-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JiIGZmBcsFxdY8hxWyTCVDZy4YRztv9JvHOeyyolg5Ii11YJFSbOBWHOHLUvF0sV 1RwB6M0EdOOInZdQLr/Odg== 0000004962-96-000013.txt : 19960401 0000004962-96-000013.hdr.sgml : 19960401 ACCESSION NUMBER: 0000004962-96-000013 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: BSE SROS: CSX SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN EXPRESS CO CENTRAL INDEX KEY: 0000004962 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 134922250 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07657 FILM NUMBER: 96541296 BUSINESS ADDRESS: STREET 1: AMERICAN EXPRESS TWR, WORLD FINANCIAL CN STREET 2: 200 VESEY ST 49TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10285 BUSINESS PHONE: 2126405715 MAIL ADDRESS: STREET 1: AMERICAN EXPRESS TOWER STREET 2: 200 VESEY ST 49TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10285 10-K 1 AMERICAN EXPRESS CO 1995 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------------- FORM 10-K --------------------------- /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995 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. 1-7657 AMERICAN EXPRESS COMPANY (Exact name of registrant as specified in its charter) New York 13-4922250 (State or other jurisdiction (I.R.S. employer of incorporation or organization) identification no.) World Financial Center 200 Vesey Street New York, New York 10285 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (212) 640-2000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- --------------------- Common Shares (par value $.60 per Share) New York Stock Exchange Boston Stock Exchange Chicago Stock Exchange Pacific Stock Exchange 6 1/4% Exchangeable Notes Due October 15, 1996 New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K / /. Common shares of the registrant outstanding at March 4, 1996 were 479,695,263. The aggregate market value, as of March 4, 1996, of such common shares held by non-affiliates of the registrant was approximately $22.4 billion. (Aggregate market value estimated solely for the purposes of this report. This shall not be construed as an admission for the purposes of determining affiliate status.) DOCUMENTS INCORPORATED BY REFERENCE Parts I, II and IV: Portions of Registrant's 1995 Annual Report to Shareholders. Part III: Portions of Registrant's Proxy Statement dated March 11, 1996. ============================================================================= TABLE OF CONTENTS Form 10-K Item Number Part I Page 1. Business Travel Related Services . . . . . . . . . . . . . . . 1 American Express Financial Advisors. . . . . . . . . . 8 American Express Bank. . . . . . . . . . . . . . . . 13 Corporate. . . . . . . . . . . . . . . . . . . . . . 20 Foreign Operations . . . . . . . . . . . . . . . . . 20 Industry Segment Information and Classes of Similar Services. . . . . . . . . . . . 21 Executive Officers of the Registrant . . . . . . . . 21 Employees. . . . . . . . . . . . . . . . . . . . . . 25 2. Properties. . . . . . . . . . . . . . . . . . . . . . . 25 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . 25 4. Submission of Matters to a Vote of Security Holders . . 26 Part II 5. Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . 26 6. Selected Financial Data . . . . . . . . . . . . . . . . 27 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . 27 8. Financial Statements and Supplementary Data . . . . . . 27 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . 27 Part III 10. Directors and Executive Officers of the Registrant. . . 27 11. Executive Compensation. . . . . . . . . . . . . . . . . 27 12. Security Ownership of Certain Beneficial Owners and Management. . . . . . . . . . . . . . . . . . . . 27 13. Certain Relationships and Related Transactions. . . . . 27 Part IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . 28 Signatures. . . . . . . . . . . . . . . . . . . . . . . 29 Index to Financial Statements . . . . . . . . . . . . . F-1 Consent of Independent Auditors . . . . . . . . . . . . F-2 Exhibit Index . . . . . . . . . . . . . . . . . . . . . E-1 i PART I ITEM 1. BUSINESS American Express Company (the "registrant") was founded in 1850 as a joint stock association and was incorporated under the laws of the State of New York in 1965. The registrant and its subsidiaries are primarily engaged in the business of providing travel related services, financial advisory services and international banking services throughout the world. TRAVEL RELATED SERVICES American Express Travel Related Services Company, Inc. (including its subsidiaries, where appropriate, "TRS") provides a variety of products and services, including the American Express-R Card (the "Card"), consumer lending, the American Express-R Travelers Cheque (the "Travelers Cheque" or the "Cheque") and other stored value products, corporate and consumer travel products and services, magazine publishing, database marketing and management and Card-related insurance products. TRS offers products and services in over 160 countries. In certain countries, partly owned affiliates and independent operators offer some of these products and services under licenses from TRS. TRS' business as a whole has not experienced significant seasonal fluctuation, although Travelers Cheque sales and Travelers Cheques outstanding tend to be greatest each year in the summer months, peaking in the third quarter, and Card billed business tends to be moderately higher in the fourth quarter than in other calendar quarters. TRS places significant importance on its trademarks and service marks. TRS diligently protects its intellectual property rights around the world. CONSUMER CARD SERVICES GROUP TRS offers various Card products to individual consumers, including charge cards such as the American Express Personal Card, the American Express-R Gold Card and the Platinum Card-R; and the Optima-R Card, a revolving credit card. Cards are currently issued in 35 currencies and permit Cardmembers to charge purchases of goods and services in the U.S. and in most countries around the world at establishments that have agreed to accept the Card. The Card issuer accepts from each participating establishment the charges arising from Cardmember purchases at a discount that varies with the type of participating establishment, the charge volume, the timing and method of payment to the establishment, the method of submission of charges and, in certain instances, the average charge amount and the amount of information provided. Charge Cards are primarily designed for use as a method of payment and not as a means of financing purchases of goods and services and carry no pre-set spending limit. Charges are approved based on a Cardmember's past spending and payment patterns, credit history and personal resources. Except in the case of extended payment plans (such as Sign & Travel-R accounts), charge Cards require payment by the Cardmember of the full amount billed each month, and no finance charges are assessed; Card accounts that are past due by a given number of days are subject, in most cases, to a delinquency assessment and, if not brought to current status, subject to cancellation. -1- The Optima Card comprises a family of revolving credit cards marketed to individuals in the U.S. and several other countries. The Optima Card was initially issued only to existing Cardmembers. In 1994, the Optima True Grace-SM Card was issued in the U.S. on a stand-alone basis. Since then, a variety of other Optima Cards with different payment terms, grace periods and rate structures have been made available to customers. American Express revolving credit cards which do not carry the Optima brand are also issued outside the U.S. American Express Centurion Bank ("Centurion Bank") issues the Optima Card in the U.S. and owns substantially all receivables arising from the use of Optima Cards issued in the U.S. In addition, Centurion Bank extends lines of credit in association with certain American Express Cards and offers unsecured loans to Cardmembers in connection with their Sign & Travel accounts. The Sign & Travel account allows qualified U.S. Cardmembers the option of extended payments for airline, cruise and certain prepaid travel charges that are purchased with the charge Card. Outside the U.S., consumer lending activities are engaged in by other subsidiaries of the registrant where local regulations permit. Cardmembers generally are charged an annual fee, which varies based on the type of Card, the number of Cards for each account, the currency in which the Card is denominated and the country of residence of the Cardmember. Certain Optima Cards are offered with no annual fee. Cardmembers generally have access to a variety of special services, depending on the type of Card, including: the Membership Rewards-SM Program, Global Assist-R Hotline, Buyer's Assurance-SM Protection Plan, Car Rental Loss and Damage Insurance Plan, Travel Accident Insurance Plan and Purchase Protection-SM Plan. A Cardmember participating in the Gold Card program in the U.S. has access to certain additional services, including a Year End Summary of Charges Report; in many instances, the ability to draw on a line of credit; and a lowest price guarantee on most retail purchases. The Platinum Card, offered to certain Cardmembers in the U.S. and certain other countries, provides access to additional and enhanced travel, financial, insurance, personal assistance and other services. Under the Express Cash program, enrolled Cardmembers can obtain cash or American Express Travelers Cheques 24 hours a day from automated teller machines of participating financial institutions worldwide. American Express Credit Corporation ("Credco") purchases most Cardmember receivables arising from the use of Cards (other than Optima Cards) issued in the U.S. and Cardmember receivables in designated currencies arising from the use of Cards outside the U.S. Credco finances the purchase of receivables principally through the issuance of commercial paper and the sale of medium- and long-term notes. TRS also funds Cardmember receivables through an asset securitization program. The cost of funding Cardmember receivables is a major expense of Card operations. In 1995, TRS introduced a number of new revolving credit and charge Card products and features pursuant to its strategy of developing a larger selection of products targeted to the needs of specific customer segments and of growing loans outstanding in its consumer lending portfolio. During the year, TRS announced two co-branded Optima Card products, the Hilton-R Optima Card and the Delta-R SkyMiles-TM Credit Card from American Express, which offer -2- rewards provided by the co-branded partners. TRS also introduced other Card products such as the Gold Optima Card and Optima Card for students. TRS plans to continue its strategy and offer additional co-branded and other Card products in the future, and is making a significant investment in a new card processing system to allow the introduction of products in a much shorter time frame. The American Express Card and consumer lending businesses are subject to extensive regulation in the U.S. under a number of federal laws and regulations, including the Equal Credit Opportunity Act, which generally prohibits discrimination in the granting and handling of credit; the Fair Credit Reporting Act, which, among other things, regulates credit prescreening practices and requires certain disclosures when an application for credit is rejected; the Truth in Lending Act, which, among other things, requires extensive disclosure of the terms upon which credit is granted; the Fair Credit Billing Act, which, among other things, regulates the manner in which billing inquiries are handled and specifies certain billing requirements; and the Fair Credit and Charge Card Disclosure Act, which mandates certain disclosures on credit and charge card applications. Federal legislation also regulates abusive debt collection practices. In addition, a number of states and foreign countries have similar consumer credit protection and disclosure laws. These laws and regulations have not had, and are not expected to have, a material adverse effect on the Card and consumer lending businesses either in the U.S. or on a worldwide basis. Centurion Bank is a member of the Federal Deposit Insurance Corporation ("FDIC") and is regulated, supervised and regularly examined by the Delaware State Banking Commissioner and the FDIC. Another subsidiary of TRS, American Express Deposit Corporation ("AEDC"), is a Utah-chartered, FDIC-insured industrial loan corporation. In the second quarter of 1996, TRS expects to merge Centurion Bank into AEDC. AEDC would thereafter be the issuer of the Optima Card in the U.S. and conduct the activities currently being performed by Centurion Bank. TRS encounters substantial and increasingly intense competition worldwide with respect to the Card and consumer lending businesses from general purpose cards issued under revolving credit plans, particularly VISA-R cards issued by members of VISA International Service Association, Inc. or VISA USA, Inc. (collectively, "VISA"), and MasterCard-R cards issued by members of MasterCard International, Incorporated ("MasterCard"), including cards sponsored by AT&T, General Electric Company, General Motors Corporation and Ford Motor Company. This competition exists among issuers of general purpose charge and credit cards (intrasystem competition) as well as among card systems like VISA, MasterCard and to a lesser extent, Diners Club-R, Dean Witter's NOVUS-SM Network and JCB (intersystem competition). TRS also encounters competition, to a much lesser extent, from businesses that issue their own cards or otherwise extend credit to their customers, such as retailers and airline associations. These products are not generally substitutes for TRS' Card products due to their limited acceptance. Many U.S. banks issuing credit cards under revolving credit plans charge annual fees in addition to interest charges where permitted by state law. The issuer of the Discover Card, as well as some issuers of VISA cards and MasterCard cards, charge no annual fees. Certain competing issuers offer premium cards with enhanced services or lines of credit. Certain issuers also offer mileage credit to card holders under airline frequent flyer programs or other types of reward programs or rebates. In 1995, TRS expanded its Membership Miles-R travel rewards program in the U.S. to -3- include retail merchandise and gourmet gifts and renamed the program Membership Rewards. The program is also offered outside the U.S. Membership Rewards is an important part of TRS' strategy to increase Cardmember spending and loyalty. More than five million Cardmembers in 27 countries participate in the Membership Rewards program. Due to the success of the program, enrollees now represent a significant portion of Cardmember spending. TRS generally charges higher discount rates to service establishments than its competitors. As a result, TRS has encountered complaints from some establishments, as well as suppression of the Card's use. TRS has adjusted its discount structure in certain industries and locations. TRS has also focused on understanding and addressing key factors that influence service establishment satisfaction and has expanded its efforts in successfully handling and resolving suppression problems. TRS' objective is to achieve merchant coverage that is at virtual parity with bankcard networks. TRS has expanded its efforts to increase the number of merchants accepting the Card by utilizing independent sales agents in addition to its own sales force. In 1995, TRS expanded the on-line services it provides to Cardmembers, and plans to add more services in the future. Through ExpressNet-SM, Cardmembers may now access account information, pay their American Express Card bills and apply for Cards directly from their computers through America Online, among other available services. TRS also anticipates further developments in payment products and systems. Such changes may include increasing use of debit cards, Card acceptance and other payment vehicles on the Internet, stored value cards, "smart cards" or other card-based or electronic forms of payment. The principal competitive factors that affect the Card business are (i) the quality of the service and services, including rewards programs provided to Cardmembers and participating establishments; (ii) the number and spending characteristics of Cardmembers; (iii) the quantity and quality of the establishments that will accept a Card; (iv) the cost of Cards to Cardmembers and of Card acceptance to participating establishments; (v) the terms of payment available to Cardmembers and participating establishments; (vi) the nature and quality of expense management data capture and reporting capability; (vii) the number and quality of other payment instruments available to Cardmembers and participating establishments; and (viii) the success of marketing and promotion campaigns. STORED VALUE GROUP In light of changing technologies and customer needs, in 1995 the Travelers Cheque Group expanded its product offerings to other "stored value" products and was renamed the Stored Value Group. The mission of the Stored Value Group is to replace cash with safe, convenient stored value payment systems that satisfy specific customer needs. To support that mission, in 1995 TRS acquired Special Teams, Inc., a company that specializes in delivering stored value university card systems that centralize numerous administrative and financial functions. TRS is also testing the FirstClass-SM PhoneCard, a prepaid telephone card, with the U.S. Postal Service. -4- The core of the Stored Value Group's business, however, continues to be Travelers Cheques. American Express Travelers Cheques are sold as a safe and convenient alternative to currency. The Cheque, a negotiable instrument, has no expiration date and is payable by the issuer in the currency of issuance when presented for the purchase of goods and services or for redemption. The success of the Travelers Cheque operation is in large part related to the worldwide acceptability of the Cheque as a means of payment for goods and services and the worldwide refundability of Cheques that are lost or stolen. American Express Travelers Cheques are issued directly by TRS in U.S. dollars, Canadian dollars, Dutch guilders, Australian dollars, German marks and Japanese yen. French franc and British pound Cheques are primarily issued by joint venture companies in which TRS holds an equity interest and for which TRS provides sales, operations, marketing and refund servicing arrangements. Swiss franc cheques are being issued by a Swiss partnership in which TRS has a partnership interest. In 1995, Spanish Peseta Travelers Cheques, issued by Banco Central Hispano ("BCH"), were made available to American Express Travelers Cheque customers under a joint promotional agreement between TRS and BCH. American Express Travelers Cheques are sold through a broad network of outlets worldwide, including offices of TRS, its affiliates and representatives, travel agents, commercial banks, savings banks, savings and loan associations, credit unions and other financial, travel and commercial businesses. TRS generally pays compensation to selling agents for their sale of Travelers Cheques. The proceeds from sales of Cheques issued by TRS are remitted to TRS and are invested predominantly in highly-rated debt securities consisting primarily of intermediate- and long-term state and municipal obligations. The investment of these proceeds is regulated by various state laws. TRS also issues the Corporate Travelers Cheque, a cash access product for business travelers, Cheques for Two-R, a Cheque product with two signature lines designed for people who are traveling together, and the American Express-R Gift Cheque. All of these Cheque products operate with the same signature-counter- signature negotiation procedure as Travelers Cheques and are refundable to the purchaser in the event of loss or theft. Although the registrant believes that TRS is the leading issuer of travelers checks, consumers have a choice of many forms of payment instruments, including other brands of travelers checks, charge and debit cards and national and international automated teller machine networks. TRS expects increasing developments in stored value cards, smart cards and other electronic forms of payment, and plans to offer a range of new stored value and other products in the future to compete in this area. The principal competitive factors affecting the travelers check industry are (i) the acceptability of the checks throughout the world as an alternative to currency; (ii) the ability to service satisfactorily the check purchaser if the checks are lost or stolen; (iii) the compensation paid to, and frequency of settlement by, selling agents; (iv) the availability to the consumer of other forms of payment; (v) the accessibility of travelers check sales and refunds; (vi) the success of marketing and promotion campaigns; and (vii) the amount of the fee charged to the consumer. -5- CORPORATE CARD AND TRAVEL BUSINESSES The American Express Corporate Card is a charge card issued to individuals through a corporate account established by their employer for business purposes. TRS, through its Corporate Card program, is the leading provider to large and small businesses of travel and expense management systems, and services such as the Business Travel Accident Insurance Plan offered to large businesses and the Accident Disability Plan provided to small businesses. In 1995, TRS enhanced its expense management system for large Corporate accounts and expanded the range of products for small businesses with the launch of the Corporate Platinum Card. TRS achieved substantial growth in the Corporate Card businesses in 1995. TRS also provides American Express Government Card charge card services to federal employees who travel on official government business. In addition, the American Express Corporate Card is the business expense management system used by 36 of the 50 states. In recent years, there has been increased focus by competitors on the Corporate Card business. For a discussion of competition relating to the Card business, see pages 3 and 4 above. In 1994, TRS launched the American Express Corporate Purchasing Card. This charge Card is intended to provide an efficient, low-cost system for managing purchases of supplies, equipment and services by companies. Employees of the company to whom Corporate Purchasing Cards are issued can use the Cards to order directly from suppliers, rather than using the traditional system of requisitions, purchase orders and invoices and retail store purchasing. TRS pays the suppliers and submits a single monthly billing statement to the company. Due to the needs of companies in implementing the Purchasing Card, growth in this product has been much slower than originally planned. TRS provides a wide variety of travel services to customers traveling for business and personal purposes and is the leading business travel provider worldwide. Travel services include trip planning, reservations, ticketing, and other incidental services. In addition, for business travel accounts, TRS provides corporate travel policy consultation and management information systems and group and incentive travel services. TRS receives commissions and fees for travel bookings and arrangements from airlines, hotels, car rental companies and other travel suppliers. In 1995, TRS introduced a new structure of service fees for certain transactions such as re-ticketing, courier services and complex itineraries. TRS also receives management fees from certain business travel accounts. To meet the competition for the business traveler and to provide client companies with a customized approach to managing their travel and entertainment needs, the Travel Management Services unit ("TMS") integrates the Corporate Card and business travel services in the U.S. and certain foreign countries. TMS offers to its client companies services to manage their travel and entertainment budgets. In addition, this service provides clients with an information package to plan, account for and control travel and entertainment expenses. TMS provides a state-of-the-art expense management system, which captures and reconciles expense report data with Corporate Card charge data. New software was introduced during 1995 for large Corporate accounts which allows Corporate cardholders to access current account data via E-mail to create their own expense reports in a short period of time. -6- Vigorous competition is encountered in the travel business from more than 30,000 travel agents and direct sales by airlines and travel suppliers in the U.S. and abroad. This competition is mainly based on service, convenience and proximity to the customer and has increased due to several factors in recent years, including the fact that a number of independent agencies have been acquired by larger travel companies. Travel agency groups also have increased in size, enabling independent agencies to be more competitive in providing travel services to regional and national business travel clients and in other activities. In addition, many companies have established in-house business travel departments. More recently, changes in the travel agent compensation structure (i.e., the limits on airfare commissions) have been imposed by airlines in an environment of heightened competition, which has caused some independent agencies to go out of business. It is also possible that customers may increasingly seek alternative channels to make travel arrangements, such as on-line vendors or in some cases "ticketless" airline services that require booking directly with the airlines. It is anticipated that travel agents will continue to provide value by making available fare and ticketing information for competing airlines on a timely basis. It is also expected that travel agencies will continue to look for expense reduction opportunities. Consolidation of travel agencies is likely to continue as agencies seek to better serve national and multinational business travel clients and negotiate more effectively with the airlines with respect to computer reservation systems and compensation and pricing arrangements. In 1995, TRS launched Express Reservations on ExpressNet, which allows customers to make airline reservations and order tickets on-line. TRS plans to offer other new services in the future in response to changes in the traditional travel agent distribution channel. TRS INTERNATIONAL In 1995, TRS took several steps to enhance its international businesses in recognition of the importance of markets outside the U.S. to the registrant's long-term growth strategy. In the past, TRS generally has issued its own Cards and processed service establishment charges internally. However, in selected countries outside the U.S. where TRS has not established operations or issued Cards denominated in local currencies (including Croatia, South Africa and Venezeula), TRS has, since the early 1970's, appointed banks or other third parties to be Independent Operators handling the domestic aspects of all Card service functions in such countries, including issuing the Card. In 1995, TRS signed Independent Operator Agreements with Banco Commercial Portugues in Portugal, Bank Hapoalim in Israel, Alpha Credit Bank in Greece and Tong Yang Group in Korea, establishing such parties as charge Card issuers in their respective markets. TRS expects to establish additional types of arrangements with banks outside the U.S. in selected markets where it believes that such arrangements will enhance Card distribution and expand the merchant base. In January 1996, TRS filed a complaint with the European Commission against the contemplated adoption by Visa International Service Association, Inc. of a by-law that would result in the automatic termination of Association membership of any member bank issuing the Card. -7- In 1995, TRS also launched a credit card in the United Kingdom, its first stand-alone revolving credit card issued outside the U.S. Similar revolving credit cards are now also being tested in other countries. In addition, during 1995, TRS expanded programs outside the U.S., such as Membership Rewards and Relationship Statementing, which links rewards directly to Cardmembers' spending patterns. TRS also continued to implement its strategy of acquiring business travel agencies on a worldwide basis to meet the needs of its multinational business travel and Corporate Card customers. In 1995, TRS' French travel subsidiary and Havas Voyages, the largest French travel agency, agreed to combine their business travel operations in France in a jointly owned company. TRS also acquired Bel Air Viagens, the largest business travel agency in Brazil. OTHER PRODUCTS AND SERVICES TRS publishes Travel & Leisure-R, Food & Wine-R, Departures-TM and Your Company-TM magazines. American Express Relationship Services ("AERS") was created in 1994 to deliver nontraditional American Express products and services which address the information, access, security and telecommunications needs of new and existing customers. AERS includes TRS' existing Merchandise Services and Fee Services units as well as new telecommunications and business development units. Through AERS, TRS offers merchandise directly to Cardmembers, who may elect to pay for the products they purchase in installments with no finance charges. Products can now also be purchased through computer via America Online. TRS also provides through its subsidiary, Epsilon Data Management, Inc., proprietary database marketing and management. In 1995, TRS sold AMEX Life Assurance Company ("Amex Life") to General Electric Capital Corporation ("GE Capital"). GE Capital acquired Amex Life's long-term care insurance business, as well as its long-term disability, corporate owned life insurance and other group insurance (primarily accidental death insurance) businesses. The transaction did not include American Express Card- related insurance products, including Automatic Air Flight insurance and a deferred