UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
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Commission file number 1-7657
AMERICAN EXPRESS COMPANY
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(Exact name of registrant as specified in its charter)
New York 13-4922250
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
World Financial Center, 200 Vesey Street, New York, NY 10285
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 640-2000
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None
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Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X No
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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 April 30, 2000
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Common Shares (par value $.20 per share) 1,335,914,757 shares
AMERICAN EXPRESS COMPANY
FORM 10-Q
INDEX
Page No.
Part I. Financial Information:
Consolidated Statements of Income - Three
months ended March 31, 2000 and 1999 1
Consolidated Balance Sheets - March 31, 2000
and December 31, 1999 2
Consolidated Statements of Cash Flows - Three
months ended March 31, 2000 and 1999 3
Notes to Consolidated Financial Statements 4-6
Review Report of Independent Accountants 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-23
Part II. Other Information 24
See notes to Consolidated Financial Statements.
1
See notes to Consolidated Financial Statements.
2
See notes to Consolidated Financial Statements.
3
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
1. Basis of Presentation
The consolidated financial statements should be read in conjunction with the
financial statements in the Annual Report on Form 10-K of American Express
Company (the company or American Express) for the year ended December 31, 1999.
Significant accounting policies disclosed therein have not changed. Certain
reclassifications of prior period amounts have been made to conform to the
current presentation.
Cardmember Lending Net Finance Charge Revenue is presented net of interest
expense of $231 million and $156 million for the first quarter of 2000 and 1999,
respectively. Interest and Dividends is presented net of interest expense of
$133 million and $121 million for the first quarter of 2000 and 1999,
respectively, related primarily to the company's international banking
operations.
The interim financial information in this report has not been audited. In the
opinion of management, all adjustments necessary for a fair presentation of the
consolidated financial position and the consolidated results of operations for
the interim periods have been made. All adjustments made were of a normal,
recurring nature. Results of operations reported for interim periods are not
necessarily indicative of results for the entire year.
In April 2000, the company's shareholders approved an increase in authorized
shares to effectuate a three-for-one stock split for shareholders of record as
of April 25, 2000. All of the information in this financial report reflects the
effect of the stock split. Additionally, certain information is provided on both
a pre stock split and post stock split basis for information purposes. Refer to
the "Other Matters" section of the financial review for further information.
2. Investment Securities
4
3. Comprehensive Income
Comprehensive income is defined as the aggregate change in shareholders' equity,
excluding changes in ownership interests. For the company, it is the sum of net
income and changes in (i) unrealized gains or losses on available-for-sale
securities and (ii) foreign currency translation adjustments. The components of
comprehensive income, net of related tax, for the three months ended March 31,
2000 and 1999 were as follows:
4. Taxes and Interest
Net income taxes paid during the three months ended March 31, 2000 and 1999 were
approximately $68 million and $97 million, respectively. Interest paid during
the three months ended March 31, 2000 and 1999 was approximately $855 million
and $588 million, respectively.
5. Earnings per Share
5
6. Segment Information
6
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Shareholders and Board of Directors
American Express Company
We have reviewed the accompanying consolidated balance sheet of American
Express Company (the "Company") as of March 31, 2000 and the related
consolidated statements of income and cash flows for the three-month periods
ended March 31, 2000 and 1999. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data, and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, which will
be performed for the full year with the objective of expressing an opinion
regarding the consolidated financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of the Company as of December 31,
1999, and the related consolidated statements of income, shareholders' equity,
and cash flows for the year then ended (not presented herein), and in our
report dated February 3, 2000, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth
in the accompanying consolidated balance sheet as of December 31, 1999 is
fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
/s/Ernst & Young LLP
New York, New York
May 15, 2000
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Consolidated Results of Operations for the Three Months Ended March 31, 2000
The company's consolidated net income and diluted earnings per share both rose
14 percent in the three-month period ended March 31, 2000 from a year ago. The
company's return on equity was 25.4 percent.
Consolidated net revenues on a managed basis grew 16 percent for the three
months ended March 31, 2000, reflecting an increase in worldwide billed business
and Cardmember loans at Travel Related Services (TRS) and greater management and
distribution fees at American Express Financial Advisors (AEFA). Consolidated
expenses rose due to greater marketing and promotion and interest costs, larger
provisions for losses, and higher human resource and operating expenses. The
increases were principally due to greater volume and business building
initiatives.
