<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10-K
____________________
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File No. 1-6908
AMERICAN EXPRESS CREDIT CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 11-1988350
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Christina Center, Wilmington, Delaware 19801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (302) 594-3350.
Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange
Title of each class on which registered
----------------------------------------- ---------------------
6 1/8% Senior Debentures due June 15, 2000 New York Stock Exchange
1 1/8% Cash Exchangeable Notes due Chicago Board Options
February 19, 2003 Exchange
Securities registered pursuant to Section 12 (g) of the Act: None.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL
INSTRUCTION I(1)(a) AND (b) OF FORM 10-K AND HAS THEREFORE OMITTED
CERTAIN ITEMS FROM THIS REPORT IN ACCORDANCE WITH THE REDUCED
DISCLOSURE FORMAT PERMITTED UNDER INSTRUCTION I.
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of the Registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
---
American Express Company, through a wholly-owned subsidiary, owns
all of the outstanding common stock of the Registrant.
Accordingly, there is no market for the Registrant's common stock.
At March 30, 1998, 1,504,938 shares were outstanding.
Documents incorporated by reference: None.
PAGE
<PAGE>
PART I
Item 1. BUSINESS.
Introduction
American Express Credit Corporation (including its subsidiaries,
where appropriate, "Credco") was incorporated in Delaware in 1962
and was acquired by American Express Company ("American Express")
in December 1965. On January 1, 1983, Credco became a wholly-owned
subsidiary of American Express Travel Related Services Company,
Inc. (including its subsidiaries, where appropriate, "TRS"), a
wholly-owned subsidiary of American Express.
Credco is primarily engaged in the business of purchasing most
charge Cardmember receivables arising from the use of the American
Express(R) Card, including the American Express(R) Gold Card,
Platinum Card(R) and Corporate Card issued in the United States, and in
designated currencies outside the United States. Credco also
purchases certain revolving credit receivables arising from the use
of the Optima(R) Card and interest-bearing extended payment plan Sign
& Travel(R) receivables arising from travel service sales and
Special Purchase(SM) Accounts receivables which provide for extended
payment for certain charges. The American Express Card and the Optima
Card are referred to herein as the "Card."
American Express Card Business
TRS currently issues the Card in 45 currencies (including cards
issued by independent operators). The Card, which is issued to
individual consumers for their personal account or through a
corporate account established by their employer for its business
purposes, permits 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 the Card. 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.
Except in the case of the Optima Card, a family of revolving credit
cards which is marketed in the United States and other countries,
the charge Card is primarily designed as a method of payment and not
as a means of financing purchases of goods or services and carries
no pre-set spending limit. 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 the Optima Card and certain
extended payment plans, payment of the full amount billed each month
is due from the Cardmember upon receipt of the bill, and no finance
charges are assessed. Charge Card accounts that are past due are
subject, in most cases, to a delinquency assessment and, if not brought
to current status, subject to cancellation.
The American Express Charge Card and consumer lending businesses
are subject to extensive regulation in the United States under a
number of federal laws and regulations, including the Equal Credit
Opportunity Act, which generally prohibits discrimination in the
granting and handling of credit; the Fair Credit Reporting Act,
which, among other things, regulates use by creditors of consumer
credit reports and credit prescreening practices and requires
certain disclosures when an application for credit is rejected; the
Truth in Lending Act, which, among other things, requires extensive
disclosure of the terms upon which credit is granted; the Fair
Credit Billing Act, which, among other things, regulates the manner
in which billing inquiries are handled and specifies certain
billing requirements; and the Fair Credit and Charge Card
Disclosure Act, which mandates certain disclosures on credit and
charge card applications. Federal legislation also regulates
abusive debt collection practices. In addition, a number of states
1<PAGE>
and foreign countries have similar consumer credit protection and
disclosure laws. The application of federal and state bankruptcy and
debtor relief laws affect Credco to the extent such laws result in
any amounts owed being classified as delinquent and/or charged off
as uncollectible. These laws and regulations have not had, and are
not expected to have, a material adverse effect on the charge Card
and consumer lending business, either in the United States or on a
worldwide basis.
General Nature of Credco's Business
Credco purchases certain Cardmember receivables arising from the
use of the Card throughout the world pursuant to agreements (the
"Receivables Agreements") with TRS. Net income primarily depends
on the volume of receivables arising from the use of the Card
purchased by Credco, the discount rates applicable thereto, the
relationship of total discount to Credco's interest expense and
the collectibility of the receivables purchased. The average life
and collectibility of accounts receivable generated by the use of
the Card are affected by factors such as general economic
conditions, overall levels of consumer debt and the number of new
Cards issued.
Credco purchases Cardmember receivables without recourse. Amounts
resulting from unauthorized charges (for example, those made with a
lost or stolen Card) are excluded from the definition of
"receivables" under the Receivables Agreements and are not eligible
for purchase by Credco. If the unauthorized nature of the charge
is discovered after purchase by Credco, TRS repurchases the charge
from Credco.
Credco generally purchases non-interest-bearing charge Cardmember
receivables at face amount less a specified discount agreed upon
from time to time and interest-bearing revolving credit Cardmember
receivables at face amount. The Receivables Agreements generally
require that non-interest-bearing receivables be purchased at
discount rates which yield to Credco earnings of not less than 1.25
times its fixed charges on an annual basis. The Receivables
Agreements also provide that consideration will be given from time
to time to revising the discount rate applicable to purchases of
new receivables to reflect changes in money market rates or
significant changes in the collectibility of receivables. New
groups of Cardmember receivables are generally purchased net of
reserve balances applicable thereto.
Extended payment plan receivables are primarily funded by
subsidiaries of TRS other than Credco; however, Credco purchases
certain extended payment plan receivables. At both December 31,
1997 and 1996, extended payment plan receivables owned by Credco
totaled $1.8 billion representing 9.4 percent and 10.4 percent,
respectively, of all interests in receivables owned by Credco.
These extended payment plan receivables consist of certain interest-
bearing extended payment plan receivables comprised principally of
Optima and Sign & Travel accounts arising from travel service
sales, Special Purchase Accounts receivables and non-interest-bearing
deferred merchandise receivables arising from direct mail merchandise
sales by TRS.
Credco, through a subsidiary, Credco Receivables Corp. ("CRC"),
purchases gross participation interests in the seller's interest in
both non-interest-bearing and interest-bearing Cardmember
receivables owned by two master trusts formed by TRS as part of its
asset securitization programs. The gross participation interests
represent undivided interests in the receivables originated by TRS
and by American Express Centurion Bank, a subsidiary of TRS. See
note 4 in "Notes to Consolidated Financial Statements" appearing
herein.
The Card issuers, at their expense and as agents for Credco,
perform accounting, clerical and other services necessary to bill
and collect all Cardmember receivables owned by Credco. The
Receivables Agreements provide that, without prior written consent
of Credco, the credit standards used to determine whether a Card is
to be issued to an applicant may not be materially reduced and that
the policy as to the cancellation of Cards for credit reasons may
not be materially liberalized.
2
<PAGE>
American Express, as the parent of TRS, has agreed with Credco that
it will take all necessary steps to assure performance of certain
of TRS' obligations under the Receivables Agreement between TRS and
Credco. The Receivables Agreements may be terminated at any time
by the parties thereto, generally upon little or no notice.
Alternatively, such parties may agree to reduce the required 1.25
fixed charge coverage ratio, which could result in lower discount
rates and, consequently, lower revenues and net income of Credco.
The obligations of Credco are not guaranteed under the Receivables
Agreements or otherwise by American Express or the Card issuers.
