The
earnings-related payout, which is in effect for a five-year period beginning in
1994, is 10 percent of after-tax profits of Smith Barney, a subsidiary of
Travelers, in excess of $250 million per year ($70 million, $56 million and $24
million was received by the company in 1997, 1996 and 1995, respectively).
-25- (1997 Annual Report p. 38)
<PAGE>
NOTE 5 LOANS
<TABLE>
<CAPTION>
Loans at December 31 consisted of:
(millions) 1997 1996
------- -------
<S> <C> <C>
Cardmember and Consumer Loans $14,981 $13,545
Commercial Loans:
Commercial and industrial 2,793 2,641
Mortgage and real estate 490 431
Loans to banks and other institutions 1,966 1,923
Other, principally policyholders' loans 586 579
------- -------
20,816 19,119
Less: Reserves for credit losses 707 601
------- -------
Total $20,109 $18,518
======= =======
</TABLE>
Note:American Express Financial Advisors (AEFA) mortgage loans of $3.8 billion
and $3.7 billion in 1997 and 1996, respectively, are included in Investment
Mortgage Loans and are shown in Note 4.
<TABLE>
<CAPTION>
The following table presents changes in Reserves
for Credit Losses related to loans:
(millions) 1997 1996
-------- --------
<S> <C> <C>
Balance, January 1 $ 601 $ 602
Provision for credit losses 837 658
Write-offs (890) (795)
Recoveries of amounts previously written-off 159 136
-------- --------
Balance, December 31 $ 707 $ 601
======== ========
</TABLE>
NOTE 6 PREFERRED SHARES
In January 1990, the company sold four million of the company's $3.875
Convertible Exchangeable Preferred shares (Convertible Preferred shares) to
Nippon Life for $200 million. In May 1996, after receiving a redemption notice
from the company, Nippon Life converted all of the Convertible Preferred shares
into 4,705,882 of the company's common shares.
The Board of Directors is authorized to permit the company to issue up to
20 million preferred shares without further shareholder approval.
-26- (1997 Annual Report p. 39)
<PAGE>
NOTE 7 COMMON SHARES
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 purchase shares systematically both to offset the issuance of new
shares as part of employee compensation plans and to reduce shares outstanding.
Under the 1996 authorization, the company has repurchased and cancelled
17,556,053 and 13,146,053 shares, respectively.
Of the common shares authorized but unissued at December 31, 1997, 71
million shares were reserved for issuance for employee stock, employee benefit
and the dividend reinvestment plan as well as debentures.
In 1987, Nippon Life purchased 13 million shares of Lehman 5% Series A
Preferred Stock for $508 million. In 1990, the company gave Nippon Life the
right to exchange these shares (subsequently exchanged by Lehman for Series B
shares) into 6.24 million common shares of the company at any time through
December 1999 at an exchange price of $81.46. In 1996, Nippon Life informed the
company that it had reduced its holding of such preferred shares by
approximately 30 percent but maintained the exchange rights related to the
shares sold. On December 16, 1997, Nippon Life exchanged all of its remaining
holdings of these preferred shares for approximately 4.4 million common shares
of the company. In January 1998, the company purchased all remaining exchange
rights of Nippon Life.
Common shares activity for each of the last three years ended December 31
was:
<TABLE>
<CAPTION>
(thousands) 1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Shares outstanding at beginning of year 472,859 483,108 495,866
Repurchase of common shares (17,010) (22,200) (23,745)
Conversion of Convertible Exchangeable Preferred shares - 4,706 -
Exchange of Lehman preferred shares for
American Express common shares 4,399 - -
Employee benefit plans, compensation and other 6,169 7,245 10,987
------- ------- -------
Shares outstanding at end of year 466,417 472,859 483,108
======= ======= =======
</TABLE>
-27- (1997 Annual Report p. 40)
<PAGE>
NOTE 8 STOCK PLANS
Under the 1989 Long-Term Incentive Plan (the 1989 Plan), awards may be granted
to officers and other 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 a Directors'
Stock Option Plan. Under both of these plans, there were a total of 25.9
million, 32.1 million and 14.1 million common shares available for grant at
December 31, 1997, 1996 and 1995, respectively. Each option has an exercise
price at least equal to the market price of the company's common stock on the
date of grant and a maximum term of 10 years. Options generally vest at 33 1/3
percent per year. The company also sponsors the American Express Incentive
Savings Plan, under which purchases of the company's common shares are made by
or on behalf of participating employees.
On January 13, 1998, the Compensation and Benefits Committee approved the
addition of a restoration feature to existing and future stock option awards.
That feature provides that employees who exercise options that have been
outstanding at least five years by surrendering previously owned shares as
payment will automatically receive a new (restoration) stock option with an
exercise price equal to the market price on the date of exercise. The size of
the restoration option is equal to the number of shares surrendered plus any
shares surrendered or withheld to satisfy the employees' statutory income tax
requirements. The term of the restoration option, which is exercisable six
months after grant, is equal to the remaining life of the original option.
Senior officers must be in compliance with their stock ownership guideline to
exercise restoration options.
The company granted 1.4 million, 1.4 million and 1.7 million restricted
stock awards with a weighted average grant date value of $67.08, $46.14 and
$34.77 per share for 1997, 1996 and 1995, respectively. Restrictions generally
expire four years from date of grant. The compensation cost that has been
charged against income for the company's restricted stock awards was $48
million, $39 million and $31 million for 1997, 1996 and 1995, respectively.
The company has elected to follow APB Opinion No. 25, "Accounting for Stock
Issued to Employees," and related Interpretations in accounting for its employee
stock options. Therefore, no compensation cost has been recognized related to
stock options. If the company had elected to account for its stock options under
the fair value method of SFAS No. 123, "Accounting for Stock-Based
Compensation," the company's net income and earnings per common share would have
been reduced to the pro forma amounts indicated below:
-28- (1997 Annual Report p. 41)
<PAGE>
<TABLE>
<CAPTION>
(millions, except per
share amounts) 1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Net income:
As reported $ 1,991 $ 1,901 $ 1,564
Pro forma $ 1,948 $ 1,877 $ 1,552
Basic EPS:
As reported $ 4.29 $ 4.02 $ 3.19
Pro forma $ 4.20 $ 3.96 $ 3.17
Diluted EPS:
As reported $ 4.15 $ 3.89 $ 3.10
Pro forma $ 4.07 $ 3.84 $ 3.08
</TABLE>
The fair value of each option is estimated on the date of grant using a
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1997, 1996 and 1995, respectively:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Dividend yield 2.6% 3.1% 3.6%
Expected volatility 20% 23% 26%
Risk-free interest rate 6.2% 5.9% 7.2%
Expected life of stock option 5 years 7 years 7 years
</TABLE>
The dividend yield reflects the assumption that the current dividend payout
will continue with no anticipated increases. The expected life of the options is
based on historical data, and is not necessarily indicative of exercise patterns
that may occur. The weighted average fair value per option was $14.76, $11.43
and $9.39 for options granted during 1997, 1996 and 1995, respectively.
