UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _______________ to _________________
Commission file number 1-7657
AMERICAN EXPRESS COMPANY
------------------------
(Exact name of registrant as specified in its charter)
New York 13-4922250
------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
World Financial Center, 200 Vesey Street, New York, NY 10285
- ------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 640-2000
--------------------
None
- ------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at October 31, 1999
- ------------------------------------ -------------------------------
Common Shares (par value $.60 per share) 447,673,131 shares
AMERICAN EXPRESS COMPANY
FORM 10-Q
INDEX
Page No.
Part I. Financial Information:
Consolidated Statements of Income - Three
months ended September 30, 1999 and 1998 1
Consolidated Statements of Income - Nine
months ended September 30, 1999 and 1998 2
Consolidated Balance Sheets - September 30,
1999 and December 31, 1998 3
Consolidated Statements of Cash Flows - Nine
months ended September 30, 1999 and 1998 4
Notes to Consolidated Financial Statements 5-7
Review Report of Independent Accountants 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-25
Part II. Other Information 26
<TABLE>
PART I--FINANCIAL INFORMATION
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended
September 30,
-----------------------
1999 1998
---- ----
<S> <C> <C>
Revenues:
Discount revenue $1,700 $1,522
Interest and dividends, net 804 802
Management and distribution fees 578 476
Net card fees 395 393
Travel commissions and fees 448 441
Other commissions and fees 464 405
Cardmember lending net finance charge
revenue 348 338
Life and other insurance premiums 131 119
Other 443 291
----- -----
Total 5,311 4,787
----- -----
Expenses:
Human resources 1,526 1,410
Provisions for losses and benefits:
Annuities and investment certificates 297 323
Life insurance, international banking,
and other 158 152
Charge card 222 148
Cardmember lending 187 224
Interest 262 256
Occupancy and equipment 327 300
Marketing and promotion 399 333
Professional services 324 291
Communications 128 123
Other 574 428
----- -----
Total 4,404 3,988
----- -----
Pretax income 907 799
Income tax provision 259 225
----- -----
Net income $648 $574
===== =====
Earnings Per Common Share:
Basic $1.45 $1.27
===== =====
Diluted $1.42 $1.25
===== =====
Average common shares outstanding for
earnings per common share (millions):
Basic 446.0 451.6
===== =====
Diluted 456.4 459.6
===== =====
Cash dividends declared per
common share $0.225 $0.225
===== =====
</TABLE>
See notes to Consolidated Financial Statements.
1
<PAGE>
<TABLE>
PART I--FINANCIAL INFORMATION
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions, except per share amounts)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1999 1998
---- ----
<S> <C> <C>
Revenues:
Discount revenue $4,875 $4,476
Interest and dividends, net 2,443 2,423
Management and distribution fees 1,653 1,376
Net card fees 1,191 1,189
Travel commissions and fees 1,342 1,195
Other commissions and fees 1,309 1,230
Cardmember lending net finance charge
revenue 1,004 985
Life and other insurance premiums 381 346
Other 1,382 849
------ ------
Total 15,580 14,069
------ ------
Expenses:
Human resources 4,457 3,971
Provisions for losses and benefits:
Annuities and investment certificates 977 1,042
Life insurance, international banking,
and other 479 666
Charge card 653 602
Cardmember lending 559 629
Interest 750 732
Occupancy and equipment 952 888
Marketing and promotion 1,049 899
Professional services 922 823
Communications 381 346
Other 1,808 1,259
------ ------
Total 12,987 11,857
------ ------
Pretax income 2,593 2,212
Income tax provision 724 601
------ ------
Net income $1,869 $1,611
===== =====
Earnings Per Common Share:
Basic $4.18 $3.53
==== ====
Diluted $4.09 $3.47
==== ====
Average common shares outstanding for
earnings per common share (millions):
Basic 447.0 456.2
===== =====
Diluted 456.4 464.9
===== =====
Cash dividends declared per
common share $0.675 $0.675
===== =====
</TABLE>
See notes to Consolidated Financial Statements.
2
<PAGE>
<TABLE>
AMERICAN EXPRESS COMPANY
CONSOLIDATED BALANCE SHEETS
(millions)
(Unaudited)
<CAPTION>
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Assets
Cash and cash equivalents $5,102 $4,092
Accounts receivable and accrued interest:
Cardmember receivables, less reserves:
1999, $674; 1998, $524 20,888 19,176
Other receivables, less reserves:
1999, $87; 1998, $75 3,515 3,048
Investments 42,183 41,299
Loans:
Cardmember lending, less reserves:
1999, $531; 1998, $593 14,692 14,721
International banking, less reserves:
1999, $179; 1998, $214 4,909 5,404
Other, net 897 929
Separate account assets 28,896 27,349
Deferred acquisition costs 3,097 2,990
Land, buildings and equipment--at cost, less
accumulated depreciation: 1999, $2,194;
1998, $2,067 1,908 1,637
Other assets 6,529 6,288
------- -------
Total assets $132,616 $126,933
======= =======
Liabilities and Shareholders' Equity
Customers' deposits $10,124 $10,398
Travelers Cheques outstanding 6,362 5,823
Accounts payable 7,101 5,373
Insurance and annuity reserves:
Fixed annuities 20,777 21,172
Life and disability policies 4,407 4,261
Investment certificate reserves 5,839 4,854
Short-term debt 24,683 22,605
Long-term debt 6,220 7,019
Separate account liabilities 28,896 27,349
Other liabilities 7,963 7,881
------- -------
Total liabilities 122,372 116,735
------- -------
Guaranteed preferred beneficial interests in
the Company's junior subordinated deferrable
interest debentures 500 500
Shareholders' equity:
Common shares, $.60 par value, authorized
1.2 billion shares; issued and outstanding
447.6 million shares in 1999 and 450.5
million shares in 1998 269 270
Capital surplus 5,094 4,809
Retained earnings 4,777 4,148
Other comprehensive income, net of tax:
Net unrealized securities (losses) gains (286) 583
Foreign currency translation adjustments (110) (112)
------- -------
Accumulated other comprehensive income (396) 471
------- -------
Total shareholders' equity 9,744 9,698
Total liabilities and shareholders' ------- -------
equity $132,616 $126,933
======= =======
</TABLE>
See notes to Consolidated Financial Statements.
3
<PAGE>
<TABLE>
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
-----------------
1999 1998
---- ----
<S> <C> <C>
Cash Flows from Operating Activities
Net income $1,869 $1,611
Adjustments to reconcile net income to
net cash provided by operating activities:
Provisions for losses and benefits 1,708 1,943
Depreciation, amortization, deferred taxes and other 157 (164)
Changes in operating assets and liabilities, net of
effects of acquisitions and dispositions:
Accounts receivable and accrued interest (557) (37)
Other assets (193) 571
Accounts payable and other liabilities 2,508 220
Increase in Travelers Cheques outstanding 537 544
Increase in insurance reserves 130 122
----- -----
Net cash provided by operating activities 6,159 4,810
----- -----
Cash Flows from Investing Activities
Sale of investments 2,648 1,464
Maturity and redemption of investments 4,920 4,837
Purchase of investments (9,662) (6,705)
Net increase in Cardmember receivables (1,987) (599)
Sale of Cardmember receivables/loans to Trust 3,489 1,683
Proceeds from repayment of loans 16,996 19,386
Issuance of loans (21,244) (20,950)
Purchase of land, buildings and equipment (525) (237)
Sale of land, buildings and equipment 8 22
Acquisitions, net of cash acquired (37) (353)
----- -----
Net cash used by investing activities (5,394) (1,452)
----- -----
Cash Flows from Financing Activities
Net (decrease) increase in customers' deposits (349) 787
Sale of annuities and investment certificates 4,273 3,966
Redemption of annuities and investment certificates (3,829) (4,234)
Net decrease in debt with maturities of three
months or less (2,346) (348)
Issuance of debt 13,276 6,388
Principal payments on debt (9,726) (6,092)
Issuance of Trust preferred securities - 500
Issuance of American Express common shares 181 105
Repurchase of American Express common shares (896) (1,619)
Dividends paid (303) (312)
----- -----
Net cash provided (used) by financing activities 281 (859)
----- -----
Effect of exchange rate changes on cash (36) (84)
----- -----
Net increase in cash and cash equivalents 1,010 2,415
Cash and cash equivalents at beginning of period 4,092 4,179
----- -----
Cash and cash equivalents at end of period $5,102 $6,594
===== =====
</TABLE>
See notes to Consolidated Financial Statements.
4
<PAGE>
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
1.BASIS OF PRESENTATION
The consolidated financial statements should be read in conjunction with
the financial statements in the Annual Report on Form 10-K of American
Express Company (the Company or American Express) for the year ended
December 31, 1998. Significant accounting policies disclosed therein
have not changed. Certain reclassifications of prior period amounts
have been made to conform to the current presentation.
Cardmember Lending Net Finance Charge Revenue is presented net of
interest expense of $165 million and $164 million for the third quarter
of 1999 and 1998, respectively, and $477 million and $487 million for
the nine months ended September 30, 1999 and 1998, respectively.
Interest and Dividends is presented net of interest expense of $108
million and $145 million for the third quarter of 1999 and 1998,
respectively, and $339 million and $434 million for the nine months
ended September 30, 1999 and 1998, respectively, related primarily to
the Company's international banking operations.
The interim financial information in this report has not been audited.
In the opinion of management, all adjustments necessary for a fair
presentation of the consolidated financial position and the consolidated
results of operations for the interim periods have been made. All
adjustments made were of a normal, recurring nature. Results of
operations reported for interim periods are not necessarily indicative
of results for the entire year.
2.ACCOUNTING DEVELOPMENT
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." The
SOP, which has been adopted prospectively as of January 1, 1999,
requires the capitalization of certain costs incurred after the date of
adoption to develop or obtain software for internal use. The Company's
policy had been to expense such costs as incurred. The amounts
capitalized will be amortized straight line over a five-year period.
See the consolidated section of Management's Discussion and Analysis of
Financial Condition and Results of Operations for further information.
5
<PAGE>
3.INVESTMENT SECURITIES
<TABLE>
The following is a summary of investments at September 30, 1999 and
December 31, 1998:
<CAPTION>
September 30, December 31,
(in millions) 1999 1998
---- ----
<S> <C> <C>
Held to Maturity, at amortized cost
(fair value: 1999, $9,659; 1998,
$11,144) $9,522 $10,526
Available for Sale, at fair value
(cost: 1999, $28,918; 1998, $25,895) 28,451 26,764
Investment mortgage loans (fair value:
1999, $3,926; 1998, $4,089) 3,926 3,840
Trading 284 169
------ ------
Total $42,183 $41,299
====== ======
</TABLE>
4.COMPREHENSIVE INCOME
<TABLE>
Comprehensive income is defined as the aggregate change in shareholders'
equity, excluding changes in ownership interests. For the Company, it
is the sum of net income and changes in (i) unrealized gains or losses
on available-for-sale securities and (ii) foreign currency translation
adjustments. The components of comprehensive income, net of related
tax, for the three and nine months ended September 30, 1999 and 1998
were as follows:
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------ ------------
(in millions) 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $648 $574 $1,869 $1,611
Change in:
Net unrealized securities
(losses) gains (275) 116 (869) 104
Foreign currency
translation adjustments (11) (8) 2 (10)
--- --- ----- -----
Total $362 $682 $1,002 $1,705
=== === ===== =====
</TABLE>
5.TAXES AND INTEREST
Net income taxes paid during the nine months ended September 30, 1999
and 1998 were approximately $272 million and $606 million, respectively.
Interest paid during the nine months ended September 30, 1999 and 1998
was approximately $1.9 billion in each period.