Volume of Business
The following table shows the volume of Cardmember receivables
purchased by Credco, net of Cardmember receivables sold to
affiliates, during each of the years indicated, together with
receivables owned by Credco at the end of such years (millions):
<TABLE>
<CAPTION>
Volume of Cardmember Cardmember Receivables Owned
Receivables Purchased at December 31,
<S> <C> <C> <C> <C> <C> <C>
Year Domestic Foreign Total Domestic Foreign Total
---- -------- ------- ----- -------- ------- -----
1997 $108,573 $37,030 $145,603 $15,581 $4,028 $19,609
1996 100,512 35,299 135,811 13,530 3,829 17,359
1995 91,299 30,638 121,937 13,179 3,260 16,439
1994 83,851 25,639 109,490 11,273 2,747 14,020
1993 80,202 14,635 94,837 10,758 2,210 12,968
</TABLE>
The Card business has not experienced significant seasonal
fluctuation, although Card billed business tends to be moderately
higher in the fourth quarter than in other calendar quarters.
TRS' asset securitization programs disclosed above reduced the
volume of domestic Cardmember receivables purchased and the amount
owned by Credco.
The average life of charge Cardmember receivables owned by Credco
for each of the five years ending December 31, 1997 (based upon the
ratio of the average amount of both billed and unbilled receivables
owned by Credco at the end of each month during the years indicated
to the volume of Cardmember receivables purchased by Credco, net of
Cardmember receivables sold to affiliates) was 43 days.
The following table shows the aging of billed, non-interest-bearing
charge Cardmember receivables:
December 31,
1997 1996
----------------------------------------------------------------
Current 79.6% 76.7%
30 to 59 days 14.7 17.2
60 to 89 days 2.3 2.6
90 days and over 3.4 3.5
3<PAGE>
Loss Experience
Credco generally writes off against its reserve for doubtful
accounts the total balance in an account for which any portion
remains unpaid 12 months from the date of original billing for non-
interest-bearing charge Card receivables and after six contractual
payments are past due for interest-bearing revolving credit
receivables. Accounts are written off earlier if deemed
uncollectible.
The following table sets forth Credco's write-offs, net of
recoveries, expressed in millions and as a percentage of the volume
of Cardmember receivables purchased by Credco, net of Cardmember
receivables sold to affiliates, in each of the years indicated:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Write-offs, net of recoveries $615 $630 $508 $444 $529
% of net Cardmember receivables
purchased .42% .46% .42% .41% .57%
</TABLE>
Sources of Funds
Credco's business is financed by short-term borrowings consisting
principally of commercial paper, borrowings under bank lines of
credit and issuances of medium and long-term debt, as well as
through operations. The weighted average interest costs on an
annual basis of all borrowings, after giving effect to commitment
fees under lines of credit and the impact of interest rate swaps,
during the following years were:
Weighted Average
Year Interest Cost
---- -------------
1997 5.66%
1996 5.67
1995 6.30
1994 5.06
1993 4.61
From time to time, American Express and certain of its subsidiaries
purchase Credco's commercial paper at prevailing rates, enter into
variable rate note agreements at interest rates generally above the
13-week treasury bill rate and provide lines of credit. The
largest amount of borrowings from American Express or its
subsidiaries at any month end during the five years ended December
31, 1997 was $4.6 billion. At December 31, 1997, the amount
borrowed was $2.7 billion. See notes 5 and 6 in "Notes to
Consolidated Financial Statements" appearing herein for information
about Credco's debt, including Credco's lines of credit from
various banks and long-term debt.
4<PAGE>
Foreign Operations
See notes 2, 8 and 11 in "Notes to Consolidated Financial
Statements" appearing herein for information about Credco's foreign
exchange risks and operations in different geographical regions.
Employees
At December 31, 1997 Credco had 28 employees.
Item 2. PROPERTIES.
Credco neither owns nor leases any material physical properties.
Item 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings to which Credco or
its subsidiaries is a party or of which any of their property is
the subject. Credco knows of no such proceedings being
contemplated by government authorities or other parties.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Omitted pursuant to General Instruction I(2)(c) to Form 10-K.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
American Express, through a wholly-owned subsidiary, TRS, owns all
of the outstanding common stock of Credco. Therefore, there is no
market for Credco's common stock.
Credco paid dividends of $150 million to TRS in both December, 1997
and 1996.
For information about limitations on Credco's ability to pay
dividends, see note 7 in "Notes to Consolidated Financial
Statements" appearing herein.
5
<PAGE>
Item 6. SELECTED FINANCIAL DATA.
The following summary of certain consolidated financial information
of Credco was derived from audited financial statements for the
five years ended December 31, 1997.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
(dollars in millions) 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Income Statement Data
---------------------
Revenues 2,064 2,166 1,988 1,401 1,282
Interest expense 1,125 1,117 1,054 736 599
Provision for doubtful
accounts, net of recoveries 584 712 625 443 475
Income tax provision 114 115 105 75 64
Extraordinary charge,
net of taxes - - - - 22
Net income 212 215 197 139 115
Balance Sheet Data
------------------
Accounts receivable 19,609 17,359 16,439 14,020 12,968
Reserve for doubtful
accounts (633) (638) (624) (498) (542)
Total assets 23,053 20,165 20,192 16,868 14,943
Short-term debt 16,582 14,537 14,202 11,525 9,738
Current portion of
long-term debt 4 211 409 405 692
Long-term debt 3,264 2,469 2,673 2,282 1,776
Shareholder's equity 1,907 1,845 1,780 1,733 1,662
Cash dividends 150 150 150 100 125
</TABLE>
6<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Liquidity and Capital Resources
Credco's receivables portfolio consists of charge card receivables
and revolving credit receivables purchased without recourse from
TRS throughout the world and participation interests purchased
without recourse in the seller's interest in both non-interest-
bearing and interest-bearing Cardmember receivables owned by two
master trusts formed by TRS as part of its asset securitization
programs. At December 31, 1997 and 1996, respectively, Credco
owned $17.8 billion and $15.6 billion of charge card receivables
and participation in charge card receivables, representing 90.6
percent and 89.6 percent of the total receivables owned.
Revolving credit receivables, representing 9.4 percent and 10.4
percent of the total receivables owned, was $1.8 billion at both
December 31, 1997 and 1996.
As part of Credco's business of funding receivables, Credco makes
variable rate loans to American Express Centurion Bank ("Centurion
Bank") which are secured by Optima receivables owned by Centurion
Bank. At December 31, 1997 and 1996, $2.3 billion and $2.0
billion, respectively, of such loans were outstanding. The loan
agreements require Centurion Bank to maintain, as collateral,
Optima receivables equal to the outstanding loan balance plus an
amount equal to three times the receivable reserve applicable to
such Optima receivables.
Credco's assets are financed through a combination of short-term
debt, long-term senior notes, equity capital and retained earnings.
Daily funding requirements are met primarily by the sale of
commercial paper. Credco has readily sold the volume of commercial
paper necessary to meet its funding needs as well as to cover the
daily maturities of commercial paper issued. The average amount of
commercial paper outstanding was $14.1 billion for 1997 and $14.7
billion for 1996.
An alternate source of borrowing consists of committed credit line
facilities. The aggregate commitment of these facilities is
generally maintained at 50 percent of short-term debt, net of short-
term investments and cash equivalents. Total committed credit line
facilities at December 31, 1997 and 1996 totaled $7.3 billion and
$6.6 billion, respectively. Credco, through its wholly-owned
subsidiary, American Express Overseas Credit Corporation Limited
("AEOCC"), had outstanding borrowings of $17.4 million at December
31, 1997 and no outstanding borrowings at December 31, 1996, under
these committed lines of credit. In addition, Credco, through
AEOCC, had short-term borrowings under uncommitted lines of credit
totaling $241 million and $200 million at December 31, 1997 and
1996, respectively.
During 1997 and 1996, Credco's average long-term debt outstanding
was $2.9 billion. Credco's average long-term debt outstanding was
$2.0 billion during 1995. In 1997, Credco filed a registration
statement on Form S-3 with the Securities and Exchange Commission
to increase the amount of medium- and long-term debt to be
available for issuance under shelf registrations. At December 31,
1997, Credco had the ability to issue $2.5 billion of medium and
long-term debt securities under shelf registrations filed with the
Securities and Exchange Commission.