annuity marketed under the name Privileged AssetsR. These products are marketed to Cardmembers through direct response methods. AMERICAN EXPRESS FINANCIAL ADVISORS American Express Financial Corporation ("AEFC") is engaged in providing a variety of financial products and services to help individuals, businesses and institutions establish and achieve their financial goals. AEFC's products and services include financial planning and advice, insurance and annuities, a variety of investment products, including investment certificates, mutual funds and limited partnerships, investment advisory services, trust and employee plan administration services, tax preparation and bookkeeping services, personal auto and homeowner's insurance and retail securities brokerage services. At December 31, 1995, American Express Financial Advisors Inc. ("AXP Advisors"), AEFC's principal marketing subsidiary, maintained a nationwide financial planning field force of 7,945 persons. AEFC's marketing system consists primarily of AXP Advisors field force operating in 50 states, the District of Columbia and Puerto Rico, organized in five regions and 45 market areas. -8- DISTRIBUTION OF PRODUCTS AND SERVICES AXP Advisors offers financial planning and investment advisory services to individuals for which it charges a fee. AXP Advisors financial planning services provide financial analyses addressing six basic areas of financial planning: financial position, protection, investment, income tax, retirement and estate planning, as well as asset allocation. To complete their financial plans, AXP Advisors' financial advisors provide clients with recommendations of products from the more than 100 products distributed by subsidiaries and affiliates of AEFC as well as products of approved third parties. First-year financial advisors are compensated primarily by salary, while veteran financial advisors receive compensation based largely on sales. AXP Advisors' field force compensation is structured to encourage advisor retention and product persistency, while adding stability to the financial advisor's income. In attracting and retaining members of the field force, AXP Advisors competes with financial planning firms, insurance companies, securities broker-dealers and other financial institutions. AXP Advisors has undertaken a major initiative called "IDS 1994" to make changes in its business processes, field organization and compensation arrangements to improve advisor retention and client satisfaction. Pursuant to this initiative, in 1995, AEFA tested certain computer-based tools for advisors, including a new desktop financial planning system, and plans to commence implementation of such tools nationwide in 1996. AEFA also implemented new training programs in 1995 to help advisors enhance client service and increase productivity. Although the use of a dedicated field force may entail higher initial costs than other forms of marketing, such as direct-response marketing or independent agency distribution, AXP Advisors believes that its ability to provide broad-based integrated services on a relationship basis is a competitive advantage. In addition to marketing through a dedicated sales force, AXP Advisors is actively pursuing alternative approaches for the distribution of its financial planning services, and investment, insurance and annuity products, including networking arrangements with community banks, credit unions and lending entities in the Farm Credit System. AXP Advisors believes that it is important to provide these alternatives to enhance its competitiveness in the marketplace. AXP Advisors does business as a broker-dealer and investment advisor in all 50 states, the District of Columbia and Puerto Rico. AEFC and AXP Advisors are registered as broker-dealers and investment advisors regulated by the Securities and Exchange Commission ("SEC"), and are members of the National Association of Securities Dealers, Inc. ("NASD"). AXP Advisors' financial advisors must obtain state and NASD licenses required for the businesses. AXP Advisors anticipates regulatory oversight of the securities and commodities industries to increase at all levels. The SEC, self-regulatory organizations and state securities commissions may conduct administrative proceedings, which may result in censure, fine, the issuance of cease-and-desist orders or suspension or expulsion of a broker-dealer or an investment advisor and its officers or employees. The financial services industry responds to consumer needs for money management, risk management and investments. Industry competition focuses primarily on cost, investment performance, yield, convenience, service, -9- reliability, safety and distribution system. Competition in the financial services market is very intense and AEFC competes with a variety of financial institutions such as banks, securities brokers, mutual funds and insurance companies, whose products and services increasingly cross over the traditional lines that previously differentiated one type of institution from another. Competition has also extended to individuals working in the financial services industry and certain financial institutions have recently shown increased interest in seeking to hire AXP Advisors' financial advisors. AEFC's business does not as a whole experience significant seasonal fluctuations. INSURANCE AND ANNUITIES AEFC's insurance business is carried on primarily by IDS Life Insurance Company ("IDS Life"), a stock life insurance company organized under the laws of the State of Minnesota. IDS Life is a wholly-owned subsidiary of AEFC and serves all states except New York. IDS Life Insurance Company of New York is a wholly-owned subsidiary of IDS Life and serves New York State residents. IDS Life also owns American Enterprise Life Insurance Company ("American Enterprise Life"), which issues fixed and variable dollar annuity contracts to banks, thrift institutions and stock brokerages. American Centurion Life Assurance Company ("American Centurion Life") is another IDS Life subsidiary that offers fixed and variable annuities to American Express Cardmembers in New York, as well as fixed and variable annuities to banks, thrift institutions and stock brokerages in New York. IDS Life also owns American Partners Life Insurance Company ("American Partners Life"), which offers fixed and variable annuity contracts to American Express Cardmembers who reside in states other than New York. IDS Life's products include whole life, universal life (fixed and variable), single premium life and term products (including waiver of premium and accidental death benefits). IDS Life also offers disability income and long-term care insurance. IDS Life is one of the nation's largest issuers of single premium and flexible premium deferred annuities on both a fixed and variable dollar basis. Immediate annuities are offered as well. IDS Life markets variable annuity contracts designed for retirement plans. IDS Life's principal annuity products are fixed deferred annuities. These annuities guarantee a relatively low annual interest rate during the accumulation period (the time before annuity payments begin) although the company may pay a higher rate reflective of current market rates. IDS Life also offers a fixed/variable annuity, or "Flexible Annuity," in which the purchaser may choose between mutual funds, with portfolios of common stocks, bonds, managed assets and/or short-term securities, and IDS Life's "general account" as the underlying investment vehicle. IDS Life, American Enterprise Life and American Partners Life are subject to comprehensive regulation by the Minnesota Department of Commerce (Insurance Division), the Indiana Department of Insurance, and the Arizona Department of Insurance, respectively. American Centurion Life and IDS Life Insurance Company of New York are regulated by the New York Department of Insurance. The laws of the other states in which these companies do business also regulate such matters as the licensing of sales personnel and, in some cases, the contents of insurance policies. The purpose of such regulation and supervision is primarily to protect the interests of policyholders. Virtually -10- all states also mandate participation in insurance guaranty associations, which assess insurance companies in order to fund claims of policyholders of insolvent insurance companies. On the federal level, there is periodic interest in enacting new regulations relating to various aspects of the insurance industry including taxation and accounting procedures, as well as the treatment of persons differently because of sex, with respect to terms, conditions, rates or benefits of an insurance contract. New federal regulation in any of these areas could potentially have an adverse effect upon AEFC's insurance subsidiaries. As a distributor of variable annuity and life insurance contracts, IDS Life is registered as a broker-dealer and is a member of the NASD. As investment manager of various investment companies, IDS Life is registered as an investment advisor under applicable federal requirements. IDS Property Casualty Insurance Company ("IDS Property Casualty") provides personal auto and homeowner's coverage to clients in 19 states. This insurance is underwritten to some extent by AMEX Assurance Company, a subsidiary of the registrant, in 17 of these states and reinsured by IDS Property Casualty. IDS Property Casualty is regulated by the Commissioner of Insurance for Wisconsin. AMEX Assurance Company, which also provides certain American Express Card related insurance products, is regulated by the Commissioner of Insurance for Illinois. The insurance and annuity business is highly competitive, and IDS Life's competitors consist of both stock and mutual insurance companies. Competitive factors applicable to the insurance business include the interest rates credited to its products, the charges deducted from the cash values of such products, the financial strength of the organization and the services provided to policyholders. INVESTMENT CERTIFICATES IDS Certificate Company ("IDSC"), a wholly-owned subsidiary of AEFC, issues face-amount investment certificates. IDSC is registered as an investment company under the Investment Company Act of 1940. Owners of IDSC certificates are entitled to receive, at maturity, a stated amount of money equal to the aggregate investments in the certificate plus interest at rates declared from time to time by IDSC. In addition, persons owning one type of certificate may have their interest calculated in whole or in part based on any upward movement in a broad-based stock market index. The certificates issued by IDSC are not insured by any government agency. AEFC acts as investment manager for IDSC. IDSC's certificates are sold primarily by AXP Advisors' field force. Certificates are also marketed by American Express Bank Ltd. to its foreign customers. IDSC currently offers eight types of face-amount certificates. The specified maturities of the certificates range from four to twenty years. Within their specified maturity, most certificates have interest rate periods ranging from one to thirty-six months. Certificate owners can withdraw their certificate investments at the end of an interest rate period. IDSC is the largest issuer of face-amount certificates in the U.S. Such certificates compete, however, with many other investments offered by banks, savings and loan associations, credit unions, mutual funds, insurance companies and similar financial institutions, which may be viewed by potential customers as offering a comparable or superior combination of safety and return on investment. -11- MUTUAL FUNDS AXP Advisors offers a variety of mutual funds, for which it acts as principal underwriter (distributor of shares). AEFC acts as investment manager and performs various administrative services. The "IDS MUTUAL FUND GROUP" consists of 32 publicly-offered mutual funds, with varied investment objectives, and includes, for example, money market, tax-exempt, bond and stock funds. AEFC believes that the IDS MUTUAL FUND GROUP, with combined net assets at December 31, 1995 of $48.1 billion, was the eleventh largest mutual fund organization in the U.S. and, excluding money market funds, was the seventh largest. AXP Advisors, as principal underwriter, maintains a continuous public offering of shares of each fund. For most funds, shares are sold in three classes. Class A shares are sold at net asset value plus any applicable sales charge. The maximum sales charge is five percent of the offering price with reduced sales charges for larger purchases. Class B shares are sold with a rear load. The maximum sales charge is five percent declining to no charge for shares held over six years. Class Y shares are sold to institutional clients with no load. The competitive factors affecting the sale of mutual funds include sales charges ("loads") paid, administrative expenses, services received, investment performance, the variety of products and services offered and the convenience to the investor. The funds compete with other investment products, including funds that have no sales charge (known as "no load" funds), and with funds distributed through independent brokerage firms, as well as with those distributed by other "exclusive" sales forces. OTHER PRODUCTS AND SERVICES IDS Advisory Group Inc. ("IDSA"), a subsidiary of AEFC, provides investment management services for pension, profit sharing, employee savings and endowment funds of large- and medium-sized businesses and other institutions ("institutional clients"). At December 31, 1995, IDSA managed securities portfolios totaling $12.1 billion for 187 accounts. International or global investment management is offered to U.S.-based institutional clients by IDS International, Inc., a U.S. company with offices in London, and to non-U.S. based institutional clients by IDS Fund Management Ltd., an English company, with offices in Hong Kong, Singapore and London. At December 31, 1995, IDS International, Inc. managed securities portfolios totaling $5.1 billion for 32 accounts; and IDS Fund Management Ltd. managed securities portfolios totaling $1.2 billion for 22 accounts. IDS International, Inc. and IDS Fund Management Ltd. are wholly-owned subsidiaries of AEFC. AXP Advisors also offers investment management services for wealthy individuals and small institutions. IDS Wealth Management Service offers a wrap program marketed to wealthy individuals through AXP Advisors' financial advisors and marketing employees and third-party referrals. American Express Strategic Portfolio Services offers a mutual fund wrap program to wealthy individuals. Portfolio Management Group ("PMG") offers discretionary investment management services to the above types of clients with account sizes between $1 million and $10 million. As of December 31, 1995, PMG managed securities portfolios totaling $700 million for 132 accounts. IDS Wealth Management Service, American Express Strategic Portfolio Services and PMG are operating divisions of AXP Advisors. -12- American Express Trust Company ("AETC") provides trustee, custodial, recordkeeping and investment management services for pension, profit sharing, 401(k) and other qualified and non-qualified employee benefit plans. AETC, through its personal trust division, offers trust services to individuals and organizations. AETC is trustee of over 800 benefit plans which represent approximately $11 billion in assets and 550,000 participants. AETC has assets under custody in excess of $71 billion and provides non-trusteed, investment management of assets in excess of $5 billion. AETC is regulated by the Minnesota Department of Commerce (Banking Division). AXP Advisors distributes a variety of real estate limited partnership investments issued by other companies. AXP Advisors also distributes from time to time managed futures limited partnerships in which an AEFC subsidiary is a co- general partner. American Express Tax and Business Services Inc., a subsidiary of AEFC, offers tax planning, tax preparation and small business consulting services to clients in 55 locations in 20 states, and expects to expand this business through acquisitions in the future. In 1995, AEFC continued to expand its securities brokerage services. American Express Securities Services, a division of AXP Advisors, holds $2.3 billion in assets for clients. American Enterprise Investment Services Inc., a wholly-owned subsidiary of AEFC, provides securities execution and clearance services for 80,000 retail and institutional clients of American Express Securities Services. American Enterprise Investment Services Inc. is registered as a broker-dealer with the SEC, is a member of the NASD and the Chicago Stock Exchange and is registered with appropriate states. The registrant and AXP Advisors are continuing to develop a separate distribution system which is complementary to the existing system of AXP Advisors operating under the name American Express Financial Services Direct. It will include not only products from AXP Advisors, but also from other businesses of the registrant and selected outside vendors. Payment, credit, insurance and investment products will be offered. American Express Financial Services Direct intends to use direct marketing, financial consultants and on-line services to help prospects and clients select appropriate products and services. In 1995, the registrant and AXP Advisors also developed a number of strategies to pursue several different opportunities to provide financial products and services to employees at their places of work. These opportunities include expanding a number of existing businesses, including 401(k) retirement and other benefits services, tax and business services, securities brokerage and financial education services. AMERICAN EXPRESS BANK The registrant's wholly-owned subsidiary, American Express Bank Ltd. (together with its subsidiaries, where appropriate, "AEB"), offers products that meet the financial service needs of three client groups: wealthy entrepreneurs and their companies, financial institutions and retail customers. AEB does not directly or indirectly do business in the U.S. except as an incident to its activities outside the U.S. Accordingly, the following discussion relating to AEB generally does not distinguish between U.S. and non-U.S. based activities. -13- Historically managed on a geographic basis, AEB is implementing a global line-of-business organizational structure begun in 1995. AEB's four business lines are correspondent, commercial and private banking, and consumer financial services. Correspondent banking serves leading local banks primarily in emerging markets and includes transaction payments and a wide range of trade finance products such as letters of credit and payment guarantees, collections, check clearing and bankers acceptances. Commercial banking is provided to businesses, most of which are owned by wealthy entrepreneurs, and includes trade finance, working capital loans and equipment finance. Private banking focuses on wealthy entrepreneurs by providing such customers with investment management, trust and estate planning, deposit instruments and secured lending. Consumer financial services is primarily a direct response business. Products include interest- bearing deposits, unsecured lines of credit, installment loans and money market funds. AEB also provides treasury services to all segments of its customer base which include spot and forward foreign exchange, interest rate and currency swaps and various other derivative instruments. In certain countries outside the U.S. and Canada, in some cases by arrangement with TRS, AEB provides travel related services consisting of Card, travel and Travelers Cheque products. In the future, AEB expects to more fully integrate its business with other parts of the registrant, including serving a greater role as an international platform to support TRS' business globally. AEB has a global network with offices in 36 countries. Its international headquarters is located in New York City. It maintains international banking agencies in New York City and Miami, Florida. Its wholly-owned Edge Act subsidiary, American Express Bank International ("AEBI"), is also headquartered in New York City and has branches in New York City and Miami. In part because of a structure that lacks scale in many markets, AEB continues to focus on initiatives to reduce and control its expense base worldwide. In 1994, AEB entered into a 10-year contract with Electronic Data Systems Corporation for the outsourcing of AEB's global systems support and development and data processing functions. SELECTED FINANCIAL INFORMATION AEB's prior years' financial information has been restated to reflect the transfer in 1994 of certain international consumer financial services businesses from TRS. AEB provides banking services to the registrant and its subsidiaries. AEB is only one of many international and local banks used by the registrant and its other subsidiaries, which constitute only a few of AEB's many customers. AEB's total assets were $12.3 billion at December 31, 1995, compared with $13.3 billion at December 31, 1994. Liquid assets, consisting of cash and deposits with banks, trading account assets and investments, were $4.5 billion at December 31, 1995, compared with $5.6 billion at December 31, 1994. -14- The following table sets forth a summary of financial data for AEB at and for each of the three years in the period ended December 31, 1995 (dollars in millions): 1995 1994 1993 ---- ---- ---- Net financial revenues $643 $652 $677 Noninterest expenses 521 525 499 Net income 77 80 92 - ----------------------------------------------------------------------------- Cash and deposits with banks 1,992 2,605 2,668 Investments 2,537 2,765 2,819 Loans, net 5,317 4,881 5,488 Total assets 12,324 13,291 14,137 - ---------------------------------------------------------------------------- Customers' deposits and credit balances 8,480 9,103 10,178 Shareholder's equity (a) 837 758 755 - ----------------------------------------------------------------------------- Return on average assets 0.59% 0.54% 0.65% Return on average common equity (b) 9.99% 10.89% 13.67% - ----------------------------------------------------------------------------- Total loans/deposits and credit balances from customers 64.00% 54.81% 55.16% Average common equity/average assets (b) 5.57% 4.71% 4.57% Risk-based capital ratios: Tier 1 8.9% 7.5% 6.3% Total 13.0% 14.7% 10.2% Leverage ratio 5.8% 4.8% 4.4% - ----------------------------------------------------------------------------- Average interest rates earned: (c) Loans (d) 8.68% 7.58% 7.06% Investments (e) 8.71% 9.54% 9.21% Deposits with banks 6.65% 5.73% 5.67% - ----------------------------------------------------------------------------- Total interest-earning assets (e) 8.15% 7.62% 7.17% - ----------------------------------------------------------------------------- Average interest rates paid: (c) Deposits and credit balances from customers 6.10% 5.41% 5.73% Borrowed funds, including long-term debt 5.55% 4.99% 4.18% - ----------------------------------------------------------------------------- Total interest-bearing liabilities 6.00% 5.35% 5.46% - ----------------------------------------------------------------------------- Net interest income/total average interest-earning assets (e) 2.88% 2.85% 2.92% - ---------------------------------------------------------------------------- (a) AEB declared and paid a special dividend of $75 million to the registrant on January 31, 1996. (b) ROE is calculated excluding the effect of SFAS No. 115 in 1995 and 1994. (c) Based upon average balances and related interest income and expense, including the effect in 1995 and 1994 of interest rate products where appropriate and transactions with related parties. (d) Interest rates have been calculated based upon average total loans, including those on nonperforming status. (e) On a tax equivalent basis. -15- The following tables set forth the composition of AEB's loan portfolio at year end for each of the five years in the period ended December 31, 1995 (millions): By Geographical Region (a) 1995 1994 1993 1992 1991 - ------------------------------------------------------------------------------ Asia/Pacific $2,151 $2,144 $2,186 $1,792 $1,891 Europe 876 903 1,091 1,177 1,498 Indian Subcontinent 970 721 850 908 624 Latin America 617 589 749 675 546 North America 76 81 283 382 468 Middle East 614 345 368 357 365 Africa 124 207 87 65 61 - ------------------------------------------------------------------------------ Total $5,428 $4,990 $5,614 $5,356 $5,453 ============================================================================== 1995 --------------------------------- Due After 1 Year Due Through Due By Type Within 5 After 5 and Maturity 1 Year Years(b)Years(b) 1995 1994 1993 1992 1991 - ------------------------------------------------------------------------------- Loans to $2,344 $258 $12 $2,614 $2,328 $2,652 $2,628 $2,355 businesses(c) Real estate loans 342 153 6 501 592 708 665 751 Loans to banks and other financial institutions 1,207 32 1 1,240 915 1,083 666 731 Equipment financing(d) 15 27 1 43 79 105 386 501 Consumer loans 829 84 4 917 941 912 850 945 Loans to governments and official 56 - 4 60 81 89 96 96 institutions All other loans 53 - - 53 54 65 65 74 - ------------------------------------------------------------------------------- Total $4,846 $554 $28 $5,428 $4,990 $5,614 $5,356 $5,453 =============================================================================== (a) Based primarily on the domicile of the borrower. (b) Loans due after 1 year at fixed (predetermined) interest rates totaled $131 million, while those at floating (adjustable) interest rates totaled $451 million. (c) Business loans, which accounted for approximately 48 percent of the portfolio as of December 31, 1995, were distributed over 26 commercial and industrial categories. (d) The decrease from December 31, 1992 to December 31, 1993 reflects $163 million of equipment finance (aircraft) loans transferred to other performing assets upon foreclosure (as aircraft assets leased to others). The total value of aircraft assets leased to others at December 31, 1995 was approximately $361 million. In January of 1996, AEB transferred to the registrant its aircraft assets leased to others which consisted of aircraft on operating leases as well as loans secured by commercial aircraft. The transfer price of $286 million, which is net of assumed liabilities, was partially financed through a $120 million, three-year note. The remainder was paid in cash. -16- The following table sets forth AEB's nonperforming loans at year end for each of the five years in the period ended December 31, 1995 (millions): 1995 1994 1993 1992 1991 ------------------------------------------------------------------------ Loans to businesses $ 20 $ 12 $ 24 $ 22 $ 21 Real estate loans 1 4 19 69 5 Equipment financing 1 3 - 6 5 Loans to banks and other financial institutions 8 - - 4 4 Loans to governments and official institutions 1 1 - 1 3 Consumer loans 3 - - - - ------------------------------------------------------------------------ Total (a) (b) $ 34 $ 20 $ 43 $102 $ 38 ======================================================================== (a) AEB's real estate owned totaled $44 million at December 31, 1995, $56 million at December 31, 1994 and $89 million at December 31, 1993, and represent balances transferred from nonperforming loans as a result of foreclosures. The 1995 decrease as well as the decrease from 1993 to 1994 primarily reflected the sale of foreclosed properties. (b) Reduced rate loans were immaterial in amount. -17- The following table sets forth a summary of the credit loss experience of AEB at and for each of the five years in the period ended December 31, 1995 (dollars in millions): 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Total loans at year end $5,428 $4,990 $5,614 $5,356 $5,453 ====== ====== ====== ====== ====== Reserve for credit losses- January 1, $ 109 $ 126 $ 153 $ 116 $ 326 Provision for credit losses 7 8 44 121 44 Translation and other (a) - - (21) (1) 3 ------- --------------------------- Subtotal 116 134 176 236 373 ------- --------------------------- Write-offs: Real estate loans - 1 16 30 7 Loans to businesses 3 21 19 21 88 Loans to banks and other financial institutions 1 3 - 4 18 Equipment financing 1 - - - - Loans to governments and official institutions 1 - - 2 149 Consumer loans 19 19 20 40 4 All other loans - - 6 1 - Recoveries: Loans to businesses (5) (4) (4) (8) (6) Loans to banks and other financial institutions (3) (3) (1) (1) (1) Real estate loans - - - - (1) Equipment financing (1) (2) - - - Consumer loans (11) (10) (6) (5) (1) All other loans - - - (1) - ------ ------------------- ------ Net write-offs 5 25 50 83 257 ------ ------ ------------ ------ Reserve for credit losses- December 31, $ 111 $ 109 $ 126$ 153 $ 116 ============= ============ ====== Reserve for credit losses/ total loans 2.04% 2.19% 2.24% 2.85% 2.13% ====== ====== ============ ====== (a) The decline in 1993 was primarily due to the transfer of reserves relating to loans reclassified to other performing assets upon foreclosure. - -------------------------- Interest income is recognized on the accrual basis. Loans, other than certain consumer loans, are placed on nonperforming status when payments of principal or interest are 90 days past due, or if in the opinion of management the borrower is unlikely to meet its contractual commitments. When loans are placed on nonperforming status, all previously accrued interest not yet received is reversed against current interest income. Cash receipts of -18- interest on nonperforming loans are recognized either as income or as a reduction of principal, based upon management's judgment as to the ultimate collectibility of principal. Consumer loans principally consist of lines of credit. These loans are written off against the reserve for credit losses generally on a formula basis upon reaching specified contractual delinquency stages or earlier if the loan is otherwise deemed uncollectible. Interest income assessed on customers