6
<PAGE>
6.EARNINGS PER SHARE
<TABLE>
The computations of basic and diluted earnings per common share (EPS)
for the three and nine months ended September 30, 1999 and 1998 are as
follows:
<CAPTION>
(in millions, except per Three Months Ended Nine Months Ended
share amounts) September 30, September 30,
------------------ ------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator: Net income $648 $574 $1,869 $1,611
Denominator:
Denominator for basic EPS -
weighted-average shares 446.0 451.6 447.0 456.2
Effect of dilutive securities:
Stock Options and Restricted
Stock Awards 10.4 7.9 9.4 8.6
Other - 0.1 - 0.1
----- ----- ----- -----
Potentially dilutive
common shares 10.4 8.0 9.4 8.7
----- ----- ----- -----
Denominator for diluted EPS 456.4 459.6 456.4 464.9
===== ===== ===== =====
Basic EPS $1.45 $1.27 $4.18 $3.53
==== ==== ==== ====
Diluted EPS $1.42 $1.25 $4.09 $3.47
==== ==== ==== ====
</TABLE>
7.SEGMENT INFORMATION
<TABLE>
Results for the Company's operating segments, based on management's
internal reporting structure, are as follows:
<CAPTION>
REVENUES Three Months Ended Nine Months Ended
September 30, September 30,
------------ ------------
(in millions) 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Travel Related Services $3,737 $3,339 $10,836 $9,692
American Express
Financial Advisors 1,368 1,247 4,107 3,750
American Express Bank/
Travelers Cheque 261 255 767 764
Corporate and Other (55) (54) (130) (137)
----- ----- ------ ------
Total $5,311 $4,787 $15,580 $14,069
===== ===== ====== ======
<CAPTION>
NET INCOME Three Months Ended Nine Months Ended
September 30, September 30,
------------ ------------
(in millions) 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Travel Related Services $413 $362 $1,187 $1,038
American Express
Financial Advisors 240 211 696 609
American Express Bank/
Travelers Cheque 38 43 117 7
Corporate and Other (43) (42) (131) (43)
--- --- ----- -----
Total $648 $574 $1,869 $1,611
=== === ===== =====
</TABLE>
7
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Shareholders and Board of Directors
American Express Company
We have reviewed the accompanying consolidated balance sheet of American
Express Company (the "Company") as of September 30, 1999 and the related
consolidated statements of income for the three and nine-month periods ended
September 30, 1999 and 1998 and consolidated statements of cash flows for the
nine-month periods ended September 30, 1999 and 1998. These financial statements
are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data, and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, which will be performed for the full year with the objective of
expressing an opinion regarding the consolidated financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements
referred to above for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of the Company as of December 31,
1998, and the related consolidated statements of income, shareholders'
equity, and cash flows for the year then ended (not presented herein), and
in our report dated February 4, 1999, we expressed an unqualified opinion
on those consolidated financial statements. In our opinion, the information
set forth in the accompanying consolidated balance sheet as of December 31,
1998 is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
/s/Ernst & Young LLP
New York, New York
November 12, 1999
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 1999
The Company's consolidated net income rose 13 percent and 16 percent and
diluted earnings per share increased 14 percent and 18 percent in the three
and nine-month periods ended September 30, 1999, respectively. The
Company's return on equity was 25.3 percent.
The nine-month results for 1998 included several first quarter items: a
$138 million ($213 million pretax) credit loss provision at American
Express Bank relating to its Asia/Pacific portfolio and income in the
Corporate and Other segment of $78 million ($106 million pretax) comprising
a gain from the sale of First Data Corporation shares and a preferred stock
dividend based on Lehman Brothers earnings. Excluding these items, nine-
month income and diluted earnings per share increased 12 percent and 14
percent, respectively.
Consolidated revenues grew 11 percent for the three and nine months ended
September 30, 1999. Revenues, net of American Express Financial Advisors'
(AEFA) provisions for losses and benefits, were up 12 percent for the three
and nine months ended September 30, 1999, reflecting an increase in
worldwide billed business and Cardmember loans, higher travel commissions
and fees for the nine-month period, greater management and distribution
fees and wider investment margins at AEFA. The growth in travel commissions
and fees resulted from acquisitions during the latter part of 1998, which
increased revenues and expenses but did not have a material effect on net
income. Consolidated expenses rose, primarily due to higher expenses
related to human resources and marketing and promotion expenses to support
business building initiatives and acquisitions and, for the nine months
ended September 30, 1999, were partially offset by lower loss provisions.
These results met the Company's long-term targets of 12-15 percent earnings
per share growth, at least 8 percent revenue growth and a return on equity
of 18-20 percent.
Due to a change in accounting rules, the Company is required to capitalize
software costs rather than expense them as incurred, which had been the
Company's practice. For the three and nine-month periods ended September
30, 1999, this amounted to benefits of $68 million and $194 million (net of
amortization), respectively. Of these amounts, $49 million and $146 million
related to Travel Related Services and $18 million and $41 million to
American Express Financial Advisors for the three and nine-month periods
ended September 30, 1999, respectively. These benefits were offset by
increased investment spending and therefore had no material effect on net
income.
9
<PAGE>
CONSOLIDATED LIQUIDITY AND CAPITAL RESOURCES
In the first nine months of 1999, the Company repurchased 7.4 million
common shares at an average price of $123.43 per share under its repurchase
program.
In the third quarter of 1999 the Company entered into an agreement under
which a third party will purchase up to 7 million Company common shares in
the open market over a period of up to eight months. During the term of
the agreement the Company will periodically issue shares to or receive
shares from the third party so that the value of the shares held by the
third party equals the original purchase price for the shares. At maturity
in five years, the Company is required to deliver to the third party an
amount equal to such original purchase price. The Company may elect to
settle this amount (i) by paying cash against delivery of the shares
held by the third party or (ii) on a net cash or net share basis. The
Company may also prepay outstanding amounts at any time prior to the end
of the five-year term. As of September 30, 1999, 3.7 million shares have
been purchased pursuant to this agreement. The foregoing is separate from
the Company's previously authorized share repurchase program.
YEAR 2000
The Company began addressing the Year 2000 (Y2K) issue in 1995 and has
established a plan for resolution, which involves the remediation,
decommissioning and replacement of relevant systems, including mainframe,
mid-range and desktop computers, application software, operating systems,
systems software, data back-up archival and retrieval services, telephone
and other communications systems, and hardware peripherals and facilities
dependent on embedded technology. The Y2K compliance effort is divided
into two initiatives. The first, known as "Millenniax," relates to
mainframe and other technological systems maintained by the American
Express Technologies organization (AET). The second, known as "Business
T," relates to the technological assets that are owned, managed or
maintained by the Company's individual business and staff units. Our plans
for remediation of the Y2K issue include the following program phases: (i)
employee awareness and mobilization, (ii) inventory collection and
assessment, (iii) impact analysis, (iv) remediation/decommission, (v)
testing and (vi) implementation. With respect to the Millenniax systems and
Business T assets, all of the program phases referred to above are at least
99 percent complete.
The Company's cumulative costs since inception of the Y2K initiatives were
$495 million through September 30, 1999 and are estimated to be in the
range of $22 - $48 million for the remainder through 2000.* These costs,
which are expensed as incurred, relate to both Millenniax and Business T,
and have not had, nor are they expected to have, a material adverse impact
on the Company's results of operations or financial condition.* Y2K costs
related to Millenniax represent 6 percent and 1 percent of the AET budget
for the years 1999 and 2000, respectively.*
10
<PAGE>
The Company's major businesses are heavily dependent upon internal computer
systems, and all have significant interaction with systems of third
parties, both domestically and internationally. The Company is working
with key external parties, including merchants, clients, counterparties,
vendors, exchanges, utilities, suppliers, agents and regulatory agencies to
mitigate the potential risks to us of Y2K. As part of our overall
compliance program, the Company is actively communicating with third
parties through face-to-face meetings and correspondence, on an ongoing
basis, to ascertain their state of readiness. Although numerous third
parties have indicated to us in writing that they are addressing their Y2K
issues on a timely basis, the Company does not directly control the
remediation efforts of such parties, and therefore cannot provide
assurances that they will be Y2K compliant. The failure of external parties
to resolve their own Y2K issues in a timely manner could have a material
adverse effect on the Company.*
During the third quarter of 1999 our plans for targeted integrated testing
of systems that support our most critical business functions, and
independent validation of such testing, were completed. At this point,
the Company is in the process of finalizing specific Y2K contingency
plans and establishing plans to address our year-end activities related to
Y2K. Our contingency planning effort, which addresses all critical systems
and, to a lesser extent, certain non-critical systems, is a full-scale
initiative that includes both internal and external experts under the
guidance of a Company-wide steering committee. Our contingency plans,
which are based in part on an assessment of the magnitude and probability
of potential risks, primarily focus on proactive steps to prevent
Y2K-related failures from occurring, or if they should occur,
detecting them quickly, minimizing their impact and expediting their
repair. The Y2K contingency plans supplement disaster recovery and
business continuity plans already in place, and include measures such
as selecting alternative suppliers and channels of distribution and
setting up manual back-up processes.
Our Y2K contingency plans have been developed generally in accordance with
guidelines established by the Federal Financial Institutions Examination
Council. This effort is divided into four phases: (i) establishing
organizational planning guidelines, (ii) completing a business impact
analysis, (iii) developing the contingency plans and (iv) validating and
verifying the contingency plans. These phases are to be followed by a
detailed year-end plan.* All four of the above phases have essentially been
completed, and have identified and assessed the need for, and developed,
Y2K contingency plans for the Company's most critical core business
functions. Such functions include, but are not limited to, credit
authorization, Cardmember billing, merchant payment, client investments,
funds transfer, securities settlement and travel reservations. These
contingency plans also address third party systems that the Company's
businesses interface with and rely upon, such as international
telecommunications networks and utilities, global financial payment and
clearing systems, and airline and other travel systems.
Going forward, our primary focus will be on planning year-end activities
related to Y2K.* Such activities include the establishment of global
command centers; scheduling the availability of key personnel; establishing
additional roll-over management procedures, including proactive monitoring
of select critical functions and assets; the development of Y2K incident
tracking and reporting tools; and the establishment of specific Y2K-related
communications.* Additionally, rehearsals of these year-end activities will
be conducted during the fourth quarter of 1999.*
11
<PAGE>
The Company will continue to refine its contingency and year-end planning
activities throughout 1999 as additional information related to our
exposures is gathered.* To the extent that there are Y2K failures that
affect major internal processes or third party systems that the Company
relies upon, including but not limited to those described above, such
failures could have a material impact on the Company and its businesses or
subsidiaries through business interruption or shutdown, financial loss,
regulatory actions, reputational damage and legal liability to third
parties.* At this point it appears that some of the major industries in
certain countries outside the United States, such as telecommunications and
utilities, have made less progress in the Y2K compliance effort and, as a
result, may present a somewhat greater exposure to the Company.*
For additional information relating to the Y2K issue, see pages 22 and 23
of the Company's 1998 annual report to shareholders, which is incorporated
by reference in the Company's 1998 10-K report, and the Company's 10-Q
reports for the quarterly periods ended March 31, 1999 and June 30, 1999.
- --------------------
* Statements in this Y2K discussion marked with an asterisk are forward-
looking statements which are subject to risks and uncertainties. Important
factors that could cause results to differ materially from these forward-
looking statements include, among other things, the ability of the Company
to successfully identify all systems containing two-digit codes, the nature
and amount of programming and other resources required to fix and test the
affected systems, the costs of labor and consultants related to such
efforts as well as those involving the development and implementation of
contingency plans, the continued availability of such personnel, the
ability of third parties that interface with the Company to successfully
address their Y2K issues, and the ability of the Company to assess
potential internal and external Y2K exposures and develop effective
contingency plans in connection therewith.
