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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 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 No. 1-7657
AMERICAN EXPRESS COMPANY
(Exact name of registrant as specified in its charter)
NEW YORK 13-4922250
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
WORLD FINANCIAL CENTER
200 VESEY STREET
NEW YORK, NEW YORK 10285
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 640-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Shares (par value $.60 per Share) New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
7.00% Cumulative Quarterly Income New York Stock Exchange
Preferred Securities, Series I of American
Express Company Capital Trust I (and the
guarantee of American Express Company
with respect thereto)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes X No _
--
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. _
Common shares of the registrant outstanding at March 1, 2000 were
442,737,610. The aggregate market value, as of March 1, 2000, of voting
shares held by non-affiliates of the registrant was approximately $59.9
billion.
DOCUMENTS INCORPORATED BY REFERENCE
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Parts I, II and IV: Portions of Registrant's 1999 Annual Report to Shareholders
Part III: Portions of Registrant's Proxy Statement dated March 13, 2000.
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TABLE OF CONTENTS
FORM 10-K
ITEM NUMBER
PART I PAGE
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1. Business
Travel Related Services . . . . . . . . . . . . . . . . . . . 1
American Express Financial Advisors . . . . . . . . . . . . . 14
American Express Bank/Travelers Cheque . . . . . . . . . . . . 22
Corporate and Other . . . . . . . . . . . . . . . . . . . . . . 32
Foreign Operations . . . . . . . . . . . . . . . . . . . . . . 33
Important Factors Regarding Forward-Looking Statements . . . 34
Segment Information and Classes of Similar Services . . . . . 37
Executive Officers of the Company . . . . . . . . . . . . . 38
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . 41
2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 42
4. Submission of Matters to a Vote of Security Holders . . . . . . . 44
PART II
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5. Market for Company's Common Equity and Related Stockholder Matters 44
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . 44
7. Management's Discussion and Analysis of Financial Condition and
Results of Operation . . . . . . . . . . . . . . . . . . 44
7A. Quantitative and Qualitative Disclosures About Market Risk . . . 44
8. Financial Statements and Supplementary Data . . . . . . . . . . . . 44
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . 45
PART III
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10. Directors and Executive Officers of the Company . . . . . . . . . . 45
11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . 45
12. Security Ownership of Certain Beneficial Owners and Management . . . 45
13. Certain Relationships and Related Transactions . . . . . . . . . . 45
PART IV
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14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . 45
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Index to Financial Statements . . . . . . . . . . . . . . . . . . . F-1
Consent of Independent Auditors . . . . . . . . . . . . . . . . . . F-2
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . E-1
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PART I
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ITEM 1. BUSINESS
American Express Company (including its subsidiaries, unless the
context indicates otherwise, the "Company") was founded in 1850 as a joint
stock association and was incorporated under the laws of the State of New
York in 1965. The Company is primarily engaged in the business of providing
travel related services, financial advisory services and international
banking services throughout the world.*
In 1999, as one of its major initiatives, the Company further
defined and focused its enterprise-wide Internet strategy on four key
objectives: (i) becoming a leading payment provider for online
transactions; (ii) delivering exceptional online customer service; (iii)
becoming a preferred destination site for existing and new customers; and
(iv) using interactive capabilities to improve significantly the Company's
economic performance. Substantial progress was made on these objectives
throughout the Company. Internet developments related to the Company's
specific businesses are provided in the respective business descriptions
below.
TRAVEL RELATED SERVICES
-----------------------
American Express Travel Related Services Company, Inc. (including
its subsidiaries, unless the context indicates otherwise, "TRS") provides a
variety of products and services, including, among others, global card
network, issuing and processing services, the American Express(R) Card, the
Optima(R) Card and other consumer and corporate lending and banking
products, stored value products, business expense management products and
services, corporate and consumer travel products and services, tax
preparation and business planning services, magazine publishing, and
merchant transaction processing, point of sale and back office products and
services. TRS offers products and services in more than 200 countries. In
certain countries, partly owned affiliates and unaffiliated entities offer
some of these products and services under licenses from TRS.
TRS' business as a whole has not experienced significant seasonal
fluctuation, although Card-billed business tends to be moderately higher in
the fourth quarter than in other quarters.
TRS places significant importance on its trademarks and service
marks and diligently protects its intellectual property rights around the
world.
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*Various forward-looking statements are made in this 10-K Annual Report,
which generally include the words "believe," "expect," "anticipate,"
"optimistic," "intend," "aim," "will," and similar expressions. Certain
factors that may cause actual results to differ materially from these
forward-looking statements, including the Company's goals referred to
herein, are discussed on pages 34-37.
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GLOBAL NETWORK SERVICES
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TRS operates a global general-purpose card network, which performs
functions essential to the issuance of cards by network issuers and the
acceptance by merchants of those cards. These functions include the
operational, service delivery, systems, authorization, clearing and
settlement, and marketing infrastructure that supports the network,
development of new and innovative products, and the American Express brand.
Cards bearing the American Express logo ("Cards") are issued by qualified
institutions and are accepted at automated teller machines ("ATMs") and at
all merchant locations worldwide that accept the American Express Card.
TRS is the largest issuer of Cards on the American Express global
network. In addition, there are currently 58 arrangements in place with
banks and other qualified institutions around the world providing for Card
issuance by those entities. Some of these arrangements have been in place
for more than 20 years, but the vast majority have been established since
1995. In May 1996, the Company invited banks and other qualified
institutions in the United States to begin issuing Cards on the American
Express network. In 1997, the Company established a separate internal
organization, Global Network Services, to manage its network business,
bringing increased focus and resources to this area. Global Network
Services showed strong growth in billed business in 1999.
To date, the only United States issuers on the American Express
network are TRS and National Westminster Bank, Plc (a United Kingdom
financial institution with no other card issuing activities in the United
States). This is the result of rules and policies of VISA USA, Inc. and
MasterCard International, Incorporated ("MasterCard") in the United States
calling for expulsion of members who issue American Express-branded cards.
No banks have been willing to forfeit membership in VISA USA, Inc. and/or
MasterCard to issue cards on the American Express network. In a lawsuit
filed on October 7, 1998, against VISA USA, Inc. and VISA International
Corp. (collectively, "VISA") and MasterCard, the U.S. Department of Justice
alleged that these rules and policies violate the antitrust laws of the
United States. This lawsuit is currently scheduled for trial on June 5,
2000.
As a network, TRS encounters intense worldwide competition from
card systems like VISA, MasterCard, Diners Club, the Discover/NOVUS Network
of Morgan Stanley Dean Witter & Co. (U.S. only) and JCB. The principal
competitive factors that affect the network business are (i) the number of
cards-in-force and extent of spending done with these cards; (ii) the
quantity and quality of establishments that accept the cards; (iii) the
success of targeted marketing and promotional campaigns; (iv) reputation
and brand recognition; (v) the ability to develop and implement innovative
systems and technologies; (vi) the ability to develop and implement
innovative types of card products and support services for merchants and
issuers and acquirers on the network; (vii) success in implementation of
strategies to reduce suppression -- when merchants that accept cards
encourage a customer to use another card or cash; and (viii) the
availability of alternative payment systems.
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CONSUMER CARD SERVICES
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TRS and its licensees offer individual consumers charge cards such
as the American Express(R) Card, the American Express(R) Gold Card, the
Platinum Card(R) and the ultra-premium Centurion(SM) Card; revolving credit
cards such as the Optima(R) Card, Blue from American Express, the Delta
SkyMiles(R) Card, and the American Express(R) Credit Card, among others; and a
variety of cards sponsored by and cobranded with other corporations and
institutions. Cards are currently issued in over 50 currencies (including cards
issued by banks and other qualified institutions) and permit Cardmembers to
charge purchases of goods or services in the United States and in most
countries around the world at establishments that have agreed to accept
them, and to access cash through automated teller machines at approximately
300,000 locations worldwide.
Charge Cards, which are marketed in the United States and many
other countries and carry no pre-set spending limits, are primarily
designed as a method of payment and not as a means of financing purchases
of goods or services. Charges are approved based on a variety of factors
including a Cardmember's account history, credit record and personal
resources. Except in the case of extended payment plans (such as Sign &
Travel(R) and the Special Purchase Account(SM)), Charge Cards require payment
by the Cardmember of the full amount billed each month, and no finance
charges are assessed. Charge Card accounts that are past due are subject,
in most cases, to a delinquency assessment and, if not brought to current
status, subject to cancellation.
TRS and its licensees also offer a variety of revolving credit
cards in the United States and other countries. These cards have a range of
different payment terms, grace periods and rate and fee structures. Many of
these revolving cards carry the Optima Card brand, but an increasing
number, including Blue from American Express and many cards issued outside
the United States have different branding. TRS intends to issue more of
these non-Optima branded revolving credit products, which will carry the
American Express brand.
American Express Centurion Bank ("Centurion Bank"), a wholly-owned
subsidiary of TRS, issues the Optima Card and Blue from American Express in
the United States and owns most of the receivables arising from the use of
these Cards. In addition, Centurion Bank has outstanding lines of credit in
association with certain Charge Cards and offers unsecured loans to
Cardmembers in connection with their Sign & Travel Account and Special
Purchase Account. The Sign & Travel program gives qualified United States
Cardmembers the option of extended payments for airline, cruise and certain
travel charges that are purchased with the Charge Card. The Special
Purchase Account offers qualified United States Cardmembers the option of
extending payment for certain charges on the Charge Card in excess of a
specified amount. Centurion Bank is also the issuer for certain Charge
Cards. In July 1999, American Express Centurion Bank launched Membership
B@nking(SM) - an online bank that provides consumers with high-value
products, such as free ATM access with rebates on surcharges from other
banks, high rates on deposits and the convenience of banking by the
Internet, telephone, ATM or mail.
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In several markets outside the United States, other subsidiaries of TRS
engage in consumer lending activities, subject to local regulations.
Centurion Bank's deposits are insured by the Federal Deposit
Insurance Corporation ("FDIC") up to $100,000 per depositor. Centurion Bank
is a Utah-chartered industrial loan company regulated, supervised and
regularly examined by the Utah Department of Financial Institutions and the
FDIC.
Many TRS Cardmembers, particularly Charge Card holders, are
charged an annual fee, which varies based on the type of card, the number
of cards for each account, the currency in which the card is denominated
and the country of residence of the Cardmember. Most revolving credit cards
are offered with no annual fee. Each Cardmember must meet standards and
criteria for creditworthiness which are applied through a variety of means
both at the time of initial solicitation or application and on an ongoing
basis during the Card relationship. The Company uses sophisticated credit
models and techniques in its risk management operations.
Throughout its Card operations, fraud continues to be a concern of
TRS. Losses from counterfeit cards have increased in recent years across
the credit card industry. The Company continues to take measures to address
fraud issues, including investing in new technologies and educating
Cardmembers through fraud protection initiatives.
Cardmembers have access to a variety of special services and
programs, depending on the type of Card they have and their country of
residence. These include Membership Rewards(R); Global Assist(R) Hotline;
Buyer's Assurance Plan; Car Rental Loss and Damage Insurance Plan; Travel
Accident Insurance; Purchase Protection Plan; and Return Protection, Fraud
Protection, and Best Value and Online Shopping Guarantees. Gold Card members
in the United States have access to certain additional services, including a
Year-End Summary of Charges Report. The Platinum Card, offered to certain
Cardmembers in the United States and various other countries, provides
access to additional and enhanced travel, financial, insurance, personal
assistance and other services. The Centurion(SM) Card, offered in the
United States during 1999 following a launch earlier in the year of its
predecessor in the United Kingdom, is an ultra-premium charge card providing
highly personalized customer service, and an array of travel, lifestyle and
financial benefits (and a smart chip enabling additional functionality in the
future in the United Kingdom product). Under the Express Cash program, enrolled
Cardmembers can obtain cash or American Express(R) Travelers Cheques 24
hours a day from automated teller machines worldwide. Personal, Gold,
Platinum and Centurion Cardmembers receive the Customer Relationship
Statement, which is used to communicate special offers for products and
services of both merchants and the Company.
American Express Credit Corporation, a wholly-owned subsidiary of
TRS, along with its subsidiaries ("Credco"), purchase most Charge Card
receivables arising from the use of cards issued in the United States and
in designated currencies outside the United States. Credco finances the
purchase of receivables principally through the issuance of commercial
paper and the sale of medium- and long-term notes. Centurion Bank finances
its revolving credit
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receivables through the sale of short- and medium-term notes and certificates.
TRS and Centurion Bank also fund receivables through asset securitization
programs. The cost of funding Cardmember receivables and loans is a major
expense of Card operations.
The Charge Card, ATM and consumer lending businesses are subject
to extensive regulation in the United States under a number of federal laws
and regulations, including the Equal Credit Opportunity Act (which
generally prohibits discrimination in the granting and handling of credit);
the Fair Credit Reporting Act (which, among other things, regulates use by
creditors of consumer credit reports and credit prescreening practices and
requires certain disclosures when an application for credit is rejected);
the Truth in Lending Act (which, among other things, requires extensive
disclosure of the terms upon which credit is granted); the Fair Credit
Billing Act (which, among other things, regulates the manner in which
billing inquiries are handled and specifies certain billing requirements);
the Fair Credit and Charge Card Disclosure Act (which mandates certain
disclosures on credit and charge card applications); and the Electronic
Funds Transfer Act (which regulates disclosures and settlement of
transactions at ATMs). Recently, certain federal privacy-related laws were
enacted governing the collection and use of customer information by
financial institutions (see page 33). Federal legislation also regulates
abusive debt collection practices. In addition, a number of states and
foreign countries have similar consumer credit protection, disclosure and
privacy-related laws. The application of federal and state bankruptcy and
debtor relief laws affect the Company to the extent such laws result in
amounts owed being classified as delinquent and/or charged off as
uncollectible. The laws and regulations discussed above have not had, and
are not expected to have, a material adverse effect on the Company's Charge
Card, ATM and consumer lending businesses either in the United States or on
a worldwide basis. Centurion Bank is subject to a variety of state and
federal laws and regulations applicable to FDIC-insured, state-chartered
financial institutions. Changes in such laws and regulations or judicial
interpretation thereof could impact the manner in which Centurion Bank
conducts its business.
In 1999, TRS continued to deepen its relationships with core
Cardmembers and gained a greater share of the plastic spending of its
customers. TRS also renewed its focus on acquiring new Cardmembers. Billed
business in the United States grew at double-digit rates in 1999, as
Cardmembers increased their use of Cards for everyday spending at
supermarkets, drug stores, gas stations and for paying utility bills, road
tolls and federal taxes. In addition, new card acquisitions more than
doubled, and the number of consumer Charge Cards in the United States
increased for the first time in nearly a decade. TRS also selectively
expanded the size of credit lines and encouraged Cardmembers to transfer
outstanding balances from other card issuers. As a result, TRS
significantly increased its lending balances and continued to capture a
greater share of industry credit card lending balances.
In 1999, TRS issued a variety of new card products in the United
States. Blue from American Express is the first widely marketed credit card
in the United States with an embedded smart chip, designed to provide added
security and rewards and to help facilitate purchases using the Internet.
Demand for Blue greatly exceeded expectations and caused a backlog of
applications. Additional new card products include a credit card
exclusively for Costco
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members, which offers rebates on spending; the Fidelity American Express(R)
Gold Card and the Fidelity American Express(R) PLATINUM CARD(R),
tied to customers' Fidelity Ultra Service Accounts(R); Platinum Delta
SkyMiles Card, a premium extension of the Delta SkyMiles Card; and the
ultra-premium Centurion Card.
Over the past few years, TRS has expanded its MEMBERSHIP REWARDS
program to include a broader range of travel rewards and retail merchandise
and gourmet gifts. MEMBERSHIP REWARDS is an important part of TRS' strategy
to increase Cardmember spending and loyalty. MEMBERSHIP REWARDS is one of
the industry's most popular rewards programs with over seven-and-one-half
million enrollees worldwide. Enrollees now represent a significant portion
of Cardmember spending. TRS makes payments to merchants pursuant to
contractual arrangements when Cardmembers redeem their MEMBERSHIP REWARDS
points and establishes reserves in connection with estimated future
redemptions. Due to higher charge volumes and reward redemption rates, the
cost of MEMBERSHIP REWARDS has increased over the past several years and
continues to grow. During 1999, TRS changed the MEMBERSHIP REWARDS program
in a number of ways, including implementing a new fee structure, adding
cash rewards and an option for enrollees to buy points, and offering two
new program tiers designed for frequent travelers and those more interested
in retail-oriented awards. TRS will continue to seek ways to contain the
overall cost of the program and make changes to enhance its value to
Cardmembers.
TRS is continuing to make a significant investment in its card
processing system and infrastructure to allow faster introduction and
greater customization of products. TRS also is utilizing technology to
develop its service capabilities. During 1999, TRS introduced Express
Approval(SM), which provides instant decision capability for new account
applications on selected products through the American Express Website and
by telephone. TRS also continued to deepen customer relationships through
successful use of inbound telephone calls to offer additional products and
services. Through this channel, Cardmembers have purchased more than one
million new products and services.
TRS encounters substantial and increasingly intense competition
worldwide with respect to the Card issuing business. As a Card issuer, TRS
competes with financial institutions (such as Citigroup, First USA/Bank
One, MBNA, Chase Manhattan, Bank of America and Barclays Bank) that are
members of VISA and/or MasterCard and that issue general purpose cards,
primarily under revolving credit plans, on one or both of those systems,
and the Morgan Stanley Dean Witter & Co. affiliate that issues the Discover
Card on the Discover/NOVUS Network. TRS also encounters some very limited
competition from businesses that issue their own cards or otherwise extend
credit to their customers, such as retailers and airline associations,
although these cards are not generally substitutes for TRS' Cards due to
their limited acceptance.
Numerous United States banks issuing credit cards under revolving
credit plans charge annual fees in addition to interest charges where
permitted by state law. However, the issuer of the Discover Card, as well
as many issuers of VISA cards and MasterCard cards, generally charge no
annual fees.
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Competing card issuers offer a variety of products and services to
attract cardholders including premium cards with enhanced services or lines
of credit, airline frequent flyer program mileage credits and other reward
or rebate programs, "teaser" promotional interest rates for both card
acquisition and balance transfers, and cobranded arrangements with partners
that offer benefits to cardholders. The trend of mergers and consolidations
among banking and financial services companies and credit card portfolio
acquisitions by major issuers has continued, resulting in some issuers
becoming even larger, with greater resources, economies of scale and brand
recognition to compete -- and a smaller number of dominant issuers. Use of
debit cards for point of sale purchases has continued to increase as many
banks have replaced ATM cards with general purpose debit cards bearing
either the VISA or MasterCard logo. TRS does not currently offer point of
sale debit card products in any significant way.
The principal competitive factors that affect the Card issuing
business are (i) the features and the quality of the services and products,
including rewards programs provided to Cardmembers; (ii) the number,
spending characteristics and credit performance of Cardmembers; (iii) the
quantity and quality of the establishments that accept a card; (iv) the
cost of cards to Cardmembers; (v) the terms of payment available to
Cardmembers; (vi) the number and quality of other payment instruments
available to Cardmembers; (vii) the nature and quality of expense
management data capture and reporting capability; (viii) the success of
targeted marketing and promotional campaigns; (ix) reputation and brand
recognition; and (x) the ability of issuers to implement operational and
cost efficiencies.
MERCHANT SERVICES
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Over the past several years, TRS' Establishment Services Group has
focused on expanding the TRS network of merchants and increasing merchant
acceptance globally, both through employees and third-party sales agents.
In 1999, TRS strengthened its merchant coverage in the United
States in various industries, including warehouse clubs, supermarkets,
utilities, health care, and business-to-business. Key signings included
Costco, Publix and Winn Dixie supermarkets. The merchant network in the
United States can now accommodate more than 95 percent of American Express
Cardmembers' general purpose plastic spending. TRS' objective is to achieve
merchant coverage wherever Cardmembers want to use the Card. In the United
States, TRS acquires merchants through three sales channels: a proprietary
sales force, third-party sales agents and telemarketing. Card acceptance by
Internet merchants also continued to grow in 1999, with our cards now
accepted at 95% of the top 500 E-commerce websites.
As a merchant processor, TRS accepts and processes from each
participating establishment the charges arising from Cardmember purchases at
a discount that varies with the type of participating establishment, the charge
volume, the timing and method of payment to the establishment, the method
of submission of charges and, in certain instances, the average charge
amount and the amount of information provided. As a result of TRS'
attractive Cardmember base with loyal, high-spending Personal and Corporate
Cardmembers, TRS is generally able to
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charge higher discount rates to participating establishments than its
competitors. While many establishments understand this pricing in relation
to the value provided, TRS has encountered complaints from some establishments,
as well as suppression of the Card's use, and continues to devote significant
resources to respond to these issues through better communication of the
American Express value proposition and by canceling merchants who suppress
usage of the American Express Card.
TRS focuses on understanding and addressing key factors that
influence merchant satisfaction, on executing programs that increase card
usage at merchants and on strengthening its relationships with merchants
through an expanded roster of services that help them meet their business
goals. In 1999, TRS implemented a new flat fee rate structure which
improved satisfaction among merchants that generate less than $5,000 in
annual American Express charge volume. During the year, TRS also
implemented programs to drive spending in everyday spend categories, which
led to increased usage and awareness by Cardmembers. Retail purchases in
the United States comprise nearly 50% of consumer Cardmembers' spending on
Cards and nearly 40% of overall Cardmember spending.
TRS also expanded its range of services in 1999 to include
Internet initiatives to help merchants that accept Cards more effectively
manage their businesses. For example, an E-commerce Resource Center
provides merchants with guidance about developing, implementing and
establishing a web presence to help grow their businesses. TRS also
activated online self-servicing through which merchants may automatically
update their account information.
TRS has also expanded its ATM business in the United States to
nearly 9,000 terminals, establishing TRS as the largest off-premise
deployer of ATMs in the United States. TRS plans to use these ATMs to
deliver a range of services to Cardmembers and merchants.
Globally, the Company manages both the acquiring relationship
with merchants through the American Express network and the Card issuing
side of the business. This "closed loop," which distinguishes the American
Express network from the bankcard networks, provides a rich source of
information at both ends of the Card transaction and enables TRS to provide
targeted marketing opportunities for merchants and special offers to
Cardmembers through a variety of channels.
CORPORATE SERVICES, SMALL BUSINESS SERVICES AND TRAVEL
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TRS, through its Corporate Services Group ("CSG") and Small Business
Services Group, is a leading provider to large, mid-sized and small
businesses of expense management systems and travel services.
CSG provides Corporate Charge Card expense management services
to large and mid-sized companies for travel and entertainment spending.
Companies are offered these services through the American Express Corporate
Card, which is a charge card issued to individuals through a corporate account
established by their employer for business purposes.
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CSG integrates the Corporate Card and business travel services in
the United States and certain foreign countries to meet the competition for
the business traveler and to provide client companies with a customized
approach to managing their travel and entertainment budgets. Clients are
provided an information package to plan, account for and control travel and
entertainment expenses.
In 1999, the Corporate Services business grew, although there were
challenging economic conditions in many markets and downward pressure on
profit margins that continued throughout the travel industry. The ongoing
trend of airline alliances, airline websites permitting travelers to book
business directly and airline commission rate reductions resulted in
decreased business travel revenue and price increases for travelers, fewer
opportunities for data aggregation for corporations and greater pressure on
the TRS travel business. TRS continues to modify its business model to
address these ongoing industry challenges. TRS is moving away from reliance
on commission revenues from suppliers and towards an emphasis on fees from
customers by unbundling its array of travel services and pricing them
individually. Competitors also continue to increase their focus on the
Corporate Card business. For a discussion of competition relating to the
Card issuing business, see pages 6 and 7.
In 1999, the Corporate Services business enhanced its presence in
business-to-business E-commerce by launching several new initiatives and
strengthening certain existing services. CSG launched American Express @
Work(SM), a corporate desktop portal that provides for online management of
Corporate Card and Corporate Purchasing Card programs. TRS also enhanced
AXI(R) TRAVEL, an interactive online corporate travel booking system, which
now has more than 500,000 registered users and which has expanded into
eight countries outside the United States. In addition, CSG further
enhanced its interactive business travel booking system through a strategic
alliance with GetThere.com to provide a choice of online travel reservation
systems to customers.
TRS also seeks to improve client company management of non-travel
and entertainment business expenses through the Corporate Purchasing Card.
This product assists large companies in managing indirect spending
including traditional purchasing administration expenses. Employees can use
the Purchasing Card to order directly from manufacturers and suppliers,
rather than using the traditional system of requisitions, purchase orders
and invoices and retail store purchasing. TRS pays the suppliers and
submits a single monthly billing statement to the company.
To expand its capabilities relating to online purchasing, TRS is
developing a business-to-business digital marketplace. TRS has also
partnered with 10 leading E-commerce firms to provide a faster, more
efficient way for customers to purchase office supplies and related
products using the Corporate Purchasing Card.
TRS, through its Small Business Services Group, is also a leading
provider of financial and travel services to small businesses (i.e., less
than 100 employees and/or sales of $10 million
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or less). TRS continued to achieve substantial growth in the Small Business
Services Group in 1999, with double-digit increases in billed business and
cards-in-force, and strong increases in average Cardmember spending. TRS
serves the needs of small businesses with a portfolio of charge and credit
card products. In addition, TRS offers its customers an Everyday Savings
program which includes specifically negotiated rates on services such as
car rental, gasoline, hotel and office services. TRS also maintains, as part of
AmericanExpress.com, the American Express Small Business Exchange Website,
through which it provides small business owners with relevant information,
expert advice and customer servicing applications.
A key strategy for TRS is the creation of products to meet better
the credit needs of small business owners. Equipment financing is a key
lending category for small business owners. In February 1999, TRS purchased
Rockford Industries (now American Express Business Finance Corporation), a
firm that provides point-of-purchase equipment financing and lending. TRS'
small business lending portfolio more than doubled during the year. TRS
also entered into Internet-based services through a marketing arrangement
with Doublebill to help create BigVine.com, an Internet barter site for
small businesses, and a sponsorship agreement with Netscape that will bring
American Express financial services to small businesses through Netscape's
Small Business Channel.
American Express Tax and Business Services Inc. ("TBS"), a part of
the Small Business Services Group, is an accounting and business advisory
firm for small and mid-sized companies. TBS provides a wide range of
services, including tax planning and accounting, litigation support, small
business advisory services and business technology consulting as well as
other business consulting services. In addition, TBS has expertise in a
variety of industries, including health care, real estate, manufacturing
and distribution, among others. TBS has more than 70 offices in 18 states
with approximately 2,800 employees. It continued to acquire accounting
firms in 1999.
TRS provides a wide variety of travel services to customers
traveling for business and personal purposes and is one of the leading
business travel providers worldwide. Travel services include trip planning,
reservations, ticketing and other incidental services. In addition, for
business travel accounts, TRS provides corporate travel policy consultation
and management information systems, and group and incentive travel
services. TRS receives commissions and fees for travel bookings and
arrangements from airlines, hotels, car rental companies and other travel
suppliers, fees for reservations and ticketing and management and
transaction fees from certain business travel accounts.
TRS' retail travel network of more than 1,700 owned and
representative offices is important in supporting the American Express
brand and providing customer service throughout the world. TRS continually
evaluates this structure to determine the best way to leverage the strength
of the travel network. At the same time, TRS is developing ways to better
serve the travel consumer, including 1-800-type services, and Internet-based
products and services. In March 1999, TRS acquired Golden Bear Travel Agency,
a travel agency specializing in cruises.
TRS faces vigorous competition from more than 30,000 travel agents
as well as direct sales by airlines and travel suppliers in the United
States and abroad. This competition is mainly
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based on price, service, convenience and proximity to the customer and has
increased due to several factors in recent years, including the acquisition
of independent agencies by larger travel companies. In addition, many companies
have established in-house business travel departments.
Airlines have continued efforts to reduce their distribution
expenses, including travel agency commissions, through techniques such as
caps on commission fees and decreases in base commission rates. This has
caused some independent agencies to go out of business and forced others to
seek consolidation opportunities. TRS has accelerated its efforts to rely
less on commissions by establishing more service fee-based client
relationships. Consolidation of travel agencies is likely to continue as
agencies seek to better serve national and multinational business travel
clients and negotiate more effectively with the airlines with respect to
computer reservation systems and compensation and pricing arrangements. It
is also expected that travel agencies will continue to look for expense
reduction opportunities. Customers may increasingly seek alternative
channels to make travel arrangements, such as online vendors or airline
services that require booking directly with the airlines.
TRS INTERNATIONAL
-----------------
The TRS International Group continues to focus on expanding its
proprietary card business and network alliances in key markets, expanding
the network of merchants that accept American Express Cards, leveraging
opportunities for growth in Corporate Card, Corporate Travel and in other
areas of Corporate Services and re-engineering its business to improve key
processes and reduce costs. This business was strengthened in 1999 through
new product introductions, increased global network agreements and expanded
merchant coverage.
In 1999, TRS International had strong increases in total
cards-in-force, billed business and lending balances. At the same time,
economic uncertainty in certain major markets around the world dampened
results. Short- and long-term reengineering initiatives remain underway to
better align the TRS International operations for growth. TRS also
increased its international merchant coverage in 1999, which network now
accommodates 86 percent of Cardmembers' general purpose plastic spending,
up from 83 percent a year ago. However, suppression continues to be a
problem, particularly in Europe and Asia.
In 1999, TRS continued to bolster its proprietary business through
the launch of numerous new proprietary, cobranded charge and revolving
credit cards and new affinity cards in a number of markets outside the
United States. These included the Centurion Card in the United Kingdom;
the Platinum Card in Puerto Rico, Thailand, Argentina, Brazil, Taiwan,
Singapore, Malaysia and Spain (more than doubling the international
Platinum Card customer base over the past two years); revolving Gold cards
in Hong Kong, Singapore and Australia; a Blue Card in the Netherlands; the
cobranded Manulife One American Express Gold Card in Canada; the cobranded
Suncorp Metway American Express Card in Australia; a cobranded card
agreement with Alitalia in Italy; an agreement to issue a cobranded credit
card with Costco in Canada; new affinity cards, including Certified Practising
Accountants (CPAs) in Australia and A.S. Roma,
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Rome's soccer team; and new distribution agreements, including
Dresdner Bank in Germany and BankBoston in Argentina.
TRS International continued to pursue alliances through joint
ventures or other agreements with qualified institutions that issue cards
with an American Express logo. These cards are accepted worldwide on the
American Express merchant network. In 1999, TRS established new network
arrangements and launched a wide variety of payment products with new and
existing alliances - DnB Bedriftskort in Norway; Development Bank of
Singapore in Singapore; Hong Kong Shanghai Bank in Brazil; Bank Hapoalim in
Israel; Credit Saison in Japan; Banco Comercial Portugues in Portugal; and
Saudi Arabian Investment Bank in Saudi Arabia, among others. As of December
31, 1999, TRS had established 58 arrangements in over 60 countries and
launched 38 new products through these alliances. TRS expects to continue
establishing similar types of arrangements outside the United States, while
at the same time deepening its existing relationships. For a discussion of
competition relating to TRS International, see page 6.
TRS International also strengthened its corporate travel business
in 1999, although this sector remains highly competitive. International
travel sales were up during the year, aided by the 1998 acquisition of
Havas Voyages SA, the largest travel agency in France. In 1998, TRS also
established a joint venture with BBL Travel in Belgium and Luxembourg.
These acquisitions bolster TRS' position in the global travel business,
provide a platform for Corporate Card sales and further increase the
importance of TRS' customer base with key travel suppliers. This is
important in the current travel agency business, both internationally and
domestically, with ongoing pressure to reduce commissions by major airlines
and other suppliers.
TRS International also provides currency exchange and foreign
payment services to consumers in American Express Travel Offices, dedicated
bureaus, airports and other locations. In 1999, the Foreign Exchange
Services Group expanded its International Payments business, which offers
to small businesses and banking customers an Internet-based service for
making payments to foreign suppliers. Foreign Exchange Services also
enlarged its global retail brand presence in partnership with local
institutions by establishing joint ventures in India and Singapore and
license arrangements in South Africa, Thailand, Turkey and the United States.
OTHER PRODUCTS AND SERVICES
---------------------------
American Express Relationship Services ("AERS") sells products and
services which address some of the information, access, security, financial
and telecommunications needs of American Express customers. Services
offered for a fee to Cardmembers include travel, health and credit
insurance products, credit card registry, credit bureau monitoring and
telecommunication services. Additional services included VIP Subscriptions
for magazines; CreditAware(R), offering a credit bureau profile service;
and Family Shield, providing accidental death insurance coverage. AERS
also markets education loans to students and parents through more than 450
colleges and universities. AERS has discontinued its Merchandise Services
business.
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AERS is also developing new stored-value products. In 1999, AERS
expanded its Electronic Gift Card business, adding new customers such as
Barnes & Noble and Eddie Bauer. It also relaunched the "Be My Guest(R)"
restaurant gift program offering a magnetic stripe card used to give the
gift of dining at restaurants.
AERS is also responsible for three enterprise-wide utilities,
including interactive, smart cards and customer information management. The
group is developing the Company's enterprise-wide interactive strategy with
a focus on providing Internet and interactive capabilities to meet
customers' needs. This has been and is expected to be an increasingly
important part of the Company's business in the future (see page 1 above).
Over the last several years, TRS has made numerous minority investments in
Internet firms, which typically also include a marketing arrangement with
such companies. In 1999, AERS made 12 new investments in Web-based ventures
including, among others, Netcentives, a provider of online marketing
technology that helps drive customer loyalty and Qpass, which facilitates
online purchases of digital content and services such as news articles and
music.
Nearly 1.6 million Cardmembers are registered with American
Express Online Services; this figure has recently grown at an average rate
of nearly 70,000 users monthly. This service enables Cardmembers to review
and pay their American Express bills electronically, view their MEMBERSHIP
REWARDS(R) accounts and conduct various other functions quickly and
securely online. In addition, during 1999, the Company redesigned its
Website and launched "My American Express," enabling customers to tailor
the site to their needs; established online hubs to provide integrated
financial, travel and entertainment services to customers; and made
progress in developing additional interactive utilities, such as a common
framework for Website design, to facilitate implementation of new Internet
initiatives across its businesses in a more timely and cost effective
manner.
