UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
--------------------------- --------------------
Commission file number 1-7657
AMERICAN EXPRESS COMPANY
------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 13-4922250
------------------------------------------ -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
WORLD FINANCIAL CENTER, 200 VESEY STREET, NEW YORK, NY 10285
-------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 640-2000
-----------------------------
NONE
--------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT OCTOBER 31, 2000
------------------------------------------ -------------------------------
Common Shares (par value $.20 per share) 1,329,976,393 shares
AMERICAN EXPRESS COMPANY
FORM 10-Q
INDEX
PAGE NO.
-------
Part I. Financial Information:
Consolidated Statements of Income - Three
months ended September 30, 2000 and 1999 1
Consolidated Statements of Income - Nine
months ended September 30, 2000 and 1999 2
Consolidated Balance Sheets - September 30,
2000 and December 31, 1999 3
Consolidated Statements of Cash Flows - Nine
months ended September 30, 2000 and 1999 4
Notes to Consolidated Financial Statements 5-7
Review Report of Independent Accountants 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-25
Part II. Other Information 26
PART I--FINANCIAL INFORMATION
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------------------
2000 1999
------------ -----------
<S> <C> <C>
Revenues:
Discount revenue $ 1,963 $ 1,700
Interest and dividends, net 858 804
Management and distribution fees 700 578
Net card fees 418 395
Travel commissions and fees 433 448
Other commissions and fees 611 464
Cardmember lending net finance charge revenue 232 348
Life and other insurance premiums 145 131
Other 621 443
--------- ---------
Total 5,981 5,311
--------- ---------
Expenses:
Human resources 1,657 1,526
Provisions for losses and benefits:
Annuities and investment certificates 343 297
Life insurance, international banking and other 182 158
Charge card 236 222
Cardmember lending 267 187
Interest 352 262
Marketing and promotion 396 399
Occupancy and equipment 372 327
Professional services 374 324
Communications 133 128
Other 640 574
--------- ---------
Total 4,952 4,404
--------- ---------
Pretax income 1,029 907
Income tax provision 292 259
--------- ---------
Net income $ 737 $ 648
========= =========
Earnings Per Common Share:
Basic $ 0.56 $ 0.48
========= =========
Diluted $ 0.54 $ 0.47
========= =========
Average common shares outstanding for
earnings per common share (millions):
Basic 1,326 1,338
========= =========
Diluted 1,361 1,369
========= =========
Cash dividends declared per common share $ 0.08 $ 0.075
========= =========
</TABLE>
See notes to Consolidated Financial Statements.
1
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
Revenues:
Discount revenue $ 5,717 $ 4,875
Interest and dividends, net 2,490 2,443
Management and distribution fees 2,089 1,653
Net card fees 1,234 1,191
Travel commissions and fees 1,378 1,342
Other commissions and fees 1,729 1,309
Cardmember lending net finance charge revenue 766 1,004
Life and other insurance premiums 425 381
Other 1,781 1,382
--------- ---------
Total 17,609 15,580
--------- ---------
Expenses:
Human resources 4,968 4,457
Provisions for losses and benefits:
Annuities and investment certificates 1,013 977
Life insurance, international banking and other 532 479
Charge card 778 653
Cardmember lending 613 559
Interest 997 750
Marketing and promotion 1,182 1,049
Occupancy and equipment 1,100 952
Professional services 1,079 922
Communications 388 381
Other 1,964 1,808
--------- ---------
Total 14,614 12,987
--------- ---------
Pretax income 2,995 2,593
Income tax provision 862 724
--------- ---------
Net income $ 2,133 $ 1,869
========= =========
Earnings Per Common Share:
Basic $ 1.61 $ 1.39
========= =========
Diluted $ 1.57 $ 1.36
========= =========
Average common shares outstanding for
earnings per common share (millions):
Basic 1,328 1,341
========= =========
Diluted 1,361 1,369
========= =========
Cash dividends declared per common share $ 0.24 $ 0.225
========= =========
</TABLE>
See notes to Consolidated Financial Statements.
2
AMERICAN EXPRESS COMPANY
CONSOLIDATED BALANCE SHEETS
(millions)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
Assets 2000 1999
------ ------------- -------------
<S> <C> <C>
Cash and cash equivalents $ 8,959 $ 7,471
Accounts receivable and accrued interest:
Cardmember receivables, less reserves:
2000, $843; 1999, $728 24,095 22,541
Other receivables, less reserves:
2000, $112; 1999, $78 4,654 3,926
Investments 42,437 43,052
Loans:
Cardmember lending, less reserves:
2000, $571; 1999, $581 17,839 17,666
International banking, less reserves:
2000, $158; 1999, $169 5,008 4,928
Other, net 1,097 988
Separate account assets 36,644 35,895
Deferred acquisition costs 3,489 3,235
Land, buildings and equipment - at cost, less
accumulated depreciation: 2000, $2,154;
1999, $2,109 2,327 1,996
Other assets 7,077 6,819
-------- --------
Total assets $ 153,626 $ 148,517
======== ========
Liabilities and Shareholders' Equity
------------------------------------
Customers' deposits $ 13,116 $ 12,197
Travelers Cheques outstanding 6,564 6,213
Accounts payable 8,920 7,309
Insurance and annuity reserves:
Fixed annuities 19,727 20,552
Life and disability policies 4,630 4,459
Investment certificate reserves 6,996 5,951
Short-term debt 31,034 30,627
Long-term debt 4,589 5,995
Separate account liabilities 36,644 35,895
Other liabilities 9,693 8,724
-------- --------
Total liabilities 141,913 137,922
-------- --------
Guaranteed preferred beneficial interests in
the company's junior subordinated deferrable
interest debentures 500 500
Shareholders' equity:
Common shares, $.20 par value, authorized
3.6 billion shares; issued and outstanding
1,329 million shares in 2000 and 1,341
million shares in 1999 266 268
Capital surplus 5,433 5,196
Retained earnings 5,916 5,033
Other comprehensive income, net of tax:
Net unrealized securities losses (323) (296)
Foreign currency translation adjustments (79) (106)
-------- --------
Accumulated other comprehensive loss (402) (402)
-------- --------
Total shareholders' equity 11,213 10,095
-------- --------
Total liabilities and shareholders' equity $ 153,626 $ 148,517
======== ========
</TABLE>
See notes to Consolidated Financial Statements.