generally accrues until such time a loan is written off. A reserve for credit losses is maintained to absorb losses inherent in the loan portfolio and in other credit-related on- and off- balance sheet financial instruments. The reserve is established by charging a provision for credit losses against income. The amount charged to income is based upon several factors, which include the historical credit loss experience in relation to outstanding credits, a continuous determination as to the collectibility of each credit, and management's evaluation of exposures in each applicable country as related to current and anticipated economic and political conditions. Management's assessment of the adequacy of the reserve is inherently subjective, as significant estimates are required. Loans determined to be uncollectible, as well as other credit losses, are charged against the reserve, with any subsequent recoveries credited to the reserve. RISKS The global nature of AEB's business activities are such that concentrations of credit to particular industries and geographic regions are not unusual. At December 31, 1995, AEB had significant investments in certain on- and off- balance sheet financial instruments, which were primarily represented by deposits with banks, securities, loans, contractual amounts of letters of credit (standby and commercial) and guarantees. The counterparties to these financial instruments were primarily unrelated to AEB, and principally consisted of banks and other financial institutions and various commercial and industrial enterprises operating geographically within the Asia/Pacific region, the Indian Subcontinent, Europe and North America. AEB continuously monitors its credit concentrations and actively manages to reduce the associated risk. AEB does not anticipate any material losses as a result of these concentrations. AEB's earnings are sensitive to fluctuations in interest rates, as it is not always possible to match precisely the maturities of interest-related assets and liabilities. However, strict limits have been established for both country and total bank mismatching. On occasion, AEB may decide to mismatch in anticipation of a change in future interest rates in accordance with these guidelines. Term loans extended by AEB include both floating interest rate and fixed interest rate loans. For a discussion relating to AEB's use of derivative financial instruments, see pages 27 and 28 under the caption "Risk Management," and Note 11 on pages 42 through 45, of the registrant's 1995 Annual Report to Shareholders, which portions of such report are incorporated herein by reference. -19- COMPETITION The banking services of AEB are subject to vigorous competition in all markets in which AEB operates. Competitors include local and international banks whose assets often exceed those of AEB, other financial institutions (including certain other subsidiaries of the registrant) and, in certain cases, governmental agencies. In some countries, AEB may be one of the more substantial financial institutions offering banking services; in no country, however, has AEB been a major factor. REGULATION AEB's branches, representative offices and subsidiaries are licensed and regulated in the jurisdictions in which they do business and are subject to the same local requirements as other competitors. AEB's New York Agency is supervised and regularly examined by the Superintendent of Banks of the State of New York. At the request of management, the New York State Banking Department has extended its supervision and examination of the New York Agency to cover AEB's global network of branches and subsidiaries. The Florida Department of Banking and Finance supervises and examines the Miami Agency. In addition, the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") regulates, supervises and examines AEBI. AEBI is subject to a 1993 agreement with the Federal Reserve Board pursuant to which AEBI agreed to correct two alleged violations of regulations of the Federal Reserve Board and amend certain internal policies and procedures. Since AEB does not do business in the U.S. except as an incident to its activities outside the U.S., the registrant's affiliation with AEB neither causes the registrant to be subject to the provisions of the Bank Holding Company Act of 1956, nor requires it to register as a bank holding company under the Federal Reserve Board's Regulation Y. AEB is not a member of the Federal Reserve System, is not subject to supervision by the FDIC, and is not subject to any of the restrictions imposed on grandfathered nonbank banks by the Competitive Equality Banking Act of 1987 other than anti-tie-in rules with respect to transactions involving products and services of certain of its affiliates. As a matter of policy, AEB actively monitors compliance with regulatory capital requirements. These requirements are essentially represented by the Federal Reserve Board's risk-based capital guidelines and complementary leverage constraint. Pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991, the Federal Reserve Board, among other federal banking agencies, adopted regulations defining levels of capital adequacy. Under these regulations, a bank is deemed to be well capitalized if it maintains a Tier 1 risk-based capital ratio of at least 6.0 percent, a total risk-based capital ratio of at least 10.0 percent, and a leverage ratio of at least 5.0 percent. Based on AEB's total risk-based capital and leverage ratios, which are set forth on page 15, AEB is considered to be well capitalized at December 31, 1995. -20- CORPORATE The Balcor Company Holdings, Inc. and its subsidiaries (collectively, "Balcor"), formerly operating as a diversified real estate investment and management company, discontinued new commercial real estate activities in 1990 and began to liquidate its portfolio of real estate loans and properties. The liquidation is expected to be substantially completed in 1996. In 1994, Balcor sold its property management business. At December 31, 1995, Balcor's assets, excluding cash and cash equivalents, totaled $382 million with related reserves of $109 million. Balcor's assets at December 31, 1995 included investments in real estate, interests in partnerships, real estate loans and advances to limited partnerships originated by Balcor. FOREIGN OPERATIONS TRS derives a significant portion of its revenues from the use of the Card, Travelers Cheques and travel services in countries outside the U.S. and continues to broaden the use of these products and services outside the U.S. Political and economic conditions in these countries, including the availability of foreign exchange for the payment by the local Card issuer of obligations arising out of local Cardmembers' spending outside such country, for the payment of Card bills by Cardmembers who are billed in other than their local currency and for the remittance of the proceeds of Travelers Cheque sales, can have an effect on TRS' revenues. Substantial and sudden devaluation of local Cardmembers' currency can also affect their ability to make payments to the local issuer of the Card on account of spending outside the local country. The major portion of AEB's banking revenues is from business conducted in countries outside the U.S. Some of the risks attendant to those operations include currency fluctuations and changes in political, economic and legal environments in each such country. As a result of its foreign operations, the registrant is exposed to the possibility that, because of foreign exchange rate fluctuations, assets and liabilities denominated in currencies other than the U.S. dollar may be realized in amounts greater or lesser than the U.S. dollar amounts at which they are currently recorded in the registrant's Consolidated Financial Statements. Examples of transactions in which this may occur include the purchase by Cardmembers of goods and services in a currency other than the currency in which they are billed; the sale in one currency of a Travelers Cheque denominated in a second currency; foreign exchange positions held by AEB as a consequence of its client-related foreign exchange trading operations; and, in most instances, investments in foreign operations. These risks, unless properly monitored and managed, could have an adverse effect on the registrant's operations. The registrant's policy in this area is generally to monitor closely all foreign exchange positions and to minimize foreign exchange gains and losses, for example, by offsetting foreign currency assets with foreign currency liabilities, as in the case of foreign currency loans and receivables, which are financed in the same currency. An additional technique used to manage exposures is the spot and forward purchase or sale of foreign currencies as a hedge of net exposures in those currencies as, for example, in the case of the Cardmember and Travelers Cheque transactions described above. Additionally, Cardmembers may be charged in U.S. dollars for their spending outside their local country. The registrant's investments in foreign operations are hedged by forward exchange contracts or by identifiable transactions, where appropriate. -21- INDUSTRY SEGMENT INFORMATION AND CLASSES OF SIMILAR SERVICES Information with respect to the registrant's industry segments, geographical operations and classes of similar services is set forth in Note 15 to the Consolidated Financial Statements of the registrant, which appears on pages 48 through 50 of the registrant's 1995 Annual Report to Shareholders, which note is incorporated herein by reference. EXECUTIVE OFFICERS OF THE REGISTRANT All of the executive officers of the registrant as of March 29, 1996, none of whom has any family relationship with any other and none of whom became an officer pursuant to any arrangement or understanding with any other person, are listed below. Each of such officers was elected to serve until the next annual election of officers or until his or her successor is elected and qualified. Each officer's age is indicated by the number in parentheses next to his or her name. HARVEY GOLUB - Chairman and Chief Executive Officer; Chairman and Chief Executive Officer, TRS Mr. Golub (57) has been Chief Executive Officer of the registrant since February 1993, Chairman of the registrant since August 1993 and Chairman and Chief Executive Officer of TRS since November 1991. Prior to August 1993, he had been President of the registrant since July 1991. Prior to January 1992, he was also Chairman of American Express Financial Corporation. Prior to July 1991, he had been Vice Chairman of the registrant and Chairman and Chief Executive Officer of American Express Financial Corporation. KENNETH I. CHENAULT - Vice Chairman Mr. Chenault (44) has been Vice Chairman of the registrant since January 1995. Prior to May 1995, he had also been President, U.S.A. of TRS since August 1993. Prior thereto, he had been President, Consumer Card Group, TRS. GEORGE L. FARR - Vice Chairman Mr. Farr (56) has been Vice Chairman of the registrant since May 1995. Prior thereto, he had been a director of McKinsey & Company. JONATHAN S. LINEN - Vice Chairman Mr. Linen (52) has been Vice Chairman of the registrant since August 1993. Prior thereto, he had been President and Chief Operating Officer of TRS since March 1992. Prior thereto, he had been President and Chief Executive Officer of the Shearson Lehman Brothers Division of Shearson Lehman Brothers Inc. STEVEN W. ALESIO - President, Travel Services Group, TRS Mr. Alesio (41) has been President, Travel Services Group, TRS since February 1996. Prior thereto, he had been Executive Vice President, Travel Services Group, TRS since June 1995. Prior thereto, he had been Executive Vice President, Corporate Card, TRS since November 1993. Prior thereto, he had been Senior Vice President of the Consumer Travel Network, TRS. -22- ANNE M. BUSQUET - President, American Express Relationship Services, TRS Mrs. Busquet (45) has been President, American Express Relationship Services, TRS since October 1995. Prior thereto, she had been Executive Vice President, Consumer Card Group since November 1993. Prior thereto, she had been Senior Vice President and General Manager, Merchandise Services. EDWARD P. GILLIGAN - President, Corporate Services, TRS Mr. Gilligan (36) has been President, Corporate Services, TRS since February 1996. Prior thereto, he had been Executive Vice President, Travel Management Services, TRS since June 1995. Prior thereto, he had been Senior Vice President and General Manager Eastern Region of Travel Management Services, TRS since June 1992. Prior thereto, he had been Vice President, Corporate Client Services, TRS. JOHN D. HAYES - Executive Vice President, Global Advertising Mr. Hayes (41) has been Executive Vice President, Global Advertising since May 1995. Prior thereto, he had been President of Lowe & Partners/SMS since January 1991. Prior thereto, he had been President and Chief Executive Officer of Greer Du Bois. WILLIAM J. HERON, JR. - President, American Express Financial Services Direct Mr. Heron (54) has been President of American Express Financial Services Direct since July 1995. Prior thereto, he had been Chief Executive Officer of The Swig Investment Company since April 1993. Prior thereto, he had been Group Executive, U.S. Consumer Business, Citicorp and Division Executive, New York Business, Citibank. DAVID C. HOUSE - President, Establishment Services Worldwide, TRS Mr. House (46) has been President, Establishment Services Worldwide, TRS since October 1995. Prior thereto, he had been Senior Vice President of Sales and Field Marketing for the U.S. Establishment Services Group since January 1993. Prior thereto, he had been Senior Vice President of Reebok International, Inc. DAVID R. HUBERS - President and Chief Executive Officer, American Express Financial Corporation Mr. Hubers (53) has been President and Chief Executive Officer of American Express Financial Corporation since August 1993. Prior thereto, he had been a Senior Vice President of American Express Financial Corporation. -23- JOSEPH W. KEILTY - Executive Vice President, Quality & Human Resources, Chief Quality Officer Mr. Keilty (58) has been Executive Vice President since November 1991. Prior thereto, he had been Managing Director of Keilty, Goldsmith & Company, a consulting company. CARL B. LEHMANN, III - President, Stored Value Group, TRS Mr. Lehmann (42) has been President, Stored Value Group, TRS since October 1993. Prior thereto, he had been Senior Vice President, Cheque Products, TRS. ALLAN Z. LOREN - Executive Vice President and Chief Information Officer Mr. Loren (57) has been Executive Vice President and Chief Information Officer since May 1994. Prior thereto, he had been President and Chief Executive Officer of Galileo International since January 1991. Prior thereto, he had been President of Apple U.S.A., a division of Apple Computer Corp. MICHAEL P. MONACO - Executive Vice President and Chief Financial Officer Mr. Monaco (48) has been Executive Vice President and Chief Financial Officer since September 1990. Prior to July 1995, he had also been Treasurer since April 1992. LOUISE M. PARENT - Executive Vice President and General Counsel Ms. Parent (45) has been Executive Vice President and General Counsel of the registrant since May 1993. Prior thereto, she had been Deputy General Counsel of the registrant since January 1992. Prior thereto, she had been General Counsel of First Data Corporation. PHILLIP J. RIESE - President, Consumer Card Services Group, TRS; Chairman of the Board of American Express Centurion Bank Mr. Riese (46) has been President, Consumer Card Services Group, TRS since September 1995. Prior thereto, he had been President, Cardmember Financial Services Group, TRS since September 1993. He has been Chairman of the Board of American Express Centurion Bank since August 1993. Prior to September 1993, he had been Executive Vice President and General Manager of the Charge Card Group. THOMAS O. RYDER - President, TRS International Mr. Ryder (51) has been President, TRS International since October 1995. Prior thereto, he had been President, Establishment Services Worldwide, TRS since 1993. Prior thereto, he had been Executive Vice President and General Manager of the Establishment Services Division, TRS. -24- THOMAS SCHICK - Executive Vice President, Corporate Affairs and Communications Mr. Schick (49) has been Executive Vice President since March 1993. Prior thereto, he had been Executive Vice President of TRS since October 1992. Prior thereto, he had been Senior Executive Vice President of Shearson Lehman Brothers Inc. JOHN A. WARD, III - Chairman and Chief Executive Officer, American Express Bank Ltd. Mr. Ward (49) has been Chairman and Chief Executive Officer, American Express Bank Ltd. since January 1996. Prior thereto, he had been Executive Vice President of Chase Manhattan Bank since September 1993 and Chief Executive Officer of Chase BankCard Services since July 1993. Prior thereto, he had been President of Chase Personal Financial Services. EMPLOYEES The registrant had 70,347 employees on December 31, 1995. ITEM 2. PROPERTIES The registrant's headquarters are in a 51-story, 2.2 million square foot building located in lower Manhattan, known as American Express Tower, which also serves as the headquarters for TRS and AEB. This building, which is on land leased from the Battery Park City Authority for a term expiring in 2069, is one of four office buildings in a complex known as the World Financial Center. Lehman Brothers Holdings Inc. ("Lehman") is also headquartered at the building and is a co-owner. Other principal locations of TRS include: the American Express Service Centers in Fort Lauderdale, Florida, Phoenix, Arizona, Greensboro, North Carolina and Salt Lake City, Utah, and American Express Canada, Inc. headquarters, Markham, Ontario, Canada, all of which are owned by the registrant or its subsidiaries. AEFC's principal locations are its headquarters, the IDS Tower, a portion of which the company leases until 2002, and its Operations Center, which the company owns; both are in Minneapolis, Minnesota. AEFC also owns Oak Ridge Conference Center, a training facility and conference center, in Chaska, Minnesota. Generally, the registrant and its subsidiaries lease the premises they occupy in other locations. Facilities owned or occupied by the registrant and its subsidiaries are believed to be adequate for the purposes for which they are used and are well maintained. -25- ITEM 3. LEGAL PROCEEDINGS The registrant and its subsidiaries are involved in a number of legal and arbitration proceedings concerning matters arising in connection with the conduct of their respective business activities. The registrant believes it has meritorious defenses to each of these actions and intends to defend them vigorously. The registrant believes that it is not a party to, nor are any of its properties the subject of, any pending legal proceedings which would have a material adverse effect on the registrant's consolidated financial condition. SAFRA-RELATED ACTIONS Two purported shareholder derivative actions, now consolidated, were brought in October 1990 in New York State Supreme Court and three purported derivative actions, also consolidated, were brought in early 1991 in the U.S. District Court for the Southern District of New York against all of the then current directors, certain former directors and certain former officers and employees of the registrant. The consolidated state court complaint alleges that defendants breached their duty of care in managing the registrant, purportedly resulting in losses and in the registrant's payment of $8 million in July 1989 to certain charities agreed to by the registrant and Edmond J. Safra. The federal complaints also alleged breach of duty in connection with a severance arrangement of a former executive officer of the registrant and that certain proxy statements of the registrant were misleading in failing to disclose such alleged breaches. Plaintiffs in the state court action seek a declaratory judgment, unspecified money damages and an accounting. The federal actions were dismissed in December 1993, and the dismissal was upheld by the Second Circuit Court of Appeals in November 1994. One of the plaintiffs in the federal action subsequently commenced another state court action raising the same allegations as the consolidated state court complaint. FCH-RELATED ACTION A purported shareholder derivative action was brought in June 1991 in the U.S. District Court for the Eastern District of New York against the then current directors of the registrant. In January 1992, this action was transferred to the United State District Court for the Central District of California for coordinated or consolidated proceedings with all other federal actions related to First Capital Holdings Corp. ("FCH"). The complaint alleges that the Board of Directors should have required Lehman to divest its investment in FCH and to write down its investment sooner. In addition, the complaint alleges that the failure to act constituted a waste of corporate assets and caused damage to the registrant's reputation. The complaint seeks a judgment declaring that the directors named as defendants breached their fiduciary duties and duties of loyalty and requiring the defendants to pay money damages to the registrant and remit their compensation for the periods in which the duties were breached, attorneys' fees and costs and other relief. Lehman has agreed to indemnify the registrant for any losses incurred in connection with this and other actions that arose related to FCH. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the registrant's security holders during the last quarter of its fiscal year ended December 31, 1995. -26- PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The principal market for the registrant's Common Shares is The New York Stock Exchange. Its Common Shares are also listed on the Boston, Chicago, Pacific, London, Zurich, Geneva, Basle, Dusseldorf, Frankfurt, Paris, Amsterdam and Brussels Stock Exchanges. The registrant had 57,010 common shareholders of record at December 31, 1995. For price and dividend information with respect to such Common Shares, see Note 18 to the Consolidated Financial Statements on page 51 of the registrant's 1995 Annual Report to Shareholders, which note is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The "Consolidated Five-Year Summary of Selected Financial Data" appearing on page 53 of the registrant's 1995 Annual Report to Shareholders is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information set forth under the heading "Financial Review" appearing on pages 21 through 28 of the registrant's 1995 Annual Report to Shareholders is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The "Consolidated Financial Statements", the "Notes to Consolidated Financial Statements" and the "Report of Ernst & Young LLP Independent Auditors" appearing on pages 29 through 52 of the registrant's 1995 Annual Report to Shareholders are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEMS 10, 11, 12 and 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT; CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The registrant filed with the SEC, within 120 days after the close of its last fiscal year, a definitive proxy statement dated March 11, 1996 pursuant to Regulation 14A, which involves the election of directors. The following portions of such proxy statement are incorporated herein by reference: pages 3 and 4 under the heading "The Shares Voting," pages 5 through 7 under the headings "Security Ownership of Directors and Executive Officers," and "Security Ownership of Named Executives," pages 10 through 12 under the heading "Directors' Fees and Other Compensation," pages 12, beginning at "Election of Directors" through 34, ending at "Selection of Auditors" (excluding the portions under the headings, "Board Compensation Committee -27- Report on Executive Compensation" appearing on pages 15 through 20 and "Performance Graph" appearing on pages 26 and 27), and page 44 under the heading "Certain Filings." In addition, the registrant has provided, under the caption "Executive Officers of the Registrant" at pages 22 through 25 above, the information regarding executive officers called for by Item 401(b) of Regulation S-K. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements: See Index to Financial Statements on page F-1 hereof. 2. Financial Statement Schedules: See Index to Financial Statements on page F-1 hereof. 3. Exhibits: See Exhibit Index on pages E-1 through E-5 hereof. (b) Reports on Form 8-K: 1. Form 8-K, dated October 16, 1995, Item 5, announcing the end of discussions of a possible sale of American Express Bank. 2. Form 8-K, dated October 23, 1995, Item 5, reporting the registrants's earnings for the quarter ended September 30, 1995. 3. Form 8-K, dated January 9, 1996, Item 5, reporting the appointment of John A. Ward as Chairman and Chief Executive Officer of American Express Bank. 4. Form 8-K, dated January 22, 1996, Item 5, reporting the registrant's earnings for the quarter and year ended December 31, 1995. -28- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICAN EXPRESS COMPANY March 29, 1996 By /s/ Michael P. Monaco Michael P. Monaco Executive Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By /s/ Harvey Golub By /s/ Beverly Sills Greenough Harvey Golub Beverly Sills Greenough Chairman, Chief Executive Director Officer and Director By /s/ Michael P. Monaco By /s/ F. Ross Johnson Michael P. Monaco F. Ross Johnson Executive Vice President and Director Chief Financial Officer By /s/ Daniel T. Henry By /s/ Vernon E. Jordan Jr. Daniel T. Henry Vernon E. Jordan Jr. Senior Vice President Director and Comptroller By /s/ Daniel F. Akerson By/s/ Henry A. Kissinger Daniel F. Akerson Henry A. Kissinger Director Director By /s/ Anne L. Armstrong By /s/ Drew Lewis Anne L. Armstrong Drew Lewis Director Director By /s/ Edwin L. Artzt By /s/ Aldo Papone Edwin L. Artzt Aldo Papone Director Director By /s/ William G. Bowen By/s/ Frank P. Popoff William G. Bowen Frank P. Popoff Director Director -29- By /s/ David M. Culver David M. Culver Director By /s/ Charles W. Duncan Jr. Charles W. Duncan Jr. Director March 29, 1996 -30- AMERICAN EXPRESS COMPANY INDEX TO FINANCIAL STATEMENTS COVERED BY REPORT OF INDEPENDENT AUDITORS (Item 14(a)) Annual Report to Shareholders Form 10-K (Page) --------- ------------ American Express Company and Subsidiaries: Data incorporated by reference from attached 1995 Annual Report to Shareholders: Report of independent auditors .......... 52 Consolidated statement of income for the three years ended December 31, 1995 ..... 29 Consolidated balance sheet at December 31, 1995 and 1994 ........................... 30 Consolidated statement of cash flows for the three years ended December 31, 1995 . 