AERS is also developing global strategies for smart cards and
customer information management. Smart cards are cards with computer chips
that can store and process data. During the year, AERS announced the
licensing of its patent-pending smart card multiple application framework
to more than a dozen industry leaders. The framework promotes interoperability
among a wide range of smart card applications and supports many smart card
platforms. AERS also announced the formation of the Interoperability
Consortium, an independent and open body that will govern the multiple
application framework standard. AERS will continue to focus on the
fast-changing electronic commerce, smart card and information management
arenas and seek to craft solid strategies for the Company.
TRS also publishes lifestyle magazines such as Travel &
Leisure(R), T&L Golf, Food & Wine(R), Departures(TM) and B. Smith Style;
travel resources such as SkyGuide(R); and business resources such as the
American Express Appointment Book and Fortune Small Business magazine.
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AMERICAN EXPRESS FINANCIAL ADVISORS
-----------------------------------
American Express Financial Corporation ("AEFC") provides a variety
of financial products and services to help individuals, businesses and
institutions establish and achieve their financial goals. AEFC's products
and services include financial planning and advice, insurance and
annuities, a variety of investment products, including investment
certificates, mutual funds and limited partnerships, investment advisory
services, trust and employee plan administration services, personal auto
and homeowner's insurance and retail securities brokerage services. At
December 31, 1999 American Express Financial Advisors Inc. ("AXP
Advisors"), AEFC's principal marketing subsidiary, maintained a nationwide
financial planning field force of over 11,000 persons.
In November 1999, AXP Advisors began using the shortened name
"American Express" in its marketing material to establish a stronger brand
identity for the Company in financial services. See page 32 for a more
general discussion of the American Express brand.
DISTRIBUTION OF PRODUCTS AND SERVICES
-------------------------------------
AXP Advisors has three primary financial service distribution
channels: retail, consisting of financial advisors and direct access
(online, telephone and mail), institutional and third party.
AXP Advisors' primary distribution channel is its corps of
financial advisors. Through this channel, AXP Advisors offers financial
planning and investment advisory services (for which it charges a fee) to
individuals and business owners which address six basic areas of financial
planning: financial position, protection, investment, income tax,
retirement and estate planning, as well as asset allocation. AXP Advisors'
financial advisors provide clients with recommendations from the more than
100 products distributed by subsidiaries and affiliates of AEFC as well as
products of approved third parties.
First-year financial advisors are compensated primarily by salary;
veteran financial advisors receive compensation based largely on sales and
assets maintained from sales. The compensation system is structured to
encourage advisor retention and product persistency, while adding stability
to the financial advisor's income. In attracting and retaining members of
the field force, AXP Advisors competes with financial planning firms,
insurance companies, securities broker-dealers and other financial institutions.
During 1999, AXP Advisors began to implement plans to provide
advisors choices in how they fit into the organization, with various levels
of service, compensation and branding. This includes providing options to
the current American Express-branded advisor network, which differ in the
level of service and payout rate offered. Advisors are able to choose a
salaried employee advisor network with a high level of service and a lower
payout rate; a branded advisor network, structured as a franchise system,
in which advisors get a higher payout rate and can purchase the services
they prefer; or an affiliated but unbranded broker-dealer network with a yet
higher payout. The unbranded network is Securities America, Inc., a
broker-dealer owned by AEFC servicing approximately 1,100 financial advisors
and a distributor of
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mutual funds, annuities and insurance products. National roll-out of this
plan commenced in March 2000. Approximately 35 percent of AXP Advisors'
financial advisors have chosen to be American Express employees and about
65 percent have chosen to be American Express-branded franchisees. Later in
2000 advisors will also be able to choose the unbranded network.
The use of a dedicated field force may entail higher initial costs
than other forms of marketing, such as direct-response or independent
agency distribution. However, AXP Advisors believes that its ability to
provide broad-based integrated services on a relationship basis is a
competitive advantage. At the same time, AXP Advisors recognizes that it
needs to continue its efforts to increase the size of its dedicated field
force due to its main competitors' larger sales forces and more developed
alternative distribution channels.
Consistent with the Company's goal of promoting cross selling
across all of its units, AXP Advisors has increased its sales to customers
from other American Express businesses. In 1999, American Express
Cardmembers accounted for nearly one-third of all new clients of AXP
Advisors' financial advisors, and substantial investment certificate sales
were made to American Express Bank Ltd.'s foreign customers. Further cross
selling will be sought through AXP Advisors' office in Japan, which
currently offers financial products and services to TRS' Cardmembers in
Japan, and which plans to offer financial products to non-Cardmembers later
in 2000.
AXP Advisors recently has taken further steps to integrate its
direct retail distribution channel with the advisor channel. In late 1999,
AXP Advisors relaunched its online brokerage business (American Express
Brokerage), which, among other services, allows clients to purchase and
sell securities online, in some cases with no trading commissions, obtain
research and information about a wide variety of securities, use asset
allocation and financial planning tools, contact an advisor, as well as
have access to more than 2,000 proprietary and non-proprietary mutual
funds. In addition, AXP Advisors, in an arrangement with Microsoft,
provides extensive content for the MSN MoneyCentral personal finance
Website. The site provides varied financial planning information and links
to AXP Advisors' homepage and online brokerage site as part of
AmericanExpress.com. AXP Advisors' strategy is for clients to have the
choice of when, where and how they work with AXP Advisors.
During the year, American Express Asset Management Group Inc.
("AEAMG"), an affiliate of AXP Advisors, continued to expand its
institutional business, which includes separate account asset management
services for corporate, public and union retirement funds. AXP Advisors
also continued to add clients to its Investing at Work program. This is a
program for employees who want to save after-tax funds for financial goals
beyond their company retirement savings plan. This program currently serves
employees at approximately 16 companies.
In addition to the retail and institutional distribution channels,
AXP Advisors has a third-party channel that distributes proprietary
investment, insurance and annuities products through insurance agencies
and broker-dealers who may also be associated with financial institutions,
such as banks. Although AXP Advisors has expanded its network of third-party
distributors and
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the range of products offered through them, third-party sales efforts
have lagged behind expectations.
The move to multiple distribution channels has implications for
how AXP Advisors services its clients. In order to provide clients with a
more integrated service, it will be necessary to build the capability to
recognize and service the client's entire relationship with AXP Advisors,
regardless of which channel or channels they have used. This will require,
among other things, continued investment in both technology infrastructure
and the service organization. In addition, the distribution of proprietary
products outside of the traditional advisor channel will require, among
other things, that the organization continues to modify its product systems
so they can interface according to industry standards with distributors
outside of AXP Advisors.
AXP Advisors does business as a broker-dealer and investment
advisor in all 50 states, the District of Columbia and Puerto Rico. AEFC
and AXP Advisors are registered as broker-dealers and investment advisors
regulated by the Securities and Exchange Commission ("SEC") and are members
of the National Association of Securities Dealers, Inc. ("NASD"). AXP
Advisors' financial advisors must obtain all required state and NASD
licenses.
AXP Advisors has experienced, and believes it will continue to be
subject to, increased regulatory oversight of the securities and
commodities industries at all levels. Among other powers, the SEC,
self-regulatory organizations and state securities commissions may conduct
administrative proceedings, which may result in censure, fine, the issuance
of cease-and-desist orders or suspension or expulsion of a broker-dealer or
an investment advisor and its officers or employees. In addition,
individual investors can bring complaints against AXP Advisors. AXP
Advisors also believes it is one of the first financial institutions to
structure itself as a franchise system. As such, AXP Advisors is subject to
Federal Trade Commission and state franchise requirements.
Competition in the financial services industry focuses primarily
on cost, investment performance, yield, convenience, service, reliability,
safety, distribution systems, reputation and brand recognition. Competition
in this industry is very intense. AEFC competes with a variety of financial
institutions such as banks, securities brokers, mutual funds and insurance
companies. Some of these institutions are larger and more global than AEFC,
and the continuing trend towards consolidation and globalization in the
financial services industry may increase the number of these stronger
competitors. Many of these financial institutions also have products and
services that increasingly cross over the traditional lines that previously
differentiated one type of institution from another, thereby heightening
competition in many of AEFC's markets. The ability of certain financial
institutions to offer, and the dramatically increased usage by investors
of, online investment and information services has also affected the
competitive landscape over the past couple of years. Reflecting the
competitive environment, certain financial institutions have continued to
seek to hire AXP Advisors' financial advisors. AEFC anticipates that
competition in this industry will increase as a result of the enactment in
1999 of the Gramm-Leach-Bliley Financial Services Modernization Act of 1999
("Gramm-Leach-Bliley Act"), which permits banks, insurance companies and
securities firms to combine and offer a
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broad range of permissible financial services. See page 33 for a discussion
of privacy-related issues under this law.
AEFC's business does not, as a whole, experience significant
seasonal fluctuations.
INSURANCE AND ANNUITIES
-----------------------
AEFC's insurance business is carried on primarily by IDS Life
Insurance Company ("IDS Life"), a stock life insurance company organized
under the laws of the State of Minnesota. IDS Life is a wholly-owned
subsidiary of AEFC and serves all states except New York. IDS Life is the
fourteenth largest life insurance company in the United States, with
consolidated assets at December 31, 1999 of $64 billion (under generally
accepted accounting principles). IDS Life Insurance Company of New York is
a wholly-owned subsidiary of IDS Life and serves New York State residents.
IDS Life also owns American Enterprise Life Insurance Company ("American
Enterprise Life"), which issues fixed and variable dollar annuity contracts
for sale through insurance agencies and broker-dealers who may also be
associated with financial institutions, such as banks. American Centurion
Life Assurance Company ("American Centurion Life") is an IDS Life
subsidiary that offers fixed and variable annuities to American Express
Cardmembers and others in New York, as well as fixed and variable annuities
for sale through insurance agencies and broker-dealers who may also be
associated with financial institutions, such as banks, in New York. IDS
Life owns American Partners Life Insurance Company ("American Partners
Life"), which offers fixed and variable annuity contracts to American
Express Cardmembers and others who reside in states other than New York.
IDS Life's products include whole life, universal life (fixed and
variable), single premium life and term products (including waiver of
premium and accidental death benefits), disability income and long-term
care insurance. IDS Life is one of the nation's largest issuers
of single premium and flexible premium deferred annuities on both a fixed and
variable dollar basis. Immediate annuities are offered as well. IDS Life
markets variable annuity contracts designed for retirement plans.
IDS Life's fixed deferred annuities guarantee a relatively low
annual interest rate during the accumulation period (the time before
annuity payments begin). However, the company has the option of paying a
higher rate set at its discretion. In addition, persons owning one type of
annuity may have their interest calculated based on any upward movement in
a broad-based stock market index. IDS Life also offers a variable annuity,
the American Express Retirement Advisor Variable Annuity(SM), in which the
purchaser may choose between mutual funds with portfolios of common stocks,
bonds, managed assets and/or short-term securities, and IDS Life's "general
account" as the underlying investment vehicle. Over the past five years,
IDS Life's variable annuity sales have had an increasing impact on total
annuity sales.
IDS Life, American Enterprise Life and American Partners Life are
subject to comprehensive regulation by the Minnesota Department of Commerce
(Insurance Division), the Indiana Department of Insurance, and the Arizona
Department of Insurance, respectively. American Centurion Life and IDS Life
Insurance Company of New York are regulated by the
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<PAGE>
New York State Department of Insurance. The laws of the other states in
which these companies do business also regulate such matters as the
licensing of sales personnel and, in some cases, the marketing and contents
of insurance policies and annuity contracts. The purpose of such regulation
and supervision is primarily to protect the interests of policyholders.
Regulatory scrutiny of market conduct practices of insurance companies,
including sales, marketing and replacements of fixed and variable life
insurance and annuities and "bonus" annuities, has increased significantly
in recent years and is affecting the manner in which companies approach
various operational issues, including compliance. The number of private
lawsuits alleging violations of laws in connection with insurance and
annuity market conduct has increased (see Legal Proceedings on page 42).
Virtually all states mandate participation in insurance guaranty
associations, which assess insurance companies in order to fund claims of
policyholders of insolvent insurance companies. On the federal level, there
is periodic interest in enacting new regulations relating to various
aspects of the insurance industry, including taxation of variable annuities
and life insurance policies, accounting procedures, as well as the
treatment of persons differently because of sex, with respect to terms,
conditions, rates or benefits of an insurance contract. New federal
regulation in any of these areas could potentially have an adverse effect
upon AEFC's insurance subsidiaries.
As a distributor of variable annuity and life insurance contracts,
IDS Life is registered as a broker-dealer and is a member of the NASD. As
investment manager of various investment companies, IDS Life is registered
as an investment advisor under applicable federal requirements.
IDS Property Casualty Insurance Company ("IDS Property Casualty")
provides personal auto and homeowner's coverage to clients in 35 states and
the District of Columbia. This insurance is also underwritten by AMEX
Assurance Company, a subsidiary of the American Express Company, and reinsured
by IDS Property Casualty. IDS Property Casualty is regulated by the Commissioner
of Insurance for Wisconsin. AMEX Assurance Company, which also provides certain
American Express Card related insurance products, is regulated by the
Commissioner of Insurance for Illinois.
The insurance and annuity business is highly competitive, and IDS
Life's competitors consist of both stock and mutual insurance companies.
Competitive factors applicable to the insurance business include the
interest rates credited to products, the charges deducted from the cash
values of such products, the financial strength of the organization and the
services provided to policyholders.
INVESTMENT CERTIFICATES
-----------------------
IDS Certificate Company ("IDSC"), a wholly-owned subsidiary of
AEFC, issues face-amount investment certificates. IDSC is registered as an
investment company under the Investment Company Act of 1940. IDSC currently
offers nine types of face-amount certificates. Owners of IDSC certificates
are entitled to receive, at maturity, a stated amount of money equal to the
aggregate investments in the certificate plus interest at rates declared
from time to time by IDSC. In addition, persons owning two types of
certificates may have their interest calculated in
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<PAGE>
whole or in part based on any upward movement in a broad-based stock
market index. The certificates issued by IDSC are not insured by any
government agency. AEFC acts as investment manager for IDSC. IDSC's
certificates are sold primarily by AXP Advisors' field force. Certificates
are also marketed by American Express Bank Ltd. to its foreign customers.
IDSC is the largest issuer of face-amount certificates in the
United States. At December 31, 1999, it had approximately $3.8 billion in
assets. IDSC's certificates compete with many other investments offered by
banks, savings and loan associations, credit unions, mutual funds,
insurance companies and similar financial institutions, which may be viewed
by potential customers as offering a comparable or superior combination of
safety and return on investment.
MUTUAL FUNDS
------------
AXP Advisors offers a variety of mutual funds, for which it acts
as principal underwriter (distributor of shares). AEFC acts as investment
manager and performs various administrative services. The American
Express(R) Funds consist of 44 retail mutual funds, with varied investment
objectives and includes, for example, money market, tax-exempt, bond and
stock funds. The American Express Funds, with combined net assets at
December 31, 1999 of $101 billion, was the 17th largest mutual fund
family in the United States and, excluding money market funds, was
the 10th largest. The uneven performance in the global financial markets in
1999 affected the results of many of the American Express Funds, and
investment results for the year were mixed. However, their overall mutual
fund performance improved from the prior year. Approximately three-quarters of
American Express Funds finished in the first or second quartile of their
peer groups for 1999, and all United States taxable fixed income funds
outperformed their peer group benchmarks.
For most funds, shares are sold in three classes. Class A shares
are sold at net asset value plus any applicable sales charge. The maximum
sales charge is 5.75 percent of the offering price with reduced sales
charges for larger purchases. The sales charge may be waived for certain
purchases, including those made through an investment product sponsored by
AXP Advisors or another authorized financial intermediary. Class B shares
are sold with a rear load. The maximum sales charge is five percent
declining to no charge for shares held over six years. Class Y shares are
sold to institutional clients with no load. In 1999, American Express Funds
introduced five index funds, which are sold in two no-load classes. Class D
shares are sold for a 0.25% cost for distribution services but without a
sales charge through an investment product sponsored by AXP Advisors or
another authorized financial institution. Class E shares are sold without a
sales or distribution fee through American Express brokerage accounts and
qualifying institutional accounts.
Fifteen of the American Express Funds are structured as feeder
funds investing in the Preferred Master Trust Group, a group of 15 master
funds, advised by AEFC. A second family of 15 funds, the no-load Strategist
Funds, also invests in the Preferred Master Trust Group. These funds are no
longer available for sale except to existing investors. This feeder structure
provides for potential development of additional channels of distribution.
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In addition to full-commission and discount brokerage firms,
competitors include other financial institutions, such as banks and
insurance companies. Recent growth trends in the market, including the
increasing sales of mutual funds to retail investors, have expanded the
number of competitors in the industry. Some competitors are larger, more
diversified and offer a greater number of products, and may have an
advantage in their ability to attract and retain customers on the basis of
one-stop shopping. The competitive factors affecting the sale of mutual
funds include sales charges ("loads") paid, administrative expenses,
services received, investment performance, the variety of products and
services offered, the convenience to the investor and general market
conditions. The funds compete with other investment products, including
funds that have no sales charge (i.e., "no load" funds) and funds
distributed through independent brokerage firms.
AXP Advisors, through a subsidiary that has been registered as a
broker-dealer in Japan, began offering mutual funds to individual Japanese
investors in March 1999 through American Express Financial Advisors Japan
Inc. ("AEFAJ"). AEFAJ is also planning to introduce financial planning
services in this market.
OTHER PRODUCTS AND SERVICES
---------------------------
AEAMG, a subsidiary of AEFC, is an SEC registered investment
advisor that provides investment management services for pension, profit
sharing, employee savings and endowment funds of large- and medium-sized
businesses and other institutions ("institutional clients").
AEAMG, through the Portfolio Management Group (an operating division of AXP
Advisors), also offers discretionary investment management services to wealthy
individuals and small institutions with account sizes between $1 million
and $10 million. AEAMG also owns a majority interest in Kenwood Capital
Management LLC, which provides investment management services to investment
companies, corporations, trusts, estates, charitable organizations and tax
qualified pension and profit sharing plans. It employs an active investment
strategy that is based on a disciplined approach to stock selection and
portfolio risk management, and seeks to achieve consistent excess returns
relative to passive index benchmarks for small- and mid-cap segments of the
United States Equity Market.
Advisory Capital Partners LLC ("ACP"), a majority owned subsidiary
of Advisory Capital Strategies Group Inc., which, in turn, is a
wholly-owned subsidiary of AEAMG, is registered with the Commodity Futures
Trading Commission ("CFTC") as a Commodity Pool Operator. ACP acts as the
general partner to two partnerships seeking superior capital appreciation,
which are offered privately to qualified, eligible participants and which
employ various investment strategies, including among other things, the use
of leverage, short selling of securities and investment in options, futures
and other derivative instruments. For these partnerships, AEAMG acts as the
investment manager. AEAMG and Advisory Alpha Partners L.P., a registered
Commodity Pool Operator with the CFTC, jointly provide investment
management and advisory services to certain private investment vehicles
organized offshore.
AEAMG also serves as a sub-advisor to American Express Asset
Management Ltd. in providing investment advice with respect to the United
States Equity Fund Portfolio for the
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American Express Asset Management Pooled Funds, which is an open-end
unit trust under Canadian tax law. AEAMG also provides investment
management services as collateral manager for various special purpose
entities that issue their own securities which are collateralized by a pool
of assets, e.g., collateralized bond obligations.
At December 31, 1999, AEAMG managed securities portfolios totaling
$20.6 billion for 443 accounts.
International or global investment management is offered to United
States-based institutional clients by American Express Asset Management
International Inc. ("AEAMI"), a United States company with offices in Hong
Kong, London and Singapore, and to non-United States based institutional
clients by American Express Asset Management Ltd. ("AEAML"), a United
Kingdom company with offices in Hong Kong, London and Singapore.
International institutional investment management services are also
provided, primarily on a sub-advisor basis for the clients of AEAMI and
AEAML, by American Express Asset Management International (Japan) Ltd.
("AEAMIJ"), which has offices in Tokyo. AEAMIJ also plans to offer
investment management services to Japanese institutional investors in 2000.
At December 31, 1999, AEAMI managed securities portfolios totaling $12.3
billion for 24 accounts; and AEAML managed securities portfolios totaling
$3.3 billion for 26 accounts. AEAMI and AEAML are wholly-owned subsidiaries
of AEFC. AEAMIJ managed $83 million for a mutual fund sponsored by American
Express Bank. AEAMIJ is a Japanese corporation that is a wholly-owned
subsidiary of AEAMG.
The institutional investment management business is highly
competitive, and AEAMG and its affiliates must compete against a substantial
number of larger firms in seeking to acquire and maintain assets under
management. Competitive factors in this business include fees, investment
performance and client service.
AXP Advisors sponsors four wrap programs marketed through
financial advisors, marketing employees and third-party referrals. American
Express Wealth Management Service is a professionally managed discretionary
wrap account of individual securities. American Express Strategic Portfolio
Service and American Express Strategic Portfolio Service Advantage are
non-discretionary mutual fund wrap programs built around asset allocation
strategies. American Express Diversified Portfolio Service is a
non-discretionary multi-product wrap program offering mutual funds, stocks
and bonds. At December 31, 1999, assets in wrap programs offered by AXP
Advisors totaled $13.5 billion for approximately 85,300 accounts. American
Express Wealth Management Service, American Express Strategic Portfolio
Service, American Express Strategic Portfolio Service Advantage and
American Express Diversified Portfolio Service are operating divisions of
AXP Advisors.
American Express Trust Company ("AETC") provides trustee, custodial,
record keeping and investment management services for pension, profit
sharing, 401(k) and other qualified and non-qualified employee benefit
plans. Enhancements to the 401(k) services now allow clients to check
balances and initiate transfers online. AETC is trustee of over 416 benefit
plans which represent approximately $28.7 billion in assets and 1,020,000
participants. AETC has assets
21
<PAGE>
under custody in excess of $144.4 billion and provides non-trusteed
investment management of assets in excess of $1.9 billion. AETC is
regulated by the Minnesota Department of Commerce (Banking Division). AETC,
through its personal trust division, also offers trust services to
individuals and organizations. To facilitate expansion of the personal
trust business, AEFC filed an application with the Office of Thrift
Supervision ("OTS") to establish a federal savings bank. If its application
is approved, the new federal savings bank will become subject to regulation
by the OTS.
AXP Advisors distributes real estate investment trusts sponsored
by other companies. AXP Advisors also distributes, from time to time,
managed futures limited partnerships in which an AEFC subsidiary is a
co-general partner. Serving as distributor and co-general partner of such
limited partnerships subjects AXP Advisors and its affiliated co-general
partner to regulation by the Commodity Futures Trading Commission.
In 1999, AEFC continued to expand its securities brokerage
services. American Enterprise Investment Services Inc. ("AEIS"), a
wholly-owned subsidiary of AEFC, provides securities execution and
clearance services for approximately 401,000 retail and institutional
clients of AXP Advisors. AEIS holds over $16.8 billion in assets for
clients. AEIS is registered as a broker-dealer with the SEC, is a member of
the NASD and the Chicago Stock Exchange and is registered with appropriate
states.
AEFC and American Express Bank Ltd. operate a jointly owned
subsidiary, American Express International Deposit Company ("AEIDC"), in
the Cayman Islands to accept deposits from foreign clients of American
Express Bank Ltd. AEIDC is not regulated as a bank in the Cayman Islands.
AEFC and its subsidiaries continue to develop new products and
modify existing products for distribution through various distribution
channels.
AMERICAN EXPRESS BANK/TRAVELERS CHEQUE
--------------------------------------
Management of the Company's Travelers Cheque unit reports to the
Chief Executive Officer of American Express Bank Ltd., the head of the
Company's international banking business. Accordingly, the Company's
Travelers Cheque operations is reported in the same operating segment as
American Express Bank Ltd. The financial and other information reported in
the following section under American Express Bank relates only to such
bank's business, and the information under the caption Travelers Cheque
includes only information related to the Travelers Cheque business.
AMERICAN EXPRESS BANK
---------------------
The Company's wholly-owned indirect subsidiary, American Express
Bank Ltd. (together with its subsidiaries, where appropriate, "AEB"),
offers products that meet the financial service needs of four client
groups: corporations, financial institutions, wealthy individuals and
22
<PAGE>
retail customers. AEB does not directly or indirectly do business in the
United States except as an incident to its activities outside the United
States. Accordingly, the following discussion relating to AEB generally
does not distinguish between United States and non-United States based
activities.
AEB's five primary business lines are corporate banking,
correspondent banking, private banking, personal financial services and
global trading. Corporate banking is provided to corporations principally
in emerging markets and includes trade finance and working capital loans.
Correspondent banking serves leading local banks primarily in emerging
markets and includes transaction payments and a wide range of trade finance
products such as letters of credit and payment guarantees, collections,
check clearing and bankers' acceptances. Private banking focuses on wealthy
individuals by providing such customers with investment management, trust
and estate planning, deposit instruments and secured lending. Personal
financial services ("PFS") provides consumer products in direct response to
specific financial needs of retail customers and includes interest-bearing
deposits, unsecured lines of credit, installment loans, money market funds,
mortgage loans, and mutual fund and life insurance products. Through global
trading, AEB provides treasury and capital market products and services,
including foreign exchange, foreign exchange options, derivatives and
trading, with a focus on emerging markets.
In 1999, AEB continued to shift its business focus from
corporations to individuals, further developing private banking and
personal financial services. These businesses are expected to be the
long-term focus for AEB, due in part to the fact that marketing to their
individual client bases is consistent with the overall cross-selling
strategy of the Company. In 1999, private banking realized significant
growth, with client holdings increasing 26 percent to a total of $9
billion, and client volumes in PFS increased 15 percent. Due in part to
this change in emphasis, AEB reduced its commercial loan portfolio and
geographic concentration of credit risk. At year-end, loans outstanding
worldwide were approximately $5.1 billion, down from $5.6 billion at
December 31, 1998.
During the year, AEB launched a number of new products. AEB's
World Express Fund, a globally diversified mutual fund family, was
introduced in France, Germany, Italy and the United Kingdom. Direct sales
of this product, however, have been below expectations, and AEB intends to
put greater emphasis on sales through third parties such as banks and
financial advisors. AEB also launched mobile phone banking in Hong Kong and
Indonesia, and added an online mortgage service in Hong Kong.
AEB also continued to work more closely with other parts of the
Company to cross-sell products and build deeper relationships with
customers. The number of Cardmembers who have PFS relationships increased
during the year, and the Bank marketed its Private Banking services
to a highly targeted group of Cardmembers outside the United States. In
addition, AXP Advisors has contracted with AEB to manage most of AEB's
Worldfolio and Epic mutual funds. AEB has contracted with IDSC to market
IDSC's investment certificates, and operates a joint venture with AEFC in
the Cayman Islands to accept deposits. In 1999, AEB increased client
holdings in these deposits. TRS makes Platinum Cards available to AEB's
private banking clients. In addition,
23
<PAGE>
AEB offers credit products such as installment loans and revolving lines
of credit to both Cardmembers and non-Cardmembers in France, Germany,
Greece, Hong Kong, Singapore, Taiwan, India and the United Kingdom. AEB
also markets a wide range of investment and savings products to TRS
Cardmembers and select non-Cardmembers in France, Germany, Greece, Hong
Kong, Indonesia, Singapore, Taiwan and the United Kingdom.
In 1994, AEB entered into a 10-year contract with Electronic Data
Systems Corporation ("EDS") for the outsourcing of AEB's global systems
support and development and data processing functions. In 1999, AEB entered
into an Amended and Restated Agreement with EDS, for a term of ten years,
for data center processing and related activities. The responsibility for
global systems support and development was insourced to the Company.
AEB has a global network with offices in 40 countries. Its
worldwide headquarters is located in New York City. It maintains
international banking agencies in New York City and Miami, Florida and a
facility office in San Francisco, California. Its wholly-owned Edge Act
subsidiary, American Express Bank International ("AEBI"), is headquartered
in Miami, Florida and has branches in New York City and Miami.
AEB's business does not, as a whole, experience significant
seasonal fluctuations.
SELECTED FINANCIAL INFORMATION REGARDING AEB
--------------------------------------------
AEB provides banking services to the Company and its subsidiaries.
AEB is only one of many international and local banks used by the Company
and its other subsidiaries, which constitute only a few of AEB's many
customers.
AEB's 1999 total assets of $11.4 billion decreased from $11.6
billion in 1998. Liquid assets consisting of cash and deposits with banks,
trading account assets and investments, were $5.2 billion at December 31,
1999 and $4.9 billion at December 31, 1998.
24
<PAGE>
<TABLE>
<CAPTION>
The following table sets forth a summary of financial data for AEB
at and for each of the three years in the period ended December 31, 1999
(dollars in millions):
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net financial revenues $621 $620 $637
Non-interest expenses 594 756 487
Net income (loss) 22 (84) 82
- ------------------------------------------------------------------------------ -------------- -------------- -----------
Cash and deposits with banks 2,533 2,303 2,150
Investments 2,469 2,553 2,265
Loans, net 4,928 5,404 6,062
Total assets 11,390 11,576 12,868
- ------------------------------------------------------------------------------ -------------- -------------- -----------
Customers' deposits 8,343 8,288 8,547
Shareholder's equity 691 743 830
- ------------------------------------------------------------------------------ -------------- -------------- -----------
Return on average assets (a) .19% (0.70)% 0.64%
Return on average common equity (a) 3.52% (13.31)% 10.83%
- ------------------------------------------------------------------------------ -------------- -------------- -----------
Reserve for loan losses/total loans 3.30% 3.83% 2.11%
Total loans/deposits from customers 61.10% 67.80% 72.45%
Average common equity/average assets (a) 5.39% 5.16% 5.61%
Risk-based capital ratios:
Tier 1 9.9% 9.8% 8.8%
Total 12.0% 12.6% 12.3%
Leverage ratio 5.6% 5.5% 5.3%
- ------------------------------------------------------------------------------ -------------- -------------- -----------
Average interest rates earned: (b)
Loans (c) 7.94% 8.56% 8.59%
Investments (d) 7.60% 7.62% 8.22%
Deposits with banks 5.68% 6.21% 7.07%
- ------------------------------------------------------------------------------ -------------- -------------- -----------
Total interest-earning assets (d) 7.40% 7.90% 8.18%
- ------------------------------------------------------------------------------ -------------- -------------- -----------
Average interest rates paid: (b)
Deposits from customers 5.30% 5.79% 6.04%
Borrowed funds, including long-term debt 6.11% 6.17% 6.98%
- ------------------------------------------------------------------------------ -------------- -------------- -----------
Total interest-bearing liabilities 5.30% 5.84% 6.16%
- ------------------------------------------------------------------------------ -------------- -------------- -----------
Net interest income/total average interest-earning assets (d) 2.92% 2.72% 2.91%
- ------------------------------------------------------------------------------ -------------- -------------- -----------
(a) Calculated excluding the effect of SFAS No. 115.
(b) Based upon average balances and related interest income and expense,
including the effect of interest rate products where appropriate and
transactions with related parties.
(c) Interest rates have been calculated based upon average total loans,
including those on non-performing status.
(d) On a tax equivalent basis.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
The following tables set forth the composition of AEB's loan
portfolio at year end for each of the five years in the period ended
December 31, 1999 (millions):
BY GEOGRAPHICAL REGION (a) 1999 1998 1997 1996 1995
- -------------------------- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Asia/Pacific $1,698 $2,143 $2,789 $2,543 $2,151
Europe 1,414 1,021 1,055 821 876
Indian Subcontinent 449 517 629 833 970
Latin America 824 1,107 1,082 916 617
North America 255 210 51 67 76
Middle East 346 544 482 580 614
Africa 111 77 105 117 124
------ ------ ------ ------ -------
TOTAL $5,097 $5,619 $6,193 $5,877 $5,428
====== ====== ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
1999
------------------------------------
DUE AFTER DUE
DUE 1 YEAR AFTER 5
WITHIN 1 THROUGH 5 YEARS
BY TYPE AND MATURITY YEAR YEARS (b) (b) 1999 1998 1997 1996 1995
- -------------------- -------- --------- ------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consumer and private
banking loans:
Loans secured by
real estate $ 7 $ - $248 $ 255 $ 213 $ 146 $ 37 $ 40
Installment, revolving
credit and other 1,522 114 1 1,637 1,429 1,231 1,090 1,167
------ ----- ---- ------ ------ ------ ------ ------
1,529 114 249 1,892 1,642 1,377 1,127 1,207
====== ===== ==== ====== ====== ====== ====== ======
Commercial loans:
Loans secured by
real estate 132 9 - 141 302 347 386 461
Loans to businesses (c) 1,247 231 30 1,508 1,997 2,479 2,415 2,364
Loans to banks and other
financial institutions 1,347 128 - 1,475 1,595 1,926 1,860 1,240
Loans to governments and
official institutions 31 2 4 37 46 41 64 60
Equipment Financing - - - - - - 1 43
All other loans 41 2 1 44 37 23 24 53
------ ----- ---- ------ ------ ------ ------ ------
2,798 372 35 3,205 3,977 4,816 4,750 4,221
------ ----- ---- ------ ------ ------ ------ ------
TOTAL $4,327 $486 $284 $5,097 $5,619 $6,193 $5,877 $5,428
====== ===== ==== ====== ====== ====== ====== =======
(a) Based primarily on the domicile of the borrower.
(b) Loans due after one year at fixed (predetermined) interest rates totaled
$131 million, while those at floating (adjustable) interest rates
totaled $639 million.
(c) Business loans, which accounted for approximately 30 percent of the
portfolio as of December 31, 1999, were distributed over 26 commercial
and industrial categories.