3
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------
2000 1999
---- ----
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 2,133 $ 1,869
Adjustments to reconcile net income
to net cash provided by operating activities:
Provisions for losses and benefits 1,980 1,708
Depreciation, amortization, deferred taxes and other 323 157
Changes in operating assets and liabilities, net of
effects of acquisitions and dispositions:
Accounts receivable and accrued interest (729) (557)
Other assets (445) (193)
Accounts payable and other liabilities 2,498 2,508
Increase in Travelers Cheques outstanding 359 537
Increase in insurance reserves 153 130
------- -------
Net cash provided by operating activities 6,272 6,159
-------- -------
Cash Flows from Investing Activities
Sale of investments 2,096 2,648
Maturity and redemption of investments 4,699 4,920
Purchase of investments (6,289) (9,662)
Net increase in Cardmember receivables (2,483) (1,987)
Cardmember loans/receivables sold to trust, net 3,373 3,489
Proceeds from repayment of loans 19,349 16,996
Issuance of loans (24,313) (21,244)
Purchase of land, buildings and equipment (700) (525)
Sale of land, buildings and equipment 28 8
Dispositions (acquisitions), net of cash sold/acquired 213 (37)
------- -------
Net cash used by investing activities (4,027) (5,394)
------- ------
Cash Flows from Financing Activities
Net increase (decrease) in customers' deposits 1,117 (349)
Sale of annuities and investment certificates 4,309 4,273
Redemption of annuities and investment certificates (4,313) (3,829)
Net increase (decrease) in debt with maturities of three
months or less 5,507 (2,346)
Issuance of debt 7,255 13,276
Principal payments on debt (13,625) (9,726)
Issuance of American Express common shares 190 181
Repurchase of American Express common shares (958) (896)
Dividends paid (313) (303)
------- ---------
Net cash (used) provided by financing activities (831) 281
------- ---------
Effect of exchange rate changes on cash 74 (36)
------- ---------
Net increase in cash and cash equivalents 1,488 1,010
Cash and cash equivalents at beginning of period 7,471 4,092
------- ---------
Cash and cash equivalents at end of period $ 8,959 $ 5,102
======= ========
</TABLE>
See notes to Consolidated Financial Statements.
4
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
1. Basis of Presentation
The consolidated financial statements should be read in conjunction with the
financial statements in the Annual Report on Form 10-K of American Express
Company (the company or American Express) for the year ended December 31,
1999. Significant accounting policies disclosed therein have not changed.
Certain reclassifications of prior period amounts have been made to conform
to the current presentation.
Cardmember lending net finance charge revenue is presented net of interest
expense of $272 million and $165 million for the third quarter of 2000 and
1999, respectively, and $761 million and $477 million for the nine months
ended September 30, 2000 and 1999, respectively. Interest and dividends is
presented net of interest expense of $146 million and $108 million for the
third quarter of 2000 and 1999, respectively, and $419 million and $339
million for the nine months ended September 30, 2000 and 1999, respectively,
related primarily to the company's international banking operations.
The interim financial information in this report has not been audited. In the
opinion of management, all adjustments necessary for a fair presentation of
the consolidated financial position and the consolidated results of
operations for the interim periods have been made. All adjustments made were
of a normal, recurring nature. Results of operations reported for interim
periods are not necessarily indicative of results for the entire year.
All of the information in this financial report reflects the effect of a
three-for-one split of the company's common stock, which occurred during the
second quarter of 2000.
2. Investment Securities
The following is a summary of investments at September 30, 2000 and December
31, 1999:
<TABLE>
<CAPTION>
September 30, December 31,
(in millions) 2000 1999
------------------ -----------------
<S> <C> <C>
Held to Maturity, at amortized cost
(fair value: 2000, $8,601; 1999,
$9,218) $8,591 $9,221
Available for Sale, at fair value
(cost: 2000, $30,169; 1999,
$30,053) 29,644 29,570
Investment mortgage loans (fair
value: 2000, $3,959; 1999, $3,901) 3,985 3,984
Trading 217 277
----------------- -----------------
Total $42,437 $43,052
================= =================
</TABLE>
5
3. Comprehensive Income
Comprehensive income is defined as the aggregate change in shareholders'
equity, excluding changes in ownership interests. For the company, it is the
sum of net income and changes in (i) unrealized gains or losses on
available-for-sale securities and (ii) foreign currency translation
adjustments. The components of comprehensive income, net of related tax, for
the three and nine months ended September 30, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -------------------------
(in millions) 2000 1999 2000 1999
---------------------- -------------------------
<S> <C> <C> <C> <C>
Net income $ 737 $ 648 $ 2,133 $ 1,869
Change in:
Net unrealized securities
gains/losses 181 (275) (27) (869)
Foreign currency translation
adjustments 19 (11) 27 2
---------------------- -------------------------
Total $ 937 $ 362 $ 2,133 $ 1,002
====================== =========================
</TABLE>
4. Taxes and Interest
Net income taxes paid during the nine months ended September 30, 2000 and
1999 were approximately $567 million and $272 million, respectively. Interest
paid during the nine months ended September 30, 2000 and 1999 was
approximately $2.7 billion and $1.9 billion, respectively.