A summary of the status of the company's stock option plans as of December
31 and changes during each of the years then ended is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- --------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
(shares in thousands) Shares Exercise Price Shares Exercise Price Shares Exercise Price
------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 21,116 $32.60 23,479 $27.41 28,998 $24.89
Granted 6,295 $66.74 5,778 $46.02 6,046 $34.26
Exercised (6,566) $27.65 (7,104) $25.64 (10,397) $24.25
Forfeited/Expired (804) $48.12 (1,037) $38.49 (1,168) $28.26
------ ------ ------ ------ ------- ------
Outstanding at end of year 20,041 $44.32 21,116 $32.60 23,479 $27.41
------ ------ ------ ------ ------- ------
Options exercisable at end of year 9,124 $30.58 10,641 $26.05 12,591 $25.18
</TABLE>
The following table summarizes information about the stock options outstanding
at December 31, 1997:
-29- (1997 Annual Report pp. 41-42)
<PAGE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------- --------------------------
(shares in thousands) Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- ------------------------ ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$9.00 - $19.99 608 4.1 $18.64 608 $18.64
$20.00 - $29.99 4,527 5.1 $25.34 4,527 $25.34
$30.00 - $49.99 8,779 7.4 $40.38 3,956 $38.23
$50.00 - $88.38 6,127 9.1 $66.52 33 $52.48
------ ------ ------ ------ ------
$9.00 - $88.38 20,041 7.3 $44.32 9,124 $30.58
------ ------ ------ ------ ------
</TABLE>
NOTE 9 RETIREMENT PLANS
Pension Plans
The company sponsors the American Express Retirement Plan (the Plan), a
noncontributory defined benefit plan, under which the cost of retirement
benefits for eligible employees in the United States is measured by length of
service, compensation and other factors, and is currently being funded through a
trust. In addition, the company sponsors an unfunded, nonqualified supplemental
plan for which the aggregate accrued liability is not material. Funding of
retirement costs for the Plan complies with the applicable minimum funding
requirements specified by the Employee Retirement Income Security Act of 1974,
as amended. Employees' accrued benefits are based on nominal account balances
which are maintained for each individual. These balances are credited with
additions equal to a percentage, based on age plus service, of base pay,
overtime, shift differential, certain commissions and bonuses, each pay period.
Employees' balances are also credited annually with a fixed rate of interest
based on the daily average of published five-year Treasury Note yields. Lump sum
payout at termination or retirement is available.
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 these
local plans are generally expensed and are not funded.
Plan assets consist principally of equities and fixed income securities.
Net pension cost consisted of the following
components:
<TABLE>
<CAPTION>
(millions) 1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Service cost $ 76 $ 77 $ 66
Interest cost 82 77 76
Actual return on plan assets (231) (150) (153)
Net amortization and deferral 122 53 78
----- ----- -----
Net periodic pension cost $ 49 $ 57 $ 67
===== ===== =====
</TABLE>
-30- (1997 Annual Report pp. 42-43)
<PAGE>
The following table sets forth the funded status and amounts recognized in
the Consolidated Balance Sheets 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>
1997 1996
--------------------------- ----------------------------
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
(millions) Benefits Exceed Assets Benefits Exceed Assets
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ (896) $ (136) $ (756) $ (132)
-------- -------- -------- --------
Accumulated benefit obligation $ (925) $ (153) $ (786) $ (152)
-------- -------- -------- --------
Projected benefit obligation $(1,014) $ (186) $ (852) $ (200)
Plan assets at fair value 1,271 8 1,083 9
-------- -------- -------- --------
Projected benefit obligation (in excess of)
or less than plan assets 257 (178) 231 (191)
Unrecognized net (gain) loss (193) 4 (153) (1)
Unrecognized prior service cost (70) (5) (80) (7)
Unrecognized net obligation at transition (5) 11 (6) 12
Adjustment required to recognize minimum liability - (10) - (12)
-------- -------- -------- --------
Pension liability included in the Consolidated Balance Sheet $ (11) $ (178) $ (8) $ (199)
======== ======== ======== ========
</TABLE>
The weighted average assumptions used in the
company's plans at December 31 were:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Discount rates 7.3% 7.9%
Rates of increase in compensation levels 4.6% 4.7%
Expected long-term rates of return on assets 9.1% 9.7%
</TABLE>
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 expenses were $15 million, $18 million, and $19
million in 1997, 1996 and 1995, respectively. The liabilities recognized in the
Consolidated Balance Sheets for the company's defined postretirement benefit
plans (other than pension plans) at December 31, 1997 and 1996 were $204 million
and $205 million, respectively.
-31- (1997 Annual Report p. 43)
<PAGE>
NOTE 10 INCOME TAXES
<TABLE>
<CAPTION>
The provisions for income taxes were:
(millions) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal $453 $468 $416
State and local 46 74 18
Foreign 260 221 185
---- ---- ----
Total $759 $763 $619
==== ==== ====
</TABLE>
Accumulated net earnings of certain foreign subsidiaries, which totaled
$873 million at December 31, 1997, are intended to be permanently reinvested
outside the United States. Accordingly, federal taxes, which would have
aggregated $202 million, have not been provided on those earnings.
<TABLE>
<CAPTION>
The current and deferred components of the provision for income taxes were:
(millions) 1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Current $ 824 $ 846 $ 654
Deferred (65) (83) (35)
----- ----- -----
Total $ 759 $ 763 $ 619
===== ===== =====
</TABLE>
The company's net deferred tax assets at December 31 were:
<TABLE>
<CAPTION>
(millions) 1997 1996
------- -------
<S> <C> <C>
Deferred tax assets $ 2,767 $ 2,571
Deferred tax liabilities 1,609 1,461
------- -------
Net deferred tax assets $ 1,158 $ 1,110
======= =======
</TABLE>
Deferred tax assets for 1997 and 1996, which are presented net of a $45
million valuation allowance, primarily reflect: reserves not yet deducted for
tax purposes of $1.8 billion and $1.6 billion, respectively, and deferred
Cardmember fees of $238 million and $233 million, respectively. Deferred tax
liabilities for 1997 and 1996 mainly comprise deferred acquisition costs of $826
million and $762 million, respectively, liabilities related to SFAS No. 115 of
$318 million and $242 million, respectively, and accelerated depreciation of
$150 million and $155 million, respectively.