</TABLE>
26
<PAGE>
The following tables present information about AEB's impaired
loans. AEB defines an impaired loan as any loan (other than certain
consumer loans) on which the accrual of interest is discontinued because
the contractual payment of principal or interest has become 90 days past
due or if, in management's opinion, the borrower is unlikely to meet its
contractual obligations (i.e., non-performing loans).
<TABLE>
<CAPTION>
(in millions: December 31,) 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Consumer loans $ - $ 1 $ 1 $ 1 $ 3
Real estate loans--commercial 7 9 9 5 1
Loans to businesses 149 151 34 29 20
Loans to banks and other financial institutions 12 19 3 - 8
Loans to governments and official institutions - - - - 1
Equipment financing - - - - 1
---- ---- --- --- ----
TOTAL $168 $180 $47 $35 $34
==== ==== === === ====
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------
(in millions) 1999 1998
---- ----
<S> <C> <C>
Recorded investment in impaired loans
not requiring an allowance (a) $ 11 $ 3
Recorded investment in impaired loans
requiring an allowance $157 $177
---- ----
Total recorded investment in impaired loans $168 $180
==== ====
Credit reserves for impaired loans $ 62 $ 95
==== ====
</TABLE>
<TABLE>
<CAPTION>
December 31,
-------------------------------------
(in millions) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Average recorded investment in impaired loans $ 200 $ 176 $ 58
Interest income recognized on a cash basis 5 2 3
</TABLE>
(a) These loans do not require a reserve for credit losses since the
values of the impaired loans equal or exceed the recorded investments
in the loans.
In addition to the above, AEB had other non-performing assets
totaling $37 million at December 31, 1999, $63 million at December 31, 1998
and $11 million at December 31, 1997. The 1999 and 1998 balances primarily
represent matured foreign exchange and derivative contracts, while the 1997
amount represents balances transferred from non-performing loans as a
result of foreclosures. The decrease from 1998 to 1999 primarily reflects
previously reserved write-offs.
27
<PAGE>
<TABLE>
<CAPTION>
The following table sets forth a summary of the credit loss
experience of AEB at and for each of the five years in the period ended
December 31, 1999 (dollars in millions):
1999 1998 1997 1996 1995
--------- ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Reserve for credit losses -
January 1, $259 $137 $117 $111 $109
Provision for credit losses (a) 29 238 20 23 7
Translation and other 1 (4) (2) (1) -
--------- ---------- ------------ ---------- -----------
Subtotal 289 371 135 133 116
--------- ---------- ------------ ---------- -----------
Writeoffs:
Consumer loans 25 19 13 13 9
Real estate loans-commercial 1 3 - 2 -
Loans to businesses (b) 50 72 17 7 3
Loans to banks and other
financial institutions 14 2 - 1 1
Loans to governments and
official institutions - - - - 1
Foreign exchange and
derivative contracts (c) 20 28 - - -
Equipment financing - - - - 1
Recoveries:
Consumer loans (7) - (11) (3) (1)
Loans to businesses (3) (5) (3) (2) (5)
Loans to banks and other
financial institutions - - - (1) (3)
Loans to governments and
official institutions (d) - - (18) (1) -
Equipment financing - - - - (1)
All other loans - (7) - - -
--------- ---------- ------------ ---------- -----------
Net write-offs (recoveries) 100 112 (2) 16 5
--------- ---------- ------------ ---------- -----------
Reserve for credit losses
December 31, (e) $189 $259 $137 $117 $111
========= ========== ============ ========== ===========
(a) The increase in 1998 was mainly due to first quarter credit loss
provision related to business in the Asia/Pacific region, particularly
Indonesia. The increase in 1996 was primarily due to loan growth,
slightly higher consumer and commercial write-offs and lower
commercial banking recoveries.
(b) The increase in 1998 was primarily due to write-offs in the Asia/Pacific region, primarily Indonesia.
(c) The increase in 1998 was due to write-offs of Indonesian foreign exchange and derivative contracts.
(d) The increase in 1997 was mainly due to a loan recovery from Peru.
</TABLE>
<TABLE>
<CAPTION>
(e) Allocation:
<S> <C> <C> <C> <C> <C>
Loans $169 $214 $131 $117 $111
Other assets, primarily derivatives 16 43 6 - -
Other liabilities 4 2 - - -
---- ---- ---- ---- ----
Total reserve for credit losses $189 $259 $137 $117 $111
==== ==== ==== ==== ====
</TABLE>
28
<PAGE>
Interest income is recognized on the accrual basis. Loans other
than certain consumer loans are placed on non-performing status when
payments of principal or interest are 90 days past due or if, in
management's opinion, the borrower is unlikely to meet its contractual
obligations. When loans are placed on non-performing status, all previously
accrued but unpaid interest is reversed against current interest income.
Cash receipts of interest on non-performing loans are recognized either as
interest income or as a reduction of principal, based upon management's
judgment as to the ultimate collectibility of principal. Generally, a
non-performing loan may be returned to performing status when all
contractual amounts due are reasonably assured of repayment within a
reasonable period and the borrower shows sustained repayment performance,
in accordance with the contractual terms of the loan or when the loan has
become well secured and is in the process of collection.
Credit and Charge Card receivables, interest-earning advances
under lines of credit and other similar consumer loans are written off
against the reserve for credit losses upon reaching specified contractual
delinquency stages, or earlier in the event of the borrower's personal
bankruptcy or if the loan is otherwise deemed uncollectible. Interest
income on these loans generally accrues until the loan is written off.
AEB separately maintains and provides for reserves relating to
credit losses for loans, derivatives and other credit-related commitments.
The reserve is established by charging a provision for credit losses
against income. The amount charged to income is based upon several factors,
including historical credit loss experience in relation to outstanding
credits, a continuous assessment of the collectibility of each credit, and
management evaluation of exposures in each applicable country as related to
current and anticipated economic and political conditions. Management's
assessment of the adequacy of the reserve is inherently subjective, as
significant estimates are required. Amounts deemed uncollectible are
charged against the reserve and subsequent recoveries, if any, are credited
to the reserve.
The reserve for credit losses related to loans is reported as a
reduction of loans. The reserve related to derivatives is reported as a
reduction of trading assets and the reserve related to other credit-related
commitments is reported in other liabilities.
RISKS
-----
The global nature of AEB's business activities is such that
concentrations of credit to particular industries and geographic regions
are not unusual. At December 31, 1999, AEB had significant investments in
certain on- and off-balance sheet financial instruments, which were
primarily represented by deposits with banks, securities, loans, forward
contracts, contractual amounts of letters of credit (standby and
commercial) and guarantees. The counterparties to these financial
instruments were primarily unrelated to AEB, and principally consisted of
banks and other financial institutions and various commercial and
industrial enterprises operating geographically within the Asia/Pacific
region, Europe, North America, Latin America and the Indian Subcontinent.
AEB continuously monitors its credit concentrations and actively manages to
reduce the associated risk.
29
<PAGE>
At December 31, 1999, AEB had exposures throughout the
Asia/Pacific region, including in Hong Kong, Singapore, Taiwan, Indonesia
and Korea, among other countries. AEB had approximately $1.7 billion
outstanding in loans in the entire Asia/Pacific region at year end. In
addition to these loans, there are other banking activities, such as
forward contracts, various contingencies and market placements, which added
another approximately $1.2 billion to the credit exposures in the region at
year end. In the first quarter of 1998, AEB established a $213 million
($138 million after-tax) credit loss provision related to AEB's business in
the Asia/Pacific region, particularly Indonesia.
In an ongoing effort to mitigate the effects of these risks, as
well as AEB's decision to shift its business focus from corporations to
individuals, AEB has reduced its wholesale credit exposure in 1999,
particularly with respect to its Asia/Pacific commercial loan portfolio.
AEB continues to carefully monitor its credit exposures.
AEB's earnings are sensitive to fluctuations in interest rates, as
it is not always possible to match precisely the maturities of
interest-related assets and liabilities. However, strict limits have been
established for both country and total bank mismatching. On occasion, AEB
may decide to mismatch in anticipation of a change in future interest rates
in accordance with these guidelines. Term loans extended by AEB include
both floating interest rate and fixed interest rate loans.
For a discussion relating to AEB's use of derivative financial
instruments, see pages 33 through 35 under the caption "Risk Management,"
and Note 7 on pages 46 through 49, of the Company's 1999 Annual Report to
Shareholders, which portions of such report are incorporated herein by
reference.
COMPETITION
-----------
The banking services of AEB are subject to vigorous competition in
all markets in which AEB operates. Competitors include local and
international banks whose assets often exceed those of AEB, other financial
institutions (including certain other subsidiaries of the Company) and, in
certain cases, governmental agencies. In some countries, AEB may be one of
the more substantial financial institutions offering banking services; in
no country, however, is AEB dominant.
REGULATION
----------
AEB is a wholly-owned direct subsidiary of American Express
Banking Corp. ("AEBC"). AEBC is a New York investment company organized
under Article XII of the New York Banking Law and is a wholly-owned direct
subsidiary of the Company. AEBC, AEB and AEB's global network of offices
and subsidiaries are subject to the consolidated supervision and
examination of the New York State Banking Department ("NYSBD") pursuant to
the New York Banking Law. AEBC does not directly engage in banking
activities.
30
<PAGE>
AEB's branches, representative offices and subsidiaries are
licensed and regulated in the jurisdictions in which they do business and
are subject to the same local requirements as other competitors. Within the
United States, AEB's New York agency is supervised and regularly examined
by the NYSBD. In addition, the Florida Department of Banking and Finance
supervises and examines AEB's Miami agency, the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") regulates, supervises
and examines AEBI and the California Department of Financial Institutions
supervises and examines AEB's San Francisco facility office. AEB Global
Asset Management Inc., a wholly-owned subsidiary of AEB that provides
investment advisory services to private banking clients, is registered with
the SEC as an investment advisor.
Since AEB does not do business in the United States except as an
incident to its activities outside the United States, the Company's
affiliation with AEB neither causes the Company to be subject to the
provisions of the Bank Holding Company Act of 1956, as amended, nor
requires it to register as a bank holding company under the Federal Reserve
Board's Regulation Y. AEB is not a member of the Federal Reserve System, is
not subject to supervision by the FDIC, and is not subject to any of the
restrictions imposed by the Competitive Equality Banking Act of 1987 other
than anti-tie-in rules with respect to transactions involving products and
services of certain of its affiliates. AEB is not a financial holding
company under the Gramm-Leach-Bliley Act.
AEB is required to comply with the Federal Reserve Board's
risk-based capital guidelines and complementary leverage constraint
applicable to state-chartered banks that are members of the Federal Reserve
System. Pursuant to the FDIC Improvement Act of 1991, the Federal Reserve
Board, among other federal banking agencies, adopted regulations defining
levels of capital adequacy. Under these regulations, a bank is deemed to be
well capitalized if it maintains a Tier 1 risk-based capital ratio of at
least 6.0 percent, a total risk-based capital ratio of at least 10.0
percent, and a leverage ratio of at least 5.0 percent. Based on AEB's total
risk-based capital and leverage ratios, which are set forth on page 25, AEB
is considered to be well capitalized at December 31, 1999.
TRAVELERS CHEQUE
----------------
The Company, through its Travelers Cheque Group, is a leading
issuer of travelers checks. The Company is also expanding the scope of its
Money Order and Official Check products in the United States, and renewing
its focus on the TravelFunds Direct(SM) product, which provides direct
delivery of foreign bank notes and Travelers Cheques in selected markets.
The American Express(R) Travelers Cheque ("Travelers Cheque" or
"Cheque") is sold as a safe and convenient alternative to currency. The
Travelers Cheque, a negotiable instrument, has no expiration date and is
payable by the issuer in the currency of issuance when presented for the
purchase of goods and services or for redemption. Travelers Cheques are issued
in eleven currencies both directly by the Company and through joint venture
companies in which the Company generally holds an equity interest.
The Company also issues Gift Cheques, a type of Travelers Cheque used for
gift-giving purposes. Due to a renewed marketing focus in 1999,
31
<PAGE>
consumer Gift Cheque sales increase by 27 percent. In 1999, the Travelers Cheque
Group also commenced the issuance of a euro-denominated Travelers Cheque,
and piloted the sale of Travelers Cheques over the Internet.
American Express Travelers Cheques are sold through a broad
network of outlets worldwide, including travel offices of the Company, its
affiliates and representatives, travel agents, commercial banks, savings
banks, savings and loan associations, credit unions and other financial,
travel and commercial businesses. The Company generally compensates selling
agents for their sale of Travelers Cheques.
The proceeds from sales of Travelers Cheques issued by the Company
are invested predominantly in highly-rated debt securities consisting
primarily of intermediate- and long-term state and municipal obligations.
The investment of these proceeds is regulated by various state laws.
Although the Company believes it is the leading issuer of
travelers checks, its growth in sales of this product has been declining
over the past few years. Consumers can utilize a variety of alternative
mechanisms for payment such as other brands of travelers checks, cash,
credit and debit cards and national and international automated teller
machine networks. The principal competitive factors affecting the travelers
check industry are (i) the availability to the consumer of other forms of
payment; (ii) the amount of the fee charged to the consumer; (iii) the
acceptability of the checks throughout the world as an alternative to
currency; (iv) the compensation paid to, and frequency of settlement by,
selling agents; (v) the accessibility of travelers check sales and refunds;
(vi) the success of marketing and promotional campaigns; and (vii) the
ability to service satisfactorily the check purchaser if the checks are
lost or stolen.
Travelers Cheque sales and Travelers Cheques outstanding tend to
be greatest each year in the third quarter.
Although the Travelers Cheque Group is reported in the same
operating segment as American Express Bank, all Travelers Cheque products,
including Travelers Cheques, Gift Cheques, Money Orders and Official Checks,
continue to be issued by TRS and TRS affiliates and subsidiaries.
CORPORATE AND OTHER
-------------------
The American Express brand and its attributes - trust, security,
integrity, quality and customer service - are key assets of the Company. In
1999, the Company continued to focus on the brand by educating employees
about its attributes and by further incorporating these attributes into its
programs, products and services.
In 1999, the Company also commenced a more aggressive strategy in
seeking to patent technologies throughout its businesses.
32
<PAGE>
The Company uses information about its customers to develop
products and services and to provide personal service. Regulatory activity
in the areas of privacy and data protection is growing worldwide and is
generally being driven by the growth of technology and concomitant concerns
about the potentially rapid and widespread dissemination and use of
information. The financial services modernization legislation enacted in
1999 (Gramm-Leach-Bliley Act) provides for disclosure of a financial
institution's privacy policies and practices and affords customers the
right to "opt out" of the institution's disclosure of their personal
information to unaffiliated third parties (with limited exceptions).
Federal regulations implementing the new legislation are scheduled to be
final by May 2000. This legislation does not preempt state laws that afford
greater privacy protections to consumers, and several states have proposed
such legislation. In addition, the European Data Protection Directive
became effective in October 1998 and involves potential sanctions for
violations which include the possible disruption in the flow of personal
data from Europe and in the use of such data. The Company will continue its
efforts to vigilantly safeguard the data entrusted to it in accordance with
applicable law and its internal data protection policies, while seeking to
properly collect and use data to achieve its business objectives.
The Balcor Company Holdings, Inc., an indirect, wholly-owned
subsidiary of the Company, and its subsidiaries, formerly operated as a
diversified real estate investment and management company, discontinued new
commercial real estate activities in 1990 and began to liquidate its
portfolio of real estate loans and properties. The liquidation was
completed in 1998. Balcor and its subsidiaries still serve as general
partners in numerous public limited partnerships that have not yet been
liquidated.
For a discussion of the Company's status relating to the Year 2000
issue, see page 32 of the Company's 1999 Annual Report to Shareholders,
which discussion is incorporated herein by reference.
FOREIGN OPERATIONS
------------------
The Company derives a significant portion of its revenues from the
use of the Card, Travelers Cheques and travel services in countries outside
the United States and continues to broaden the use of these products and
services outside the United States. Political and economic conditions in
these countries, including the availability of foreign exchange for the
payment by the local card issuer of obligations arising out of local
Cardmembers' spending outside such country, for the payment of card bills
by Cardmembers who are billed in other than their local currency and for
the remittance of the proceeds of Travelers Cheque sales, can have an
effect on the Company's revenues. Substantial and sudden devaluation of
local Cardmembers' currency can also affect their ability to make payments
to the local issuer of the card on account of spending outside the local
country. The major portion of AEB's banking revenues is from business
conducted in countries outside the United States. Some of the risks
attendant to those operations include currency fluctuations and changes in
political, economic and legal environments in each such country.
33
<PAGE>
As a result of its foreign operations, the Company is exposed to
the possibility that, because of foreign exchange rate fluctuations, assets
and liabilities denominated in currencies other than the United States
dollar may be realized in amounts greater or lesser than the United States
dollar amounts at which they are currently recorded in the Company's
Consolidated Financial Statements. Examples of transactions in which this
may occur include the purchase by Cardmembers of goods and services in a
currency other than the currency in which they are billed; the sale in one
currency of a Travelers Cheque denominated in a second currency; foreign
exchange positions held by AEB as a consequence of its client-related
foreign exchange trading operations; and, in most instances, investments in
foreign operations. These risks, unless properly monitored and managed,
could have an adverse effect on the Company's operations.
The Company's policy in this area is generally to monitor closely
all foreign exchange positions and to minimize foreign exchange gains and
losses, for example, by offsetting foreign currency assets with foreign
currency liabilities, as in the case of foreign currency loans and
receivables, which are financed in the same currency. An additional
technique used to manage exposures is the spot and forward purchase or sale
of foreign currencies as a hedge of net exposures in those currencies as,
for example, in the case of the Cardmember and Travelers Cheque
transactions described above. Additionally, Cardmembers may be charged in
United States dollars for their spending outside their local country. The
Company's investments in foreign operations are hedged by forward exchange
contracts or by identifiable transactions, where appropriate.
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
------------------------------------------------------
Various forward-looking statements have been made in this Form
10-K Annual Report. Forward-looking statements may also be made in the
Company's other reports filed with the SEC, in its press releases and in
other documents. In addition, from time to time, the Company through its
management may make oral forward-looking statements. Forward-looking
statements are subject to risks and uncertainties, including those
identified below, which could cause actual results to differ materially
from such statements. The words "believe," "expect," "anticipate,"
"optimistic," "intend," "aim," "will" or similar expressions are intended
to identify forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of
the date on which they are made. The Company undertakes no obligation to
update publicly or revise any forward-looking statements. Important factors
that could cause actual results to differ materially from the Company's
forward-looking statements, including the Company's financial and other
goals, include, but are not limited to, the following:
The Company's inability to:
o extend the value of the American Express brand, which historically has
been associated with the card and travel businesses (e.g., perception of
trust, security and quality service), to a broad range of financial
products and services in the financial services industry. This could
depend in part on the Company's ability
34
<PAGE>
to manage the potential conflicts inherent in its growing multi-channel
delivery systems;
o succeed in its ongoing reengineering efforts and in achieving
best-in-class economics, while also maintaining high service levels;
o create successfully, and increase distribution channels and cross
selling for, financial, travel, card and other products and services;
o participate in payment and other systems material to its businesses on a
fair and competitive basis;
o invest successfully in, and compete at the leading edge of, technology
developments across all businesses, e.g., transaction processing, data
management, customer interactions and communications, travel
reservations systems, stored value products, multi-application smart
cards and risk management systems;
o address adequately its Y2K issues, successfully identify its systems
containing two digit codes, the nature and amount of programming
required to fix the affected systems and the costs of labor and
consultants related to such effort, continue to have access to such
resources and ensure that third parties that interface with the Company
successfully address their Y2K issues;
o recognize evolutionary technology developments by competitors or others
which could hasten business model obsolescence or, because of patent
rights held by such competitors or others, limit or restrict the
Company's use of desired business technology or processes;
o develop and implement successfully enterprise-wide interactive
strategies;
o integrate its Internet applications and make the online experience more
desirable, reliable and user friendly for customers and clients;
o leverage successfully its assets, such as its brand, customer base,
international presence, marketing and data base management skills, in
the Internet environment;
o adapt its businesses according to economic models not yet fully
developed relating to investment costs, revenue streams, customer
acquisition costs and
35
<PAGE>
other financial considerations and to effectively
manage the Company's online strategy in accordance with such models to
generate profitable results;
o use effectively its resources to balance available investment spending
with the earnings and revenue goals of the Company and properly trade
off time-to-market considerations with the desire to provide full
service online capabilities;
o attract and retain qualified personnel necessary to develop and execute
the Company's Internet strategy; and
o adjust to unforeseeable events that require changes in the Company's
Internet strategy or development plan.
TRS' inability to:
o expand its overall revenues, which depends in part on its ability to
increase consumer and/or business spending and borrowing on its credit
and charge Cards, gain market share and develop new or enhanced products
that capture greater share of customers' total spending on Cards issued on
its network both in the United States and in its international operations;
o enhance significantly its international operations, which will depend in
part on its ability to reduce expenses for reinvestment in the
international business, and expand the proprietary and third
party-issued Card businesses;
o retain Cardmembers in consumer lending products after low introductory
rate periods have expired; and
o sustain premium discount rates, increase merchant coverage and reduce
suppression, all of which will depend in part on its ability to maintain
a customer base that appeals to merchants and to develop deeper merchant
relationships through creation of new products and services.
AXP Advisors' inability to:
o attract and retain the personnel to improve its mutual fund performance;
o create the appropriate incentives and value proposition to successfully
sell proprietary and non-proprietary products to its clients;
o manage the potential conflicts inherent in its growing multi-channel
delivery systems;
36
<PAGE>
o continue to grow its retail channel, attract and grow a field force
for its client segments and generate anticipated economics from its
financial advisor platforms;
o accelerate and expand client acquisition through its online initiatives
and derive revenue for its Direct Brokerage business from sources other
than trading; and
o respond effectively to a short-term financial market crash or a
long-term financial market decline or stagnation, which could affect the
sale of investment products at AXP Advisors and the market value of AXP
Advisors' managed assets, resulting in lower management and distribution
fees.
In general:
o the inability of TRS and AEB to manage credit risk related to consumer
debt, business loans and other credit exposures, both in the United
States and abroad, including unseasoned balances in TRS' lending
portfolios, all of which could be affected by general political and
economic conditions, including interest rates and consumer credit
trends, the rate of bankruptcies and movements in currency valuations;
o the effect of changing interest rates, which could affect AXP Advisors'
spreads between revenues from owned investments and benefits credited to
clients' fixed income accounts, TRS' borrowing costs and TRS' and AEB's
return on lending products;
o changes in laws or government regulations that either restrict the
businesses of the Company or allow a wider range of institutions to
compete in such businesses, changes in tax laws affecting the Company's
businesses, regulatory activity in the areas of customer privacy and
data protection, and other possible legal or regulatory developments;
o global developments that could affect the Company's operations abroad,
such as political or economic instability in key markets of the
Company's businesses or restrictions on convertibility of certain
currencies;
o competitive pressures in all of the Company's major businesses;
o unforeseen litigation or compliance costs.
SEGMENT INFORMATION AND CLASSES OF SIMILAR SERVICES
---------------------------------------------------
Information with respect to the Company's operating segments,
geographical operations and classes of similar services is set forth in
Note 14 to the Consolidated Financial Statements of
37
<PAGE>
the Company, which appears on pages 56 through 58 of the Company's 1999
Annual Report to Shareholders, which Note is incorporated herein by reference.
EXECUTIVE OFFICERS OF THE COMPANY
---------------------------------
All of the executive officers of the Company as of March 27, 2000,
none of whom has any family relationship with any other and none of whom
became an officer pursuant to any arrangement or understanding with any
other person, are listed below. Each of such officers was elected to serve
until the next annual election of officers or until his or her successor is
elected and qualified. Each officer's age is indicated by the number in
parentheses next to his or her name.
HARVEY GOLUB - Chairman and Chief Executive Officer; Chairman, TRS
Mr. Golub (61) has been Chief Executive Officer of the Company
since February 1993, Chairman of the Company since August 1993 and
Chairman, TRS since November 1991. Prior to February 1997 he had been Chief
Executive Officer of TRS.
KENNETH I. CHENAULT - President and Chief Operating Officer;
President and Chief Executive Officer, TRS
Mr. Chenault (48) has been President and Chief Operating Officer of the
Company and President and Chief Executive Officer of TRS since February 1997.
Prior to February 1997 he had been Vice Chairman of the Company since
January 1995. Prior to May 1995, he had also been President, U.S.A. of TRS.
RICHARD KARL GOELTZ - Vice Chairman and Chief Financial Officer
Mr. Goeltz (57) has been Vice Chairman and Chief Financial Officer
of the Company since September 1996. Prior thereto, he had been Group Chief
Financial Officer and a member of the Board of Directors of NatWest Group.
JONATHAN S. LINEN - Vice Chairman
Mr. Linen (56) has been Vice Chairman of the Company since August 1993.
38
<PAGE>
STEVEN W. ALESIO - President, Small Business Services and Consumer
Travel, TRS
Mr. Alesio (45) has been President, Small Business Services and
Consumer Travel, TRS since February 1996. Prior thereto, he had been Executive
Vice President, Corporate Card, TRS.
ANNE M. BUSQUET - President, American Express Relationship Services, TRS
Mrs. Busquet (50) has been President, American Express Relationship
Services, TRS since October 1995. Prior thereto, she had been Executive
Vice President, Consumer Card Group.
JAMES M. CRACCHIOLO - President, International, TRS
Mr. Cracchiolo (41) has been President, International, TRS since
May 1998. Prior thereto he had been President, Global Network Services, TRS
since February 1996. Prior thereto he had been Senior Vice President,
Quality, Reengineering and Business Strategy, TRS.
URSULA F. FAIRBAIRN - Executive Vice President, Human Resources and Quality
Mrs. Fairbairn (57) has been Executive Vice President, Human Resources
and Quality of the Company since December 1996. Prior thereto, she had been
Senior Vice President, Human Resources of Union Pacific Corporation.
EDWARD P. GILLIGAN - President, Corporate Services, TRS
Mr. Gilligan (40) has been President, Corporate Services, TRS
since February 1996. Prior thereto, he had been Executive Vice President,
Travel Management Services, TRS since June 1995. Prior thereto, he had been
Senior Vice President and General Manager, Eastern Region of Travel
Management Services, TRS.
JOHN D. HAYES - Executive Vice President, Global Advertising
and Brand Management
Mr. Hayes (45) has been Executive Vice President, Global Advertising
and Brand Management since May 1995. Prior thereto, he had been President
of Lowe & Partners/SMS.
39
<PAGE>
DAVID C. HOUSE - President, Establishment Services Worldwide, TRS
Mr. House (50) has been President, Establishment Services Worldwide,
TRS since October 1995. Prior thereto, he had been Senior Vice President of
Sales and Field Marketing for the United States Establishment Services Group.
DAVID R. HUBERS - President and Chief Executive Officer,
American Express Financial Corporation
Mr. Hubers (57) has been President and Chief Executive Officer of
American Express Financial Corporation since August 1993.
ALFRED F. KELLY, JR. - President, Consumer Card Services Group, TRS
Mr. Kelly (41) has been President, Consumer Card Services Group,
TRS since October 1998. Prior thereto he had been Executive Vice President
and General Manager of Consumer Marketing, TRS since February 1997. Prior
thereto he had been Executive Vice President of Customer Loyalty, TRS since
September 1995. Prior thereto he had been Senior Vice President, Customer
Information Services, TRS.
LOUISE M. PARENT - Executive Vice President and General Counsel
Ms. Parent (49) has been Executive Vice President and General Counsel
of the Company since May 1993.
GLEN SALOW - Executive Vice President and
Chief Information Officer
Mr. Salow (44) has been Executive Vice President and Chief
Information Officer since March 2000. Prior thereto he had been Senior Vice
President, E-Commerce, United States Card and Travel Services since
December 1999. Prior thereto he had been Senior Vice President, Information
Technology Strategy and Global Platform Development since April 1999.
Prior thereto he had been Senior Vice President, Operations since November
1997. Prior thereto he had been Chief Information Officer, Aetna Retirement
Services, Aetna Life and Casualty.
THOMAS SCHICK - Executive Vice President, Corporate Affairs
and Communications
Mr. Schick (53) has been Executive Vice President, Corporate Affairs
and Communications of the Company since March 1993
40
<PAGE>
JOHN A. WARD, III - Chairman and Chief Executive Officer,
American Express Bank Ltd.;
Head, Travelers Cheque Group
Mr. Ward (53) has been Chairman and Chief Executive Officer, American
Express Bank Ltd. since January 1996. Since August 1997 he has also been Head
of Travelers Cheque Group. Prior thereto, he had been Executive Vice President
of Chase Manhattan Bank and Chief Executive Officer of Chase BankCard Services.
EMPLOYEES
---------
The Company had approximately 88,400 employees on December 31, 1999.
ITEM 2. PROPERTIES
The Company's headquarters is in a 51-story, 2.2 million square
foot building located in lower Manhattan, which also serves as the
headquarters for TRS and AEB. This building, which is on land leased from
the Battery Park City Authority for a term expiring in 2069, is one of four
office buildings in a complex known as the World Financial Center. Lehman
Brothers Holdings Inc. is also headquartered at and owns 52% of the
building.
Other principal locations of TRS include: the American Express
Service Centers in Fort Lauderdale, Florida; Phoenix, Arizona; Greensboro,
North Carolina and Salt Lake City, Utah; the American Express Canada, Inc.
headquarters in Markham, Ontario, Canada, all of which are owned by the
Company or its subsidiaries. AEFC's principal locations are its
headquarters, the IDS Tower, a portion of which the company leases until
2002, and its Operations Center, which the company owns; both are in
Minneapolis, Minnesota. AXP Advisors also owns Oak Ridge Conference Center,
a training facility and conference center in Chaska, Minnesota.
In December 1999, the Company increased its business presence in
the Phoenix area by acquiring three office buildings aggregating 120,000
square feet. The Company previously had been the sole tenant in the
buildings which serve as a financial resource center for the Company. In
March 2000, the Company also entered into a new lease for 140,000 square
feet in Phoenix for its travel related services group.
AEFC entered into a contract with a developer to construct a
30-story office tower in Minneapolis which should be ready for initial
occupancy in April 2000. The new tower will become AEFC's headquarters.
AEFC's lease term is for 20 years with several options to extend the term.
AEFC is also building a new Client Service Center in downtown
Minneapolis. Construction started in June 1999 and the building should be
ready for occupancy in June 2002.
41
<PAGE>
In 1999, IDS Property Casualty commenced construction of a new
corporate headquarters in Green Bay, Wisconsin. The building is expected to
be ready for occupancy in November 2000 at an aggregate cost of
$22,700,000.
Generally, the Company and its subsidiaries lease the premises
they occupy in other locations. Facilities owned or occupied by the Company
and its subsidiaries are believed to be adequate for the purposes for which
they are used and are well maintained.
In February 2000, the Company entered into a 10-year agreement
with Trammell Crow Corporate Services, Inc. for facilities, project and
transaction management and other related services. The agreement initially
will cover North and South America, and may be expanded to cover other
regions.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are involved in a number of legal
and arbitration proceedings concerning matters arising in connection with
the conduct of their respective business activities. The Company believes
it has meritorious defenses to each of these actions and intends to defend
them vigorously. The Company believes that it is not a party to, nor are
any of its properties the subject of, any pending legal or arbitration
proceedings which would have a material adverse effect on the Company's
consolidated financial condition, although it is possible that the outcome
of any such proceedings could have a material impact on the Company's net
income in any particular period. Certain legal proceedings involving the
Company are set forth below.
On December 13, 1996, an action entitled LESA BENACQUISTO AND
DANIEL BENACQUISTO V. IDS LIFE INSURANCE COMPANY ("IDS LIFE") AND AMERICAN
EXPRESS FINANCIAL CORPORATION was commenced in Minnesota state court. The
action is brought by individuals who replaced an existing IDS Life
insurance policy with a new IDS Life policy. The plaintiffs purport to
represent a class consisting of all persons who replaced existing IDS Life
policies with new IDS Life policies from and after January 1, 1985.
The complaint puts at issue various alleged sales practices and
misrepresentations, alleged breaches of fiduciary duties and alleged
violations of consumer fraud statutes. Plaintiffs seek damages in an
unspecified amount and also seek to establish a claims resolution facility
for the determination of individual issues. IDS Life and AEFC filed an answer
to the complaint on February 18, 1997, denying the allegations. A second
action, entitled ARNOLD MORK, ISABELLA MORK, RONALD MELCHERT AND SUSAN
MELCHERT V. IDS LIFE INSURANCE COMPANY AND AMERICAN EXPRESS FINANCIAL
CORPORATION was commenced in the same court on March 21, 1997. In addition
to claims that are included in the Benacquisto lawsuit, the second action
includes an allegation of improper replacement of an existing IDS Life
annuity contract. It seeks similar relief to the initial lawsuit.
On October 13, 1998, an action entitled RICHARD W. AND ELIZABETH
J. THORESEN V. AMERICAN EXPRESS FINANCIAL CORPORATION, AMERICAN CENTURION
LIFE ASSURANCE COMPANY,
42
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AMERICAN ENTERPRISE LIFE INSURANCE COMPANY, AMERICAN PARTNERS LIFE
INSURANCE COMPANY, IDS LIFE INSURANCE COMPANY AND IDS LIFE INSURANCE
COMPANY OF NEW YORK was also commenced in Minnesota state court. The action
was brought by individuals who purchased an annuity in a qualified plan.
They allege that the sale of annuities in tax-deferred contributory
retirement investment plans (e.g., IRAs) is never appropriate. The
plaintiffs purport to represent a class consisting of all persons who made
similar purchases. The plaintiffs seek damages in an unspecified amount,
including restitution of allegedly lost investment earnings and restoration
of contract values.
In January 2000, AEFC reached an agreement in principle to settle
the three class-action lawsuits described above. It is expected the
settlement will provide $215 million of benefits to more than two million
participants and for release by class members of all insurance and annuity
market conduct claims dating back to 1985. It is subject to a number of
contingencies, including a definitive agreement and court approval.