These results met the company's long-term targets of 12-15 percent earnings per
share growth, at least 8 percent revenue growth and a return on equity of 18-20
percent.
This financial review is presented on the basis used by management to evaluate
operations. It differs in two respects from the accompanying financial
statements, which are prepared in accordance with U.S. Generally Accepted
Accounting Principles (GAAP). First, results are presented as if there had been
no asset securitizations at TRS. This format is generally termed on a "managed
basis." Second, revenues are shown net of AEFA's provisions for annuities,
insurance and investment certificate products, which are essentially spread
businesses.
Consolidated Liquidity and Capital Resources
In the first three months of 2000, the company repurchased 8.5 million common
shares at an average price of $48.61 per share under its repurchase program.
In the first quarter 2000, the company entered into an agreement under which a
third party will purchase up to 3 million company common shares in the open
market over a period of up to eight months. During the term of the agreement the
company will periodically issue shares to or receive shares from the third party
so that the value of the shares held by the third party equals the original
purchase price for the shares. At maturity in five years, the company is
required to deliver to the third party an amount equal to such original purchase
price. The company may elect to settle this amount (i) physically, by paying
cash against delivery of the shares held by the third party or (ii) on a net
cash or net share basis. The company may also prepay outstanding amounts at any
time prior to the end of the five-year term. The foregoing is in addition to a
similar agreement entered into in August 1999 under which a third party
purchased 7 million of the company's common shares at an average purchase price
of approximately $146 per share. During the first quarter 2000, settlements
under the August 1999 agreement resulted in the company receiving 113,480
shares. These
8
agreements, which partially offset the company's exposure from its
stock option program, are separate from the company's previously authorized
share repurchase program.
Other Matters
In January 2000, the company's Board of Directors voted for a three-for-one
split of the company's common stock, subject to shareholder approval of an
increase in authorized shares. At the company's annual meeting on April 24,
2000, the company's shareholders approved such increase in shares to effectuate
the stock split for shareholders of record as of April 25, 2000. All of the
information in this financial report reflects the effect of the stock split.
Additionally, certain data is provided on both a pre stock split and
post stock split basis for informational purposes.
9
10
11
Travel Related Services
Travel Related Services' (TRS) net income rose 15 percent in the first quarter
of 2000 from a year ago. Net revenues increased 18 percent for the same period,
reflecting higher billed business as well as strong growth in Cardmember loans.
The improvement in discount revenue from a year ago is the result of higher
billed business, reflecting higher average spending per Cardmember and an
increase of five million cards in force, up 12 percent from a year ago. The
higher average spending was driven by several factors, including rewards
programs and expanded merchant coverage. The growth in billed business continued
to be primarily the result of increases in retail and "everyday spend"
categories; the rate of growth in airline billings also improved from recent
quarters. The increase in cards in force reflects more proactive consumer card
and small business services activities over the past year, including the
successful launch of Blue and co-branded Costco cards. The net interest yield on
Cardmember loans decreased from year-ago levels, but increased slightly from the
fourth quarter of 1999. The year-over-year decline reflects a greater number of
Cardmembers on introductory rates and a broader mix of lower-rate products.
Other revenues increased, reflecting higher fee income.
The provision for losses on the charge card and lending portfolios grew as a
result of higher volume, partly offset by a continued improvement in credit
quality in the lending portfolio. Charge Card interest expense rose due to
higher volumes and rates. Human resources expenses rose as a result of a higher
average number of employees and merit increases. Other operating expenses
increased on higher costs related to business growth, Cardmember loyalty
programs and various business building initiatives. Results for the current
quarter include a gain on an investment in an Internet company that TRS was
required to write-up when that company was acquired by a third party. This gain
was offset by increased spending on Internet initiatives and therefore had no
material impact on net income or total expenses.
12
Travel Related Services
The preceding statements of income and related discussion present TRS results on
a managed basis, as if there had been no securitization transactions. On a GAAP
reporting basis, TRS recognized a pretax gain of $36 million ($23 million
after-tax) in the first quarter of 2000 related to the securitization of U.S.
receivables. This gain was invested in additional card acquisition activities in
the first quarter of 2000 and thus had no material effect on net income, total
net revenues or total expenses. The following tables reconcile TRS' income
statements from a managed basis to a GAAP basis. These tables are not complete
statements of income, as they include only those income statement items that are
affected by securitizations.