-32- (1997 Annual Report p. 44)
<PAGE>
The principal reasons that the aggregate income tax provision is different
from that computed by using the U.S. statutory rate of 35 percent are:
<TABLE>
<CAPTION>
(millions) 1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Combined tax at U.S. statutory rate $ 962 $ 933 $ 764
Changes in taxes resulting from:
Tax-exempt interest income (132) (153) (157)
Tax-exempt element of dividend income (22) (22) (29)
Foreign income taxed at rates other than
U.S. statutory rate (13) (35) 1
State and local income taxes 29 47 11
All other (65) (7) 29
----- ----- -----
Income tax provision $ 759 $ 763 $ 619
===== ===== =====
</TABLE>
Net income taxes paid by the company during 1997, 1996 and 1995 were $878
million, $548 million and $595 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 uses derivative financial instruments for nontrading purposes to
manage its exposure to interest and foreign exchange rates, financial indices
and its funding costs. In addition, American Express Bank (the Bank) enters into
derivative contracts both to meet the needs of its clients and, to a limited
extent, for proprietary trading purposes.
There are a number of risks associated with derivatives. Market risk is the
possibility that the value of the derivative financial instrument will change.
The company is not exposed to market risk related to derivatives held for
nontrading purposes beyond that inherent in cash market 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 and
headquarters levels against Value at Risk (VAR) limits. The company does not
enter into derivative contracts with features that would leverage or multiply
its market risk.
Credit risk related to derivatives and other off-balance sheet financial
instruments is the possibility that the counterparty will not fulfill the terms
of the contract. It is monitored through established approval procedures,
including setting concentration limits by counterparty and country, reviewing
credit ratings and requiring collateral where appropriate. For its trading
activities with clients, the Bank requires collateral when it is not willing to
assume credit exposure to counterparties for either contract mark-to-market or
delivery risk. A significant portion of the company's transactions are with
counterparties rated A or better by nationally recognized credit rating
agencies. The company also uses 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. Credit risk
approximates the fair value of contracts in a gain position (asset) and totaled
$1.4 billion and $361 million at December 31, 1997 and 1996, respectively. The
fair value represents the replacement cost and is determined by market values,
dealer quotes or pricing models.
-33- (1997 Annual Report p. 45)
<PAGE>
The following tables detail information regarding the company's derivatives at
December 31:
<TABLE>
<CAPTION>
NONTRADING 1997
-------------------------------------------------
Carrying Value Fair Value
Notional --------------- ----------------
(millions) Amount Asset Liability Asset Liability
-------- ----- --------- ----- ---------
<S> <C> <C> <C> <C> <C>
Interest Rate Products:
Interest rate swaps $12,573 $ 95 $ 49 $ 154 $ 102
Interest rate caps and floors purchased 6,100 27 - 20 -
Forward rate agreements 763 - - - -
------- ------- ------- ------- -------
Total Interest Rate Products 19,436 122 49 174 102
Foreign Currency Products:
Forward and spot contracts 11,289 80 39 220 203
Other Products 1,876 130 - 87 52
------- ------- ------- ------- -------
Total $32,601 $ 332 $ 88 $ 481 $ 357
======= ======= ======= ======= =======
1996
-------------------------------------------------
Carrying Value Fair Value
Notional --------------- ----------------
(millions) Amount Asset Liability Asset Liability
-------- ----- --------- ----- ---------
Interest Rate Products:
Interest rate swaps $ 9,942 $ 43 $ 78 $ 53 $ 173
Interest rate caps and floors purchased 5,200 18 - 18 -
Forward rate agreements 647 - - - -
------- ------- ------- ------- -------
Total Interest Rate Products 15,789 61 78 71 173
Foreign Currency Products:
Forward and spot contracts 7,893 28 46 47 75
Other Products 641 50 - 39 18
------- ------- ------- ------- -------
Total $24,323 $ 139 $ 124 $ 157 $ 266
======= ======= ======= ======= =======
TRADING 1997
--------------------------------------------------
Carrying/Fair Value Average Fair Value
Notional ------------------- ------------------
(millions) Amount Asset Liability Asset Liability
-------- ----- --------- ----- ---------
Interest Rate Products:
Interest rate swaps $ 2,165 $ 72 $ 63 $ 37 $ 33
Other 588 4 10 1 2
------- ------- ------- ------- -------
Total Interest Rate Products 2,753 76 73 38 35
------- ------- ------- ------- -------
Foreign Currency Products:*
-34- (1997 Annual Report p. 46)
<PAGE>
Forward and spot contracts 13,120 827 714 333 247
Foreign currency options written 2,755 - 50 - 36
Foreign currency options purchased 2,586 51 - 36 -
------- ------- ------- ------- -------
Total Foreign Currency Products 18,461 878 764 369 283
------- ------- ------- ------- -------
Total $21,214 $ 954 $ 837 $ 407 $ 318
======= ======= ======= ======= =======
1996
-------------------------------------------------
Carrying/Fair Value Average Fair Value
Notional ------------------- ------------------
(millions) Amount Asset Liability Asset Liability
-------- ----- --------- ----- ---------
Interest Rate Products:
Interest rate swaps $ 2,098 $ 24 $ 23 $ 20 $ 21
Forward rate agreements 526 2 2 2 1
Other 1,270 - - - -
------- ------- ------- ------- -------
Total Interest Rate Products 3,894 26 25 22 22
------- ------- ------- ------- -------
Foreign Currency Products*:
Forward and spot contracts 12,029 164 99 148 101
Foreign currency options written 1,874 - 14 - 13
Foreign currency options purchased 1,849 14 - 13 -
------- ------- ------- ------- -------
Total Foreign Currency Products 15,752 178 113 161 114
------- ------- ------- ------- -------
Total $19,646 $ 204 $ 138 $ 183 $ 136
======= ======= ======= ======= =======
</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 $38 million and $151 million at December 31, 1997 and
1996, respectively.
The average aggregate fair values of derivative financial instruments held
for trading purposes were computed based on monthly information. Net derivative
trading gains of $103 million and $72 million for 1997 and 1996, respectively,
were primarily due to trading in foreign currency forward contracts and are
included in Other Commissions and Fees.