12
<PAGE>
<TABLE>
Travel Related Services
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,
1999 AND 1998
<CAPTION>
Statement of Income
--------------------
(Unaudited)
(Dollars in millions)
Three Months Ended Nine Months Ended
September 30, September 30,
------------ Percentage ------------ Percentage
1999 1998 Inc/(Dec) 1999 1998 Inc/(Dec)
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Net Revenues:
Discount Revenue $1,700 $1,522 11.7 % $4,875 $4,476 8.9 %
Net Card Fees 395 393 0.4 1,191 1,189 0.2
Travel Commissions and Fees 448 441 1.4 1,342 1,195 12.3
Other Revenues 846 645 31.2 2,424 1,847 31.2
Lending:
Finance Charge Revenue 513 502 2.3 1,481 1,472 0.6
Interest Expense 165 164 0.9 477 487 (2.2)
----- ----- ------ -----
Net Finance Charge Revenue 348 338 3.1 1,004 985 2.0
----- ----- ------ -----
Total Net Revenues 3,737 3,339 11.9 10,836 9,692 11.8
----- ----- ------ -----
Expenses:
Marketing and Promotion 373 310 20.1 968 829 16.7
Provision for Losses and Claims:
Charge Card 222 148 50.2 653 602 8.5
Lending 187 224 (16.6) 559 629 (11.2)
Other 10 17 (40.5) 37 41 (9.6)
----- ----- ------ -----
Total 419 389 7.7 1,249 1,272 (1.8)
----- ----- ------ -----
Charge Card Interest Expense 208 199 4.4 589 598 (1.6)
Net Discount Expense 105 170 (38.7) 378 480 (21.4)
Human Resources 968 924 4.7 2,847 2,554 11.5
Other Operating Expenses 1,032 793 30.5 2,991 2,377 25.9
----- ----- ------ -----
Total Expenses 3,105 2,785 11.5 9,022 8,110 11.2
----- ----- ------ -----
Pretax Income 632 554 14.1 1,814 1,582 14.7
Income Tax Provision 219 192 14.1 627 544 15.3
----- ----- ------ -----
Net Income $413 $362 14.1 $1,187 $1,038 14.4
===== ===== ====== =====
</TABLE>
<TABLE>
The following table, which is presented for analytical purposes only,
presents the effect on the above Statement of Income related to TRS'
securitized receivables. It includes pretax gains of $55 million
($36 million after-tax) in the third quarter of 1999 and $154 million
($100 million after-tax) and $36 million ($23 million after-tax) for the
nine months ended September 30, 1999 and 1998, respectively, related to
the securitization of U.S. lending receivables, which were recognized in
accordance with Statement of Financial Accounting Standards No. 125. These
gains were invested in additional Marketing and Promotion expenses in both
years and other business building initiatives in 1999 and had no material
effect on Net Income or Total Expenses in any period.
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
(Decrease) Increase in Net Card Fees $(4) $(2) $(4) $4
Increase in Other Revenues 116 83 384 238
Decrease in Lending Finance Charge Revenue (234) (134) (602) (343)
Decrease in Lending Interest Expense 81 45 176 112
Increase in Marketing and Promotion Expense (33) - (91) (36)
Decrease in Provision for Losses and Claims:
Charge Card 25 76 115 201
Lending 125 39 295 133
Decrease in Charge Card Interest Expense 51 63 168 171
Increase in Net Discount Expense (105) (170) (378) (480)
Increase in Other Operating Expenses (22) - (63) -
--- --- --- ---
Pretax Income $- $- $- $-
=== === === ===
</TABLE>
13
<PAGE>
<TABLE>
TRAVEL RELATED SERVICES
Selected Statistical Information
--------------------------------
(Unaudited)
<CAPTION>
(Amounts in billions, except where indicated)
Three Months Ended Nine Months Ended
September 30, September 30,
------------ Percentage ------------ Percentage
1999 1998 Inc/(Dec) 1999 1998 Inc/(Dec)
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Total Cards in Force (millions):
United States 29.2 29.5 (1.0)% 29.2 29.5 (1.0)%
Outside the United States 15.6 14.6 6.9 15.6 14.6 6.9
----- ----- ----- -----
Total 44.8 44.1 1.6 44.8 44.1 1.6
===== ===== ===== =====
Basic Cards in Force (millions):
United States 22.9 23.3 (1.6) 22.9 23.3 (1.6)
Outside the United States 12.0 11.3 5.7 12.0 11.3 5.7
----- ----- ----- -----
Total 34.9 34.6 0.8 34.9 34.6 0.8
===== ===== ===== =====
Card Billed Business:
United States $47.1 $41.5 13.5 $134.7 $121.4 10.9
Outside the United States 17.0 15.2 11.7 48.6 44.7 8.8
----- ----- ----- -----
Total $64.1 $56.7 13.0 $183.3 $166.1 10.4
===== ===== ===== =====
Average Discount Rate* 2.73% 2.72% - 2.73% 2.73% -
Average Basic Cardmember
Spending (dollars)* $1,935 $1,704 13.6 $5,653 $5,026 12.5
Average Fee per Card (dollars)* $38 $37 2.7 $39 $38 2.6
Travel Sales $5.5 $5.1 7.0 $16.9 $14.3 17.7
Travel Commissions and Fees/Sales** 8.1% 8.6% - 7.9% 8.4% -
Owned and Managed Charge Card
Receivables:
Total Receivables $25.3 $23.3 8.8 $25.3 $23.3 8.8
90 Days Past Due as a % of Total 2.5% 2.7% - 2.5% 2.7% -
Loss Reserves (millions) $907 $961 (5.6) $907 $961 (5.6)
% of Receivables 3.6% 4.1% - 3.6% 4.1% -
% of 90 Days Past Due 144% 151% - 144% 151% -
Net Loss Ratio 0.41% 0.48% - 0.41% 0.47% -
Owned and Managed U.S. Cardmember
Lending:
Total Loans $20.6 $15.4 33.8 $20.6 $15.4 33.8
Past Due Loans as a % of Total:
30-89 Days 2.0% 2.2% - 2.0% 2.2% -
90+ Days 0.8% 1.0% - 0.8% 1.0% -
Loss Reserves (millions):
Beginning Balance $602 $577 4.3 $619 $589 5.1
Provision 264 236 11.9 717 676 6.1
Net Charge-Offs/Other (230) (234) (1.8) (700) (686) 2.1
----- ----- ----- -----
Ending Balance $636 $579 9.9 $636 $579 9.9
===== ===== ===== =====
% of Loans 3.1% 3.8% - 3.1% 3.8% -
% of Past Due 111% 118% - 111% 118% -
Average Loans $19.8 $15.2 30.0 $18.0 $14.6 22.8
Net Write-Off Rate 4.7% 6.4% - 5.3% 6.5% -
Net Interest Yield 8.5% 9.6% - 9.0% 9.5% -
</TABLE>
Note: Owned and managed Cardmember receivables and loans include securitized
assets not reflected in the Consolidated Balance Sheet.
* Computed excluding Cards issued by strategic alliance partners and
independent operators as well as business billed on those Cards.
** Computed from information provided herein.
14
<PAGE>
TRAVEL RELATED SERVICES
Travel Related Services' (TRS) net income rose 14 percent for both the
three and nine-month periods ended September 30, 1999 compared with a year
ago. Net revenues increased 12 percent in both periods, reflecting higher
billed business in the United States and internationally and strong growth
in Cardmember loans; the nine-month period also benefited from higher
travel commissions and fees. In the third quarter of 1999, TRS recognized
a pretax gain of $55 million ($36 million after-tax) from the
securitization of U.S. receivables. For the nine months ended September
30, 1999 and 1998, such gains were $154 million ($100 million after-tax)
and $36 million ($23 million after-tax), respectively. These gains, and
the previously mentioned benefit from software capitalization, were
invested in marketing and promotion related to card acquisition and, in
1999, Internet activities and other business building initiatives as well
and, therefore, had no material effect on net income or total expense in
any period.
The improvement in discount revenue for the three and nine months ended
September 30, 1999 compared with a year ago is the result of higher billed
business. The growth in billed business reflects higher spending per
Cardmember in each period, which rose due to several factors, including the
benefits of rewards programs and expanded merchant coverage. The growth in
billed business continued to be primarily the result of increases in retail
and "everyday spend" categories. Billed business increased despite a
general tightening of corporate travel and entertainment expenses and the
Company's decision to withdraw from the U.S. Government Card business.
This decision resulted in the cancellation of 1.6 million U.S. Government
cards in the fourth quarter of 1998, representing approximately $3.5
billion in annualized spending. Excluding the loss of the Government card
business, total cards in force rose 2.3 million or 5 percent from a year
ago, with about 900,000 of these cards added in the third quarter, and
domestic billed business for the current quarter grew 16 percent from
a year ago. Travel commissions and fees rose for the nine month period
due to acquisitions during the latter half of 1998, which increased
revenues and expenses but did not have a material effect on earnings. Other
revenues also grew for the three and nine-months ended September 30, 1999,
as a result of a higher level of securitized receivables, acquisitions and
fee income. Lending net finance charge revenue on a managed basis, i.e.,
excluding securitizations, rose 18 percent for both the three and nine-
month periods ended September 30, 1999 compared with a year ago. This
increase is primarily due to 34 percent growth in worldwide managed lending
balances, partially offset by lower net interest yields.
Marketing and promotion expenses rose for the three and nine months ended
September 30, 1999 as a result of business building initiatives. The
provision for losses on the charge card portfolio grew for both the three
and nine months ended September 30, 1999, due to higher volumes, partially
offset by continued improvement in credit quality. The provision for the
lending portfolio fell for both periods as a result of securitizing a
greater portion of the loan portfolio and improved loss rates, which more
than offset the effect of higher loan volumes. Human resource costs rose
in both periods, mainly due to a higher average number of employees,
resulting from acquisitions and increased business volumes, and merit
increases. Other operating expenses also grew in both periods, in part
from the cost of Cardmember loyalty programs, business growth and
investment spending.
15
<PAGE>
<TABLE>
TRAVEL RELATED SERVICES
LIQUIDITY AND CAPITAL RESOURCES
Selected Balance Sheet Information
----------------------------------
<CAPTION>
(Unaudited)
(Dollars in billions, except percentages)
September 30, December 31, Percentage September 30, Percentage
1999 1998 Inc/(Dec) 1998 Inc/(Dec)
------------ ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
Accounts Receivable, net $23.2 $21.3 8.9 % $19.9 16.7 %
U.S. Cardmember Loans $13.4 $13.7 (2.6) $12.4 8.1
Total Assets $48.7 $44.7 9.0 $42.4 14.8
Short-term Debt $26.3 $22.9 14.9 $21.5 22.4
Long-term Debt $4.5 $5.1 (11.7) $5.4 (16.7)
Total Liabilities $43.3 $39.8 8.7 $37.2 16.1
Total Shareholder's Equity $5.4 $4.9 10.8 $5.2 5.4
Return on Average Equity* 29.3% 27.8% - 27.1% -
Return on Average Assets* 3.3% 3.3% - 3.3% -
</TABLE>
* Computed based on the past twelve months of net income and excludes the
effect of SFAS No. 115.
In the first quarter of 1999, TRS issued and sold, exclusively outside the
United States and to non-U.S. persons, $500 million 5.625% Fixed Rate
Notes. These notes are listed on the Luxembourg Stock Exchange and will
mature in 2004.
In the second and third quarters of 1999, the American Express Credit
Account Master Trust securitized an additional $2.5 billion and $1.5
billion of loans, respectively, through the issuance of asset backed
certificates. The securitized assets consist of loans arising in a
portfolio of designated Optima Card, Optima Line of Credit and Sign and
Travel/Special Purchase revolving credit accounts owned by American Express
Centurion Bank, a wholly-owned subsidiary of TRS.
In the third quarter 1999, $500 million Class A Fixed Rate Accounts
Receivable Trust Certificates matured from the charge card securitization
portfolio.