5. Earnings per Share
The computations of basic and diluted earnings per common share (EPS) for the
three and nine months ended September 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
(in millions, except per Three Months Ended Nine Months Ended
share amounts) September 30, September 30,
----------------------- ------------------------
2000 1999 2000 1999
----------------------- ------------------------
<S> <C> <C> <C> <C>
Numerator: Net income $ 737 $ 648 $ 2,133 $ 1,869
Denominator:
Denominator for basic EPS -
weighted-average shares 1,326 1,338 1,328 1,341
Effect of dilutive securities:
Stock Options, Restricted
Stock Awards and other 35 31 33 28
----------------------- ------------------------
Potentially dilutive
common shares 35 31 33 28
----------------------- ------------------------
Denominator for diluted EPS 1,361 1,369 1,361 1,369
----------------------- ------------------------
Basic EPS $ 0.56 $ 0.48 $ 1.61 $ 1.39
----------------------- ------------------------
Diluted EPS $ 0.54 $ 0.47 $ 1.57 $ 1.36
----------------------- ------------------------
</TABLE>
6
6. Segment Information
The following tables present three and nine-month results for the company's
operating segments, based on management's internal reporting structure. The
TRS segment now includes Travelers Cheque (TC) operations, which had
previously been included in the American Express Bank/TC segment. Net
revenues (managed basis) exclude the effect of securitizations at TRS, and
provisions for losses and benefits for annuities, insurance and investment
certificate products of AEFA:
<TABLE>
<CAPTION>
Net Revenues Three Months Ended Nine Months Ended
(managed basis) September 30, September 30,
--------------------------- -------------------------
(in millions) 2000 1999 2000 1999
--------------------------- -------------------------
<S> <C> <C> <C> <C>
Travel Related Services $ 4,400 $ 3,864 $ 12,898 $ 11,125
American Express
Financial Advisors 1,052 936 3,153 2,738
American Express Bank 146 157 447 474
Corporate and Other (44) (37) (127) (81)
--------------------------- -------------------------
Total $ 5,554 $ 4,920 $ 16,371 $ 14,256
=========================== =========================
<CAPTION>
Revenues (GAAP basis) Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- -------------------------
(in millions) 2000 1999 2000 1999
--------------------------- -------------------------
<S> <C> <C> <C> <C>
Travel Related Services $ 4,339 $ 3,823 $ 12,701 $ 11,080
American Express
Financial Advisors 1,540 1,368 4,588 4,107
American Express Bank 146 157 447 474
Corporate and Other (44) (37) (127) (81)
--------------------------- -------------------------
Total $ 5,981 $ 5,311 $ 17,609 $ 15,580
=========================== =========================
<CAPTION>
Net Income Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
(in millions) 2000 1999 2000 1999
-------------------------- -------------------------
<S> <C> <C> <C> <C>
Travel Related Services $ 507 $ 446 $ 1,460 $ 1,286
American Express
Financial Advisors 269 240 790 696
American Express Bank 7 5 22 18
Corporate and Other (46) (43) (139) (131)
-------------------------- -------------------------
Total $ 737 $ 648 $ 2,133 $ 1,869
========================== =========================
</TABLE>
7
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Shareholders and Board of Directors
American Express Company
We have reviewed the accompanying consolidated balance sheet of American
Express Company (the "Company") as of September 30, 2000 and the related
consolidated statements of income for the three and nine-month periods
ended September 30, 2000 and 1999 and consolidated statements of cash flows
for the nine-month periods ended September 30, 2000 and 1999. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data, and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with auditing standards generally accepted in the
United States, which will be performed for the full year with the objective of
expressing an opinion regarding the consolidated financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements referred
to above for them to be in conformity with accounting principles generally
accepted in the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of the Company as
of December 31, 1999, and the related consolidated statements of income,
shareholders' equity, and cash flows for the year then ended (not presented
herein), and in our report dated February 3, 2000, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated balance sheet as of
December 31, 1999 is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
/s/Ernst & Young LLP
New York, New York
November 13, 2000
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Consolidated Results of Operations for the Three and Nine Months Ended
September 30, 2000
The company's consolidated net income rose 14 percent and diluted earnings per
share rose 15 percent for both the three and nine-month periods ended September
30, 2000, respectively. The company's return on equity was 25.5 percent.
Consolidated net revenues on a managed basis grew 13 percent and 15 percent in
the three and nine-month periods ended September 30, 2000, reflecting an
increase in worldwide billed business and Cardmember loans at Travel Related
Services (TRS) and greater management and distribution fees at American Express
Financial Advisors (AEFA). Consolidated expenses rose due to greater interest
costs, larger provisions for losses, and higher human resource and operating
expenses. The increases were principally due to greater volume and business
building initiatives.
These results met the company's long-term targets of 12-15 percent earnings per
share growth, at least 8 percent revenue growth and a return on equity of 18-20
percent.
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 TRS. This format is generally termed on a "managed
basis." Second, revenues are shown net of AEFA's provisions for annuities,
insurance and investment certificate products, which are essentially spread
businesses.
Consolidated Liquidity and Capital Resources
In the first nine months of 2000, the company repurchased 18.7 million common
shares at an average price of $51.94 per share under its repurchase program.
In the first quarter of 2000, the company entered into an agreement under which
a third party will purchase up to 9 million company common shares in the open
market over a period of up to eight months. During the term of the agreement the
company will periodically issue shares to or receive shares from the third party
so that the value of the shares held by the third party equals the original
purchase price for the shares. At maturity in five years, the company is
required to deliver to the third party an amount equal to such original purchase
price. The company may elect to settle this amount (i) physically, by paying
cash against delivery of the shares held by the third party or (ii) on a net
cash or net share basis. The company may also prepay outstanding amounts at any
time prior to the end of the five-year term. As of September 30, 2000, 2,756,800
shares have
9
been purchased pursuant to this agreement. The foregoing is in addition to a
similar agreement entered into in August 1999 under which a third party
purchased 21 million of the company's common shares at an average purchase price
of approximately $49 per share. During the first nine months of 2000, net
settlements under the August 1999 agreement resulted in the company receiving
4,320,723 shares. These agreements, which partially offset the company's
exposure from its stock option program, are separate from the company's
previously authorized share repurchase program.
In November 2000, the company issued $500 million of 6.875% Notes due
November 1, 2005. The proceeds from this issuance will be used for general
corporate purposes.
Other Reporting Matters
All of the information in this financial report reflects the effect of a
three-for-one split of the company's common stock, which occurred during the
second quarter of 2000.
In June 1998, the Financial Accounting Standards Board (FASB) issued, and
subsequently amended, Statement of Financial Accounting Standards (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
those instruments 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 FASB is still addressing interpretive issues that will
affect the accounting for derivatives. Thus, estimating the financial effects of
transition to the new rule as if it were to occur as of September 30, 2000 is
not fully calculable at this time. However, the company believes that those
financial effects would not have been material to the company's financial
position or results of operations. The final financial effects of transition at
January 1, 2001 will be measured based on the derivatives positions, market
conditions, and the interpretative guidance issued by the FASB as of that time.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," a replacement
of FASB Statement No. 125. SFAS No. 140 is effective for transfers and servicing
of financial assets and extinguishments of liabilities occurring after March 31,
2001. The Statement is effective for recognition and reclassification of
collateral and for disclosures relating to securitization transactions and
collateral for fiscal years ending after December 15, 2000. The company does not
expect SFAS No. 140 to have a material impact on the company's financial
position or results of operations.