Interest Rate Products
The company uses interest rate products, principally swaps, primarily to
manage funding costs related to TRS' Charge Card and Cardmember lending
businesses. For its Charge Card products, TRS uses interest rate swaps to
achieve a targeted mix of fixed and floating rate funding. For its Cardmember
loans, which are linked to a floating rate base and generally reprice each
month, TRS generally enters into interest rate swaps paying rates that reprice
similarly with changes in the base rate of the underlying loans.
The Bank uses interest rate swaps to manage its portfolio 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.
-35- (1997 Annual Report pp. 46-47)
<PAGE>
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.
AEFA uses interest rate caps, swaps and floors to protect the margin between
the interest rates earned on investments and the interest rates credited to
holders of investment certificates and fixed annuities. Interest rate caps and
floors generally mature within five years. The costs of interest rate caps and
floors 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 regarding the company's use of interest
rate products related to short-and long-term debt obligations.
Foreign Currency Products
The company uses foreign currency products primarily to hedge net investments
in foreign operations and to manage transactions denominated in foreign
currencies. In addition, the Bank enters into derivative contracts both to meet
the needs of its clients and, to a limited extent, for trading purposes,
including taking proprietary positions.
Foreign currency exposures are hedged, where practical and economical,
through foreign currency contracts. Foreign currency 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.
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
related to 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.
The company also uses foreign currency forward contracts to hedge its firm
commitments. 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; unrealized gains and losses are recognized currently in
income. In the latter part of 1997, foreign currency forward contracts were both
sold ($562 million) and purchased ($92 million) to manage a majority of
anticipated 1998 cash flows in major overseas markets. The impact of these
activities was not material.
-36- (1997 Annual Report pp. 47-48)
<PAGE>
Other Products
Included in Other Products are purchased and written index options used by AEFA
to hedge against adverse changes in the U.S. equities markets, which affect
revenues earned on assets under management. Index options are carried at market
value and included in Other Assets. Gains and losses on these options are
deferred until the revenues are earned. At December 31, 1997, the notional value
of these options was $1 billion.
Other Off-Balance Sheet Financial Instruments
The company's other off-balance sheet financial instruments principally relate
to extending 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.
<TABLE>
<CAPTION>
December 31, (millions) 1997 1996
------- -------
<S> <C> <C>
Unused Credit Available to Cardmembers $37,668 $33,917
Loan Commitments and Other Lines of Credit $ 1,053 $ 1,094
Standby Letters of Credit and Guarantees $ 1,301 $ 1,318
Commercial and Other Letters of Credit $ 618 $ 880
</TABLE>
The company is committed to extend credit to certain Cardmembers as part of
established lending product agreements. Many of these are not expected to be
drawn; therefore, total 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 to support 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 issues commercial and other letters of credit to facilitate the
short-term trade-related needs of its clients, which typically mature within six
months. At December 31, 1997 and 1996, the company held $744 million and $811
million, respectively, of collateral supporting standby letters of credit and
guarantees and $276 million and $504 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 $9.7 billion and $9.2 billion at December 31, 1997 and 1996,
respectively.
-37- (1997 Annual Report p. 48)
<PAGE>
NOTE 12 SHORT- AND LONG-TERM DEBT AND BORROWING AGREEMENTS
Short-Term Debt
At December 31, 1997 and 1996, the company's total short-term debt outstanding
was $20.6 billion and $18.4 billion, respectively, with weighted average
interest rates of 6.12% and 5.79%, respectively. At December 31, 1997 and 1996,
$1.6 billion and $625 million, respectively, of short-term debt outstanding was
covered by interest rate swaps. The year-end weighted average effective interest
rates were 6.17% and 5.84%, respectively. The company generally pays floating
rates of interest under the terms of interest rate swaps. Unused lines of credit
to support commercial paper borrowing were approximately $8.6 billion at
December 31, 1997.
<TABLE>
<CAPTION>
Long-Term Debt
December 31, (dollars in millions)
1997
-----------------------------------------------------------
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>
Notes due June 23, 2004 $ 499 - 6.75% - -
Notes due August 12, 2002 400 $ 400 6.50% 5.78% 2002
Notes due June 15, 2000 300 300 6.125% 5.70% 2000
Notes due November 15, 2001 299 299 6.125% 5.98% 2001
Notes due August 15, 2001 299 - 8.50% - -
Floating Rate Notes due
May 1, 2002 399 399 5.80% 6.00% 2002
Floating Rate Notes due
December 18, 2001 300 - 6.03% - -
Other Fixed Senior Notes
due 1998-2022 1,509 1,200 7.59% 6.71% 1998-2005
Other Floating Senior Notes
due 1998-2002 3,106 320 5.94% 5.98% 1998-1999
Other Floating Rate Notes
due 1999-2004 506 150 6.52% 6.70% 2004
Other Fixed Rate Notes
due 1998-2006 256 31 4.38% 4.40% 2006
----------- --------- ---------- ----------- ----------
Total $7,873 $3,099
=========== =========
-38- (1997 Annual Report p. 49)
<PAGE>
1996
-----------------------------------------------------------
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
----------- --------- ---------- ---------- -----------
Notes due June 23, 2004 - - - - -
Notes due August 12, 2002 - - - - -
Notes due June 15, 2000 $ 299 $ 299 6.125% 5.95% 2000
Notes due November 15, 2001 299 299 6.125% 5.61% 2001
Notes due August 15, 2001 299 - 8.50% - -
Floating Rate Notes due
May 1, 2002 - - - - -
Floating Rate Notes due
December 18, 2001 300 - 5.67% - -
Other Fixed Senior Notes
due 1998-2022 1,879 1,425 7.77% 6.71% 1997-2005
Other Floating Senior Notes
due 1998-2002 2,666 512 5.71% 5.69% 1997-1998
Other Floating Rate Notes
due 1999-2004 509 150 6.58% 6.75% 2004
Other Fixed Rate Notes
due 1998-2006 301 38 4.32% 4.69% 2006
----------- --------- ---------- ---------- -----------
Total $6,552 $2,723
=========== =========
</TABLE>
(a)For floating rate debt issuances, the stated and effective interest
rates were based on the respective rates at December 31, 1997 and 1996;
these rates are not an indication of future interest rates.
(b)Weighted average rates were determined where appropriate.
The above interest rate swaps generally require the company to pay a
floating rate, with a predominant index of LIBOR (London Interbank Offered
Rate).
The company paid interest (net of amounts capitalized) of $2.5 billion,
$2.4 billion and $2.6 billion in 1997, 1996 and 1995, respectively.
Approximately $171 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.
