<PAGE>
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 March 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File No. 1-6908
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
incorporation or organization) Identification No.)
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 May 17, 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
months ended March 31, 1999 and 1998 3
Condensed consolidated balance
sheets - March 31, 1999 and
December 31, 1998 4
Condensed consolidated statements
of cash flows - three months ended
March 31, 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
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<PAGE>
<TABLE>
<CAPTION>
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)
Three Months
Ended
March 31,
---------
1999 1998
---- ----
<S> <C> <C>
Revenues
Revenue earned from purchased
accounts receivable $ 425 $ 467
Interest income from affiliates 43 45
Interest income from investments 29 27
Other income 2 1
--- ---
Total 499 540
--- ---
Expenses
Interest expense - affiliates 38 54
Interest expense - other 235 239
Provision for doubtful accounts,
net of recoveries 128 154
Other expenses 5 7
--- ---
Total 406 454
--- ---
Income before taxes 93 86
Income tax provision 33 30
--- ---
Net income 60 56
Retained earnings at beginning of period 1,832 1,745
----- -----
Retained earnings at end of period $1,892 $1,801
====== ======
</TABLE>
See notes to condensed consolidated financial statements.
-3-
<PAGE>
<TABLE>
<CAPTION>
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly-owned subsidiary of American Express
Travel Related Services Company, Inc.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(millions)
(Unaudited)
March 31, December 31,
1999 1998
---- ----
<S> <C> <C>
Assets
Cash and cash equivalents $ 2,099 $ 648
Investments 353 353
Accounts receivable 18,361 19,241
Less: reserve for doubtful accounts 582 597
------- -------
17,779 18,644
Loans and deposits with affiliates 3,433 3,353
Deferred charges and other assets 448 652
------- -------
Total assets $24,112 $23,650
======= =======
Liabilities and shareholder's equity
Short-term debt with affiliates $ 1,306 $ 1,261
Short-term debt - other 16,803 16,267
Current portion of long-term debt - other 154 353
Long-term debt with affiliate 910 910
Long-term debt - other 2,151 2,143
------- -------
Total debt 21,324 20,934
Due to affiliates 394 425
Accrued interest and other liabilities 240 182
------- -------
Total liabilities 21,958 21,541
======= =======
Deferred discount revenue 100 115
------- -------
Shareholder's equity:
Common stock 1 1
Capital surplus 161 161
Retained earnings 1,892 1,832
------- -------
Total shareholder's equity 2,054 1,994
------- -------
Total liabilities and shareholder's equity $24,112 $23,650
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
-4-
<PAGE>
<TABLE>
<CAPTION>
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly-owned subsidiary of American Express
Travel Related Services Company, Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions)
(Unaudited)
Three Months Ended
March 31,
---------------------
1999 1998
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 60 $ 56
Adjustments to reconcile net income to net cash and
cash equivalents provided by operating activities:
Provision for doubtful accounts, net of recoveries 128 154
Amortization of deferred underwriting fees and bond
discount/premium 1 1
Changes in operating assets and liabilities:
(Increase) decrease in deferred tax assets (1) 4
Increase in interest receivable and other operating assets (29) (14)
Increase in due to affiliates 31 22
Increase in accrued interest and other liabilities 72 66
Decrease in deferred discount revenue (15) (8)
--- --
Net cash and cash equivalents provided by operating
activities 247 281
--- ---
Cash Flows from Investing Activities:
Decrease in accounts receivable 611 1,340
Recoveries of accounts receivable previously written off 39 43
Purchase of participation interest in seller's interest
in accounts receivable from an affiliate (317) -
Sale of net accounts receivable to an affiliate 325 -
Net increase in loans and deposits due from affiliates (80) -
Increase (decrease) in due to affiliates 240 (498)
--- ----
Net cash and cash equivalents provided by investing
activities 818 885
--- ---
Cash Flows from Financing Activities:
Net increase in short-term debt with affiliates with
maturity less than ninety days 45 139
Net decrease in short-term debt - other with
maturity less than ninety days (4) (415)
Proceeds from issuance of debt 2,382 1,018
Repayment of debt (2,037) (796)
------ ----
Net cash and cash equivalents provided by (used in)
financing activities 386 (54)
--- ---
Net increase in cash and cash equivalents 1,451 1,112
Cash and cash equivalents at beginning of period 648 374
--- ---
Cash and cash equivalents at end of period $ 2,099 $ 1,486
======= =======
</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 March 31, 1999 and the
consolidated results of its operations and changes in its retained
earnings for the three-month periods ended March 31, 1999 and 1998 and
cash flows for the three-month periods ended March 31, 1999 and 1998.
Results of operations reported for interim periods are not necessarily
indicative of results for the entire year.
2. For the three-month periods ended March 31, 1999 and 1998, Credco paid
$260 million and $275 million of interest, respectively. Income taxes
paid for each of the three-month periods ended March 31, 1999 and 1998
were $1 million and $2 million, respectively.