10
Travel Related Services
Results of Operations for the Three and Nine Months Ended September 30, 2000 and
1999
Statements of Income
--------------------
(Unaudited, Managed Basis)
(Dollars in millions)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------Percentage ---------------------Percentage
2000 1999 Inc/(Dec) 2000 1999 Inc/(Dec)
------------------------------ -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Revenues:
Discount Revenue $ 1,963 $ 1,700 15.5% $5,717 $ 4,875 17.3%
Net Card Fees 420 399 5.3 1,236 1,195 3.4
Lending:
Finance Charge Revenue 1,052 747 40.8 2,887 2,083 38.6
Interest Expense 429 246 74.8 1,146 653 75.6
----------------- -----------------
Net Finance Charge Revenue 623 501 24.2 1,741 1,430 21.8
Travel Commissions and Fees 433 448 (3.2) 1,378 1,342 2.7
TC Investment Income 103 91 12.5 292 257 13.7
Other Revenues 858 725 18.5 2,534 2,026 25.1
----------------- -----------------
Total Net Revenues 4,400 3,864 13.9 12,898 11,125 15.9
----------------- -----------------
Expenses:
Marketing and Promotion 358 349 2.5 1,034 902 14.6
Provision for Losses and Claims:
Charge Card 273 247 10.6 896 768 16.6
Lending 386 312 23.8 1,054 854 23.4
Other 29 17 63.9 85 59 44.2
----------------- -----------------
Total 688 576 19.4 2,035 1,681 21.1
Charge Card Interest Expense 362 259 40.2 1,024 757 35.5
Human Resources 1,017 985 3.2 3,080 2,898 6.3
Other Operating Expenses 1,254 1,065 17.8 3,652 3,072 18.9
----------------- -----------------
Total Expenses 3,679 3,234 13.8 10,825 9,310 16.3
----------------- -----------------
Pretax Income 721 630 14.4 2,073 1,815 14.2
Income Tax Provision 214 184 16.7 613 529 15.7
----------------- -----------------
Net Income $ 507 $ 446 13.5 $ 1,460 $ 1,286 13.5
================= =================
</TABLE>
11
Travel Related Services
Selected Statistical Information
--------------------------------
(Unaudited)
(Amounts in billions, except percentages and where indicated)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- Percentage ----------------------- Percentage
2000 1999 Inc/(Dec) 2000 1999 Inc/(Dec)
-------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Cards in Force (millions):
United States 32.9 29.2 12.7 % 32.9 29.2 12.7%
Outside the United States 17.5 15.6 12.6 17.5 15.6 12.6
------------------ ------------------
Total 50.4 44.8 12.6 50.4 44.8 12.6
================== ==================
Basic Cards in Force (millions):
United States 25.8 22.9 12.7 25.8 22.9 12.7
Outside the United States 13.4 12.0 11.6 13.4 12.0 11.6
------------------ ------------------
Total 39.2 34.9 12.3 39.2 34.9 12.3
================== ==================
Card Billed Business:
United States $ 56.2 $ 47.1 19.4 $ 162.7 $ 134.7 20.8
Outside the United States 18.6 17.0 9.7 55.0 48.6 13.1
------------------ ------------------
Total $ 74.8 $ 64.1 16.8 $ 217.7 $ 183.3 18.8
================== ==================
Average Discount Rate (A) 2.70% 2.73% - 2.70% 2.73% -
Average Basic Cardmember
Spending (dollars) (A) $ 2,041 $ 1,935 5.5 $ 6,112 $ 5,653 8.1
Average Fee per Card -
Managed (dollars) (A) $ 36 $ 38 (5.3) $ 36 $ 39 (7.7)
Non-Amex Brand (B):
Cards in Force (millions) 0.6 0.2 # 0.6 0.2 #
Billed Business $ 0.8 $ 0.2 # $ 2.1 $ 0.5 #
Travel Sales $ 5.4 $ 5.5 (1.6) $ 17.1 $ 16.9 1.6
Travel Commissions and Fees/Sales (C) 8.0% 8.1% - 8.1% 7.9% -
Travelers Cheque:
Sales $ 7.7 $ 7.3 5.0 $ 19.4 $ 18.0 8.3
Average Outstanding $ 6.9 $ 6.5 6.3 $ 6.5 $ 6.2 6.1
Average Investments $ 6.7 $ 6.2 6.5 $ 6.3 $ 5.9 6.7
Tax Equivalent Yield 8.8% 8.8% - 8.8% 8.8% -
Managed Charge Card Receivables:
Total Receivables $ 28.1 $ 25.3 11.0 $ 28.1 $ 25.3 11.0
90 Days Past Due as a % of Total 2.3% 2.5% - 2.3% 2.5% -
Loss Reserves (millions) $ 987 $ 907 8.8 $ 987 $ 907 8.8
% of Receivables 3.5% 3.6% - 3.5% 3.6% -
% of 90 Days Past Due 152% 144% - 152% 144% -
Net Loss Ratio 0.37% 0.41% - 0.36% 0.41% -
Managed U.S. Cardmember Lending:
Total Loans $ 27.1 $ 20.6 31.7 $ 27.1 $ 20.6 31.7
Past Due Loans as a % of Total:
30-89 Days 1.8% 2.0% - 1.8% 2.0% -
90+ Days 0.8% 0.8% - 0.8% 0.8% -
Loss Reserves (millions):
Beginning Balance $ 686 $ 602 13.9 $ 672 $ 619 8.4
Provision 328 264 24.2 881 717 23.0
Net Charge-Offs/Other (283) (230) 22.8 (822) (700) 17.3
------------------ ------------------
Ending Balance $ 731 $ 636 15.0 $ 731 $ 636 15.0
================== ==================
% of Loans 2.7% 3.1% - 2.7% 3.1% -
% of Past Due 103% 111% - 103% 111% -
Average Loans $ 26.6 $ 19.8 34.8 $ 25.2 $18.0 40.2
Net Write-Off Rate 4.3% 4.7% - 4.4% 5.3% -
Net Interest Yield 7.8% 8.5% - 7.6% 9.0% -
</TABLE>
(A) Computed from proprietary card activities only.
(B) This data relates to Visa and Eurocards issued in connection with joint
venture activities.
(C) Computed from information provided herein.
# Denotes variance of more than 100%.
12
Travel Related Services
Travel Related Services' (TRS) net income rose 14 percent for both the three and
nine-month periods ended September 30, 2000 compared with a year ago. The TRS
segment now includes earnings from Travelers Cheque (TC) operations. Excluding
TC, net income for the remaining TRS business rose 15 percent for both the three
and nine-month periods ended September 30, 2000, from a year ago. TC results had
previously been included in the American Express Bank/TC segment.
Net revenues increased 14 and 16 percent for the three and nine-month periods
ended September 30, 2000, respectively, reflecting higher billed business as
well as strong growth in Cardmember loans.
The improvement in discount revenue for the three and nine-month periods ended
September 30, 2000, compared with a year ago, is the result of higher billed
business, reflecting an increase of 5.6 million cards in force, up 13 percent
from a year ago, and greater average spending per Cardmember, partially offset
by a decline in the discount rate. The higher spending was driven by several
factors, including rewards programs and expanded merchant coverage. The growth
in billed business continued to be primarily the result of increases in retail
and "everyday spend" categories; the rate of growth in airline billings also
continued to improve. The increase in cards in force reflects more proactive
consumer card and small business services activities over the past year,
including those related to Blue and co-branded Costco card products. The decline
in the discount rate from a year ago reflects the cumulative impact on our mix
of business of stronger than average growth in lower rate retail and other
"everyday spend" merchant categories. The net interest yield on Cardmember loans
decreased for the three and nine-month periods ended September 30, 2000,
compared with a year ago, reflecting a higher cost of funds and a greater
percentage of loan balances on fixed and lower rate products; additionally, the
decline for the nine-month period also reflects a greater proportion of loan
balances on introductory rates. Travel commissions and fees declined for the
current quarter, but rose for the nine-month period, reflecting new fees related
to certain client services, partly offset by the mix of sales activities and
continued cost containment efforts by airlines and corporate clients, as well as
a decline in travel sales due to the second quarter sale of an international
leisure travel business. TC investment income rose for both periods due to a
higher investment pool and growth in Money Order related activities. Other
revenues increased, reflecting higher fee income, greater foreign exchange
conversion revenue and acquisitions.