The Company commenced an action, AMERICAN EXPRESS COMPANY V. THE
UNITED STATES, on September 16, 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 October 14, 1999, the Company
filed a Motion for Summary Judgment; oral arguments are scheduled for April
12, 2000.
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
BENEFIT PLAN COMMITTEE, CAREER DISTRIBUTORS PLAN COMMITTEE AND JOHN/JANE
DOES 1-20 was commenced in U.S. District Court, District of Minnesota,
Fourth Division. The sole name 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, rescission of the
financial advisors agreement and declaratory judgment and adding the Company's
Employee Benefits Administration Committee as a defendant. The parties are
actively engaged in discovery. The Company believes it has meritorious
defenses to such action and intends to pursue them vigorously.
Since October 1, 1999, five former female financial advisors at
American Express Financial Advisors ("AEFA") have filed charges with the
Equal Employment Opportunity Commission ("EEOC"), including class claims on
behalf of all women advisors at AEFA, alleging that they and other women were
discriminated against in hiring, assignment of work, distribution of leads,
training and promotions. Four of the charges were filed with the EEOC in
43
<PAGE>
Minnesota and one in New Jersey. The claimants are seeking monetary and
injunctive relief. AEFA is responding to all charges. If this matter is not
resolved at the EEOC and is filed in Federal Court, AEFA intends to vigorously
defend the charges.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security
holders during the last quarter of its fiscal year ended December 31, 1999.
PART II
-------
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The principal market for the Company's Common Shares is The New
York Stock Exchange under the trading symbol AXP. Its Common Shares are
also listed on the Chicago, Pacific, London and Paris Stock Exchanges. The
Company had 56,020 common shareholders of record at December 31, 1999. For
price and dividend information with respect to such Common Shares, see Note
17 to the Consolidated Financial Statements on page 59 of the Company's
1999 Annual Report to Shareholders, which Note is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
The "Consolidated Five-Year Summary of Selected Financial Data"
appearing on page 61 of the Company's 1999 Annual Report to Shareholders is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
The information set forth under the heading "Financial Review"
appearing on pages 26 through 35 of the Company's 1999 Annual Report to
Shareholders is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The information set forth under the heading "Risk Management"
appearing on pages 33 through 35 of the Company's 1999 Annual Report to
Shareholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The "Consolidated Financial Statements", the "Notes to
Consolidated Financial Statements" and the "Report of Ernst & Young LLP
Independent Auditors" appearing on pages
44
<PAGE>
36 through 60 of the Company's 1999 Annual Report to Shareholders are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
PART III
--------
ITEMS 10, 11, 12 AND 13. DIRECTORS AND EXECUTIVE OFFICERS OF
THE COMPANY; EXECUTIVE
COMPENSATION; SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT; CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
The Company filed with the SEC, within 120 days after the close of
its last fiscal year, a definitive proxy statement dated March 13, 2000
pursuant to Regulation 14A, which involves the election of directors. The
following portions of such proxy statement are incorporated herein by
reference: pages 7 through 9 - material included under the heading
"Compensation of Directors," pages 10 through 13 - material included under
the heading "Ownership of Our Common Shares" (excluding the paragraph under
the heading "Share Ownership Guidelines for Directors" on page 13), pages
13 through 16 - material included under the heading "Item 1 - Election of
Directors," pages 32 "Summary Compensation Table" through 48 including
material included under the heading "Section 16(a) Beneficial Ownership
Reporting Compliance" (excluding the portions titled "Performance Graph" on
page 39 and "Directors and Officers Liability Insurance" on page 48). In
addition, the Company has provided, under the caption "Executive Officers
of the Company" at pages 38 through 41 above, the information regarding
executive officers called for by Item 401(b) of Regulation S-K.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) 1. Financial Statements:
---------------------
See Index to Financial Statements on page F-1 hereof.
2. Financial Statement Schedules:
------------------------------
See Index to Financial Statements on page F-1 hereof.
45
<PAGE>
3. Exhibits:
---------
See Exhibit Index on pages E-1 through E-5 hereof.
(b) Reports on Form 8-K:
Form 8-K, dated October 26, 1999, Item 5, reporting the Company's
earnings for the quarter ended September 30, 1999 and including a
Third Quarter Earnings Supplement.
Form 8-K, dated January 26, 2000, Item 5, reporting the Company's
earnings for the quarter and year ended December 31, 1999 and
including a Fourth Quarter/Full Year Earnings Supplement.
Form 8-K, dated February 3, 2000, Item 5, reporting certain
information from speeches presented by Harvey Golub, the
Company's Chairman and Chief Executive Officer and David Hubers,
President, AXP Advisors, to the financial community on February
2, 2000.
46
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
AMERICAN EXPRESS COMPANY
March 27, 2000 By /s/ Richard Karl Goeltz
---------------------------
Richard Karl Goeltz
Vice Chairman and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the Company and in the capacities and on the date indicated.
/s/ Harvey Golub /s/ Robert L. Crandall
- ------------------------------ ---------------------------
Harvey Golub Robert L. Crandall
Chairman, Chief Executive Director
Officer and Director
/s/ Kenneth I. Chenault /s/ Beverly Sills Greenough
- ------------------------------ ---------------------------
Kenneth I. Chenault Beverly Sills Greenough
President, Chief Operating Director
Officer and Director
/s/ Richard Karl Goeltz /s/ F. Ross Johnson
- ------------------------------ ---------------------------
Richard Karl Goeltz F. Ross Johnson
Vice Chairman and Director
Chief Financial Officer
/s/ Daniel T. Henry /s/ Vernon E. Jordan, Jr.
- ------------------------------ ---------------------------
Daniel T. Henry Vernon E. Jordan, Jr.
Senior Vice President Director
and Comptroller
/s/ Daniel F. Akerson /s/ Jan Leschly
- ------------------------------ ---------------------------
Daniel F. Akerson Jan Leschly
Director Director
/s/ Anne L. Armstrong /s/ Drew Lewis
- ------------------------------ ---------------------------
Anne L. Armstrong Drew Lewis
Director Director
/s/ Edwin L. Artzt /s/ Richard A. McGinn
- ------------------------------ ---------------------------
Edwin L. Artzt Richard A. McGinn
Director Director
/s/ William G. Bowen /s/ Frank P. Popoff
- ------------------------------ ---------------------------
William G. Bowen Frank P. Popoff
Director Director
March 27, 2000
47
<PAGE>
<TABLE>
<CAPTION>
AMERICAN EXPRESS COMPANY
INDEX TO FINANCIAL STATEMENTS
COVERED BY REPORT OF INDEPENDENT AUDITORS
(ITEM 14(A))
ANNUAL
REPORT TO
SHAREHOLDERS
FORM 10-K (PAGE)
----------- -------------
<S> <C> <C>
American Express Company and Subsidiaries:
Data incorporated by reference from attached
1999 Annual Report to Shareholders:
Report of independent auditors . . . . . . . . . . . . . . . . 60
Consolidated statements of income for the three
years ended December 31, 1999 . . . . . . . . . . . . . . 36
Consolidated balance sheets at December 31, 1999
and 1998. . . . . . . . . . . . . . . . . . . . . . . . . 37
Consolidated statements of cash flows for the
three years ended December 31, 1999 . . . . . . . . . . . 38
Consolidated statements of shareholders' equity for the
three years ended December 31, 1999 . . . . . . . . . . . 39
Notes to consolidated financial statements . . . . . . . . . . 40-59
Consent of independent auditors . . . . . . . . . . . . . . . . . F-2
Schedules:
I - Condensed financial information of the Company . . . . . . . F-3-6
II - Valuation and qualifying accounts for the three years
ended December 31, 1999 . . . . . . . . . . . . . . . . . . F-7
</TABLE>
All other schedules for American Express Company and subsidiaries
have been omitted since the required information is not present or not
present in amounts sufficient to require submission of the schedule, or
because the information required is included in the respective financial
statements or notes thereto.
The consolidated financial statements of American Express Company
(including the report of independent auditors) listed in the above index,
which are included in the Annual Report to Shareholders for the year ended
December 31, 1999, are hereby incorporated by reference. With the exception
of the pages listed in the above index, unless otherwise incorporated by
reference elsewhere in this Annual Report on Form 10-K, the 1999 Annual
Report to Shareholders is not to be deemed filed as part of this report.
F-1
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report
on Form 10-K of American Express Company of our report dated February 3,
2000 (hereinafter referred to as our Report), included in the 1999 Annual
Report to Shareholders of American Express Company.
Our audits included the financial statement schedules of American
Express Company listed in Item 14(a). These schedules are the
responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, the financial
statement schedules referred to above, when considered in relation to the
basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statements (Form S-8 No. 2-46918, No. 2-59230, No. 2-64285, No. 2-73954,
No. 2-89680, No. 33-01771, No. 33-02980, No. 33-28721, No. 33-33552,
No. 33-36422, No. 33-48629, No. 33-62124, No. 33-65008, No. 33-53801,
No. 333-12683, No. 333-41779, No. 333-52699 and 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) and in the related Prospecti of our Report
with respect to the consolidated financial statements and schedules of
American Express Company included and incorporated by reference in this Annual
Report on Form 10-K for the year ended December 31, 1999.
/s/ Ernst & Young LLP
New York, New York
March 27, 2000
F-2
<PAGE>
<TABLE>
<CAPTION>
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF THE COMPANY
CONDENSED STATEMENTS OF INCOME
(PARENT COMPANY ONLY)
(MILLIONS)
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1999 1998 1997
--------------- ---------------- ------------------
<S> <C> <C> <C>
Revenues $ 235 $ 260 $ 236
--------------- ---------------- ------------------
Expenses:
Interest 316 293 224
Human resources 85 80 68
Other (A) 129 - 314
--------------- ---------------- ------------------
Total 530 373 606
--------------- ---------------- ------------------
Pretax (loss) income (295) (113) (370)
Income tax (benefit) provision (158) (107) (193)
--------------- ---------------- ------------------
Net (loss) income before equity in net income
of subsidiaries and affiliates (137) (6) (177)
Equity in net income of subsidiaries
and affiliates 2,612 2,147 2,168
--------------- ---------------- ------------------
Net income $2,475 $2,141 $1,991
=============== ================ ==================
</TABLE>
(A) 1998 includes pretax income of $106 million ($78 million after-tax)
comprising a $60 million ($39 million after-tax) gain from sales of
common stock of First Data Corporation and $46 million ($39 million
after-tax) preferred stock dividend based on earnings from Lehman
Brothers.
See Notes to Condensed Financial Information of the Company on page F-6.
F-3
<PAGE>
<TABLE>
<CAPTION>
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF THE COMPANY
CONDENSED BALANCE SHEETS
(PARENT COMPANY ONLY)
(MILLIONS, EXCEPT SHARE AMOUNTS)
ASSETS
DECEMBER 31,
-------------------------------------------
1999 1998
------------------ -------------------
<S> <C> <C>
Cash and cash equivalents $ 18 $ 6
Equity in net assets of subsidiaries and affiliates 9,987 10,127
Accounts receivable and accrued interest, less reserves 18 13
Land, buildings and equipment--at cost, less
accumulated depreciation: 1999, $70; 1998, $65 80 69
Due from subsidiaries (net) 1,968 1,060
Other assets 588 779
------------------ -------------------
Total assets $12,659 $12,054
================== ===================
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Accounts payable and other liabilities $ 966 $ 756
Long-term debt 1,083 1,085
Intercompany debentures 515 515
------------------ -------------------
Total liabilities 2,564 2,356
Shareholders' equity:
Common shares, $.60 par value, authorized
1.2 billion shares; issued and outstanding
446.9 million shares in 1999 and 450.5 million shares in 1998
Capital surplus 268 270
Retained earnings 5,196 4,809
Other comprehensive income, net of tax: 5,033 4,148
Net unrealized securities gains
Foreign currency translation adjustments (296) 583
(106) (112)
------------------ -------------------
Accumulated other comprehensive income (402) 471
------------------ -------------------
Total shareholders' equity 10,095 9,698
------------------ -------------------
Total liabilities and shareholders' equity $12,659 $12,054
================== ===================
</TABLE>
See Notes to Condensed Financial Information of the Company on page F-6.
F-4
<PAGE>
<TABLE>
<CAPTION>
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF THE COMPANY
STATEMENTS OF CASH FLOWS
(PARENT COMPANY ONLY)
(MILLIONS)
YEARS ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,475 $ 2,141 $ 1,991
Adjustments to reconcile net income to cash provided by operating
activities:
Equity in net income of subsidiaries and
affiliates (2,612) (2,147) (2,168)
Dividends received from subsidiaries and
affiliates 1,955 1,666 1,489
----------- ----------- -----------
Net cash provided by operating activities 1,818 1,660 1,312
----------- ----------- -----------
Net cash (used) provided by investing activities (36) 91 51
----------- ----------- -----------
Cash flows from financing activities:
Issuance of American Express common shares 233 137 168
Repurchase of American Express common shares (1,120) (1,890) (1,259)
Dividends paid (404) (414) (423)
Net (decrease) increase in debt (6) 6 411
Issuance of intercompany debentures - 515 -
Other (473) (112) (278)
----------- ----------- -----------
Net cash used in financing activities (1,770) (1,758) (1,381)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 12 (7) (18)
----------- ----------- -----------
Cash and cash equivalents at beginning of year 6 13 31
----------- ----------- -----------
Cash and cash equivalents at end of year $ 18 $ 6 $ 13
=========== =========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest (net of amounts capitalized) in 1999, 1998, and 1997
was $83 million, $81 million and $88 million, respectively. Net cash
received for income taxes in 1999 and 1998 was $431 million and $145
million, respectively; net cash paid for income taxes in 1997 was $98
million.
F-5
<PAGE>
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF THE COMPANY
NOTES TO CONDENSED FINANCIAL INFORMATION OF THE COMPANY
(PARENT COMPANY ONLY)
1. Principles of Consolidation
The accompanying financial statements include the accounts of American
Express Company and on an equity basis its subsidiaries and
affiliates. These financial statements should be read in conjunction
with the consolidated financial statements of the Company. Certain
prior year's amounts have been reclassified to conform to the current
year's presentation.
<TABLE>
<CAPTION>
2. Long-term debt consists of (millions):
DECEMBER 31,
----------------------------------
1999 1998
---------------- --------------
<S> <C> <C>
6 3/4% Senior Debentures due June 23, 2004 $ 499 $ 499
8 1/2% Notes due August 15, 2001 300 299
8 5/8% Senior Debentures due 2022 123 122
Floating Medium-Term Note due December 31, 2000 88 88
WFC Series Z Zero Coupon Notes due December 12, 2000 58 52
Other Fixed and Floating rate notes maturing 1999-2001 15 25
---------------- --------------
$1,083 $1,085
================ ==============
</TABLE>
Aggregate annual maturities of long-term debt for the five years
ending December 31, 2004 are as follows (millions): 2000, $163; 2001,
$305; 2002, $0; 2003, $0; 2004, $500.
3. Intercompany debentures consist solely of Junior Subordinated
Debentures issued to American Express Company Capital Trust I, a
wholly-owned subsidiary of the Company. See Note 5 to the
Consolidated Financial Statements on page 44 of the Company's
1999 Annual Report to Shareholders, which Note is incorporated
herein by reference.
F-6
<PAGE>
<TABLE>
<CAPTION>
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1999
(MILLIONS)
Reserve for credit losses, Reserve for doubtful
loans and discounts accounts receivable
----------------------------------------- ---------------------------------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning
of period $ 812 $ 707 $ 601 $ 599 $ 712 $ 722
Additions:
Charges to income 832 1,165 837 1,209(a) 948(a) 1,153(a)
Recoveries of amounts
previously written-off 171 74 159 - - -
Deductions:
Charges for which
reserves were provided (1,062) (1,134) (890) (1,002) (1,061) (1,163)
------- ------- ------- ------- ------- -------
Balance at end of period $ 753 $ 812 $ 707 $ 806 $ 599 $ 712
======= ======= ====== ======= ======= =======
(a) Before recoveries on accounts previously written-off, which are credited to income
(millions): 1999--$225, 1998--$231 and 1997--$237.
</TABLE>
F-7
<PAGE>
EXHIBIT INDEX
-------------
The following exhibits are filed as part of this Annual Report or, where
indicated, were heretofore filed and are hereby incorporated by reference
(*indicates exhibits electronically filed herewith). Exhibits numbered 10.1
through 10.14, 10.22 through 10.31, 10.34 and 10.35 are management
contracts or compensatory plans or arrangements.
3.1 Company's Restated Certificate of Incorporation (incorporated
by reference to Exhibit 4.1 of the Company's Registration
Statement on Form S-3, dated July 31, 1997 (Commission File
No. 333-32525)).
3.2 Company's By-Laws, as amended through February 23, 1998
(incorporated by reference to Exhibit 3.2 of the Company's
Annual Report on Form 10-K (Commission File No. 1-7657) for
the fiscal year ended December 31, 1997).
4 The instruments defining the rights of holders of long-term
debt securities of the Company and its subsidiaries are
omitted pursuant to Section (b)(4)(iii)(A) of Item 601 of
Regulation S-K. The Company hereby agrees to furnish copies
of these instruments to the SEC upon request.
10.1 American Express Company 1989 Long-Term Incentive Plan, as
amended and restated (incorporated by reference to Exhibit
10.1 of the Company's Quarterly Report on Form 10-Q
(Commission File No. 1-7657) for the quarter ended March 31,
1996).
10.2 American Express Company 1998 Incentive Compensation Plan
(incorporated by reference to Exhibit 4.4 of the Company's
Registration Statement on Form S-8, dated May 15, 1998
(Commission File No. 333-52699)).
10.3 American Express Company Deferred Compensation Plan for
Directors, as amended effective July 28, 1997 (incorporated by
reference to Exhibit 10.1 of the Company's Quarterly Report on
Form 10-Q (Commission File No. 1-7657) for the quarter ended
June 30, 1997).
10.4 Description of American Express Pay for Performance Deferral
Program (incorporated by reference to Exhibit 10.5 of the
Company's Annual Report on Form 10-K (Commission File
No. 1-7657) for the fiscal year ended December 31, 1994).
10.5 American Express Company 1983 Stock Purchase Assistance Plan, as
amended (incorporated by reference to Exhibit 10.6 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657)
for the fiscal year ended December 31, 1988).
E-1
<PAGE>
10.6 American Express Company Retirement Plan for Non-Employee
Directors, as amended (incorporated by reference to Exhibit
10.12 of the Company's Annual Report on Form 10-K (Commission
File No. 1-7657) for the fiscal year ended December 31, 1988).
10.7 Certificate of Amendment of the American Express Company
Retirement Plan for Non-Employee Directors dated March 21,
1996 (incorporated by reference to Exhibit 10.11 of the
Company's Annual Report on Form 10-K (Commission File No.
1-7657) for the fiscal year ended December 31, 1995).
10.8 American Express Key Executive Life Insurance Plan, as
amended (incorporated by reference to Exhibit 10.12 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657)
for the fiscal year ended December 31, 1991).
10.9 American Express Key Employee Charitable Award Program for
Education (incorporated by reference to Exhibit 10.13 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657)
for the fiscal year ended December 31, 1990).
10.10 American Express Directors' Charitable Award Program (incorporated
by reference to Exhibit 10.14 of the Company's Annual Report on
Form 10-K (Commission File No. 1-7657) for the fiscal year ended
December 31, 1990).
10.11 Description of separate pension arrangement and loan agreement
between the Company and Harvey Golub (incorporated by
reference to Exhibit 10.17 of Company's Annual Report on Form
10-K (Commission File No. 1-7657) for the fiscal year ended
December 31, 1988).
10.12 Shearson Lehman Brothers Capital Partners I Amended and
Restated Agreement of Limited Partnership (incorporated by
reference to Exhibit 10.18 of Company's Annual Report on Form
10-K (Commission File No. 1-7657) for the fiscal year ended
December 31, 1988).
10.13 Shearson Lehman Hutton Capital Partners II, L.P. Amended and
Restated Agreement of Limited Partnership (incorporated by
reference to Exhibit 10.19 of Company's Annual Report on Form
10-K (Commission File No. 1-7657) for the fiscal year ended
December 31, 1988).
10.14 American Express Company Salary/Bonus Deferral Plan (incorporated
by reference to Exhibit 10.20 of Company's Annual Report on
Form 10-K (Commission File No. 1-7657) for the fiscal year ended
December 31, 1988).
E-2
<PAGE>
10.15 Restated and Amended Agreement of Tenants-In-Common, dated May 27,
1994, by and among the Company, American Express Bank Ltd.,
American Express Travel Related Services Company, Inc., Lehman
Brothers Inc., Lehman Government Securities, Inc. and Lehman
Commercial Paper Incorporated (incorporated by reference to
Exhibit 10.1 of Lehman Brothers Holdings Inc.'s Transition Report
on Form 10-K (Commission File No. 1-9466) for the transition
period from January 1, 1994 to November 30, 1994).
10.16 Tax Allocation Agreement, dated May 27, 1994, between Lehman
Brothers Holdings Inc. and the Company (incorporated by reference
to Exhibit 10.2 of Lehman Brothers Holdings Inc.'s Transition
Report on Form 10-K (Commission File No. 1-9466) for the
transition period from January 1, 1994 to November 30, 1994).
10.17 Intercompany Agreement, dated May 27, 1994, between the Company
and Lehman Brothers Holdings Inc. (incorporated by reference to
Exhibit 10.3 of Lehman Brothers Holdings Inc.'s Transition Report
on Form 10-K (Commission File No. 1-9466) for the transition
period from January 1, 1994 to November 30, 1994).
10.18 Purchase and Exchange Agreement, dated April 28, 1994, between
Lehman Brothers Holdings Inc. and the Company (incorporated by
reference to Exhibit 10.29 of Lehman Brothers Holdings Inc.'s
Transition Report on Form 10-K (Commission File No. 1-9466) for
the transition period from January 1, 1994 to November 30, 1994).
10.19 Registration Rights Agreement, dated as of May 27, 1994,
between the Company and Lehman Brothers Holdings Inc.
(incorporated by reference to Exhibit 10.30 of Lehman Brothers
Holdings Inc.'s Transition Report on Form 10-K (Commission
File No. 1-9466) for the transition period from January 1,
1994 to November 30, 1994).
10.20 Option Agreement, dated May 27, 1994, by and among the Company,
American Express Bank Ltd., American Express Travel Related
Services Company, Inc., Lehman Brothers Holdings Inc., Lehman
Brothers Inc., Lehman Government Securities, Inc. and Lehman
Commercial Paper Incorporated (incorporated by reference to
Exhibit 10.31 of Lehman Brothers Holdings Inc.'s Transition
Report on Form 10-K (Commission File No. 1-9466) for the
transition period from January 1, 1994 to November 30, 1994).
10.21 Letter Agreement, dated January 30, 1998, between the Company
and Nippon Life Insurance Company (incorporated by reference
to Exhibit 10.24 of the Company's Annual Report on Form 10-K
(Commission File No. 1-7657) for the fiscal year ended
December 31, 1997).
E-3
<PAGE>
10.22 American Express Company 1993 Directors' Stock Option Plan
(incorporated by reference to Exhibit 28.2 of the Company's
Quarterly Report on Form 10-Q (Commission File No. 1-7657)
for the quarter ended March 31, 1993).
10.23 American Express Senior Executive Severance Plan (incorporated
by reference to Exhibit 10.1 of the Company's Quarterly
Report on Form 10-Q (Commission File No. 1-7657) for the quarter
ended June 30, 1994).
10.24 Amendment of American Express Senior Executive Severance Plan
(incorporated by reference to Exhibit 10.1 of the Company's
Quarterly Report on Form 10-Q (Commission File No. 1-7657) for
the quarter ended September 30, 1994).
10.25 Amendment of American Express Company Key Executive Life Insurance
Plan (incorporated by reference to Exhibit 10.3 of the Company's
Quarterly Report on Form 10-Q (Commission File No. 1-7657) for
the quarter ended September 30, 1994).
10.26 Amendment of American Express Company Salary/Bonus Deferral Plan
(incorporated by reference to Exhibit 10.4 of the Company's
Quarterly Report on Form 10-Q (Commission File No. 1-7657) for
the quarter ended September 30, 1994).
10.27 Amendment of Long-Term Incentive Awards under the American Express
Company 1979 and 1989 Long-Term Incentive Plans (incorporated by
reference to Exhibit 10.6 of the Company's Quarterly Report on
Form 10-Q (Commission File No. 1-7657) for the quarter ended
September 30, 1994).
10.28 Amendments of (i) Long-Term Incentive Awards under the
American Express Company 1979 and 1989 Long-Term Incentive
Plans, (ii) the American Express Senior Executive Severance
Plan, (iii) the American Express Supplemental Retirement Plan,
(iv) the American Express Salary/Bonus Deferral Plan, (v) the
American Express Key Executive Life Insurance Plan and (vi)
the IDS Current Service Deferred Compensation Plan
(incorporated by reference to Exhibit 10.37 of the Company's
Annual Report on Form 10-K (Commission File No. 1-7657) for
the fiscal year ended December 31, 1997).
10.29 IDS Current Service Deferred Compensation Plan (incorporated by
reference to Exhibit 10.42 of the Company's Annual Report on
Form 10-K (Commission File No. 1-7657) for the fiscal year ended
December 31, 1994).
E-4
<PAGE>
10.30 Amended and Restated American Express Company Supplemental
Retirement Plan (incorporated by reference to Exhibit 10.1 of
the Company's Quarterly Report on Form 10-Q (Commission File
No. 1-7657) for the quarter ended September 30, 1999).
10.31 American Express Directors' Stock Plan (incorporated by reference
to Exhibit 4.4 of the Company's Registration Statement on
Form S-8, dated December 9, 1997 (Commission File No. 333-41779)).
10.32 Agreement dated February 27, 1995 between the Company and Berkshire
Hathaway Inc. (incorporated by reference to Exhibit 10.43 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657)
for the fiscal year ended December 31, 1994).
10.33 Agreement dated July 20, 1995 between the Company and Berkshire
Hathaway Inc. and its subsidiaries (incorporated by reference to
Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q
(Commission File No. 1-7657) for the quarter ended
September 30, 1995).
10.34 Letter agreement dated April 12, 1999 with Harvey Golub, the
Company's Chairman and Chief Executive Officer (incorporated by
reference to Exhibit 10.1 of the Company's Quarterly Report on
Form 10-Q (Commission File No. 1-7657) for the quarter ended
June 30, 1999).
10.35 Description of a special grant of a stock option and
restricted stock award to Kenneth I. Chenault, the Company's
President and Chief Operating Officer (incorporated by
reference to Exhibit 10.2 of the Company's Quarterly Report on
Form 10-Q (Commission File No. 1-7657) for the quarter ended
June 30, 1999).
*12.1 Computation in Support of Ratio of Earnings to Fixed Charges.
*12.2 Computation in Support of Ratio of Earnings to Fixed Charges and
Preferred Share Dividends.
*13 Portions of the Company's 1999 Annual Report to Shareholders that
are incorporated herein by reference.
*21 Subsidiaries of the Company.
*23 Consent of Ernst & Young LLP (contained on page F-2 of this Annual
Report on Form 10-K).
*27 Financial Data Schedule.
E-5
<PAGE>
==========================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999 Commission File No. 1-7657
------------------------
American Express Company
(Exact name of Company as specified in charter)
E X H I B I T S
==========================================================================
<PAGE>
EXHIBIT INDEX
-------------
The following exhibits are filed as part of this Annual Report or, where
indicated, were heretofore filed and are hereby incorporated by reference
(*indicates exhibits electronically filed herewith). Exhibits numbered 10.1
through 10.14, 10.22 through 10.31, 10.34 and 10.35 are management
contracts or compensatory plans or arrangements.
3.1 Company's Restated Certificate of Incorporation (incorporated
by reference to Exhibit 4.1 of the Company's Registration
Statement on Form S-3, dated July 31, 1997 (Commission File
No. 333-32525)).
3.2 Company's By-Laws, as amended through February 23, 1998
(incorporated by reference to Exhibit 3.2 of the Company's
Annual Report on Form 10-K (Commission File No. 1-7657) for
the fiscal year ended December 31, 1997).
4 The instruments defining the rights of holders of long-term
debt securities of the Company and its subsidiaries are
omitted pursuant to Section (b)(4)(iii)(A) of Item 601 of
Regulation S-K. The Company hereby agrees to furnish copies
of these instruments to the SEC upon request.
10.1 American Express Company 1989 Long-Term Incentive Plan, as
amended and restated (incorporated by reference to Exhibit
10.1 of the Company's Quarterly Report on Form 10-Q
(Commission File No. 1-7657) for the quarter ended March 31,
1996).
10.2 American Express Company 1998 Incentive Compensation Plan
(incorporated by reference to Exhibit 4.4 of the Company's
Registration Statement on Form S-8, dated May 15, 1998
(Commission File No. 333-52699)).
10.3 American Express Company Deferred Compensation Plan for
Directors, as amended effective July 28, 1997 (incorporated by
reference to Exhibit 10.1 of the Company's Quarterly Report on
Form 10-Q (Commission File No. 1-7657) for the quarter ended
June 30, 1997).
10.4 Description of American Express Pay for Performance Deferral
Program (incorporated by reference to Exhibit 10.5 of the
Company's Annual Report on Form 10-K (Commission File
No. 1-7657) for the fiscal year ended December 31, 1994).
10.5 American Express Company 1983 Stock Purchase Assistance Plan, as
amended (incorporated by reference to Exhibit 10.6 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657)
for the fiscal year ended December 31, 1988).
E-1
<PAGE>
10.6 American Express Company Retirement Plan for Non-Employee
Directors, as amended (incorporated by reference to Exhibit
10.12 of the Company's Annual Report on Form 10-K (Commission
File No. 1-7657) for the fiscal year ended December 31, 1988).
10.7 Certificate of Amendment of the American Express Company
Retirement Plan for Non-Employee Directors dated March 21,
1996 (incorporated by reference to Exhibit 10.11 of the
Company's Annual Report on Form 10-K (Commission File No.
1-7657) for the fiscal year ended December 31, 1995).
10.8 American Express Key Executive Life Insurance Plan, as
amended (incorporated by reference to Exhibit 10.12 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657)
for the fiscal year ended December 31, 1991).
10.9 American Express Key Employee Charitable Award Program for
Education (incorporated by reference to Exhibit 10.13 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657)
for the fiscal year ended December 31, 1990).
10.10 American Express Directors' Charitable Award Program (incorporated
by reference to Exhibit 10.14 of the Company's Annual Report on
Form 10-K (Commission File No. 1-7657) for the fiscal year ended
December 31, 1990).
10.11 Description of separate pension arrangement and loan agreement
between the Company and Harvey Golub (incorporated by
reference to Exhibit 10.17 of Company's Annual Report on Form
10-K (Commission File No. 1-7657) for the fiscal year ended
December 31, 1988).
10.12 Shearson Lehman Brothers Capital Partners I Amended and
Restated Agreement of Limited Partnership (incorporated by
reference to Exhibit 10.18 of Company's Annual Report on Form
10-K (Commission File No. 1-7657) for the fiscal year ended
December 31, 1988).
10.13 Shearson Lehman Hutton Capital Partners II, L.P. Amended and
Restated Agreement of Limited Partnership (incorporated by
reference to Exhibit 10.19 of Company's Annual Report on Form
10-K (Commission File No. 1-7657) for the fiscal year ended
December 31, 1988).
10.14 American Express Company Salary/Bonus Deferral Plan (incorporated
by reference to Exhibit 10.20 of Company's Annual Report on
Form 10-K (Commission File No. 1-7657) for the fiscal year ended
December 31, 1988).
E-2
<PAGE>
10.15 Restated and Amended Agreement of Tenants-In-Common, dated May 27,
1994, by and among the Company, American Express Bank Ltd.,
American Express Travel Related Services Company, Inc., Lehman
Brothers Inc., Lehman Government Securities, Inc. and Lehman
Commercial Paper Incorporated (incorporated by reference to
Exhibit 10.1 of Lehman Brothers Holdings Inc.'s Transition Report
on Form 10-K (Commission File No. 1-9466) for the transition
period from January 1, 1994 to November 30, 1994).
10.16 Tax Allocation Agreement, dated May 27, 1994, between Lehman
Brothers Holdings Inc. and the Company (incorporated by reference
to Exhibit 10.2 of Lehman Brothers Holdings Inc.'s Transition
Report on Form 10-K (Commission File No. 1-9466) for the
transition period from January 1, 1994 to November 30, 1994).
10.17 Intercompany Agreement, dated May 27, 1994, between the Company
and Lehman Brothers Holdings Inc. (incorporated by reference to
Exhibit 10.3 of Lehman Brothers Holdings Inc.'s Transition Report
on Form 10-K (Commission File No. 1-9466) for the transition
period from January 1, 1994 to November 30, 1994).
10.18 Purchase and Exchange Agreement, dated April 28, 1994, between
Lehman Brothers Holdings Inc. and the Company (incorporated by
reference to Exhibit 10.29 of Lehman Brothers Holdings Inc.'s
Transition Report on Form 10-K (Commission File No. 1-9466) for
the transition period from January 1, 1994 to November 30, 1994).
10.19 Registration Rights Agreement, dated as of May 27, 1994,
between the Company and Lehman Brothers Holdings Inc.
(incorporated by reference to Exhibit 10.30 of Lehman Brothers
Holdings Inc.'s Transition Report on Form 10-K (Commission
File No. 1-9466) for the transition period from January 1,
1994 to November 30, 1994).
10.20 Option Agreement, dated May 27, 1994, by and among the Company,
American Express Bank Ltd., American Express Travel Related
Services Company, Inc., Lehman Brothers Holdings Inc., Lehman
Brothers Inc., Lehman Government Securities, Inc. and Lehman
Commercial Paper Incorporated (incorporated by reference to
Exhibit 10.31 of Lehman Brothers Holdings Inc.'s Transition
Report on Form 10-K (Commission File No. 1-9466) for the
transition period from January 1, 1994 to November 30, 1994).
10.21 Letter Agreement, dated January 30, 1998, between the Company
and Nippon Life Insurance Company (incorporated by reference
to Exhibit 10.24 of the Company's Annual Report on Form 10-K
(Commission File No. 1-7657) for the fiscal year ended
December 31, 1997).
