UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
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(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File 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 November 14, 2000
----------------------------- --------------------------------
Common Stock, $.10 par value 1,504,938 shares
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly-owned subsidiary of American Express
Travel Related Services Company, Inc.)
FORM 10-Q
INDEX
PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Condensed consolidated statements
of income and retained earnings - three and nine
months ended September 30, 2000 and 1999 3
Condensed consolidated balance
sheets - September 30, 2000 and
December 31, 1999 4
Condensed consolidated statements
of cash flows - nine months ended
September 30, 2000 and 1999 5
Notes to condensed consolidated
financial statements 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 7
Other Reporting Matters 11
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 12
-2-
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)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Revenue earned from purchased accounts receivable $ 540 $ 443 $1,711 $1,336
Interest income from affiliates 28 23 71 102
Interest income from investments 48 36 129 103
Other income - 1 4 4
----------- ---------- ---------- ----------
Total 616 503 1,915 1,545
----------- ---------- ---------- ----------
EXPENSES
Interest expense - affiliates 56 35 154 105
Interest expense - other 319 240 904 717
Provision for doubtful accounts,
net of recoveries 152 146 532 443
Other expenses 4 5 15 17
---------- ---------- --------- ---------
Total 531 426 1,605 1,282
---------- ---------- --------- ---------
Income before taxes 85 77 310 263
Income tax provision 28 27 107 92
---------- ---------- --------- ---------
Net income 57 50 203 171
Retained earnings at beginning of period 2,051 1,953 1,905 1,832
---------- ---------- --------- ---------
Retained earnings at end of period $2,108 $2,003 $2,108 $2,003
========== ========== ========= =========
</TABLE>
See notes to condensed consolidated financial statements.
-3-
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly-owned subsidiary of American Express
Travel Related Services Company, Inc.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(millions)
<TABLE>
<CAPTION>
(Unaudited)
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------ -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,418 $ 1,102
Investments 1,271 947
Accounts receivable 23,531 23,325
Less: reserve for doubtful accounts 740 684
---------- ----------
22,791 22,641
Loans and deposits with affiliates 1,701 1,461
Deferred charges and other assets 382 575
---------- ----------
Total assets $27,563 $26,726
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Short-term debt with affiliates $ 1,708 $ 1,494
Short-term debt - other 20,301 18,737
Current portion of long-term debt - other 250 550
Long-term debt with affiliate 910 910
Long-term debt - other 1,202 1,665
---------- ----------
Total debt 24,371 23,356
Due to affiliates 833 1,061
Accrued interest and other liabilities 94 248
---------- ----------
Total liabilities 25,298 24,665
---------- ----------
Shareholder's equity:
Common stock 1 1
Capital surplus 161 161
Retained earnings 2,108 1,905
Other comprehensive income, net of tax:
Net unrealized securities losses (5) (6)
----------- -----------
Total shareholder's equity 2,265 2,061
----------- -----------
Total liabilities and shareholder's equity $27,563 $26,726
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
-4-
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly-owned subsidiary of American Express
Travel Related Services Company, Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
-------------------------------
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 203 $ 171
Adjustments to reconcile net income to net cash and
cash equivalents provided by operating activities:
Provision for doubtful accounts, net of recoveries 532 443
Amortization of deferred underwriting fees and bond discount/premium 1 4
Changes in operating assets and liabilities:
Increase in deferred tax assets (6) (4)
Decrease (increase) in interest receivable and other operating assets 269 (11)
(Decrease) increase in due to affiliates (73) 1
(Decrease) increase in accrued interest and other liabilities (159) 90
-------- ---------
Net cash and cash equivalents provided by operating activities 767 694
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in accounts receivable (589) (2,217)
Recoveries of accounts receivable previously written off 132 127
Purchase of participation interest in seller's interest
in accounts receivable from an affiliate (778) (959)
Sale of participation interest in seller's interest
in accounts receivable to an affiliate 181 247
Sale of net accounts receivable to an affiliate 154 447
Purchase of investments (370) (641)
Maturity of investments 49 33
(Increase) decrease in loans and deposits due from affiliates (240) 2,229
(Decrease) increase in due to affiliates (117) 668
-------- ---------
Net cash and cash equivalents used in investing activities (1,578) (66)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term debt with affiliates with
maturities less than ninety days 214 584
Net increase (decrease) in short-term debt - other with
maturities less than ninety days 5,087 (1,437)
Proceeds from issuance of debt 2,072 7,183
Redemption of debt (6,246) (7,043)
-------- ---------
Net cash and cash equivalents provided by (used in)
financing activities 1,127 (713)
-------- ---------
Net increase (decrease) in cash and cash equivalents 316 (85)
Cash and cash equivalents at beginning of period 1,102 648
-------- ---------
Cash and cash equivalents at end of period $1,418 $ 563
======== =========
</TABLE>
See notes to condensed consolidated financial statements.