31 Consolidated statement of shareholders' equity for the three years ended December 31, 1995 32 Notes to consolidated financial statements 33-51 Consent of independent auditors .............. F-2 Schedules: I--Condensed financial information of F-3-6 registrant II--Valuation and qualifying accounts for the three years ended December 31, 1995 F-7 All other schedules for American Express Company and subsidiaries have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the respective financial statements or notes thereto. The consolidated financial statements of American Express Company (including the report of independent auditors) listed in the above index, which are included in the Annual Report for the year ended December 31, 1995, are hereby incorporated by reference. With the exception of the pages listed in the above index, unless otherwise incorporated by reference elsewhere in this Annual Report on Form 10-K, the 1995 Annual Report is not to be deemed filed as part of this report. F-1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report on Form 10-K of American Express Company of our report dated February 8, 1996 (hereinafter referred to as our Report), included in the 1995 Annual Report to Shareholders of American Express Company. Our audits included the financial statement schedules of American Express Company listed in Item 14(a). These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in Registration Statements (Form S-8 No. 2-46918, No. 2-59230, No. 2-64285, No. 2-73954, No. 2-89680, No. 33-01771, No. 33-02980, No. 33-28721, No. 33-33552, No. 33-36422, No. 33-38777, No. 33-48629, No. 33-62124, No. 33-65008 and No. 33-53801; Form S-3 No. 2-89469, No. 33-17706, No. 33-43268, No. 33-66654 and No. 33-50997) and in the related Prospecti of our Report with respect to the consolidated financial statements and schedules of American Express Company included and incorporated by reference in this Annual Report on Form 10-K for the year ended December 31, 1995. /s/ Ernst & Young LLP New York, New York March 29, 1996 F-2 AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENT OF INCOME (Parent Company Only) (millions) Years Ended December 31, --------------------------- 1995 1994 1993 ---- ---- ---- Revenues $ 254 $ 187 $ 123 ----- ----- ----- Expenses: Interest 245 216 181 Human resources 85 84 82 Other (A) 218 164 (659) ----- ----- ----- Total 548 464 (396) ----- ----- ----- Pretax (loss) income from continuing operations (294) (277) 519 Income tax provision (benefit) (132) (110) 271 ----- ----- ----- Net (loss) income before equity in net income of subsidiaries and affiliates (162) (167) 248 Equity in net income of subsidiaries and affiliates 1,726 1,547 1,357 ----- ----- ----- Income from continuing operations 1,564 1,380 1,605 Equity in income (loss) of discontinued operations - 33 (127) ----- ----- ----- Net income $1,564 $1,413 $1,478 ===== ===== ===== (A) Includes pretax gain on the sale of First Data Corporation of $779 million ($433 million after-tax) in 1993. See Notes to Condensed Financial Information of Registrant F-3 AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED BALANCE SHEET (Parent Company Only) (millions, except share amounts) ASSETS ------ December 31, --------------- 1995 1994 ----- ----- Cash and cash equivalents $ 19 $ 164 Investments 661 246 Securities purchased under agreement to resell 319 - Equity in net assets of subsidiaries and affiliates 9,451 7,415 Accounts receivable and accrued interest, less reserves 44 13 Land, buildings and equipment--at cost, less accumulated depreciation: 1995, $69; 1994, $64 74 91 Due from subsidiaries (net) 988 1,863 Other assets 418 630 ------ ------ Total assets $ 11,974 $ 10,422 ====== ====== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Accounts payable and other liabilities $ 1,314 $ 1,116 Long-term debt 2,340 2,773 Short-term debt 100 100 ------ ------ Total liabilities 3,754 3,989 Shareholders' equity: Preferred shares, $1.66 2/3 par value, authorized 20 million shares Convertible Exchangeable Preferred shares, issued and outstanding 4 million shares, stated at liquidation value 200 200 Common shares, $.60 par value, authorized 1.2 billion shares; issued and outstanding 483.1 million shares in 1995 and 495.9 million shares in 1994 290 298 Capital surplus 3,781 3,651 Net unrealized securities gains (losses) 875 (389) Foreign currency translation adjustment (85) (77) Retained earnings 3,159 2,750 ------ ------ Total shareholders' equity 8,220 6,433 ------ ------ Total liabilities and shareholders' equity $ 11,974 $ 10,422 ====== ====== See Notes to Condensed Financial Information of Registrant F-4 AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENT OF CASH FLOWS (Parent Company Only) (millions) Years Ended December 31, ------------------------- 1995 1994 1993 ---- ---- ---- Cash flows from operating activities: Net income $ 1,564 $ 1,413 $ 1,478 Adjustments to reconcile net income to cash provided by operating activities: Equity in net income of subsidiaries and affiliates (1,726) (1,547) (1,357) Equity in (income) loss of discontinued operations - (33) 127 Dividends received from subsidiaries and affiliates 941 877 868 Gain on sale of First Data Corporation - - (779) ----- ----- ----- Net cash provided by operating activities 779 710 337 ----- ----- ----- Net cash (used) provided by investing activities (32) 1,536 (655) ----- ----- ----- Cash flows from financing activities: Issuance of American Express common shares 286 179 259 Repurchase of American Express common shares (891) (555) - Dividends paid (458) (504) (526) Cash infusion to Lehman Brothers - (904) - Net (decrease) increase in debt (864) (331) 524 Other (primarily Due from subsidiaries) 1,035 25 42 ----- ----- ----- Net cash (used) provided by financing activities (892) (2,090) 299 ----- ----- ----- Net (decrease) increase in cash and cash equivalents (145) 156 (19) ----- ----- ----- Cash and cash equivalents at beginning of year 164 8 27 ----- ----- ----- Cash and cash equivalents at end of year $ 19 $ 164 $ 8 ===== ===== ===== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest (net of amounts capitalized) in 1995, 1994, and 1993 was $190 million, $169 million and $105 million, respectively. Net cash received for income taxes was $127 and $185 for 1995 and 1994 respectively; net cash paid for income taxes was $256 for 1993. F-5 AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT 1. Principles of Consolidation The accompanying financial statements include the accounts of American Express Company and on an equity basis its subsidiaries and affiliates. Lehman Brothers is reported as a discontinued operation in 1994 and 1993. These financial statements should be read in conjunction with the consolidated financial statements of the Company. Certain prior year's amounts have been reclassified to conform to the current year's presentation. 2. Long-term debt consists of (millions): December 31, ------------- 1995 1994 ---- ---- 6 1/4% DECS due October 15, 1996 1,294 868 8 1/2% Notes due August 15, 2001 298 298 Floating Medium-Term Note due December 31, 2000 208 945 8 3/4% Notes due June 15, 1996 200 200 8 5/8% Senior Debentures due 2022 198 198 Senior Floating Rate Note due September 30, 1996 55 - Employee Stock Ownership Plan - 63 11.95% Private Placement Notes due 1995 - 102 WFC Series C 12 1/5% Guaranteed Notes due December 12, 1997 - 15 WFC Series D 11 5/8% Guaranteed Notes due December 12, 2000 22 22 WFC Series Z Zero Coupon Notes due December 12, 2000 37 33 WFC $60 million 8.15% Japanese Yen PPN due July 1996 9 9 WFC $80 million 7.86% Japanese Yen PPN due August 1996 11 11 7 1/2% Debentures due February 27, 1999 3 4 12 3/4% Industrial Revenue Bonds due October 31, 2001 5 5 ----- ----- $2,340 $2,773 ===== ===== Aggregate annual maturities of long-term debt for the five years ending December 31, 2000 are as follows (millions): 1996, $1,626; 1997, $0; 1998, $25; 1999, $31, 2000, $184. F-6 AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS THREE YEARS ENDED DECEMBER 31, 1995 (millions)
Reserve for credit losses, Reserve for doubtful loans and discounts accounts receivable -------------------------- ----------------------- 1995 1994 1993 1995 1994 1993 ---- ---- ---- ---- ---- ---- Balance at beginning of period $ 545 $ 655 $ 911 $ 807 $ 796 $1,124 Additions: Charges to income 529 362 535 1,327(a) 1,104(a) 1,020(a) Recoveries of amounts previously written- off 134 150 26 - - - Other - (19) (85) - - - Deductions: Charges for which reserves were provided (606) (603) (732) (1,305) (1,093) (1,348) ----- ----- ----- ----- ----- ----- Balance at end of period $ 602 $ 545 $ 655 $ 829 $ 807 $ 796 ===== ===== ===== ===== ===== =====
(a) Before recoveries on accounts previously written-off, which are credited to income: 1995--$333, 1994--$332 and 1993--$333. F-7 EXHIBIT INDEX The following exhibits are filed as part of this Annual Report or, where indicated, were heretofore filed and are hereby incorporated by reference (* indicates exhibits electronically filed herewith.) Exhibits numbered 10.1 through 10.21 and 10.31 through 10.42 are management contracts or compensatory plans or arrangements. 3.1 Registrant's Restated Certificate of Incorporation (incorporated by reference to Exhibit 4.1 of the registrant's Registration Statement on Form S-8, dated October 31, 1991 (File No. 33-43671)). 3.2 Registrant's By-Laws, as amended (incorporated by reference to Exhibit 3.2 of the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994.) 4 The instruments defining the rights of holders of long-term debt securities of the registrant and its subsidiaries are omitted pursuant to Section (b)(4)(iii)(A) of Item 601 of Regulation S-K. The registrant hereby agrees to furnish copies of these instruments to the SEC upon request. 10.1 American Express Company 1979 Long-Term Incentive Plan, as amended (incorporated by reference to Exhibit 10.2 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1987). 10.2 American Express Company 1989 Long-Term Incentive Plan, as amended (incorporated by reference to Exhibit 28.1 of the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993). 10.3 American Express Company Deferred Compensation Plan for Directors, as amended (incorporated by reference to Exhibit 10.3 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992). 10.4 American Express Company Executives' Incentive Compensation Plan (incorporated by reference to Exhibit 10.4 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988). 10.5 Description of American Express Pay for Performance Deferral Program (incorporated by reference to Exhibit 10.5 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.6 American Express Company Supplementary Pension Plan, as amended (incorporated by reference to Exhibit 10.6 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988). 10.7 American Express Company 1983 Stock Purchase Assistance Plan, as amended (incorporated by reference to Exhibit 10.6 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988). 10.8 Consulting Agreement dated March 3, 1994 between the registrant and Aldo Papone Consulting (incorporated by reference to Exhibit 10.8 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). E-1 10.9 Written description of consulting agreement between the registrant and Kissinger Associates, Inc. (incorporated by reference to Exhibit 10.20 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1984). 10.10 American Express Company Retirement Plan for Non-Employee Directors, as amended (incorporated by reference to Exhibit 10.12 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988). *10.11 Certificate of Amendment of the American Express Company Retirement Plan for Non-Employee Directors dated March 21, 1996. 10.12 American Express Company Directors' Stock Option Plan (incorporated by reference to Exhibit 10.16 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1987). 10.13 American Express Key Executive Life Insurance Plan, as amended (incorporated by reference to Exhibit 10.12 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991). 10.14 American Express Key Employee Charitable Award Program for Education (incorporated by reference to Exhibit 10.13 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990). 10.15 American Express Directors' Charitable Award Program (incorporated by reference to Exhibit 10.14 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990). 10.16 Description of separate pension arrangement and loan agreement between the registrant and Harvey Golub (incorporated by reference to Exhibit 10.17 of registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988). 10.17 Shearson Lehman Brothers Capital Partners I Amended and Restated Agreement of Limited Partnership (incorporated by reference to Exhibit 10.18 of registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988). 10.18 Shearson Lehman Hutton Capital Partners II, L.P. Amended and Restated Agreement of Limited Partnership (incorporated by reference to Exhibit 10.19 of registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988). 10.19 American Express Company Salary/Bonus Deferral Plan (incorporated by reference to Exhibit 10.20 of registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988). 10.20 Written description of certain pension arrangements with Jonathan S. Linen (incorporated by reference to Exhibit 10.14 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991). 10.21 Consulting Agreement dated March 3, 1994 between American Express Travel Related Services Company, Inc. and Aldo Papone Consulting (incorporated by reference to Exhibit 10.23 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). E-2 10.22 Restated and Amended Agreement of Tenants-In-Common, dated May 27, 1994, by and among the registrant, American Express Bank Ltd., American Express Travel Related Services Company, Inc., Lehman Brothers Inc., Lehman Government Securities, Inc. and Lehman Commercial Paper Incorporated (incorporated by reference to Exhibit 10.1 of Lehman Brothers Holdings Inc.'s Transition Report on Form 10-K for the transition period from January 1, 1994 to November 30, 1994 (File No. 1-9466)). 10.23 Tax Allocation Agreement, dated May 27, 1994, between Lehman Brothers Holdings Inc. and the registrant (incorporated by reference to Exhibit 10.2 of Lehman Brothers Holdings Inc.'s Transition Report on Form 10-K for the transition period from January 1, 1994 to November 30, 1994 (File No. 1-9466)). 10.24 Intercompany Agreement, dated May 27, 1994, between the registrant and Lehman Brothers Holdings Inc. (incorporated by reference to Exhibit 10.3 of Lehman Brothers Holdings Inc.'s Transition Report on Form 10-K for the transition period from January 1, 1994 to November 30, 1994 (File No. 1-9466)). 10.25 Purchase and Exchange Agreement, dated April 28, 1994, between Lehman Brothers Holdings Inc. and the registrant (incorporated by reference to Exhibit 10.29 of Lehman Brothers Holdings Inc.'s Transition Report on Form 10-K for the transition period from January 1, 1994 to November 30, 1994 (File No. 1-9466)). 10.26 Registration Rights Agreement, dated as of May 27, 1994, between the registrant and Lehman Brothers Holdings Inc. (incorporated by reference to Exhibit 10.30 of Lehman Brothers Holdings Inc.'s Transition Report on Form 10-K for the transition period from January 1, 1994 to November 30, 1994 (File No. 1-9466)). 10.27 Option Agreement, dated May 27, 1994, by and among the registrant, American Express Bank Ltd., American Express Travel Related Services Company, Inc., Lehman Brothers Holdings Inc., Lehman Brothers Inc., Lehman Government Securities, Inc. and Lehman Commercial Paper Incorporated (incorporated by reference to Exhibit 10.31 of Lehman Brothers Holdings Inc.'s Transition Report on Form 10-K for the transition period from January 1, 1994 to November 30, 1994 (File No. 1-9466)). 10.28 1994 Agreement, dated April 28, 1994, between the registrant, Lehman Brothers Holdings Inc. and Nippon Life Insurance Company (incorporated by reference to Exhibit 10.32 of Lehman Brothers Holdings Inc.'s Transition Report on Form 10-K for the transition period from January 1, 1994 to November 30, 1994 (File No. 1-9466)). 10.29 1990 Agreement, dated as of June 12, 1990, by and between the registrant and Nippon Life Insurance Company (incorporated by reference to Exhibit 10.25 of Shearson Lehman Brothers Holdings Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1990). 10.30 Asset Purchase Agreement dated as of March 12, 1993 between Smith Barney, Harris Upham & Co. Incorporated, Primerica Corporation and Shearson Lehman Brothers Inc. (incorporated by reference to Exhibit 10.16 of Shearson Lehman Brothers Holdings Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1992). E-3 *10.31 Advisor Agreement between the registrant and Dr. Henry Kissinger dated February 2, 1996. 10.32 American Express Company 1993 Directors' Stock Option Plan (incorporated by reference to Exhibit 28.2 of the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993). *10.33 Description of separate pension arrangement between the registrant and George L. Farr. 10.34 American Express Senior Executive Severance Plan (incorporated by reference to Exhibit 10.1 of the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994). 10.35 Amendment of American Express Senior Executive Severance Plan. (incorporated by reference to Exhibit 10.1 of the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994). 10.36 Amendment of American Express Company Executives' Incentive Compensation Plan (incorporated by reference to Exhibit 10.2 of the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994). 10.37 Amendment of American Express Company Key Executive Life Insurance Plan (incorporated by reference to Exhibit 10.3 of the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994). 10.38 Amendment of American Express Company Salary/Bonus Deferral Plan (incorporated by reference to Exhibit 10.4 of the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994). 10.39 Amendment of American Express Company Supplementary Pension Plan (incorporated by reference to Exhibit 10.5 of the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994). 10.40 Amendment of Long-Term Incentive Awards under the American Express Company 1979 and 1989 Long-Term Incentive Plans (incorporated by reference to Exhibit 10.6 of the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994). 10.41 IDS Current Service Deferred Compensation Plan (incorporated by reference to Exhibit 10.42 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.42 Amended and Restated American Express Supplemental Retirement Plan (incorporated by reference to Exhibit 10.1 of the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995). 10.43 Agreement dated February 27, 1995 between the registrant and Berkshire Hathaway Inc. (incorporated by reference to Exhibit 10.43 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). E-4 10.44 Agreement dated July 20, 1995 between the registrant and Berkshire Hathaway Inc. and its subsidiaries (incorporated by reference to Exhibit 10.1 of the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995). *11 Computation of Earnings Per Share. *12.1 Computation in Support of Ratio of Earnings to Fixed Charges. *12.2 Computation in Support of Ratio of Earnings to Fixed Charges and Preferred Share Dividends. *13 Portions of the registrant's 1995 Annual Report to Shareholders that are incorporated herein by reference. *21 Subsidiaries of the registrant. *23 Consent of Ernst & Young LLP (contained on page F-2 of this Annual Report on Form 10-K). *27 Financial Data Schedule E-5 =========================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------------ FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995 Commission File No. 1-7657 ------------------------------------- American Express Company (Exact name of registrant as specified in charter) E X H I B I T S =========================================================================== EXHIBIT INDEX The following exhibits are filed as part of this Annual Report or, where indicated, were heretofore filed and are hereby incorporated by reference (* indicates exhibits electronically filed herewith.) Exhibits numbered 10.1 through 10.21 and 10.31 through 10.42 are management contracts or compensatory plans or arrangements. 3.1 Registrant's Restated Certificate of Incorporation (incorporated by reference to Exhibit 4.1 of the registrant's Registration Statement on Form S-8, dated October 31, 1991 (File No. 33-43671)). 3.2 Registrant's By-Laws, as amended (incorporated by reference to Exhibit 3.2 of the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994.) 4 The instruments defining the rights of holders of long-term debt securities of the registrant and its subsidiaries are omitted pursuant to Section (b)(4)(iii)(A) of Item 601 of Regulation S-K. The registrant hereby agrees to furnish copies of these instruments to the SEC upon request. 10.1 American Express Company 1979 Long-Term Incentive Plan, as amended (incorporated by reference to Exhibit 10.2 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1987). 10.2 American Express Company 1989 Long-Term Incentive Plan, as amended (incorporated by reference to Exhibit 28.1 of the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993). 10.3 American Express Company Deferred Compensation Plan for Directors, as amended (incorporated by reference to Exhibit 10.3 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992). 10.4 American Express Company Executives' Incentive Compensation Plan (incorporated by reference to Exhibit 10.4 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988). 10.5 Description of American Express Pay for Performance Deferral Program (incorporated by reference to Exhibit 10.5 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.6 American Express Company Supplementary Pension Plan, as amended (incorporated by reference to Exhibit 10.6 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988). 10.7 American Express Company 1983 Stock Purchase Assistance Plan, as amended (incorporated by reference to Exhibit 10.6 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988). 10.8 Consulting Agreement dated March 3, 1994 between the registrant and Aldo Papone Consulting (incorporated by reference to Exhibit 10.8 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). E-1 10.9 Written description of consulting agreement between the registrant and Kissinger Associates, Inc. (incorporated by reference to Exhibit 10.20 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1984). 10.10 American Express Company Retirement Plan for Non-Employee Directors, as amended (incorporated by reference to Exhibit 10.12 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988). *10.11 Certificate of Amendment of the American Express Company Retirement Plan for Non-Employee Directors dated March 21, 1996. 10.12 American Express Company Directors' Stock Option Plan (incorporated by reference to Exhibit 10.16 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1987). 10.13 American Express Key Executive Life Insurance Plan, as amended (incorporated by reference to Exhibit 10.12 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991). 10.14 American Express Key Employee Charitable Award Program for Education (incorporated by reference to Exhibit 10.13 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990). 10.15 American Express Directors' Charitable Award Program (incorporated by reference to Exhibit 10.14 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990). 10.16 Description of separate pension arrangement and loan agreement between the registrant and Harvey Golub (incorporated by reference to Exhibit 10.17 of registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988). 10.17 Shearson Lehman Brothers Capital Partners I Amended and Restated Agreement of Limited Partnership (incorporated by reference to Exhibit 10.18 of registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988). 10.18 Shearson Lehman Hutton Capital Partners II, L.P. Amended and Restated Agreement of Limited Partnership (incorporated by reference to Exhibit 10.19 of registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988). 10.19 American Express Company Salary/Bonus Deferral Plan (incorporated by reference to Exhibit 10.20 of registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988). 10.20 Written description of certain pension arrangements with Jonathan S. Linen (incorporated by reference to Exhibit 10.14 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991). 10.21 Consulting Agreement dated March 3, 1994 between American Express Travel Related Services Company, Inc. and Aldo Papone Consulting (incorporated by reference to Exhibit 10.23 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). E-2 10.22 Restated and Amended Agreement of Tenants-In-Common, dated May 27, 1994, by and among the registrant, American Express Bank Ltd., American Express Travel Related Services Company, Inc., Lehman Brothers Inc., Lehman Government Securities, Inc. and Lehman Commercial Paper Incorporated (incorporated by reference to Exhibit 10.1 of Lehman Brothers Holdings Inc.'s Transition Report on Form 10-K for the transition period from January 1, 1994 to November 30, 1994 (File No. 1-9466)). 10.23 Tax Allocation Agreement, dated May 27, 1994, between Lehman Brothers Holdings Inc. and the registrant (incorporated by reference to Exhibit 10.2 of Lehman Brothers Holdings Inc.'s Transition Report on Form 10-K for the transition period from January 1, 1994 to November 30, 1994 (File No. 1-9466)). 10.24 Intercompany Agreement, dated May 27, 1994, between the registrant and Lehman Brothers Holdings Inc. (incorporated by reference to Exhibit 10.3 of Lehman Brothers Holdings Inc.'s Transition Report on Form 10-K for the transition period from January 1, 1994 to November 30, 1994 (File No. 1-9466)). 10.25 Purchase and Exchange Agreement, dated April 28, 1994, between Lehman Brothers Holdings Inc. and the registrant (incorporated by reference to Exhibit 10.29 of Lehman Brothers Holdings Inc.'s Transition Report on Form 10-K for the transition period from January 1, 1994 to November 30, 1994 (File No. 1-9466)). 10.26 Registration Rights Agreement, dated as of May 27, 1994, between the registrant and Lehman Brothers Holdings Inc. (incorporated by reference to Exhibit 10.30 of Lehman Brothers Holdings Inc.'s Transition Report on Form 10-K for the transition period from January 1, 1994 to November 30, 1994 (File No. 1-9466)). 10.27 Option Agreement, dated May 27, 1994, by and among the registrant, American Express Bank Ltd., American Express Travel Related Services Company, Inc., Lehman Brothers Holdings Inc., Lehman Brothers Inc., Lehman Government Securities, Inc. and Lehman Commercial Paper Incorporated (incorporated by reference to Exhibit 10.31 of Lehman Brothers Holdings Inc.'s Transition Report on Form 10-K for the transition period from January 1, 1994 to November 30, 1994 (File No. 1-9466)). 10.28 1994 Agreement, dated April 28, 1994, between the registrant, Lehman Brothers Holdings Inc. and Nippon Life Insurance Company (incorporated by reference to Exhibit 10.32 of Lehman Brothers Holdings Inc.'s Transition Report on Form 10-K for the transition period from January 1, 1994 to November 30, 1994 (File No. 1-9466)). 10.29 1990 Agreement, dated as of June 12, 1990, by and between the registrant and Nippon Life Insurance Company (incorporated by reference to Exhibit 10.25 of Shearson Lehman Brothers Holdings Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1990). 10.30 Asset Purchase Agreement dated as of March 12, 1993 between Smith Barney, Harris Upham & Co. Incorporated, Primerica Corporation and Shearson Lehman Brothers Inc. (incorporated by reference to Exhibit 10.16 of Shearson Lehman Brothers Holdings Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1992). E-3 *10.31 Advisor Agreement between the registrant and Dr. Henry Kissinger dated February 2, 1996. 10.32 American Express Company 1993 Directors' Stock Option Plan (incorporated by reference to Exhibit 28.2 of the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993). *10.33 Description of separate pension arrangement between the registrant and George L. Farr. 10.34 American Express Senior Executive Severance Plan (incorporated by reference to Exhibit 10.1 of the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994). 10.35 Amendment of American Express Senior Executive Severance Plan. (incorporated by reference to Exhibit 10.1 of the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994). 10.36 Amendment of American Express Company Executives' Incentive Compensation Plan (incorporated by reference to Exhibit 10.2 of the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994). 10.37 Amendment of American Express Company Key Executive Life Insurance Plan (incorporated by reference to Exhibit 10.3 of the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994). 10.38 Amendment of American Express Company Salary/Bonus Deferral Plan (incorporated by reference to Exhibit 10.4 of the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994). 10.39 Amendment of American Express Company Supplementary Pension Plan (incorporated by reference to Exhibit 10.5 of the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994). 10.40 Amendment of Long-Term Incentive Awards under the American Express Company 1979 and 1989 Long-Term Incentive Plans (incorporated by reference to Exhibit 10.6 of the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994). 10.41 IDS Current Service Deferred Compensation Plan (incorporated by reference to Exhibit 10.42 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.42 Amended and Restated American Express Supplemental Retirement Plan (incorporated by reference to Exhibit 10.1 of the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995). 10.43 Agreement dated February 27, 1995 between the registrant and Berkshire Hathaway Inc. (incorporated by reference to Exhibit 10.43 of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). E-4 10.44 Agreement dated July 20, 1995 between the registrant and Berkshire Hathaway Inc. and its subsidiaries (incorporated by reference to Exhibit 10.1 of the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995). *11 Computation of Earnings Per Share. *12.1 Computation in Support of Ratio of Earnings to Fixed Charges. *12.2 Computation in Support of Ratio of Earnings to Fixed Charges and Preferred Share Dividends. *13 Portions of the registrant's 1995 Annual Report to Shareholders that are incorporated herein by reference. *21 Subsidiaries of the registrant. *23 Consent of Ernst & Young LLP (contained on page F-2 of this Annual Report on Form 10-K). *27 Financial Data Schedule E-5 EX-10 2 Exhibit 10.11 CERTIFICATE OF AMENDMENT OF THE AMERICAN EXPRESS COMPANY RETIREMENT PLAN FOR NON-EMPLOYEE DIRECTORS WHEREAS, the Board of Directors of American Express Company (the "Company") at its meeting of February 25, 1996 directed that the American Express Company Retirement Plan for Non-Employee Directors (the "Plan") be amended to provide that persons elected to serve as directors of the Company after March 31, 1996, will not be eligible to participate in the Plan. NOW THEREFORE, pursuant to such direction, the Plan is hereby amended as follows: A new article, Article IX, is hereby added to the Plan to read in its entirety as follows: "IX. DIRECTORS ELECTED AFTER MARCH 31, 1996 Persons elected after March 31, 1996 to initiate service as a director of the Company shall not be eligible to participate in the Plan." The foregoing amendment shall be effective as of March 31, 1996. AMERICAN EXPRESS COMPANY By: /s/ Stephen P. Norman ________________________ Stephen P. Norman Its: Secretary Dated: March 21, 1996 Exhibit 10.31 AMERICAN EXPRESS COMPANY American Express Tower, New York, N.Y. 10285-5100 February 2, 1996 Harvey Golub Chairman and Chief Executive Officer Dear Henry: I'm delighted that you have agreed to serve as an Advisor to the Board of Directors of American Express Company and the Board is delighted as well. We are all pleased that we'll continue to have access to your unique knowledge and experience and we look forward to the continuing benefit of our association with you. The following information is offered to set forth your role as Advisor: Duties As Advisor to the Board of Directors you are invited to share your advice and views from time to time with me and with the Board of Directors on matters of interest to American Express Company. These matters may include international economic and political developments, financial market conditions, competitive developments, and other information of relevance to the Company's businesses or plans. Attendance at Meetings As an Advisor to the Board you are invited to attend all meetings of the Board whenever it is convenient for you to do so. We propose to continue our pattern of 9 scheduled meetings per year (no meetings scheduled in June, August and December) and would hope that your schedule would permit you to attend 6 or 7 meetings per year. Fee and Expenses As compensation for your services as Advisor, the Company proposes to pay you an annual fee of $100,000. The fee will be paid in quarterly installments of $25,000 at the end of each quarter. In addition, the Company will reimburse you for the expenses you incur in traveling to and from meetings of the Board or in connection with American Express Company business, including hotels, meals and incidental expenses. Dr. H. A. Kissinger February 2, 1996 Page 2 If the Company were to ask you to perform duties outside of your Advisory role, such as speaking engagements or attendance at functions not connected to Board meetings, we agree to compensate you additionally for such events on terms that we may agree to at the time. Receipt of Information In order to keep you informed of the major developments involving American Express, we will furnish you on a monthly basis with the same information that we furnish to directors. This material includes monthly earnings statements, major press releases, analyst reports and other materials relating to significant developments within the Company. Terms Your services as Advisor to the Board shall commence on May 1, 1996 and shall continue through April 1997, provided, however, that the relationship will automatically renew itself for successive one-year periods unless either of us gives notice of intention not to renew no later than 60 days prior to the April 30 expiration date of the initial term or any renewal thereof. This advisory relationship will supersede the year-to-year consulting arrangement that the Company has maintained with you since May 1, 1984, and the consulting arrangement will cease on April 30, 1996. The Company's Secretary's Office will continue to serve as your contact point for communications, including the distribution of material, providing information about meetings, payment of fees, and reimbursement of expenses. Dr. H. A. Kissinger February 2, 1996 Page 3 Please indicate your agreement with these terms by signing and returning the attached copy of this letter. Best regards, /s/ Harvey Dr. Henry A. Kissinger Kissinger Associates 350 Park Avenue, 26th Floor New York, NY 10022 Agreed: /s/ Henry A. Kissinger (Date) 2/22/96 Exhibit 10.33 The Compensation and Benefits Committee of the Board of Directors (the "Committee") of American Express Company (the "Company") approved an unfunded, nonqualified benefit arrangement for Mr. Farr to replace benefit opportunities lost upon the termination of employment with his prior employer. The arrangement provides for an additional service credit applied to the American Express Retirement Plan (the "Plan") upon the completion of five years of actual service with the Company. At the end of five years of service, Mr. Farr's eligibility for Plan benefits and Plan benefit value will be determined using a hire date five years prior to his actual hire date. The Company will pay to Mr. Farr on an unfunded basis to the extent of any difference between such calculation and the amounts he is eligible to receive under the Plan and the Company's Supplemental Retirement Plan based on his actual years of service under these plans. EX-11 3