E-3
<PAGE>
10.22 American Express Company 1993 Directors' Stock Option Plan
(incorporated by reference to Exhibit 28.2 of the Company's
Quarterly Report on Form 10-Q (Commission File No. 1-7657)
for the quarter ended March 31, 1993).
10.23 American Express Senior Executive Severance Plan (incorporated
by reference to Exhibit 10.1 of the Company's Quarterly
Report on Form 10-Q (Commission File No. 1-7657) for the quarter
ended June 30, 1994).
10.24 Amendment of American Express Senior Executive Severance Plan
(incorporated by reference to Exhibit 10.1 of the Company's
Quarterly Report on Form 10-Q (Commission File No. 1-7657) for
the quarter ended September 30, 1994).
10.25 Amendment of American Express Company Key Executive Life Insurance
Plan (incorporated by reference to Exhibit 10.3 of the Company's
Quarterly Report on Form 10-Q (Commission File No. 1-7657) for
the quarter ended September 30, 1994).
10.26 Amendment of American Express Company Salary/Bonus Deferral Plan
(incorporated by reference to Exhibit 10.4 of the Company's
Quarterly Report on Form 10-Q (Commission File No. 1-7657) for
the quarter ended September 30, 1994).
10.27 Amendment of Long-Term Incentive Awards under the American Express
Company 1979 and 1989 Long-Term Incentive Plans (incorporated by
reference to Exhibit 10.6 of the Company's Quarterly Report on
Form 10-Q (Commission File No. 1-7657) for the quarter ended
September 30, 1994).
10.28 Amendments of (i) Long-Term Incentive Awards under the
American Express Company 1979 and 1989 Long-Term Incentive
Plans, (ii) the American Express Senior Executive Severance
Plan, (iii) the American Express Supplemental Retirement Plan,
(iv) the American Express Salary/Bonus Deferral Plan, (v) the
American Express Key Executive Life Insurance Plan and (vi)
the IDS Current Service Deferred Compensation Plan
(incorporated by reference to Exhibit 10.37 of the Company's
Annual Report on Form 10-K (Commission File No. 1-7657) for
the fiscal year ended December 31, 1997).
10.29 IDS Current Service Deferred Compensation Plan (incorporated by
reference to Exhibit 10.42 of the Company's Annual Report on
Form 10-K (Commission File No. 1-7657) for the fiscal year ended
December 31, 1994).
E-4
<PAGE>
10.30 Amended and Restated American Express Company Supplemental
Retirement Plan (incorporated by reference to Exhibit 10.1 of
the Company's Quarterly Report on Form 10-Q (Commission File
No. 1-7657) for the quarter ended September 30, 1999).
10.31 American Express Directors' Stock Plan (incorporated by reference
to Exhibit 4.4 of the Company's Registration Statement on
Form S-8, dated December 9, 1997 (Commission File No. 333-41779)).
10.32 Agreement dated February 27, 1995 between the Company and Berkshire
Hathaway Inc. (incorporated by reference to Exhibit 10.43 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657)
for the fiscal year ended December 31, 1994).
10.33 Agreement dated July 20, 1995 between the Company and Berkshire
Hathaway Inc. and its subsidiaries (incorporated by reference to
Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q
(Commission File No. 1-7657) for the quarter ended
September 30, 1995).
10.34 Letter agreement dated April 12, 1999 with Harvey Golub, the
Company's Chairman and Chief Executive Officer (incorporated by
reference to Exhibit 10.1 of the Company's Quarterly Report on
Form 10-Q (Commission File No. 1-7657) for the quarter ended
June 30, 1999).
10.35 Description of a special grant of a stock option and
restricted stock award to Kenneth I. Chenault, the Company's
President and Chief Operating Officer (incorporated by
reference to Exhibit 10.2 of the Company's Quarterly Report on
Form 10-Q (Commission File No. 1-7657) for the quarter ended
June 30, 1999).
*12.1 Computation in Support of Ratio of Earnings to Fixed Charges.
*12.2 Computation in Support of Ratio of Earnings to Fixed Charges and
Preferred Share Dividends.
*13 Portions of the Company's 1999 Annual Report to Shareholders that
are incorporated herein by reference.
*21 Subsidiaries of the Company.
*23 Consent of Ernst & Young LLP (contained on page F-2 of this Annual
Report on Form 10-K).
*27 Financial Data Schedule.
E-5
EXHIBIT 12.1
<TABLE>
<CAPTION>
AMERICAN EXPRESS COMPANY
COMPUTATION IN SUPPORT OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
Years Ended December 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings:
Pretax income from
continuing operations $ 3,438 $ 2,925 $ 2,750 $ 2,664 $ 2,183
Interest expense 2,178 2,224 2,122 2,160 2,343
Other adjustments 151 124 127 139 95
------ ------ ------ ------ -------
Total earnings (a) $ 5,767 $ 5,273 $ 4,999 $ 4,963 $ 4,621
------ ------ ------ ------ ------
Fixed charges:
Interest expense $ 2,178 $ 2,224 $ 2,122 $ 2,160 $ 2,343
Other adjustments 152 129 129 130 135
------ ------ ------ ------ ------
Total fixed charges (b) $ 2,330 $ 2,353 $ 2,251 $ 2,290 2,478
------ ------ ------ ------ ------
Ratio of earnings to
fixed charges (a/b) 2.48 2.24 2.22 2.17 1.86
</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.
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.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 12.2
AMERICAN EXPRESS COMPANY
COMPUTATION IN SUPPORT OF RATIO OF EARNINGS TO FIXED CHARGES AND
PREFERRED SHARE DIVIDENDS
(Dollars in millions)
Years Ended December 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings:
Pretax income from
continuing operations $ 3,438 $ 2,925 $ 2,750 $ 2,664 $ 2,183
Interest expense 2,178 2,224 2,122 2,160 2,343
Other adjustments 151 124 127 139 95
------ ------ ------ ------ ------
Total earnings (a) $ 5,767 $ 5,273 $ 4,999 $ 4,963 $ 4,621
------ ------ ------ ------ ------
Fixed charges and
preferred share
dividends:
Interest expense $ 2,178 $ 2,224 $ 2,122 $ 2,160 $ 2,343
Dividends on preferred
shares - - - 8 24
Other adjustments 152 129 129 130 135
------ ------ ------ ------ ------
Total fixed charges and
Preferred share
dividends (b) $ 2,330 $ 2,353 $ 2,251 $ 2,298 $ 2,502
------ ------ ------ ------ ------
Ratio of earnings to
fixed charges and
preferred share
dividends (a/b) 2.48 2.24 2.22 2.16 1.85
</TABLE>
Included in interest expense in the above computation is interest expense
related to the international banking operations of American Express Company
(the "Company") and Travel Related Services' Cardmember lending activities,
which is netted against interest and dividends and Cardmember lending net
finance charge revenue, respectively, in the Consolidated Statements of
Income.
For purposes of the "earnings" computation, other adjustments include
adding the amortization of capitalized interest, the net loss of
affiliates accounted for at equity whose debt is not guaranteed by the
Company, the minority interest in the earnings of majority-owned
subsidiaries with fixed charges, and the interest component of rental
expense and subtracting undistributed net income of affiliates
accounted for at equity.
For purposes of the "fixed charges and preferred share dividends"
computation, dividends on outstanding preferred shares have been
increased to an amount representing the pretax earnings required to
cover such dividend requirements. Other adjustments include
capitalized interest costs and the interest component of rental
expense.
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 13
FINANCIAL REVIEW
CONSOLIDATED RESULTS OF OPERATIONS
1999 was a very good year for American Express (the company). We delivered
strong financial results while also making significant investments to develop
our business. We had exceptional growth in cards-in-force in both the
United States and internationally, introduced many new products and had
solid improvement in our international card and travel business volumes
despite economic weakness overseas. We also had continued success at
American Express Financial Advisors (AEFA) with strong sales growth,
increased assets under management, better investment performance and a
higher number of advisors. The company's 1999 results met or exceeded its
long-term targets of achieving, on average and over time: 12 to 15 percent
earnings per share growth, at least 8 percent growth in revenues and return
on equity of 18 to 20 percent.
The company reported record 1999 net income of $2.48 billion, 16 percent
higher than the $2.14 billion in 1998. The 1998 results include several
first quarter items: a $138 million (after-tax) credit loss provision at
American Express Bank (AEB) relating to its Asia/Pacific portfolio, as well
as income in the Corporate segment of $78 million (after-tax) representing
gains on the sale of First Data Corporation (FDC) shares and a preferred
dividend based on Lehman Brothers' earnings. Excluding these items, 1999
net income rose 12 percent.
Diluted earnings per share were $5.42, $4.63 and $4.15 in 1999, 1998 and
1997, respectively. After adjusting 1998 for the above-mentioned AEB credit
loss provision and the Corporate gains, diluted earnings per share were
$4.76 for that year. On this basis, 1999 and 1998 earnings per share rose
14 percent and 15 percent, respectively.
Consolidated net revenues on a managed basis rose 13 percent in 1999 to
$19.5 billion, compared with $17.2 billion in 1998, which represented 9
percent growth from the prior year. Contributing to both years' results
were increases in worldwide billed business, higher management and
distribution fees, greater Cardmember loans outstanding, and travel
acquisitions; the 1998 results also reflect improved interest margins in
Cardmember lending.
This financial review is presented on the basis used by management to
evaluate operations. It differs in two respects from the accompanying
financial statements, which are prepared in accordance with U.S. Generally
Accepted Accounting Principles (GAAP). First, results are presented as if
there had been no asset securitizations at Travel Related Services (TRS).
This format is generally termed on a "managed basis." Second, revenues are
shown net of AEFA's provisions for annuities, insurance and investment
certificates products, which are essentially spread businesses.
In January 2000, the company's Board of Directors voted for a three-for-one
split of the company's common stock, subject to shareholder approval of an
increase in authorized shares at the company's annual meeting in April
2000.
-1- (1999 Annual Report p. 26)
<PAGE>
TRAVEL RELATED SERVICES
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
(Managed Basis)
(Millions)
Years Ended December 31, 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net Revenues:
Discount Revenue $ 6,741 $ 6,115 $ 5,666
Net Card Fees 1,604 1,584 1,609
Travel Commissions and Fees 1,802 1,647 1,489
Other Revenues 2,827 2,225 2,002
Lending:
Finance Charge Revenue 2,884 2,470 2,105
Interest Expense 955 810 694
-------- -------- --------
Net Finance Charge
Revenue 1,929 1,660 1,411
-------- -------- --------
Total Net Revenues 14,903 13,231 12,177
-------- -------- --------
Expenses:
Marketing and Promotion 1,215 1,094 990
Provision for Losses and Claims:
Charge Card 995 994 1,105
Lending 1,186 1,093 937
Other 56 56 57
-------- -------- --------
Total 2,237 2,143 2,099
Charge Card Interest Expense 1,055 1,040 973
Human Resources 3,860 3,544 3,076
Other Operating Expenses 4,149 3,346 3,254
-------- -------- --------
Total Expenses 12,516 11,167 10,392
-------- -------- --------
Pretax Income 2,387 2,064 1,785
Income Tax Provision 825 700 621
-------- -------- --------
Net Income $ 1,562 $ 1,364 $ 1,164
======== ======== ========
</TABLE>
Travel Related Services reported earnings of $1.56 billion in 1999, a 15
percent increase from $1.36 billion in 1998. 1997 earnings were $1.16
billion.
TRS' net revenues on a managed basis rose 13 percent and 9 percent in 1999
and 1998, respectively, compared with the previous year. In both years,
TRS' net revenues benefited from growth in worldwide billed business,
Cardmember loans outstanding and higher travel commissions and fees. 1998
results also reflect wider interest margins. In both 1999 and 1998, growth
in billed business was due to higher average spending per Basic Cardmember
and growth in average cards outstanding. Greater average spending per Basic
Cardmember resulted from several factors, including the benefits of rewards
programs and expanded merchant coverage. The increase in U.S. cards during
1999 reflects a greater level of consumer and small business services card
acquisition activities, as well as the successful launch of new products,
including Blue and co-branded Costco cards. The international increase in
both 1999 and 1998 includes growth in proprietary products, as well as the
addition of a substantial number of new network cards over the past two
years.
-2- (1999 Annual Report p. 26)
<PAGE>
Discount revenue rose 10 percent in 1999 and 8 percent in 1998 as a result
of higher worldwide billed business, which increased despite (i) a general
tightening of corporate travel and entertainment expenses which began in
the latter half of 1998 and (ii) the company's decision to withdraw from
the U.S. Government Card business in the fourth quarter of 1998, which
caused the cancellation of 1.6 million U.S. Government cards, representing
approximately $3.5 billion in annualized spending. The 1999 growth in
billed business is primarily the result of increases in retail and
"everyday spend" categories.
Net card fees increased slightly in 1999, reflecting growth in
cards-in-force; in 1998, net card fees decreased due to declines in
consumer charge cards and the effect of TRS' strategy of building its
lending portfolio through the issuance of low- and no-fee credit cards.
Travel commissions and fees improved in both years as a result of
acquisitions during 1998; these acquisitions increased revenues and
expenses but did not have a material effect on net income. Both 1999 and
1998 includes increased travel sales volumes, offset in part by the
continued efforts by airlines to reduce distribution costs and by corporate
travel and entertainment expense containment efforts. The increase in other
revenues in 1999 and 1998 include the effect of acquisitions and higher fee
income; in addition 1998 benefited from greater card assessments. Lending
net finance charge revenue rose 16 percent and 18 percent in 1999 and 1998,
respectively, from higher worldwide lending balances. In 1999, this
increase was partly offset by a narrowing of interest margins in the U.S.
portfolio, as a greater portion of the portfolio was on lower introductory
rates; in 1998, interest margins widened, as a smaller portion of the
portfolio was on introductory rates.
-3- (1999 Annual Report p. 27)
<PAGE>
<TABLE>
<CAPTION>
SELECTED STATISTICAL INFORMATION
(Billions, except percentages
and where indicated)
Years Ended December 31, 1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Total Cards-In-Force (millions):
United States 29.9 27.8 29.6
Outside the United States 16.1 14.9 13.1
--------- --------- --------
Total 46.0 42.7 42.7
--------- --------- --------
Basic Cards-In-Force (millions):
United States 23.4 21.7 23.3
Outside the United States 12.3 11.5 10.0
--------- --------- --------
Total 35.7 33.2 33.3
--------- --------- --------
Card Billed Business:
United States $ 186.4 $ 165.6 $ 150.5
Outside the United States 67.7 61.9 58.7
--------- --------- --------
Total $ 254.1 $ 227.5 $ 209.2
--------- --------- --------
Average Discount Rate* 2.72% 2.73% 2.73%
Average Basic Cardmember
Spending (dollars)* $ 7,758 $ 6,885 $ 6,473
Average Fee per Card -
Managed (dollars)* $ 39 $ 38 $ 39
Travel Sales $ 22.5 $ 19.9 $ 17.4
Travel Commissions and
Fees/Sales 8.0% 8.3% 8.6%
Managed Charge Card
Receivables:**
Total Receivables $ 27.0 $ 24.0 $ 23.5
90 Days Past Due as a % of Total 2.5% 2.7% 3.1%
Loss Reserves (millions) $ 857 $ 897 $ 951
% of Receivables 3.2% 3.7% 4.0%
% of 90 Days Past Due 126% 138% 132%
Net Loss Ratio 0.41% 0.46% 0.50%
Managed U.S. Cardmember
Lending:**
Total Loans $ 23.4 $ 16.7 $ 14.6
Past Due Loans as a % of Total:
30-89 Days 1.8% 2.2% 2.4%
90+ Days 0.8% 0.9% 1.1%
Loss Reserves (millions):
Beginning Balance $ 619 $ 589 $ 488
Provision 994 961 867
Net Charge-Offs/Other (941) (931) (766)
--------- --------- --------
Ending Balance $ 672 $ 619 $ 589
--------- --------- --------
% of Loans 2.9% 3.7% 4.0%
% of Past Due 110% 120% 116%
Average Loans $ 18.9 $ 15.0 $ 13.3
Net Write-Off Rate 5.0% 6.4% 6.0%
Net Interest Yield 8.6% 9.5% 9.1%
* Computed excluding cards issued by strategic alliance partners
and independent operators as well as business billed on those cards.
** Managed Cardmember receivables and loans include securitized
assets not reflected on the Consolidated Balance Sheets.
</TABLE>
-4- (1999 Annual Report p. 27)
<PAGE>
The growth in marketing and promotion expense in both years reflected higher
media and merchant-related advertising costs; 1999 also included expenses
related to expanded card acquisition efforts. In 1999, the worldwide Charge
Card provision was essentially unchanged from the prior year, as higher
volumes were offset by lower loss rates; the decline in 1998 resulted from
improved loss rates. The worldwide lending provision rose in both 1999 and
1998 due to portfolio growth; the increase for 1999 was partly offset by
improved credit quality; the higher provision in 1998 also includes greater
bankruptcy losses. Charge Card interest expense rose in 1999 and 1998 as a
result of higher volumes, partly offset by lower borrowing rates. The
growth in human resources expense in both years was primarily due to
acquisitions, merit increases, greater contract programmer costs for
technology-related projects, and larger business volumes. Other operating
expenses rose in 1999 and 1998 due to Cardmember loyalty programs, business
growth and investment spending.
EFFECT OF SECURITIZATIONS
TRS securitizes loans and receivables in the normal course of its business.
The above statements of income and related discussion present TRS results
on a managed basis, as if there had been no securitization transactions.
The effect of securitizations is to remove the securitized loans and
receivables from TRS' balance sheet. TRS continues to service the accounts
and receives a fee for doing so. On a GAAP basis, each new loan
securitization results in a reduction in a previously established reserve
for losses and the recognition of the present value of the future net cash
flows related to the securitized loans. The ongoing effect of loan
securitizations is that TRS no longer recognizes net finance charge revenue
and provisions for losses on securitized loans. Rather, TRS receives
servicing revenue and any excess of net finance charge revenue, after
write-offs and servicing costs, on the securitized loans. These amounts are
recorded in other revenues. Charge Card securitizations result in a
reduction of interest expense and provisions for losses, and recognition of
servicing revenues, which is offset by discount expense on the securitized
receivables.
On a GAAP reporting basis, TRS' results included securitization gains of
$154 million ($100 million after-tax) in 1999, $36 million ($23 million
after-tax) in 1998, and $37 million ($24 million after-tax) in 1997. These
gains were invested in additional marketing and promotion related to card
acquisition in all years, and other business building initiatives in 1999;
thus there was no material effect on net income, total net revenues or
total expenses for any year presented. The following tables reconcile TRS'
income statement from a managed basis to a GAAP basis. These tables are not
complete statements of income, as they include only those income statement
items that are affected by securitizations.
-5- (1999 Annual Report p. 28)
<PAGE>
<TABLE>
<CAPTION>
(Millions)
Year Ended December 31, 1999
--------------------------------------
Managed Securitization GAAP
Basis Effect Basis
----- ------ -----
<S> <C> <C> <C>
Net Revenues:
Net Card Fees $ 1,604 $ (5) $ 1,599
Other Revenues 2,827 497 3,324
Lending Net
Finance Charge Revenue 1,929 (596) 1,333
Total Net Revenues 14,903 (104) 14,799
Expenses:
Marketing and Promotion 1,215 91 1,306
Provision for Losses and Claims:
Charge Card 995 (130) 865
Lending 1,186 (387) 799
Charge Card Interest Expense 1,055 (220) 835
Net Discount Expense -- 479 479
Other Operating Expenses 4,149 63 4,212
Total Expenses 12,516 (104) 12,412
Pretax Income $ 2,387 $ -- $ 2,387
</TABLE>
<TABLE>
<CAPTION>
(Millions)
Year Ended December 31, 1998
--------------------------------------
Managed Securitization GAAP
Basis Effect Basis
----- ------ -----
<S> <C> <C> <C>
Net Revenues:
Net Card Fees $ 1,584 $ 3 $ 1,587
Other Revenues 2,225 309 2,534
Lending Net
Finance Charge Revenue 1,660 (306) 1,354
Total Net Revenues 13,231 6 13,237
Expenses:
Marketing and Promotion 1,094 36 1,130
Provision for Losses and Claims:
Charge Card 994 (293) 701
Lending 1,093 (171) 922
Charge Card Interest Expense 1,040 (231) 809
Net Discount Expense -- 665 665
Total Expenses 11,167 6 11,173
Pretax Income $ 2,064 $ -- $ 2,064
</TABLE>
<TABLE>
<CAPTION>
(Millions)
Year Ended December 31, 1997
---------------------------------------
Managed Securitization GAAP
Basis Effect Basis
----- ------ -----
<S> <C> <C> <C>
Net Revenues:
Net Card Fees $ 1,609 $ (5) $ 1,604
Other Revenues 2,002 209 2,211
Lending Net
Finance Charge Revenue 1,411 (167) 1,244
Total Net Revenues 12,177 37 12,214
Expenses:
Marketing and Promotion 990 37 1,027
Provision for Losses and Claims:
Charge Card 1,105 (247) 858
Lending 937 (120) 817
Charge Card Interest Expense 973 (230) 743
Net Discount Expense -- 597 597
Total Expenses 10,392 37 10,429
Pretax Income $ 1,785 $ -- $ 1,785
</TABLE>
-6- (1999 Annual Report p. 28)
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
SELECTED BALANCE SHEET INFORMATION
(Billions, except percentages)
December 31, 1999 1998
------- -------
<S> <C> <C>
Accounts Receivable, net $ 25.3 $ 21.3
U.S. Cardmember Loans $ 16.1 $ 13.7
Total Assets $ 56.3 $ 44.7
Short-term Debt $ 31.4 $ 22.9
Long-term Debt $ 4.4 $ 5.1
Total Liabilities $ 50.9 $ 39.8
Total Shareholder's Equity $ 5.4 $ 4.9
Return on Average Equity* 30.1% 27.8%
Return on Average Assets* 3.2% 3.3%
* Excluding the effect of SFAS No. 115
</TABLE>
The American Express Credit Account Master Trust (the Trust)
securitized $4 billion of loans in 1999 and $1 billion in 1998, through the
public issuance of investor certificates. The securitized assets consist of
loans arising in a portfolio of designated Optima Card, Optima Line of
Credit and Sign & Travel/Special Purchase revolving credit accounts owned
by American Express Centurion Bank (Centurion Bank), a wholly-owned
subsidiary of TRS. At December 31, 1999 and 1998, TRS had a total of $7
billion and $3 billion, respectively, of Trust-related securitized loans,
which are not on the Consolidated Balance Sheets. In February 2000, the
Trust securitized an additional $1 billion of loans.
In addition, the American Express Master Trust (the Master Trust)
securitizes Charge Card receivables generated under designated American
Express Card, Gold Card and Platinum Card consumer accounts through the
issuance of trust certificates. In 1998, the Master Trust issued $1 billion
of Class A Fixed Rate Accounts Receivable Trust Certificates.
In 1999 and 1998, $500 million and $300 million Class A Fixed Rate
Accounts Receivable Trust Certificates, respectively, matured from the
Charge Card securitization portfolio. At December 31, 1999 and 1998, TRS had
securitized receivables of $3.45 billion and $3.95 billion, respectively,
which are not on the Consolidated Balance Sheets.
In 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 1998, American Express Credit Corporation (Credco), a wholly-owned
subsidiary of TRS, issued $150 million 1.125% Cash Exchangeable Notes due
February 2003. These notes are exchangeable for an amount in cash which is
linked to the price of the common stock of the company. Credco had entered into
agreements to hedge fully its obligations. Credco exercised its option to
call these notes in February 2000. Accordingly, the related hedging
agreements were called at the same time.
TRS, primarily through Credco, maintained commercial paper outstanding of
approximately $18.5 billion at an average interest rate of 5.6% and
approximately $16.1 billion at an average interest rate of 5.3% at December
31, 1999 and 1998, respectively. Unused lines of credit of approximately
$8.8 billion, which expire in increments from 2000 through 2002, were
available at December 31, 1999 to support a portion of TRS' commercial
paper borrowings.
Borrowings under bank lines of credit totaled $1.5 billion and $1.6 billion
at December 31, 1999 and 1998, respectively.
-7- (1999 Annual Report p. 29)
<PAGE>
AMERICAN EXPRESS FINANCIAL ADVISORS
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
(Millions)
Years Ended December 31, 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Investment Income $ 2,443 $ 2,437 $ 2,339
Management and
Distribution Fees 2,270 1,851 1,486
Other Revenues 923 807 774
-------- -------- --------
Total Revenues 5,636 5,095 4,599
-------- -------- --------
Provision for Losses and Benefits:
Annuities 1,071 1,150 1,214
Insurance 522 489 452
Investment Certificates 306 275 200
Total 1,899 1,914 1,866
-------- -------- --------
Net Revenues 3,737 3,181 2,733
-------- -------- --------
Expenses:
Human Resources 1,744 1,530 1,292
Other Operating Expenses 630 459 419
-------- -------- --------
Total Expenses 2,374 1,989 1,711
-------- -------- --------
Pretax Income 1,363 1,192 1,022
Income Tax Provision 428 374 315
-------- -------- --------
Net Income $ 935 $ 818 $ 707
======== ======== ========
</TABLE>
American Express Financial Advisors reported increases in net revenues of
17 percent and 16 percent and earnings of 14 percent and 16 percent for
1999 and 1998, respectively. Revenues and earnings in both years benefited
primarily from higher fees due to growth in managed assets and strong
product sales, particularly mutual funds, which set a record in both years.
Management and distribution fees rose 23 percent and 25 percent in
1999 and 1998, respectively; in both years, the increase was due to greater
management fee revenue from higher managed and separate account assets.
These assets increased due to strong market appreciation and positive net
sales. Distribution fees also rose reflecting strong mutual fund sales and
asset levels. The increase in investment income reflects growth in average
investments. Other revenues rose from increased life insurance premiums and
higher financial planning fees, as well as greater property-casualty
insurance premiums in 1999. The provision for losses and benefits for
annuities declined due to lower fixed annuities in force and accrual rates.
The provisions for insurance and investment certificates rose in 1999 and
1998 reflecting higher in force
-8- (1999 Annual Report p. 29)
<PAGE>
levels. The increase in certificate provisions also reflects growth in
the stock market certificate product, which is hedged by indexed options
and resulted in a corresponding increase in investment income, with minimal
effect on net income.
In January 2000, AEFA reached an agreement in principle to settle three
class-action lawsuits related to the sales of insurance and annuity
products. It is expected that the settlement will provide for approximately
$215 million of benefits to more than two million class participants. Other
operating expenses in the fourth quarter of 1999 include a $74 million
(pretax) charge above reserves already established in prior periods in
anticipation of a possible settlement. The agreement in principle to settle
also provides for release by class members of all insurance and annuity
market conduct claims dating back to 1985 and is subject to a number of
contingencies including a definitive agreement and court approval.
Human resources expense rose in both years due to higher financial advisors'
compensation from growth in sales and asset levels and a greater number of
employees to support business expansion. The increase in other operating
expenses in both years includes higher data processing, technology, and
advertising expenditures, and, in 1999, the charge related to the
preliminary settlement of the three class-action lawsuits. The growth in
human resources and other operating expenses was mitigated by reduced
amortization of deferred acquisition costs for variable insurance and
annuity products as a result of strong equity market performance during the
year.
<TABLE>
<CAPTION>
SELECTED STATISTICAL INFORMATION
(Millions, except percentages
and where indicated)
Years Ended December 31, 1999 1998 1997
------- -------- --------
<S> <C> <C> <C>
Life Insurance
in Force (billions) $ 89.2 $ 81.1 $ 74.5
Deferred Annuities
in Force (billions) $ 47.4 $ 42.8 $ 41.7
Assets Owned, Managed or
Administered (billions):
Assets Managed
for Institutions $ 55.7 $ 45.9 $ 40.8
Assets Owned, Managed or
Administered for Individuals:
Owned Assets:
Separate Account Assets 35.9 27.3 23.2
Other Owned Assets 38.7 37.3 36.6
------- -------- --------
Total Owned Assets 74.6 64.6 59.8
------- -------- --------
Managed Assets 105.7 87.9 72.8
Administered Assets 26.5 14.0 8.4
------- -------- --------
Total $ 262.5 $ 212.4 $ 181.8
------- -------- --------
Market Appreciation (Depreciation)
During the Period:
Owned Assets:
Separate Account Assets $ 8,172 $ 3,547 $ 3,170
Other Owned Assets $ (1,126) $ (110) $ 262
Managed Assets $ 21,673 $ 13,787 $ 11,735
Sales of Selected Products:
Mutual Funds $ 23,662 $ 20,766 $ 17,179
Annuities $ 3,002 $ 2,559 $ 3,473
Investment Certificates $ 3,236 $ 1,976 $ 1,194
Life and Other
Insurance Products $ 504 $ 389 $ 421
Number of Financial Advisors 11,366* 10,350* 8,776
Fees from Financial
Plans and Advice
Services (thousands) $ 88,509 $ 72,366 $ 60,809
Percentage of Total Sales
from Financial Plans and
Advice Services 66.7% 65.4% 65.7%
* Includes advisors from the acquisition of Securities
America in the first quarter of 1998.
</TABLE>
-9- (1999 Annual Report p. 30)
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
SELECTED BALANCE SHEET INFORMATION
(Billions, except percentages)
December 31, 1999 1998
------- ------
<S> <C> <C>
Investments $ 30.3 $ 30.9
Separate Account Assets $ 35.9 $ 27.3
Total Assets $ 74.6 $ 64.6
Client Contract Reserves $ 31.0 $ 30.3
Total Liabilities $ 70.7 $ 60.6
Total Shareholder's Equity $ 3.9 $ 4.1
Return on Average Equity* 22.9% 22.5%
* Excluding the effect of SFAS No. 115.
</TABLE>
AEFA's total assets and liabilities rose primarily due to growth in
separate account assets as a result of market appreciation and positive net
sales for both years. Investments comprised primarily corporate bonds and
mortgage-backed securities, including $3.6 billion and $3.4 billion in
below investment grade debt securities, and $4.0 billion and $3.8 billion
in mortgage loans at December 31, 1999 and 1998, respectively. Investments
are principally funded by sales of insurance and annuities and by
reinvested income. Maturities of these investments are largely matched with
the expected future payments of insurance and annuity obligations. Separate
account assets, primarily investments carried at market value, are for the
exclusive benefit of variable annuity and variable life insurance contract
holders. AEFA earns investment management and administration fees from the
related accounts.
AMERICAN EXPRESS BANK/TRAVELERS CHEQUE
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
(Millions)
Years Ended December 31, 1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net Revenues:
Interest Income $ 737 $ 854 $ 897
Interest Expense 446 564 579
------- ------- ------
Net Interest Income 291 290 318
Travelers Cheque
Investment Income 345 330 331
Foreign Exchange Income 66 145 101
Commissions, Fees and
Other Revenues 317 237 374
------- ------- ------
Total Net Revenues 1,019 1,002 1,124
------- ------- ------
Expenses:
Human Resources 342 322 306
Other Operating Expenses 596 537 517
Provision for Losses 58 272 52
------- ------- ------
Total Expenses 996 1,131 875
------- ------- ------
Pretax Income/(Loss) 23 (129) 249
Income Tax Benefit (129) (172) (23)
------- ------- ------
Net Income $ 152 $ 43 $ 272
======= ======= ======
</TABLE>
-10- (1999 Annual Report p. 31)
<PAGE>
American Express Bank/Travelers Cheque (AEB/TC) reported net income of $152
million in 1999, compared with $43 million a year ago. The 1998 results
included a $138 million ($213 million pretax) credit loss provision related
to AEB's business in the Asia/Pacific region, particularly Indonesia. 1997
included approximately $62 million ($96 million pretax) of increased
recognition of recoveries on abandoned property related to the Travelers
Cheque business, which are included in Commissions, Fees and Other
Revenues.
Net interest income in 1999 was essentially unchanged versus the prior
year. Although the loan portfolio declined in 1999, last year included
reversals of accrued interest on loans transferred to non-performing status
in Indonesia. In 1998, net interest income was down due to smaller
Corporate Banking revenues, primarily reflecting a lower overall loan
portfolio and an increase in non-performing loans in Indonesia. These
declines were partially negated by growth in deposits and loans in AEB's
two businesses oriented to individuals, Private Banking and Personal
Financial Services (PFS). In 1999, TC investment income grew because of an
increase in average investments. The decline in foreign exchange income in
1999 reflects lower foreign exchange revenues, primarily in Asia/Pacific, due
to stabilization of currencies compared with 1998, when AEB posted strong
trading results due to currency volatility. Commissions, fees and other
revenues in 1999 includes growth in Private Banking and PFS. The decline in
these revenues in 1998 reflects the economic downturn in Asia/Pacific.
Other operating expenses grew in 1999 primarily as a result of costs
related to business building initiatives in Private Banking, PFS and TC, as
well as reengineering costs incurred as AEB realigned business activities
in certain countries.
<TABLE>
<CAPTION>
SELECTED STATISTICAL INFORMATION
(Billions, except percentages)
Years Ended December 31, 1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
American Express Bank:
Assets Managed/Administered* $ 8.6 $ 6.2 $ 5.0
Assets of Non-Consolidated
Joint Ventures $ 2.2 $ 2.6 $ 2.4
Travelers Cheque:
Sales $ 23.3 $ 23.6 $ 25.0
Average Outstandings $ 6.2 $ 6.0 $ 5.9
Average Investments $ 5.9 $ 5.8 $ 5.6
Tax Equivalent Yield 8.8% 9.0% 9.2%
* Includes assets managed by American Express Financial Advisors.