13
In the first quarter of 2000, the American Express Credit Account Master Trust
(the Trust) securitized $1 billion of loans through the public issuance of
investor certificates. The securitized assets consist of loans arising in a
portfolio of designated consumer American Express credit card, Optima Line of
Credit and Sign & Travel/Special Purchase Account revolving credit accounts or
features and, in the future, may include other charge or credit accounts or
features or products. In May 2000, the Trust securitized an additional $1
billion of loans.
In the first quarter of 2000, American Express Credit Corporation (Credco), a
wholly-owned subsidiary of TRS, called $150 million 1.125% Cash Exchangeable
Notes due 2003. These notes were exchangeable for an amount in cash which was
linked to the price of the common shares of American Express. Credco had entered
into agreements to fully hedge its obligations. Accordingly, the related hedging
agreements were called at the same time.
14
15
16
American Express Financial Advisors
American Express Financial Advisors' (AEFA) net income in the first quarter of
2000 increased 15 percent from a year ago. Net revenues and earnings grew due to
greater fee revenues. Management fees rose as a result of increased managed
asset levels, including separate account assets, and distribution fees grew
reflecting greater mutual fund sales and asset levels. The growth in managed
assets from last year reflects positive net sales and market appreciation over
the past twelve months. Investment income, net of provisions for losses and
benefits, decreased due to a lower average yield on invested assets and losses
related to the high yield investment portfolio, partly offset by a higher level
of invested assets. Other revenues benefited from higher insurance premiums and
greater fees from financial planning and advice services.
Human resources expenses were higher, largely as a result of a volume-driven
increase in advisors' compensation, reflecting growth in sales and asset levels.
Other operating expenses increased slightly; such limited growth reflects
particularly high levels of spending on business building initiatives (e.g. new
advisor platforms) last year, an investment spending plan in 2000 that is more
skewed toward coming quarters, and continued control of core operating expense
growth.
17
Separate account assets and liabilities increased due to higher net sales and
market appreciation.
18
19
American Express Bank/Travelers Cheque (AEB/TC)
AEB/TC reported net income of $40 million for the first quarter of 2000,
compared with $41 million a year ago. Net income at American Express Bank was
unchanged from year ago levels. Net interest income declined from a year ago,
primarily due to the effects of a lower loan portfolio and higher funding costs.
Commissions and fees rose due to higher Private Banking, Correspondent Banking
and Personal Financial Services fees. Foreign exchange income and other revenue
declined, as stable currencies in key markets decreased client related trading
activities. Travelers Cheque results fell slightly from a year ago due to higher
marketing and promotion spending in the current quarter.
20
AEB had loans outstanding of $5.0 billion at March 31, 2000, down from $5.1
billion at December 31, 1999 and $5.3 billion at March 31, 1999. The reduction
since first quarter 1999 resulted from a $600 million decrease in corporate and
correspondent bank loans, partially offset by an increase in consumer and
private banking loans of $270 million ($540 million excluding the effect of
asset sales and securitizations in the consumer loan portfolio). Since December
31, 1999, corporate and correspondent bank loans fell by $200 million and
consumer and private banking loans rose by $77 million. As of March 31, 2000,
consumer and private banking loans comprised 40% of total loans versus 35% at
December 31, 1999 and 32% at March 31, 1999.
21
As presented in the table below, there are other banking activities, such as
forward contracts, various contingencies and market placements, which added
approximately $7.7 billion to AEB's credit exposures at March 31, 2000, compared
with $7.6 billion at both March 31, 1999 and December 31, 1999. Of the $7.7
billion of exposures other than loans at March 31, 2000, $5.2 billion were
relatively less risky cash and securities related balances.
Note: Includes cross-border and local exposure and does not net local funding or
liabilities against any local exposure.
22
Corporate and Other
Corporate and Other reported net expenses of $45 million, compared with $43
million a year ago. Results for both years include a preferred stock dividend
based on earnings from Lehman Brothers. That dividend was offset by expenses
related to business building initiatives in both years and by Y2K expenses a
year ago.
