UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 June 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File 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 Centre, 301 North Walnut Street 19801-2919
Suite 1002, Wilmington, Delaware (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (302) 594-3350
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report.)
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
H(1)(a) AND (b) OF FORM 10-Q AND HAS THEREFORE OMITTED CERTAIN ITEMS FROM
THIS REPORT IN ACCORDANCE WITH THE REDUCED DISCLOSURE FORMAT PERMITTED UNDER
GENERAL INSTRUCTIONS H(2).
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 August 16, 1999
- ----- ------------------------------
Common Stock, $.10 par value 1,504,938 shares
<PAGE>
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly-owned subsidiary of American Express
Travel Related Services Company, Inc.)
FORM 10-Q
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed consolidated statements
of income and retained earnings - three
and six months ended June 30, 1999 and 1998 3
Condensed consolidated balance
sheets - June 30, 1999 and
December 31, 1998 4
Condensed consolidated statements
of cash flows - six months ended
June 30, 1999 and 1998 5
Notes to condensed consolidated
financial statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
2
<PAGE>
<TABLE>
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly-owned subsidiary of American Express
Travel Related Services Company, Inc.)
PART I
Item 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND RETAINED EARNINGS
(millions)
(Unaudited)
<CAPTION>
Three Months Six Months
Ended Ended
June 30, June 30,
-------------------- ----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Revenue earned from purchased
accounts receivable $468 $497 $893 $964
Interest income from affiliates 36 45 79 90
Interest income from investments 38 37 67 64
Other income 1 2 3 3
--- --- ----- -----
Total 543 581 1,042 1,121
--- --- ----- -----
Expenses
Interest expense - affiliates 32 40 70 94
Interest expense - other 242 262 477 501
Provision for doubtful accounts,
net of recoveries 169 178 297 332
Other expenses 7 7 12 14
--- --- --- ---
Total 450 487 856 941
--- --- --- ---
Income before taxes 93 94 186 180
Income tax provision 32 33 65 63
-- -- -- --
Net income 61 61 121 117
Retained earnings at beginning of period 1,892 1,801 1,832 1,745
------ ------ ------ ------
Retained earnings at end of period $1,953 $1,862 $1,953 $1,862
====== ====== ====== ======
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
<TABLE>
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly-owned subsidiary of American Express
Travel Related Services Company, Inc.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(millions)
<CAPTION>
(Unaudited)
June 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Assets
Cash and cash equivalents $1,790 $648
Investments 796 353
Accounts receivable 19,606 19,241
Less: reserve for doubtful accounts 615 597
------ ------
18,991 18,644
Loans and deposits with affiliates 2,106 3,353
Deferred charges and other assets 587 652
------- -------
Total assets $24,270 $23,650
======= =======
Liabilities and shareholder's equity
Short-term debt with affiliates $1,758 $1,261
Short-term debt-other 16,555 16,267
Current portion of long-term debt-other 300 353
Long-term debt with affiliate 910 910
Long-term debt-other 1,868 2,143
------ ------
Total debt 21,391 20,934
Due to affiliates 331 425
Accrued interest and other liabilities 323 182
------ ------
Total liabilities 22,045 21,541
====== ======
Deferred discount revenue 112 115
--- ---
Shareholder's equity:
Common stock 1 1
Capital surplus 161 161
Retained earnings 1,953 1,832
Other comprehensive income, net of tax:
Net unrealized securities losses (2) -
----- -----
Total shareholder's equity 2,113 1,994
----- -----
Total liabilities and shareholder's equity $24,270 $23,650
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
<TABLE>
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly-owned subsidiary of American Express
Travel Related Services Company, Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions)
(Unaudited)
<CAPTION>
Six Months
Ended
June 30,
------------------
1999 1998
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $121 $117
Adjustments to reconcile net income to net cash and
cash equivalents provided by operating activities:
Provision for doubtful accounts, net of recoveries 297 332
Amortization of deferred underwriting fees and bond
discount/premium 3 2
Changes in operating assets and liabilities:
(Increase) decrease in deferred tax assets (2) 7
Increase in interest receivable and other
operating assets (67) (53)
Decrease in due to affiliates (212) -
Increase in accrued interest and other liabilities 154 37
Decrease in deferred discount revenue (3) (14)
--- ---
Net cash and cash equivalents provided by
operating activities 291 428
--- ---
Cash Flows from Investing Activities:
(Increase) decrease in accounts receivable (1,014) 294
Recoveries of accounts receivable previously written off 82 84
Purchase of investments (445) (153)
Purchase of participation interest in seller's interest
in accounts receivable from an affiliate (317) -