In 1997, Credco issued and sold exclusively outside the United
States and to non-U.S. persons, $400 million Floating Rate Notes
due 2002 and $400 million 6.5% Fixed Rate Notes due 2002 listed on
the Luxembourg Stock Exchange. These notes were issued under the
Euro Medium Term Notes program established during 1996 by Credco,
TRS, AEOCC and American Express Bank Ltd. (a wholly-owned
7<PAGE>
subsidiary of American Express). In 1997, Centurion Bank was added
to this program. The maximum aggregate principal amount of debt
instruments outstanding at any one time under the program will not
exceed $3 billion. At December 31, 1997 this program had the ability
to issue $1.9 billion of debt.
Credco paid dividends to TRS of $150 million in both December, 1997
and 1996.
In early 1998, Credco purchased interest rate caps to limit the
adverse effect of an interest rate increase on substantially all
charge Cardmember receivables funding costs. The majority of the
caps will mature by the end of 1998.
In February 1998, Credco issued $150 million 1 1/8 % Cash
Exchangeable Notes due February 19, 2003. Holders of these notes
may exchange them for an amount in cash which is linked to the
price of the common shares of American Express Company. Credco has
entered into hedging agreements designed to fully hedge its
obligation under these notes.
See note 8 in "Notes to Consolidated Financial Statements"
appearing herein for a discussion of Credco's use of derivatives.
Results of Operations
Credco purchases Cardmember receivables without recourse from TRS.
Non-interest-bearing charge Cardmember receivables are purchased at
face amount less a specified discount agreed upon from time to
time, and interest-bearing revolving credit Cardmember receivables
are generally purchased at face amount. Non-interest-bearing
receivables are purchased under Receivables Agreements that
generally provide that the discount rate shall not be lower than a
rate that yields earnings of at least 1.25 times fixed charges on
an annual basis. The ratio of earnings to fixed charges was 1.29
in 1997, 1.30 in 1996, and 1.29 in 1995. The Receivables
Agreements also provide that consideration will be given from time
to time to revising the discount rate applicable to purchases of
new receivables to reflect changes in money market interest rates
or significant changes in the collectibility of the receivables.
Pretax income depends primarily on the volume of Cardmember
receivables purchased, the discount rates applicable thereto, the
relationship of total discount to Credco's interest expense and the
collectibility of receivables purchased. The average life of
Cardmember receivables was 43 days for each of the years ended
December 31, 1997, 1996 and 1995.
Credco's decrease in revenues in 1997 is primarily due to a
decrease in discount and interest rates. The overall decrease in
interest income in 1997 was attributable to decreased levels of
average investments outstanding. Interest expense increased in
1997 primarily reflecting an overall increase in volume. Provision
for doubtful accounts in 1997 decreased primarily reflecting lower
provision rates.
8<PAGE>
<TABLE>
<CAPTION>
The following is a further analysis of the increase (decrease) in
key revenue and expense accounts (millions):
<S> <C> <C> <C>
---------------------------------------------------------------
1997 1996 1995
---------------------------------------------------------------
Revenue earned from purchased accounts
receivable-changes attributable to:
Volume of receivables purchased $ 157 $ 166 $ 149
Discount and interest rates (214) (28) 313
---------------------------------------------------------------
Total $ (57) $ 138 $ 462
---------------------------------------------------------------
Interest income from affiliates-
changes attributable to:
Volume of average investments
outstanding $ 9 $ 5 $ 28
Interest rates 4 (15) 41
---------------------------------------------------------------
Total $ 13 $ (10) $ 69
---------------------------------------------------------------
Interest income from investments-
changes attributable to:
Volume of average investments
outstanding $ (65) $ 71 $ 17
Interest rates 6 (19) 40
---------------------------------------------------------------
Total $ (59) $ 52 $ 57
---------------------------------------------------------------
Interest expense (affiliates)-
changes attributable to:
Volume of average debt outstanding $ 37 $ 11 $ 15
Interest rates 8 (13) 25
---------------------------------------------------------------
Total $ 45 $ (2) $ 40
---------------------------------------------------------------
Interest expense (other)-changes
attributable to:
Volume of average debt outstanding $ (31) $ 178 $ 96
Interest rates (6) (113) 182
---------------------------------------------------------------
Total $ (37) $ 65 $ 278
---------------------------------------------------------------
Provision for doubtful accounts-
changes attributable to:
Volume of receivables purchased $ 65 $ 91 $ 70
Provision rates and volume of
recoveries (193) (4) 112
---------------------------------------------------------------
Total $(128) $ 87 $ 182
---------------------------------------------------------------
</TABLE>
The Year 2000 issue is the result of computer programs having been
written using two digits rather than four to define a year. Any programs
that have time-sensitive software may recognize a date using "00" as the
year 1900 rather than 2000. Credco's internal debt management systems have
been reviewed and remediated in light of the Year 2000 issue. As noted
above, the Card issuers perform all services necessary to bill and collect
all Cardmember receivables owned by Credco. American Express has conducted
a comprehensive review of its computer systems and business processes
(including systems and processes of the Card issuers) to identify the major
systems that could be affected by the Year 2000 issue. Steps are being taken
by American Express to resolve any potential problems including modifications
to existing software and the purchase of new software. These measures are
scheduled to be completed and tested on a timely basis. American Express'
goal is to complete internal remediation and testing of each of its critical
systems by the end of 1998 and to continue compliance efforts, including the
testing of sytems on an integrated basis, through 1999. The costs related to
the Year 2000 issue, which are expensed by American Express as incurred, are
not expected to have a material impact on Credco's results of operations or
financial condition. American Express is evaluating the Year 2000 readiness
of merchants, customers and other third parties whose system failures could
have an impact on Credco's operations. The potential materiality of any
such impact is not known at this time.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Omitted pursuant to General Instruction 1 to Item 305 of
Regulation S-K.
9
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
1. Financial Statements.
See "Index to Financial Statements" at page F-1 hereof.
2. Supplementary Financial Information.
Selected quarterly financial data. See note 12 in
"Notes to Consolidated Financial Statements"
appearing herein.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Omitted pursuant to General Instruction I(2)(c) to Form 10-K.
Item 11. EXECUTIVE COMPENSATION.
Omitted pursuant to General Instruction I(2)(c) to Form 10-K.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Omitted pursuant to General Instruction I(2)(c) to Form 10-K.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Omitted pursuant to General Instruction I(2)(c) to Form 10-K.
10
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) 1. Financial Statements:
See "Index to Financial Statements" at page F-1 hereof.
2. Financial Statement Schedule:
See "Index to Financial Statements" at page F-1 hereof.
3. Exhibits:
See "Exhibit Index" hereof.
(b) Reports on Form 8-K:
1. Form 8-K, dated February 10, 1998, Item 5, filed in
connection with the incorporation by reference of
certain financial information of American Express
Company into registration statements of the Registrant;
Exhibits 15 and 23, respectively, a letter regarding
unaudited financial information and consent of
independent auditors.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 CREDIT CORPORATION
(Registrant)
DATE March 30, 1998 /s/ Vincent P. Lisanke
--------------------------------------------------------------
Vincent P. Lisanke
President, Chief Executive Officer
and Director
Pursuant to the requirement of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities on the dates indicated.