The provision for losses on the charge card and lending portfolios grew for the
three and nine-month periods ended September 30, 2000 as a result of higher
volume, partly offset by improvement in credit quality in the lending portfolio.
Charge Card interest expense rose due to higher volumes and increased borrowing
costs. Marketing and promotion expenses grew as a result of increased business
building activities. Human resource expenses increased for both periods as a
result of a higher average number of employees and merit increases. Other
operating expenses increased on higher costs related to business growth,
Cardmember loyalty programs and various business building initiatives. For the
nine months ended September
13
30, 2000, other operating expenses included a gain on the sale of an
international leisure travel business as well as a gain on an investment in an
Internet company that TRS was required to write-up when that company was
acquired by a third party. These gains were offset by increased spending on
Internet activities and other business building initiatives and, therefore, had
no material impact on net income or total expenses.
14
Travel Related Services
The preceding statements of income and related discussion present TRS results on
a managed basis, as if there had been no securitization transactions. On a GAAP
reporting basis, TRS recognized pretax gains of $26 million ($17 million
after-tax) and $55 million ($36 million after-tax) in the third quarters of 2000
and 1999, respectively, and $142 million ($92 million after-tax) and $154
million ($100 million after-tax) for the nine months ended September 30, 2000
and 1999, respectively, related to the securitization of U.S. receivables. These
gains were invested in additional card acquisition activities and had no
material impact on net income, total net revenues or total expenses in any
period. The following tables reconcile TRS' income statements 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.
(Dollars in millions)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 2000 September 30, 1999
------------------------------- ------------------------------
Managed Securitization GAAP Managed Securitization GAAP
Basis Effect Basis Basis Effect Basis
------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Revenues:
Net Card Fees $ 420 $ (2) $ 418 $ 399 $ (4) $ 395
Lending Net Finance Charge Revenue 623 (391) 232 501 (153) 348
Other Revenues 858 332 1,190 725 116 841
Total Net Revenues 4,400 (61) 4,339 3,864 (41) 3,823
Expenses:
Marketing and Promotion 358 15 373 349 33 382
Provision for Losses and Claims:
Charge Card 273 (37) 236 247 (25) 222
Lending 386 (119) 267 312 (125) 187
Charge Card Interest Expense 362 (50) 312 259 (51) 208
Net Discount Expense - 119 119 - 105 105
Other Operating Expenses 1,254 11 1,265 1,065 22 1,087
Total Expenses 3,679 (61) 3,618 3,234 (41) 3,193
Pretax Income $ 721 $ - $ 721 $ 630 $ - $ 630
------------------------------- ------------------------------
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
---------------------------------- -------------------------------
Managed Securitization GAAP Managed Securitization GAAP
Basis Effect Basis Basis Effect Basis
---------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Revenues:
Net Card Fees $ 1,236 $ (2) $ 1,234 $ 1,195 $ (4) $ 1,191
Lending Net Finance Charge Revenue 1,741 (975) 766 1,430 (426) 1,004
Other Revenues 2,534 780 3,314 2,026 385 2,411
Total Net Revenues 12,898 (197) 12,701 11,125 (45) 11,080
Expenses:
Marketing and Promotion 1,034 85 1,119 902 91 993
Provision for Losses and Claims:
Charge Card 896 (117) 779 768 (115) 653
Lending 1,054 (441) 613 854 (295) 559
Charge Card Interest Expense 1,024 (157) 867 757 (168) 589
Net Discount Expense - 376 376 - 379 379
Other Operating Expenses 3,652 57 3,709 3,072 63 3,135
Total Expenses 10,825 (197) 10,628 9,310 (45) 9,265
Pretax Income $ 2,073 $ - $ 2,073 $ 1,815 $ - $ 1,815
-------------------------------- ------------------------------
</TABLE>
15
Travel Related Services
Liquidity and Capital Resources
Selected Balance Sheet Information
----------------------------------
(Unaudited, GAAP Basis)
(Dollars in billions, except percentages)
<TABLE>
<CAPTION>
September 30, December 31, Percentage September 30, Percentage
2000 1999 Inc/(Dec) 1999 Inc/(Dec)
---------------- -------------- --------------- ------------------- ---------------
<S> <C> <C> <C> <C> <C>
Accounts Receivable, net $ 27.9 $ 25.6 8.9% $ 23.6 18.2%
Travelers Cheque Investments $ 6.5 $ 6.0 8.2 $ 6.1 5.9
U.S. Cardmember Loans $ 15.8 $ 16.1 (1.7) $ 13.4 18.1
Total Assets $ 67.0 $ 63.2 6.0 $ 55.8 20.0
Travelers Cheques Outstanding $ 6.6 $ 6.2 5.7 $ 6.4 3.2
Short-term Debt $ 32.2 $ 31.3 2.7 $ 26.3 22.6
Long-term Debt $ 3.0 $ 4.4 (31.7) $ 4.5 (34.4)
Total Liabilities $ 60.7 $ 57.7 5.2 $ 50.1 21.1
Total Shareholder's Equity $ 6.3 $ 5.5 13.5 $ 5.7 10.5
Return on Average Equity* 32.6% 31.2% - 30.5% -
Return on Average Assets* 3.0% 3.1% - 3.1% -
</TABLE>
* Computed based on the past twelve months of net income and excludes the
effect of SFAS No. 115.
In the first, second and third quarters of 2000, the American Express Credit
Account Master Trust securitized $1 billion, $2.2 billion and $0.8
billion of loans, respectively, through the public issuance of investor
certificates. The securitized assets consist primarily of loans arising in a
portfolio of designated consumer American Express credit card, Optima Line of
Credit and Sign & Travel/Special Purchase Account revolving credit accounts or
features and, in the future, may include other charge or credit accounts or
features or products. U.S. Cardmember loans declined from December 31, 1999 as
a result of these issuances. In addition, long-term debt decreased from
year-end levels reflecting the securitization activity discussed above as
well as changes in the funding mix.