Sale of participation interests in seller's interest
in accounts receivable from an affiliate 154 1,120
Sale of net accounts receivable to an affiliate 325 -
Decrease (increase) in loans and deposits due from
affiliates 1,247 (95)
Increase (decrease) in due to affiliates 380 (911)
--- ----
Net cash and cash equivalents provided by
investing activities 412 339
--- ---
Cash Flows from Financing Activities:
Net increase in short-term debt with affiliates with
maturity less than ninety days 498 40
Net decrease in short-term debt - other with
maturity less than ninety days (868) (1,120)
Proceeds from issuance of debt 5,028 2,522
Repayment of debt (4,219) (2,073)
------ ------
Net cash and cash equivalents provided by (used in)
financing activities 439 (631)
----- -----
Net increase in cash and cash equivalents 1,142 136
Cash and cash equivalents at beginning of period 648 374
------ ----
Cash and cash equivalents at end of period $1,790 $510
====== ====
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly-owned subsidiary of American Express
Travel Related Services Company, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The condensed consolidated financial statements should be read in
conjunction with the Annual Report on Form 10-K of American Express
Credit Corporation, including its subsidiaries where appropriate
("Credco"), for the year ended December 31, 1998. Significant
accounting policies disclosed therein have not changed.
The condensed consolidated financial statements are unaudited; however,
in the opinion of management, they include all adjustments (consisting
of normal recurring adjustments) necessary for a fair presentation of
the consolidated financial position of Credco at June 30, 1999 and the
consolidated results of its operations and changes in its retained
earnings for the six-month periods ended June 30, 1999 and 1998 and cash
flows for the six-month periods ended June 30, 1999 and 1998. Results of
operations reported for interim periods are not necessarily indicative
of results for the entire year.
2. For the six-month periods ended June 30, 1999 and 1998, Credco paid $547
million and $589 million of interest, respectively. Income taxes paid for
both six-month periods ended June 30, 1999 and 1998 were $47 million.
3. Management determines the appropriate classification of debt securities
at the time of purchase. Debt securities are classified as held to
maturity when Credco has the positive intent and ability to hold the
securities to maturity. Held to maturity securities are stated at
amortized cost. At June 30, 1999, Credco held $258 million of American
Express Master Trust Class B Certificates which were classified as held
to maturity. The fair value of the held to maturity securities at
June 30, 1999 was $259 million.
Available for sale securities are stated at fair value, with the
unrealized gains and losses included in shareholder's equity. At
June 30, 1999, Credco held American Express Credit Account Master Trust
Class C Certificates which were classified as available for sale. The
cost and fair value of these available for sale securities at
June 30, 1999 were $303 million. In addition, Credco has a portfolio of
corporate and government securities which is managed by American Express
Financial Advisors, a wholly-owned subsidiary of American Express
Company. The book value and fair value of these available for sale
securities as of June 30, 1999 were $237 million and $235 million,
respectively.
The available for sale classification does not mean that Credco
necessarily expects to sell these securities. They are available
to meet possible liquidity needs should there be significant changes in
market interest rates, customer demand or funding sources and terms.
4. In 1998, Credco adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income". Comprehensive income consists
of net income and other comprehensive income; the latter includes
unrealized gains and losses on available for sale securities and foreign
exchange translation adjustments. Actual income from foreign exchange
translation adjustments was not material to Credco's results.
6
<PAGE>
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly-owned subsidiary of American Express
Travel Related Services Company, Inc.)
5. In April and May 1999, the American Express Credit Account Master Trust
(the "Master Trust") issued an additional $1.0 billion and $1.5 billion,
respectively, of loans through the public issuance of two classes of
investor certificates and a privately placed collateral interest in the
assets of the Master Trust. At the time of these issuances Credco
Receivables Corp.("CRC"), a wholly-owned subsidiary of Credco, sold $66
million in April 1999 and $92 million in May 1999 in gross seller's
interest, net of reserves, to American Express Receivables Financing
Corporation II, a wholly-owned subsidiary of American Express Travel
Related Services Company, Inc., a wholly-owned subsidiary of American
Express Company. In addition, in April and May 1999 CRC purchased
$75 million and $133 million, respectively, in Class C Certificates
issued by the Master Trust.
The Master Trust expects to securitize an additional $1.0 billion of
loans at a closing expected to occur in August 1999.