DATE March 30, 1998 /s/ Vincent P. Lisanke
--------------------------------------------------------------
Vincent P. Lisanke
President, Chief Executive Officer and
Director (principal executive and
principal accounting officer)
DATE March 30, 1998 /s/ Richard K. Goeltz
--------------------------------------------------------------
Richard K. Goeltz
Chairman of the Board and Director
(principal financial officer)
DATE March 30, 1998 /s/ Jay B. Stevelman
--------------------------------------------------------------
Jay B. Stevelman
Treasurer and Director
12
<PAGE>
AMERICAN EXPRESS CREDIT CORPORATION
INDEX TO FINANCIAL STATEMENTS
COVERED BY REPORT OF INDEPENDENT AUDITORS
(Item 14 (a))
Page Number
-----------
Financial Statements:
Report of independent auditors F - 2
Consolidated statements of income for each of the
three years ended December 31, 1997, 1996 and 1995 F - 3
Consolidated balance sheets at December 31, 1997 and 1996 F - 4
Consolidated statements of cash flows for each of the
three years ended December 31, 1997, 1996 and 1995 F - 5
Consolidated statements of shareholder's equity for each
of the three years ended December 31, 1997, 1996 and 1995 F - 6
Notes to consolidated financial statements F - 7 to F - 15
Schedule:
II - Valuation and qualifying accounts for
the three years ended December 31, 1997 F - 16
All other schedules are 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 consolidated financial statements or notes thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
----------------------------------------------------------------------
The Board of Directors
American Express Credit Corporation
We have audited the accompanying consolidated balance sheets of
American Express Credit Corporation as of December 31, 1997 and
1996, and the related consolidated statements of income,
shareholder's equity and cash flows for each of the three years in
the period ended December 31, 1997. Our audits also included the
financial statement schedule listed in the Index at Item 14 (a).
These financial statements and schedule are the responsibility of
American Express Credit Corporation's management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of American Express Credit Corporation at December 31,
1997 and 1996, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ Ernst & Young LLP
New York, New York
February 5, 1998
F-2
<PAGE>
<TABLE>
<CAPTION>
AMERICAN EXPRESS CREDIT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(millions)
-------------------------------------------------------------
Year Ended December 31, 1997 1996 1995
-------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Revenue earned from purchased
accounts receivable $1,756 $1,813 $1,675
Interest income from affiliates 173 160 170
Interest income from investments 130 189 137
Other income 5 4 6
-------------------------------------------------------------
Total 2,064 2,166 1,988
-------------------------------------------------------------
Expenses
Interest expense - affiliates 179 134 136
Interest expense - other 946 983 918
Provision for doubtful accounts,
net of recoveries of $183, $186
and $176 584 712 625
Other expenses 29 7 7
-------------------------------------------------------------
Total 1,738 1,836 1,686
-------------------------------------------------------------
Income before taxes 326 330 302
Income tax provision 114 115 105
-------------------------------------------------------------
Net income $ 212 $ 215 $ 197
-------------------------------------------------------------
-------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
AMERICAN EXPRESS CREDIT CORPORATION
CONSOLIDATED BALANCE SHEETS
(millions)
<S> <C> <C>
-------------------------------------------------------------------
December 31, 1997 1996
-------------------------------------------------------------------
Assets
Cash and cash equivalents $ 374 $ 267
Investments 218 -
Accounts receivable 19,609 17,359
Less: reserve for doubtful accounts 633 638
------ ------
18,976 16,721
Loans and deposits with affiliates 3,150 2,850
Deferred charges and other assets 335 327
-------------------------------------------------------------------
Total assets $23,053 $20,165
-------------------------------------------------------------------
-------------------------------------------------------------------
Liabilities and shareholder's equity
Short-term debt with affiliates $ 1,770 $ 1,275
Short-term debt - other 14,812 13,262
Current portion of long-term debt 4 211
Long-term debt with affiliate 910 910
Long-term debt - other 2,354 1,559
------ ------
Total debt 19,850 17,217
Due to affiliates 1,027 858
Accrued interest and other liabilities 152 145
-------------------------------------------------------------------
Total liabilities 21,029 18,220
-------------------------------------------------------------------
Deferred discount revenue 117 100
-------------------------------------------------------------------
Shareholder's equity
Common stock-authorized 3,000,000
shares of $.10 par value; issued
and outstanding 1,504,938 shares 1 1
Capital surplus 161 161
Retained earnings 1,745 1,683
------------------------------------------------------------------
Total shareholder's equity 1,907 1,845
------------------------------------------------------------------
------------------------------------------------------------------
Total liabilities and shareholder's
equity $23,053 $20,165
------------------------------------------------------------------
------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
F-4<PAGE>
<TABLE>
<CAPTION>
AMERICAN EXPRESS CREDIT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions)
<S> <C> <C> <C>
- --------------------------------------------------------------------------
Year Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net Income $ 212 $ 215 $ 197
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for doubtful accounts, net of
recoveries 584 712 625
Amortization of deferred underwriting
fees and bond discount/premium - 1 -
Increase (decrease) in deferred discount revenue 17 (16) 21
Decrease (increase) in deferred tax assets 43 (11) (56)
Increase in interest receivable and
operating assets (12) (6) (5)
Increase (decrease) in accrued interest
and other liabilities 18 (18) 3
Increase (decrease) in due to affiliates 8 79 (27)
- ----------------------------------------------------------------------------
Net cash and cash equivalents provided
by operating activities 870 956 758
- ----------------------------------------------------------------------------
Cash Flows From Investing Activities:
Increase in accounts receivable (2,694) (3,194) (3,047)
Sale of net accounts receivable to an affiliate 219 2,294 -
Purchase of participation interest in
seller's interest in accounts receivable
from an affiliate (728) (2,178) -
Sale of participation interest in seller's
interest in accounts receivable to an affiliate 95 1,304 -
Recoveries of accounts receivable previously
written off 183 186 176
Purchase of investments (247) - -
Maturity of investments 29 - -
Increase in loans and deposits due from
affiliates (300) - (200)
Increase (decrease) in due to affiliates
from purchased receivables 192 (57) 182
- ----------------------------------------------------------------------------
Net cash and cash equivalents used in
investing activities (3,251) (1,645) (2,889)
- ----------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net increase (decrease) in short-term
debt with affiliates with maturities
less than ninety days 496 188 (40)
Net increase (decrease) in short-term
debt - other with maturities less than
ninety days 3,271 4,469 (5,178)
Proceeds from issuance of debt 8,027 9,684 20,039
Redemption of debt (9,156) (14,425) (11,810)
Dividends paid to TRS (150) (150) (150)
- ---------------------------------------------------------------------------
Net cash and cash equivalents provided
by (used in) financing activities 2,488 (234) 2,861
- ---------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 107 (923) 730
- ---------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 267 1,190 460
- ---------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 374 $ 267 $ 1,190
- ---------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
AMERICAN EXPRESS CREDIT CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
Years ended December 31, 1997, 1996 and 1995
(millions)
---------------------------------------------
Total
Shareholder's Common Capital Retained
Equity Stock Surplus Earnings
---------------------------------------------
<S> <C> <C> <C> <C>
Balances at January 1, 1995 $ 1,733 $ 1 $ 161 $ 1,571
Net income 197 197
Dividends to TRS (150) - - (150)
-------- ------ ------- --------
Balances at December 31, 1995 1,780 1 161 1,618
Net income 215 215
Dividends to TRS (150) - - (150)
-------- ------ ------- --------
Balances at December 31, 1996 1,845 1 161 1,683
-------- ------ ------- --------
Net income 212 212
Dividends to TRS (150) - - (150)
-------- ------ ------ --------
Balances at December 31, 1997 $ 1,907 $ 1 $ 161 $ 1,745
======= ====== ====== =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
AMERICAN EXPRESS CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
American Express Credit Corporation together with its subsidiaries
("Credco") is a wholly-owned subsidiary of American Express Travel
Related Services Company, Inc. ("TRS"), which is a wholly-owned
subsidiary of American Express Company ("American Express").
American Express Overseas Credit Corporation Limited together with
its subsidiaries ("AEOCC") and Credco Receivables Corp. ("CRC")
are wholly-owned subsidiaries of Credco.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Credco and all its subsidiaries. All significant
intercompany transactions have been eliminated.
Use of Estimates and Assumptions
Credco's financial statements include amounts determined using
estimates and assumptions. For example, estimates and assumptions
are used in determining the reserves related to accounts
receivable. While these estimates are based on the best judgment
of management, actual results could differ from these estimates.
Revenue Earned from Purchased Accounts Receivable
A portion of discount revenue earned on purchases of non-interest-
bearing Cardmember receivables equal to the provision for doubtful
accounts is recognized as revenue at the time of purchase; the
remaining portion is deferred and recorded as revenue ratably over
the period that the receivables are outstanding.