16
<PAGE>
<TABLE>
AMERICAN EXPRESS FINANCIAL ADVISORS
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,
1999 AND 1998
Statement of Income
-------------------
(Unaudited)
<CAPTION>
(Dollars in millions)
Three Months Ended Nine Months Ended
September 30, September 30,
------------ Percentage ------------ Percentage
1999 1998 Inc/(Dec) 1999 1998 Inc/(Dec)
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Net Revenues:
Investment Income $566 $573 (1.3)% $1,776 $1,790 (0.8)%
Management and Distribution Fees 578 476 21.6 1,653 1,376 20.2
Other Revenues 224 198 13.2 678 584 16.0
----- ----- ----- -----
Total Revenues 1,368 1,247 9.7 4,107 3,750 9.5
Provision for Losses and Benefits:
Annuities 251 280 (10.0) 795 868 (8.5)
Insurance 135 122 10.1 392 365 7.7
Investment Certificates 46 43 6.0 182 174 4.4
----- ----- ----- -----
Total 432 445 (2.9) 1,369 1,407 (2.7)
----- ----- ----- -----
Net Revenues 936 802 16.7 2,738 2,343 16.8
----- ----- ----- -----
Expenses:
Human Resources 456 384 18.5 1,302 1,123 15.9
Other Operating Expenses 130 110 18.3 421 332 26.7
----- ----- ----- -----
Total Expenses 586 494 18.5 1,723 1,455 18.4
----- ----- ----- -----
Pretax Income 350 308 14.0 1,015 888 14.3
Income Tax Provision 110 97 14.0 319 279 14.3
----- ----- ----- -----
Net Income $240 $211 14.0 $696 $609 14.3
===== ===== ===== =====
</TABLE>
17
<PAGE>
<TABLE>
AMERICAN EXPRESS FINANCIAL ADVISORS
Selected Statistical Information
--------------------------------
(Unaudited)
<CAPTION>
(Amounts in millions, except percentages and where indicated)
Three Months Ended Nine Months Ended
September 30, September 30,
------------ Percentage ------------ Percentage
1999 1998 Inc/(Dec) 1999 1998 Inc/(Dec)
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Investments (billions) $30.7 $30.8 (0.2)% $30.7 $30.8 (0.2)%
Client Contract Reserves (billions) $31.0 $30.2 2.7 $31.0 $30.2 2.7
Shareholder's Equity (billions) $3.9 $4.1 (5.7) $3.9 $4.1 (5.7)
Return on Average Equity* 22.8% 22.4% - 22.8% 22.4% -
Life Insurance in Force (billions) $86.3 $79.2 8.9 $86.3 $79.2 8.9
Deferred Annuities in Force (billions) $45.2 $39.6 14.1 $45.2 $39.6 14.1
Assets Owned, Managed or Administered
(billions):
Assets Managed for Institutions $48.3 $40.5 19.2 $48.3 $40.5 19.2
Assets Owned, Managed or Administered
for Individuals:
Owned Assets:
Separate Account Assets 28.9 23.0 25.5 28.9 23.0 25.5
Other Owned Assets 38.1 37.0 3.2 38.1 37.0 3.2
----- ----- ----- -----
Total Owned Assets 67.0 60.0 11.7 67.0 60.0 11.7
Managed Assets 92.9 76.8 20.9 92.9 76.8 20.9
Administered Assets 19.3 11.2 72.0 19.3 11.2 72.0
----- ----- ----- -----
Total $227.5 $188.5 20.7 $227.5 $188.5 20.7
===== ===== ===== =====
Market Appreciation (Depreciation) During
the Period:
Owned Assets:
Separate Account Assets $(986) $(3,712) - $1,446 $(741) -
Other Owned Assets $(273) $ 91 - $(872) $133 -
Total Managed Assets $(5,226) $(10,595) - $2,726 $(706) -
Sales of Selected Products:
Mutual Funds $5,709 $5,262 8.5 $17,948 $15,830 13.4
Annuities $951 $648 46.6 $2,280 $2,002 13.9
Investment Certificates $926 $560 65.6 $2,364 $1,400 68.8
Life and Other Insurance Products $134 $102 32.1 $337 $289 16.4
Number of Financial Advisors 10,631 10,060 5.7 10,631 10,060 5.7
Fees from Financial Plans and Advice
Services $22.3 $15.6 43.2 $66.4 $54.0 22.9
Percentage of Total Sales from Financial
Plans and Advice Services 67.7% 65.4% - 66.5% 65.0% -
</TABLE>
* Computed based on the past twelve months of net income and excludes the
effect of SFAS No. 115.
18
<PAGE>
AMERICAN EXPRESS FINANCIAL ADVISORS
American Express Financial Advisors' (AEFA) net income for the three and
nine-month periods ended September 30, 1999 increased 14 percent from a
year ago. Net revenues and earnings grew due to higher fee revenues and
wider investment margins. Management fees rose as a result of increased
managed asset levels, including separate account assets, and distribution
fees grew reflecting record mutual fund sales and higher asset levels.
Managed assets rose since last year reflecting market appreciation and net
sales. Other revenues benefited from higher insurance premiums and
financial planning and advice services fees. Investment income, net of
provisions for losses and benefits, rose due to higher in-force levels and
improved spreads on all product categories.
Human resources expenses were higher, largely as a result of a volume-
driven increase in advisors' compensation reflecting growth in sales and
asset levels, and greater home office expenses reflecting client service
and technology related initiatives. The rise in other operating expenses
is primarily due to increased costs related to higher business volumes and
investments to build the business.
19
<PAGE>
<TABLE>
AMERICAN EXPRESS FINANCIAL ADVISORS
LIQUIDITY AND CAPITAL RESOURCES
Selected Balance Sheet Information
----------------------------------
(Unaudited)
<CAPTION>
(Amounts in billions, except percentages)
September 30, December 31, Percentage September 30, Percentage
1999 1998 Inc/(Dec) 1998 Inc/(Dec)
------------ ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
Investments $30.7 $30.9 (0.4)% $30.8 (0.2)%
Separate Account Assets $28.9 $27.3 5.7 $23.0 25.5
Total Assets $67.0 $64.6 3.7 $60.0 11.7
Client Contract Reserves $31.0 $30.3 2.4 $30.2 2.7
Total Liabilities $63.1 $60.6 4.3 $55.9 13.0
Total Shareholder's Equity $3.9 $4.1 (4.5) $4.1 (5.7)
Return on Average Equity* 22.8% 22.5% - 22.4% -
</TABLE>
* Computed based on the past twelve months of net income and excludes the
effect of SFAS No. 115.
Separate account assets and liabilities increased from December 31, 1998,
primarily reflecting market appreciation.
20
<PAGE>
<TABLE>
AMERICAN EXPRESS BANK/TRAVELERS CHEQUE (AEB/TC)
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,
1999 AND 1998
Statement of Income
-------------------
(Unaudited)
<CAPTION>
(Dollars in millions)
Three Months Ended Nine Months Ended
September 30, September 30,
------------ Percentage ------------ Percentage
1999 1998 Inc/(Dec) 1999 1998 Inc/(Dec)
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Net Revenues:
Interest Income $181 $217 (16.3)% $557 $645 (13.5)%
Interest Expense 106 143 (25.5) 334 429 (22.0)
--- --- --- ---
Net Interest Income 75 74 1.5 223 216 3.3
Travelers Cheque Investment Income 91 88 4.0 257 248 3.5
Foreign Exchange Income 17 30 (43.1) 50 113 (55.9)
Commissions, Fees and Other Revenues 78 63 22.7 237 187 27.2
--- --- --- ---
Total Net Revenues 261 255 2.5 767 764 0.4
--- --- --- ---
Expenses:
Human Resources 86 83 3.2 252 236 6.7
Other Operating Expenses 159 140 13.3 446 402 11.1
Provision for Losses 12 12 5.4 47 257 (81.8)
--- --- --- ---
Total Expenses 257 235 9.4 745 895 (16.8)
--- --- --- ---
Pretax Income/(Loss) 4 20 (78.7) 22 (131) -
Income Tax Benefit (34) (23) 43.7 (95) (138) (31.9)
--- --- --- ---
Net Income $38 $43 (13.0) $117 $7 #
=== === === ===
<CAPTION>
Selected Statistical Information
--------------------------------
(Unaudited)
(Amounts in billions, except percentages)
Three Months Ended Nine Months Ended
September 30, September 30,
------------ Percentage ------------ Percentage
1999 1998 Inc/(Dec) 1999 1998 Inc/(Dec)
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
American Express Bank:
Assets Managed / Administered * $7.7 $5.7 33.6 % $7.7 $5.7 33.6 %
Assets of Non-Consolidated Joint
Ventures $2.4 $2.4 (2.1) $2.4 $2.4 (2.1)
Travelers Cheque:
Sales $7.3 $7.5 (1.9) $18.0 $18.7 (3.8)
Average Outstanding $6.5 $6.4 2.9 $6.2 $6.0 2.5
Average Investments $6.2 $6.1 2.0 $5.9 $5.7 2.2
Tax equivalent yield 8.8% 8.8% - 8.8% 9.0% -
</TABLE>
# Denotes variance of more than 100%.
* Includes assets managed by American Express Financial Advisors.
21
<PAGE>
AMERICAN EXPRESS BANK/TRAVELERS CHEQUE (AEB/TC)
AEB/TC reported net income of $38 million for the third quarter of 1999,
compared with $43 million a year ago. AEB/TC reported net income of $117
million compared with $7 million for the nine-month periods ended September
30, 1999 and 1998, respectively. The nine-month period ended September 30,
1998 included a $138 million ($213 million pretax) credit loss provision
related to AEB's business in the Asia/Pacific region, particularly
Indonesia. Travelers Cheque results were in line with the prior year.
Foreign exchange income declined substantially as currencies in key markets
were less volatile. Commissions, fees and other revenues increased
reflecting miscellaneous gains, trading activities and revenues from the
individual oriented businesses. Operating expenses rose due to costs
associated with expanding the consumer business in new markets and
realigning business activities in certain countries.
22
<PAGE>
<TABLE>
AMERICAN EXPRESS BANK/TRAVELERS CHEQUE (AEB/TC)
LIQUIDITY AND CAPITAL RESOURCES
Selected Balance Sheet Information
----------------------------------
(Unaudited)
<CAPTION>
(Amounts in billions, except percentages and where indicated)
September 30, December 31, Percentage September 30, Percentage
1999 1998 Inc/(Dec) 1998 Inc/(Dec)
---- ---- -------- ---- --------
<S> <C> <C> <C> <C> <C>
Travelers Cheque Investments $6.1 $6.3 (2.4)% $6.5 (5.3)%
Total Loans $5.1 $5.6 (9.5) $6.1 (16.8)
Total Nonperforming Loans (millions) $181 $180 0.6 $239 (24.2)
Other Nonperforming Assets (millions) $40 $63 (37.1) $92 (57.0)
Reserve for Credit Losses (millions)* $204 $259 (21.2) $348 (41.3)
Loan Loss Reserves as a
Percentage of Total Loans 3.5% 3.8% - 4.6% -
Total Assets $18.7 $18.5 1.3 $19.2 (2.3)
Deposits $8.1 $8.3 (1.8) $8.7 (6.4)
Travelers Cheques Outstanding $6.4 $5.8 9.3 $6.2 3.3
Total Liabilities $17.8 $17.3 2.7 $18.0 (1.0)
Total Shareholder's Equity (millions) $956 $1,197 (20.1) $1,210 (21.0)
Return on Average Assets** 0.83% 0.23% - 0.39% -
Return on Average Common Equity** 17.7% 4.9% - 8.1% -
Risk-Based Capital Ratios:
Tier 1 9.9% 9.8% - 9.4% -
Total 12.1% 12.6% - 12.2% -
Leverage Ratio 5.5% 5.5% - 5.6% -
* Allocation:
Loans $179 $214 $279
Other Assets, primarily derivatives 23 43 66
Other Liabilities 2 2 3
--- --- ---
Total Credit Loss Reserves $204 $259 $348
=== === ===
</TABLE>
** Computed based on the past twelve months of net income and excludes the
effect of SFAS No. 115.
AEB had loans outstanding of $5.1 billion at September 30, 1999, down from
$5.6 billion at December 31, 1998 and $6.1 billion at September 30, 1998.
The reduction since third quarter 1998 resulted from a $1.1 billion
decrease in corporate and correspondent bank loans and a $350 million
increase in consumer and private banking loans (before the effect of asset
sales and securitizations). Since December 31, 1998, corporate and
correspondent bank loans fell by $690 million and consumer and private
banking loans rose by $190 million. During the quarter, AEB securitized
approximately $44 million of consumer loans in Hong Kong. This is in
addition to the securitization of approximately $100 million of such loans
during the second quarter of this year.
As presented in the table below, there are other banking activities,
such as forward contracts, various contingencies and market placements,
which added approximately $7.7 billion to AEB's credit exposures at
September 30, 1999 and 1998, compared with $7.6 billion at December 31,
1998. Other nonperforming assets declined primarily due to write-offs
related to Indonesia, as anticipated when the provision was recorded in the
first quarter of 1998.