Aggregate annual maturities of long-term debt for the five years ending
December 31, 2002 are as follows (millions): 1998, $1,680; 1999, $1,658; 2000,
$1,178; 2001, $1,427; and 2002, $921.
-39- (1997 Annual Report p. 49)
<PAGE>
NOTE 13 FAIR VALUES OF FINANCIAL INSTRUMENTS
The following table discloses fair value information for most on- and
off-balance sheet financial instruments. Certain financial instruments, such as
life insurance obligations, employee benefit obligations and investments
accounted for under the equity method are excluded. The fair values of financial
instruments are estimates based upon market conditions and perceived risks at
December 31, 1997 and 1996 and require management judgment. These figures may
not be indicative of their future fair values.
<TABLE>
<CAPTION>
December 31, (millions) 1997 1996
------------------- --------------------
Carrying Fair Carrying Fair
Value Value Value Value
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Assets for which carrying values approximate fair values $ 51,037 $ 51,037 $ 43,887 $ 43,887
Investments $ 39,648 $ 40,401 $ 38,339 $ 38,830
Loans $ 20,269 $ 20,206 $ 18,614 $ 18,573
Derivative financial instruments, net $ 361 $ 241 $ 81 $ (43)
FINANCIAL LIABILITIES
Liabilities for which carrying values approximate fair values $ 44,383 $ 44,383 $ 42,091 $ 42,091
Fixed annuity reserves $ 20,731 $ 19,882 $ 20,642 $ 19,722
Investment certificate reserves $ 4,112 $ 3,979 $ 3,222 $ 3,205
Long-term debt $ 7,873 $ 7,903 $ 6,552 $ 6,592
Separate account liabilities $ 21,489 $ 20,708 $ 17,358 $ 16,689
</TABLE>
The carrying and fair values of other off-balance sheet financial instruments
are not material as of December 31, 1997 and 1996. See Notes 4 and 11 for
carrying and fair value information regarding investments and derivative
financial instruments. 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, Separate
Account Assets and applicable Other Assets 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.
-40- (1997 Annual Report pp. 50-51)
<PAGE>
Financial Liabilities
LIABILITIES FOR WHICH CARRYING VALUES APPROXIMATE FAIR VALUES: The carrying
values of Customers' Deposits, Travelers Cheques Outstanding, Accounts Payable,
Short-Term Debt and applicable Other Liabilities 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, based on current interest rates. The fair value of these reserves excludes
life insurance-related elements of $1.3 billion and $1.2 billion in 1997 and
1996.
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
based on the company's current borrowing rates for similar types of borrowing.
SEPARATE ACCOUNT LIABILITIES: Fair values of these liabilities, after
excluding life insurance-related elements of $1.7 billion and $1.2 billion in
1997 and 1996, are estimated as the accumulated value less applicable surrender
charges.
-41- (1997 Annual Report p. 51)
<PAGE>
NOTE 14 SIGNIFICANT CREDIT CONCENTRATIONS
A credit concentration may exist if customers are involved in similar
industries. The company's customers operate in diverse economic sectors.
Therefore, management does not expect any material adverse consequences to the
company's financial position to result from credit concentrations. Certain
distinctions between categories require management judgment.
<TABLE>
<CAPTION>
December 31,(dollars in millions) 1997 1996
--------- --------
<S> <C> <C>
Financial institutions(a) $ 13,074 $ 11,129
Individuals(b) 74,708 66,731
U.S. Government and agencies(c) 16,706 16,111
All other 25,343 24,727
--------- --------
Total $ 129,831 $118,698
========= ========
Composition:
On-balance sheet 69% 69%
Off-balance sheet 31 31
--------- --------
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 Sheets.
(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 engaged in providing travel related, financial
advisory and international banking services throughout the world. TRS' products
and services include, among others, Charge Cards, consumer lending products,
Travelers Cheques and corporate and consumer travel services. American Express
Financial Advisors' services and products include financial planning and advice,
investment advisory services and a variety of products, including insurance and
annuities, investment certificates and mutual funds. The Bank serves the
financial needs of wealthy entrepreneurs and their companies, financial service
institutions and retail customers by providing correspondent, commercial and
private banking, consumer financial services and global trading. The main market
for the travel related and financial advisory services is the United States; the
principal markets for international banking services are Europe and
Asia/Pacific.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which is
effective for fiscal years beginning after December 15, 1997 and redefines how
operating segments are determined. The company will adopt the provisions of SFAS
No. 131 in the first quarter of 1998. As a result, the Travelers Cheque
operations which currently are included in the TRS segment will be reported in
the same segment as the Bank, consistent with our management structure.
-42- (1997 Annual Report p. 52)
<PAGE>
The following table presents certain information regarding these industry
segments at December 31, 1997, 1996 and 1995 and for each of the years then
ended. TRS' results for 1996 include a $125 million after-tax ($196 million
pretax) restructuring charge. Corporate and Other's results for 1996 include a
$300 million after-tax ($480 million pretax) gain on the exchange of the
company's DECS and a $13 million after-tax ($20 million pretax) charge related
to the early retirement of debt and certain restructuring costs.
<TABLE>
<CAPTION>
American
Travel Express American Corporate Adjustments
Related Financial Express and and
(millions) Services Advisors Bank Other Eliminations Consolidated
-------- --------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1997
- ----
Net revenues $ 12,667 $ 4,599 $ 637 $ 123 $ (266) $ 17,760
Pretax income before
general corporate expenses $ 1,905 $ 1,022 $ 130 - - $ 3,057
General corporate expenses - - - $ (307) - (307)
-----------------------------------------------------------------------
Pretax income (loss) $ 1,905 $ 1,022 $ 130 $ (307) - $ 2,750
Net income (loss) $ 1,354 $ 707 $ 82 $ (152) - $ 1,991
Assets $ 47,187 $ 59,828 $ 12,868 $ 3,374 $ (3,254) $ 120,003
-----------------------------------------------------------------------
1996
- ----
Net revenues $ 11,773 $ 4,110 $ 591 $ 129 $ (223) $ 16,380
Pretax income before
general corporate expenses $ 1,523 $ 885 $ 105 - - $ 2,513
General corporate expenses - - - $ 151 - 151
-----------------------------------------------------------------------
Pretax income $ 1,523 $ 885 $ 105 $ 151 - $ 2,664
Net income $ 1,105 $ 594 $ 68 $ 134 - $ 1,901
Assets $ 43,053 $ 52,670 $ 12,350 $ 3,158 $ (2,719) $ 108,512
-----------------------------------------------------------------------
1995
- ----
Net revenues $ 11,622 $ 3,691 $ 643 $ 139 $ (174) $ 15,921
Pretax income before
general corporate expenses $ 1,579 $ 755 $ 115 - - $ 2,449
General corporate expenses - - - $ (266) - (266)
-----------------------------------------------------------------------
Pretax income (loss) $ 1,579 $ 755 $ 115 $ (266) - $ 2,183
Net income (loss) $ 1,125 $ 503 $ 77 $ (141) - $ 1,564
Assets $ 45,188 $ 48,250 $ 12,324 $ 4,358 $ (2,715) $ 107,405
-----------------------------------------------------------------------
</TABLE>
Net revenues includes interest earned on the investment of funds
attributable to each industry segment. Pretax income before general corporate
expenses is net revenues less operating expenses, including interest, related to
each industry segment's revenues.