</TABLE>
-11- (1999 Annual Report p. 31)
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
SELECTED BALANCE SHEET INFORMATION
(Billions, except percentages and where indicated)
December 31, 1999 1998
------ -------
<S> <C> <C>
Travelers Cheque Investments $ 6.1 $ 6.3
Total Loans $ 5.1 $ 5.6
Total Non-performing Loans (millions) $ 168 $ 180
Other Non-performing Assets (millions) $ 37 $ 63
Reserve for Credit Losses (millions)* $ 189 $ 259
Loan Loss Reserve as a Percentage of
Total Loans 3.3% 3.8%
Total Assets $ 18.9 $ 18.5
Deposits $ 8.3 $ 8.3
Travelers Cheques Outstanding $ 6.2 $ 5.8
Total Liabilities $ 18.0 $ 17.3
Total Shareholder's Equity (millions) $ 875 $ 1,197
Return on Average Assets** 0.82% 0.23%
Return on Average Common Equity** 17.5% 4.9%
American Express Bank:
Shareholder's Equity (millions) $ 691 $ 743
Risk-Based Capital Ratios:
Tier I 9.9% 9.8%
Total 12.0% 12.6
Leverage Ratio 5.6% 5.5%
* Allocation (Millions)
Loans $ 169 $ 214
Other Assets, primarily derivatives 16 43
Other Liabilities 4 2
------ -------
Total Credit Loss Reserves $ 189 $ 259
====== =======
** Excluding the effect of SFAS No. 115.
</TABLE>
AEB had approximately $5.1 billion outstanding in worldwide loans at
December 31, 1999, down from $5.6 billion at December 31, 1998. The decline
from the prior year was largely in the Asia/Pacific region; corporate and
correspondent banking loans fell by $0.8 billion, as AEB focused on
reducing exposures in these activities and emphasizing consumer and private
banking loans, which rose by $0.5 billion in 1999, before the sale and
securitization of $0.3 billion of consumer loans. Other banking activities,
such as securities, unrealized gains on foreign exchange and derivatives
contracts, various contingencies and market placements, added approximately
$7.6 billion to AEB's credit exposures at December 31, 1999 and December
31, 1998.
The 1998 reserve for credit losses includes a $213 million provision
related to the Asia/Pacific region, net of write-offs during 1998. The
reduction in this reserve in 1999 primarily reflects further write-offs
against the provision established in 1998.
-12- (1999 Annual Report p. 32)
<PAGE>
CORPORATE AND OTHER
Corporate and Other reported net expenses of $174 million, $84 million and
$152 million in 1999, 1998 and 1997, respectively. 1998 results include
income of $78 million after-tax ($106 million pretax) comprising a $39
million after-tax ($60 million pretax) gain from sales of common stock of
First Data Corporation and a $39 million after-tax ($46 million pretax)
preferred stock dividend based on earnings from Lehman Brothers. Excluding
these items, Corporate and Other had net expenses of $162 million in 1998.
Results for 1999 include a $39 million after-tax ($46 million pretax)
preferred stock dividend based on earnings from Lehman Brothers. 1998 and
1997 include a benefit due to an earnings payout from Travelers Inc.,
related to the 1993 sale of the Shearson Lehman Brothers Division. 1998
also reflects a benefit from the sale of securities and adjustment of
valuation allowances related to certain corporate assets. The above items
were offset by business building initiatives and costs related to the Y2K
issue in each year.
OTHER REPORTING MATTERS
YEAR 2000
The company, to date, has not experienced any material systems failures
related to the Year 2000 (Y2K) rollover. Our remediation plan for the Y2K
issue is discussed in detail in the company's 1998 Annual Report to
Shareholders and 1999 10-Q reports. We will continue our Y2K monitoring and
address any issues that may arise from internal systems or those of third
parties. The company's cumulative costs since inception of the Y2K
initiative were $505 million through December 31, 1999 and are expected to
be approximately $10 million in 2000. The majority of these costs are
managed by and included in the Corporate and Other segment, as most
remediation efforts are related to systems that are maintained by the
American Express Technologies organization. Costs related to Y2K have not
had a material adverse effect on the company's results of operations or
financial condition.
ACCOUNTING DEVELOPMENTS
As required by AICPA Statement of Position 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use," the company
capitalizes software costs rather than expensing them as incurred, which
had been the company's practice. For the year ended December 31, 1999, this
amounted to a pretax benefit of $263 million (net
-13- (1999 Annual Report p. 32)
<PAGE>
of amortization): $183 million related to TRS, $66 million related to
AEFA and $14 million related to AEB/TC. This benefit was offset by increased
investment spending and therefore had no material effect on net income.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective January 1, 2001.
This Statement establishes accounting and reporting standards for
derivative instruments, including some embedded in other contracts, and
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities on the balance sheet and measure them at fair
value. Changes in the fair value of a derivative will be recorded in income
or directly to equity, depending on the instrument's designated use. The
ultimate financial effect of the new rule will be measured based on the
derivatives in place at adoption and cannot be estimated at this time.
CONSOLIDATED LIQUIDITY AND CAPITAL RESOURCES
The company believes allocating capital to businesses with a return on
risk-adjusted equity in excess of its cost of equity and sustained earnings
growth in its core business will continue to build shareholder value.
The company's philosophy is to retain enough earnings to help achieve its
goals of earnings per share growth in the 12 to 15 percent range, on
average and over time. To the extent earnings exceed investment
opportunities, the company has returned excess capital to shareholders. As
further described in Note 6 to the Consolidated Financial Statements, the
company has undertaken a share repurchase program to offset new share
issuances.
FINANCING ACTIVITIES
The company has procedures to transfer immediately short-term funds within
the company to meet liquidity needs. These internal transfer mechanisms are
subject to and comply with various contractual and regulatory constraints.
The parent company generally meets its short-term funding needs through an
intercompany dividend policy and by the issuance of commercial paper. The
Board of Directors has authorized a parent company commercial paper program
that is supported by a $1.3 billion multi-purpose credit facility that
expires in increments from 2000 through 2002. No borrowings have been made
under this credit facility. There was no parent company commercial paper
outstanding during 1999 or 1998.
-14- (1999 Annual Report p. 33)
<PAGE>
Total parent company long-term debt outstanding was $1.1 billion at
December 31, 1999 and 1998. At December 31, 1999 and 1998, the parent
company had $2.1 billion of debt or equity securities available for
issuance under shelf registrations fled with the Securities and Exchange
Commission. In addition, TRS, Centurion Bank, Credco, American Express
Overseas Credit Corporation Limited, a wholly-owned subsidiary of Credco,
and AEB have established programs for the issuance, outside the United
States, of debt instruments to be listed on the Luxembourg Stock Exchange.
The maximum aggregate principal amount of debt instruments outstanding at
any one time under the program will not exceed $3 billion. At December 31,
1999 and 1998, $1.6 billion and $1.1 billion of debt, respectively, has
been issued under this program.
In 1998, American Express Company Capital Trust I, a wholly-owned
subsidiary of the company, established as a Delaware statutory business
trust (the Trust), completed a public offering of 20 million shares
(carrying value of $500 million) of 7.0% Cumulative Quarterly Income
Preferred Shares Series I (liquidation preference of $25 per share).
Proceeds of the issue, which represent the sole assets of the Trust, were
invested in Junior Subordinated Debentures (the Debentures) issued by the
company, due 2028. The company used the proceeds from the Debentures for
general corporate purposes. See Note 5 to the Consolidated Financial
Statements for further information.
RISK MANAGEMENT
Management establishes and oversees implementation of Board-approved
policies covering the company's funding, investments and use of derivative
financial instruments and monitors aggregate risk exposures on an ongoing
basis. The company's objective is to realize returns commensurate with the
level of risk assumed while achieving consistent earnings growth.
Individual business segments are responsible for managing their respective
exposures within the context of Board-approved policies. See Note 7 to the
Consolidated Financial Statements for a discussion of the company's use of
derivatives.
The following sections include sensitivity analyses of three different
tests of market risk and estimate the effects of hypothetical sudden and
sustained changes in the applicable market conditions on the ensuing year's
earnings, based on year-end positions. The market changes, assumed to occur
as of year end, are a 100 basis point increase in market interest rates, a
10% strengthening of the U.S. dollar versus all other currencies, and a 10%
decline in the value of equity securities under management at AEFA.
Computations of the prospective effects of hypothetical interest rate,
foreign exchange rate and equity market changes are based on numerous
assumptions, including relative levels of market interest rates, foreign
exchange rates and equity prices, as well as the levels of assets and
liabilities. The hypothetical changes and assumptions will be different
from what actually occurs in the future. Furthermore, the computations do
not incorporate actions that management could take if the hypothetical market
-15- (1999 Annual Report p. 33)
<PAGE>
changes actually occur. As a result, actual earnings consequences
will differ from those quantified below.
TRS' hedging policies are established, maintained and monitored by a
central treasury function. TRS generally manages its exposures along
product lines. A variety of interest rate and foreign exchange hedging
strategies are employed to manage interest rate and foreign currency risks.
TRS funds its Charge Card receivables and Cardmember loans using both
on-balance sheet funding sources, such as long- and short-term debt,
medium-term notes, commercial paper and asset securitizations. Cardmember
receivables are predominantly funded by Credco and its subsidiaries;
funding for Cardmember loans is primarily through Centurion Bank. For its
Charge Card and fixed rate lending products, interest rate exposure is
managed through the issuance of long- and short-term debt and the use of
interest rate swaps. During 1998, TRS targeted the funding mix for these
products to be approximately 100 percent floating rate and purchased
interest rate caps to limit the adverse effect of an interest rate increase
on substantially all U.S. dollar funding costs. The majority of these caps
matured during 1998. In early 1999, TRS entered into a series of interest
rate swaps to convert a majority of its domestic funding from floating rate
to fixed rate. During the second half of 1999 and in early 2000, TRS entered
into additional swaps. The effect of these was to increase the amount of
fixed rate funding. For the majority of its Cardmember loans, which are
linked to a floating rate base and generally reprice each month, TRS uses
floating rate funding and, to the extent necessary, interest rate swaps to
achieve funding rates that reprice similarly with changes in the base rate
of the underlying loans.
The detrimental effect on TRS pretax earnings of a hypothetical 100 basis
point increase in interest rates would be approximately $123 million ($108
million related to the U.S. dollar) and $170 million ($155 million related
to the U.S. dollar), based on 1999 and 1998 year-end positions,
respectively. This effect is primarily due to the extent of variable rate
funding of the Charge Card and fixed rate lending products. The reduction
from 1998 to 1999 is primarily due to interest rate swaps purchased
beginning in early 1999. Had the swaps entered into in early 1999 been in
effect at December 31, 1998, the 1998 effect would have been substantially
lower. Had the series of swaps entered into in early 2000 been in effect at
December 31, 1999, the 1999 effect would also have been substantially
lower.
TRS' foreign exchange risk arising from cross-currency charges and balance
sheet exposures is managed primarily by entering into agreements to buy and
sell currencies on a spot or forward basis. In the latter parts of 1999 and
1998, foreign currency forward contracts were both sold (with notional
amounts of $611 million and $569 million, respectively) and purchased (with
notional amounts of $25 million and $34 million, respectively) to manage a
majority of anticipated cash flows in major overseas markets for the
subsequent year.
Based on the year-end 1999 and 1998 foreign exchange positions, but
excluding the forward contracts managing the anticipated overseas cash flows
for the subsequent year, the effect on TRS' earnings of the hypothetical 10
percent strengthening of the U.S. dollar would be immaterial. With respect
to the forward contracts related to anticipated cash flows for the
subsequent year, the 10 percent strengthening would create hypothetical
pretax gains of $53 million and $54 million related to the 1999 and 1998
year-end positions, respectively. Such gains, if any, would mitigate the
negative effect of a stronger U.S. dollar on overseas earnings for the
subsequent year.
-16- (1999 Annual Report p. 34)
<PAGE>
AEFA's owned investment securities are, for the most part, held by its life
insurance and investment certificate subsidiaries, which primarily invest in
long-term and intermediate-term fixed income securities to provide their
clients with a competitive rate of return on their investments while
minimizing risk. Investment in fixed income securities provides AEFA with a
dependable and targeted margin between the interest rate earned on
investments and the interest rate credited to clients' accounts. AEFA does
not invest in securities to generate trading profits for its own account.
AEFA's life insurance and investment certificate subsidiaries' investment
committees regularly review models projecting different interest rate
scenarios and their effect on the profitability of each subsidiary. The
committees' objectives are to structure their investment security
portfolios based upon the type and behavior of the products in the
liability portfolios to achieve targeted levels of profitability and to meet
contractual obligations.
Rates credited to customers' accounts are generally reset at shorter
intervals than the maturity of underlying investments. Therefore, AEFA's
margins may be affected by changes in the general level of interest rates.
Part of the committees' strategies include the use of derivatives, such as
interest rate caps, swaps and floors, for hedging purposes.
AEFA's fees earned on the management of fixed income securities in variable
annuities and mutual funds are generally based on the value of the
portfolios. To manage the level of 1999 fee income, AEFA entered into a
series of swaps in 1998 to mitigate the negative effect on fees that would
result from an increase in interest rates.
The negative effect on AEFA's pretax earnings of a 100 basis point increase
in interest rates, which assumes repricings and customer behavior based on
the application of proprietary models, to the book of business at December
31, 1999 and 1998, would be approximately $40 million and $55 million for
1999 and 1998, respectively.
AEFA's fees earned on the management of equity securities in variable
annuities and mutual funds are generally based on the value of the portfolios.
To manage the level of fee income in 1999, AEFA entered into a series of stock
index option transactions in 1998, to mitigate, for a substantial portion of
the portfolios, the negative effect on fees that would result from
-17- (1999 Annual Report p. 34)
<PAGE>
a decline in the equity markets. In early 2000, AEFA entered into
a series of stock index option transactions to mitigate this
negative effect for 2000. In addition, AEFA writes and purchases index
options to manage the margin related to certain investment certificate and
annuity products that pay interest based upon the relative change in a
major stock market index between the beginning and end of the product's
term. The negative effect on AEFA's pretax earnings of a 10 percent decline
in equity markets would be approximately $103 million and $72 million based
on assets under management, certificate and annuity business in force, and
index options as of December 31, 1999 and 1998, respectively. Had the
series of stock index option transactions entered into in early 2000 been
in effect at December 31, 1999, the 1999 effect would have been
substantially lower.
AEB/TC employs a variety of on- and off-balance sheet financial instruments
in managing its exposure to fluctuations in interest and currency rates.
Derivative instruments consist principally of foreign exchange spot and
forward contracts, interest rate swaps, foreign currency options and
forward rate agreements. Generally, they are used to manage specific
on-balance sheet interest rate and foreign exchange exposures related to
deposits and long-term debt, equity, loans and securities holdings.
The negative effect of the 100 basis point increase in interest rates on
AEB/TC's pretax earnings would be $9 million as of December 31, 1999 and
negligible as of December 31, 1998. The effect on earnings of the 10
percent strengthening of the U.S. dollar would be negligible and, with
respect to translation exposure of foreign operations, would result in a $8
million and $14 million pretax charge against equity as of December 31,
1999 and 1998, respectively.
AEB utilizes foreign exchange and interest rate products to meet the needs
of its customers. Customer positions are usually, but not always, offset.
They are evaluated in terms of AEB's overall interest rate or foreign
exchange exposure. AEB also takes limited proprietary positions. Potential
daily exposure from trading activities is calculated using a Value at Risk
methodology. This model employs a parametric technique using a correlation
matrix based on historical data. The Value at Risk measure uses a 99
percent confidence interval to estimate potential trading losses over a
one-day period. During 1999 and 1998, the Value at Risk for AEB was less
than $3 million.
Asset/liability and market risk management at AEB are supervised by the
Asset and Liability Committee, which comprises senior business managers of
AEB. It meets monthly and monitors: (i) liquidity, (ii) capital exposure,
(iii) capital adequacy, (iv) market risk and (v) investment portfolios. The
committee evaluates current market conditions and determines AEB's tactics
within risk limits approved by AEB's Board of Directors. AEB's treasury,
risk management and global trading management issue policies and control
procedures and delegate risk limits throughout AEB's regional trading
centers.
AEB's overall credit policies are approved by the Finance and Credit Policy
Committee of AEB's Board of Directors. Credit lines are based on a tiered
approval ladder, with levels of authority delegated to each country,
geographic area, AEB's senior management and AEB's Board of Directors.
Approval authorities are based on factors such as type of borrower, nature
of transaction, collateral, and overall risk rating. AEB controls the
credit risk arising from derivative transactions through the same
procedures. The Credit Audit department reviews all significant exposures
periodically. Risk of all foreign exchange and derivative transactions is
reviewed by AEB on a regular basis.
-18- (1999 Annual Report p. 35)
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
AMERICAN EXPRESS COMPANY
Years Ended December 31, (Millions, except per share amounts) 1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Revenues
Discount revenue $ 6,741 $ 6,115 $ 5,666
Interest and dividends, net 3,346 3,277 3,175
Management and distribution fees 2,269 1,851 1,486
Net card fees 1,599 1,587 1,604
Travel commissions and fees 1,802 1,647 1,489
Other commissions and fees 1,824 1,657 1,475
Cardmember lending net finance charge revenue 1,333 1,354 1,244
Life and other insurance premiums 517 469 424
Other 1,847 1,175 1,197
-------- -------- -------
Total 21,278 19,132 17,760
======== ======== =======
Expenses
Human resources 6,038 5,470 4,763
Provisions for losses and benefits:
Annuities and investment certificates 1,377 1,425 1,414
Life insurance, international banking and other 639 822 567
Charge card 865 701 858
Cardmember lending 799 922 817
Interest 1,051 999 924
Marketing and promotion 1,424 1,228 1,118
Occupancy and equipment 1,328 1,250 1,139
Professional services 1,322 1,191 1,028
Communications 518 474 450
Other 2,479 1,725 1,932
-------- -------- -------
Total 17,840 16,207 15,010
======== ======== =======
Pretax income 3,438 2,925 2,750
Income tax provision 963 784 759
-------- -------- -------
Net income $ 2,475 $ 2,141 $ 1,991
======== ======== =======
Earnings Per Common Share
Basic $ 5.54 $ 4.71 $ 4.29
Diluted $ 5.42 $ 4.63 $ 4.15
Average common shares outstanding for
earnings per common share:
Basic 447 454 464
Diluted 456 463 479
See notes to consolidated financial statements.
</TABLE>
-19- (1999 Annual Report p. 36)
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
AMERICAN EXPRESS COMPANY
December 31, (Millions, except share data) 1999 1998
--------- ---------
<S> <C> <C>
Assets
Cash and cash equivalents $ 7,471 $ 4,092
Accounts receivable and accrued interest:
Cardmember receivables, less reserves: 1999, $728; 1998, $524 22,541 19,176
Other receivables, less reserves: 1999, $78; 1998, $75 3,926 3,048
Investments 43,052 41,299
Loans:
Cardmember lending, less reserves: 1999, $581; 1998, $593 17,666 14,721
International banking, less reserves: 1999, $169; 1998, $214 4,928 5,404
Other, net 988 929
Separate account assets 35,895 27,349
Deferred acquisition costs 3,235 2,990
Land, buildings and equipment-at cost, less accumulated depreciation:
1999, $2,109; 1998, $2,067 1,996 1,637
Other assets 6,819 6,288
--------- ---------
Total assets $ 148,517 $ 126,933
========= =========
Liabilities and Shareholders' Equity
Customers' deposits $ 12,197 $ 10,398
Travelers Cheques outstanding 6,213 5,823
Accounts payable 7,309 5,373
Insurance and annuity reserves:
Fixed annuities 20,552 21,172
Life and disability policies 4,459 4,261
Investment certificate reserves 5,951 4,854
Short-term debt 30,627 22,605
Long-term debt 5,995 7,019
Separate account liabilities 35,895 27,349
Other liabilities 8,724 7,881
--------- ---------
Total liabilities 137,922 116,735
========= =========
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 446.9 million shares in 1999 and 450.5 million shares in 1998 268 270
Capital surplus 5,196 4,809
Retained earnings 5,033 4,148
Other comprehensive income, net of tax:
Net unrealized securities (losses)/gains (296) 583
Foreign currency translation adjustments (106) (112)
--------- ---------
Accumulated other comprehensive (loss)/income (402) 471
--------- ---------
Total shareholders' equity 10,095 9,698
--------- ---------
Total liabilities and shareholders' equity $ 148,517 $ 126,933
========= =========
See notes to consolidated financial statements.
</TABLE>
-20- (1999 Annual Report p. 37)
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
AMERICAN EXPRESS COMPANY
Years Ended December 31, (Millions) 1999 1998 1997
-------- -------- --------
Cash Flows from Operating Activities
<S> <C> <C> <C>
Net income $ 2,475 $ 2,141 $ 1,991
Adjustments to reconcile net income
to net cash provided by operating activities:
Provisions for losses and benefits 2,392 2,491 2,307
Depreciation, amortization, deferred taxes and other 13 (212) 187
Changes in operating assets and liabilities, net of effects of
acquisitions and dispositions:
Accounts receivable and accrued interest (1,079) (665) (227)
Other assets (294) 92 334
Accounts payable and other liabilities 3,313 131 517
Increase (decrease) in Travelers Cheques outstanding 392 253 (111)
Increase in insurance reserves 173 182 172
-------- -------- --------
Net cash provided by operating activities 7,385 4,413 5,170
======== ======== ========
Cash Flows from investing Activities
Sale of investments 3,031 1,656 1,778
Maturity and redemption of investments 5,279 7,331 4,827
Purchase of investments (11,287) (10,176) (7,898)
Net increase in Cardmember receivables (3,988) (1,510) (2,575)
Cardmember loans/receivables sold to trust, net 3,586 1,683 516
Proceeds from repayment of loans 22,148 24,791 25,591
Issuance of loans (29,707) (27,587) (29,304)
Purchase of land, buildings and equipment (737) (391) (343)
Sale of land, buildings and equipment 11 26 164
(Acquisitions) dispositions, net of cash acquired/sold (82) (471) 23
-------- -------- --------
Net cash used in investing activities (11,746) (4,648) (7,221)
======== ======== ========
Cash Flows from Financing Activities
Net increase in customers' deposits 1,911 1,039 733
Sale of annuities and investment certificates 5,719 5,337 5,888
Redemption of annuities and investment certificates (5,504) (5,690) (4,965)
Net increase in debt with maturities of 3 months or less 305 1,239 3,823
Issuance of debt 18,623 7,373 11,439
Principal payments on debt (12,049) (7,426) (11,604)
Issuance of Trust preferred securities -- 500 --
Issuance of American Express common shares 233 137 168
Repurchase of American Express common shares (1,120) (1,890) (1,259)
Dividends paid (404) (414) (423)
-------- -------- --------
Net cash provided by financing activities 7,714 205 3,800
Effect of exchange rate changes on cash 26 (57) (247)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 3,379 (87) 1,502
Cash and cash equivalents at beginning of year 4,092 4,179 2,677
-------- -------- --------
Cash and cash equivalents at end of year $ 7,471 $ 4,092 $ 4,179
======== ======== ========
See notes to consolidated financial statements.
</TABLE>
-21- (1999 Annual Report p. 38)
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AMERICAN EXPRESS COMPANY
Accumulated
Other
Common Capital Comprehensive Retained
Three Years Ended December 31, 1999 (Millions) Total Shares Surplus Income/(Loss) Earnings
--------- ------ ------- ------------- -------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1996 $ 8,528 $ 284 $ 4,191 $ 297 $ 3,756
======== ====== ======= ======= =======
Comprehensive income:
Net income 1,991 1,991
Change in net unrealized securities gains 193 193
Foreign currency translation adjustments (8) (8)
--------
Total comprehensive income 2,176
Repurchase of common shares (1,259) (10) (153) (1,096)
Exchange of Lehman Brothers Holdings, Inc.
preferred shares for American Express
common shares 337 3 334
Other changes, primarily employee plans 213 3 252 (42)
Cash dividends declared:
Common, $.90 per share (421) (421)
-------- ------ ------- ------- -------
Balances at December 31, 1997 9,574 280 4,624 482 4,188
======== ====== ======= ======= =======
Comprehensive income:
Net income 2,141 2,141
Change in net unrealized securities gains 4 4
Foreign currency translation adjustments (15) (15)
--------
Total comprehensive income 2,130
Repurchase of common shares (1,890) (12) (196) (1,682)
Other changes, primarily employee plans 294 2 381 (89)
Cash dividends declared:
Common, $.90 per share (410) (410)
-------- ------ ------- ------- -------
Balances at December 31, 1998 9,698 270 4,809 471 4,148
======== ====== ======= ======= =======
Comprehensive income:
Net income 2,475 2,475
Change in net unrealized securities gains (879) (879)
Foreign currency translation adjustments 6 6
--------
Total comprehensive income 1,602
Repurchase of common shares (1,170) (5) (98) (1,067)
Other changes, primarily employee plans 369 3 485 (119)
Cash dividends declared:
Common, $.90 per share (404) (404)
-------- ------ ------- ------- -------
Balances at December 31, 1999 $ 10,095 $ 268 $ 5,196 $ (402) $ 5,033
======== ====== ======= ======= =======
See notes to consolidated financial statements.
</TABLE>
-22- (1999 Annual Report p. 39)
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying Consolidated Financial Statements include the accounts of
American Express Company and its subsidiaries (the company). All significant
intercompany transactions are eliminated. Some amounts are based on
estimates and assumptions, e.g., reserves for Cardmember Receivables and
Loans, Deferred Acquisition Costs, and Insurance and Annuity Reserves.
These reflect the best judgment of management and actual results could
differ.
Certain amounts from prior years have been reclassified to conform to the
current presentation.
REVENUES
Cardmember Lending Net Finance Charge Revenue is presented net of interest
expense of $674 million, $653 million and $604 million for the years ended
December 31, 1999, 1998 and 1997, respectively. Interest and Dividends is
presented net of interest expense related primarily to the company's
international banking activities of $453 million, $572 million and $588
million for the years ended December 31, 1999, 1998 and 1997, respectively.
MARKETING AND PROMOTION
The company expenses advertising costs in the year in which the advertising
first takes place.
CASH AND CASH EQUIVALENTS
The company has defined cash equivalents to include time deposits with
original maturities of 90 days or less, excluding those that are restricted
by law or regulation.
SEPARATE ACCOUNT ASSETS AND LIABILITIES
Separate account assets and liabilities are funds held for the exclusive
benefit of variable annuity and variable life insurance contract holders.
The company receives investment management fees, mortality and expense
assurance fees, minimum death benefit guarantee fees and cost of insurance
charges from the related accounts.
ACCOUNTING CHANGES
The company adopted Statement of Position (SOP) 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use,"
prospectively as of January 1, 1999. This SOP 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 are amortized on a straight-line
basis over a period not to exceed five years. During the year ended December
31, 1999, this change resulted in a pretax benefit of $263 million. See the
Other Reporting Matters section of the Financial Review for further
discussion.
NOTE 2 INVESTMENTS
<TABLE>
<CAPTION>
The following is a summary of investments included on
the Consolidated Balance Sheets at December 31:
(Millions) 1999 1998
------- -------
<S> <C> <C>
Held to Maturity, at amortized cost $ 9,221 $10,526
Available-for-Sale, at fair value 29,570 26,764
Investment mortgage loans (fair value: 1999, $3,901; 1998, $4,089) 3,984 3,840
Trading 277 169
------- -------
Total $43,052 $41,299
======= =======
</TABLE>
-23- (1999 Annual Report p. 40)
<PAGE>
<TABLE>
<CAPTION>
Investments classified as Held to Maturity and Available-for-Sale at December
31 are distributed by type and maturity as presented below:
Held to Maturity
----------------
1999 1998
------------------------------------------ ------------------------------------------
Gross Gross Gross Gross
Unrealized Unrealized Fair Unrealized Unrealized Fair
(Millions) Cost Gains (Losses) Value Cost Gains (Losses) Value
------- ------ -------- ------- ------- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Corporate debt securities $ 6,400 $ 111 $ (114) $ 6,397 $ 7,099 $ 500 $ (28) $ 7,571
Mortgage-backed securities 1,393 5 (33) 1,365 1,614 31 -- 1,645
State and municipal obligations 1,036 27 (3) 1,060 1,087 81 -- 1,168
Foreign government bonds
and obligations 98 9 -- 107 107 20 -- 127
U.S. Government and
agencies obligations 64 1 (2) 63 60 5 -- 65
Other 230 -- (4) 226 559 9 -- 568
------- ----- ------ ------- ------- ----- ------ -------
Total $ 9,221 $ 153 $ (156) $ 9,218 $10,526 $ 646 $ (28) $11,144
======= ===== ====== ======= ======= ===== ====== =======
</TABLE>
<TABLE>
<CAPTION>
Available-for-Sale
------------------
1999 1998
------------------------------------------- ------------------------------------------
Gross Gross Gross Gross
Unrealized Unrealized Fair Unrealized Unrealized Fair
(Millions) Cost Gains (Losses) Value Cost Gains (Losses) Value
------- ----- -------- ------- ------- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Corporate debt securities $12,238 $ 53 $ (742) $11,549 $10,854 $ 362 $(223) $10,993
Mortgage-backed securities 8,898 14 (241) 8,671 7,914 188 (5) 8,097
State and municipal obligations 5,430 81 (160) 5,351 4,282 343 -- 4,625
Foreign government bonds
and obligations 985 9 (15) 979 972 41 (4) 1,009
U.S. Government and
agencies obligations 47 -- -- 47 45 3 -- 48
Equity securities 611 525 (6) 1,130 481 168 (4) 645
Other 1,844 -- (1) 1,843 1,347 1 (1) 1,347
------- ----- ------- ------- ------- ------ ------ -------
Total $30,053 $ 682 $(1,165) $29,570 $25,895 $1,106 $(237) $26,764
======= ===== ======= ======= ======= ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
Held to Maturity Available-for-Sale
---------------- ------------------
Fair Fair
December 31, 1999 (Millions) Cost Value Cost Value
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Due within 1 year $ 417 $ 419 $ 2,502 $ 2,503
Due after 1 year through 5 years 4,337 4,361 4,632 4,576
Due after 5 years through 10 years 2,122 2,126 7,397 6,989
Due after 10 years 952 947 6,013 5,701
------- ------- ------- -------
7,828 7,853 20,544 19,769
Mortgage-backed securities 1,393 1,365 8,898 8,671
Equity securities -- -- 611 1,130
------- ------- ------- -------
Total $ 9,221 $ 9,218 $30,053 $29,570
======= ======= ======= =======
</TABLE>
Mortgage-backed securities primarily include
GNMA, FNMA and FHLMC securities at December 31, 1999 and
1998.
-24- (1999 Annual Report p. 41)
<PAGE>
<TABLE>
<CAPTION>
The table below includes purchases, sales and maturities of
investments classified as Held to Maturity and Available-for-Sale for the
years ended December 31:
1999 1998
--------------------- ----------------------
Held to Available- Held to Available-
(Millions) Maturity for-Sale Maturity for-Sale
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Purchases $ 93 $ 11,557 $ 692 $ 9,927
Sales $ 90 $ 2,941 $ 243 $ 1,413
Maturities $1,313 $ 4,441 $2,191 $ 5,524
</TABLE>
Investments classified as Held to Maturity were sold during 1999 and 1998
due to credit deterioration. Gross realized gains and losses on sales were
negligible.
Gross realized gains and (losses) on sales of securities classified as
Available-for-Sale, using the specific identification method, were $64
million and ($23 million), $130 million and ($42 million) and $67 million
and ($10 million) for the years ended December 31, 1999, 1998 and 1997,
respectively.
The increase in net unrealized gains on Trading securities, which is
included in income, was $30 million, $3 million and $24 million for the
years ended December 31, 1999, 1998 and 1997, respectively.
In connection with the spin-off of Lehman Brothers Holdings Inc. (Lehman)
in 1994, the company acquired 928 shares and Nippon Life Insurance company
(Nippon Life) acquired 72 shares of Lehman's redeemable voting preferred
stock for a nominal dollar amount. This security entitles its holders to
receive an aggregate annual dividend of 50 percent of Lehman's net income
in excess of $400 million for each of eight years ending in May 2002, with
a maximum dividend of $50 million in any one year. In both 1999 and 1998
the company received a dividend of $46 million on these shares; in 1997,
this dividend was $7 million. In addition, the company and Nippon Life were
entitled to receive 92.8 percent and 7.2 percent, respectively, of an
earnings-related payout from Travelers Inc. (Travelers), which was assigned
by Lehman to the company and Nippon Life in connection with the spin-off
transaction. The earnings-related payout, which was 10 percent of after-tax
profits of Smith Barney, a subsidiary of Travelers, in excess of $250
million per year, was for five years and ended in 1998. The amounts
recognized in relation to this payout were approximately $70 million in
both 1998 and 1997.
The change in net unrealized securities gains recognized in Other
Comprehensive Income includes two components: (1) unrealized gains (losses)
that arose during the period from changes in market value of securities
that were held during the period (Holding gains (losses)), and (2) gains or
losses that were previously unrealized, but have been recognized in current
period Net Income due to sales of Available-for-Sale securities
(Reclassification for realized gains). This reclassification has no effect on
total Comprehensive Income or Shareholders' Equity.
<TABLE>
<CAPTION>
The following table presents these components of other comprehensive
income, net of tax:
(Millions, net of tax) 1999 1998 1997
----- ---- -----
<S> <C> <C> <C>
Holding (losses) gains $(852) $ 61 $ 230
Reclassification for realized gains (27) (57) (37)
----- ---- -----
(Decrease) increase in net unrealized securities gains
recognized in other comprehensive income $(879) $ 4 $ 193
===== ==== =====
</TABLE>
-25- (1999 Annual Report p. 42)
<PAGE>
<TABLE>
<CAPTION>
NOTE 3 LOANS
Loans at December 31 consisted of:
(Millions) 1999 1998
-------- --------
<S> <C> <C>
Cardmember and Consumer Loans $ 19,955 $ 16,765
Commercial Loans:
Commercial and industrial 1,898 2,265
Loans to banks and other institutions 1,612 1,649
Mortgage and real estate 142 516
Other, principally policyholders' loans 728 671
-------- --------
24,335 21,866
Less: Reserves for credit losses 753 812
-------- --------
Total $ 23,582 $ 21,054
======== ========
</TABLE>
Note: American Express Financial Advisors (AEFA) mortgage loans of $3.9
billion and $3.8 billion in 1999 and 1998, respectively, are included in
Investment Mortgage Loans and are presented in Note 2.