23
<PAGE>
<TABLE>
American Express Bank
Exposures By Country and Region
(Unaudited)
<CAPTION>
($ in billions)
Net
Guarantees 9/30/99 12/31/98
FX and and Total Total
Country Loans Derivatives Contingents Other* Exposure** Exposure**
------- ----- ----------- ----------- ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Hong Kong $0.6 - $0.2 $0.1 $0.8 $1.1
Indonesia 0.2 - - 0.1 0.4 0.4
Singapore 0.4 - 0.1 0.1 0.6 0.6
Korea 0.2 - - 0.2 0.4 0.3
Taiwan 0.3 - 0.1 - 0.4 0.5
China - - - - - -
Japan - - - - 0.1 0.1
Thailand - - - - - -
Other - - - 0.1 0.1 0.1
--- --- --- --- --- ---
Total Asia/
Pacific Region** 1.8 $0.1 0.5 0.6 2.9 3.2
--- --- --- --- --- ---
Chile 0.2 - - 0.1 0.3 0.4
Brazil 0.3 - - 0.1 0.3 0.4
Mexico 0.1 - - - 0.1 0.1
Peru - - - - - 0.1
Argentina 0.1 - - - 0.1 0.1
Other 0.2 - 0.1 0.1 0.4 0.4
--- --- --- --- --- ---
Total
Latin America** 0.8 - 0.1 0.3 1.3 1.4
--- --- --- --- --- ---
India 0.3 - 0.1 0.3 0.7 0.8
Pakistan 0.1 - - 0.2 0.3 0.2
Other 0.1 - 0.1 0.1 0.2 0.2
--- --- --- --- --- ---
Total
Subcontinent** 0.4 - 0.2 0.6 1.2 1.2
--- --- --- --- --- ---
Egypt 0.3 - - 0.2 0.6 0.7
Other 0.2 - 0.1 - 0.2 0.3
--- --- --- --- --- ---
Total Middle East
& Africa* 0.5 - 0.1 0.2 0.8 1.0
--- --- --- --- --- ---
Total Europe*** 1.4 0.1 0.7 2.4 4.6 4.4
Total
North America** 0.2 - 0.2 1.5 1.9 1.9
--- --- --- --- ---- ----
Total Worldwide** $5.1 $0.2 $1.8 $5.6 $12.8 $13.2
=== === === === ==== ====
</TABLE>
* Includes cash, placements and securities.
** Individual items may not add to totals due to rounding.
*** Total exposures at 9/30/99 and 12/31/98 include $15 million and
$20 million of exposures to Russia, respectively.
Note: Includes cross-border and local exposure and does not net local funding
or liabilities against any local exposure.
24
<PAGE>
CORPORATE AND OTHER
Corporate and Other reported net expenses of $43 and $131 million for the
three and nine months ended September 30, 1999, compared with net expenses
of $42 and $43 million in the same periods last year. The current year nine-
month results include a $39 million ($46 million pretax) preferred stock
dividend based on earnings from Lehman Brothers, which was offset by
expenses related to the Year 2000 issue and business building initiatives.
The prior year nine-month results included income of $78 million ($106
million pretax) comprising a $39 million ($60 million pretax) gain from
sales of common stock of First Data Corporation and an equivalent Lehman
Brothers dividend.
25
PART II. OTHER INFORMATION
AMERICAN EXPRESS COMPANY
Item 1. Legal Proceedings
On March 29, 1999 an action entitled LAMBERT V. AMERICAN EXPRESS
FINANCIAL CORPORATION; AMERICAN EXPRESS FINANCIAL ADVISORS INC.; IDS LIFE
INSURANCE AGENCIES, INC.; IDS LIFE INSURANCE COMPANY; AMERICAN EXPRESS PLAN
COMMITTEE; CAREER DISTRIBUTORS PLAN COMMITTEE AND JOHN/JANE DOES 1-20
commenced in U.S. District Court, District of Minnesota, Fourth Division.
The sole named plaintiff purports to represent a class consisting of financial
advisors who were independent contractors from January 1, 1993 to the present.
The complaint alleges class members were misclassified as independent
contractors and seeks retroactive coverage in all employee health, welfare,
retirement and compensation plans, and payment of FICA and FUTA taxes. The
complaint also alleges violation of ERISA, breach of contract, breach of duty
of good faith and fair dealing and unjust enrichment. The complaint was amended
on July 26, 1999, adding three plaintiffs, adding new claims for conversion,
recission of the financial advisors agreement and declaratory judgment and
adding the Employee Benefits Action Committee as a defendant. The defendants
filed a motion to dismiss all claims on July 30, 1999. The Company believes it
has meritorious defenses to such action and intends to pursue them vigorously.
The Company commenced an action, AMERICAN EXPRESS COMPANY V. THE UNITED
STATES, on September 15, 1997 in the United States Court of Federal Claims (the
"Court") 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 taxable income ratably over the
twelve-month period to which the fees relate rather than in full at the time
they are billed. On July 30, 1999, the parties jointly submitted a Stipulation
of Facts to the Court. On October 14, 1999, the Company filed a Motion for
Summary Judgment, and a supporting brief. 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.
The first matter described above was previously reported in the Company's
Form 10-Q for the quarterly period ended June 30, 1999 and the second matter
decribed above was previously reported in the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on page E-1 hereof.
(b) Reports on Form 8-K:
Form 8-K, dated July 26, 1999, Item 5, reporting the
Company's earnings for the quarter ended June 30, 1999.
Form 8-K, dated July 29, 1999, Item 5, reporting the
retirement of the Company's vice chairman and chief
financial officer.
Form 8-K, dated August 4, 1999, Item 5, reporting certain
information from presentations to the financial community on
August 4, 1999 by Harvey Golub, the Company's Chairman and
Chief Executive Officer, and other officers of the Company.
Form 8-K, dated October 25, 1999, Item 5, reporting the
Company's earnings for the quarter ended September 30, 1999.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
AMERICAN EXPRESS COMPANY
------------------------
(Registrant)
Date: November 12, 1999 By /s/ Richard Karl Goeltz
-------------------------
Richard Karl Goeltz
Vice Chairman and
Chief Financial Officer
Date: November 12, 1999 /s/ Daniel T. Henry
---------------------
Daniel T. Henry
Senior Vice President and
Comptroller
(Chief Accounting Officer)
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as part of this Quarterly Report:
Exhibit Description
------- -----------
10.1 Amended and Restated American Express Company Supplemental
Retirement Plan.
12 Computation in Support of Ratio of Earnings to Fixed Charges.
15 Letter re Unaudited Interim Financial Information.
27 Financial Data Schedule.
E-1
EXHIBIT 10.1
THE AMERICAN EXPRESS COMPANY SUPPLEMENTAL RETIREMENT PLAN
Amended and Restated Effective March 1, 1995
I. HISTORY OF THE PLAN
On November 26, 1973, the Board of Directors of American Express
Company (the "Company") authorized and approved the adoption of the
American Express Supplementary Pension Plan to supplement retirement
benefits provided under the American Express Retirement Plan (sometimes
referred to as the American Express Funded Pension Plan) and other
retirement and savings plans sponsored by the Company, its subsidiaries and
Affiliates, through payment of benefits to Participants in such plans and
their surviving spouses and Beneficiaries, to whom benefits otherwise
payable under such plans are restricted in accordance with Section 3(36) of
the Employee Retirement Income Security Act of 1974 (ERISA). The American
Express Supplementary Pension Plan has remained in effect since its
adoption and has been construed and operated as an "excess benefit plan" as
defined under ERISA Section 3(36).
On July 1, 1994, the Board of Directors of the Company authorized
and directed the amendment and restatement of the American Express
Supplementary Pension Plan pursuant to the provisions of Section 9 thereof.
Such plan is amended and restated generally effective March 1, 1995 as the
American Express Company Supplemental Retirement Plan.
II. DEFINITIONS
As used in the Plan, the following terms have the meanings
indicated below:
A. "Administrator" means the Employee Benefits Administration Committee
or such other individual(s) authorized by the Company's
Board or its Compensation and Benefits Committee.
B. "Affiliate" means any corporation or other trade or business under
common control with the Company, as further defined in the
Company's Qualified Retirement Plans.
C. "Beneficiary" means the individual or entity entitled to receive
benefits under the Plan.
D. "Code" means the Internal Revenue Code of 1986, as may be amended from
time to time.
E. "Company" means American Express Company, it subsidiaries and
Affiliates.
F. "Compensation" shall mean, with respect to excess benefits calculated
with reference to a particular Qualified Retirement Plan,
"Compensation" as defined in the applicable Qualified Retirement Plan,
as the context implies.
G. "DVP Retirement Plan" means the IDS DVP Retirement Plan.
H. "Employee" means an elected or appointed officer of the Company or
any other individual the Administrator considers to be a key
employee of the Company or an Affiliate, and whose compensation is
reported on a Form W-2, regardless of whether the use of such form
is subsequently determined to be erroneous.
I. "Insiders" means such Plan Participants who are or may be required
to file reports under Section 16(a) of the Securities Exchange Act
of 1934, as amended, with respect to equity securities of the Company.
J. "ISP" means the American Express Company Incentive Savings Plan, as
amended from time to time, and any successor plan.
K. "Participant" means an eligible Employee who accrues benefits under
the Plan.
L. "Plan" means this American Express Company Supplemental Retirement Plan.
M. "Plan Year" means the calendar year with reference to which benefits are
determined under the Plan.
N. "Qualified Retirement Plan" means the Retirement Plan, the ISP, or the
DVP Retirement Plan, as the context may imply.
O. "Retirement Plan" means the American Express Retirement Plan, as amended
from time to time, and any successor plan.
P. "Section 401(a)(17) Limitation" refers to the limitation on the
dollar amount of Compensation which may be taken into account
under the Qualified Retirement Plans under Section 401(a)(17) of
the Code or any other successor provision.
Q. "Section 415 Limitations" refer to the limitations on benefits for
defined benefit pension plans, defined contribution plans and the
limitations on benefits and contributions for combinations of
plans which are imposed by Section 415(b), 415(c) and 415(e),
respectively, of the Code, including any successor provisions.
III. ADMINISTRATION
The Plan shall be administered by the Administrator. The
Administrator shall have full power, authority and discretion to interpret,
construe and administer the Plan, consistent with the intent and the terms
of the Plan, and such interpretation and construction thereof and actions
taken thereunder shall be binding on all persons for the purposes so stated
by the Administrator; provided that any such interpretation shall be
consistent with Section VI(D) hereof.
The Administrator may correct any defect, supply any omission or
reconcile any inconsistency in the Plan in the manner and to the extent the
Administrator deems desirable to carry the Plan into effect. Any decision
of the Administrator in the administration of the Plan shall be final and
conclusive and binding upon all Participants in the Plan.
IV. ELIGIBILITY TO PARTICIPATE IN THE PLAN
(A) Subject to the discretion of the Administrator, an Employee of the
Company (including such subsidiaries or Affiliates as may be
approved by the Company) who satisfies each of the following
requirements for the relevant Plan Year shall be eligible to
participate in this Plan and to accrue benefits described herein.
(1) For the relevant Plan Year, the Employee is:
(a) Other than an Employee described in (b) or (c)
below and is a participant under a "Qualified
Retirement Plan" maintained by the Company.
Participation by an Employee in a Qualified
Retirement Plan shall be determined pursuant to
and in accordance with the eligibility criteria
applicable under such Qualified Retirement Plan;
or
(b) Effective January 1, 1995, the Employee serves
in the capacity of a Group Vice President
pursuant to a written employment agreement, is a
participant under the DVP Retirement Plan or its
successor plan, and satisfies the requirements
of Section (2)(a) below for the relevant Plan
Year; or
(c) Effective January 1, 1996, the Employee serves
in the capacity of Division Vice President or
Field Vice President pursuant to a written
employment agreement, is a participant under the
DVP Retirement Plan or its successor plan, and
satisfies the requirements of Section (2)(a)
below for the relevant Plan Year.
(2) For the relevant Plan Year, the Employee is:
(a) credited with "Compensation" earned from the
Company, its subsidiaries or Affiliates in an
amount in excess of the applicable Code Section
401 (a)(17) Limitation; or
(b) classified as a level "Grade Band 50" personnel
or greater, as such classification is defined by
the Administrator.
(B) Notwithstanding the provisions of Section IV(A) above,
participation in this Plan shall be limited to such Employees of
the Company, its subsidiaries and Affiliates, who are designated
by the Administrator, on a case-by-case basis, as eligible to
participate in this Plan; provided, all Insiders who satisfy the
eligibility requirements under Section IV(A)(1) and (2) shall be
deemed eligible to participate in this Plan without any action by
the Administrator.
(C) The Administrator shall approve and execute deferred compensation
agreements, including amendments thereto as may be necessary or
desirable, with Employees eligible to participate in the Plan.