EXHIBIT 11 AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE Five Years Ended December 31, 1995 1995 1994 1993 1992 1991 ------ ------ ------ ------ ------ 1. Weighted average number of common shares issued and outstanding 489,692,167 497,281,258 484,754,771 476,047,601 468,950,425 2. Weighted average number of shares In-Lieu/LOI 504,044 510,109 414,904 463,128 465,383 3. Common shares assuming exercise of stock options 7,756,607 3,084,114 2,777,899 255,139 331,756 4. Common share equivalents for Variable Rate Convertible Notes - - - - 6,117 5. Berkshire Hathaway - 7,939,686 12,190,155 - - ---------- ---------- ---------- ---------- ---------- 6. Primary common shares and common share equivalents 497,952,818 508,815,167 500,137,729 476,765,868 469,753,681 7. Additional common shares assuming exercise of stock options based on year-end market price 1,619,795 312,691 474,233 - - 8. Common shares reserved for conversion of 9% Convertible Debentures - 538,409 3,519,727 - 3,865,733 9. Common shares reserved for conversion of 7 1/2% Convertible Debentures 126,337 142,984 195,406 - 198,582 10.Preferred shares to Nippon - 5% Dividend 6,239,872 6,239,872 - - - ---------- ---------- ---------- ---------- ---------- 11.Fully diluted common shares and common share equivalents 505,938,822 516,049,123 504,327,095 476,765,868 473,817,996 =========== =========== =========== =========== =========== 12.Income from continuing operations before accounting changes ($ millions) $ 1,564 $ 1,380 $ 1,605 $ 578 $ 607 13.Less: Dividends on Money Market Preferred Shares - - - - (14) Dividends on Convertible Exchangeable Preferred Shares (16) (16) (16) (16) (16) Dividends on $216.75 CAP Preferred Shares - - - (27) (10) 14.Income from continuing operations before accounting change applicable to primary common shares and common share equivalents 1,548 1,364 1,589 535 567 15.Discontinued operations, net of income taxes - 33 (127) (149) 182 16.Cumulative effect of changes in accounting principles, net of income taxes - - - 32 - ---------- ---------- ---------- ---------- ---------- 17.Net income applicable to primary common shares and common share equivalents 1,548 1,397 1,462 418 749 18.Add back: Interest on convertible debt, net of income tax benefit - 1 4 - 4 ---------- ---------- ---------- ---------- ---------- 19.Net income applicable to fully diluted common shares and common share equivalents $ 1,548 $ 1,398 $ 1,466 $ 418 $ 753 =========== =========== =========== =========== =========== 20.Income from continuing operations before accounting change applicable to fully diluted common shares and common share equivalents (19 - (15+16)) $ 1,548 $ 1,365 $ 1,593 $ 535 $ 571 =========== =========== =========== =========== =========== 21.Income from continuing operations before accounting changes per share: Primary (14/6) $ 3.11 $ 2.68 $ 3.17 $ 1.12 $ 1.21 Fully diluted (20/11) $ 3.06 $ 2.65 $ 3.16 $ 1.12 $ 1.21 22.Income (loss) from discontinued operations per share: Primary (15/6) $ - $ .07 $ (.25) $ (.31) $ .38 Fully diluted (15/11) $ - $ .06 $ (.25) $ (.31) $ .38 23.Cumulative effect of accounting changes per share: Primary (16/6) $ - $ - $ - $ .07 $ - Fully diluted (16/11) $ - $ - $ - $ .07 $ - 24.Net income per share: Primary (17/6) $ 3.11 $ 2.75 $ 2.92 $ .88 $ 1.59 Fully diluted (19/11) $ 3.06 $ 2.71 $ 2.91 $ .88 $ 1.59
Note: The above amounts reflect changes in accounting principles relating to income taxes and post- retirement benefits other than pensions in 1992. EX-12 4 EXHIBIT 12.1 AMERICAN EXPRESS COMPANY COMPUTATION IN SUPPORT OF RATIO OF EARNINGS TO FIXED CHARGES (Dollars in millions) Years Ended December 31, -------------------------------------------- 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Earnings: Pretax income from continuing operations $2,183 $1,891 $2,326 $ 896 $ 622 Interest expense 2,343 1,925 1,776 2,171 2,761 Other adjustments 95 103 88 196 142 ----- ----- ----- ----- ----- Total earnings (a) $4,621 $3,919 $4,190 $3,263 $3,525 ----- ----- ----- ----- ----- Fixed charges: Interest expense $2,343 $1,925 $1,776 $2,171 $2,761 Other adjustments 135 142 130 154 147 ----- ----- ----- ----- ----- Total fixed charges (b) $2,478 $2,067 $1,906 $2,325 $2,908 ----- ----- ----- ----- ----- Ratio of earnings to fixed charges (a/b) 1.86 1.90 2.20 1.40 1.21 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 Statement of Income. 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 for all periods presented. In March 1993, the Company reduced its ownership in First Data Corporation to approximately 22 percent through a public offering. As a result, beginning in 1993, FDC was reported as an equity investment in the above computation. In the fourth quarter of 1995, the Company's ownership was further reduced to approximately 10 percent as a result of shares issued by FDC in connection with a merger transaction. Accordingly, as of December 31, 1995, the Company's investment in FDC is accounted for as Investments - Available for Sale. EXHIBIT 12.2 AMERICAN EXPRESS COMPANY COMPUTATION IN SUPPORT OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED SHARE DIVIDENDS (Dollars in millions) Years Ended December 31, -------------------------------------------- 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Earnings: Pretax income from continuing operations $2,183 $1,891 $2,326 $ 896 $ 622 Interest expense 2,343 1,925 1,776 2,171 2,761 Other adjustments 95 103 88 196 142 ----- ----- ----- ----- ----- Total earnings (a) $4,621 $3,919 $4,190 $3,263 $3,525 ----- ----- ----- ----- ----- Fixed charges and preferred share dividends: Interest expense $2,343 $1,925 $1,776 $2,171 $2,761 Dividends on preferred shares 24 50 66 65 61 Other adjustments 135 142 130 154 147 ----- ----- ----- ----- ----- Total fixed charges and preferred share dividends (b) $2,502 $2,117 $1,972 $2,390 $2,969 ----- ----- ----- ----- ----- Ratio of earnings to fixed charges and preferred share dividends (a/b) 1.85 1.85 2.12 1.37 1.19 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 Statement of Income. 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 and preferred share dividends" computation, dividends on outstanding preferred shares have been increased to an amount representing the pretax earnings required to cover such dividend requirements. 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 for all periods presented. In March 1993, the Company reduced its ownership in First Data Corporation to approximately 22 percent through a public offering. As a result, beginning in 1993, FDC was reported as an equity investment in the above computation. In the fourth quarter of 1995, the Company's ownership was further reduced to approximately 10 percent as a result of shares issued by FDC in connection with a merger transaction. Accordingly, as of December 31, 1995, the Company's investment in FDC is accounted for as Investments - Available for Sale. EX-13 5 EXHIBIT 13 FINANCIAL REVIEW AMERICAN EXPRESS COMPANY CONSOLIDATED RESULTS OF OPERATIONS American Express Company's (the Company) consolidated net income increased 13 percent to $1.6 billion in 1995, compared with income from continuing operations of $1.4 billion in 1994 and $1.2 billion in 1993 before a $433 million gain on the sale of First Data Corporation (FDC) stock. Consolidated net income increased 11 percent to $1.6 billion in 1995, compared with $1.4 billion in 1994 and $1.5 billion in 1993. Net income per share for 1995 increased 16 percent to $3.11, compared with per share income from continuing operations of $2.68 in 1994 and $2.30 in 1993 before the FDC gain. The 1995 growth in earnings per share was primarily driven by revenue growth, as well as a reduction in average shares outstanding. The 1994 growth in earnings per share resulted from revenue growth and improving margins. Net income per share was $2.75 in 1994 and $2.92 in 1993. On May 31, 1994, the Company completed the spin-off of its subsidiary, Lehman Brothers Holdings Inc. Accordingly, the results of Lehman Brothers (Lehman) are reported as a discontinued operation in the Consolidated Financial Statements through the spin-off date. Consolidated net revenues increased 11 percent to $15.8 billion in 1995, compared with $14.3 billion in 1994 and $13.3 billion in 1993. The 1995 increase in revenues was driven by growth in several Travel Related Services' businesses, including the Consumer Card businesses and Corporate Card and travel businesses, and at American Express Financial Advisors. The Company's goal is to achieve at least two-thirds of its earnings per share growth by increasing revenues and the remainder by reducing costs and shares outstanding. In October 1994, the Company announced a series of decisions that represented a continuation of a reengineering program launched in 1992 to provide better customer value at significantly lower costs. These decisions have resulted in significant staff reductions throughout the Company. Costs related to these initiatives are not expected to have a material impact on current or future earnings. Savings generated by these actions have been, and will continue to be, reinvested in the business and help facilitate the achievement of the Company's business objectives. Consolidated Liquidity and Capital Resources During 1995, the Company continued to focus on building shareholder value by maintaining a strong capital position and funding profitable growth opportunities in its core businesses. The Company believes capital allocation to businesses with a return on risk-adjusted equity in excess of its cost of equity and sustained earnings growth in its core businesses will continue to -1- (1995 Annual Report p. 21) build shareholder value. Investments are made in programs that are expected to offer superior value to customers, achieve best-in-class economics and enhance the American Express brand. The Company's objective is to perform in such a way that it will be recognized as a growth company. Consistent with its capital allocation policy, the Company completed the tax-free spin-off of Lehman to shareholders in 1994. In 1995, the Company also sold AMEX Life Assurance Company. The Company's dividend philosophy is to retain enough earnings to sustain earnings per share growth in the 12 percent to 15 percent range. The Company does not anticipate an increase in its dividend. To the extent retained earnings exceed investment opportunities, the Company will return excess capital to shareholders in the form of share repurchases. The Company believes this is more tax-efficient to its shareholders and provides greater financial flexibility. Since the Company began its repurchase programs in 1994, it has returned approximately $1.3 billion in capital to shareholders, in excess of dividends. Share Repurchase Program Beginning in 1994, the Company put in place two share repurchase programs authorized by the Board of Directors, which permit the repurchase of up to 60 million common shares over the next several years as market conditions allow. The share repurchases are intended to reduce the number of outstanding common shares and common share equivalents to less than 500 million. The average number of outstanding common shares and common share equivalents was 498 million for the year ended December 31, 1995 and 493 million for the fourth quarter of 1995. Since inception of the initial repurchase plan in 1994, the Company has repurchased and cancelled 38.3 million shares under the repurchase programs at an average price of $34.56 per share. In both 1995 and 1994, the Company sold put options as a means of reducing the cost of the repurchase programs. See Note 7 to the Consolidated Financial Statements. Risk Management The Company manages substantial daily cash flows, investment portfolios, receivables and loans and related financing requirements, as well as the related market, credit and operational risks. Management controls the risk profile of the Company through ongoing assessments of risk exposures and by retaining, hedging or transferring risk to third parties. In addition to management of the Company's aggregate risk exposures, management establishes and oversees implementation of Board-approved policies covering the Company's funding, investments and use of derivative financial instruments. The Company's objective is to manage risk in order to assure that the Company's returns are appropriate for the level of risk assumed while achieving consistent earnings growth. See the Financial Review of each business segment for a discussion of their respective Risk Management activities. See Note 11 to the Consolidated Financial Statements for a discussion of the Company's use of derivatives. Financing Activities The Company monitors liquidity and has implemented procedures to effect the immediate transfer of short-term funds within the Company if necessary to meet liquidity needs. These internal transfer mechanisms are subject to and comply with various contractual and regulatory constraints. -2- (1995 Annual Report pp. 21-22) The parent company generally meets its short-term funding needs through an intercompany dividend policy, whereby each business unit remits approximately 50 percent of its earnings, and the issuance of commercial paper. The Board of Directors has authorized a parent company commercial paper program that is supported by a $1.2 billion multi-purpose credit facility. In 1995, the parent company restructured this facility, reducing its cost and extending the multi- year portion from three years to five years under more favorable terms. No borrowings have been made under this facility. Average commercial paper outstanding was $177 million during 1995 and $100 million during 1994. Commercial paper outstanding was $100 million at both December 31, 1995 and 1994. Total parent company long-term debt outstanding was $2.3 billion at December 31, 1995 and $2.8 billion at December 31, 1994. During 1995, the parent company paid down $700 million of a $945 million Floating Medium-Term Senior Note due 1996 in exchange for an extension and modification of terms on the remaining balance through the year 2000. At December 31, 1995, the parent company had $1.1 billion of debt or equity securities available for issuance under a shelf registration filed with the Securities and Exchange Commission. See the Financial Review of each business segment for a discussion of 1995 financing activities of subsidiaries. Accounting Developments The Financial Accounting Standards Board's Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and SFAS No. 123, "Accounting for Stock-Based Compensation," are effective January 1, 1996. SFAS No. 121 is not expected to have a material impact on the Company's results of operations or financial condition. SFAS No. 123 encourages but does not require expense recognition for certain stock-based compensation awards. The Company does not expect to adopt the expense recognition accounting provision of this Statement. -3- (1995 Annual Report p. 22)
TRAVEL RELATED SERVICES Results of Operations Statement of Income (Amounts in millions) Year Ended December 31, 1995 1994 1993 ------ ------ ------ Net Revenues: Discount Revenue $4,457 $3,984 $3,621 Net Card Fees 1,742 1,727 1,727 Travel Commissions and Fees 1,288 948 710 Interest and Dividends 969 776 724 Other Revenues 2,054 1,873 1,722 Lending: Finance Charge Revenue 1,529 1,258 1,185 Interest Expense 497 310 257 ------ ------ ------ Net Finance Charge Revenue 1,032 948 928 ------ ------ ------ Total Net Revenues 11,542 10,256 9,432 ------ ------ ------ Expenses: Marketing and Promotion 950 1,036 1,068 Provision for Losses and Claims: Charge Card 835 633 702 Lending 522 378 417 Other 416 471 429 ------ ------ ------ Total 1,773 1,482 1,548 ------ ------ ------ Interest Expense: Charge Card 673 535 534 Other 453 296 265 ------ ------ ------ Total 1,126 831 799 Net Discount Expense 414 326 219 Human Resources 2,829 2,583 2,227 Other Operating Expenses 2,871 2,602 2,398 ------ ------ ------ Total Expenses 9,963 8,860 8,259 ------ ------ ------ Pretax Income 1,579 1,396 1,173 Income Tax Provision 454 398 289 ------ ------ ------ Net Income $1,125 $998 $884 ====== ====== ======
Travel Related Services' (TRS) net revenues increased in both 1995 and 1994 reflecting an increase in worldwide business billed on American Express Cards and higher business travel sales. The increase in billed business in both years resulted from higher spending per Cardmember, due in part to increased merchant coverage and the benefits of rewards programs, as well as an increase in the number of Cards outstanding. The 1995 and 1994 increase in billed -4- (1995 Annual Report p. 23) business also reflected strong growth in Corporate Card billed business. Worldwide Cards in force increased in 1995 and 1994 reflecting, in part, the introduction of new products, including the Optima True Grace Card which was introduced late in 1994. Higher business travel sales in both years resulted from acquisitions and growth. Discount revenue increased in 1995 and 1994 primarily reflecting an increase in Card billed business, marginally offset by a lower average discount rate. The lower discount rate in both years reflects a change in the mix of Cardmember spending, as well as increasing electronic merchant data capture in selected international markets. Lending net finance charge revenue increased in 1995 and 1994 reflecting higher average receivables, which were partially offset by lower net interest spreads. Selected Statistical Information
(Amounts in millions, except where indicated) Year Ended December 31, 1995 1994 1993 ------ ------ ------ Total Cards in Force: United States 26.7 25.3 24.7 Outside the United States 11.1 11.0 10.7 ------ ------ ------ Total 37.8 36.3 35.4 ====== ====== ====== Basic Cards in Force: United States 20.0 18.6 18.0 Outside the United States 8.7 8.1 8.0 ------ ------ ------ Total 28.7 26.7 26.0 ====== ====== ====== Card Billed Business (billions): United States $115.2 $101.2 $89.8 Outside the United States 46.4 39.7 34.3 ------ ------ ------ Total $161.6 $140.9 $124.1 ====== ====== ====== Travelers Cheque Sales (billions) $25.6 $24.9 $23.6 Average Travelers Cheques Outstanding (billions) $6.0 $5.3 $5.0 Travel Sales (billions) $15.1 $10.7 $8.0
Marketing and promotion expense decreased in both 1995 and 1994 primarily reflecting reengineering saves. The worldwide Charge Card provision increased in 1995 reflecting volume growth, as well as higher loss rates particularly in Latin America and, more recently, in the small business Corporate Card portfolio. The worldwide Charge Card provision declined in 1994 reflecting improvement in Card credit experience and a higher level of securitized receivables, partly offset by an increase in billed business. The worldwide lending provision increased in 1995 due to higher loss rates, as well as portfolio growth since TRS establishes reserves for future losses at the time loans are recorded. The worldwide lending provision declined in 1994 reflecting continued improvement in the credit quality of the worldwide lending portfolio. Charge Card interest expense increased in 1995 reflecting higher borrowing rates and increased volume, while in 1994 increased volume was offset by lower borrowing rates compared with 1993. The increase in human -5- (1995 Annual Report p. 23) resources expense in both years reflected the impact of business travel acquisitions and growth to support increased business volumes. Other operating expenses in 1995 and 1994 increased reflecting a number of factors, including: business travel acquisitions and growth; ongoing spending for new business initiatives and technology enhancements; and funding new Card products and loyalty initiatives. The increase in 1995 also reflected up-front costs related to reengineering activities. TRS' asset securitization program resulted in net discount expense of $414 million, $326 million and $219 million and fee revenue of $84 million, $80 million and $54 million in 1995, 1994 and 1993, respectively. The program reduced the Charge Card provision by $167 million, $127 million and $89 million in 1995, 1994 and 1993, respectively, and reduced Charge Card interest expense. There was no impact on net income for 1995, 1994 or 1993. In October 1995, TRS completed the sale of AMEX Life Assurance Company (AMEX Life), which did not materially impact net income. Excluding AMEX Life from both years, TRS' net revenues and expenses would have increased approximately 14 percent in 1995. Risk Management TRS employs a variety of interest rate and foreign exchange hedging strategies to protect its balance sheet and statement of income from interest rate and foreign currency risk. TRS' hedging policies are established, maintained and monitored by a central treasury function. TRS generally hedges its exposures along product lines. For its Charge Card product, TRS funds its Cardmember receivables using both on-and off-balance-sheet sources such as long-term debt, medium-term notes, commercial paper and other debt, as well as an off-balance-sheet asset securitization program. Such funding is predominantly provided by American Express Credit Corporation (Credco). Interest rate exposure is managed through the issuance of long-term and short-term debt and the use of interest rate swaps to achieve a targeted 30 percent to 40 percent fixed and 60 percent to 70 percent floating mix. From time to time, TRS may review and change this ratio. Foreign exchange risk arising from cross-currency charges and balance sheet exposures are managed primarily by entering into agreements to buy and sell currencies on a spot or forward basis. For its lending products, TRS funds its Cardmember loans using a mixture of short- and long-term debt, primarily through American Express Centurion Bank (Centurion Bank). TRS' lending products are linked to a floating rate base and generally reprice each month. TRS enters into interest rate swaps to convert fixed and floating rate debt to floating rate debt which matches the terms of Cardmember loans. Foreign exchange risk arising from cross-currency charges and balance sheet exposures are managed primarily by entering into agreements to buy and sell currencies on a spot or forward basis. For its Stored Value Group, travel and other businesses, which are predominantly self-funding, foreign exchange risk is hedged using a combination of spot foreign exchange transactions and forward foreign exchange contracts. -6- (1995 Annual Report pp. 23-24)
Liquidity and Capital Resources Selected Balance Sheet Information (Amounts in billions, except percentages) December 31, 1995 1994 ------ ------ Accounts Receivable, net $18.9 $16.8 Investments $9.2 $10.7 U.S. Cardmember Lending Balances $10.0 $8.1 Total Assets $45.2 $42.5 Travelers Cheques Outstanding $5.7 $5.3 Short-term Debt $17.9 $15.1 Long-term Debt $4.4 $3.4 Total Liabilities $40.3 $38.2 Total Shareholder's Equity $4.9 $4.3 Return on Average Equity 24.6% 23.9%
At December 31, 1995 and 1994, TRS had securitized $2.5 billion of receivables that are not reflected in the Consolidated Balance Sheet. TRS intends to fund up to 25 percent of its receivables and loans through off-balance-sheet asset securitization programs over time. Through Credco and Centurion Bank, TRS issued in 1995 approximately $1.0 billion of medium- and long-term debt at various rates and maturities. The proceeds were used to fund Cardmember receivables and Cardmember loans. At December 31, 1995, Credco had approximately $1.0 billion of medium- and long- term debt available for issuance under shelf registrations filed with the Securities and Exchange Commission. TRS, primarily through Credco, maintained commercial paper outstanding of approximately $12.7 billion at an average interest rate of 5.6 percent and approximately $10.2 billion at an average interest rate of 5.8 percent at December 31, 1995 and 1994, respectively. Unused lines of credit of approximately $5.8 billion were available at December 31, 1995 to support a portion of TRS' commercial paper borrowings. Borrowings under bank lines of credit totaled $1.5 billion at December 31, 1995 and $1.4 billion at December 31, 1994. U.S. Cardmember lending balances increased primarily reflecting growth in traditional products and the introduction of new products. The decline in investments reflects the sale of AMEX Life. -7- (1995 Annual Report p. 24)
AMERICAN EXPRESS FINANCIAL ADVISORS Results of Operations Statement of Income (Amounts in millions) Year Ended December 31, 1995 1994 1993 ------ ------ ------ Revenues: Investment Income $2,209 $1,994 $2,049 Management and Distribution Fees 935 806 727 Other Income 547 470 380 ------ ------ ------ Total Revenues 3,691 3,270 3,156 ------ ------ ------ Expenses: Provision for Losses and Benefits: Annuities 1,156 1,028 1,065 Insurance 401 370 321 Investment Certificates 205 107 124 ------ ------ ------ Total 1,762 1,505 1,510 Human Resources 877 823 757 Other Operating Expenses 297 311 371 ------ ------ ------ Total Expenses 2,936 2,639 2,638 ------ ------ ------ Pretax Income 755 631 518 Income Tax Provision 252 203 160 ------ ------ ------ Net Income $503 $428 $358 ====== ====== ======
American Express Financial Advisors' revenue and earnings growth in both 1995 and 1994 benefited primarily from higher fee revenues due to an increase in managed assets, as well as an increase in life insurance in force. These increases were partially offset by the impact of lower investment margins in 1995. The change in investment income in both 1995 and 1994 reflected higher asset levels, offset in 1994 by the impact of lower investment yields compared with 1993. Management and distribution fees in both years increased reflecting increased management fee revenue due to a higher asset base. The increase in management fees in 1995 was partly offset by a decline in distribution fees due to the availability, beginning in 1995's second quarter, of a broader range of rear-load funds. The growth in managed assets in 1995 reflects strong market appreciation and positive net sales. Managed assets increased in 1994 reflecting strong net sales, partly offset by market depreciation. Other income increased in both years primarily due to higher life insurance contract charges and premiums. Provisions for losses and benefits increased in 1995 reflecting increased business in force and higher accrual rates for all products. The provision for annuity benefits declined in 1994 reflecting lower accrual rates, partly offset by higher annuities in force. The 1994 increase in the provision for -8- (1995 Annual Report p. 25) insurance benefits reflected increased life insurance in force. The 1994 decline in the provision for investment certificates reflected lower investment certificates in force and lower accrual rates in the first half of 1994. Human resources expense increased in 1995 reflecting higher financial advisors' compensation and, to a lesser extent, an increase in the number of employees. The 1994 increase in human resources expense reflected an increase in the number of employees and financial advisors and increased commissionable sales. Other operating expenses declined slightly in 1995 from 1994, which included accelerated amortization of deferred acquisition costs due to surrenders as a result of an annuity exchange plan. The decline in 1994 compared with 1993 primarily reflected a lower provision for insurance industry guarantee association assessments.