<TABLE>
<CAPTION>
The following table presents changes in Reserves for Credit Losses
related to loans:
(Millions) 1999 1998
-------- --------
<S> <C> <C>
Balance, January 1 $ 812 $ 707
Provision for credit losses 832 1,165
Write-offs (1,062) (1,134)
Recoveries of amounts previously written-off 171 74
-------- --------
Balance, December 31 $ 753 $ 812
======== ========
</TABLE>
NOTE 4 SHORT- AND LONG-TERM DEBT AND BORROWING AGREEMENTS
SHORT-TERM DEBT
At December 31, 1999 and 1998, the company's total short-term debt
outstanding was $30.6 billion and $22.6 billion, respectively, with
weighted average interest rates of 5.6% and 5.7%, respectively. At December
31, 1999 and 1998, $6.9 billion and $0.5 billion, respectively, of
short-term debt outstanding was covered by interest rate swaps. The
year-end weighted average effective interest rates were 5.5% and 5.7% for
1999 and 1998, respectively. The company generally paid fixed rates of
interest under the terms of interest rate swaps. Unused lines of credit to
support commercial paper borrowings were approximately $8.8 billion at
December 31, 1999.
-26- (1999 Annual Report p. 43)
<PAGE>
<TABLE>
<CAPTION>
LONG-TERM DEBT
December 31, (Dollars in millions)
1999 1998
------------------------------------------------- ---------------------------------------------------------
Year-End Year-End
Notional Year-End Effective Year-End Effective
Amount Stated Interest Maturity Notional Stated Interest Maturity
Outstanding of Rate on Rate with of Outstanding Amount Rate on Rate with of
Balance Swaps Debt(a,b) Swaps(a,b) Swaps Balance of Swaps Debt(a,b) Swaps(a,b) Swaps
------- ------ -------- --------- ------ ------- ------- -------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Notes due
June 23, 2004 $ 499 -- 6.75% -- -- $ 499 -- 6.75% -- --
Notes due
January 22, 2004 497 -- 5.625% -- -- -- -- -- -- --
Notes due
August 12, 2002 400 $ 400 6.50% 6.06% 2002 400 $ 400 6.50% 5.40% 2002
Notes due
June 15, 2000 300 300 6.125% 6.29% 2000 300 300 6.125% 5.34% 2000
Notes due
November 15, 2001 300 300 6.125% 6.46% 2001 299 299 6.125% 5.54% 2001
Notes due
August 15, 2001 300 -- 8.50% -- -- 299 -- 8.50% -- --
Floating Rate Notes due
May 1, 2002 400 400 6.26% 6.00% 2002 399 399 5.27% 5.31% 2002
Floating Rate Notes due
December 31, 2001 300 -- 6.265% -- -- 300 -- 5.35% -- --
Other Fixed Senior Notes 2000- 1999-
due 1999-2022 1,271 865 6.66% 6.87% 2012 1,631 1,315 7.10% 6.39% 2012
Other Floating Senior Notes 1999-
due 1999-2002 1,243 50 5.16% 5.19% 2000 2,170 150 5.52% 5.55% 2000
Other Floating Rate Notes
due 1999-2004 251 150 6.97% 7.33% 2004 486 150 6.34% 6.53% 2004
Other Fixed Rate Notes 2001-
due 1999-2006 234 54 5.62% 5.32% 2006 236 34 4.95% 4.98% 2006
------ ------ ------ ------
Total $5,995 $2,519 $7,019 $3,047
====== ====== ====== ======
</TABLE>
(a) For floating rate debt issuances, the stated and effective interest
rates were based on the respective rates at December 31, 1999 and 1998;
these rates are not an indication of future interest rates.
(b) Weighted average rates were determined where appropriate.
The above interest rate swaps generally require the company to pay a
floating rate, with a predominant index of LIBOR (London Interbank Offered
Rate).
The company paid interest (net of amounts capitalized) of $2.6 billion,
$2.6 billion and $2.5 billion in 1999, 1998 and 1997, respectively.
Aggregate annual maturities of long-term debt for the five years ending
December 31, 2004 are as follows (millions): 2000, $1,810; 2001, $1,500;
2002, $920; 2003, $216; and 2004, $1,217.
NOTE 5 CUMULATIVE QUARTERLY INCOME PREFERRED SHARES
In 1998, American Express Company Capital Trust I, a wholly-owned
subsidiary of the company, established as a Delaware statutory business
trust (the Trust), completed a public offering of 20 million shares
(carrying value of $500 million) of 7.0% Cumulative Quarterly Income
Preferred Shares Series I (QUIPS) (liquidation preference of $25 per
share). Proceeds of the issue were invested in Junior Subordinated
Debentures (the Debentures) issued by the company due 2028 which represent
the sole assets of the Trust. The QUIPS are subject to mandatory redemption
upon repayment of the Debentures at maturity or their earlier redemption.
The company has the option to redeem the Debentures, in whole or in part,
at any time on or after July 16, 2003, which will result in the redemption
of a corresponding amount of QUIPS.
The company has unconditionally guaranteed all distributions required to be
made by the Trust, but only to the extent the Trust has funds legally
available for such distributions. The only source of funds for the Trust is
the company's interest payments on the Debentures. The company has the
right to defer such interest payments
-27- (1999 Annual Report p. 44)
<PAGE>
up to 20 consecutive quarters; as a consequence, quarterly dividend payments
on the QUIPS can be deferred by the Trust during any such interest payment
period. If the company defers any interest payments, the company may not,
among other things, pay any dividends on its capital stock until all
interest in arrears is paid to the Trust. Distributions on the QUIPS
are reported as Interest Expense in the Consolidated Statements of Income.
NOTE 6 COMMON AND PREFERRED SHARES
In September 1998, the company's Board of Directors authorized the company
to repurchase up to 40 million additional common shares over the subsequent
two to three years, subject to market conditions. The company has
repurchased approximately 106 million shares since 1994 pursuant to several
authorizations, including 6 million under the current authorization. These
plans are designed to allow the company to purchase shares, both to offset
the issuance of new shares as part of employee compensation plans and to
reduce shares outstanding.
Of the common shares authorized but unissued at December 31, 1999, 81
million shares were reserved for issuance for employee stock, employee
benefit and dividend reinvestment plans, as well as a stock purchase
agreement.
During 1999, the company entered into a stock purchase agreement that
partially offsets the company's exposure from its stock option program. The
agreement matures in 2004 and provides for the purchase by the company of 7
million shares at an average price of approximately $146 per share. During
the term of the agreement the company may periodically issue shares or
receive shares from a third party so that the value of shares held by the
third party equals the aggregate purchase price of $1,023 million. At
maturity, the company may deliver the aggregate purchase price against
delivery of the shares held by the third party, or elect a net cash or net
share settlement. The purchase price may be prepaid in whole or in part at
any time. This agreement is separate from the company's previously
authorized share repurchase program.
In 1987, Nippon Life purchased 13 million shares of Lehman 5% Series A
Preferred Stock for $508 million. In 1990, the company gave Nippon Life the
right to exchange these shares (subsequently exchanged by Lehman for Series
B shares) into 6.24 million common shares of the company at any time
through December 1999 at an exchange price of $81.46. In 1996, Nippon Life
informed the company that it had reduced its holding of such preferred
shares by approximately 30 percent but maintained the exchange rights
related to the shares sold. In 1997, Nippon Life exchanged all of its
remaining holdings of these preferred shares for approximately 4.4 million
common shares of the company. In January 1998, the company purchased all of
Nippon Life's remaining exchange rights.
<TABLE>
<CAPTION>
Common shares activity for each of the last three years ended December 31
was:
(Thousands) 1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Shares outstanding at beginning of year 450,468 466,417 472,859
Repurchases of common shares (9,048) (19,400) (17,010)
Exchange of Lehman preferred shares for
American Express common shares -- -- 4,399
Other, primarily employee plans 5,469 3,451 6,169
------- ------- -------
Shares outstanding at end of year 446,889 450,468 466,417
======= ======= =======
</TABLE>
The Board of Directors is authorized to permit the company to issue up to
20 million preferred shares without further shareholder approval.
-28- (1999 Annual Report p. 45)
<PAGE>
NOTE 7 DERIVATIVE AND OTHER OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The company uses derivative financial instruments for nontrading purposes to
manage its exposure to interest and foreign exchange rates, financial
indices and its funding costs. In addition, American Express Bank (AEB)
enters into derivative contracts both to meet the needs of its clients and,
to a limited extent, for proprietary trading purposes.
There are a number of risks associated with derivatives. Market risk is the
possibility that the value of the derivative financial instrument will
change. The company is not exposed to market risk related to derivatives
held for nontrading purposes beyond that inherent in cash market
transactions. AEB is generally not subject to market risk when it enters
into a contract with a client, as it usually enters into an offsetting
contract or uses the position to offset an existing exposure. AEB takes
proprietary positions within approved limits. These positions are monitored
daily at the local and headquarters levels against Value at Risk (VAR)
limits. The company does not enter into derivative contracts with features
that would leverage or multiply its market risk.
Credit risk related to derivatives and other off-balance sheet financial
instruments is the possibility that the counterparty will not fulfill the
terms of the contract. It is monitored through established approval
procedures, including setting concentration limits by counterparty and
country, reviewing credit ratings and requiring collateral where
appropriate. For its trading activities with clients, AEB requires
collateral when it is not willing to assume credit exposure to
counterparties for either contract mark-to-market or delivery risk. A
significant portion of the company's transactions are with counterparties
rated A or better by nationally recognized credit rating agencies. The
company also uses master netting agreements which allow the company to
settle multiple contracts with a single counterparty in one net receipt or
payment in the event of counterparty default. Credit risk approximates the
fair value of contracts in a gain position (asset) and totaled $0.7 billion
and $0.8 billion at December 31, 1999 and 1998, respectively. The fair
value represents the replacement cost and is determined by market values,
dealer quotes or pricing models.
-29- (1999 Annual Report p. 46)
<PAGE>
<TABLE>
<CAPTION>
The following tables detail information regarding the company's
derivatives at December 31:
NONTRADING 1999
-------------------------------------------------------
Carrying Value Fair Value
Notional ---------------- -----------------
(millions) Amount Asset Liability Asset Liability
-------- ----- --------- ----- ---------
<S> <C> <C> <C> <C> <C>
Interest Rate Products:
Interest rate swaps $20,971 $ 63 $ 64 $137 $225
Interest rate caps and floors purchased 3,625 10 -- 15 2
Forward rate agreements 567 8 9 -- --
Other 63 -- -- -- 63
------- ---- ---- ---- ----
Total Interest Rate Products 5,226 81 73 152 290
Foreign currency forward and spot contracts 6,910 62 53 76 114
Other Products 1,705 174 50 175 68
------- ---- ---- ---- ----
Total $33,841 $317 $176 $403 $472
======= ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
1998
-------------------------------------------------------
Carrying Value Fair Value
Notional ---------------- -----------------
(millions) Amount Asset Liability Asset Liability
-------- ----- --------- ----- ---------
<S> <C> <C> <C> <C> <C>
Interest Rate Products:
Interest rate swaps $13,548 $ 81 $ 72 $234 $174
Interest rate caps and floors purchased 7,025 17 -- 21 1
Forward rate agreements 384 -- -- -- --
------- ---- ---- ---- ----
Total Interest Rate Products 20,957 98 72 255 175
Foreign currency forward and spot contracts 5,965 49 52 59 54
Other Products 2,339 147 65 137 92
------- ---- ---- ---- ----
Total $29,261 $294 $189 $451 $321
======= ==== ==== ==== ====
</TABLE>
-30- (1999 Annual Report p. 46)
<PAGE>
<TABLE>
<CAPTION>
TRADING 1999
-------------------------------------------------------
Carrying/Fair Value Average Fair Value
Notional -------------------- ------------------
(millions) Amount Asset Liability Asset Liability
-------- ----- --------- ----- ---------
<S> <C> <C> <C> <C> <C>
Interest Rate Products:
Interest rate swaps $ 2,184 $ 54 $ 45 $ 54 $ 46
Other 446 1 2 1 4
------- ---- ---- ---- -----
Total Interest Rate Products 2,630 55 47 55 50
------- ---- ---- ---- -----
Foreign Currency Products:*
Forward and spot contracts 13,183 204 142 211 169
Foreign currency options written 1,263 -- 39 -- 37
Foreign currency options purchased 1,272 45 -- 37 --
------- ---- ---- ---- -----
Total Foreign Currency Products 15,718 249 181 248 206
------- ---- ---- ---- -----
Total $18,348 $304 $228 $303 $256
======= ==== ==== ==== =====
</TABLE>
<TABLE>
<CAPTION>
1998
-------------------------------------------------------
Carrying/Fair Value Average Fair Value
Notional ------------------- ------------------
(millions) Amount Asset Liability Asset Liability
-------- ----- --------- ----- ---------
<S> <C> <C> <C> <C> <C>
Interest Rate Products:
Interest rate swaps $ 1,266 $ 59 $ 51 $ 80 $ 63
Financial futures sold 949 -- 1 -- --
Other 186 1 6 4 9
------- ---- ---- ---- -----
Total Interest Rate Products 2,401 60 58 84 72
------- ---- ---- ---- -----
Foreign Currency Products:*
Forward and spot contracts 16,308 274 232 407 340
Foreign currency options written 1,630 -- 53 -- 56
Foreign currency options purchased 1,642 51 -- 55 --
------- ---- ---- ---- -----
Total Foreign Currency Products 19,580 325 285 462 396
------- ---- ---- ---- -----
Total $21,981 $385 $343 $546 $468
======= ==== ==== ==== =====
* These are predominantly contracts with clients and the related hedges of
those client contracts. The company's net trading foreign currency exposure
was approximately $93 million and $24 million at December 31, 1999 and
1998, respectively.
</TABLE>
The average aggregate fair values of derivative financial instruments held
for trading purposes were computed based on monthly information. Net
derivative trading gains of $83 million and $137 million for 1999 and 1998,
respectively, were primarily due to trading in foreign currency forward
contracts and are included in Other Commissions and Fees.
-31- (1999 Annual Report p. 47)
<PAGE>
INTEREST RATE PRODUCTS
The company uses interest rate products, principally swaps, primarily to
manage funding costs related to Travel Related Services' (TRS) Charge Card
and Cardmember lending businesses. For its Charge Card and fixed rate
lending products, TRS uses interest rate swaps to achieve a targeted mix of
fixed and floating rate funding. For the majority of its Cardmember loans,
which are linked to a floating rate base and generally reprice each month,
TRS generally enters into interest rate swaps, to the extent necessary,
paying rates that reprice similarly with changes in the base rate of the
underlying loans.
AEB uses interest rate products to manage its portfolio of loans, deposits
and securities holdings. The termination dates of nontrading interest rate
swaps are generally matched with the maturity dates of the underlying
assets and liabilities.
For interest rate swaps that are used for nontrading purposes and meet the
criteria for hedge accounting, interest is accrued and reported in Other
Receivables and Interest and Dividends or Accounts Payable and Interest
Expense, as appropriate. Products used for trading purposes are reported at
fair value in Other Assets or Other Liabilities, as appropriate, with
unrealized gains and losses recognized currently in Other Revenues.
AEFA uses interest rate caps, swaps and floors to protect the margin between
the interest rates earned on investments and the interest rates credited to
holders of investment certificates and fixed annuities. Interest rate caps,
swaps and floors generally mature within five years. The costs of interest
rate caps and floors are reported in Other Assets and amortized into
Interest and Dividends
-32- (1999 Annual Report p. 47)
<PAGE>
on a straight-line basis over the term of the contract; benefits are
recognized in income when earned.
In 1998, AEFA entered into interest rate swaps to manage the level of 1999
fee income earned on the management of fixed income securities in variable
annuities and mutual funds. These swaps are used for nontrading purposes
and meet the criteria for hedge accounting. Interest is accrued and
reported in Other Receivables or Accounts Payable, as appropriate, and
Management and Distribution Fees.
See Note 4 for further information regarding the company's use of interest
rate products related to short- and long-term debt obligations.
FOREIGN CURRENCY PRODUCTS
The company uses foreign currency products primarily to hedge net
investments in foreign operations and to manage transactions denominated in
foreign currencies. In addition, AEB enters into derivative contracts both
to meet the needs of its clients and, to a limited extent, for trading
purposes, including taking proprietary positions.
Foreign currency exposures are hedged, where practical and economical,
through foreign currency contracts. Foreign currency contracts involve the
purchase and sale of a designated currency at an agreed upon rate for
settlement on a specified date. Foreign currency forward contracts generally
mature within one year, whereas foreign currency spot contracts generally
settle within two days.
For foreign currency products used to hedge net investments in foreign
operations, unrealized gains and losses as well as related premiums and
discounts are reported in Shareholders' Equity. For foreign currency
contracts related to transactions denominated in foreign currencies,
unrealized gains and losses are reported in Other Assets and Other
Commissions and Fees or Other Liabilities and Other Expenses, as
appropriate. Related premiums and discounts are reported in Other Assets or
Other Liabilities, as appropriate, and amortized into Interest Expense and
Other Expenses over the term of the contract. Foreign currency products
used for trading purposes are reported at fair value in Other Assets or
Other Liabilities, as appropriate, with unrealized gains and losses
recognized currently in Other Commissions and Fees.
-33- (1999 Annual Report p. 48)
<PAGE>
The company also uses foreign currency forward contracts to hedge its firm
commitments. In addition, for selected major overseas markets, the company
uses foreign currency forward contracts to hedge future income, generally
for periods not exceeding one year; unrealized gains and losses are
recognized currently in income. In the latter part of 1999 and 1998,
foreign currency forward contracts were both sold (with notional amounts of
$611 million and $569 million, respectively) and purchased (with notional
amounts of $25 million and $34 million, respectively) to manage a majority
of anticipated future cash flows in major overseas markets. The impact of
these activities was not material.
OTHER PRODUCTS
Included in Other Products are purchased and written index options used by
AEFA to hedge against adverse changes in the U.S. equities markets, which
affect revenues earned on assets under management. Index options are
carried at market value and included in Other Assets or Other Liabilities,
as appropriate. Gains and losses on these options are deferred until the
related revenues are earned. At December 31, 1998, the notional value of
these options was $1.2 billion.
Other Products also include written and purchased index options used by
AEFA to manage the margin related to certain investment certificate and
annuity products that pay interest based upon the relative change in a
major stock market index between the beginning and end of the product's
term. Purchased and written options used in conjunction with these products
are reported in Other Assets and Other Liabilities, respectively. The
amortization of the cost of purchased options and the proceeds of written
options, along with changes in intrinsic value of the contracts, are
included in Interest and Dividends. At December 31, 1999 and 1998, the
notional value of these options was $1.6 billion and $1.1 billion,
respectively.
OTHER OFF-BALANCE SHEET
FINANCIAL INSTRUMENTS
The company's other off-balance sheet financial instruments principally
relate to extending credit to satisfy the needs of its clients. The
contractual amount of these instruments represents the maximum potential
credit risk, assuming the contract amount is fully utilized, the
counterparty defaults and collateral held is worthless. Management does not
expect any material adverse consequence to the company's financial position
to result from these contracts.
-34- (1999 Annual Report p. 48)
<PAGE>
<TABLE>
<CAPTION>
December 31, (Millions) 1999 1998
------- -------
<S> <C> <C>
Unused credit available to Cardmembers $67,565 $44,626
Loan commitments and other lines of credit $ 1,254 $ 1,197
Standby letters of credit and guarantees $ 1,407 $ 1,270
Commercial and other letters of credit $ 411 $ 400
</TABLE>
The company is committed to extend credit to certain Cardmembers as part of
established lending product agreements. Many of these are not expected to
be drawn; therefore, total unused credit available to Cardmembers does not
represent future cash requirements. The company's Charge Card products have
no preset spending limit and are not reflected in unused credit available to
Cardmembers.
The company may require collateral to support its loan commitments based on
the creditworthiness of the borrower.
Standby letters of credit and guarantees primarily represent conditional
commitments to insure the performance of the company's customers to third
parties. These commitments generally expire within one year.
The company issues commercial and other letters of credit to facilitate the
short-term trade-related needs of its clients, which typically mature within
six months. At December 31, 1999 and 1998, the company held $1,023 million
and $829 million, respectively, of collateral supporting standby letters of
credit and guarantees and $220 million and $215 million, respectively, of
collateral supporting commercial and other letters of credit.
Other financial institutions have committed to extend lines of credit to the
company of $11.5 billion and $10.3 billion at December 31, 1999 and 1998,
respectively.
NOTE 8 FAIR VALUES OF FINANCIAL INSTRUMENTS
The following table discloses fair value information for on- and
off-balance sheet financial instruments. Certain items, such as life
insurance obligations, employee benefit obligations and investments
accounted for under the equity method are excluded. The fair values of
financial instruments are estimates based upon market conditions and
perceived risks at December 31, 1999 and 1998 and require management
judgment. These figures may not be indicative of their future fair values.
-35- (1999 Annual Report p. 49)
<PAGE>
<TABLE>
<CAPTION>
December 31, (Millions) 1999 1998
------------------- ------------------
Carrying Fair Carrying Fair
Value Value Value Value
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Financial Assets
Assets for which carrying values approximate fair values $ 71,735 $ 71,735 $ 55,434 $ 55,434
Investments $ 43,052 $ 42,963 $ 41,299 $ 42,166
Loans $ 23,680 $ 23,594 $ 21,258 $ 21,029
Derivative financial instruments, net $ 217 $ 7 $ 147 $ 172
Financial Liabilities
Liabilities for which carrying values approximate fair values $ 60,932 $ 60,932 $ 48,404 $ 48,404
Fixed annuity reserves $ 19,189 $ 18,592 $ 19,855 $ 19,145
Investment certificate reserves $ 5,922 $ 5,905 $ 4,821 $ 4,830
Long-term debt $ 5,995 $ 5,949 $ 7,019 $ 7,222
Separate account liabilities $ 31,870 $ 31,015 $ 25,005 $ 24,179
</TABLE>
The carrying and fair values of other off-balance sheet financial
instruments are not material as of December 31, 1999 and 1998. See Notes 2
and 7 for carrying and fair value information regarding investments and
derivative financial instruments. The following methods were used to
estimate the fair values of financial assets and financial liabilities:
FINANCIAL ASSETS
Assets for which carrying values approximate fair values include cash and
cash equivalents, accounts receivable and accrued interest, separate
account assets and certain other assets.
For variable rate loans that reprice within a year where there has
been no significant change in counterparties' creditworthiness, fair values
are based on carrying values.
-36- (1999 Annual Report p. 49)
<PAGE>
The fair values of all other loans, except those with significant credit
deterioration, are estimated using discounted cash flow analysis, based on
current interest rates for loans with similar terms to borrowers of similar
credit quality. For loans with significant credit deterioration, fair values
are based on estimates of future cash flows discounted at rates commensurate
with the risk inherent in the revised cash flow projections, or for
collateral dependent loans, on collateral values.
FINANCIAL LIABILITIES
Liabilities for which carrying values approximate fair values include
customers' deposits, travelers cheques outstanding, accounts payable,
short-term debt and certain other liabilities.
Fair values of fixed annuities in deferral status are estimated as the
accumulated value less applicable surrender charges and loans. For
annuities in payout status, fair value is estimated using discounted cash
flows, based on current interest rates. The fair value of these reserves
excludes life insurance-related elements of $1.4 billion and $1.3 billion
in 1999 and 1998, respectively.
For variable rate investment certificates that reprice within a year, fair
values approximate carrying values. For other investment certificates, fair
value is estimated using discounted cash flows based on current interest
rates. The valuations are reduced by the amount of applicable surrender
charges and related loans.
For variable rate long-term debt that reprices within a year, fair values
approximate carrying values. For other long-term debt, fair value is
estimated using either quoted market prices or discounted cash flow based on
the company's current borrowing rates for similar types of borrowing.
Fair values of separate account liabilities, after excluding life
insurance-related elements of $4.0 billion and $2.3 billion in 1999 and
1998, respectively, are estimated as the accumulated value less applicable
surrender charges.
NOTE 9 SIGNIFICANT CREDIT CONCENTRATIONS
A credit concentration may exist if customers are involved in similar
industries. The company's customers operate in diverse economic sectors.
Therefore, management does not expect any material adverse consequences to
the company's financial position to result from credit concentrations.
Certain distinctions between categories require management judgment.
<TABLE>
<CAPTION>
December 31, (Dollars in millions) 1999 1998
-------- --------
<S> <C> <C>
Financial institutions(a) $ 17,489 $ 13,755
Individuals(b) 112,616 82,762
U.S. Government and agencies(c) 16,498 15,836
All other 26,127 25,433
-------- --------
Total $172,730 $137,786
======== ========
Composition:
On-balance sheet 59% 65%
Off-balance sheet 41 35
-------- --------
Total 100% 100%
======== ========
</TABLE>
(a) Financial institutions primarily include banks, broker-dealers,
insurance companies and savings and loan associations.
(b) Charge Card products have no preset spending limit; therefore, the
quantified credit amount includes only Cardmember receivables recorded
on the Consolidated Balance Sheets.
(c) U.S. Government and agencies represent the U.S. Government and its
agencies, states and municipalities, and quasi-government agencies.
-37- (1999 Annual Report p. 50)
<PAGE>
NOTE 10 STOCK PLANS
Under the 1998 Incentive Compensation Plan and previously under the 1989
Long-Term Incentive Plan (the Plans), awards may be granted to officers,
other key employees and other key individuals who perform services for the
company and its participating subsidiaries. These awards may be in the form
of stock options, stock appreciation rights, restricted stock, performance
grants and similar awards designed to meet the requirements of non-U.S.
jurisdictions. The company also has options outstanding pursuant to a
Directors' Stock Option Plan. Under these plans, there were a total of 40.9
million, 53.1 million and 25.9 million common shares available for grant at
December 31, 1999, 1998 and 1997, respectively. Each option has an exercise
price at least equal to the market price of the company's common stock on
the date of grant and a maximum term of 10 years. Options granted prior to
1999 generally vest at 33 1/3 percent per year beginning with the first
anniversary of the grant date. Starting in 1999, options granted generally
vest at 33 1/3 percent per year beginning with the second anniversary of the
grant date. The company also sponsors the American Express Incentive
Savings Plan, under which purchases of the company's common shares are made
by or on behalf of participating employees.
In 1998, the Compensation and Benefits Committee adopted a restoration stock
option program applicable to existing and future stock option awards. This
program provides that employees who exercise options that have been
outstanding at least five years by surrendering previously owned shares as
payment will automatically receive a new (restoration) stock option with an
exercise price equal to the market price on the date of exercise. The size
of the restoration option is equal to the number of shares surrendered plus
any shares surrendered or withheld to satisfy the employees' income tax
requirements. The term of the restoration option, which is exercisable six
months after grant, is equal to the remaining life of the original option.
Senior officers must be in compliance with their stock ownership guidelines
to exercise restoration options.
The company granted 0.4 million, 0.1 million and 1.4 million restricted
stock awards with a weighted average grant date value of $108.76, $88.97
and $67.08 per share for 1999, 1998 and 1997, respectively. Restrictions
generally expire four years from date of grant. The compensation cost that
has been charged against income for the company's restricted stock awards
was $38 million, $36 million and $48 million for 1999, 1998 and 1997,
respectively.
The company has elected to follow APB Opinion No. 25, "Accounting for Stock
Issued to Employees," and related Interpretations in accounting for its
employee stock options. Therefore, no compensation cost has been recognized
related to stock options. If the company had elected to account for its
stock options under the fair value method of SFAS No. 123, "Accounting for
Stock-Based Compensation," the company's net income and earnings per common
share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
(Millions, except per share amounts) 1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Net income:
As reported $2,475 $2,141 $1,991
Pro forma $2,348 $2,060 $1,948
Basic EPS:
As reported $ 5.54 $ 4.71 $ 4.29
Pro forma $ 5.26 $ 4.53 $ 4.20
Diluted EPS:
As reported $ 5.42 $ 4.63 $ 4.15
Pro forma $ 5.14 $ 4.45 $ 4.07
</TABLE>
The fair value of each option is estimated on the date of grant using a
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1999, 1998 and 1997, respectively:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------- -------
<S> <C> <C> <C>
Dividend yield 1.5% 2.0% 2.6%
Expected volatility 30% 23% 20%
Risk-free interest rate 5.1% 5.5% 6.2%
Expected life of stock option 5 years 5 years 5 years
</TABLE>
-38- (1999 Annual Report p. 51)
<PAGE>
The dividend yield reflects the assumption that the current dividend payout
will continue with no anticipated increases. The expected life of the
options is based on historical data and is not necessarily indicative of
exercise patterns that may occur. The weighted average fair value per
option was $33.28, $21.70 and $14.76 for options granted during 1999, 1998
and 1997, respectively.
<TABLE>
<CAPTION>
A summary of the status of the company's stock option plans as of December
31 and changes during each of the years then ended is presented below:
(Shares in thousands) 1999 1998 1997
---------------------- ---------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 25,553 $ 64.46 20,041 $ 44.32 21,116 $ 32.60
Granted 12,176 $ 109.59 11,494 $ 88.53 6,295 $ 66.74
Exercised (5,344) $ 48.60 (4,410) $ 35.16 (6,566) $ 27.65
Forfeited/Expired (881) $ 89.45 (1,572) $ 65.87 (804) $ 48.12
------ ------ ------
Outstanding at end
of year 31,504 $ 83.88 25,553 $ 64.46 20,041 $ 44.32
------ ------ ------
Options exercisable at end
of year 10,825 $ 56.11 9,718 $ 40.11 9,124 $ 30.58
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
The following table summarizes information about the stock options
outstanding at December 31, 1999:
(Shares in thousands) Options Outstanding Options Exercisable
----------------------------------------------- ----------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- ------------------------ ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$18.74 - $46.99 5,877 5.0 $ 36.47 5,877 $ 36.47
$47.00 - $86.99 5,280 7.3 $ 70.01 2,455 $ 66.66
$87.00 - $104.99 8,461 8.1 $ 88.70 2,212 $ 89.24
$105.00 - $158.44 11,886 8.9 $ 110.04 281 $ 114.23
------ ------
$18.74 - $158.44 31,504 7.7 $ 83.88 10,825 $ 56.11
====== ======
</TABLE>
-39- (1999 Annual Report p. 52)
<PAGE>
NOTE 11 RETIREMENT PLANS
PENSION PLANS
The company sponsors the American Express Retirement Plan (the Plan), a
noncontributory defined benefit plan, under which the cost of retirement
benefits for eligible employees in the United States is measured by length
of service, compensation and other factors and is currently being funded
through a trust. Funding of retirement costs for the Plan complies with the
applicable minimum funding requirements specified by the Employee Retirement
Income Security Act of 1974, as amended (ERISA). Employees' accrued benefits
are based on recordkeeping account balances which are maintained for each
individual and are credited with additions equal to a percentage, based on
age plus service, of base pay, certain commissions and bonuses, overtime
and shift differential, each pay period. Employees' balances are also
credited daily with a fixed rate of interest that is updated each January 1
and is based on the average of the daily five-year U.S. Treasury Note yields
for the previous October 1 through November 30. Employees have the option
to receive annuity payments or a lump sum payout at vested termination or
retirement.
In addition, the company sponsors an unfunded nonqualified Supplemental
Retirement Plan (the SRP) for certain highly compensated employees to
replace the benefit that cannot be provided by the Plan, a qualified plan
under ERISA. The SRP generally parallels the Plan but offers different
payment options.
Most employees outside the United States are covered by local retirement
plans, some of which are funded, or receive payments at the time of
retirement or termination under applicable labor laws or agreements.
Benefits under these local plans are generally expensed and are not funded.
Plan assets consist principally of equities and fixed income securities.
-40- (1999 Annual Report p. 52)
<PAGE>
<TABLE>
<CAPTION>
Net pension cost consisted of the following components:
(Millions) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Service cost $ 95 $ 88 $ 76
Interest cost 94 90 82
Expected return on plan assets (95) (91) (86)
Amortization of:
Prior service cost (9) (9) (9)
Transition obligation 2 1 1
Reversion gain (4) (4) (4)
Recognized net actuarial loss 7 3 --
Settlement/Curtailment gain (16) (15) (11)
---- ---- ----
Net periodic pension benefit cost $ 74 $ 63 $ 49
---- ---- ----
</TABLE>
<TABLE>
<CAPTION>
The funded status of the company's pension plans is based on valuations as
of September 30. The following tables provide a reconciliation of the
changes in the plans' benefit obligation and fair value of assets:
Reconciliation of change in benefit obligation
(Millions) 1999 1998
------ ------
<S> <C> <C>
Benefit obligation at October 1, $1,413 $1,199
Service cost 95 88
Interest cost 94 90
Benefits paid (44) (43)
Actuarial loss (57) 156
Settlements/Curtailments (55) (81)
Foreign currency exchange rate changes (27) 4
------ ------
Benefit obligation at September 30, $1,419 $1,413
====== ======
Reconciliation of change in fair value of plan assets
(Millions) 1999 1998
------ ------
Fair value of plan assets at October 1, $1,216 $1,279
Actual return on plan assets 221 2
Employer contributions 65 47
Benefits paid (44) (43)
Settlements/Curtailments (54) (71)
Foreign currency exchange rate changes (18) 2
------ ------
Fair value of plan assets at September 30, $1,386 $1,216
====== ======
The following table reconciles the plans' funded
status to the amounts recognized on the
Consolidated Balance Sheets:
Funded status
(Millions) 1999 1998
----- -----
Funded status at September 30, $ (33) $(197)
Unrecognized net actuarial loss (gain) (142) 38
Unrecognized prior service cost (58) (67)
Unrecognized net transition obligation 2 4
Fourth quarter contributions (net of benefit payments) 5 20
----- -----
Net amount recognized at December 31, $(226) $(202)
===== =====
</TABLE>
-41- (1999 Annual Report p. 53)
<PAGE>
<TABLE>
<CAPTION>
The following table provides the amounts recognized on the Consolidated
Balance Sheets as of December 31:
(Millions) 1999 1998
----- -----
<S> <C> <C>
Accrued benefit liability $(331) $(294)
Prepaid benefit cost 88 78
Intangible asset 17 14
----- -----
Net amount recognized at December 31, $(226) $(202)
===== =====
</TABLE>
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plans with accumulated benefit
obligations in excess of plan assets were $226 million, $188 million and
$22 million, respectively, as of December 31, 1999, and $540 million, $477
million and $286 million, respectively, as of December 31, 1998.