(D) Employees who satisfy the eligibility requirements of Section
IV(A) as a result of promotion or new employment during the Plan
Year may request participation in the Plan; provided, however,
such request must be in writing and received by the Administrator
no later than thirty (30) days following receipt by the Employee
of written notification of eligibility to participate in the Plan.
(E) Prior to August 11, 1999, benefits available under the Plan to an
employee who satisfies the eligibility criteria of either Sections
IV(A)(1)(b) or (c), shall be restricted to the benefits described
in Section V(A). Effective August 11, 1999 such employees shall be
eligible for other benefits under the Plan as determined by the
Administrator.
V. BENEFITS UNDER THE PLAN
Effective March 17, 1995, and retroactive for benefits calculated
with respect to Compensation earned by a Participant during the period
beginning on or after July 1, 1994, benefits hereunder shall be determined
under the following provisions.
(A) BENEFITS UNDER THE AMERICAN EXPRESS RETIREMENT PLAN AND IDS DVP
RETIREMENT PLAN
For purposes of this Section V(A), capitalized terms not otherwise defined
herein shall have the same meaning set forth in the Retirement Plan, or the
DVP Retirement Plan, as the context implies.
(1) BENEFITS IN EXCESS OF LIMITS UNDER THE AMERICAN EXPRESS RETIREMENT PLAN
(a) If an Employee who is a participant under the Retirement Plan
retires, becomes disabled, dies or otherwise terminates
employment before July 1, 1995, such that the Employee (or his or
her Beneficiary) becomes entitled to benefits under the
Retirement Plan, and if any benefit was not accrued for such
Employee under the terms of the Retirement Plan because of the
Section 401(a)(17) Limitation or the Section 415 Limitations, the
Company shall pay to such Employee (or his or her Beneficiary) an
amount, if any, equal to the difference between the benefit
payable to such Employee under the Retirement Plan, but for
application of the Section 401(a)(17) Limitation or the Section
415 Limitations and the actual benefit paid such Employee under
the Retirement Plan.
(b) Each Employee who is otherwise entitled to receive benefits
hereunder commencing on or after July 1, 1994 and before July 1,
1995, shall be entitled to such additional benefit hereunder, if
any, as would have been payable to such Employee under the
Retirement Plan if such Employee had not elected to defer receipt
of compensation through voluntary non-qualified deferrals
pursuant to the American Express Salary Deferral Plan or any
similar plan of deferred compensation sponsored by the Company,
its subsidiaries or Affiliates.
(c) Effective July 1, 1995, if an Employee is a participant under the
Retirement Plan, other than a terminated participant, the Company
shall establish a book reserve account to which the following
shall be credited
(i) INITIAL BOOK RESERVE ACCOUNT BALANCE. A Participant's
initial book -reserve account balance shall be zero unless
the Participant was also a Participant in this Plan or the
IDS Supplemental Retirement Plan on June 30, 1995. In the
case of a Participant who was a Participant in this Plan on
June 30, 1995, the Participant's initial book reserve
account balance on July 1, 1995 shall be equal to the
"actuarially equivalent present value" of the Participant's
benefit under Section V(A)(1)(a) on June 30, 1995. In the
case of a Participant who was a Participant in the IDS
Supplemental Retirement Plan on June 30, 1995, such
Participant's initial book reserve account balance on July
1, 1995 shall be equal to the "actuarially equivalent
present value" of the pension-related portion of a
Participant's benefit under the IDS Supplemental Retirement
Plan on June 30, 1995. For purposes of this Section, the
"actuarially equivalent present value" of a Participant's
accrued benefit shall be determined by applying an interest
rate of six percent (6%) and the 1984 Unisex Pensioner
Mortality Table.
(ii) CONTRIBUTION CREDITS. Commencing with the first payroll
period ending on or after July 1, 1995, an amount equal to
the Contribution Credits that would have been credited to a
Participant's Defined Benefit Account Balance under the
Retirement Plan but for application of the Section
401(a)(17) Limitation or the Section 415 Limitations for the
applicable Plan Year. In the event a participant terminates
from service as a result of a disability, as determined
under the Retirement Plan, this Section V(A)(1)(c)(ii) will
apply as if the Section 401(a)(17) Limitation and Section
415 Limitations applied to the deemed Compensation
considered by the Retirement Plan.
(d) Commencing with the first payroll period ending on or after July
1, 1995, a Participant's book reserve account shall be credited
with an amount equal to the Contribution Credits that could have
been credited to a Participant's Defined Benefit Account Balance
under the Retirement Plan that would have been credited to such
Defined Benefit Account Balance if the Participant had not
elected to defer receipt of compensation through voluntary
non-qualified deferrals pursuant to the American Express Salary
Deferral Plan or any similar plan of deferred compensation
sponsored by the Company, its subsidiaries or Affiliates.
(e) Certain participants, as determined by the Company, who are
credited with five Years of Service under the Retirement Plan
shall be deemed to have rendered five additional Years of Service
under this Plan for which benefits will be credited. Commencing
with the first payroll period ending on or after the date an
Employee is designated eligible for benefits under the Plan
pursuant to Section IV(B) hereof, an amount equal to the
Contribution Credits that would have been credited to the
Participant's Defined Benefit Account Balance under the
Retirement Plan had the Participant rendered five (5) additional
Years of Service under the Retirement Plan shall be credited to a
book reserve account established and maintained for the
Participant.
The formula of the benefits for a Plan Year under this
Section V(A)(1)(e) shall be determined by the Company and
applied in a uniform manner for all similarly situated
employees.
(2) BENEFITS UPON A CHANGE IN CONTROL
(a) If a Participant experiences a "Defined Termination," as
defined in the Company's Senior Executive Severance Plan
(provided that such Participant is eligible under such
plan), during the first year following a Change in Control,
such Participant shall be deemed to have rendered two (2)
additional Years of Service and to have attained two (2)
additional years of age for all purposes under the Plan
determined as of the date of such Participant's Defined
Termination. In this event, such Participant shall be
credited with additional Contribution Credits and Imputed
Earnings Credits equivalent to the benefit that would have
accrued under the Retirement Plan if the Participant had
rendered such two (2) additional Years of Service and had
attained two (2) additional years of age under the
Retirement Plan.
If a Participant eligible for the Company's Senior
Executive Severance Plan experiences a Defined Termination
during the second year following a Change in Control, such
Participant shall be deemed to have rendered one (1)
additional Year of Service and to have attained one (1)
additional year of age for all purposes under the Plan and
the Retirement Plan. In this event, such Participant shall
be credited with additional Contribution Credits and Imputed
Earnings Credits equivalent to the benefit that would have
accrued under the Retirement Plan if the Participant had
rendered such one (1) additional Year of Service and had
attained one (1) additional year of age under the Retirement
Plan.
(b) Amounts described in this Section V(2) shall be credited to
a book reserve account established for a Plan Participant at
the time Contribution Credits are allocated by the Company
to such Plan Participant under the Retirement Plan.
(3) BENEFITS IN EXCESS OF LIMITS UNDER THE DVP RETIREMENT PLAN
For Plan Years prior to January 1, 1997, if a participant under
the DVP Retirement Plan is a Participant in this Plan, the Company
shall establish a book reserve account to which the following
shall be credited:
EMPLOYER CONTRIBUTION ALLOCATION. An amount equal to ten percent
(10%) of such Participant's Credited Earnings (as defined under
the DVP Retirement Plan) that would have been contributed and
allocated as an Employer Contribution to the account of the
Participant in the DVP Retirement Plan for 1995 and subsequent
Plan Years but for the Section 401(a)(17) Limitation; provided,
however, that the maximum amount that may be credited under this
Section V(A)(3) for any Plan Year shall be limited on a per
Participant basis to Fifteen Thousand Dollars ($15,000.00).
(4) BENEFITS RESTRICTED TO VESTED PORTION
The benefits credited under this Section V(A) at the time of
distribution to a Participant shall be restricted to a
Participant's vested portion. A Participant's vested portion shall
be determined under the vesting service crediting provisions of
the Retirement Plan, or the DVP Retirement Plan, as applicable;
provided, however, a Participant shall not be 100% vested in the
benefit provided under Section V(A)(1)(e) solely as a result of
becoming disabled. Any non-vested portion of amounts credited to a
Participant hereunder shall be forfeited.
(5) ADDITIONAL ACCOUNTS
The Administrator may, in its discretion, establish additional
book reserve accounts from time to time. The procedures to reflect
and credit increases, decreases, interest, dividends, and other
income, gains and losses shall be determined by the Administrator
in its discretion.
(B) BENEFITS IN EXCESS OF LIMITS UNDER AMERICAN EXPRESS THE INCENTIVE
SAVINGS PLAN (THE "ISP").
For purposes of this Section V(B), capitalized terms not otherwise
defined herein shall have the same meaning set forth in the ISP.
If an Employee is a participant in the ISP, the Company shall
establish book reserve accounts under this Plan on behalf of such
Employee to which the following amounts shall be credited when
earned or otherwise payable:
(1) COMPANY STOCK CONTRIBUTION ALLOCATION. Commencing with the first
payroll period ending on or after March 31, 1995, and with
respect to each payroll period thereafter, an amount equal to
one-percent (1%) of (a) a Participant's Base Salary, minus such
amount allocated as a Company Stock Contribution to the Account
of the Participant under the ISP, to the extent such contribution
is limited by the Section 401(a)(17) Limitation or Section 415
Limitations, and (b) that portion of a Participant's Compensation
deferred during such Plan Year pursuant to the American Express
Salary Deferral Plan, or any similar plan of deferred
compensation sponsored by the Company, its subsidiaries or
Affiliates. For purposes of this Section V(B)(1), the Section
401(a)(17) Limitation shall be deemed to apply pro rationally to
each regularly scheduled pay period for each Plan Year.
(2) COMPANY PROFIT-SHARING CONTRIBUTION ALLOCATION. An amount equal
to that portion of the Company Profit-Sharing Contribution that
would have been contributed and allocated to the Account of a
Participant under the ISP for 1994 and later Plan Years,
consisting of a percentage of (a) a Participant's Base Salary, but
for application of the Section 401(a)(17) Limitation or the
Section 415 Limitations, and (b) that portion of a Participant's
Compensation deferred during such Plan Year pursuant to the
American Express Salary Deferral Plan, or any similar plan of
deferred compensation sponsored by the Company, its subsidiaries
or Affiliates. Benefits credited under this Section V(B)(2) at
the time of distribution shall be restricted to a Participant's
vested portion as determined under the applicable provisions of
the ISP. Any non-vested portion of such deferred compensation to
be paid shall be forfeited.
(3) COMPANY MATCHING CONTRIBUTION ALLOCATION. Commencing with the
first payroll period ending after March 31, 1995, and with
respect to each payroll period thereafter, an amount equal to
that portion of the Company Matching Contribution that would have
been contributed and allocated to the Account of a Participant by
the Company as a Matching Contribution on behalf of a
Participant, (a) to the extent such contribution is limited by
the Section 401(a)(17) Limitation or Section 415 Limitations,
minus such amount allocated as a Matching Contribution to the
Account of the Participant under the ISP, and (b) with respect to
that portion of a Participant's Compensation deferred pursuant to
the American Express Salary Deferral Plan, or any similar plan of
deferred compensation sponsored by the Company, its subsidiaries
or Affiliates, and assuming (i) such portion had not been
deferred and (ii) the Participant had elected to make Elective
Contributions under the ISP equal to three percent (3%) (or such
lesser amount if actually elected by the Participant under the
ISP) of such Participant's compensation deferred under such
deferred compensation plan.
(4) On March 31, 1995, the Company shall credit the applicable book
reserve account of each Participant, in a single sum, with the
aggregate amounts that would have been allocated under Sections
V(B)(1), (2) and (3) above with respect to a Participant's
Compensation paid by the Company had such allocations been made
with respect to the first payroll period ending on or after July
1, 1994, through the payroll period beginning on or before March
17, 1995. The credited amount shall be equal to the aggregate
value of all allocations plus the equivalent of the investment
gain or loss that would have occurred had such aggregate value
been invested in units of the ISP Income Fund on July 1, 1994 and
held continuously thereunder through March 17, 1995.
(5) The Administrator may, in its discretion, establish additional
book reserve accounts from time to time. The procedures to
reflect and credit increases, decreases, interest, dividends, and
other income, gains and losses shall be determined by the
Administrator in its discretion.