In July 1999, $500 million Class A Fixed Rate Accounts Receivable Trust
Certificates matured from the charge card securitization portfolio which
increases the participation interests owned by CRC. CRC owns a
participation interest in the seller's interest in Charge Cardmember
receivables that have been conveyed to the American Express Master Trust.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
At June 30, 1999, American Express Credit Corporation, including its
subsidiaries where appropriate ("Credco"), had the ability to issue $1.4
billion of debt under the Euro Medium-Term Note program for the issuance of
debt outside the United States to non-U.S. persons. This program was
established by Credco, American Express Travel Related Services Company, Inc.
("TRS"), a wholly-owned subsidiary of American Express Company
("American Express"), American Express Centurion Bank ("Centurion Bank"),
a wholly-owned subsidiary of TRS, American Express Overseas Credit Corporation
Limited ("AEOCC"), a wholly-owned subsidiary of Credco, and American Express
Bank Ltd., a wholly-owned subsidiary of American Express. The maximum
aggregate principal amount of debt instruments outstanding at any one time
under the program will not exceed $3 billion. In January 1999, under this
program, TRS issued and sold $500 million 5.625% Fixed Rate Notes. These
notes will mature in 2004.
At June 30, 1999, Credco had the ability to issue $2.4 billion of medium-
and long-term debt and warrants under shelf registrations filed with the
Securities and Exchange Commission.
In May 1999, Credco renegotiated its credit facilities, increasing available
credit lines by $1.1 billion. Committed credit line facilities at
June 30, 1999 and 1998 totaled $8.3 billion and $7.2 billion, respectively.
7
<PAGE>
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly-owned subsidiary of American Express
Travel Related Services Company, Inc.)
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 for the six-month
periods ended June 30, 1999 and 1998 was 1.34 and 1.30, respectively. The
ratio of earnings to fixed charges for American Express, the parent of TRS,
for the six-month periods ended June 30, 1999 and 1998 was 2.53 and 2.23,
respectively. 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.
Credco purchased $79 billion and $75 billion of Cardmember receivables during
the six-month periods ended June 30, 1999 and 1998, respectively. At
June 30, 1999 and December 31, 1998, Credco owned $17.2 billion and $17.1
billion, respectively, of Charge Card receivables of which $1.9 billion and
$2.9 billion, respectively, were participation interests owned by Credco
Receivables Corp. ("CRC"), a wholly-owned subsidiary of Credco. CRC owns a
participation in the seller's interest in charge Cardmember receivables that
have been conveyed to the American Express Master Trust (the "Trust"). The
Trust was formed in 1992 by TRS to securitize U.S. charge Cardmember
receivables.
In addition, at June 30, 1999 and December 31, 1998, Credco owned extended
payment plan receivables totaling $2.4 billion and $2.1 billion, respectively,
including revolving credit loans purchased directly from Centurion Bank. The
extended payment plan receivables owned at June 30, 1999 and December 31, 1998
include $300 million and $154 million, respectively, of participation interest
owned by CRC. This represents a participation interest in the seller's
interest in revolving credit receivables that have been conveyed to the
American Express Credit Account Master Trust (the "Master Trust"). The Master
Trust was formed by Centurion Bank in 1996 to securitize revolving credit
loans.
For the six-month periods ended June 30, 1999 and 1998, the average life of
Cardmember receivables owned by Credco was 43 days.
Credco's write-offs, net of recoveries, as a percentage of the volume of
Cardmember receivables purchased for the six-month periods ended
June 30, 1999 and 1998 was .36 percent and .43 percent, respectively.
Credco's decrease in revenue for the six-month period ended June 30, 1999,
is attributable to a decrease in the discount and interest rates on
receivables purchased. Interest income decreased for the six-month period
ended June 30, 1999 predominantly due to a decrease in interest rates.
Interest expense decreased for the six months ended June 30, 1999 primarily
due to a decrease in interest rates. Provision for doubtful accounts for the
six-month period also decreased reflecting lower provision rates.
8
<PAGE>
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly-owned subsidiary of American Express
Travel Related Services Company, Inc.)