In the third quarter of 2000, $600 million Class A Fixed Rate Accounts
Receivable Trust Certificates matured from the Charge Card securitization
portfolio.
In the first quarter of 2000, American Express Credit Corporation (Credco), a
wholly-owned subsidiary of TRS, called $150 million 1.125% Cash Exchangeable
Notes due 2003. These notes were exchangeable for an amount in cash which was
linked to the price of the common shares of American Express. Credco had entered
into agreements to fully hedge its obligations. Accordingly, the related hedging
agreements were called at the same time.
16
American Express Financial Advisors
Results of Operations for the Three and Nine Months Ended September 30, 2000 and
1999
Statements of Income
--------------------
(unaudited)
(Dollars in Millions)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------Percentage -----------------------Percentage
2000 1999 Inc/(Dec) 2000 1999 Inc/(Dec)
----------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Revenues:
Investment Income $ 582 $ 566 2.8% $1,746 $ 1,776 (1.7)%
Management and Distribution Fees 700 578 21.0 2,089 1,653 26.4
Other Revenues 258 224 15.6 753 678 11.1
--------------- -----------------
Total Revenues 1,540 1,368 12.6 4,588 4,107 11.7
Provision for Losses and Benefits:
Annuities 253 251 1.0 767 795 (3.5)
Insurance 146 135 8.2 422 392 7.7
Investment Certificates 89 46 94.4 246 182 35.5
--------------- -----------------
Total 488 432 13.1 1,435 1,369 4.9
--------------- -----------------
Net Revenues 1,052 936 12.4 3,153 2,738 15.1
--------------- -----------------
Expenses:
Human Resources 527 456 15.5 1,553 1,302 19.3
Other Operating Expenses 138 130 6.8 462 421 9.7
--------------- -----------------
Total Expenses 665 586 13.6 2,015 1,723 16.9
--------------- -----------------
Pretax Income 387 350 10.3 1,138 1,015 12.1
Income Tax Provision 118 110 6.8 348 319 9.4
--------------- -----------------
Net Income $ 269 $ 240 12.0 $ 790 $ 696 13.4
=============== =================
</TABLE>
17
American Express Financial Advisors
Selected Statistical Information
--------------------------------
(unaudited)
(Dollars in millions, except percentages and where indicated)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------Percentage -----------------------Percentage
2000 1999 Inc/(Dec) 2000 1999 Inc/(Dec)
--------------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Life Insurance in Force (billions) $ 95.8 $ 86.3 11.0% $ 95.8 $ 86.3 11.0%
Deferred Annuities in Force (billions) $ 51.8 $ 45.2 14.5% $ 51.8 $ 45.2 14.5
Assets Owned, Managed or
Administered (billions):
Assets Managed for Institutions $ 55.9 $ 48.2 15.9 $ 55.9 $ 48.2 15.9
Assets Owned, Managed or Administered
for Individuals:
Owned Assets:
Separate Account Assets 36.6 28.9 26.8 36.6 28.9 26.8
Other Owned Assets 40.6 38.1 6.4 40.6 38.1 6.4
---------------------- ---------------------
Total Owned Assets 77.2 67.0 15.2 77.2 67.0 15.2
Managed Assets 122.0 99.5 22.7 122.0 99.5 22.7
Administered Assets 38.0 21.1 80.3 38.0 21.1 80.3
---------------------- ---------------------
Total $ 293.1 $ 235.8 24.3 $ 293.1 $ 235.8 24.3
====================== =====================
Market Appreciation (Depreciation) During
the Period:
Owned Assets:
Separate Account Assets $ (203) $ (986) 79.4 $ (172) $ 1,446 -
Other Owned Assets $ 163 $ (273) - $ (47) $ (872) 94.6
Total Managed Assets $ (76) $ (5,318) 98.6 $ 456 $ 3,029 (84.9)
Cash Sales:
Mutual Funds $ 11,698 $ 8,304 40.9 $ 34,177 $ 25,659 33.2
Annuities 1,465 1,190 23.2 4,393 2,963 48.2
Investment Certificates 868 1,061 (18.2) 2,574 2,598 (0.9)
Life and Other Insurance Products 220 196 12.1 675 523 29.3
Institutional 1,169 909 28.6 4,277 3,084 38.7
Other 815 953 (14.6) 2,050 2,643 (22.5)
---------------------- ---------------------
Total Cash Sales $ 16,235 $ 12,613 28.7 $ 48,146 $ 37,470 28.5
====================== =====================
Number of Financial Advisors 12,137 10,631 14.2 12,137 10,631 14.2
Fees from Financial Plans and
Advice Services $ 26.1 $ 22.3 16.9 $ 76.2 $ 66.4 14.8
Percentage of Total Sales from Financial
Plans and Advice Services 69.2% 67.7% - 67.4% 66.5% -
</TABLE>
Note: In the first quarter of 2000, reporting of data related to cash sales and
assets owned, managed and administered was revised to better reflect
AEFA's multiple sales channel strategy and broadening of its product
portfolio through additional non-proprietary offerings.
18
American Express Financial Advisors
American Express Financial Advisors' (AEFA) net income for the three and
nine-month periods ended September 30, 2000 rose 12 percent and 13 percent,
respectively, from a year ago. Net revenues and earnings grew in both periods
due to greater fee revenues. Management fees rose as a result of increased
managed asset levels, including separate account assets; distribution fees also
grew, reflecting greater product sales and asset levels. The increase in managed
assets from a year ago reflects positive net sales and market appreciation over
the past twelve months. Investment income, net of provisions for losses and
benefits, decreased in both periods due to a lower average yield on invested
assets. The lower yield in the current year partly reflects the negative impact
of deterioration in the high yield bond sector on directly owned bonds and low
grades in other structured investments. Lower yields were partly offset by a
higher average level of invested assets. Other revenues benefited from higher
insurance premiums and greater fees from financial planning and advice services,
as well as franchise fees from Platform 2 advisors in the current year.
Human resources expenses rose for both the three and nine-month periods ended
September 30, 2000, largely as a result of an increase in advisors'
compensation, reflecting growth in sales, asset levels, the new advisor
platforms, and the number of financial advisors. Other operating expenses also
increased from year-ago levels due to higher business volumes and ongoing
investments to build the business.