Net income (loss) includes a provision for income taxes calculated on a
separate return basis; however, 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.
-43- (1997 Annual Report pp. 52-53)
<PAGE>
Assets are those that are used or generated exclusively by each industry
segment. The adjustments and eliminations required to determine the consolidated
amounts shown above consist principally of the elimination of intersegment
revenues and assets.
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.
<TABLE>
<CAPTION> Adjustments
United Asia/ and
(millions) States Europe Pacific All Other Eliminations Consolidated
--------- --------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1997
- ----
Net revenues $ 13,449 $ 2,209 $ 1,378 $ 1,277 $ (553) $ 17,760
Pretax income before
general corporate expenses $ 2,418 $ 219 $ 256 $ 164 - $ 3,057
General corporate expenses (307) - - - - (307)
--------------------------------------------------------------------------
Pretax income $ 2,111 $ 219 $ 256 $ 164 - $ 2,750
Assets $ 97,805 $ 13,323 $ 7,547 $ 5,578 $ (7,624) $ 116,629
Corporate assets 3,374
--------------------------------------------------------------------------
Total assets $ 120,003
--------------------------------------------------------------------------
1996
- ----
Net revenues $ 12,107 $ 2,123 $ 1,355 $ 1,129 $ (334) $ 16,380
Pretax income before
general corporate expenses $ 1,932 $ 210 $ 257 $ 114 - $ 2,513
General corporate expenses 151 - - - - 151
--------------------------------------------------------------------------
Pretax income $ 2,083 $ 210 $ 257 $ 114 - $ 2,664
Assets $ 86,696 $ 12,655 $ 7,698 $ 4,555 $ (6,250) $ 105,354
Corporate assets 3,158
--------------------------------------------------------------------------
Total assets $ 108,512
--------------------------------------------------------------------------
1995
- ----
Net revenues $ 11,439 $ 2,171 $ 1,357 $ 1,191 $ (237) $ 15,921
Pretax income before
general corporate expenses $ 1,938 $ 209 $ 284 $ 18 - $ 2,449
General corporate expenses (266) - - - - (266)
--------------------------------------------------------------------------
Pretax income $ 1,672 $ 209 $ 284 $ 18 - $ 2,183
Assets $ 83,216 $ 8,900 $ 7,026 $ 4,169 $ (264) $ 103,047
Corporate assets 4,358
--------------------------------------------------------------------------
Total assets $ 107,405
--------------------------------------------------------------------------
</TABLE>
Most services of the company are provided on an integrated worldwide basis.
Therefore it is not practical to separate precisely the U.S. and international
services. Accordingly, the data in the above table are, in part, based upon
internal allocations, which necessarily involve management judgments. The growth
in international net revenues and pretax income was curtailed by the impact of
the stronger U.S. dollar.
-44- (1997 Annual Report pp. 53-54)
<PAGE>
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 $384
million, $397 million and $415 million in 1997, 1996 and 1995, respectively. At
December 31, 1997, the minimum aggregate rental commitment under all
noncancellable leases (net of subleases) was (millions): 1998, $271; 1999, $217;
2000, $169; 2001, $156; 2002, $127; and thereafter, $1,239.
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.
Restrictions on the transfer of funds exist under debt agreements and
regulatory requirements of certain of the company's subsidiaries. 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, 1997, the aggregate amount of net assets of subsidiaries
that may be transferred to the parent company was approximately $6.9 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.
NOTE 18 QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(millions, except per share amounts)
1997 1996
----------------------------------------- ------------------------------------------
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 $ 4,674 $ 4,500 $ 4,422 $ 4,164 $ 4,301 $ 4,094 $ 4,076 $ 3,909
Pretax income(1) 690 718 702 640 843 621 636 565
Net income(1) 493 524 520 454 595 458 452 396
Earnings per common share:
Basic(1) 1.07 1.13 1.12 .97 1.27 .98 .95 .82
Diluted(1) 1.04 1.10 1.08 .94 1.23 .95 .92 .80
Cash dividends declared per
common share .225 .225 .225 .225 .225 .225 .225 .225
Common share prices:
High 91.50 85.25 79.75 70.00 60.38 46.88 50.75 50.25
Low 72.00 73.69 57.50 53.63 45.38 39.38 43.38 38.63
</TABLE>
(1) Fourth quarter 1996 amounts include a gain of $300 million ($480 million
pretax) on the exchange of the company's DECS and a $138 million ($216
million pretax) restructuring charge.