The following is an analysis of the increase (decrease) in key revenue and
expense accounts for the six-month period ended June 30, 1999, compared with
the six-month period ended June 30, 1998 ($ in millions):
<TABLE>
<CAPTION>
Six-
Month
Period
------
<S> <C>
Revenue earned from purchased accounts receivable-
changes attributable to:
Volume of receivables purchased 66
Discount and interest rates (137)
----
Total (71)
===
Interest income from affiliates - changes attributable to:
Volume of average investments outstanding (2)
Interest rates (9)
--
Total (11)
===
Interest income from investments - changes attributable to:
Volume of average investments outstanding 12
Interest rates (9)
---
Total 3
===
Interest expense (affiliates) - changes attributable to:
Volume of average debt outstanding (14)
Interest rates (10)
---
Total (24)
===
Interest expense (other) - changes attributable to:
Volume of average debt outstanding 42
Interest rates (66)
---
Total (24)
===
Provision for doubtful accounts - changes attributable to:
Volume of receivables purchased 22
Provision rates and volume of recoveries (57)
---
Total (35)
===
</TABLE>
9
<PAGE>
<TABLE>
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly-owned subsidiary of American Express
Travel Related Services Company, Inc.)
The following is an analysis of Cardmember reserve for doubtful accounts
($ in millions):
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Balance, January 1 $597 $633
Provision for losses 379 416
Accounts written off (372) (409)
Other 11 (35)
---- ----
Balance, June 30 $615 $605
==== ====
The following table shows the aging of Charge Card receivables:
<CAPTION>
June 30,
------------------------------
1999 1998
---- ----
<S> <C> <C>
Current 81.3% 79.0%
30 to 59 days 13.8 15.6
60 to 89 days 2.0 2.2
90 days and over 2.9 3.2
</TABLE>
Year 2000
The year 2000 ("Y2K") 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 Y2K issue. The Card issuers, which
are subsidiaries or affiliates of TRS, at their expense and as agents for
Credco, 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 Y2K 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 has substantially
completed remediation and testing of individual internal systems and American
Express' primary focus is on the testing of systems on an integrated basis,
independent validation of such testing and completing Y2K contingency plans.**
The costs related to the Y2K issue, which are expensed by American Express as
incurred have not had, nor are they expected to have, a material impact on
Credco's results of operations or financial condition.** For further
discussion of American Express' addressing of the Y2K issue, please see
pages 10 through 12 of American Express Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999 (dated August 16, 1999) and
which is incorporated herein by reference and attached as Exhibit 99.
Various statements in this Y2K discussion marked with two asterisks (**) are
forward-looking statements which are subject to risks and uncertainties.
Important factors that could cause results to differ materially from these
forward-looking statements include, among other things, the ability of Credco
and American Express to successfully identify systems containing two-digit
codes, the nature and amount of programming required to fix the affected
systems, the costs of labor and consultants related to such efforts, the
continued availability of such resources, and the ability of third parties
that interface with Credco and American Express to successfully address their
Y2K issues.
10
<PAGE>
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly-owned subsidiary of American Express
Travel Related Services Company, Inc.)
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
12.1 Computation in support of ratio of earnings to
fixed charges of American Express Credit Corporation.
12.2 Computation in support of ratio of earnings to
fixed charges of American Express Company.
27. Financial data schedule.
99. Pages 10 through 12 of American Express Company's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999, discussing Year 2000.
(b) Reports on Form 8-K
None.
11
<PAGE>
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly-owned subsidiary of American Express
Travel Related Services Company, Inc.)
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 CREDIT CORPORATION
(REGISTRANT)
DATE: August 16, 1999 /s/Walker C. Tompkins, Jr.
--------------------------
Walker C. Tompkins, Jr.
(President, Chief Executive Officer)
/s/Erich Komdat
---------------
Erich Komdat
(Vice President, Chief Accounting
Officer)
EXHIBIT INDEX
Pursuant to Item 601 of Regulation S-K
Description How Filed
----------- ---------
Exhibit 12.1 Computation in support Electronically filed herewith.
of ratio of Earnings to fixed
charges of American Express
Credit Corporation.
Exhibit 12.2 Computation in support Electronically filed herewith.
of ratio of Earnings to fixed
charges of American Express
Company.
Exhibit 27. Financial data schedule. Electronically filed herewith.
Exhibit 99. Pages 10 through 12 of American Electronically filed herewith.
Express Company's Quarterly Report
on Form 10-Q for the quarter ended
June 30, 1999, discussing Year 2000.
12
<TABLE>
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly-owned subsidiary of American Express
Travel Related Services Company, Inc.)