(C) CREDITING OF ACCOUNTS
(1) Amounts described in Section V(A)(1)(c)(ii) shall be credited to
a book reserve account established for a Plan Participant at the
time Contribution Credits are allocated by the Company to such
Plan Participant under the Retirement Plan except for amounts
credited to an account for Section 415 Limitations which shall be
credited upon the commencement of the benefit payment under the
Retirement Plan.
(2) Amounts described in Section V(A)(3) shall be credited in a lump
sum to a book reserve account established for a Plan Participant
not later than the time prescribed by law for filing the federal
income tax return of American Express Financial Advisors, Inc.
for the fiscal year, including extensions thereof; provided,
however, if American Express Financial Advisors, Inc. joins with
the Company in filing a consolidated federal income tax return,
the time for filing the consolidated return shall govern.
(3) Amounts described in Section V(B)(1) shall be credited to a book
reserve account established for a Plan Participant on each
payroll date or on the 4th day following each payroll date. Such
book reserve account shall be denominated in units ("Units"). For
purposes of this Plan, the price and value of Unit on any given
day is equal to the number of American Express Common Shares held
by the ISP American Express Stock Fund (the "Stock Fund") on a
given day, multiplied by the previous day's closing price of one
American Express Common Share on the New York Stock Exchange,
plus the face value of all cash equivalents held by the Stock
Fund plus the fair market value of all other assets held by the
Stock Fund on such day divided by the number of Stock Fund units
outstanding on such day. This paragraph shall apply to credits
under Section V(B)(4) to the extent such credits are made with
respect to Company Stock Contributions.
(4) Except as provided in Subsection (3) above, amounts described in
Section V(B)(2) - (4) shall be credited to a book reserve account
established for a Plan Participant within a reasonable time
following the Company Profit Sharing Contributions and Company
Matching Contributions, respectively, are allocated by the
Company to such Plan Participant under the ISP. Such book reserve
account shall contain various subaccounts, representing the
various investment funds available to a Participant under the ISP
as provided for in this Plan.
(D) PAYMENT OF BENEFITS
(1) Any benefits payable under the Plan shall be paid in cash from
the general assets of the Company in the form elected by the
Participant at the time the Participant makes his or her initial
distribution election under the Plan, subject to the following:
(a) A Participant may elect to receive his or her benefits in a
single lump-sum payment or in annual installments payable
over a period of five (5), ten (10) or fifteen (15)
consecutive calendar years; provided, however, that if any
benefit payable under this Section V(D) is less than Fifty
Thousand Dollars ($50,000.00) at the time of the
Participant's termination of employment for any reason, such
amount may be paid in a single lump-sum payment at the
discretion of the Administrator. Except as provided in
Section V(D)(1)(c) below, a Participant may not revoke or
modify his or her initial distribution election described in
the preceding sentence. Such election shall apply to the
payment of all benefits under the Plan.
Effective July 1, 1995, if a Participant fails to make a valid
distribution election within one (1) year of becoming a
Participant in the Plan, such Participant's benefits shall
be paid in a single lump sum; provided, however, that the
Participant may elect to lengthen the period of payments as
provided in Section V(D)(1)(c) below. No reduction in
amounts payable from the Plan shall apply with respect to a
modification lengthening the period over which payments are
made.
Effective July 1, 1997, if a Participant does not have a valid
election on file with American Express Trust Company, such
Participant's benefits shall be paid in a single lump sum.
Payment of benefits shall begin on April 1 of the calendar year
following a Participant's termination of employment for any
reason with Company, its subsidiaries or Affiliates, or as
soon thereafter as administratively feasible.
(b) The following provisions shall apply to Participants who
terminate employment for any reason before July 1, 1997:
(i) If a Participant's distribution election has been in
effect for at least one (1) year, such Participant's
benefits shall be paid in the form elected by the
Participant.
(ii) If a Participant has not made an election before July
1, 1996, or the Participant's election was not received
by American Express Trust Company at least one (1) year
before the Participant's termination of employment for
any reason, such Participant's benefits shall be paid
in equal annual installments over a period of fifteen
(15) consecutive calendar years; provided, however,
that a Participant may elect to accelerate the period
of payments as provided in Section V(D)(1)(c) below.
Any modification by a Participant of an initial
distribution election that results in an acceleration
of payments shall be subject to a ten percent (10%)
reduction, determined as of the date of modification.
(c) Change in Payment Procedures. A Participant may make a one
(1) time modification to his or her initial distribution
election to elect a payment form that lengthens or
accelerates the period over which payments from the Plan
shall be made. To be effective, such a modification shall be
made by filing a written notice of modification with
American Express Trust Company in such form as the
Administrator may prescribe; provided, however, that a
modification to lengthen the period of time over which
payments are made must be on file with American Express
Trust Company for a period of one (1) year prior to the date
payments are to begin pursuant to (a) above. A Participant
may not change the payment method once payments have
commenced.
(2) Upon a Participant's death, benefits under the Plan shall be
payable in cash to a Participant's Beneficiary designated
pursuant to V(D)(3) below. If a Participant dies while still
actively employed by Company, its subsidiaries or Affiliates,
such payment(s) shall be made pursuant to the Participant's
elected payment method or as an immediate single lump-sum
payment, as elected by the Participant's Beneficiary, on such
form as the Administrator may prescribe; provided, however, if
the Beneficiary is the Participant's estate, such amount shall be
paid in a single lump-sum payment.
A Beneficiary's written election shall be returned to American
Express Trust Company within ninety (90) days of the date
payments are scheduled to commence pursuant to the method
described under V(D)(1)(a) above. A Beneficiary may not change
the payment method subsequent to commencement of benefits. If a
Participant elects annual installment payments and dies after
such installment payments have commenced, any remaining
installment payments shall continue to be made in the installment
method elected, provided the Participant's Beneficiary is an
individual(s) or trust.
(3) A Participant shall designate his or her Beneficiary or
Beneficiaries entitled to receive benefits under the Plan by
filing written notice of such designation with the Administrator
in such form as the Administrator may prescribe. A Participant
may revoke or modify such designation at any time by a further
written designation in such form as the Administrator may
prescribe. A Participant's Beneficiary designation shall be
deemed automatically revoked in the event of the death of the
Beneficiary or, if the Beneficiary is the Participant's spouse,
in the event of dissolution of marriage. If no designation is in
effect at the time benefits payable under the Plan become due,
the provisions of the Retirement Plan concerning the
determination of Beneficiary or Beneficiaries shall apply for
purposes of distributions from this Plan.
(4) Upon the request of a Participant (or Beneficiary) and based on a
showing of an unanticipated emergency caused by an event beyond
the control of the Participant (or Beneficiary) that would result
in severe financial hardship to the Participant (or Beneficiary)
if early withdrawal were not permitted, the Administrator may, in
its sole discretion, vary the manner and time of making the
distributions provided in this Section V(D). No reduction in
benefits credited under this Plan shall apply to such early
withdrawal solely as a result of the Administrator's variation of
the time and manner of the distribution.
(E) SUBACCOUNTS, INVESTMENT PERFORMANCE AND TRANSFERS
(1) For each Participant, the book reserve account established
pursuant to Section V(A)(1)(c) and Section V(A)(2) shall be
increased by the Imputed Earnings Credit (as such term is defined
in the Retirement Plan) on the last day of each Plan Year. Such
earnings shall be credited at the same interest rate and computed
in a similar manner (to the extent administratively feasible) as
Imputed Earnings Credits are computed under the Retirement Plan
for each Plan Year. In the event a Participant terminates
employment for any reason and receives a benefit which commences
during the year, the Imputed Earnings Credit shall be prorated in
as similar a manner as may be administratively feasible as under
the Retirement Plan.
(2) Subject to Section V(E)(4) below, the performance of the book
reserve account established for each Participant pursuant to
Section V(C)(3) shall reflect the performance of the American
Express Stock Fund. Such book reserve account shall reflect such
increases or decreases in value from time to time, whether from
dividends, gains, losses or otherwise, as may be experienced by
the American Express Stock Fund. Credits to the book reserve
account established pursuant to Section V(C)(3) may not be
transferred to any other account or subaccount under or any other
plan; provided, that subject to Section VI hereof, upon
attainment of age fifty-five (55), a Participant may elect to
transfer credits from such account to one or more subaccounts
established pursuant to Section V(C)(4).
Notwithstanding the above, effective immediately upon a Change in
Control, as defined in Section VIII below, to the extent a Book
Reserve Account established on behalf of a Participant reflects,
or by the terms of this Plan should in the future reflect, the
performance of the American Express Stock Fund, it shall
thereafter reflect the performance of the ISP Income Fund.
(3) For each Participant, credits to the book reserve account
established pursuant to Section V(C)(4) shall be made to such
subaccounts thereunder as directed by such Participant. If more
than one subaccount is selected, a Participant must designate, on
a form or other medium acceptable to the Administrator, in one
percent (1%) increments, the amounts to be credited to each
subaccount. A Participant shall be allowed to amend such
designation consistent with the frequency of investment changes
offered the Participant under rules governing the ISP for a given
Plan Year.
Subject to Section V(E)(4) below, for each Participant, the
performance of such subaccounts shall reflect the performance of
the investment fund under the ISP that such subaccount
represents. Each such subaccount shall reflect such increases or
decreases in value from time to time, whether from dividends,
gains, losses or otherwise, as that experienced by the related
investment fund under the ISP. Subject to Section VI hereof,
credits to such subaccounts may be transferred to any other
subaccount under this Plan on such terms and at such times as
permitted with respect to the related investment funds under the
ISP. If a Participant fails to affirmatively designate one or
more subaccounts pursuant to this Section V(E)(3), subject to
rules established by the Administrator, such Participant shall be
deemed to have selected the subaccount(s) that relate to the
Participant's investment direction under the ISP; provided,
however, to the extent an Insider has directed ISP amounts to the
Stock Fund, such Insider shall be deemed to have selected the
subaccount relating to the ISP Income Fund.
(4) The subaccounts as described hereinabove and established for a
Participant shall reflect, in as similar manner as
administratively feasible, the investment experience realized by
a Participant with respect to such Participant's investment
elections under the ISP.
Subject to Section V(C)(3), the subaccounts shall be valued subject
to such reasonable rules and procedures as the Administrator may
adopt and apply to all Participants similarly situated with an
effort to value such subaccounts as if amounts designated were
invested in at similar times and in manners, subject to
administrative convenience, as amounts are invested, and subject
to the same market fluctuation factors used in valuing such
investments in the ISP.
VI. SPECIAL RESTRICTIONS
(A) The provisions of this Section VI shall apply to Insiders. Such
provisions shall apply during all periods that Insiders are subject to
reporting under Section 16(a), including any period following
cessation of Insider status during which such Insiders are required to
report transactions pursuant to Rule 16a-2(b) (or its successor) under
the Exchange Act.
At such time as any Insider ceases to be subject to Section 16(a)
reporting (and any period contemplated by Rule 16a-2(b) has expired),
this Section VI shall cease to be applicable to such Participant.
(B) This Section VI shall be automatically applicable to any person who,
on and after the date hereof, becomes an Insider. For purposes of the
foregoing, the effective date of this Section shall be the date the
person becomes an Insider.
(C) Notwithstanding anything in this Plan to the contrary, (i) credits to
the account of an Insider pursuant to Section V(C)(4) may not be made
to any subaccount that reflects the performance of the American
Express Stock Fund, (ii) credits made pursuant to Section V(C)(4) to
the account of an Insider at any time may not be transferred to any
book reserve account or subaccount that reflects the performance of
the Stock Fund and (iii) credits made to an Insider's book reserve
account pursuant to Section V(C)(3) at any time and credits to the
account of an Insider pursuant to Section V(C)(4) that were made to a
subaccount that reflects the performance of the American Express Stock
Fund (which credits could only have been made when such individual as
not an Insider) may not be transferred, withdrawn, paid out or
otherwise changed, other than (a) pursuant to Section V(D)(1) or (2)
(but only at such time as such person is no longer an Insider) or (b)
pursuant to the forfeiture provisions contained in the last sentence
of Section V(B)(2).