Finance charge income on interest-bearing extended payment plan
receivables is recognized as it is earned. Credco ceases accruing
this income after six contractual payments are past due, or
earlier, if deemed uncollectible. Accruals that cease generally
are not resumed.
Reserve for Doubtful Accounts
The reserve for doubtful accounts is based on historical collection
experience and evaluation of the current status of existing
receivable balances. Credco generally writes off against its
reserve for doubtful accounts the total balance in an account for
which any portion remains unpaid twelve months from the date of
original billing for non-interest-bearing Cardmember receivables
and after six contractual payments are past due for interest-
bearing Cardmember receivables. Accounts are written off earlier
if deemed uncollectible.
Investments
Management determines the appropriate classification of debt
securities at the time of purchase. Credco has the positive intent
and ability to hold all of its securities to maturity. Held to
maturity securities are stated at amortized cost.
F-7
<PAGE>
Fair Values of Financial Instruments
The fair values of financial instruments are estimates based upon
current market conditions and perceived risks at December 31, 1997
and 1996 and require varying degrees of management judgment. The
fair values of the financial instruments presented may not be
indicative of their future fair values.
The fair values of long-term debt and derivative instruments are
included in the related footnotes. For all other financial
instruments, the carrying amounts in the consolidated balance
sheets approximate the fair values.
Interest Rate Transactions
Credco enters into various interest rate agreements as a means of
managing its interest rate exposure. Interest rates charged on
consumer lending receivables are linked to a floating base rate and
generally reprice monthly. Credco generally enters into interest
rate agreements paying a rate that reprices when the base rate of
the underlying receivables changes. These interest rate agreements
which modify the terms of an underlying debt obligation are
accounted for by recording interest expense using the revised
interest rate with any fees or other payments amortized as yield
adjustments. It is Credco's normal practice not to terminate, sell
or dispose of interest rate agreements or the underlying debt to
which the agreements are designated prior to maturity. In the
event Credco terminates, sells or disposes of an agreement prior to
maturity, the gain or loss would be deferred and recognized as an
adjustment of yield over the remaining life of the underlying debt.
Foreign Currency
Foreign currency assets and liabilities are translated into their
U.S. dollar equivalents based on rates of exchange prevailing at
the end of each year. Revenue and expense accounts are translated
at exchange rates prevailing during the year. Credco enters into
various foreign exchange contracts as a means of managing foreign
exchange exposure.
Cash and Cash Equivalents
Credco has defined cash and cash equivalents as cash and short-term
investments with a maturity of ninety days or less at the time of
purchase. At both December 31, 1997 and 1996, included in cash and
cash equivalents was $100 million of overnight securities purchased
to resell.
3. Investments
At December 31, 1997, Credco held $218 million of American Express
Master Trust Class B Certificates. These securities are classified
as held to maturity and are stated at amortized cost. The fair
value of these securities at December 31, 1997 was $224 million.
4. Accounts Receivable
At December 31, 1997 and 1996, respectively, Credco owned $17.8
billion and $15.6 billion of charge card receivables and
participation in charge card receivables, representing 90.6 percent
and 89.6 percent, respectively, of the total receivables owned. In
connection with TRS' securitization program for U.S. charge
Cardmember receivables, CRC purchases from American Express
F-8
<PAGE>
Receivables Financing Corporation ("RFC"), a subsidiary of TRS, a
participation interest in RFC's seller's interest in the receivables
owned by the American Express Master Trust, which was formed in 1992 to
securitize U.S. charge Cardmember receivables. In September 1996,
the American Express Master Trust issued an additional $1.25
billion of accounts receivable trust certificates to the public.
At that time, CRC sold to RFC, at face amount less applicable
reserve, $1.3 billion of its gross participation interest. The
gross participation interests represent undivided interests in the
receivables conveyed to the American Express Master Trust by RFC.
At December 31, 1997 and 1996 Credco owned approximately $3.8 billion
and $3.4 billion, respectively, of participation interests in
receivables owned by the trust, representing 19.6 percent and 19.3
percent, respectively, of its total accounts receivable.
At both December 31, 1997 and 1996, Credco owned extended payment
plan receivables totaling $1.8 billion, including revolving credit
loans purchased directly from American Express Centurion Bank
("Centurion Bank"), a subsidiary of TRS, representing 9.4 percent
and 10.4 percent, respectively, of its total interests in accounts
receivable. The extended payment plan receivables owned at
December 31, 1997 and 1996 include $229 million and $104 million,
respectively, of participation interest owned by CRC. This
represents a participation interest in the seller's interest in
revolving credit receivables that have been conveyed to the
American Express Credit Account Master Trust, formed by Centurion
Bank during the second quarter of 1996 to securitize revolving
credit loans.
<TABLE>
<CAPTION>
5. Short-term Debt
At December 31, short-term debt consisted of (millions) :
-----------------------------------------------------------------------
1997 1996
-----------------------------------------------------------------------
<S> <C> <C>
Commercial paper $14,438 $12,966
Borrowings from affiliates 1,770 1,275
Borrowings under lines of credit 241 200
Borrowing agreements with bank trust
departments and others 133 96
-----------------------------------------------------------------------
Total short-term debt $16,582 $14,537
-----------------------------------------------------------------------
</TABLE>
Credco has various facilities available to obtain short-term
credit, including the issuance of commercial paper and agreements
with banks.
Credco had committed credit line facilities totaling $7.3 billion
and $6.6 billion at December 31, 1997 and 1996, respectively.
Credco pays fees to the financial institutions that provide these
credit line facilities. Credco, through AEOCC, had outstanding
borrowings of $17.4 million at December 31, 1997 and no outstanding
borrowings at December 31, 1996, under these committed lines of
credit. The fair value of the unused lines of credit is not
significant at December 31, 1997 and 1996.
At December 31, 1997 and 1996, Credco, through AEOCC, had short-
term borrowings under uncommitted lines of credit totaling $241
million and $200 million, respectively.
Credco's annual weighted average short-term interest rate was 5.60
percent, 5.57 percent and 6.16 percent for the years ended December
31, 1997, 1996 and 1995, respectively. These rates include the cost
of maintaining credit line facilities for the periods and the impact
of interest rate swaps. At December 31, 1997, $1.3 billion of short-
term debt outstanding was modified by interest rate swaps, resulting
in a year-end weighted average effective interest rate of 5.93%.
F-9
<PAGE>
Credco paid $940 million, $913 million and $942 million of interest
on short-term debt obligations in 1997, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
6. Long-term Debt
-------------------------------------------------- --------------------------------
1997 1996
-------------------------------------------------- --------------------------------
Year-End
Year-End Effective
December 31, Notional Stated Interest Notional
(millions) Amount Rate Rate Maturity Amount Year-End
Outstanding of on Debt with of Outstanding of Stated Rate
Balance Swaps (a,b) Swaps(b) Swaps Balance Swaps On Debt(b)
-------------------------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Senior notes
due 1999-2005 $1,548 $1,550 6.69% 5.83% 1999- $1,725 $1,650 6.79%
2005
Variable rate
debt with
American
Express due
2004 910 - 5.67% - - 910 - 5.36%
Medium-term
notes due 2002 400 400 6.50% 5.78% 2002 - - -
Medium-term
notes due 2002 399 399 5.80% 6.00% 2002 - - -
Medium-term
notes due 1997 - - - - - 36 - 7.17%
Other senior
notes due 1999-
2017 2 - 8.00% - - 2 - 7.65%
Swiss franc notes
due 1998-2003 9 - 3.45% - - 10 - 3.45%
Net unamortized
bond discount - - - - - (3) - -
-------------------------------------------------- --------------------------------
Total long-term
debt $3,268 $2,349 $2,680 $1,650
-------------------------------------------------- --------------------------------
</TABLE>
(a) For the floating rate debt issuance, the stated rate was based on
the rate at December 31, 1997; this rate is not an indication of
future interest rates.
(b) Weighted average rates were determined where appropriate.