23
PART II.--OTHER INFORMATION
AMERICAN EXPRESS COMPANY
Item 1. Legal Proceedings
ITEM 1. LEGAL PROCEEDINGS
The Company commenced an action, AMERICAN EXPRESS COMPANY V. THE
UNITED STATES, on September 16, 1997 in the United States Court of Federal
Claims (the "Court") seeking a refund from the United States of Federal income
taxes paid (plus related interest) for the year 1987. The Company contends
that the Internal Revenue Service abused its discretion by denying the
Company's request to include annual fees from Cardmembers in taxable income
ratably over the twelve-month period to which the fees relate rather than in
full at the time they are billed. On October 14, 1999, the Company filed a
Motion for Summary Judgment; oral arguments occurred on April 12, 2000.
Since October 1, 1999, six former female financial advisors at
American Express Financial Advisors ("AEFA") have filed charges with the Equal
Employment Opportunity Commission ("EEOC"), including class claims on behalf
of all women advisors at AEFA, alleging that they and other women were
discriminated against in hiring, assignment of work, distribution of leads,
training and promotions. Four of the charges were filed with the EEOC in
Minnesota and two in New Jersey. The claimants are seeking monetary and
injunctive relief. AEFA is responding to all charges. If this matter is not
resolved at the EEOC and is filed in Federal Court, AEFA intends to vigorously
defend the charges.
The matters described above were previously reported in the Company's Form
10-K for the year ended December 31, 1999.
Item 4. Submission of Matters to a Vote of Security Holders
24
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on page E-1 hereof.
(b) Reports on Form 8-K:
Form 8-K, dated January 26, 2000, Item 5, reporting the Company's
earnings for the quarter and year ended December 31, 1999 and
including a Fourth Quarter/Full Year Earnings Supplement.
Form 8-K, dated February 3, 2000, Item 5, reporting certain
information from speeches presented by Harvey Golub, the Company's
Chairman and Chief Executive Officer and David Hubers, President,
AXP Advisors, to the financial community on February 2, 2000.
Form 8-K, dated April 26, 2000, Item 5, reporting the Company's
earnings for the quarter ended March 31, 2000 and including a
First Quarter Earnings Supplement.
Form 8-K, dated April 27, 2000, Item 5, announcing the appointment
of Gary Crittenden as its executive vice president and chief
financial officer.
Form 8-K, dated May 3, 2000, Item 5, 1) announcing a leave of
absence of Steve Alesio, President of the Small Business Services
group, and resulting organizational changes and 2) making publicly
available a consolidated five-year and quarterly summary of
restated common share statistics to reflect the Company's recent
3-for-1 stock split.
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN EXPRESS COMPANY
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(Registrant)
Date: May 15, 2000 By /s/ Richard Karl Goeltz
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Richard Karl Goeltz
Vice Chairman and
Chief Financial Officer
Date: May 15, 2000 /s/ Daniel T. Henry
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Daniel T. Henry
Senior Vice President and
Comptroller
(Chief Accounting Officer)
26
EXHIBIT INDEX
The following exhibits are filed as part of this Quarterly Report:
Exhibit Description
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3.1 Company's Certificate of Amendment of the Certificate of
Incorporation.
10.1 Amendment of American Express Company 1998 Incentive Compensation
Plan Master Agreement dated April 27, 1998.
10.2 Amendment of American Express Company 1989 Long-Term Incentive
Compensation Plan Master Agreement dated February 27, 1995.
10.3 Amendment of American Express Company Supplemental Retirement
Plan Amended and Restated Effective March 1, 1995.
10.4 Amendment of American Express Key Executive Life Insurance Plan.
10.5 Amendment of American Express Salary/Bonus Deferral Plan.
10.6 American Express Annual Incentive Award Plan.
10.7 Action To Amend IDS Current Service Deferred Compensation Plan.
10.8 Description of Pay for Performance Deferral Program.
10.9 Amendment To The American Express Pay For Performance Deferral
Programs.
10.10 American Express Senior Executive Severance Plan Effective
January 1, 1994 (as amended and restated through May 1, 2000).
10.11 American Express Company 1993 Directors' Stock Option Plan, as
amended.
12 Computation in Support of Ratio of Earnings to Fixed
Charges.
15 Letter re Unaudited Interim Financial Information.
27 Financial Data Schedule.
E-1