(D) It is intended that the crediting of amounts to the accounts of
Insiders that represents the performance of the American Express Stock
Fund is intended to qualify for exemption from Section 16 under Rule
16b-3(d) under the Exchange Act. The Administrator shall, with respect
to Insiders, administer and interpret all Plan provisions in a manner
consistent with such exclusion.
VII. GENERAL PROVISIONS
(A) Nothing in this Plan shall create, or be construed to create, a trust
of any kind or fiduciary relationship between the Company and the
Participant, his or her designated Beneficiary, or any other person.
Any funds deferred under the provisions of this Plan shall be
construed for all purposes as a part of the general funds of the
Company, and any right to receive payments from the Company under this
Plan shall be no greater than the right of any unsecured general
creditor. The Company may, but need not, purchase any securities or
instruments as a means of hedging its obligations to any Participant
under this Plan.
(B) The right of any Participant, or other person, to the payment of
deferred compensation under this Plan shall not be assigned,
transferred, pledged or encumbered except by the laws of descent and
distribution.
(C) Participation in the Plan shall not be construed as conferring upon
the Participant the right to continue in the employ of the Company as
an executive or any other capacity. The Company expressly reserves the
right to dismiss any employee at any time without liability for the
effect such dismissal might have upon him or her hereunder.
(D) Any deferred compensation payable under this Plan shall not be deemed
salary or other compensation to the Participant for the purpose of
computing the benefits under any qualified pension or profit sharing
plan, or life insurance benefit, or disability plan.
(E) The Company makes no representations or warranties and assumes no
responsibility as to the tax consequences to any Participant who
enters into a deferred compensation agreement with the Company
pursuant to this Plan. Further, payment by the Company to Participant
(or to a Participant's Beneficiary or Beneficiaries) in accordance
with the written designation of Beneficiary on file with the
Administrator at the time of Participant's death, shall be binding on
all interested parties and persons, including Participant's heirs,
executors, administrators and assigns, and shall discharge the
Company, its directors, officers and employees from all claims,
demands, actions or causes of action of every kind arising out of or
on account of Participant's participation in this Plan, known or
unknown, for himself or herself, his or her heirs, executors,
administrators and assigns. Any agreement executed pursuant to this
Plan shall be deemed to include the above provision of this Section
VII(E).
(F) The Board of Directors or its delegate may, at any time, amend or
terminate the Plan, provided that the Board may not reduce or modify
the amount of any benefit payable to a Participant or any Beneficiary
receiving benefit payments at the time the Plan is amended or
terminated.
(G) The Administrator may prescribe a form of agreement to be used by a
Participant and the Company, to the extent deemed necessary, to defer
compensation under the Plan.
(H) This Plan and all actions taken hereunder shall be governed by and
construed in accordance with the laws of the state of New York.
(I) Notwithstanding the above and any other provision herein to the
contrary, effective immediately upon a Change of Control, as defined
in Section VIII below, the entire value of each Participant's book
reserve accounts under the Plan shall be maintained in a trust (the
"Trust") established by the Company for this purpose and Company shall
transfer to the Trust amount sufficient to fund the entire value of
each participant's book reserve accounts. The Trust is intended to be
classified for federal income tax purposes as a "grantor trust" within
the meaning of Subpart E, Part I, Subchapter J, Chapter 1, Subtitle A
of the Code.
(J) Notwithstanding anything in this Plan, the Retirement Plan, the ISP or
the DVP Retirement Plan to the contrary, any amount otherwise due or
payable under the Plan may be forfeited, or its payment suspended, at
the discretion of the Administrator, to apply toward or recover any
claim the Company may have against the Participant, including but not
limited to, for the enforcement of the Company's Detrimental Conduct
provisions under its long-term incentive award plan, to recover a debt
to the Company or to recover a benefit overpayment under a Company
benefit plan or program.
VIII. CHANGE IN CONTROL
(A) 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
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
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 of 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.
(B) Notwithstanding any other provision of this Plan to the contrary, if
all or any portion of the payments or benefits to which the
Participant will be entitled under this Plan, either alone or together
with other payments or benefits which the Participant receives or is
entitled to receive directly or indirectly from the Company or any of
its subsidiaries or any other person or entity that would be treated
as a payor of parachute payments as hereinafter defined, under any
other plan, plan or arrangement, would constitute a "parachute
payment" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code") or any successor provision
thereto and the regulations thereunder (except that "2.95" shall be
used instead of "3" under Section 280G(b)(2)(A)(ii) of the Code or any
successor provision thereto), such payment or benefits provided to the
Participant under this Plan, and any other payments or benefits which
the Participant receives or is entitled to receive directly or
indirectly from the Company or any of its subsidiaries or any other
person or entity that would be treated as a payor of parachute
payments as hereinafter defined, under any other plan, plan or
arrangement which would constitute a parachute payment, shall be
reduced (but not below zero) as described below to the extent
necessary so that no portion thereof would constitute such a parachute
payment as previously defined (except that "2.95" shall be used
instead of "3" under Section 280G(b)(2)(A)(ii) of the Code or any
successor provision thereto).
Whether payments or benefits to the Participant are to be reduced
pursuant to the first sentence of this paragraph, and the extent to
which they are to be so reduced, will be determined by the firm
serving, immediately prior to the Change in Control, as the Company's
independent auditors, or if that firm refuses to serve, by another
qualified firm, whether or not serving as independent auditors,
designated by the Administration Committee under the American Express
Senior Executive Severance Plan (the "Firm"). The Firm will be paid
reasonable compensation by the Company for such services. If the Firm
concludes that its determination is inconsistent with a final
determination of a court or the Internal Revenue Service, the Firm
shall, based on such final determination, redetermine whether the
amount payable to the Participant should have been reduced and, if
applicable, the amount of any such reduction. If the Firm determines
that a lesser payment should have been made to the Participant, then
an amount equal to the amount of the excess of the earlier payment
over the redetermined amount (the "Excess Amount") will be deemed for
all purposes to be a loan to the Participant made on the date of the
Participant's receipt of such Excess Amount, which the Participant
will have an obligation to repay to the Company on the fifth business
day after demand, together with interest on such amount at the lowest
applicable Federal rate (as defined in Section 1274(d) of the Code or
any successor provision thereto), compounded semi-annually (the
"Section 1274 Rate") from the date of the Participant's receipt of
such Excess Amount until the date of such repayment (or such lesser
rate (including zero) as may be designated by the Firm such that the
Excess Amount and such interest will not be treated as a parachute
payment as previously defined). If the Firm determines that a greater
payment should have been made to the Participant, within five business
days of such determination, the Company will pay to the Participant
the amount of the deficiency, together with interest thereon from the
date such amount should have been paid to the date of such payment, at
the Section 1274 Rate (or such lesser rate (including zero) as may be
designated by the Firm such that the amount of such deficiency and
such interest will not be treated as a parachute payment as previously
defined). If a reduction is to be made pursuant to this paragraph, the
Firm will have the right to determine which payments and benefits will
be reduced as described below based on the following hierarchy from
the first to be reduced to the last (or on such other hierarchy chosen
by the Firm in its sole discretion), either those under this Plan
alone or such other payments or benefits which the Participant
receives or is entitled to receive directly or indirectly from the
Company or any of its subsidiaries or any other person or entity that
would be treated as a payor of parachute payments as previously
defined, under any other plan, plan or arrangement:
(I) nonqualified stock option awards;
(II) restricted stock awards, awards in lieu of restricted stock
awards, and restricted stock units;
(III) amounts payable under deferred compensation (including,
but not limited to, base salary, cash bonus or annual
incentive awards, and long-arm incentive awards)
programs;
(IV) any other awards or amounts not described in (I), (II) or
(III) above that would be payable or provided upon a
Change in Control;
(V) amounts payable under severance benefit plans;
(VI) amounts payable under annual incentive (e.g., cash bonus) plans;
(VII) portfolio grant awards and performance grant awards;
(VIII) amounts payable under employee welfare benefit plans,
such as life insurance plans (including, but not limited
to, the American Express Key Executive Life Insurance
Plan);
(IX) amounts payable under nonqualified employee pension benefit plans;
and
(X) any other awards or amounts not described in (V), (VI),
(VII), (VIII) or (IX) above that would be payable or
provided upon a termination of employment that occurs
within two years after a Change in Control as described
in the Change in Control provision above.
The payments and benefits subject to reduction pursuant to this paragraph
include one or more attributes thereof, including, but not limited to,
acceleration of the time for the vesting or payment thereof and the
crediting of additional interest equivalents thereunder. Such reduction may
be effected by the reduction or elimination, in whole or in part, of any
such payment or benefit (including any or all attributes thereof). If a
payment or benefit (including any or all attributes thereof) is reduced in
part, the remaining portion of the payment or benefit (including any or all
attributes thereof) will continue in full force and effect under the
provisions of such payment or benefit (including any or all attributes
thereof) as if the Change in Control did not occur and without regard to
such reduction or elimination. Nothing in the preceding three sentences of
this paragraph is intended or should be interpreted to change the
calculated reduction amounts and procedure of this paragraph.
EXHIBIT 12
<TABLE>
AMERICAN EXPRESS COMPANY
COMPUTATION IN SUPPORT OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
<CAPTION>
Nine Months Years Ended December 31,
Ended Sept 30,-------------------------------------
1999
(Unaudited) 1998 1997 1996 1995 1994
--------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Pretax income from
continuing operations $2,593 $2,925 $2,750 $2,664 $2,183 $1,891
Interest expense 1,566 2,224 2,122 2,160 2,343 1,925
Other adjustments 105 124 127 139 95 103
----- ----- ----- ----- ----- -----
Total earnings (a) $4,264 $5,273 $4,999 $4,963 $4,621 $3,919
----- ----- ----- ----- ----- -----
Fixed charges:
Interest expense $1,566 $2,224 $2,122 $2,160 $2,343 $1,925
Other adjustments 107 129 129 130 135 142
----- ----- ----- ----- ----- -----
Total fixed charges (b) $1,673 $2,353 $2,251 $2,290 $2,478 $2,067
----- ----- ----- ----- ----- -----
Ratio of earnings to
fixed charges (a/b) 2.55 2.24 2.22 2.17 1.86 1.90
</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. In the fourth quarter of 1995, the
Company's ownership in First Data Corporation ("FDC") was 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.
Exhibit 15
November 12, 1999
The Shareholders and Board of Directors
American Express Company
We are aware of the incorporation by reference in the Registration
Statements (Form S-8 No. 2-46918, No. 2-59230, No. 2-64285, No. 2-73954,
No. 2-89680, No. 33-01771, No. 33-02980, No. 33-28721, No. 33-33552,
No. 33-36422, No. 33-48629, No. 33-62124, No. 33-65008, No. 33-53801,
No. 333-12683, No. 333-41779 and No. 333-52699; No. 333-73111;
Form S-3 No. 2-89469, No. 33-43268, No. 33-50997, No. 333-32525, No. 333-45445,
No. 333-47085 and No. 333-55761) of American Express Company of our
report dated November 12, 1999 relating to the unaudited consolidated
interim financial statements of American Express Company which are included in
its Form 10-Q for the three and nine-month periods ended September 30, 1999.
Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not a
part of the registration statement prepared or certified by accountants
within the meaning of Section 7 or 11 of the Securities Act of 1933.
/s/ Ernst & Young LLP
New York, New York
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Consolidated Balance Sheet at September 30, 1999 and Consolidated
Statement of Income for the nine months ended September 30, 1999 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 5,102
<SECURITIES> 42,183
<RECEIVABLES> 25,164
<ALLOWANCES> 761
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 4,102
<DEPRECIATION> 2,194
<TOTAL-ASSETS> 132,616
<CURRENT-LIABILITIES> 0
<BONDS> 30,903
0
0
<COMMON> 269
<OTHER-SE> 9,475
<TOTAL-LIABILITY-AND-EQUITY> 132,616
<SALES> 0
<TOTAL-REVENUES> 15,580
<CGS> 0
<TOTAL-COSTS> 7,761
<OTHER-EXPENSES> 1,808
<LOSS-PROVISION> 2,668
<INTEREST-EXPENSE> 750
<INCOME-PRETAX> 2,593
<INCOME-TAX> 724
<INCOME-CONTINUING> 1,869
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,869
<EPS-BASIC> 4.18<F1>
<EPS-DILUTED> 4.09
<FN>
<F1> Represents basic earnings per share
</FN>
</TABLE>