The above table includes the current portion of long-term debt of
$4 million and $211 million at December 31, 1997 and 1996,
respectively.
The book value of variable rate long-term debt that reprices within
a year approximates fair value. The fair value of other long-term
debt is based on quoted market price or discounted cash flow. The
aggregate fair value of long-term debt, including the current
portion outstanding at December 31, 1997 and 1996, was $3.3 billion
and $2.7 billion, respectively.
Aggregate annual maturities of long-term debt for the five years
ending December 31, 2002 are as follows (millions): 1998 - $4,
1999 - $354, 2000 - $550, 2001 - $550, 2002 - $799.
Credco paid $192 million in 1997, $217 million in 1996, and $218
million in 1995 of interest on long-term debt obligations.
7. Restrictions as to Dividends and Limitations on Indebtedness
The most restrictive limitation on dividends imposed by the debt
instruments issued by Credco is the requirement that Credco
maintain a minimum consolidated net worth of $50 million. There
are no limitations on the amount of debt that can be issued by
Credco.
8. Derivative Instruments
Credco uses derivative financial instruments for nontrading
purposes to manage its exposure to interest and foreign exchange
rates, financial indices and funding costs.
There are a number of risks associated with derivatives. Market
risk is the possibility that the value of the derivative financial
instrument will change. Credco is not exposed to market risk
related to derivatives held for nontrading purposes beyond that
inherent in cash market transactions. Credco does not enter into
F-10
<PAGE>
derivative contracts with features that would leverage or multiply
its market risk. Credit risk related to derivative 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. A
significant portion of Credco's transactions are with
counterparties rated A or better by nationally recognized credit
rating agencies. Credco also uses master netting agreements, which
allow Credco to settle multiple contracts with a single
counterparty in one net receipt or payment in the event of
counterparty default. At December 31, 1997 and 1996, the aggregate
notional amount of Credco's derivative instruments was $7.4 billion
($562 million with affiliates) and $6.4 billion ($233 million with
affiliates), respectively. Credit risk approximates the fair value
of contracts in a gain position (asset) and totaled $94 million
($3.6 million with affiliates) at December 31, 1997 and $37 million
($2.2 million with an affiliate) at December 31, 1996. The fair
value represents the replacement cost and is determined by market
values, dealer quotes or pricing models.
<TABLE>
<CAPTION>
The following tables detail information regarding Credco's
derivatives (millions):
<S> <C> <C> <C> <C> <C>
Notional Carrying Value Fair Value
December 31, 1997 Amount Asset Liability Asset Liability
----------------- ------ ----- -------- ----- ---------
Interest rate products $5,321 $ 66 $ 36 $ 76 $ 40
Forward contracts 2,069 18 16 18 16
------ ---- ---- ----- ----
Total $7,390 $ 84 $ 52 $ 94 $ 56
------ ---- ---- ----- ----
Notional Carrying Value Fair Value
December 31, 1996 Amount Asset Liability Asset Liability
----------------- ------ ----- --------- ----- ---------
Interest rate products $4,386 $ 19 $ 50 $ 25 $ 87
Forward contracts 1,972 14 31 12 30
------ ---- ---- ----- ----
Total $6,358 $ 33 $ 81 $ 37 $117
------ ---- ---- ----- ----
</TABLE>
Interest Rate Products
Credco uses interest rate products to maintain a predetermined mix
of fixed and variable rate debt in order to achieve a desired level
of interest rate exposure to manage funding costs related to its
Cardmember receivables and Cardmember loans. The principal product
used is interest rate swaps, which involve the exchange for a
specified period of time of fixed or floating rate interest
payments based on a notional or contractual amount. In early 1998,
Credco purchased interest rate caps to limit the adverse effect of
an interest rate increase on substantially all charge Cardmember
receivables funding costs. The majority of the caps will mature by
the end of 1998. Credco enters into currency swaps to convert U.S.
dollar denominated debt into other currencies in order to match
foreign denominated receivables with funding of the same currency
and to achieve a desired level of interest rate exposure. Currency
swap agreements are contracts to exchange currency and interest
payments for a specific period of time.
Interest rates charged on Credco's revolving credit receivables are
linked to a floating rate base and generally reprice each month.
Credco generally enters into interest rate swaps paying rates that
reprice similarly with changes in the base rate of the underlying
loans.
F-11
<PAGE>
As interest rate products manage interest rate exposure, interest
is accrued and reported in accounts receivable and other assets, or
accrued interest and other liabilities, and interest expense, as
appropriate.
<TABLE>
<CAPTION>
Aggregate annual expirations of interest rate swaps are as follows
(notional amount in millions):
1998 - $2,222, 1999 - $506, 2000 - $920, 2001 - $782, 2002 - $891.
The following table details information regarding Credco's interest
rate products at December 31, 1997 (millions):
<S> <C> <C> <C> <C>
-------------------------------------------------------------------------
Weighted Average
Notional Primary Variable Interest Rate
Type Amount Rate Index Fixed Floating
-------------------------------------------------------------------------
Floating to fixed $2,457 1 month LIBOR and 5.73% 6.41%
1 month Commercial paper
Fixed to floating $2,304 1 month LIBOR and 6.72% 5.96%
1 month Commercial paper
Floating to floating $560 1 month LIBOR and - 6.43%/5.96%
3 month LIBOR
</TABLE>
Foreign Currency Products
Credco uses foreign currency products to manage transactions
denominated in foreign currencies.
Foreign currency exposures are hedged, where practical and
economical, through foreign currency forward contracts. Foreign
currency forward contracts involve the purchase or sale of a
designated currency at an agreed upon rate for settlement on a
specified date. As Credco is exposed to transaction risk with
regard to receivables denominated in foreign currencies and since
foreign currency forward contracts reduce that exposure, the
contracts are accounted for as hedges. These foreign currency
forward contracts are marked to the current spot rate with the gain
or loss recorded in income to offset the transaction gain or loss
resulting from the receivables. The receivable or payable with the
counterparty to the foreign currency forward contracts which result
from this process are reported in other assets or liabilities, as
appropriate. The discount or premium on foreign currency forward
contracts is reported in other assets or liabilities, as
appropriate, and amortized to interest expense over the terms of
the contracts.
<TABLE>
<CAPTION>
The following table summarizes Credco's forward contracts by major
currencies as of December 31 (millions):
<S> <C> <C>
-------------------------------------------------------
1997 1996
-------------------------------------------------------
Canadian Dollar $486 $334
Pound Sterling 538 578
Australian Dollar 269 307
Hong Kong Dollar 179 199
German Mark 258 218
Other 339 336
-------------------------------------------------------
Total forward contracts $2,069 $1,972
-------------------------------------------------------
</TABLE>
Foreign currency forward contracts generally mature within one
F-12
<PAGE>
year. At December 31, 1997, Credco had no significant unhedged
foreign currency exposures.
9. Transactions with Affiliates
In 1997, 1996 and 1995, Credco purchased Cardmember receivables
without recourse from TRS and certain of its subsidiaries totaling
approximately $146 billion, $136 billion and $122 billion,
respectively. Agreements for the purchase of non-interest-bearing
receivables generally provide that Credco purchase such receivables
at a discount rate which yields earnings to Credco equal to at
least 1.25 times its fixed charges on an annual basis.
The agreements require TRS, at its expense, to perform accounting,
clerical and other services necessary to bill and collect all
Cardmember receivables owned by Credco. Since settlements under
the agreements occur monthly, an amount due from, or payable to,
such affiliates may arise at the end of the month.
In 1996, as part of TRS' asset securitization program for U.S.
charge Cardmember receivables, Credco sold back to TRS
approximately $2.2 billion of gross receivables arising under
specified U.S. charge Cardmember accounts. TRS sold these
receivables, together with the right to receive subsequent
receivables arising from such Cardmember accounts, to its
subsidiary, RFC. RFC, in turn, conveyed them to the American
Express Master Trust (the "Trust"). This resulted in an increase
in the gross participation interest in RFC's seller's interest in
the securitized receivables owned by CRC, for which CRC paid $2.2
billion. In September 1996, the Trust issued $1.25 billion of
receivables trust certificates in two series. At the time of such
issuance, CRC sold, at face amount less applicable reserve, $1.3
billion of its gross participation interest in RFC's seller's
interest back to RFC.