EXHIBIT 12.1
COMPUTATION IN SUPPORT OF RATIO OF EARNINGS TO FIXED CHARGES
OF AMERICAN EXPRESS CREDIT CORPORATION
(millions)
<CAPTION>
Six Months
Ended
June 30,
(Unaudited) Years Ended December 31,
----------- --------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Net Income $ 121 $ 117 $ 237 $ 212 $ 215 $ 197 $ 139
Income tax provision 65 63 128 114 115 105 75
Interest expense 547 595 1,190 1,125 1,117 1,054 736
------ ------ ------ ------ ------ ------ ------
Total earnings $ 733 $ 775 $1,555 $1,451 $1,447 $1,356 $ 950
====== ====== ====== ====== ====== ====== ======
Fixed charges -
interest expense $ 547 $ 595 $1,190 $1,125 $1,117 $1,054 $ 736
====== ====== ====== ====== ====== ====== ======
Ratio of earnings
to fixed charges 1.34 1.30 1.31 1.29 1.30 1.29 1.29
</TABLE>
Note: Gross rentals on long-term leases were minimal in amount in each of
the periods shown.
<PAGE>
<TABLE>
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly-owned subsidiary of American Express
Travel Related Services Company, Inc.)
EXHIBIT 12.2
COMPUTATION IN SUPPORT OF RATIO OF EARNINGS TO FIXED CHARGES
OF AMERICAN EXPRESS COMPANY
(Dollars in millions)
<CAPTION>
Six Months
Ended
June 30, Years Ended December 31,
1999 ------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Pretax income from
continuing operations $1,687 $2,925 $2,750 $2,664 $2,183 $1,891
Interest expense 1,031 2,224 2,122 2,160 2,343 1,925
Other adjustments 70 124 127 139 95 103
------ ------ ------ ------ ------ ------
Total earnings (a) $2,788 $5,273 $4,999 $4,963 $4,621 $3,919
====== ====== ====== ====== ====== ======
Fixed charges:
Interest expense $1,031 $2,224 $2,122 $2,160 $2,343 $1,925
Other adjustments 69 129 129 130 135 142
------ ------ ------ ------ ------ ------
Total fixed charges (b) $1,100 $2,353 $2,251 $2,290 $2,478 $2,067
====== ====== ====== ====== ====== ======
Ratio of earnings
to fixed charges (a/b) 2.53 2.24 2.22 2.17 1.86 1.90
</TABLE>
Included in interest expense in the above computation is interest expense
related to the international banking operations of American Express Company
(the Company) and Travel Related Services' Cardmember lending activities,
which is netted against interest and dividends and Cardmember lending net
finance charge revenue, respectively, in the Consolidated Statements of
Income 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 the Company, the minority
interest in the earnings of majority-owned subsidiaries with fixed charges,
and the interest component of rental expense and subtracting undistributed net
income of affiliates accounted for at equity.
For purposes of the "fixed charges" computation, other adjustments include
capitalized interest costs and the interest component of rental expense.
On May 31, 1994, the Company completed the spin-off of Lehman Brothers through
a dividend to American Express common shareholders. Accordingly, Lehman
Brothers' results are reported as a discontinued operation and are excluded
from the above computation. In the fourth quarter of 1995, the Company's
ownership in First Data Corporation ("FDC") was reduced to approximately 10
percent as a result of shares issued by FDC in connection with a merger
transaction. Accordingly, as of December 31, 1995, the Company's investment
in FDC is accounted for as Investments - Available for Sale.
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly-owned subsidiary of American Express
Travel Related Services Company, Inc.)
EXHIBIT 99
EXCERPT FROM AMERICAN EXPRESS COMPANY'S QUARTERLY REPORT
ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999
Year 2000
- ---------
The Company began addressing the Year 2000 (Y2K) issue in 1995 and has
established a plan for resolution, which involves the remediation,
decommissioning and replacement of relevant systems, including mainframe,
mid-range and desktop computers, application software, operating systems,
systems software, data back-up archival and retrieval services, telephone and
other communications systems, and hardware peripherals and facilities
dependent on embedded technology. The Y2K compliance effort is divided into
two initiatives. The first, known as "Millenniax," relates to mainframe and
other technological systems maintained by the American Express Technologies
organization (AET). The second, known as "Business T," relates to the
technological assets that are owned, managed or maintained by the Company's
individual business and staff units. Our plans for remediation of the Y2K
issue include the following program phases: (i) employee awareness and
mobilization, (ii) inventory collection and assessment, (iii) impact analysis,
(iv) remediation/decommission, (v) testing and (vi) implementation. With
respect to the Millenniax systems and Business T assets, all of the program
phases referred to above are at least 99 percent complete.