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 March 31, 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
March 31, 1999 was $265 million.
Available for sale securities are stated at fair value, with the
unrealized gains and losses included in shareholder's equity. At
March 31, 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 March 31,
1999 were $95 million. 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 these
sources were not material to Credco's results.
-6-
<PAGE>
5. In April 1999, the American Express Credit Account Master Trust
(the "Master Trust") issued an additional $1.0 billion 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 such issuance Credco Receivables Corp. ("CRC"), a
wholly-owned subsidiary of Credco, sold $66 million in seller's interest
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, CRC
purchased $75 million in Class C Certificates.
The Master Trust expects to securitize an additional $1.5 billion of
loans at a closing expected to occur in May 1999.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
At March 31, 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 March 31, 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.
Committed credit line facilities at March 31, 1999 and 1998 totaled $7.2
billion and $6.8 billion, respectively.
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 three-month periods ended March
-7-
<PAGE>
31, 1999 and 1998 was 1.34 and 1.29, respectively. The ratio of earnings
to fixed charges for American Express, the parent of TRS, for the
three-month periods ended March 31, 1999 and 1998 was 2.45 and 2.09,
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 $38 billion and $37 billion of Cardmember receivables during
the three-month periods ended March 31, 1999 and 1998, respectively. At
March 31, 1999 and December 31, 1998, Credco owned $16.1 billion and $17.1
billion, respectively, of Charge Card receivables of which $1.6 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 March 31, 1999 and December 31, 1998, Credco owned extended
payment plan receivables totaling $2.3 billion and $2.1 billion respectively,
including revolving credit loans purchased directly from Centurion Bank. The
extended payment plan receivables owned at March 31, 1999 and December 31,
1998 include $454 million and $154 million, respectively, of participation
interest owned by CRC. This represents a participation interest in the seller's
interest in revolving credit receivables that have been conveyed to the
American Express Credit Account Master Trust (the "Master Trust"). The
Master Trust was formed by Centurion Bank in 1996 to securitize revolving
credit loans.
For the three-month periods ended March 31, 1999 and 1998, the average life
of Cardmember receivables owned by Credco was 43 days.
Credco's write-offs, net of recoveries, as a percentage of the volume of
Cardmember receivables purchased for the three-month periods ended March 31,
1999 and 1998 was .38 percent and .44 percent, respectively.
Credco's decrease in revenue for the three-month period ended March 31, 1999,
is primarily due to a decrease in the discount and interest rates. There was
no significant change in interest income for the three-month period ended
March 31, 1999. Interest expense decreased for the three-month period ended
March 31, 1999 due predominantly to a decrease in interest rates. Provision
for doubtful accounts for the three-month period also decreased reflecting
lower provision rates.
-8-
<PAGE>
<TABLE>
<CAPTION>
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly-owned subsidiary of American Express
Travel Related Services Company, Inc.)
The following is an analysis of the increase (decrease) in key revenue and
expense accounts for the three-month period ended March 31, 1999, compared
with the three-month period ended March 31, 1998 ($ in millions):
Three
Month
Period
------
<S> <C>
Revenue earned from purchased accounts receivable-
changes attributable to:
Volume of receivables purchased 11
Discount and interest rates (53)
---
Total (42)
===
Interest income from affiliates - changes attributable to:
Volume of average investments outstanding 3
Interest rates (5)
--
Total (2)
==
Interest income from investments - changes attributable to:
Volume of average investments outstanding 6
Interest rates (4)
--
Total 2
==
Interest expense (affiliates) - changes attributable to:
Volume of average debt outstanding (11)
Interest rates (5)
--
Total (16)
===
Interest expense (other) - changes attributable to:
Volume of average debt outstanding 26
Interest rates (30)
---
Total (4)
==
Provision for doubtful accounts - changes attributable to:
Volume of receivables purchased 4
Provision rates and volume of recoveries (30)
---
Total (26)
===
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
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:
1999 1998
---- ----
<S> <C> <C>
Balance, January 1 $ 597 $ 633
Provision for losses 167 197
Accounts written off (182) (206)
Other - 2
---- ----
Balance, March 31 $582 $626
==== ====
</TABLE>
<TABLE>
<CAPTION>
The following table shows the aging of Charge Card receivables:
March 31,
--------------------------
1999 1998
---- ----
<S> <C> <C>
Current 82.2% 81.3%
30 to 59 days 12.4 13.0
60 to 89 days 2.0 2.1
90 days and over 3.4 3.6
</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 9 through 10 of American Express Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 (dated
May 14, 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 9 through 10 of American Express Company's
Quarterly Report on Form 10-Q for the quarter
ended March 31, 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: May 17, 1999 /s/Vincent P. Lisanke
---------------------
Vincent P. Lisanke
(President, Chief Executive Officer
and Chief Accounting Officer)
EXHIBIT INDEX
Pursuant to Item 601 of Regulation S-K
Description How Filed
----------- ---------
Exhibit 12.1 Computation in support of ratio of Electronically
Earnings to fixed charges of American filed herewith.