19
American Express Financial Advisors
Liquidity and Capital Resources
Selected Balance Sheet Information
----------------------------------
(Unaudited)
(Dollars in billions, except percentages)
<TABLE>
<CAPTION>
September 30, December 31, Percentage September 30, Percentage
2000 1999 Inc/(Dec) 1999 Inc/(Dec)
----------------- ------------- --------------- ------------------ -----------
<S> <C> <C> <C> <C> <C>
Investments $ 30.0 $ 30.3 (0.9)% $ 30.7 (2.5)%
Separate Account Assets $ 36.6 $ 35.9 2.1 $ 28.9 26.8
Total Assets $ 77.2 $ 74.6 3.4 $ 67.0 15.2
Client Contract Reserves $ 31.4 $ 31.0 1.3 $ 31.0 1.1
Total Liabilities $ 73.0 $ 70.7 3.1 $ 63.1 15.6
Total Shareholder's Equity $ 4.2 $ 3.9 9.4 $ 3.9 8.1
Return on Average Equity* 23.1% 22.9% - 22.8% -
</TABLE>
* Computed based on the past twelve months of net income and excludes the
effect of SFAS No. 115.
Separate account assets and liabilities increased from December 31, 1999,
primarily due to net sales.
20
American Express Bank
Results of Operations for the Three and Nine Months Ended September 30, 2000 and
1999
Statements of Income
--------------------
(Unaudited)
(Dollars in millions)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-----------------------Percentage ---------------------------Percentage
2000 1999 Inc/(Dec) 2000 1999 Inc/(Dec)
---------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Revenues:
Interest Income $ 188 $ 181 3.9 % $ 554 $ 557 (0.6)%
Interest Expense 125 106 17.3 362 334 8.5
---------------------- --------------------
Net Interest Income 63 75 (15.2) 192 223 (14.1)
Commissions and Fees 54 46 17.7 162 132 23.1
Foreign Exchange Income & Other Revenue 29 36 (20.8) 93 119 (21.6)
---------------------- --------------------
Total Net Revenues 146 157 (7.0) 447 474 (5.7)
---------------------- --------------------
Expenses:
Human Resources 65 68 (4.2) 197 202 (2.6)
Other Operating Expenses 67 78 (14.7) 204 226 (9.7)
Provision for Losses 6 5 26.9 20 25 (17.9)
---------------------- --------------------
Total Expenses 138 151 (8.7) 421 453 (7.0)
---------------------- --------------------
Pretax Income 8 6 33.5 26 21 23.1
Income Tax Provision 1 1 (40.2) 4 3 15.0
---------------------- --------------------
Net Income $ 7 $ 5 60.0 $ 22 $ 18 24.4
====================== ====================
</TABLE>
Selected Statistical Information
--------------------------------
(Dollars in billions)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-----------------------Percentage ---------------------------Percentage
2000 1999 Inc/(Dec) 2000 1999 Inc/(Dec)
---------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets Managed */ Administered $10.2 $ 7.7 33.5 % $10.2 $ 7.7 33.5 %
Assets of Non-Consolidated Joint
Ventures $ 2.3 $ 2.4 (1.6) $ 2.3 $ 2.4 (1.6)
</TABLE>
* Includes assets managed by American Express Financial Advisors.
21
American Express Bank
American Express Bank (AEB) net income for the three and nine-month periods
ended September 30, 2000 rose 60 percent and 24 percent, respectively, from a
year ago. Net interest income for both periods declined from a year ago,
primarily due to the effects of higher funding costs. Commissions and fees rose
on greater private banking, correspondent banking and personal financial
services fees. Foreign exchange income and other revenue declined, mainly due to
lower security gains and joint venture earnings; additionally, the decline for
the nine-month period reflects a decrease in client related trading activities
due to the stabilization of currencies in key markets. Human resources and other
operating expenses declined in both periods from a year ago, reflecting
reengineering saves, and lower related costs, as AEB rationalizes certain
country activities.
22
American Express Bank
Liquidity and Capital Resources
Selected Balance Sheet Information
----------------------------------
(Unaudited)
(Dollars in billions, except percentages and where indicated)
<TABLE>
<CAPTION>
September 30, December 31, Percentage September 30, Percentage
2000 1999 Inc/(Dec) 1999 Inc/(Dec)
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Total Assets $ 11.0 $ 11.4 (3.6)% $ 11.1 (1.3)%
Total Liabilities $ 10.3 $ 10.7 (4.1) $ 10.4 (1.7)
Total Shareholder's Equity (millions) $ 729 $ 691 5.6 $ 702 3.8
Return on Average Assets* 0.24% 0.20% - 0.20% -
Return on Average Common Equity* 4.1% 3.5% - 3.7% -
Total Loans $ 5.1 $ 5.1 0.6 $ 5.1 0.8
Total Non-performing Loans (millions) $ 156 $ 168 (7.1) $ 181 (14.2)
Other Non-performing Assets (millions) $ 37 $ 37 1.3 $ 40 (6.6)
Reserve for Credit Losses (millions)** $ 179 $ 189 (4.8) $ 204 (12.1)
Loan Loss Reserves as a
Percentage of Total Loans 3.1% 3.3% - 3.5% -
Deposits $ 8.0 $ 8.3 (4.1) $ 8.1 (1.7)
Risk-Based Capital Ratios:
Tier 1 10.4% 9.9% - 9.9% -
Total 11.9% 12.0% - 12.1% -
Leverage Ratio 5.8% 5.6% - 5.5% -
* Computed based on the past twelve months of net
income and excludes the effect of SFAS No. 115.
** Allocation (millions):
Loans $ 158 $ 169 $ 179
Other Assets, primarily derivatives 16 16 23
Other Liabilities 5 4 2
------- --------- --------
Total Credit Loss Reserves $ $ 179 $ 189 $ 204
======= ========= ========
</TABLE>
AEB had loans outstanding of $5.1 billion at September 30, 2000, unchanged from
December 31, 1999 and September 30, 1999. The activity since third quarter 1999
included a $200 million decrease in corporate and correspondent banking loans,
offset by an increase in consumer and private banking loans of $220 million
($380 million excluding the effect of asset sales and securitizations in the
consumer loan portfolio). Since December 31, 1999, corporate and correspondent
bank loans fell by $128 million and consumer and private banking loans rose by
$156 million. As of September 30, 2000, consumer and private banking loans
comprised 39% of total loans versus 35% at December 31, 1999 and September 30,
1999.
23
As presented in the table below, there are other banking activities, such as
forward contracts, various contingencies and market placements, which added
approximately $7.2 billion to AEB's credit exposures at September 30, 2000,
compared with $7.6 billion at December 31, 1999 and $7.7 billion at September
30, 1999. Of the $7.2 billion of additional exposures at September 30, 2000,
$4.7 billion were relatively less risky cash and securities related balances.