-5-
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, 1999. 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 September 30, 2000 and the
consolidated results of its operations and changes in its retained earnings
for the nine-month periods ended September 30, 2000 and 1999 and cash flows
for the nine-month periods ended September 30, 2000 and 1999. Results of
operations reported for interim periods are not necessarily indicative of
results for the entire year. Certain prior year amounts have been
reclassified to conform to the current year presentation.
2. For the nine-month periods ended September 30, 2000 and 1999, Credco paid
$1.1 billion and $0.8 billion of interest, respectively. Income taxes paid
for each of the nine-month periods ended September 30, 2000 and 1999 were
$188 million and $92 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
September 30, 2000 and 1999, Credco held $194 million and $229 million,
respectively, 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 September 30, 2000 and 1999 was $193 million and $227
million, respectively.
Available for sale securities are stated at fair value, with the unrealized
gains and losses included in shareholder's equity. At September 30, 2000
and 1999, Credco held American Express Credit Account Master Trust Class C
Certificates which were classified as available for sale. The cost
approximates the fair value of these available for sale securities which
were valued at $815 million and $445 million at September 30, 2000 and
1999, respectively. In addition, Credco has a portfolio of corporate and
government securities which is managed by American Express Financial
Advisors, Inc., a wholly-owned indirect subsidiary of American Express
Company ("American Express"). The book value of these available for sale
securities as of September 30, 2000 and 1999 was $268 million and $287
million, respectively. The fair value of these investments as of September
30, 2000 and 1999 was $262 million and $282 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.
-6-
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly-owned subsidiary of American Express
Travel Related Services Company, Inc.)
4. In the third quarter of 2000, the American Express Credit Account Master
Trust (the "Master Trust") securitized an additional $0.8 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 these issuances, Credco Receivables Corp. ("CRC"), a
wholly-owned subsidiary of Credco, sold $21 million ($21 million, net of
reserves) of gross seller's interest to American Express Receivables
Financing Corporation II ("RFCII"), a wholly-owned subsidiary of American
Express Travel Related Services Company, Inc., a wholly-owned subsidiary of
American Express. In addition, CRC purchased $75 million of Class C
Certificates issued by the Master Trust.
The Master Trust securitized $1.0 billion and $2.2 billion of loans in the
first and second quarter of 2000, respectively. At the time of these
securitizations, CRC sold $66 million ($65 million, net of reserves) and
$98 million ($95 million, net of reserves) in the first and second quarter
of 2000, respectively, of gross seller's interest to RFCII. In addition, in
the first and second quarter of 2000, CRC purchased $85 million and $210
million, respectively, of Class C Certificates.
In September 2000, $600 million Class A Fixed Rate Accounts Receivable
Trust Certificates matured from the Charge Card securitization portfolio
which increased the participation interest 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.
In addition, $35 million of Class B Certificates owned by CRC matured in
September 2000.
5. In the first quarter of 2000, Credco called $150 million 1 1/8% Cash
Exchangeable Notes due 2003. These notes were exchangeable for an amount in
cash which was linked to the price of the common shares of American
Express. Credco had entered into agreements to fully hedge its obligations.
Accordingly, the related hedging agreements were called at the same time.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, American Express Credit Corporation, including its
subsidiaries where appropriate ("Credco"), had the ability to issue $4.4 billion
of debt under a 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 indirect subsidiary of American Express. The maximum authorized
aggregate principal amount of debt instruments outstanding at any one time under
the program will not exceed $6.0 billion.
At September 30, 2000, Credco had the ability to issue approximately $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 September 30, 2000 and 1999 totaled $9.5
billion and $8.3 billion, respectively.
In the second quarter of 2000, Credco had entered into additional interest rate
swaps. The effect of these additional swaps was to increase the amount of fixed
rate funding.
-7-
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 nine-month periods ended September
30, 2000 and 1999 was 1.29 and 1.32, respectively. The ratio of earnings to
fixed charges for American Express, the parent of TRS, for the nine-month
periods ended September 30, 2000 and 1999 was 2.30 and 2.55, 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 $150 billion and $123 billion of Cardmember receivables during
the nine-month periods ended September 30, 2000 and 1999, respectively. At
September 30, 2000 and December 31, 1999, Credco owned $21.4 billion and $20.6
billion, respectively, of Charge Card receivables of which $3.5 billion and $4.0
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 September 30, 2000 and December 31, 1999, Credco owned extended
payment plan receivables totaling $2.1 billion and $2.7 billion, respectively,
including revolving credit loans purchased directly from Centurion Bank. The
extended payment plan receivables owned at September 30, 2000 and December 31,
1999 include $308 million and $465 million, respectively, of participation
interests owned by CRC. This represents a participation interest in the seller's
interest in revolving credit receivables that have been conveyed to the American
Express Credit Account Master Trust (the "Master Trust"), formed by Centurion
Bank in 1996 to securitize revolving credit loans.