-45- (1997 Annual Report p. 55)
<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, 1997 and 1996, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 1997. 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, 1997 and 1996, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
New York, New York
February 5, 1998
-46- (1997 Annual Report p. 56)
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
(millions, except per share amounts and where italicized) 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net revenues $ 17,760 $ 16,380 $ 15,921 $ 14,342 $ 13,301
Percent increase (decrease) 8% 3% 11% 8% (7%)
Expenses 15,010 13,716 13,738 12,451 10,975
Income from continuing operations before accounting changes:
As reported 1,991 1,901 1,564 1,380 1,605
Adjusted* 1,991 1,739 1,564 1,380 1,172
Net income 1,991 1,901 1,564 1,413 1,478
Return on average shareholders' equity** 23.5% 22.8% 22.0% 20.3% 20.9%
----------------------------------------------------------
BALANCE SHEET
Cash and cash equivalents $ 4,179 $ 2,677 $ 3,200 $ 3,433 $ 3,312
Accounts receivable and accrued interest, net 21,774 20,491 19,914 17,147 16,142
Investments 39,648 38,339 42,561 40,108 39,308
Loans, net 20,109 18,518 16,091 14,722 14,796
Total assets 120,003 108,512 107,405 97,006 94,132
Customers' deposits 9,444 9,555 9,889 10,013 11,131
Travelers Cheques outstanding 5,634 5,838 5,697 5,271 4,800
Insurance and annuity reserves 26,165 25,674 25,157 24,849 23,406
Short-term debt 20,570 18,402 17,654 14,810 12,489
Long-term debt 7,873 6,552 7,570 7,162 8,561
Shareholders' equity 9,574 8,528 8,220 6,433 8,734
----------------------------------------------------------
COMMON SHARE STATISTICS
Earnings per share from continuing operations:
Basic $ 4.29 $ 4.02 $ 3.19 $ 2.74 $ 3.25
Basic adjusted* $ 4.29 $ 3.67 $ 3.19 $ 2.74 $ 2.35
Diluted $ 4.15 $ 3.89 $ 3.10 $ 2.69 $ 3.18
Diluted adjusted* $ 4.15 $ 3.56 $ 3.10 $ 2.69 $ 2.32
Percent increase (decrease):
Basic 7% 26% 16% (16%) 246%
Basic adjusted* 17% 15% 16% 17% 68%
Diluted 7% 25% 15% (15%) 238%
Diluted adjusted* 17% 15% 15% 16% 66%
Earnings per share:
Basic $ 4.29 $ 4.02 $ 3.19 $ 2.81 $ 2.99
Diluted $ 4.15 $ 3.89 $ 3.10 $ 2.75 $ 2.93
Cash dividends declared per share:
Actual $ .90 $ .90 $ .90 $ .925 $ 1.00
Pro forma $ .90 $ .90 $ .90 $ .90 $ .90
Book value per share:
Actual $ 20.53 $ 18.04 $ 16.60 $ 12.57 $ 16.81
Pro forma** $ 19.29 $ 17.22 $ 14.79 $ 13.35 $ 11.81
Market price per share:
High $ 91.50 $ 60.38 $ 45.13 $ 32.00 $ 32.32
Low $ 53.63 $ 38.63 $ 29.00 $ 23.17 $ 19.75
Close $ 89.25 $ 56.50 $ 41.38 $ 29.50 $ 27.25
-47- (1997 Annual Report p. 57)
<PAGE>
Average common shares outstanding for earnings per share:
Basic 464 472 485 492 481
Diluted 479 488 499 512 501
Shares outstanding at year end 466 473 483 496 490
Number of shareholders of record 53,576 55,803 57,010 60,520 58,179
OTHER STATISTICS
Number of employees at year end:
United States 44,691 43,688 41,700 43,421 40,342
Outside United States 28,929 28,611 28,647 28,991 24,151
----------------------------------------------------------
Total 73,620 72,299 70,347 72,412 64,493
----------------------------------------------------------
</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.
* Adjusted to exclude: in 1996 -- a $300 million gain on the exchange of the
company's DECS and a $138 million restructuring charge; 1993 -- a $433 million
gain on the sale of FDC shares.
**Return on average shareholders' equity is based on adjusted income from
continuing operations before accounting changes and excludes the effect of
SFAS No. 115 beginning in 1994. In addition, book value per share excludes
the effect of SFAS No. 115 beginning in 1994.
-48- (1997 Annual Report p. 57)
<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
1001675 Ontario, Inc. Canada
1001674 Ontario, Inc. Canada
Amex Bank of Canada Canada
Sourcing Innovation, Inc. Canada
American Express Company (Mexico) S.A. de C.V. Mexico
American Express Centurion Bank Utah
American Express Centurion Services Corporation Delaware
American Express Credit Corporation Delaware
American Express Overseas Credit Jersey,
Corporation Limited Channel Islands
AEOCC Management Company, Ltd. Jersey,
Channel Islands
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 Tax and Business Services, Inc. Minnesota
American Express do Brasil Tempo & Cia, Inc. Delaware
Amex do Brazil Empreedimentos e Participacoes Ltda. Brazil
American Express do Brasil Servicos Brazil
Internacionais, Ltda. (90% owned)
American Express do Brazil Tempo & Cia Brazil
American Express do Brasil S.A. Turismo Brazil
American Express Limited Delaware
American Express Argentina, S.A. Argentina
American Express (Malaysia) Sdn. Bhd. Malaysia
American Express (Thai) Co. Ltd. Thailand
TRS Card International Inc. (75% owned) Delaware
American Express de Espana, S.A. Spain
American Express Viajes, S.A. Spain
Amex Asesores de Seguros, S.A. Spain
1<PAGE>
American Express International (B) SDN.BHD. Brunei
Amex Travel Advisors, Limited Hong Kong
South Pacific Credit Card Ltd. New Zealand
Centurion Finance, Ltd. New Zealand
American Express International, Inc. Delaware
American Express Hungary KFT Hungary
American Express Company A/S Norway
American Express Locazioni Finanziarie, S.r.1. Italy
Amex Broker Assicurativo S.r.l. 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
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 Resebyra A/B Sweden
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 (India) Pvt. Ltd. India
P.T. American Express Travel Indonesia Indonesia
(80% owned)
BTO Ticket Delivery Office (80% owned) Belgium
American Express spol. s.r.o. Czech Republic
Nippon Card Business Co., Ltd. (25% owned) Japan
Schenker Rhenus Reisen Germany
American Express Holdings AB Sweden
Nyman & Schultz AB Sweden
TMG Forvaltning HB Sweden
Nyman & Schultz Grupp och Konferens AB Sweden
Resespecialisterna Syd AB Sweden
Resespecialisterna Helsingborg AB Sweden
Book Hotel AB Sweden
Forsakringsaktiebolaget Viator Sweden
First Card AB Sweden
Profil Rejser A/S (50% owned) Denmark
Resespecialisterna Enkoping AB (26% owned) Sweden
Scandinavian Express AB Sweden
Central Hotel AB Sweden
Nyman & Schultz Forretningsreiser A/S Norway
Nyman & Schultz Erhvevvsrejser ApS Denmark
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)
Travellers Cheque Associates, Ltd. (54% owned) England & Wales
American Express Service Corporation Delaware
Bansamex S.A. (50% owned) Spain
2<PAGE>
American Express Europe Limited Delaware
American Express Services Europe Limited England & Wales
and Delaware
American Express Ireland, Ltd. Ireland
American Express Insurance Services, Ltd. England & Wales
American Express TRS, Inc. Florida
Cardmember Financial Services, Ltd. Jersey,
Channel Islands
Integrated Travel Systems, Inc. Texas
Epsilon Data Management, Inc. (19.9% owned) Delaware
Controlled Airspace Corporation Texas
American Express General Insurance Agency Taiwan
American Express Bank (Mexico), S.A. Mexico
American Express Student Funding, Inc. Delaware
Educational Funding Company LCC (64% owned) California
American Express Educational Assurance Company Arizona
American Express Group & Incentive Michigan
Services, Inc. (90% owned)
American Express Incentive Services, Inc. Delaware
American Express Incentive Services, Missouri
LLC (50% owned)
American Express International (NZ), Inc. Delaware
American Express Newco, Inc. Delaware
American Express Realty Management Co. Delaware
Cavendish Holdings, Inc. Delaware
Helmshore Limited Ireland
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
IDS Life Insurance Company Minnesota
American Partners Life Insurance Company Arizona
IDS Life Insurance Company of New York New York
American Enterprise Life Insurance Company Indiana
American Centurion Life Assurance Company New York
IDS Certificate Company Delaware
Investors Syndicate Development Corporation Nevada
IDS Insurance Agency of Arkansas Inc. Arkansas
IDS Insurance Agency of Alabama Inc. Alabama
IDS Insurance Agency of Massachusetts Inc. Massachusetts
IDS Insurance Agency of Mississippi Inc. Mississippi
IDS Insurance Agency of New Mexico Inc. New Mexico
IDS Insurance Agency of North Carolina Inc. North Carolina
IDS Insurance Agency of Ohio Inc. Ohio
IDS Insurance Agency of Texas Inc. Texas
IDS Insurance Agency of Utah Inc. Utah
IDS Insurance Agency of Wyoming Inc. Wyoming
American Express Insurance Agency of Nevada Inc. Nevada
American Express Asset Management Group Inc. Minnesota
Advisory Capital Strategies Group Inc. Minnesota
3
<PAGE>
American Express Asset Management International Japan
(Japan) Ltd.