<TABLE>
<CAPTION>
The extended payment plan receivables owned at December 31, 1997
and 1996 include $229 million and $104 million, respectively, of
participation interest owned by CRC. This represents a
participation interest in the seller's interest in revolving credit
receivables that have been conveyed to the American Express Credit
Account Master Trust, formed by Centurion Bank during the second
quarter of 1996 to securitize revolving credit loans.
Other transactions with American Express and its subsidiaries for
the years ended December 31 were as follows (millions):
<S> <C> <C> <C>
------------------------------------------------------------------
1997 1996 1995
------------------------------------------------------------------
Cash and cash equivalents at December 31 $ 6 $ 2 $ 9
Maximum month-end level of cash and
cash equivalents during the year 9 9 12
Secured loans to American Express
Centurion Bank at December 31 2,300 2,000 2,000
Other loans and deposits to an
affiliate at December 31 850 850 850
Maximum month-end level of loans and
deposits to affiliates during the year 3,150 2,850 2,850
Borrowings at December 31 2,680 2,185 1,997
Maximum month-end level of borrowings
during the year 4,588 4,024 3,709
Interest income 173 160 170
Other income 5 4 6
Interest expense 179 134 136
------------------------------------------------------------------
</TABLE>
F-13
<PAGE>
At December 31, 1997, Credco held $2.3 billion of variable rate
secured loans to Centurion Bank and $2.0 billion at both December
31, 1996 and 1995. At December 31, 1997, 1996 and 1995, Credco
also held variable rate loans to American Express due in 2004 of
$850 million. The loans to Centurion Bank are secured by certain
interest-bearing extended payment plan receivables owned by
Centurion Bank. Interest income from these variable rate loans was
$173 million, $160 million, and $169 million for 1997, 1996 and
1995, respectively.
10. Income Taxes
The taxable income of Credco is included in the consolidated U.S.
federal income tax return of American Express. Under an agreement
with TRS, taxes are recognized on a stand-alone basis. If benefits
for all future tax deductions, foreign tax credits and net
operating losses cannot be recognized on a stand-alone basis, such
benefits are then recognized based upon a share, derived by
formula, of those deductions and credits that are recognizable on a
TRS consolidated reporting basis.
<TABLE>
<CAPTION>
Deferred income tax assets and liabilities result from the
recognition of temporary differences. Temporary differences are
differences between the tax bases of assets and liabilities and
their reported amounts in the financial statements that will result
in differences between income for tax purposes and income for
financial statement purposes in future years. The current and
deferred components of the provision (benefit) for income taxes
consist of the following (millions):
<S> <C> <C> <C>
----------------------------------------------------------------
1997 1996 1995
----------------------------------------------------------------
Current $ 71 $ 126 $ 161
Deferred 43 (11) (56)
----------------------------------------------------------------
Total income tax provision $ 114 $ 115 $ 105
----------------------------------------------------------------
</TABLE>
Credco's net deferred tax assets, which are included in other
assets, consisted of the following (millions):
<TABLE>
<CAPTION>
<S> <C> <C>
--------------------------------------------
1997 1996
--------------------------------------------
Deferred tax assets $ 182 $ 218
Deferred tax liabilities (8) (1)
--------------------------------------------
Net deferred tax assets $ 174 $ 217
--------------------------------------------
</TABLE>
Deferred tax assets for 1997 and 1996 consists primarily of reserve
for loan losses of $182 million and $218 million, respectively.
Deferred tax liabilities for 1997 and 1996 consists primarily of
foreign exchange contracts of $7 million and $1 million,
respectively.
F-14
<PAGE>
At December 31, 1997 and 1996, no valuation allowances were
required.
A federal tax overpayment of $29 million and of $27 million at
December 31, 1997 and 1996, respectively, are included in due to
affiliates.
Income taxes paid to TRS during 1997, 1996 and 1995 were $73
million, $155 million and $125 million, respectively.
The U.S. statutory tax rate and effective tax rate for 1997, 1996
and 1995 was approximately 35 percent.
11. Geographic Segments
Credco is principally engaged in the business of purchasing
Cardmember receivables arising from the use of the American Express
Card in the United States and foreign locations. The following
presents information about operations in different geographic areas
(millions):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
-----------------------------------------------------------------
1997 1996 1995
-----------------------------------------------------------------
Revenues
United States $1,723 $1,855 $1,695
International 341 311 293
-----------------------------------------------------------------
Consolidated $2,064 $2,166 $1,988
-----------------------------------------------------------------
Income before taxes
United States $ 286 $ 275 $ 244
International 40 55 58
-----------------------------------------------------------------
Consolidated $ 326 $ 330 $ 302
-----------------------------------------------------------------
Identifiable assets
United States $19,074 $16,444 $17,027
International 3,979 3,721 3,165
-----------------------------------------------------------------
Consolidated $23,053 $20,165 $20,192
-----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
12. Quarterly Financial Data (Unaudited)
Summarized quarterly financial data is as follows (millions):
<S> <C> <C> <C> <C>
------------------------------------------------------------------
Quarter Ended 12/31 9/30 6/30 3/31
------------------------------------------------------------------
1997
------------------------------------------------------------------
Revenues $ 535 $ 542 $ 516 $ 471
Income before taxes 68 86 81 91
Net income 44 56 53 59
------------------------------------------------------------------
1996
------------------------------------------------------------------
Revenues $ 523 $ 540 $ 571 $ 532
Income before taxes 82 89 74 85
Net income 54 58 48 55
------------------------------------------------------------------
</TABLE>
F-15
<PAGE>
<TABLE>
<CAPTION>
AMERICAN EXPRESS CREDIT CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(millions)
<S> <C> <C> <C>
1997 1996 1995
---- ---- ----
Reserve for doubtful accounts:
Balance at beginning of year $ 638 $ 624 $ 498
Additions:
Provision for doubtful accounts
charged to income (1) 767 898 801
Other credits (2) 53 94 7
Foreign translation (5) 2 2
Deductions:
Accounts written off 798 816 684
Other charges (3) 22 164 -
----- ----- -----
Balance at end of year $ 633 $ 638 $ 624
===== ===== =====
Reserve for doubtful accounts as a
percentage of Cardmember receivables
owned at year end 3.23% 3.68% 3.79%
===== ===== =====
</TABLE>
(1) Before recoveries on accounts previously written off of (millions):
1997-$183, 1996-$186 and 1995-$176.
(2) Reserve balances applicable to new groups of Cardmember
receivables purchased from TRS and certain of its subsidiaries
and participation interests purchased from affiliates.
(3) Reserve balances applicable to certain groups of Cardmember
receivables and participation interests sold to affiliates.
F-16<PAGE>
EXHIBIT INDEX
Pursuant to Item 601 of Regulation S-K
Exhibit No. Description
3 (a) Registrant's Certificate Incorporated by
of Incorporation, as amended reference to
Exhibit 3(a) to
Registrant's
Registration
Statement on
Form S-1
dated February
25, 1972
(File No. 2-43170).
3 (b) Registrant's By-Laws, Incorporated by
amended and restated as of reference to
November 24, 1980 Exhibit 3(b)
to Registrant's
Annual Report
on Form 10-K
(Commission
File No. 1-6908)
for the year ended
December 31, 1985.
4 (a) Registrant's Debt Incorporated by
Securities reference to
Indenture dated as of Exhibit 4(s)
September 1, 1987 to Registrant's
Registration
Statement on
Form S-3 dated
September 2, 1987
(File No. 33-16874).
4 (b) Form of Note with optional Incorporated by
redemption provisions reference to
Exhibit 4(t)
to Registrant's
Registration
Statement on
Form S-3 dated
September 2, 1987
(File No. 33-16874).