For the nine-month periods ended September 30, 2000 and 1999, the average life
of Cardmember receivables owned by Credco was 42 days and 43 days, respectively.
Credco's write-offs, net of recoveries, as a percentage of the volume of
Cardmember receivables purchased for the nine-month periods ended September 30,
2000 and 1999 was .32 percent and .38 percent, respectively.
Credco's increase in revenue for the nine-month period ended September 30, 2000,
is mainly attributable to an increase in the volume of receivables purchased.
Overall interest income decreased slightly for the nine-month period ended
September 30, 2000 due to a lower volume of average investments outstanding
offset by higher interest rates. Interest expense increased for the nine months
ended September 30, 2000 due to an increase in the volume of average debt
outstanding and higher interest rates. Provision for doubtful accounts for the
nine-month period also increased reflecting a higher volume of receivables
purchased.
-8-
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly-owned subsidiary of American Express
Travel Related Services Company, Inc.)
The following is an analysis of the increase (decrease) in key revenue and
expense accounts for the nine-month period ended September 30, 2000, compared
with the nine-month period ended September 30, 1999 ($ in millions):
<TABLE>
<CAPTION>
NINE-
MONTH
PERIOD
------
<S> <C>
Revenue earned from purchased accounts receivable-
changes attributable to:
Volume of receivables purchased 303
Discount and interest rates 72
-----
Total 375
=====
Interest income from affiliates - changes attributable to:
Volume of average investments outstanding (49)
Interest rates 18
-----
Total (31)
=====
Interest income from investments - changes attributable to:
Volume of average investments outstanding -
Interest rates 26
-----
Total 26
=====
Interest expense affiliates - changes attributable to:
Volume of average debt outstanding 18
Interest rates 31
-----
Total 49
=====
Interest expense other - changes attributable to:
Volume of average debt outstanding 61
Interest rates 126
-----
Total 187
=====
Provision for doubtful accounts - changes attributable to:
Volume of receivables purchased 127
Provision rates and volume of recoveries (38)
-----
Total 89
=====
</TABLE>
-9-
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):
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Balance, January 1 $684 $597
Provision for losses 664 570
Accounts written off (611) (589)
Other 3 34
---- ----
Balance, September 30 $740 $612
---- ----
</TABLE>
The following table shows the aging of Charge Card receivables:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------
2000 1999
---- ----
<S> <C> <C>
Current 83.5% 81.6%
30 to 59 days 11.8 13.4
60 to 89 days 2.0 2.1
90 days and over 2.7 2.9
</TABLE>
-10-
AMERICAN EXPRESS CREDIT CORPORATION
(a wholly-owned subsidiary of American Express
Travel Related Services Company, Inc.)
OTHER REPORTING MATTERS
In June 1998, the Financial Accounting Standards Board (the "FASB") issued, and
subsequently amended, Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging Activities," which is
effective January 1, 2001. This Statement establishes accounting and reporting
standards for derivative instruments, including some embedded in other
contracts, and hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities on the balance sheet and measure
those instruments at fair value. Changes in the fair value of a derivative will
be recorded in income or directly to equity, depending on the instrument's
designated use. The FASB is still addressing interpretive issues that will
affect the accounting for derivatives. Thus, estimating the financial effects of
transition to the new rule as if it were to occur as of September 30, 2000 is
not fully calculable at this time. However, Credco believes that those financial
effects would not have been material to its financial position or results of
operations. The final financial effects of transition at January 1, 2001 will be
measured based on the derivatives positions, market conditions, and the
interpretative guidance issued by the FASB as of that time.
-11-
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.
(b) Reports on Form 8-K
None.
-12-
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: November 14, 2000 By /s/Walker C. Tompkins, Jr.
--------------------------------------
Walker C. Tompkins, Jr.
President and Chief Executive Officer
/s/Erich Komdat
--------------------------------------
Erich Komdat
Vice President 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 Electronically filed herewith.
of Earnings to Fixed Charges of
American Express Credit Corporation.
Exhibit 12.2 Computation in Support of Ratio Electronically filed herewith.
of Earnings to Fixed Charges of
American Express Company.
Exhibit 27. Financial Data Schedule. Electronically filed herewith.
-13-