The Company's cumulative costs since inception of the Y2K initiatives were
$471 million through June 30, 1999 and are estimated to be in the range of $46
- - $72 million for the remainder through 2000.* These costs, which are expensed
as incurred, relate to both Millenniax and Business T, and have not had, nor
are they expected to have, a material adverse impact on the Company's results
of operations or financial condition.* Y2K costs related to Millenniax
represent 6 percent and 1 percent of the AET budget for the years 1999 and 2000,
respectively.*
The Company's major businesses are heavily dependent upon internal computer
systems, and all have significant interaction with systems of third parties,
both domestically and internationally. The Company is working with key
external parties, including merchants, clients, counterparties, vendors,
exchanges, utilities, suppliers, agents and regulatory agencies to mitigate
the potential risks to us of Y2K. As part of our overall compliance program,
the Company is actively communicating with third parties through face-to-face
meetings and correspondence, on an ongoing basis, to ascertain their state of
readiness. Although numerous third parties have indicated to us in writing
that they are addressing their Y2K issues on a timely basis, the readiness of
third parties overall varies across the spectrum. The failure of external
parties to resolve their own Y2K issues in a timely manner could result in a
material financial risk to the Company.*
10
<PAGE>
At this point, with remediation and testing of individual internal systems
substantially complete, the Company's primary focus is on performing
additional targeted integration testing of systems that support our most
critical business functions, independent validation of such testing and
completing Y2K contingency plans for all critical systems and, to a lesser
extent, certain non-critical systems. A substantial portion of the
integrated testing and related validation has been completed, with the
remainder scheduled to be completed during the third quarter of 1999.*
The contingency planning effort is a full-scale initiative that includes both
internal and external experts under the guidance of a Company-wide steering
committee. Our contingency plans, which are based in part on an assessment of
the magnitude and probability of potential risks, primarily focus on proactive
steps to prevent Y2K-related failures from occurring, or if they should occur,
detecting them quickly, minimizing their impact and expediting their repair.
The Y2K contingency plans supplement disaster recovery and business continuity
plans already in place, and include measures such as selecting alternative
suppliers and channels of distribution, setting up manual back-up processes,
creating command centers, establishing additional roll-over management
procedures and scheduling the availability of key personnel.
Our Y2K contingency plans have been developed generally in accordance with
guidelines established by the Federal Financial Institutions Examination
Council. This effort is divided into four phases: (i) establishing
organizational planning guidelines, (ii) completing a business impact analysis,
(iii) developing the contingency plans and (iv) validating and verifying the
contingency plans. The first three of these phases have essentially been
completed, and have identified and assessed the need for, and developed, Y2K
contingency plans for the Company's most critical core business functions. Such
functions include, but are not limited to, credit authorization, Cardmember
billing, merchant payment, client investments, funds transfer, securities
settlement and travel reservations. These contingency plans also address third
party systems that the Company's businesses interface with and rely upon, such
as international telecommunications networks and utilities, global financial
payment and clearing systems, and airline and other travel systems. The final
phase of our contingency planning, which will include validation and
verification of the contingency plans, will take place during the third quarter
of 1999.* The Company will continue to refine its contingency planning
activities throughout 1999 as additional information related to our exposures is
gathered.* To the extent that there are Y2K failures that affect major internal
processes or third party systems that the Company relies upon, including but not
limited to those described above, such failures could have a material impact on
the Company and its businesses or subsidiaries through business interruption or
shutdown, financial loss, reputational damage and legal liability to third
parties.* At this point it appears that some of the major industries in certain
countries outside the United States, such as telecommunications and utilities,
have made less progress in the Y2K compliance effort and, as a result, may
present a somewhat greater exposure to the Company.*
For additional information relating to the Y2K issue, see pages 22 and 23 of
the Company's 1998 annual report to shareholders, which is incorporated by
reference in the Company's 1998 10-K report.
* Statements in this Y2K discussion marked with an asterisk are forward-looking
statements which are subject to risks and uncertainties. Important factors that
could cause results to differ materially from these forward-looking statements
include, among other things, the ability of the Company
11
<PAGE>
to successfully identify all systems containing two-digit codes, the
nature and amount of programming and other resources required to fix and test
the affected systems, the costs of labor and consultants related to such
efforts as well as those involving the development and implementation of
contingency plans, the continued availability of such personnel, the ability
of third parties that interface with the Company to successfully address their
Y2K issues, and the ability of the Company to assess potential internal and
external Y2K exposures and develop effective contingency plans in connection
therewith.
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Credco's Condensed Consolidated Balance Sheet at June 30, 1999 and Condensed
Consolidated Statement of Income for the three months ended June 30, 1999 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
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0
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