The prior service costs are amortized on a straight-line basis over the
average remaining service period of active participants. Gains and losses
in excess of 10 percent of the greater of the benefit obligation and the
market-related value of assets are amortized over the average remaining
service period of active participants.
<TABLE>
<CAPTION>
The weighted average assumptions used in the company's defined benefit
plans were:
1999 1998
---- ----
<S> <C> <C>
Discount rates 7.3% 6.6%
Rates of increase in compensation levels 4.4% 4.1%
Expected long-term rates of return on assets 9.4% 9.3%
</TABLE>
The company also has a defined contribution retirement plan (a 401(k)
savings plan with a profit sharing feature) covering most employees in the
United States. The defined contribution plan expense was $126 million, $106
million and $101 million in 1999, 1998 and 1997, respectively.
OTHER POSTRETIREMENT BENEFITS
The company sponsors postretirement benefit plans that provide health care,
life insurance and other postretirement benefits to retired U.S. employees.
Net periodic postretirement benefit expenses were $20 million, $17 million
and $15 million in 1999, 1998 and 1997, respectively. The liabilities
recognized on the Consolidated Balance Sheets for the company's defined
postretirement benefit plans (other than pension plans) at December 31, 1999
and 1998 were $205 million and $204 million, respectively.
NOTE 12 INCOME TAXES
<TABLE>
<CAPTION>
The provisions for income taxes were:
(Millions) 1999 1998 1997
----- ------ -----
<S> <C> <C> <C>
Federal $ 645 $ 465 $ 453
State and local 76 35 46
Foreign 242 284 260
----- ------ -----
Total $ 963 $ 784 $ 759
===== ====== =====
</TABLE>
-42- (1999 Annual Report p. 54)
<PAGE>
Accumulated net earnings of certain foreign subsidiaries, which totaled
$1.6 billion at December 31, 1999, are intended to be permanently
reinvested outside the United States. Accordingly, federal taxes, which
would have aggregated $236 million, have not been provided on those
earnings.
<TABLE>
<CAPTION>
The current and deferred components of the provision for income taxes were:
(Millions) 1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Current $ 716 $ 883 $ 824
Deferred 247 (99) (65)
----- ----- -----
Total $ 963 $ 784 $ 759
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
The company's net deferred tax assets at December 31 were:
(Millions) 1999 1998
------- -------
<S> <C> <C>
Deferred tax assets $ 3,126 $ 2,921
Deferred tax liabilities 1,691 1,680
------- -------
Net deferred tax assets $ 1,435 $ 1,241
======= =======
</TABLE>
Deferred tax assets primarily reflect reserves not yet deducted for tax
purposes of $1.7 billion and $1.8 billion for 1999 and 1998, respectively,
deferred Cardmember fees of $230 million and $225 million, and deferred
compensation of $358 million and $331 million at December 31, 1999 and
1998, respectively. Deferred tax liabilities for 1999 and 1998 mainly
comprise deferred acquisition costs of $919 million and $853 million,
respectively; and accelerated depreciation of $148 million and $158
million, respectively.
Deferred taxes related to SFAS No. 115 include deferred tax assets of $145
million for 1999 and deferred tax liabilities of $320 million for 1998.
<TABLE>
<CAPTION>
The principal reasons that the aggregate income tax provision is different
from that computed by using the U.S. statutory rate of 35 percent are:
(Millions) 1999 1998 1997
------- ------- -----
<S> <C> <C> <C>
Combined tax at U.S. statutory rate $ 1,203 $ 1,024 $ 962
Changes in taxes resulting from:
Tax-preferred investments (171) (157) (153)
Tax-exempt element of dividend income (43) (38) (22)
Foreign income taxed at rates other than
U.S. statutory rate (35) (44) (13)
State and local income taxes 49 23 29
All other (40) (24) (44)
------- ------- -----
Income tax provision $ 963 $ 784 $ 759
======= ======= =====
</TABLE>
Net income taxes paid by the company during 1999, 1998 and 1997 were $392
million, $977 million and $878 million, respectively, and include estimated
tax payments and cash settlements relating to prior tax years.
The items composing comprehensive income in the Consolidated Statements of
Shareholders' Equity are presented net of income tax provision (benefit).
The changes in net unrealized securities gains are presented net of tax
provision (benefits) of $(473) million, $2 million and $104 million for
1999, 1998 and 1997, respectively. Foreign currency translation adjustments
are presented net of tax (benefits) of $(3) million, $(8) million and $(4)
million for 1999, 1998 and 1997, respectively.
-43- (1999 Annual Report p. 55)
<PAGE>
NOTE 13 EARNINGS PER COMMON SHARE
SFAS No. 128, "Earnings per Share," requires the presentation of basic and
diluted earnings per common share (EPS) in the income statement. Under
these requirements, basic EPS is computed using the average actual shares
outstanding during the period. Diluted EPS is basic EPS adjusted for the
dilutive effect of stock options, restricted stock awards (RSAs) and other
financial instruments that may be converted into common shares. The basic
and diluted EPS computations are as follows:
<TABLE>
<CAPTION>
(Millions, except per share amounts) 1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Numerator:
Net income $2,475 $2,141 $1,991
Denominator:
Denominator for basic EPS-- weighted-average shares 446.6 454.4 464.2
Effect of dilutive securities:
Stock Options, RSAs and other 9.9 8.4 8.9
5% Exchangeable Lehman Brothers Holdings, Inc.
Preferred Shares (see Note 6) -- -- 6.1
------ ------ ------
Potentially dilutive common shares 9.9 8.4 15.0
------ ------ ------
Denominator for diluted EPS 456.5 462.8 479.2
====== ====== ======
Basic EPS $ 5.54 $ 4.71 $ 4.29
Diluted EPS $ 5.42 $ 4.63 $ 4.15
</TABLE>
NOTE 14 OPERATING SEGMENTS AND GEOGRAPHIC OPERATIONS
OPERATING SEGMENTS
The company is principally engaged in providing travel related, financial
advisory and international banking services throughout the world. TRS'
products and services include, among others, Charge Cards, Cardmember
lending products, and corporate and consumer travel services. American
Express Financial Advisors' services and products include financial planning
and advice, investment advisory services and a variety of products,
including insurance and annuities, investment certificates and mutual funds.
American Express Bank/Travelers Cheque (AEB/TC) products and services
include Travelers Cheques and providing correspondent, corporate and
private banking, personal financial services and global trading. The company
operates on a global basis, although the principal market for financial
advisory services is the United States.
The following table presents certain information regarding these operating
segments at December 31, 1999, 1998 and 1997 and for each of the years then
ended. For certain income statement items that are affected by asset
securitizations at TRS, data are provided on both a managed basis, which
excludes the effect of securitizations, as well as on a GAAP basis. See the
TRS Results of Operations section of the Financial Review for further
information regarding the effect of securitizations on the financial
statements. In addition, net revenues (managed basis) are presented net of
provisions for losses and benefits for annuities, insurance and investment
certificate products of AEFA.
-44- (1999 Annual Report p. 56)
<PAGE>
<TABLE>
<CAPTION>
American
American Express
Travel Express Bank/ Corporate Adjustments
Related Financial Travelers and and
(Millions) Services Advisors Cheque Other Eliminations Consolidated
-------- -------- ------ ----- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
1999
- ----
Net revenues (managed basis) $ 14,903 $ 3,737 $ 1,019 $ 109 $ (285) $ 19,483
Revenues (GAAP basis) 14,799 5,636 1,019 109 (285) 21,278
Interest and dividends, net 324 2,443 636 105 (162) 3,346
Cardmember lending net finance charge revenue:
Managed basis 1,929 -- -- -- -- 1,929
GAAP basis 1,333 -- -- -- -- 1,333
Interest expense:
Managed basis 1,207 32 26 164 (158) 1,271
GAAP basis 987 32 26 164 (158) 1,051
Pretax income (loss) 2,387 1,363 23 (335) -- 3,438
Income tax provision (benefit) 825 428 (129) (161) -- 963
-------- --------- -------- -------- -------- --------
Net income (loss) 1,562 935 152 (174) -- 2,475
======== ========= ======== ======== ======== ========
Assets $ 56,261 $ 74,644 $ 18,863 $ 14,449 $(15,700) $148,517
1998
- ----
Net revenues (managed basis) $ 13,231 $ 3,181 $ 1,002 $ 112 $ (314) $ 17,212
Revenues (GAAP basis) 13,237 5,095 1,002 112 (314) 19,132
Interest and dividends, net 283 2,437 620 103 (166) 3,277
Cardmember lending net finance charge revenue:
Managed basis 1,660 -- -- -- -- 1,660
GAAP basis 1,354 -- -- -- -- 1,354
Interest expense:
Managed basis 1,190 21 28 149 (158) 1,230
GAAP basis 959 21 28 149 (158) 999
Pretax income (loss) 2,064 1,192 (129) (202) -- 2,925
Income tax provision (benefit) 700 374 (172) (118) -- 784
-------- --------- -------- -------- -------- --------
Net income (loss) 1,364 818 43 (84) -- 2,141
======== ========= ======== ======== ======== ========
Assets $ 44,682 $ 64,637 $ 18,496 $ 3,606 $ (4,488) $126,933
1997
- ----
Net revenues (managed basis) $ 12,177 $ 2,733 $ 1,124 $ 123 $ (300) $ 15,857
Revenues (GAAP basis) 12,214 4,599 1,124 123 (300) 17,760
Interest and dividends, net 295 2,339 649 101 (209) 3,175
Cardmember lending net finance charge revenue:
Managed basis 1,411 -- -- -- -- 1,411
GAAP basis 1,244 -- -- -- -- 1,244
Interest expense:
Managed basis 1,151 18 33 129 (177) 1,154
GAAP basis 921 18 33 129 (177) 924
Pretax income 1,785 1,022 249 (306) -- 2,750
Income tax provision (benefit) 621 315 (23) (154) -- 759
-------- --------- -------- -------- -------- --------
Net income (loss) 1,164 707 272 (152) -- 1,991
======== ========= ======== ======== ======== ========
Assets $ 40,700 $ 59,828 $ 19,573 $ 3,374 $ (3,472) $120,003
</TABLE>
-45- (1999 Annual Report p. 57)
<PAGE>
Income tax provision (benefit) is calculated on a separate return basis;
however, benefits from operating losses, loss carrybacks and tax credits
(principally foreign tax credits) recognizable for the company's
consolidated reporting purposes are allocated based upon the tax sharing
agreement among members of the American Express Company consolidated U.S.
tax group.
Assets are those that are used or generated exclusively by each industry
segment. The adjustments and eliminations required to determine the
consolidated amounts shown above consist principally of the elimination of
intersegment amounts.
<TABLE>
<CAPTION>
GEOGRAPHIC OPERATIONS
The following table presents the company's revenues and pretax income
(loss) in different geographic regions.
Adjustments
United Asia/ All and
(Millions) States Europe Pacific Other Eliminations Consolidated
------ ------ ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1999
Revenues $ 16,362 $ 2,729 $ 1,456 $ 1,466 $ (735) $ 21,278
Pretax income $ 2,756 $ 316 $ 175 $ 191 -- $ 3,438
1998
Revenues $ 14,535 $ 2,476 $ 1,332 $ 1,444 $ (655) $ 19,132
Pretax income (loss) $ 2,520 $ 340 $ (59) $ 124 -- $ 2,925
1997
Revenues $ 13,449 $ 2,209 $ 1,378 $ 1,277 $ (553) $ 17,760
Pretax income $ 2,111 $ 219 $ 256 $ 164 -- $ 2,750
</TABLE>
Most services of the company are provided on an integrated worldwide basis.
Therefore, it is not practical to separate precisely the U.S. and
international services. Accordingly, the data in the above table are, in
part, based upon internal allocations, which necessarily involve management
judgments.
NOTE 15 LEASE COMMITMENTS AND OTHER CONTINGENT LIABILITIES
The company leases certain office facilities and operating equipment under
noncancellable and cancellable agreements. Total rental expense amounted to
$452 million, $388 million and $384 million in 1999, 1998 and 1997,
respectively. At December 31, 1999, the minimum aggregate rental commitment
under all noncancellable leases (net of subleases) was (millions): 2000,
$345; 2001, $304; 2002, $224; 2003, $164; 2004, $132; and thereafter,
$1,310.
The company is not a party to any pending legal proceedings that, in the
opinion of management, would have a material adverse effect on the
company's financial position.
-46- (1999 Annual Report p. 58)
<PAGE>
NOTE 16 TRANSFER OF FUNDS FROM SUBSIDIARIES
The Securities and Exchange Commission requires the disclosure of certain
restrictions on the flow of funds to a parent company from its subsidiaries
in the form of loans, advances or dividends.
Restrictions on the transfer of funds exist under debt agreements and
regulatory requirements of certain of the company's subsidiaries. These
restrictions have not had any effect on the company's shareholder dividend
policy and management does not anticipate any effect in the future.
At December 31, 1999, the aggregate amount of net assets of subsidiaries
that may be transferred to the parent company was approximately $7.6
billion. Should specific additional needs arise, procedures exist to permit
immediate transfer of short-term funds between the company and its
subsidiaries, while complying with the various contractual and regulatory
constraints on the internal transfer of funds.
<TABLE>
<CAPTION>
NOTE 17 QUARTERLY FINANCIAL DATA (UNAUDITED)
(Millions, except per share amounts) 1999 1998
------------------------------------- ---------------------------------------
Quarter Ended 12/31 9/30 6/30 3/31 12/31 9/30 6/30 3/31
- ------------- ----- ---- ---- ---- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues (managed basis) $ 5,227 $ 4,920 $ 4,811 $ 4,524 $ 4,560 $ 4,350 $ 4,271 $ 4,030
Revenues (GAAP basis) 5,699 5,311 5,298 4,971 5,062 4,787 4,761 4,521
Pretax income 844 907 895 791 713 799 800 614
Net income 606 648 646 575 530 574 578 460
Earnings per common share:
Basic 1.36 1.45 1.44 1.28 1.18 1.27 1.27 1.00
Diluted 1.33 1.42 1.41 1.26 1.16 1.25 1.24 .98
Cash dividends declared per
common share .225 .225 .225 .225 .225 .225 .225 .225
Common share prices:
High 168.88 150.63 142.63 129.63 109.06 118.63 114.00 98.13
Low 130.25 121.88 114.50 94.88 67.00 68.00 91.88 78.38
</TABLE>
-47- (1999 Annual Report p. 59)
<PAGE>
REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
THE SHAREHOLDERS AND BOARD OF DIRECTORS OF AMERICAN EXPRESS COMPANY
We have audited the accompanying consolidated balance sheets of American
Express Company as of December 31, 1999 and 1998, and the related
consolidated statements of income, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the management of American
Express Company. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of American
Express Company at December 31, 1999 and 1998, and the consolidated results
of its operations and its cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
New York, New York
February 3, 2000
-48- (1999 Annual Report p. 60)
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
(Millions, except per share amounts and where italicized) 1999 1998 1997 1996 1995
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net revenues (managed basis)(a) $ 19,483 $ 17,212 $ 15,857 $ 14,473 $ 14,076
Percent increase 13% 9% 10% 3% 10%
Revenues (GAAP basis) 21,278 19,132 17,760 16,380 15,921
Percent increase 11% 8% 8% 3% 11%
Expenses 17,840 16,207 15,010 13,716 13,738
Net income:
As reported 2,475 2,141 1,991 1,901 1,564
Adjusted(b) 2,475 2,201 1,991 1,739 1,564
Return on average shareholders' equity(c) 25.3% 24.0% 23.5% 22.8% 22.0%
BALANCE SHEET
Cash and cash equivalents $ 7,471 $ 4,092 $ 4,179 $ 2,677 $ 3,200
Accounts receivable and accrued interest, net 26,467 22,224 21,774 20,491 19,914
Investments 43,052 41,299 39,648 38,339 42,561
Loans, net 23,582 21,054 20,109 18,518 16,091
Total assets 148,517 126,933 120,003 108,512 107,405
Customers' deposits 12,197 10,398 9,444 9,555 9,889
Travelers Cheques outstanding 6,213 5,823 5,634 5,838 5,697
Insurance and annuity reserves 25,011 25,433 26,165 25,674 25,157
Short-term debt 30,627 22,605 20,570 18,402 17,654
Long-term debt 5,995 7,019 7,873 6,552 7,570
Shareholders' equity 10,095 9,698 9,574 8,528 8,220
COMMON SHARE STATISTICS
Earnings per share:
Basic $ 5.54 $ 4.71 $ 4.29 $ 4.02 $ 3.19
Basic adjusted(b) $ 5.54 $ 4.84 $ 4.29 $ 3.67 $ 3.19
Diluted $ 5.42 $ 4.63 $ 4.15 $ 3.89 $ 3.10
Diluted adjusted(b) $ 5.42 $ 4.76 $ 4.15 $ 3.56 $ 3.10
Percent increase:
Basic 18% 10% 7% 26% 16%
Basic adjusted(b) 14% 13% 17% 15% 16%
Diluted 17% 12% 7% 25% 15%
Diluted adjusted(b) 14% 15% 17% 15% 15%
Cash dividends declared per share:
Actual $ .90 $ .90 $ .90 $ .90 $ .90
Pro forma $ .90 $ .90 $ .90 $ .90 $ .90
Book value per share:
Actual $ 22.59 $ 21.53 $ 20.53 $ 18.04 $ 16.60
Pro forma(c) $ 23.25 $ 20.24 $ 19.29 $ 17.22 $ 14.79
Market price per share:
High $ 168.88 $ 118.63 $ 91.50 $ 60.38 $ 45.13
Low $ 94.88 $ 67.00 $ 53.63 $ 38.63 $ 29.00
Close $ 166.25 $ 102.50 $ 89.25 $ 56.50 $ 41.38
Average common shares outstanding for earnings per share:
Basic 447 454 464 472 485
Diluted 456 463 479 488 499
Shares outstanding at year end 447 450 466 473 483
OTHER STATISTICS
Number of employees at year end:
United States 52,858 50,266 44,691 43,688 41,700
Outside United States 35,520 34,466 28,929 28,611 28,647
-------- -------- -------- -------- ---------
Total 88,378 84,732 73,620 72,299 70,347
======== ======== ======== ======== =========
Number of shareholders of record 56,020 51,597 53,576 55,803 57,010
</TABLE>
(a) Net revenues (managed basis) are total revenues as reported under U.S.
Generally Accepted Accounting Principles (GAAP), net of American Express
Financial Advisors' provision for losses and benefits, and exclude the
effect of TRS' asset securitization activities.
(b) 1998 is adjusted to exclude the following first quarter items: $138
million credit loss provision at American Express Bank relating to its
Asia/Pacific portfolio, as well as income of $78 million representing gains
on the sale of First Data Corporation shares and a preferred dividend based
on Lehman Brothers' earnings. 1996 is adjusted to exclude a $300 million
gain on the exchange of the company's DECS and a $138 million restructuring
charge.
(c) Return on average shareholders' equity is based on adjusted income from
continuing operations in 1996 and excludes the effect of SFAS No. 115.
In addition, book value per share excludes the effect of SFAS No. 115.
-49- (1999 Annual Report p. 61)
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Unless otherwise indicated, all of the voting securities of these
subsidiaries are directly or indirectly owned by the registrant. Where the
name of the subsidiary is indented, the voting securities of such subsidiary
are owned directly by the company under which its name is indented. Certain
subsidiaries have been omitted which, if considered in the aggregate as a
single subsidiary, would not constitute a significant subsidiary as defined
in Rule 1-02(w) of Regulation S-X.
Jurisdiction
Name of Subsidiary of
Incorporation
I. American Express Travel Related Services Company, Inc.
and its Subsidiaries
American Express Travel Related New York
Services Company, Inc.
Amex Canada, Inc. Canada
1001675 Ontario Inc. Canada
1001674 Ontario Inc. Canada
Rexport, Inc. Canada
Amex Bank of Canada Canada
Sourcing Innovation, Inc. Canada
American Express Company (Mexico) S.A. de C.V. Mexico
American Express Centurion Bank Utah
American Express Centurion Services Corporation Delaware
American Express Credit Corporation Delaware
American Express Overseas Credit Jersey,
Corporation Limited Channel Islands
AEOCC Management Company, Ltd. Jersey,
Channel Islands
American Express Overseas Credit Netherlands
Corporation N.V. Antilles
Credco Receivables Corp. Delaware
American Express Receivables Financing Corporation Delaware
American Express Receivables Financing Corporation II Delaware
American Express Tax and Business Services Inc. Minnesota
American Express Tax and Business Services of
New York, Inc. New York
American Express do Brasil Tempo & Cia, Inc. Delaware
Amex do Brazil Empreedimentos e Participacoes Ltda. Brazil
American Express do Brasil Servicos Brazil
Internacionais, Ltda. (90% owned)
American Express do Brazil Tempo & Cia Brazil
American Express do Brasil S.A. Turismo (51% owned) Brazil
American Express Limited Delaware
American Express Argentina, S.A. Argentina
American Express (Malaysia) Sdn. Bhd. Malaysia
American Express (Thai) Co. Ltd. (78% owned) Thailand
TRS Card International Inc. (75% owned) Delaware
American Express de Espana, S.A. Spain
American Express Viajes, S.A. Spain
1
<PAGE>
Amex Asesores de Seguros, S.A. Spain
American Express International (B) SDN.BHD. Brunei
Amex Travel Advisors, Limited Hong Kong
South Pacific Credit Card Ltd. New Zealand
Centurion Finance, Ltd. New Zealand
American Express International, Inc. Delaware
American Express Hungary KFT Hungary
American Express Company A/S Norway
American Express Locazioni Finanziarie, S.r.1. Italy
Amex Broker Assicurativo S.r.l. Italy
American Express Int'l A.E. (Greece) Greece
American Express Int'l (Taiwan), Inc. Taiwan
American Express of Egypt, Ltd. Delaware
American Express Carte France, S.A. France
AllCard Service GmbH Germany
American Express Bureau de Change S.A. Greece
AE Exposure Management Limited Jersey,
Channel Islands
American Express Travel Poland Sp.Zo.O Poland
Sociedad Internacional de Servicios Panama
de Panama, S.A.
American Express Services France
Havas Voyages American Express France
Amex Sumigin Service Company, Ltd. (40% owned) Japan
American Express International Services Limited Russia
American Express Card Services Limited (95% owned) Russia
Amex Marketing Japan Limited Delaware
American Express (India) Pvt. Ltd. India
P.T. American Express Travel Indonesia Indonesia
(80% owned)
American Express spol. s.r.o. Czech Republic
Nippon Card Business Co., Ltd. (25% owned) Japan
Schenker Rhenus Reisen Germany
American Express Holdings AB Sweden
American Express Company A/B Sweden
American Express Reisebyra A/B Sweden
Nyman & Schultz AB Sweden
Nyman & Schultz Grupp och Konferens AB Sweden
Resespecialisterna Syd AB Sweden
BookHotel AB Sweden
Forsakringsaktiebolaget Viator Sweden
First Card AB Sweden
Profil Reiser A/S (50% owned) Denmark
Resespecialisterna Enkoping AB (26% owned) Sweden
Stockholm Central Hotel AB Sweden
Nyman & Schultz Forretningsreiser A/S Norway
Nyman & Schultz Erhvervsrejser ApS Denmark
Amex Insurance Marketing, Inc. Taiwan
American Express Publishing Corporation New York
Southwest Media Corporation Texas
Societe Francaise du Cheque de Voyage, S.A. France
(34% owned)
Travellers Cheque Associates, Limited (54% owned) England & Wales
American Express Service Corporation Delaware
Bansamex S.A. (50% owned) Spain
Amex (Middle East) E.C. (50% owned) Bahrain
Amex (Saudi Arabia Ltd.) (50% owned) Bahrain
American Express Europe Limited Delaware
2
<PAGE>
American Express Management France
American Express France France
American Express France Finance France
American Express Group & Incentive Services, Inc. Michigan
American Express Services Europe Limited England & Wales
and Delaware
American Express Insurance Services, Ltd. England & Wales
American Express TRS, Inc. Florida
Cardmember Financial Services, Ltd. Jersey,
Channel Islands
Integrated Travel Systems, Inc. Texas
DMDA, Inc. (15.5% owned) Texas
Amex General Insurance Agency Taiwan
American Express Bank (Mexico), S.A. Mexico
American Express Student Funding, Inc. Delaware
Educational Funding Company LCC (64% owned) California
American Express Educational Assurance Company Arizona
American Express Incentive Services, Inc. Delaware
American Express Incentive Services, Missouri
LLC (50% owned)
American Express International (NZ), Inc. Delaware
American Express Realty Management Co. Delaware
Cavendish Holdings, Inc. Delaware
American Express Business Finance Corporation California
Servicing Solutions, Inc. Delaware
Golden Bear Travel, Inc. Delaware
Empress Travel, Ltd. Delaware
Travel Impressions, Ltd. Delaware
American Express ATM Holdings, Inc. Delaware
Americash, Inc. Delaware
ATM One, L.L.C. Delaware
Americash L.L.C. Delaware
Shamrock ATM Inc. Delaware
Rosper, Inc. Delaware
II. American Express Financial Corporation and its Subsidiaries
American Express Financial Corporation Delaware
American Express Financial Advisors Inc. Delaware
American Express Financial Advisors Japan Inc. Delaware
IDS Real Estate Services, Inc. Delaware
American Express Trust Company Minnesota
IDS Life Insurance Company Minnesota
American Partners Life Insurance Company Arizona
IDS Life Insurance Company of New York New York
American Enterprise Life Insurance Company Indiana
American Centurion Life Assurance Company New York
American Express Corporation Delaware
IDS Certificate Company Delaware
Investors Syndicate Development Corp. Delaware
IDS Insurance Agency of Alabama Inc. Alabama
IDS Insurance Agency of Arkansas Inc. Arkansas
IDS Insurance Agency of Massachusetts Inc. Massachusetts
IDS Insurance Agency of Mississippi Inc. Mississippi
IDS Insurance Agency of New Mexico Inc. New Mexico
IDS Insurance Agency of North Carolina Inc. North Carolina
IDS Insurance Agency of Ohio Inc. Ohio
3
<PAGE>
IDS Insurance Agency of Texas Inc. Texas
IDS Insurance Agency of Utah Inc. Utah
IDS Insurance Agency of Wyoming Inc. Wyoming
American Express Insurance Agency of Nevada Inc. Nevada
American Express Asset Management Group Inc. Minnesota
Advisory Capital Strategies Group Inc. Minnesota
American Express Asset Management International Japan
(Japan) Ltd.
IDS Capital Holdings Inc. Minnesota
American Express Asset Management International Inc. Delaware
American Express Asset Management Ltd. England
IDS Management Corporation Minnesota
IDS Partnership Services Corporation Minnesota
IDS Cable Corporation Minnesota
IDS Futures Corporation Minnesota
IDS Realty Corporation Minnesota
IDS Cable II Corporation Minnesota
IDS Property Casualty Insurance Company Wisconsin
American Express Minnesota Foundation Minnesota
IDS Sales Support Inc. Minnesota
IDS Plan Services of California, Inc. Minnesota
American Enterprise Investment Services Inc. Minnesota
American Express Insurance Agency of Arizona Inc. Arizona
American Express Insurance Agency of Idaho Inc. Idaho
American Express Property Casualty Insurance Kentucky
Agency of Kentucky Inc.
American Express Client Service Corporation Minnesota
Public Employee Payment Company Minnesota
American Express Property Casualty Insurance Maryland
Agency of Maryland Inc.
American Express Property Casualty Insurance Mississippi
Agency of Mississippi Inc.
American Express Property Casualty Insurance Pennsylvania
Agency of Pennsylvania Inc.
American Express Insurance Agency of Oregon Inc. Oregon
Securities America Financial Corporation Nebraska
Financial Dynamics, Inc. Nebraska
Securities America, Inc. Nebraska
Securities Advisors, Inc. Nebraska
Realty Assets, Inc. Nebraska
III. American Express Banking Corp. and its Subsidiaries
American Express Banking Corp. New York
American Express Bank Ltd. Connecticut
Amex Holdings, Inc. Delaware
American Express Bank GmbH Germany
AEB - International Portfolios
Management Company Luxembourg
Egyptian American Bank (41% owned) Egypt
Delta AEB Brokerage SAE (60% owned) Egypt
Amtrade Holdings, Inc. Delaware
American Express Bank (Switzerland) S.A. Switzerland
International Trade Services Pte Ltd. Singapore
Amex International Trust (Guernsey) Limited Guernsey,
Channel Islands
4
<PAGE>
Etoral Finance, Inc. Panama
Sociedad Del Desarrollo Mercantil Ltda. Chile
Remor and Associates Inc. Panama
American Express Bank Asset Management Jersey,
(Jersey) Limited Channel Islands
American Express Bank (Luxembourg) S.A. Luxembourg
AEB WorldFolio Capital Preservation Luxembourg
Management Co. S.A.
American Express Bank (Uruguay) S.A. Uruguay
Amex International Trust (Cayman) Ltd. Cayman Islands
OLP Investments Ltd. Cayman Islands
Rilanex Participations N.V. Netherlands
Antilles
American Express Worldfolio Management Company Luxembourg
American Express Bank (France) S.A. France
Amex Gestion S.A. France
American Express Bank International United States
Argentamex S.A. Argentina
AEB (UK) PLC England & Wales
Amex Nominees (S) Pte Ltd. Singapore
Amex Bank Nominee Hong Kong Limited Hong Kong
First International Investment Bank Ltd. Pakistan
(20% owned)
American Express (Poland) Ltd. Delaware
American Express Bank Asset Management (Cayman) Ltd. Cayman Islands
Inveramex Chile Ltda. Chile
Amex Immobiliaria Ltda. Chile
American Express Bank, S.A. Argentina
AEB Global Asset Management Inc. New York
AEB/FFS Management Company (50% owned) Luxembourg and
Jersey,
Cayman Islands
AEB Global Trading Investments, Ltd. British Virgin
Islands
Amex NLG Holdings, LLC Delaware
American Express International Deposit Company Cayman Islands
Bankpar Participacoes Ltda. Brazil
Banco Inter American Express S.A. (50% owned) Brazil
Inter American Express Arrendamento
Mercantil, S.A. (95% owned) Brazil
Inter American Express Consultoria E
Servicos Ltda. Brazil
MS Representacoes E Participacoes Ltda. Brazil
MS Trading S.A. Brazil
Inter American Express Overseas Ltd. Brazil
Inter American Express Bank Ltd. Brazil
Imagra Imobiliaria E Agricola S.A. Brazil
The American Express Nominees Limited England & Wales
IV. Other Subsidiaries of the Registrant
Acuma Financial Services Ltd. Delaware
Acuma Ltd. Delaware
Ainwick Corporation Texas
American Express Asset Management Holdings, Inc. Delaware
Amexco Insurance Company Vermont
Amexco Risk Financing Holding Co. Delaware
Amex Assurance Company Illinois
checks-on-line, Inc. Delaware
5
<PAGE>
National Express Company, Inc. New York
The Balcor Company Holdings, Inc. Delaware
The Balcor Company Delaware
Balcor Securities Company Illinois
Balcor Institutional Realty Advisors, Inc. Illinois
Balcor Management Services, Inc. Illinois
International Capital Corp. Delaware
Intercapital Comercio e Participacoes Ltda. Brazil
Conepar Compania Nordestina de Brazil
Participacoes S.A. (37% owned)
Convertible Holding Ltd. Cayman Islands
CTH Common Holdings Ltd. Cayman Islands
CTH Preferred Holdings Ltd. Cayman Islands
Complejos Turisticos Huatulco, Mexico
S.A. de C.V. (84% of preferred stock)
Acamex Holdings, Inc. Cayman Islands
Etisa Holdings Ltd. Cayman Islands
Empresas Turisticas Integradas, Mexico
S.A. de C.V. (98% owned)
Floriano Representacoes Ltda. Brazil
International Capital Corp. (Ltd.) Cayman Cayman Islands
Rexport, Inc. Delaware
Drillamex, Inc. Delaware
UMPAWAUG I Corporation Delaware
UMPAWAUG II Corporation Delaware
UMPAWAUG III Corporation Delaware
UMPAWAUG IV Corporation Delaware
Daedalus Leasing Corp. New York
Dash 200 + Ltd. (50% owned) Cayman Islands
Nora Leasing, Inc. New York
Gemini Leasing Ltd. Cayman Islands
Far East Leasing Ltd. Cayman Islands
6
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Consolidated Balance Sheet at December 31, 1999 and Consolidated
Statement of Income for the year ended December 31, 1999 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 7,471
<SECURITIES> 43,052
<RECEIVABLES> 27,273
<ALLOWANCES> 806
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 4,105
<DEPRECIATION> 2,109
<TOTAL-ASSETS> 148,517
<CURRENT-LIABILITIES> 0
<BONDS> 36,622
0
0
<COMMON> 268
<OTHER-SE> 9,827
<TOTAL-LIABILITY-AND-EQUITY> 148,517
<SALES> 0
<TOTAL-REVENUES> 21,278
<CGS> 0
<TOTAL-COSTS> 10,630
<OTHER-EXPENSES> 2,479
<LOSS-PROVISION> 3,680
<INTEREST-EXPENSE> 1,051
<INCOME-PRETAX> 3,438
<INCOME-TAX> 963
<INCOME-CONTINUING> 2,475
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,475
<EPS-BASIC> 5.54
<EPS-DILUTED> 5.42
</TABLE>