American Express Bank
Exposures By Country and Region
(Unaudited)
($ in billions)
<TABLE>
<CAPTION>
Net
Guarantees 9/30/00 12/31/99
FX and and Total Total
Country Loans Derivatives Contingents Other* Exposure** Exposure**
--------------------------------- ------ ----------- ----------- ------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Hong Kong $0.5 - $ 0.1 $ 0.1 $ 0.7 $ 0.8
Indonesia 0.2 - - 0.1 0.3 0.4
Singapore 0.5 - 0.1 0.1 0.7 0.6
Korea 0.2 - - 0.2 0.5 0.3
Taiwan 0.2 - - 0.1 0.4 0.4
China - - - - - -
Japan - - - - 0.1 0.1
Thailand - - - - - -
Other 0.1 - - 0.1 0.2 0.3
------ ----------- ---------- -------- ------------ ------------
Total Asia/Pacific Region** 1.7 - 0.4 0.7 2.8 2.9
------ ----------- ---------- -------- ------------ ------------
Chile 0.2 - - 0.1 0.3 0.3
Brazil 0.2 - - 0.1 0.3 0.3
Mexico - - - - 0.1 0.1
Peru - - - - - -
Argentina 0.1 - - - 0.1 0.1
Other 0.2 - 0.2 0.1 0.5 0.5
------ ----------- ---------- -------- ------------ ------------
Total Latin America** 0.8 - 0.2 0.3 1.3 1.2
------ ----------- ---------- -------- ------------ ------------
India 0.3 - 0.1 0.3 0.7 0.7
Pakistan 0.1 - - 0.2 0.3 0.3
Other 0.1 - 0.1 0.1 0.2 0.2
------ ----------- ---------- -------- ------------ ------------
Total Subcontinent** 0.4 - 0.2 0.6 1.2 1.2
------ ----------- ---------- -------- ------------ ------------
Egypt 0.3 - - 0.2 0.6 0.5
Other 0.1 - - - 0.2 0.2
------ ----------- ---------- -------- ------------ ------------
Total Middle East & Africa** 0.4 - 0.1 0.2 0.7 0.8
------ ----------- ---------- -------- ------------ ------------
Total Europe*** 1.4 0.1 0.5 2.3 4.4 4.7
Total North America** 0.3 0.1 0.2 1.3 1.9 2.0
------ ----------- ---------- -------- ------------ ------------
Total Worldwide** $5.1 $ 0.3 $ 1.6 $ 5.3 $ 12.3 $ 12.7
====== =========== ========== ======== ============ ============
</TABLE>
* Includes cash, placements and securities.
** Individual items may not add to totals due to rounding.
*** Total exposures at 9/30/00 and 12/31/99 include $4 million and $11
million of exposures to Russia, respectively.
Note: Includes cross-border and local exposure and does not net local funding or
liabilities against any local exposure.
24
Corporate and Other
Corporate and Other reported net expenses of $46 million and $139 million for
the three and nine months ended September 30, 2000, respectively, compared with
net expenses of $43 million and $131 million in the same periods a year ago. The
current year nine-month results include an investment gain that was offset by
expenses related to business building initiatives. The nine-month results for
both years include a preferred stock dividend based on earnings from Lehman
Brothers, which was offset by expenses related to business building initiatives
in both years and by Y2K expenses a year ago.
25
PART II. OTHER INFORMATION
AMERICAN EXPRESS COMPANY
ITEM 1. LEGAL PROCEEDINGS
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 June 30, 2000, the Court entered a judgment in favor of the
Internal Revenue Service. The Company filed a notice of appeal with the United
States Court of Appeals for the Federal Circuit on July 19, 2000, and filed a
brief in support of its position on September 22, 2000.
Since October 1, 1999, fourteen 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.
All of the charges have been consolidated with the EEOC in Minnesota. 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.
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
original named plaintiff purports to represent a class consisting of financial
advisors who were independent contractors from January 1, 1993 to the present.
The complaint alleges class members were misclassified as independent
contractors and seeks retroactive coverage in all employee health, welfare,
retirement and compensation plans, and payment of FICA and FUTA taxes. The
complaint also alleges violation of ERISA, breach of contract, breach of duty of
good faith and fair dealing and unjust enrichment. The complaint was amended on
July 26, 1999, adding three plaintiffs, adding new claims for conversion,
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 plaintiff's motion for class
certification was filed on July 31, 2000. The Company filed its motion opposing
class certification on September 11, 2000. The hearing on the class
certification motion and on the defendants' motion for partial summary judgment
on the retirement plans is scheduled for January 17, 2001. The Company believes
it has meritorious defenses to such action and continues to pursue them
vigorously.
The three matters described above were previously reported in the Company's Form
10-Q for the quarter ended June 30, 2000.
The matters described below were previously reported in the Company's Form 10-K
for the year ended December 31, 1999.
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, 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. On October 2, 2000 the District Court, Fourth Judicial
District for the State of Minnesota, County of Hennepin and the United States
District Court for the District of Minnesota entered an order conditionally
certifying a class for settlement purposes, preliminarily approving the class
settlement, directing the issuance of a class notice to the class and
scheduling a hearing to determine the fairness of settlement for March, 2001.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on page E-1 hereof.
(b) Reports on Form 8-K:
Form 8-K, dated July 24, 2000, Item 5, reporting the
Company's earnings for the quarter ended June 30, 2000 and
including a Second Quarter Earnings Supplement.
Form 8-K/A, dated July 24, 2000, Item 5, amending the
Company's earnings for the quarter ended June 30, 2000 and
including a Second Quarter Earnings Supplement.
Form 8-K, dated August 2, 2000, Item 5, reporting certain
information from presentations to the financial community on
August 2, 2000 by Harvey Golub, the Company's Chairman and
Chief Executive Officer, and Ken Chenault, the Company's President
and Chief Operating Officer.
Form 8-K, dated October 10, 2000, Item 5, reporting that the
Company's Travelers Cheque (TC) operation, which had been included
in the American Express Bank/Travelers Cheque (AEB/TC) segment
since the first quarter of 1998, will be included beginning in the
third quarter of 2000 in the Travel Related Services (TRS) segment
to reflect organizational changes, and restated financial
information related thereto.
Form 8-K, dated October 23, 2000, Item 5, reporting the
Company's earnings for the quarter ended September 30, 2000 and
including a Third Quarter Earnings Supplement.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN EXPRESS COMPANY
------------------------
(Registrant)
Date: November 13, 2000 By /s/ Gary L. Crittenden
----------------------- ------------------------
Gary L. Crittenden
Executive Vice President and
Chief Financial Officer
(as Duly Authorized Officer and
Principal Financial Officer)
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as part of this Quarterly Report:
Exhibit Description
------- -----------
12 Computation in Support of Ratio of Earnings to Fixed Charges.
15 Letter re Unaudited Interim Financial Information.
27 Financial Data Schedule.
E-1