Selected Statistical Information (Amounts in millions, except percentages and where indicated) Year Ended December 31, 1995 1994 1993 ------ ------ ------ Life Insurance in Force (billions) $59.4 $52.7 $46.1 Deferred Annuities in Force (billions) $32.9 $28.2 $25.8 Assets Owned and/or Managed (billions): Assets managed for institutions $32.0 $27.4 $25.0 Assets owned and managed for individuals: Owned Assets 48.3 40.2 37.4 Managed Assets 49.2 37.9 37.3 ------ ------ ------ Total $129.5 $105.5 $99.7 ====== ====== ====== Sales of Selected Products: Mutual Funds $10,202 $8,940 $8,583 Annuities $3,520 $4,360 $4,105 Investment Certificates $1,467 $1,068 $575 Life and Other Insurance Sales $383 $324 $309 Number of Financial Advisors 7,945 8,054 7,655 Fees from Financial Plans (thousands) $40,828 $39,651 $37,382 Product Sales Generated from Financial Plans as a Percentage of Total Sales 64.1% 61.7% 57.5%
Risk Management American Express Financial Advisors' owned investment securities are, for the most part, held by its life insurance and investment certificate subsidiaries. These subsidiaries primarily invest in long-term and intermediate-term fixed income securities for the purpose of providing their fixed annuity and investment certificate clients with a competitive rate of return on their investments while minimizing risk. In addition, investment in fixed income -9- (1995 Annual Report pp. 25-26) securities provides American Express Financial Advisors with a dependable and targeted margin between the interest rate earned on investments and the interest rate credited to clients' accounts. American Express Financial Advisors does not invest in securities to generate trading profits for its own account. The life insurance and investment certificate subsidiaries have investment committees that hold regularly scheduled meetings and, when necessary, special meetings. At these meetings, the committees review models projecting different interest rate scenarios and their impact on the profitability of each subsidiary. The objective of the committees is to structure their investment security portfolios based upon the type and behavior of products in their liability portfolios so as to achieve targeted levels of profitability and meet contractual obligations. Rates credited to customers; accounts are generally reset at shorter intervals than the maturity of underlying investments. Therefore, American Express Financial Advisors' margins may be negatively impacted by increases in the general level of interest rates. Part of the committees' strategies include the purchase of some types of derivatives, such as interest rate caps and corridors, for hedging purposes. These derivatives protect margins by increasing investment returns if there is a sudden and severe rise in interest rates, thereby mitigating the impact of an increase in rates credited to clients' accounts.
Liquidity and Capital Resources Selected Balance Sheet Information (Amounts in billions, except percentages) December 31, 1995 1994 ------ ------ Investments $28.8 $25.2 Assets Held in Segregated Asset Accounts $15.0 $10.9 Total Assets $48.3 $40.2 Reserves for Losses and Benefits $28.6 $25.6 Total Liabilities $45.2 $38.0 Total Shareholder's Equity $3.1 $2.1 Return on Average Equity 19.4% 18.6%
American Express Financial Advisors' total assets increased primarily reflecting increases in assets held in segregated asset accounts and investments. These increases reflected strong market appreciation and positive net sales. American Express Financial Advisors' investments are comprised primarily of corporate bonds and obligations and mortgage-backed securities, including below investment grade debt securities of $2.3 billion in 1995 and $2.1 billion in 1994. Investments also include mortgage loans of $3.2 billion in 1995 and $2.7 billion in 1994. Investments are principally funded by sales of insurance and annuities, and by reinvested income. Maturities of these investments are matched, for the most part, with the expected future payments of insurance and annuity obligations. Assets held in segregated asset accounts, primarily investments carried at market value, are held for the exclusive benefit of variable annuity and variable life insurance contract holders. American Express Financial Advisors earns investment management and administration fees from the related funds. -10- (1995 Annual Report p. 26)
AMERICAN EXPRESS BANK Results of Operations Statement of Income (Amounts in millions) Year Ended December 31, 1995 1994 1993 ------ ------ ------ Net Revenues: Interest Income $925 $952 $960 Interest Expense 604 604 595 ------ ------ ------ Net Interest Income 321 348 365 Commissions, Fees and Other Revenues 243 232 236 Foreign Exchange Income 79 72 76 ------ ------ ------ Total Net Revenues 643 652 677 ------ ------ ------ Provision for Credit Losses 7 8 44 ------ ------ ------ Expenses: Human Resources 248 250 236 Other Operating Expenses 273 275 263 ------ ------ ------ Total Expenses 521 525 499 ------ ------ ------ Pretax Income 115 119 134 Income Tax Provision 38 39 42 ------ ------ ------ Net Income $77 $80 $92 ====== ====== ======
American Express Bank's (the Bank) results for 1995 reflected lower net interest income, partially offset by growth in foreign exchange and correspondent banking revenues and lower operating expenses. Results for 1994 reflected lower net revenues and higher operating expenses. The decline in 1994 results was partially offset by a reduction in the provision for credit losses. Effective January 1, 1993, the U.S. federal income tax rate was increased from 34 percent to 35 percent. The Bank's results for 1993 included a $5 million benefit from the impact of the tax rate change on its net deferred tax assets as of January 1, 1993. Net interest income in both years declined reflecting narrower spreads on the investment portfolio. The net yield on interest-earning assets (net interest income on a tax equivalent basis as a percentage of total average interest- earning assets) was 2.88 percent in 1995, compared with 2.85 percent and 2.92 percent in 1994 and 1993, respectively. The higher net yield in 1995 reflects a reduction in low-yielding placements with banks and a corresponding decrease in customers' deposits. Commissions, fees and other revenues increased in 1995 primarily reflecting growth in correspondent banking fee income. Foreign exchange income increased in 1995 reflecting higher trading volumes. The 1994 decline in noninterest income reflected a lower level of revenues from the Bank's trading portfolio. -11- (1995 Annual Report p. 27) Operating expenses decreased slightly in 1995 as a result of a focused cost reduction program. The 1994 increase in operating expenses primarily reflected spending related to systems technology and higher human resources expense. The provision for credit losses declined in 1994 reflecting a lower level of nonperforming loans and overall lower loan balances. Risk Management The Bank employs a variety of on-balance-sheet and derivative financial instruments in managing its exposure to fluctuations in interest and currency rates. The derivative instruments consist principally of foreign exchange spot and forward contracts, interest rate swaps, foreign currency options and forward rate agreements. Generally, these derivative instruments are used to manage specific on-balance-sheet interest rate and foreign exchange exposures related to deposits, long-term debt, equity, loans and securities holdings. The Bank utilizes foreign exchange and interest rate products to meet the needs of its customers. Typically, a Bank customer desires to enter into a foreign exchange or other derivatives contract and contacts the Bank. If the pricing is acceptable to both the Bank and the customer, the Bank would enter into two transactions: the contract desired by the customer and an offsetting contract with a third party dealer; therefore, the Bank would have no market risk. Customer positions are not always offset. They are evaluated in terms of the Bank's overall interest rate or foreign exchange exposure. If they naturally offset an exposure, an offsetting contract with a dealer will not be executed. Furthermore, the Bank will take limited proprietary positions. Asset/liability management is supervised by the Bank's Asset and Liability Committee (ALCO) which is comprised of senior business managers. ALCO meets monthly and monitors (a) interest rate and foreign exchange exposures, (b) liquidity, (c) capital levels, and (d) investment portfolios. ALCO evaluates current market conditions and determines the Bank's strategy within monetary and maturity risk limits approved by the Bank's Board of Directors. The Bank's treasury and global trading management issues policies and control procedures and delegates risk limits throughout the Bank's country trading operations. The Bank's overall credit policies are approved by the Finance and Credit Policy Committee of the Bank's Board of Directors. Credit lines are approved using a tiered approval ladder with levels of authority delegated to each country, geographic area, the Bank's Credit Approval Committee, and Board of Directors. Approval authorities are based on characteristics such as type of borrower, nature of transaction, nature of collateral, and overall risk rating. The Loan Quality Control department reviews all significant exposures periodically. The Bank controls the credit risk arising from derivative transactions through the same credit procedures as it uses for traditional lending products. Risk amount factors for all foreign exchange and derivative transactions are reviewed by the Bank on a regular basis. -12- (1995 Annual Report pp. 27-28) Liquidity and Capital Resources Selected Balance Sheet Information
(Amounts in billions, except percentages and where indicated) December 31, 1995 1994 ------ ------ Investments $2.5 $2.8 Total Loans $5.4 $5.0 Reserve for Credit Losses (millions) $111 $109 Reserves as a Percentage of Total Loans 2.0% 2.2% Total Nonperforming Loans (millions) $34 $20 Other Real Estate Owned (millions) $44 $56 Total Assets $12.3 $13.3 Deposits $8.5 $9.1 Total Liabilities $11.5 $12.5 Total Shareholder's Equity (millions) $837 $758 Risk-Based Capital Ratios: Tier 1 8.9% 7.5% Total 13.0% 14.7% Leverage Ratio 5.8% 4.8% Return on Average Assets .59% .54% Return on Average Common Equity 9.99% 10.89%
The Bank's total assets declined as modest loan growth was more than offset by declines in cash and cash equivalents and investments reflecting a lower level of client deposits. Total loan write-offs, net of recoveries, were $4.8 million in 1995 and $25 million in 1994. The increase in nonperforming loans primarily reflects newly classified exposures, partly offset by repayments. The decline in other real estate owned primarily reflects the sale of foreclosed assets. The increase in the Bank's Tier 1 Capital ratio primarily relates to an increase in retained earnings, general balance sheet reductions and a decrease in deferred tax assets. The decline in the Total Capital ratio reflects the revocation of the convertible feature of certain subordinated debt and the repurchase of subordinated debt. The increase in the Leverage ratio is due to an increase in retained earnings and decreases in average assets and deferred tax assets. CORPORATE AND OTHER Corporate and Other reported net expenses of $141 million in 1995, compared with net expenses of $126 million in 1994 and net income of $271 million in 1993. Results for both 1995 and 1994 included the Company's share of the Travelers Inc. (Travelers) revenue participation in accordance with an agreement related to the 1993 sale of the Shearson Lehman Brothers Division (the 1993 sale). Results for 1995 also included a gain from the sale of common stock and warrants of Mellon Bank Corporation. Results for 1994 also included a capital gain on the sale of Travelers preferred stock and warrants which were acquired as part of the 1993 sale. In both years, these gains were offset by the Company's costs associated with certain business building initiatives and, in 1994, costs related to the Lehman spin-off. Net income in 1993 reflected a gain of $433 million on the Company's sale of FDC shares. -13- (1995 Annual Report p. 28)
CONSOLIDATED STATEMENT OF INCOME American Express Company Years Ended December 31, (millions, except per share amounts) 1995 1994 1993 ------ ------ ------ Net Revenues Discount revenue $ 4,457 $ 3,984 $ 3,621 Interest and dividends, net 3,499 3,172 3,067 Net card fees 1,742 1,727 1,727 Travel commissions and fees 1,288 948 710 Other commissions and fees 1,254 1,126 1,033 Cardmember lending net finance charge revenue 1,032 948 928 Management and distribution fees 935 806 727 Life insurance premiums 735 783 702 Other 899 788 739 ------ ------ ------ Total 15,841 14,282 13,254 ------ ------ ------ Expenses Human resources 4,039 3,769 3,380 Provisions for losses and benefits: Annuities and investment certificates 1,392 1,173 1,259 Life insurance 727 757 610 Charge card 835 633 702 Cardmember lending 522 378 417 Other 66 55 119 Interest: Charge card 673 535 534 Other 569 476 390 Occupancy and equipment 1,094 1,058 965 Marketing and promotion 977 1,063 1,091 Professional services 834 687 598 Communications 407 376 357 Other 1,523 1,431 1,285 Gain on sale of FDC - - (779) ------ ------ ------ Total 13,658 12,391 10,928 ------ ------ ------ Pretax income from continuing operations 2,183 1,891 2,326 Income tax provision 619 511 721 ------ ------ ------ Income from continuing operations 1,564 1,380 1,605 Discontinued operations, net of income taxes - 33 (127) ------ ------ ------ Net income $1,564 $1,413 $1,478 ====== ====== ====== Earnings Per Common Share Income from continuing operations $3.11 $2.68 $3.17 Discontinued operations - .07 (.25) ------ ------ ------ Net income $3.11 $2.75 $2.92 ====== ====== ====== Average common and common equivalent shares outstanding 498.0 508.8 500.1 ====== ====== ======
See notes to consolidated financial statements. -14- (1995 Annual Report p. 29)
CONSOLIDATED BALANCE SHEET American Express Company December 31, (millions) 1995 1994 -------- -------- Assets Cash and cash equivalents $ 3,200 $ 3,433 Accounts receivable and accrued interest: Cardmember receivables, less reserves: 1995, $753; 1994, $691 17,154 14,506 Other receivables, less reserves: 1995, $76; 1994, $116 2,760 2,641 Investments 42,561 40,108 Loans: Cardmember lending, less reserves: 1995, $489; 1994, $407 10,268 8,834 International banking, less reserves: 1995, $111; 1994, $109 5,317 4,881 Other, net 506 1,007 Assets held in segregated asset accounts 14,974 10,881 Deferred acquisition costs 2,262 2,280 Land, buildings and equipment-at cost, less accumulated depreciation: 1995, $1,763; 1994, $1,563 1,783 1,840 Other assets 6,620 6,595 ------- -------- Total assets $107,405 $97,006 ======== ======== Liabilities and Shareholders' Equity Customers' deposits and credit balances $9,889 $10,013 Travelers Cheques outstanding 5,697 5,271 Accounts payable 4,686 4,228 Insurance and annuity reserves: Fixed annuities 21,405 20,163 Life and disability policies 3,752 4,686 Investment certificate reserves 3,606 2,866 Short-term debt 17,654 14,810 Long-term debt 7,570 7,162 Liabilities related to segregated asset accounts 14,974 10,881 Other liabilities 9,952 10,493 -------- -------- Total liabilities 99,185 90,573 -------- -------- Shareholders' Equity Preferred shares, $1.66 2/3 par value, authorized 20 million shares Convertible Exchangeable Preferred shares, issued and outstanding 4 million shares, stated at liquidation value 200 200 Common shares, $.60 par value, authorized 1.2 billion shares; issued and outstanding 483.1 million shares in 1995 and 495.9 million shares in 1994 290 298 Capital surplus 3,781 3,651 Net unrealized securities gains (losses) 875 (389) Foreign currency translation adjustment (85) (77) Retained earnings 3,159 2,750 -------- -------- Total shareholders' equity 8,220 6,433 -------- -------- Total liabilities and shareholders' equity $107,405 $97,006 ======== ========
See notes to consolidated financial statements. -15- (1995 Annual Report p. 30)
CONSOLIDATED STATEMENT OF CASH FLOWS American Express Company Years Ended December 31, (millions) 1995 1994 1993 -------- -------- -------- Cash Flows from Operating Activities Income from continuing operations $1,564 $1,380 $1,605 Adjustments to reconcile income from continuing operations to net cash provided (used) by operating activities: Provisions for losses and benefits 2,086 1,456 1,627 Depreciation, amortization, deferred taxes and other 367 378 411 Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: Accounts receivable and accrued interest (353) (180) (982) Other assets (1,236) 525 (987) Accounts payable and other liabilities (241) 969 355 Increase in Travelers Cheques outstanding 427 471 72 Increase in insurance reserves 440 471 452 Gain on sale of FDC - - (779) Net cash flows used by operating activities of discontinued operations - (3,656) (1,361) -------- -------- -------- Net cash provided by operating activities 3,054 1,814 413 -------- -------- -------- Cash Flows from Investing Activities Proceeds from FDC public offering, net of cash sold - - 871 Sale of investments 2,236 4,757 2,296 Maturity and redemption of investments 8,274 6,794 8,308 Purchase of investments (11,242) (13,224) (13,802) Net increase in Cardmember receivables (4,140) (3,189) (2,524) Cardmember receivables sold to Trust - 900 600 Proceeds from repayment of loans 21,603 21,282 18,817 Issuance of loans (23,574) (21,037) (19,465) Purchase of land, buildings and equipment (347) (333) (286) Sale of land, buildings and equipment 91 122 120 (Acquisitions) dispositions, net of cash acquired/sold 357 (310) 121 Net cash flows (used) provided by investing activities of discontinued operations - (36) 2,467 -------- -------- -------- Net cash used by investing activities (6,742) (4,274) (2,477) -------- -------- -------- -16- (1995 Annual Report p. 31) Cash Flows from Financing Activities Net (decrease) increase in customers' deposits and credit balances (125) (1,089) 29 Sale of annuities and investment certificates 5,729 5,994 5,217 Redemption of annuities and investment certificates (3,957) (5,004) (3,748) Net (decrease) increase in debt with maturities of 3 months or less (4,700) 5,494 (253) Issuance of debt 23,012 3,921 13,561 Principal payments on debt (15,454) (8,729) (11,397) Issuance of American Express common shares 286 179 259 Repurchase of American Express common shares (891) (555) - Cash infusion to Lehman Brothers - (904) - Dividends paid (458) (504) (526) Net cash flows provided (used) by financing activities of discontinued operations - 3,737 (372) -------- -------- -------- Net cash provided by financing activities 3,442 2,540 2,770 Net change in cash and cash equivalents of discontinued operations - 45 734 Effect of exchange rate changes on cash 13 86 (68) -------- -------- -------- Net (decrease) increase in cash and cash equivalents (233) 121 (96) Cash and cash equivalents at beginning of year 3,433 3,312 3,408 -------- -------- -------- Cash and cash equivalents at end of year $3,200 $3,433 $3,312 ======== ======== ========
See notes to consolidated financial statements. -17- (1995 Annual Report p. 31) CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY American Express Company
Net Unrealized Securities Three Years Ended December 31, 1995 Preferred Common Capital Gains Retained (millions) Total Shares Shares Surplus (Losses) Other Earnings -------- -------- ------- -------- -------- ------ -------- Balances at December 31, 1992 $7,499 $201 $288 $3,397 $(1) $(83) $3,697 -------- -------- ------- -------- -------- ------ -------- Net income 1,478 1,478 Change in net unrealized securities gains (losses) 8 8 Foreign currency translation adjustments 10 10 Other changes, primarily employee plans 268 6 259 3 Cash dividends declared: Preferred (42) (42) Common, $1.00 per share (487) (487) -------- -------- ------- -------- -------- ------ -------- Balances at December 31, 1993 8,734 201 294 3,656 7 (73) 4,649 -------- -------- ------- -------- -------- ------ -------- Net income 1,413 1,413 Repurchase of common shares (555) (11) (144) (400) Net put options activity (104) (104) Impact of Lehman spin-off (2,410) (4) 11 (2,417) Conversion of 9% Notes 58 2 56 Change in net unrealized securities gains (losses) (396) (396) Foreign currency translation adjustments (15) (15) Other changes, primarily employee plans 202 (1) 13 191 (1) Cash dividends declared: Preferred (32) (32) Common, $.925 per share (462) (462) -------- -------- ------- -------- -------- ------ -------- Balances at December 31, 1994 6,433 200 298 3,651 (389) (77) 2,750 -------- -------- ------- -------- -------- ------ -------- Net income 1,564 1,564 Repurchase of common shares (891) (14) (180) (697) Net put options activity (1) (1) Change in net unrealized securities gains (losses) 1,264 1,264 Foreign currency translation adjustments (8) (8) Other changes, primarily employee plans 313 6 311 (4) Cash dividends declared: Preferred (15) (15) Common, $.90 per share (439) (439) -------- -------- ------- ------- -------- ------ -------- Balances at December 31, 1995 $8,220 $200 $290 $3,781 $875 $(85) $3,159 ======== ======== ======= ======= ======== ====== ========
See notes to consolidated financial statements. -18- (1995 Annual Report p. 32) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS American Express Company NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying Consolidated Financial Statements include the accounts of American Express Company and its subsidiaries (the Company). All significant intercompany transactions are eliminated. As discussed in Note 2, the Company completed the spin-off of Lehman Brothers (Lehman) on May 31, 1994. Accordingly, Lehman's results are reported as a discontinued operation through the spin-off date and for all prior years. The Company's financial statements include amounts determined using estimates and assumptions. For example, estimates and assumptions are used in determining the reserves related to Accounts Receivable and Accrued Interest and Loans; Deferred Acquisition Costs; and Insurance and Annuity Reserves. While these estimates are based on the best judgment of management, actual results could differ from these estimates. Certain prior years' amounts have been reclassified to conform to the current year's presentation. Assets and Liabilities Related to Segregated Accounts - ----------------------------------------------------- Assets and liabilities related to segregated accounts represent funds held for the exclusive benefit of variable annuity and variable life insurance contract holders. The Company receives investment management fees, mortality and expense assurance fees, minimum death benefit guarantee fees and cost of insurance charges from the related accounts. Net Revenues Cardmember Lending Net Finance Charge Revenue is presented net of interest expense of $497 million, $310 million and $257 million for the years ended December 31, 1995, 1994 and 1993, respectively. Interest and Dividends is presented net of interest expense of $604 million for the years ended December 31, 1995 and 1994 and $595 million for the year ended December 31, 1993 related to the Company's international banking operations. Marketing and Promotion The Company expenses advertising costs in the year in which the advertising first takes place. Cash and Cash Equivalents The Company has defined cash and cash equivalents as cash and time deposits with original maturities of 90 days or less, excluding those that are restricted by law or regulation. -19- (1995 Annual Report p. 33) NOTE 2 LEHMAN BROTHERS SPIN-OFF On May 31, 1994, the Company distributed to its common shareholders a dividend of all of the Lehman Brothers Holdings Inc. common stock held by the Company (approximately 98.2 million shares). At that date, the Company's investment in Lehman was $2.4 billion. Shareholders of the Company received one share of Lehman common stock for each five common shares of the Company that they owned. Prior to the distribution, the Company added approximately $1.1 billion of additional equity capital to Lehman representing the Company's purchase of approximately $904 million of Lehman common stock, which was included in the dividend to the Company's common shareholders, and $200 million of Lehman cumulative voting preferred stock (such preferred stock was purchased by Lehman Brothers Holdings Inc. on February 15, 1996). In connection with the spin-off, the Company also acquired 928 shares and Nippon Life Insurance Company (Nippon Life) acquired 72 shares of Lehman redeemable voting preferred stock for a nominal dollar amount. The redeemable voting preferred stock entitles its holders to receive an aggregate annual dividend of 50 percent of Lehman net income in excess of $400 million for each of eight years ending in May 2002, with a maximum of $50 million in any one year. In addition, the Company and Nippon Life will be entitled to receive 92.8 percent and 7.2 percent, respectively, of certain contingent revenue and earnings-related payouts from Travelers Inc. (Travelers), which were assigned by Lehman to the Company and Nippon Life in connection with the spin-off transaction. The Travelers participations will yield a maximum of $50 million pretax annually for three years, depending on the revenues of Smith Barney ($46 million was received by the Company in both 1995 and 1994), plus 10 percent of after-tax profits of Smith Barney in excess of $250 million per year over a five-year period ($24 million and $18 million was received by the Company in 1995 and 1994, respectively). Discontinued Operations Discontinued operations represents the results of Lehman through May 31, 1994, the spin-off date. Discontinued operations are summarized as follows:
Period ending Year ended May 31, December 31, (millions) 1994 1993 ------------ ------------ Net revenues $1,311 $5,431 ====== ====== Income (loss) before accounting changes $57 $(102) Accounting changes (13) - ------ ------ 44 (102) Preferred dividends (11) (25) ------ ------ Discontinued operations $33 $(127) ====== ======
-20- (1995 Annual Report pp. 33-34) NOTE 3 FIRST DATA CORPORATION In March 1993, the Company reduced its 54 percent ownership interest in First Data Corporation (FDC) to approximately 22 percent through a public offering of 34.6 million shares of FDC common stock at $32 per share. The Company recognized a $779 million pretax gain from the sale ($433 million after-tax). As a result of the Company's reduced ownership, effective January 1, 1993, FDC was reported under the equity method of accounting. The Company's investment in FDC at December 31, 1994 had a book value of $240 million and is included in Other Assets in the 1994 Consolidated Balance Sheet. In the fourth quarter of 1995, the Company's ownership was further reduced to approximately 10 percent as a result of shares issued by FDC in connection with a merger transaction. Accordingly, as of December 31, 1995, the Company's investment in FDC is accounted for as Investments-Available for Sale. In October 1993, the Company sold Debt Exchangeable for Common Stock of FDC. See Note 12. NOTE 4
INVESTMENTS The following is a summary of investments included in the Consolidated Balance Sheet at December 31: (millions) 1995 1994 ------- ------- Held to Maturity, at amortized cost $16,790 $21,909 Available for Sale, at fair value 22,435 15,293 Investment mortgage loans (fair value: 1995, $3,434; 1994, $2,615) 3,180 2,681 Trading 156 225 ------- ------- $42,561 $40,108 ======= =======
-21- (1995 Annual Report p. 34) Investments classified as Held to Maturity and Available for Sale at December 31 are distributed by type and maturity as presented below:
Held to Maturity 1995 1994 ----------------------------------------------- --------------------------- Gross Gross Gross Gross Fair Unrealized Unrealized Fair Unrealized Unrealized (millions) Cost Value Gains Losses Cost Value Gains Losses ------- ------- ------- ------- ------- ------- ------- ------- U.S. Government and agencies obligations $2,695 $2,698 $3 - $3,450 $3,445 - $5 State and municipal obligations 1,560 1,638 78 - 4,816 4,841 $115 90 Corporate debt securities 10,019 10,655 672 $36 10,627 10,294 172 505 Foreign government bonds and obligations 63 69 6 - 104 105 3 2 Mortgage-backed securities 2,324 2,360 46 10 2,596 2,386 13 223 Other 129 129 - - 316 316 - - ------- ------- ------- ------- ------- ------- ------- ------- Total $16,790 $17,549 $805 $46 $21,909 $21,387 $303 $825 ======= ======= ======= ======= ======= ======= ======= =======
Available for Sale 1995 1994 ----------------------------------------------- --------------------------- Gross Gross Gross Gross Fair Unrealized Unrealized Fair Unrealized Unrealized (millions) Cost Value Gains Losses Cost Value Gains Losses ------- ------- ------- ------- ------- ------- ------- ------- U.S. Government and agencies obligations $370 $377 $8 $1 $355 $344 - $11 State and municipal obligations 3,749 4,027 278 - 312 321 $10 1 Corporate debt securities 4,200 4,410 217 7 3,014 3,007 31 38 Foreign government bonds and obligations 1,655 1,664 25 16 1,618 1,592 11 37 Mortgage-backed securities 8,731 8,932 227 26 8,515 7,977 12 550 Equity securities 863 2,140 1,278 1 732 691 15 56 Other 884 885 1 - 1,366 1,361 8 13 ------- ------- ------- ------- ------- ------- ------- ------- Total $20,452 $22,435 $2,034 $51 $15,912 $15,293 $87 $706 ======= ======= ======= ======= ======= ======= ======= =======
-22- (1995 Annual Report p. 35)
Held to Maturity Available for Sale Fair Fair December 31, 1995 (millions) Cost Value Cost Value ------- ------- -------- -------- Due within 1 year $ 3,285 $ 3,293 $ 2,197 $ 2,204 Due after 1 year through 5 years 2,781 2,928 3,044 3,180 Due after 5 years through 10 years 6,063 6,464 3,207 3,413 Due after 10 years 2,337 2,504 2,410 2,566 ------- ------- -------- ------- 14,466 15,189 10,858 11,363 Mortgage-backed securities 2,324 2,360 8,731 8,932 Equity securities - - 863 2,140 ------- ------- -------- ------- Total $16,790 $17,549 $20,452 $22,435 ======= ======= ======== =======
Mortgage-backed securities primarily include GNMA, FNMA and FHLMC securities at December 31, 1995 and 1994. The table below includes purchases, sales and maturities of investments classified as Held to Maturity and Available for Sale for the year ended December 31:
(millions) 1995 1994 Held to Available Held to Available Maturity for Sale Maturity for Sale -------- -------- -------- -------- Purchases $16,460 $6,895 $14,344 $10,498 Sales $372 $1,863 $73 $ 3,833 Maturities $17,256 $3,641 $15,866 $3,945
Investments classified as Held to Maturity were sold during 1995 and 1994 due to credit deterioration, resulting in gross realized gains and losses on sales that were negligible. To reflect the adoption of Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities," the 1994 opening balance of Shareholders' Equity was increased by $325 million (net of deferred taxes) representing the net unrealized gains on securities classified as Available for Sale. -23- (1995 Annual Report pp. 35-36) The change in the Net Unrealized Securities Gains (Losses) component of Shareholders' Equity was an increase of $1.3 billion and a decrease of $721 million for the years ended December 31, 1995 and 1994, respectively. The changes in market value during 1995 and 1994 reflect fluctuations in the general level of interest rates and the reclassification of the Company's investment in FDC in 1995 to Investments-Available for Sale. This reclassification resulted in a $400 million unrealized gain, net of the change in the market value of the Company's DECS liability. See Note 12. Gross realized gains and losses on sales of securities classified as Available for Sale were $46 million and $12 million and $28 million and $30 million for the years ended December 31, 1995 and 1994, respectively. The specific identification method was used to determine the realized gain or loss. The Available for Sale classification does not mean that the Company expects to sell these securities, but that these securities are available to meet possible liquidity needs should there be significant changes in market interest rates, customer demand, funding sources and terms, or foreign currency risk. As a result of adopting the Financial Accounting Standards Board Special Report, "Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities," in December 1995, the Company reclassified securities with a book value of approximately $3.6 billion and a market value of $3.8 billion from Held to Maturity to Available for Sale. Net unrealized gains on Trading securities included in income were $12 million (pretax) and $10 million (pretax) for the years ended December 31, 1995 and 1994, respectively.