IDS Capital Holdings Inc. Minnesota
American Express Asset Management International Inc. Delaware
American Express Asset Management Ltd. England & Wales
IDS Management Corporation Minnesota
IDS Partnership Services Corporation Minnesota
IDS Cable Corporation Minnesota
IDS Futures Corporation Minnesota
IDS Realty Corporation Minnesota
IDS Cable II Corporation Minnesota
IDS Futures Brokerage Corporation Minnesota
IDS Property Casualty Insurance Company Wisconsin
American Express Minnesota Foundation Minnesota
IDS Sales Support Inc. Minnesota
IDS Plan Services of California, Inc. Minnesota
American Enterprise Investment Services Inc. Minnesota
IDS Aircraft Services Corporation Minnesota
American Express Insurance Agency of Arizona, Inc. Arizona
American Express Insurance Agency of Idaho, Inc. Idaho
American Express Property Casualty Insurance Kentucky
Agency of Kentucky, Inc.
American Express Client Service Corporation Minnesota
North Dakota Public Employee Payment Company Minnesota
American Express Property Casualty Insurance Maryland
Agency of Maryland Inc.
American Express Property Casualty Insurance Mississippi
Agency of Mississippi Inc.
American Express Property Casualty Insurance Pennsylvania
Agency of Pennsylvania Inc.
III.American Express Bank Ltd. and its Subsidiaries
American Express Bank Ltd. Connecticut
Amex Holdings, Inc. Delaware
American Express Bank GmbH Germany
AEB - International Portfolios
Management Company Luxembourg
American Express International Development Cayman Islands
Company (Cayman) Limited
Egyptian American Bank (41% owned) Egypt
Delta AEB Brokerage SAE (60% owned) Egypt
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,
Channel Islands
January Real Estate Cayman Islands
Etoral Finance, Inc. Panama
Sociedad Del Desarrollo Mercantil Ltda. Chile
Remor and Associates Inc. Panama
American Express Bank Asset Management Jersey,
(Jersey) Ltd. Channel Islands
American Express Bank (Luxembourg) S.A. Luxembourg
AEB WorldFolio Capital Preservation Luxembourg
Management Co. S.A.
4<PAGE>
American Express Bank (Uruguay) S.A. Uruguay
Amex International Trust (Cayman) Ltd. Cayman Islands
OLP Investments Ltd. Cayman Islands
Rilanex Participations N.V. Netherlands
Antilles
American Express 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
The American Express Nominees Limited England & Wales
Priory Centre Investments Limited (29% owned) Guernsey,
Channel Islands
Argentamex S.A. Argentina
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
American Express Bank Asset Management (Cayman) Ltd. Cayman Islands
Banco Inter American Express (50% owned) Chile
Inveramex Chile Ltda. Chile
Amex Immobiliaria Ltda. Chile
American Express Bank S.A. Argentina
AEB Global Asset Management, Inc. New York
AEB/FFS Management Company (50% owned) Luxembourg and
Jersey,
Cayman Islands
IV. Other Subsidiaries of the Registrant
Acuma Financial Services Ltd. Delaware
Acuma Ltd. Delaware
Ainwick Corporation Texas
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
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
5
<PAGE>
Conepar Compania Nordestina de Brazil
Participacoes S.A. (37% 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, Inc. Cayman Islands
Etisa Holdings Ltd. Cayman Islands
Empresas Turisticas Integradas, Mexico
S.A. de C.V. (98% owned)
Floriano Representacoes Ltda. Brazil
International Capital Corp. (Ltd.) Cayman Cayman Islands
Rexport, Inc. Delaware
Drillamex, Inc. Delaware
UMPAWAUG I Corporation Delaware
UMPAWAUG II Corporation Delaware
UMPAWAUG III Corporation Delaware
UMPAWAUG IV Corporation Delaware
Daedalus Leasing Corp. New York
Dash 200 + Ltd. (50% owned) Cayman Islands
Carter Leasing Inc. Delaware
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
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,
1997 and Consolidated Statement of Income for the year ended
December 31, 1997 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-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,179
<SECURITIES> 39,648
<RECEIVABLES> 22,486
<ALLOWANCES> 712
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,371
<DEPRECIATION> 1,838
<TOTAL-ASSETS> 120,003
<CURRENT-LIABILITIES> 0
<BONDS> 28,443
0
0
<COMMON> 280
<OTHER-SE> 9,294
<TOTAL-LIABILITY-AND-EQUITY> 120,003
<SALES> 0
<TOTAL-REVENUES> 17,760
<CGS> 0
<TOTAL-COSTS> 8,435
<OTHER-EXPENSES> 1,995
<LOSS-PROVISION> 3,656
<INTEREST-EXPENSE> 924
<INCOME-PRETAX> 2,750
<INCOME-TAX> 759
<INCOME-CONTINUING> 1,991
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,991
<EPS-PRIMARY> 4.29
<EPS-DILUTED> 4.15
<PAGE>
</TABLE>