4 (c) Form of Debenture with Incorporated by
optional redemption and reference to
sinking fund provisions Exhibit 4(u)
to Registrant's
Registration
Statement on
Form S-3 dated
September 2, 1987
(File No. 33-16874).
<PAGE>
4 (d) Form of Original Issue Incorporated by
Discount Note with reference to
optional redemption Exhibit 4 (v)
provision to Registrant's
Registration
Statement on
Form S-3 dated
September 2, 1987
(File No. 33-16874).
4 (e) Form of Zero Coupon Note Incorporated by
with optional redemption reference to
provisions Exhibit 4 (w)
to Registrant's
Registration
Statement on
Form S-3 dated
September 2, 1987
(File No. 33-16874).
4 (f) Form of Variable Rate Note Incorporated by
with optional redemption reference to
and repayment provisions Exhibit 4 (x)
to Registrant's
Registration
Statement on
Form S-3 dated
September 2, 1987
(File No. 33-16874).
4 (g) Form of Extendible Note Incorporated by
with optional redemption reference to
and repayment provisions Exhibit 4 (y)
to Registrant's
Registration
Statement on
Form S-3 dated
September 2, 1987
(File No. 33-16874).
4 (h) Form of Fixed Rate Medium- Incorporated by
Term Note reference to
Exhibit 4 (z)
to Registrant's
Registration
Statement on
Form S-3 dated
September 2, 1987
(File No. 33-16874).
4 (i) Form of Floating Rate Incorporated by
Medium-Term Note reference to
Exhibit 4 (aa)
to Registrant's
Registration
Statement on
Form S-3 dated
September 2, 1987
(File No. 33-16874).
<PAGE>
4 (j) Form of Warrant Agreement Incorporated by
reference to
Exhibit 4 (bb)
to Registrant's
Registration
Statement on
Form S-3 dated
September 2, 1987
(File No. 33-16874).
4 (k) Form of Supplemental Incorporated by
Indenture reference to
Exhibit 4 (cc)
to Registrant's
Registration
Statement on
Form S-3 dated
September 2, 1987
(File No. 33-16874).
4 (l) Terms and conditions of Incorporated by
debt instruments to be reference to
issued outside the U.S. Exhibit 4(l) to
Registrant's
Annual Report
on Form 10-K
(Commission
File No. 1-6908)
for the year ended
December 31, 1996.
4 (m) The Registrant hereby
agrees to furnish the
Commission, upon request,
with copies of the
instruments defining the
rights of holders of each
issue of long-term debt of
the Registrant for which
the total amount of
securities authorized
thereunder does not exceed
10% of the total assets of
the Registrant
10 (a) Receivables Agreement Incorporated by
dated as of January 1, reference to
1983 between the Exhibit 10 (b)
Registrant and American to Registrant's
Express Travel Related Annual Report
Services Company, Inc. on Form 10-K
(Commission
File No. 1-6908)
for the year ended
December 31, 1987.
<PAGE>
10 (b) Secured Loan Agreement Incorporated by
dated as of June 30, 1988 reference to
between the Registrant and Exhibit 10 (b)
American Express Centurion to Registrant's
Bank Annual Report
on Form 10-K
(Commission
File No. 1-6908)
for the year ended
December 31, 1988.
10 (c) Participation Agreement Incorporated by
dated as of August 3, 1992 reference to
between American Express Exhibit 10(c)
Receivables Financing to Registrant's
Corporation and Credco Annual Report
Receivables Corp. on Form 10-K
(Commission
File No. 1-6908)
for the year ended
December 31, 1992.
12.1 Computation in Support of Electronically
Ratio of Earnings to Fixed filed herewith.
Charges of American
Express Credit Corporation
12.2 Computation in Support of Electronically
Ratio of Earnings to Fixed filed herewith.
Charges of American
Express Company
23 Consent of Independent Electronically
Auditors filed herewith.
27 Financial Data Schedule Electronically
filed herewith.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 12.1
AMERICAN EXPRESS CREDIT CORPORATION
COMPUTATION IN SUPPORT OF RATIO OF EARNINGS TO FIXED CHARGES
(millions)
Year Ended December 31,
-----------------------
--------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings:
Income before
extraordinary charge $ 212 $ 215 $ 197 $ 139 $ 137
Income tax provision 114 115 105 75 64
Interest expense 1,125 1,117 1,054 736 599
----- ----- ----- ----- -----
Total earnings $1,451 $1,447 $1,356 $ 950 $ 800
====== ====== ====== ===== =====
Fixed charges - interest expense $1,125 $1,117 $1,054 $ 736 $ 599
====== ====== ====== ===== =====
Ratio of earnings to
fixed charges 1.29 1.30 1.29 1.29 1.34*
</TABLE>
Note: Gross rentals on long-term leases were minimal in
amount in each of the periods shown.
* The ratio of earnings to fixed charges calculated in
accordance with the Receivables Agreements after the impact
of the extraordinary charge of $34 million (pretax) was 1.28.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 12.2
AMERICAN EXPRESS COMPANY
COMPUTATION IN SUPPORT OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
Years Ended December 31,
------------------------
--------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Earnings:
<S> <C> <C> <C> <C> <C>
Pretax income from
continuing operations $2,750 $2,664 $2,183 $1,891 $2,326
Interest expense 2,122 2,160 2,343 1,925 1,776
Other adjustments 127 139 95 103 88
------ ------ ------ ------ ------
Total earnings (a) $4,999 $4,963 $4,621 $3,919 $4,190
------ ------ ------ ------ ------
Fixed charges:
Interest expense $2,122 $2,160 $2,343 $1,925 $1,776
Other adjustments 129 130 135 142 130
------ ------ ------ ------ ------
Total fixed charges (b) $2,251 $2,290 $2,478 $2,067 $1,906
------ ------ ------ ------ ------
Ratio of earnings to
fixed charges (a/b) 2.22 2.17 1.86 1.90 2.20
</TABLE>
Included in interest expense in the above computation is interest expense
related to the international banking operations of American Express
Company ("American Express") 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 of American Express Company.
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 American Express, the
minority interest in the earnings of majority-owned subsidiaries with fixed
charges, and the interest component of rental expense and subtracting
undistributed net income of affiliates accounted for at equity.
For purposes of the "fixed charges" computation, other adjustments include
capitalized interest costs and the interest component of rental expense.
On May 31, 1994, American Express completed the spin-off of Lehman Brothers
through a dividend to American Express common shareholders. Accordingly,
Lehman Brothers' results are reported as a discontinued operation and are
excluded from the above computation for all periods presented. In March
1993, American Express reduced its ownership in First Data Corporation
("FDC") to approximately 22 percent through a public offering. As a result,
beginning in 1993, FDC was reported as an equity investment in the above
computation. In the fourth quarter of 1995, American Express' ownership
was further reduced to approximately 10 percent as a result of shares issued
by FDC in connection with a merger transaction. Accordingly, as of
December 31, 1995, American Express' investment in FDC is accounted for as
Investments - Available for Sale.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the
registration statements on Form S-3 (Registration Statement Nos. 33-
47497, 33-62797 and 333-38199) of American Express Credit Corporation
and in the related prospecti of our report dated February 5, 1998, with
respect to the consolidated financial statements and schedule of
American Express Credit Corporation included in this Annual Report
on Form 10-K for the year ended December 31, 1997.
/s/ Ernst & Young LLP
New York, New York
March 27, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Credco's Condensed Consolidated Balance Sheet at December 31, 1997
and Condensed Consolidated Statement of Income for the twelve months
ended December 31, 1997 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 374
<SECURITIES> 218
<RECEIVABLES> 19,609
<ALLOWANCES> 633
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 23,053
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 1,906
<TOTAL-LIABILITY-AND-EQUITY> 23,053
<SALES> 0
<TOTAL-REVENUES> 2,064
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 29
<LOSS-PROVISION> 584
<INTEREST-EXPENSE> 1,125
<INCOME-PRETAX> 326
<INCOME-TAX> 114
<INCOME-CONTINUING> 212
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 212
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