NOTE 5 LOANS Loans at December 31 consisted of: (millions) 1995 1994 ------- ------- Consumer Loans $11,677 $10,183 Commercial Loans: Commercial and industrial 2,657 2,407 Mortgage and real estate 514 693 Loans to banks and other institutions 1,300 996 Other, principally policyholders' loans 545 988 ------- ------- 16,693 15,267 Less: Reserves for credit losses 602 545 ------- ------- Total $16,091 $14,722 ======= =======
Note: American Express Financial Advisors' mortgage loans of $3.2 billion and $2.7 billion in 1995 and 1994, respectively, are included in Investment Mortgage Loans and are reflected in Note 4. -24- (1995 Annual Report p. 36) The following table presents changes in Reserves for Credit Losses related to loans: (millions) 1995 ______ Balance, January 1 $545 Provision for credit losses 529 Recoveries of amounts previously written-off 134 Write-offs (606) ------ Balance, December 31 $602 ====== As of January 1, 1995, the Company adopted SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures." The adoption of the new rules did not have a material impact on the Company's results of operations or financial condition. NOTE 6 PREFERRED SHARES In January 1990, the Company sold to Nippon Life for $200 million, four million of the Company's $3.875 Convertible Exchangeable Preferred shares (Convertible Preferred shares) having a liquidation preference of $50 per share and paying dividends at an annual rate of 7.75 percent. The shares are convertible at the option of the holder into the Company's common shares at an initial conversion price of $42.50 per share. The Convertible Preferred shares are redeemable in whole at the option of the Company, for the Company's 7.75% Convertible Subordinated Debentures due 2015 at $1,000 principal amount of Debentures for each $1,000 liquidation preference of Convertible Preferred shares. The Company also has the option of redeeming the Convertible Preferred shares for cash at $51.94 as of December 31, 1995 and at prices declining to $50 per share on and after January 2000. The Board of Directors is authorized to permit the Company to issue up to 16 million additional preferred shares without further shareholder approval. NOTE 7 COMMON SHARES In March 1995, the Company's Board of Directors authorized the Company to repurchase up to 40 million common shares, subject to market conditions. This authorization is in addition to a plan announced in September 1994, whereby the Company was authorized to repurchase up to 20 million common shares. In connection with these plans, the Company intends to fund contributions to various employee benefit plans with cash, and offset the issuance of new shares as part of employee compensation plans by repurchasing an equivalent number of shares in the open market. Since inception of the initial repurchase plan in 1994, the Company has repurchased and cancelled 38,345,990 shares under the repurchase programs at an average price of $34.56 per share. In the fourth quarter of 1995, 12,313,500 common shares were cancelled, reducing stated capital by $7.4 million. -25- (1995 Annual Report p. 37) In connection with the share repurchase programs, the Company sold 5.3 million and 4.0 million put options in 1995 and 1994, respectively, with maturities ranging from one to twelve months. The weighted average strike price for the put options was $38.64 and $30.81 per share in 1995 and 1994, respectively. Upon issuing these put options, the Company received a weighted average premium of $2.05 per share, or $10.9 million, in 1995 and $1.83 per share, or $7.3 million, in 1994, which amounts are included in Shareholders' Equity. The average effective strike price was $36.59 and $28.98 per share in 1995 and 1994, respectively. Through December 31, 1995, 4.1 million put options expired unexercised. Put options outstanding at December 31, 1995 and 1994 were 3.3 million and 3.6 million, respectively. The aggregate strike prices relating to the outstanding put options at December 31, 1995 and 1994 of $123 million and $111 million, respectively, are included as temporary equity in Other Liabilities in the Consolidated Balance Sheet. In addition to the above repurchase programs, in 1994 the Company repurchased and cancelled four million shares of its common stock at an average price of $27.67, primarily to offset the issuance of new shares resulting from the conversion of American Express Company 9% Convertible Notes Series A-G due April 1, 1994. Of the common shares authorized but unissued at December 31, 1995, 74,455,059 shares were reserved for issuance with respect to employee stock plans, employee benefit plans, convertible preferred stock and debentures and the dividend reinvestment plan. Common shares activity for each of the years ended December 31 is as follows:
1995 1994 1993 ----------- ----------- ----------- Shares outstanding at beginning of year 495,865,678 489,827,852 479,976,358 Repurchase of common shares (23,744,935) (18,601,055) - Conversion of CAP Preferred shares - 13,998,141 - Conversion of 9% Notes - 3,273,062 - Employee compensation plans, benefit plans and other 10,987,346 7,368,678 9,851,494 ----------- ----------- ----------- Shares outstanding at end of year 483,108,089 495,865,678 489,827,852 =========== =========== ===========
In 1987, Nippon Life purchased 13 million shares of Lehman 5% Series A Preferred Stock for $508 million. The preferred shares are convertible at the option of Nippon Life into shares of Lehman common stock at a conversion price of $122.94, or an aggregate of 4.1 million Lehman shares. The preferred shares are also exchangeable at the option of Nippon Life for the Company's common shares at an exchange price of $81.46, or an aggregate of approximately 6.2 million common shares. The exchange right terminates in December 1999. -26- (1995 Annual Report pp. 37-38) NOTE 8 STOCK PLANS Under the 1989 Long-Term Incentive Plan (the 1989 Plan), awards may be granted to officers, key employees and other key individuals who perform services for the Company and its participating subsidiaries. These awards may be in the form of stock options, stock appreciation rights, restricted stock, performance grants and other awards deemed by the Compensation and Benefits Committee of the Board of Directors to be consistent with the purposes of the 1989 Plan. The Company also has options outstanding pursuant to the Directors' Stock Option Plans. Stock options are granted at a price not less than the fair market value of the common shares at the date of grant. In 1994, the Company adjusted its outstanding restricted stock and stock options by 799,027 shares and 4,027,120 shares, respectively, to reflect the Lehman spin-off discussed in Note 2. The respective stock options had exercise prices ranging from $10.30 to $67.09, which were adjusted to $9.03 to $58.83. In addition, all outstanding restricted stock and stock options held by Lehman employees were cancelled. There were 14,061,595; 19,833,442; and 23,528,235 common shares available for grant at December 31, 1995, 1994 and 1993, respectively, under various employee and director stock plans. At December 31, 1995, options outstanding had an average exercise price of $27.41 per share and expiration dates ranging from March 31, 1996 to November 30, 2005.
The details of transactions provided in the following table include the plans described above. 1995 1994 1993 --------------- ---------------- ---------------- Restricted stock awarded 1,742,850 1,349,400 1,584,052 Options outstanding at beginning of year 28,998,235 25,733,675 28,690,159 Option price $9.03 to $58.83 $10.30 to $67.09 $10.00 to $67.09 Options granted 6,045,455 5,175,049 4,818,473 Option price $29.55 to $43.31 $26.13 to $30.94 $22.59 to $35.63 Options exercised 10,397,398 3,326,731 4,526,835 Exercise price $9.03 to $41.45 $9.82 to $31.64 $10.00 to $34.81 Options expired or cancelled 1,167,621 2,610,878 3,248,122 Option adjustment pursuant to Lehman spin-off - 4,027,120 - Options outstanding at end of year 23,478,671 28,998,235 25,733,675 Option price $9.03 to $58.83 $9.03 to $58.83 $10.30 to $67.09 Options exercisable at end of year 12,591,312 18,331,687 16,774,856
-27- (1995 Annual Report pp. 38-39) The Company also sponsors the American Express Incentive Savings Plan under which purchases of the Company's common shares are made by or for participating employees. NOTE 9 RETIREMENT PLANS Pension Plans The Company has noncontributory defined benefit plans under which the cost of retirement benefits for eligible employees in the United States, measured by length of service, compensation and other factors, is currently being funded through trusts established under these plans. In addition, the Company sponsors certain unfunded, unqualified supplemental plans for which the aggregate accrued liability is not material. Funding of retirement costs for these plans complies with the applicable minimum funding requirements specified by the Employee Retirement Income Security Act of 1974, as amended. In 1994, the Company's Board of Directors approved an amendment of the American Express Retirement Plan (the Plan) which covers U.S. employees. The amendment, which became effective July 1, 1995, converted the discounted accrued benefits to lump sum individual account balances. Employees' accounts are credited with additions equal to a percentage, based on age plus service, of base pay plus annual incentives. Employees' accounts are also credited with interest based on published five-year Treasury rates. Lump sum payout at termination or retirement is available. The initial impact of the changes was to significantly decrease the Plan's projected benefit obligation and annual pension cost. This decrease is largely offset by higher expense associated with amendments to the American Express Incentive Savings Plan, which includes a profit-sharing component as of July 1, 1994. Most employees outside the United States are covered by local retirement plans, some of which are funded, or receive payments at the time of retirement or termination under applicable labor laws or agreements. Benefits under labor laws are generally not funded. Plan assets consist principally of equities and fixed income securities. Net pension cost consisted of the following components:
(millions) 1995 1994 1993 ------ ------ ------ Service cost $66 $71 $59 Interest cost 76 71 65 Actual return on plan assets (153) (22) (116) Net amortization and deferral 78 (31) 67 ------ ------ ------ Net periodic pension cost $67 $89 $75 ====== ====== ======
-28- (1995 Annual Report p. 39) The following table sets forth the funded status and amounts recognized in the Consolidated Balance Sheet for the Company's defined benefit plans, including certain unfunded, nonqualified supplemental plans. The underfunded plans relate to foreign and supplemental executive plans.
December 31, 1995 1994 --------------------------------- ------------------------------- Assets Exceed Accumulated Assets Exceed Accumulated Accumulated Benefits Accumulated Benefits (millions) Benefits Exceed Assets Benefits Exceed Assets ------------- ------------- ------------- ------------- Actuarial present value of benefit obligations: Vested benefit obligation $(686) $(121) $(453) $(106) ------------- ------------- ------------- ------------- Accumulated benefit obligation $(722) $(150) $(490) $(123) ------------- ------------- ------------- ------------- Projected benefit obligation $(795) $ (210) $(724) $(213) Plan assets at fair value 950 6 774 16 ------------- ------------- ------------- ------------- Projected benefit obligation (in excess of) or less than plan assets 155 (204) 50 (197) Unrecognized net (gain) loss (58) 9 (54) (7) Unrecognized prior service cost (95) (5) 3 19 Unrecognized net (asset) obligation at transition (5) 20 (7) 20 Adjustment required to recognize minimum liability - (11) - (5) ------------- ------------- ------------ ------------- Pension liability included in the Consolidated Balance Sheet $(3) $(191) $(8) $(170) ============= ============= ============ =============
The range of assumptions used in the majority of the Company's plans at December 31 was: 1995 1994 ------------- ------------- Weighted average discount rates 6.5% to 8.5% 7.5% to 9.0% Rates of increase in compensation levels 4.5% to 7.0% 4.5% to 7.0% Expected long-term rates of return on assets 7.5% to 11.0% 7.5% to 12.0% -29- (1995 Annual Report p. 40) Other Postretirement Benefits The Company sponsors postretirement benefit plans that provide health care, life insurance and other postretirement benefits to retired U.S. employees. Net periodic postretirement benefit expense was $19 million in 1995 and 1994 and $18 million in 1993. The liabilities recognized in the Consolidated Balance Sheet for the Company's defined postretirement benefit plans (other than pension plans) at December 31, 1995 and 1994 were $202 million and $195 million, respectively.