Express Credit Corporation.
Exhibit 12.2 Computation in support of ratio of Electronically
Earnings to fixed charges of American filed herewith.
Express Company.
Exhibit 27. Financial data schedule. Electronically
filed herewith.
Exhibit 99. Pages 9 through 10 of American Express Electronically
Company's Quarterly Report on Form 10-Q filed herewith.
for the quarter ended March 31, 1999,
discussing Year 2000.
-12-
<PAGE>
<TABLE>
<CAPTION>
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)
Three Months Ended
March 31,
(Unaudited) Years Ended December 31,
------------ -------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Net Income $ 60 $ 56 $ 237 $ 212 $ 215 $ 197 $ 139
Income tax provision 33 30 128 114 115 105 75
Interest expense 273 293 1,190 1,125 1,117 1,054 736
------ ------ ------ ------ ------ ------ ------
Total earnings $ 366 $ 379 $1,555 $1,451 $1,447 $1,356 $ 950
====== ====== ====== ====== ====== ====== ======
Fixed charges -
interest expense $ 273 $ 293 $1,190 $1,125 $1,117 $1,054 $ 736
====== ====== ====== ====== ====== ====== ======
Ratio of earnings
to fixed charges 1.34 1.29 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>
<CAPTION>
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)
Three Months
Ended
March 31, Years Ended December 31,
1999 ------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Pretax income from
continuing operations $ 791 $2,925 $2,750 $2,664 $2,183 $1,891
Interest expense 511 2,224 2,122 2,160 2,343 1,925
Other adjustments 33 124 127 139 95 103
------- ------ ------ ------ ------ ------
Total earnings (a) $1,335 $5,273 $4,999 $4,963 $4,621 $3,919
------- ------ ------ ------ ------ ------
Fixed charges:
Interest expense $ 511 $2,224 $2,122 $2,160 $2,343 $1,925
Other adjustments 35 129 129 130 135 142
------- ------ ------ ------ ------ ------
Total fixed charges (b) $ 546 $2,353 $2,251 $2,290 $2,478 $2,067
------- ------ ------ ------ ------ ------
Ratio of earnings
to fixed charges (a/b) 2.45 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.
<PAGE>
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 MARCH 31, 1999
Year 2000
The Company's Year 2000 (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 systems maintained by the Company, the first three phases
referred to above have largely been completed for both Millenniax and
Business T. In addition, the remediation/decommission phase for
critical systems is nearly complete. As of March 31, 1999, for
Millenniax, the remediation/decommission, testing and implementation
phases for critical and non-critical systems in total are 91%, 85% and
74% complete, respectively. For Business T, such phases are 94%, 85%
and 84% complete, respectively.
The Company's cumulative costs since inception of the Y2K initiatives
were $427 million through March 31, 1999 and are estimated to be in
the range of $90 - $116 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%
and 1% 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.
At this point, with remediation and testing of individual internal
systems substantially complete, the Company's primary focus is on
testing of systems on an integrated basis, independent validation of
such testing and completing Y2K contingency plans. 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 and developing our
own technology infrastructure in lieu of those provided by third
parties.
9
<PAGE>
Such plans encompass the creation of both remediation and business
resumption contingency plans, generally in accordance with guidelines
established by the Federal Financial Institutions Examination Council.
For the Company's critical systems that are not yet Y2K compliant,
we are on track to achieving remediation by the second quarter of
1999*; to the extent that unforeseen circumstances arise that result
in non-compliance of any such systems, remediation contingency plans
are also being developed to mitigate such risk. Our business resumption
contingency planning effort is divided into four phases: (i) establishing
organizational planning guidelines; (ii) completing a business impact
analysis; (iii) developing the business resumption contingency plans
and (iv) validating and verifying the business resumption contingency
plans. The first two of these phases have essentially been completed,
and have identified and assessed the need for Y2K business resumption
contingency plans for the Company's most critical core business
processes. Such processes include, but are not limited to, credit
authorization, Cardmember billing, merchant payment, client investments,
funds transfer, securities settlement, and travel reservations. The
contingency plans also address third party systems that the Company's
businesses interface with and rely upon, such as international
telecommunications networks, global financial payment and clearing
systems, and airline and other travel systems. The Company expects
that the development phase of its business resumption contingency plans
will be substantially complete by the second quarter of 1999.* The final
phase, which will include independent validation and verification of
these 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.
For a more complete discussion of 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 to successfully identify all
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
the Company to successfully address their Y2K issues.
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Credco's Condensed Consolidated Balance Sheet at March 31, 1999 and Condensed
Consolidated Statement of Income for the three months ended March 31, 1999 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
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