NOTE 10 INCOME TAXES The provision for income taxes consisted of the following: (millions) 1995 1994 1993 ----- ----- ----- Federal $416 $316 $551 State and local 18 42 72 Foreign 185 153 98 ----- ----- ----- Total $619 $511 $721 ===== ===== =====
Accumulated net earnings of certain foreign subsidiaries, which totaled $534 million at December 31, 1995, are intended to be permanently reinvested outside the United States. Accordingly, federal taxes, which would have aggregated $149 million, have not been provided. The current and deferred components of the provision for income taxes consisted of the following:
(millions) 1995 1994 1993 ------ ------ ------ Current $654 $596 $677 Deferred (35) (85) 44 ------ ------ ------ Total $619 $511 $721 ====== ====== ====== The Company's net deferred tax assets at December 31 consisted of the following: (millions) 1995 1994 ------ ------ Deferred tax assets $2,348 $2,576 Deferred tax liabilities 1,638 1,162 ------ ------ Net deferred tax assets $710 $1,414 ====== ======
-30- (1995 Annual Report pp. 40-41) Deferred tax assets for 1995 and 1994 consisted primarily of: reserves not yet deducted for tax purposes of $1.5 billion and $1.6 billion, respectively, and deferred Cardmember fees of $239 million and $184 million, respectively. Deferred tax assets for 1994 also included $209 million related to SFAS No. 115. Deferred tax assets are presented net of a $45 million valuation allowance that relates to certain deferred tax assets for which realization requires taxable income in the subsidiary that gave rise to the deferred tax asset. Deferred tax liabilities for 1995 and 1994 consisted primarily of: deferred acquisition costs of $654 million and $688 million, respectively, and accelerated depreciation of $157 million and $159 million, respectively. Deferred tax liabilities for 1995 also included $514 million related to SFAS No. 115. The aggregate income tax provision is different from that computed by using the U.S. statutory rate of 35 percent. The principal causes of the difference in each year are shown below:
(millions) 1995 1994 1993 ----- ----- ----- Combined tax at U.S. statutory rate $764 $662 $814 Changes in taxes resulting from: Tax-exempt interest income (157) (150) (148) Tax-exempt element of dividend income (29) (33) (37) FDC public offering - - 74 Foreign income taxed at rates other than U.S. statutory rate 1 (13) (25) State and local income taxes 11 26 25 Impact of rate change on opening net deferred tax assets - - (30) All other 29 19 48 ----- ----- ----- Income tax provision $619 $511 $721 ===== ===== =====
Net income taxes paid by the Company during 1995, 1994 and 1993 were $595 million, $289 million and $639 million, respectively, and include estimated tax payments, as well as cash settlements relating to prior tax years. NOTE 11 DERIVATIVE AND OTHER OFF-BALANCE SHEET FINANCIAL INSTRUMENTS The Company enters into transactions involving derivative financial instruments as an end user, as well as for trading purposes at American Express Bank (the Bank). The Company uses derivatives for end user (nontrading) purposes to manage its exposure to interest and foreign exchange rate risks and to manage its funding costs. These instruments are used when they provide a more efficient means for the Company to manage its risk exposure than if the Company entered into the cash marketplace. For trading purposes, the Bank enters into derivative contracts to meet the needs of its clients. To a limited extent, the Bank takes proprietary positions. The Company manages risks associated with derivatives as described below. -31- (1995 Annual Report pp. 41-42) Market risk is the possibility that the value of the derivative financial instrument will change due to fluctuations in a factor from which the instrument derives its value. The Company is not impacted by market risk related to derivatives held for nontrading purposes beyond that inherent in cash market transactions. Foreign currency and certain interest rate products that manage related risks have cash flow and income effects that are inverse to the effects of the underlying transactions. The Bank is generally not subject to market risk when it enters into a contract with a client as it usually enters into an offsetting contract or uses the position to offset an existing exposure. The Bank takes proprietary positions within approved limits. These positions are monitored daily at the local level and reviewed for compliance centrally. The Company does not enter into derivative contracts with embedded options or other features that would leverage or multiply its market risk. Credit exposure is the possibility that the counterparty will not fulfill the terms of the contract. The Company monitors credit exposure related to derivative financial instruments through established approval procedures, including setting concentration limits by counterparty and country, reviewing credit ratings and requiring collateral where appropriate. For its trading activities, the Bank requires collateral when it is not willing to assume credit exposure to counterparties for either contract mark-to-market risk or delivery risk. A significant portion of the Company's credit risk is with counterparties rated A or better by nationally recognized credit rating agencies. Wherever possible, the Company's credit exposure is further reduced through the use of master netting agreements, which allow the Company to settle multiple contracts with a single counterparty in one net receipt or payment in the event of counterparty default. The notional or contract amount of a derivative financial instrument is generally used to calculate the cash flows that are received or paid over the life of the agreement. Notional amounts do not represent market risk or credit exposure. At December 31, 1995 and 1994, the aggregate notional amount of the Company's derivative instruments was $40 billion and $57 billion, respectively. The related credit exposure approximates the fair value of contracts in a gain position (asset) totaling $381 million at December 31, 1995 and $375 million at December 31, 1994. Including contracts in a loss position, the Company was in a net liability position of $11 million at December 31, 1995, compared with a net exposure of $16 million at December 31, 1994. The fair value represents the replacement cost and is determined by market values, dealer quotes or pricing models. -32- (1995 Annual Report p. 42)
The following tables detail information regarding the Company's derivatives at December 31: NONTRADING 1995 ----------------------------------------------------- Notional Carrying Value Fair Value (millions) Amount Asset Liability Asset Liability -------- -------- -------- -------- -------- Interest Rate Products: Interest rate swaps $7,709 $83 $105 $126 $220 Interest rate caps and corridors purchased 6,070 - 30 - 10 Forward rate agreements 686 - - - - -------- -------- -------- -------- -------- Total Interest Rate Products 14,465 113 105 136 220 -------- -------- -------- -------- -------- Foreign Currency Products: Forward and spot contracts 7,110 40 21 57 35 Other Products 369 32 9 29 10 -------- -------- -------- -------- -------- Total $21,944 $185 $135 $222 $265 ======== ======== ======== ======== ======== 1994 ---------------------------------------------------- Notional Carrying Value Fair Value (millions) Amount Asset Liability Asset Liability -------- -------- -------- -------- --------- Interest Rate Products: Interest rate swaps $17,374 $57 $62 $131 $249 Interest rate caps and corridors purchased 5,420 44 - 67 - Interest rate options 706 3 2 5 - Forward rate agreements 675 - - - 2 -------- -------- -------- -------- -------- Total Interest Rate Products 24,175 104 64 203 251 -------- -------- -------- -------- -------- Foreign Currency Products: Forward and spot contracts 8,030 39 12 59 27 Foreign currency options purchased 128 2 - 2 - -------- -------- -------- -------- -------- Total Foreign Currency Products 8,158 41 12 61 27 -------- -------- -------- -------- -------- Other Products 533 16 2 19 - -------- -------- -------- -------- -------- Total $32,866 $161 $78 $283 $278 ======== ======== ======== ======== ========
-33- (1995 Annual Report pp. 42-43)
TRADING 1995 ----------------------------------------------------- Notional Carrying/Fair Value Average Fair Value (millions) Amount Asset Liability Asset Liability -------- -------- -------- -------- -------- Interest Rate Products: Interest rate swaps $1,621 $25 $26 $19 $16 Forward rate agreements 785 1 1 3 2 Other 267 - - - - -------- -------- -------- -------- -------- Total Interest Rate Products 2,673 26 27 22 18 -------- -------- -------- -------- -------- Foreign Currency Products*: Forward and spot contracts 13,073 115 80 175 168 Foreign currency options written 1,103 - 20 - 28 Foreign currency options purchased 1,099 18 - 27 - -------- -------- -------- -------- -------- Total Foreign Currency Products 15,275 133 100 202 196 -------- -------- -------- -------- -------- Total $17,948 $159 $127 $224 $214 ======== ======== ======== ======== ======== 1994 ----------------------------------------------------- Notional Carrying/Fair Value Average Fair Value (millions) Amount Asset Liability Asset Liability -------- -------- -------- -------- -------- Interest Rate Products: Interest rate swaps $722 $11 $8 $8 $6 Forward rate agreements 359 1 1 1 - Other 94 - - - - -------- -------- -------- -------- -------- Total Interest Rate Products 1,175 12 9 9 6 -------- -------- -------- -------- -------- Foreign Currency Products*: Forward and spot contracts 20,574 71 63 77 72 Foreign currency options written 1,114 - 9 - 11 Foreign currency options purchased 1,062 9 - 11 - -------- -------- -------- -------- -------- Total Foreign Currency Products 22,750 80 72 88 83 -------- -------- -------- -------- -------- Total $23,925 $92 $81 $97 $89 ======== ======== ======== ======== ========
*These are predominantly contracts with clients and the related hedges of those client contracts. The Company's net trading foreign currency exposure was approximately $62 million and $7 million at December 31, 1995 and 1994, respectively. The average aggregate fair values of derivative financial instruments held for trading purposes were computed based on monthly information in 1995 and quarterly information in 1994. Net derivative trading gains of $79 million for 1995 and $66 million for 1994 were primarily due to trading in foreign currency forward and spot contracts and are included in Other Commissions and Fees. -34- (1995 Annual Report p. 43) Interest Rate Products The Company uses interest rate products, for the most part, to manage funding costs related to TRS' Charge Card and Cardmember lending businesses. The principal products used are interest rate swaps, which involve the exchange for a specified period of time of fixed or floating rate interest payments based on a notional or contractual amount. TRS uses interest rate swaps to obtain a cost effective and flexible funding structure to fund its Cardmember receivables and Cardmember loans, as well as to match Cardmember loans with funding of the same repricing terms. TRS uses interest rate swaps to achieve a targeted, predetermined mix of fixed and floating rate funding of its Cardmember receivables. Interest rates charged on TRS' Cardmember loans are linked to a floating rate base and generally reprice each month. TRS generally enters into interest rate swaps paying rates that reprice when the base rate of the underlying loans changes. The decline in the notional amount of interest rate swaps at December 31, 1995 is primarily due to the change in the terms of Cardmember loans from semi-annual to monthly repricing in 1995. At December 31, 1994, the notional amount for interest rate swaps in the nontrading table above included $5.7 billion of swaps that went into effect in January and February of 1995. These swaps replaced swaps that matured at that time and, accordingly, are not reflected in the notional amount of swaps at December 31, 1994 disclosed in Note 12. In addition, the Bank uses interest rate swaps to manage the interest characteristics of loans, deposits and, to a lesser extent, securities holdings. The termination dates of these swaps are generally matched with the maturity dates of the underlying assets and liabilities. For interest rate swaps that are used for nontrading purposes and meet the criteria for hedge accounting, interest is accrued and reported in Other Receivables and Interest and Dividends or Accounts Payable and Interest Expense, as appropriate. Products used for trading purposes are reported at fair value in Other Assets or Other Liabilities, as appropriate, with unrealized gains and losses recognized currently in Other Revenues. Interest rate caps and corridors limit the Company's exposure to rising interest rates. These instruments are used primarily by American Express Financial Advisors to protect the margin between the interest rates earned on investments and the interest rates accrued to related investment certificate and fixed annuity holders. Interest rate caps and corridors generally mature within five years. The costs of interest rate caps and corridors are reported in Other Assets and amortized into Interest and Dividends on a straight line basis over the term of the contract; benefits are recognized in income when earned. See Note 12 for further information related to the Company's use of interest rate products to modify its short- and long-term debt. -35- (1995 Annual Report p. 44) Foreign Currency Products As an end user, the Company uses foreign currency products to hedge primarily net investments in foreign operations and to manage transactions denominated in foreign currencies. For trading purposes, the Bank enters into contracts to meet the needs of its clients, and to a limited extent, takes proprietary positions. The decrease in the aggregate notional amount of all forward and spot contracts in 1995 was caused primarily by client-related contracts. Foreign currency exposures are hedged, where practicable, through foreign currency forward and spot contracts. Foreign currency forward and spot contracts involve the purchase and sale of a designated currency at an agreed upon rate for settlement on a specified date. Foreign currency forward contracts generally mature within one year, whereas foreign currency spot contracts generally settle within two days. At both December 31, 1995 and 1994, the Company had no significant unhedged foreign currency exposures; the Company's largest unhedged foreign currency exposure in 1995 and 1994 was a net investment of $82 million and $96 million, respectively, in India. For foreign currency products used to hedge net investments in foreign operations, unrealized gains and losses as well as related premiums and discounts are reported in Shareholders' Equity. For foreign currency contracts that manage transactions denominated in foreign currencies, unrealized gains and losses are reported in Other Assets and Other Commissions and Fees or Other Liabilities and Other Expenses, as appropriate. Related premiums and discounts are reported in Other Assets or Other Liabilities, as appropriate, and amortized into Interest Expense and Other Expenses over the term of the contract. Foreign currency products used for trading purposes are reported at fair value in Other Assets or Other Liabilities, as appropriate, with unrealized gains and losses recognized currently in Other Commissions and Fees. To a limited extent, the Company uses foreign currency forward contracts to hedge its firm commitments primarily related to its travel programs. In addition, for selected major overseas markets, the Company uses foreign currency forward contracts to hedge future income generally for periods not exceeding one year; related unrealized gains and losses are recognized currently in income. The impact of these activities was not material. Other Off-Balance Sheet Financial Instruments The Company primarily enters into other off-balance-sheet financial instruments to extend credit to satisfy the needs of its clients. The contractual amount of these instruments represents the maximum accounting loss the Company would record assuming the contract amount is fully utilized, the counterparty defaults and collateral held is worthless. Management does not expect any material adverse impact to the Company's financial position to result from these contracts. December 31, (millions) 1995 1994 _______ _______ Unused Credit Available to Cardmembers $21,694 $19,018 Loan Commitments and Other Lines of Credit $521 $354 Standby Letters of Credit and Guarantees $1,609 $1,668 Commercial and Other Letters of Credit $936 $969 -36- (1995 Annual Report pp. 44-45) The Company is committed to extend credit to certain Cardmembers as part of established Cardmember lending product agreements. Since many of the commitments extended to Cardmembers are not expected to be drawn upon, unused credit available to Cardmembers does not represent future cash requirements. The Company's Charge Card products have no preset spending limit, and are not reflected in unused credit available to Cardmembers. The Company may require collateral in support of its loan commitments based on the creditworthiness of the borrower. Standby letters of credit and guarantees primarily represent conditional commitments to insure the performance of the Company's customers to third parties. These commitments generally expire within one year. The Company primarily issues commercial and other letters of credit to facilitate the short-term trade-related needs of its clients. These letters of credit typically mature within six months. At December 31, 1995 and 1994, the Company held $1.0 billion and $852 million, respectively, of collateral supporting standby letters of credit and guarantees and $515 million and $447 million, respectively, of collateral supporting commercial and other letters of credit. Other financial institutions have committed to extend lines of credit to the Company of $8.6 billion and $7.7 billion at December 31, 1995 and 1994, respectively. NOTE 12 SHORT- AND LONG-TERM DEBT AND BORROWING AGREEMENTS The Company has various borrowing agreements, both fixed and floating rate and short- and long-term. The Company manages interest rate risk associated with these borrowings, in part, through the use of interest rate products, principally interest rate swaps. In addition, TRS uses interest rate swaps to achieve a targeted, predetermined mix of fixed and floating rate funding of its Cardmember receivables. See Note 11 for a further description of the Company's use of interest rate products. Short-Term Debt The Company has various facilities to obtain short-term credit, including borrowing agreements with banks and the issuance of commercial paper. At December 31, 1995 and 1994, the Company's total short-term debt outstanding was $17.7 billion and $14.8 billion, respectively, with weighted average interest rates of 6.14% and 6.13%, respectively. At December 31, 1995 and 1994, $1.0 billion and $7.6 billion, respectively, of short-term debt outstanding was modified by interest rate swaps, resulting in a year-end weighted average effective interest rate of 6.12% and 5.93%, respectively. The Company generally pays floating rates of interest under the terms of interest rate swaps which are primarily used to achieve a targeted, predetermined fixed to floating funding mix on Cardmember receivables and to match Cardmember loans with funding of the same repricing terms. In 1994, the Company paid fixed rates of interest under the terms of interest rate swaps used to match the terms of Cardmember loans. Unused lines of credit in support of commercial paper borrowing arrangements were approximately $5.9 billion at December 31, 1995. -37- (1995 Annual Report p. 45)
Long-Term Debt December 31, (dollars in millions) 1995 ----------------------------------------------------------------------- Year-End Year-End Effective Notional Stated Interest Outstanding Amount of Rate on Rate with Maturity of Balance Swaps Debt (a,b) Swaps (a,b) Swaps --------- --------- --------- --------- --------- DECS due October 15, 1996 $1,294 - 6.25% - - Swiss franc Bonds due October 14, 1996 to December 16, 1996 (c) 309 $292 5.00% 3.34% 1996 Notes due June 15, 2000 299 299 6.125% 6.80% 2000 Notes due November 15, 2001 299 299 6.125% 4.93% 2001 Notes due August 15, 2001 298 - 8.50% - - Floating Medium-Term Senior Note due December 31, 2000 208 - 5.83% - - Fixed Medium-Term Senior Notes due 1995-1997 61 - 7.34% - - Other Fixed Senior Notes due 1995-2022 2,766 1,410 7.89% 7.55% 1996-2005 Other Floating Senior Notes due 1995-1998 1,223 524 5.98% 6.14% 1996-1998 Other floating rate notes due 1995-2004 413 150 6.40% 6.62% 2004 Other fixed rate notes due 1995-2006 400 - 5.64% - - -------- --------- Total $7,570 $2,974 ======== =========
-38- (1995 Annual Report p. 46)
Long-Term Debt December 31, (dollars in millions) 1994 ------------------------------------------------------------------------- Year-End Year-End Effective Notional Stated Interest Outstanding Amount of Rate on Rate with Maturity of Balance Swaps Debt (a,b) Swaps (a,b) Swaps --------- --------- --------- --------- --------- DECS due October 15, 1996 $868 - 6.25% - - Swiss franc Bonds due October 14, 1996 to December 16, 1996 (c) 272 $263 5.00% 3.65% 1996 Notes due June 15, 2000 299 299 6.125% 7.11% 2000 Notes due November 15, 2001 - - - - - Notes due August 15, 2001 298 - 8.50% - - Floating Medium-Term Senior Note due December 31, 2000 945 - 6.63% - - Fixed Medium-Term Senior Notes due 1995-1997 270 - 5.40% - - Other Fixed Senior Notes due 1995-2022 2,555 1,078 8.20% 8.29% 1995-2000 Other Floating Senior Notes due 1995-1998 569 424 6.00% 6.04% 1995-1998 Other floating rate notes due 1995-2004 731 250 5.99% 6.03% 2004 Other fixed rate notes due 1995-2006 355 - 6.75% - - --------- --------- Total $7,162 $2,314 ========= =========
(a) For floating rate debt issuances, the stated and effective interest rates were based on the respective rates at December 31, 1995 and 1994; these rates are not an indication of future interest rates. (b) Weighted average rates were determined where appropriate. (c) Debt hedged through Swiss franc to U.S. dollar cross-currency interest rate swaps. The above interest rate swaps generally require the Company to pay a floating rate, with a predominant index of LIBOR (London Interbank Offered Rate). Aggregate annual maturities of long-term debt for the five years ending December 31, 2000 are as follows (millions): 1996, $3,112; 1997, $1,048; 1998, $359; 1999, $705; and 2000, $1,007. The Company paid interest (net of amounts capitalized) of $2.6 billion in 1995, $1.7 billion in 1994 and $1.9 billion in 1993. Approximately $217 million of the long-term financing for the Company's headquarters building is secured by certain mortgages on the interests of the Company in the building. -39- (1995 Annual Report p. 46) In 1993, the Company issued 23,618,500 DECS (Debt Exchangeable for Common Stock), in the form of 6 1/4% Exchangeable Notes due October 15, 1996. The DECS were issued at a principal amount of $36.75 per DECS, resulting in net proceeds of approximately $842 million. At maturity, holders of DECS will receive, in exchange for the principal amount thereof, shares of FDC common stock, or at the Company's option, an equivalent amount of cash in lieu of such shares. The number of such shares or the amount of such cash will be based on the average market price of FDC common stock calculated during a period shortly before the maturity of the DECS. If the Company elects to deliver shares of FDC at maturity, the Company's holdings of FDC will be reduced to between zero (if the average market price of FDC shares is at or below $36.75) and approximately 3.3 million shares (if the average market price of FDC shares is at or above $44.875). In January 1996, the Company entered into a derivative transaction to lock in its gain on approximately 2.5 million of the residual FDC shares, at a minimum FDC share price of approximately $66. The value of the DECS is linked to the Company's investment in FDC. As stated in Note 3, the Company now carries its investment in FDC at market value rather than under the equity method of accounting; therefore, the Company is also carrying the DECS liability at market value. Changes in the DECS market value, net of income taxes, are recorded in the Net Unrealized Securities Gains (Losses) component of Shareholders' Equity. NOTE 13 FAIR VALUES OF FINANCIAL INSTRUMENTS The Company is required to disclose fair value information for most on- and off-balance-sheet financial instruments for which it is practicable to estimate that value. Certain financial instruments, such as life insurance obligations, employee benefit obligations, investments accounted for under the equity method and all non-financial instruments, such as land, buildings and equipment, deferred acquisition costs and goodwill, are excluded from required disclosure. The Company's off-balance-sheet intangible assets, such as the American Express Company name and the future earnings of core businesses, are also excluded. The Company's management believes the value of these excluded assets is significant. The fair value of the Company, therefore, cannot be estimated by aggregating the amounts presented below. The fair values of financial instruments are estimates based upon market conditions and perceived risks at December 31, 1995 and 1994 and require varying degrees of management judgment. The fair values of the financial instruments presented may not be indicative of their future fair values. -40- (1995 Annual Report pp. 46-47)
1995 1994 ----------------------- -------------------- Carrying Fair Carrying Fair December 31, (millions) Value Value Value Value ------- ------- ------- ------- Financial Assets Assets for which carrying values approximate fair values $38,640 $38,640 $31,078 $31,078 Investments $42,561 $43,574 $40,108 $39,520 Loans $16,223 $16,194 $14,282 $14,370 Other assets $ 3,458 $ 3,458 $ 2,122 $ 2,122 Derivative financial instruments, net $ 82 $ (11) $ 94 $ 16 ------- ------- ------- ------- Financial Liabilities Liabilities for which carrying values approximate fair values $37,716 $37,716 $34,105 $34,105 Fixed annuity reserves $20,334 $19,603 $19,189 $18,451 Investment certificate reserves $ 3,555 $ 3,592 $ 2,808 $ 2,800 Long-term debt $ 7,570 $ 7,740 $ 7,112 $ 7,025 Liabilities related to segregated asset accounts $14,209 $13,666 $10,399 $ 9,944 Other liabilities $ 5,854 $ 5,854 $ 5,330 $ 5,330 ------- ------- ------- -------
The carrying and fair values of other off-balance-sheet financial instruments are not material as of December 31, 1995 and 1994. See Notes 4 and 11 for carrying and fair value information regarding investments and derivative financial instruments, respectively. The following methods were used to estimate the fair values of financial assets and financial liabilities: Financial Assets Assets For Which Carrying Values Approximate Fair Values: The carrying values of Cash and Cash Equivalents, Accounts Receivable and Accrued Interest, and Assets Held in Segregated Asset Accounts approximate their fair values. Loans: For variable rate loans that reprice within a year where there has been no significant change in counterparties' creditworthiness, fair values are based on carrying values. The fair values of all other loans, except for loans with significant credit deterioration, are estimated using discounted cash flow analysis, based on current interest rates for loans with similar terms to borrowers of similar credit quality. For loans with significant credit deterioration, fair values are based on revised estimates of future cash flows discounted at rates commensurate with the risk inherent in the revised cash flow projections, or for collateral dependent loans, on collateral values. Other Assets: The carrying values of applicable Other Assets, which primarily include securities purchased under agreements to resell and customers' acceptance liabilities, approximate their fair values. -41- (1995 Annual Report p. 47) Financial Liabilities Liabilities For Which Carrying Values Approximate Fair Values: The carrying values of Customers' Deposits and Credit Balances, Travelers Cheques Outstanding, Accounts Payable and Short-Term Debt approximate their fair values. Fixed Annuity Reserves: Fair values of annuities in deferral status are estimated as the accumulated value less applicable surrender charges and loans. For annuities in payout status, fair value is estimated using discounted cash flow analysis, based on current interest rates. The fair value of these reserves excludes life insurance-related elements of $1.1 billion in 1995 and $1.0 billion in 1994. Investment Certificate Reserves: For variable rate investment certificates that reprice within a year, fair values approximate carrying values. For other investment certificates, fair value is estimated using discounted cash flow analysis, based on current interest rates. The valuations are reduced by the amount of applicable surrender charges and related loans. Long-Term Debt: For variable rate long-term debt that reprices within a year, fair values approximate carrying values. For other long-term debt, fair value is estimated using either quoted market prices or discounted cash flow analysis based on the Company's current borrowing rates for similar types of borrowing arrangements. Liabilities Related To Segregated Asset Accounts: Fair values of these liabilities, after excluding life insurance-related elements of $765 million in 1995 and $482 million in 1994, are estimated as the accumulated value less applicable surrender charges. Other Liabilities: The carrying values of applicable Other Liabilities, which primarily include securities sold under agreements to repurchase, acceptances outstanding and income taxes payable, approximate their fair values. -42- (1995 Annual Report pp. 47-48) NOTE 14 SIGNIFICANT CREDIT CONCENTRATIONS A credit concentration exists if the Company's customers are involved in similar industries. The Company's businesses generate significant investments in both on-and off-balance-sheet financial instruments. The counterparties in these investments operate in diverse economic sectors. Therefore, management does not expect any material adverse impact to the Company's financial position to result from credit concentrations. Certain distinctions between categories required management judgment.
December 31, (dollars in millions) 1995 1994 -------- ------- Financial institutions (a) $11,696 $11,591 Individuals (b) 54,280 45,165 U.S. Government and agencies (c) 13,994 18,491 All other 29,484 23,918 -------- ------- Total $109,454 $99,165 ======== ======= Composition: On-balance-sheet 77% 78% Off-balance-sheet 23 22 -------- ------- Total 100% 100% ======== =======
(a) Financial institutions primarily include banks, broker-dealers, insurance companies and savings and loan associations. (b) Charge Card products have no preset spending limit; therefore, the quantified credit amount includes only Cardmember receivables recorded in the Consolidated Balance Sheet. (c) U.S. Government and agencies represent the U.S. Government and its agencies, states and municipalities, and quasi-government agencies. NOTE 15 INDUSTRY SEGMENTS AND GEOGRAPHIC OPERATIONS Industry Segments The Company is principally in the business of providing travel related, financial advisory and international banking services throughout the world. TRS' products include Charge Cards, revolving credit products and Travelers Cheques, as well as travel services, including trip planning, reservations, ticketing and management information. American Express Financial Advisors' services and products include financial planning, insurance and annuities, investment certificates and mutual funds. The Bank serves the financial needs of wealthy entrepreneurs and financial service institutions by providing -43- (1995 Annual Report p. 48) correspondent, commercial and private banking and consumer financial services. The predominant market for the travel related and financial advisory services is the United States, while the principal markets for international banking services are Europe and Asia/Pacific. The following table presents certain information regarding these industry segments at December 31, 1995, 1994 and 1993 and for each of the years then ended.
American Travel Express American Corporate Adjustments Related Financial Express and and (millions) Services Advisors Bank Other Eliminations Consolidated -------- -------- -------- -------- ------------ ------------ 1995 Net revenues $11,542 $3,691 $643 $ 139 $(174) $15,841 Pretax income from continuing operations before general corporate expenses $1,579 $755 $115 - - $2,449 General corporate expenses - - - $(266) - (266) -------- -------- -------- -------- --------- --------- Pretax income (loss) from continuing operations $1,579 $755 $115 $(266) - $2,183 Income (loss) from continuing operations $1,125 $503 $77 $(141) - $1,564 Assets $45,188 $48,250 $12,324 $4,358 $(2,715) $107,405 1994 Net revenues $10,256 $3,270 $652 $188 $(84) $14,282 Pretax income from continuing operations before general corporate expenses $1,396 $631 $119 - - $2,146 General corporate expenses - - - $(255) - (255) Pretax income (loss) from -------- -------- -------- -------- --------- --------- continuing operations $1,396 $631 $119 $(255) - $1,891 Income (loss) from continuing operations $998 $ 428 $80 $(126) - $1,380 Assets $42,483 $40,155 $13,281 $4,467 $(3,380) $97,006 1993 Net revenues $9,432 $3,156 $67 $163 $(174) $13,254 Pretax income from continuing operations before general corporate expenses $1,173 $518 $134 - - $1,825 General corporate expenses - - - $501 - 501 -------- -------- -------- -------- --------- --------- Pretax income from continuing operations $1,173 $518 $134 $501 - $2,326 Income from continuing operation $884 $358 $92 $271 - $1,605 Assets $38,804 $37,351 $14,137 $6,555 $(2,715) $94,132
-44- (1995 Annual Report pp. 48-49) Net revenues includes interest earned on the investment of funds attributable to each industry segment. Pretax income (loss) from continuing operations before general corporate expenses is net revenues less operating expenses, including interest, related to each industry segment's revenues. Income (loss) from continuing operations includes a provision for income taxes calculated on a separate return basis; however, additional benefits from operating losses, loss carrybacks and tax credits (principally foreign tax credits) recognizable for the Company's consolidated reporting purposes are allocated based upon the tax sharing agreement among members of the American Express Company consolidated U.S. tax group. Assets are those that are used or generated exclusively by each industry segment. The adjustments and eliminations required to arrive at the consolidated amounts shown above consist principally of the elimination of intersegment revenues and assets. -45- (1995 Annual Report p. 49) Geographic Operations The following table presents certain information regarding the Company's operations in different geographic regions at December 31 and for each of the years then ended.
Adjustments United Asia/ All and (millions) States Europe Pacific Other Eliminations Consolidated -------- -------- -------- -------- ------------ ------------ 1995 Net revenues $11,916 $2,098 $1,294 $1,487 $(954) $15,841 Pretax income from continuing operations before general corporate expenses $1,762 $359 $239 $89 - $2,449 General corporate expenses (266) - - - - (266) -------- -------- -------- -------- ------------ ------------ Pretax income from continuing operations $1,496 $359 $239 $89 - $2,183 Assets $83,216 $8,900 $7,026 $4,169 $(264) $103,047 Corporate Assets 4,358 -------- -------- -------- -------- ------------ ------------ Total Assets $107,405 1994 Net revenues $10,801 $1,858 $1,220 $1,028 $(625) $14,282 Pretax income from continuing opera- tions before general corporate expenses $1,405 $364 $225 $152 - $2,146 General corporate expenses (255) - - - - (255) -------- -------- -------- -------- ------------ ------------ Pretax income from continuing operations $1,150 $364 $225 $152 - $1,891 Assets $72,447 $9,361 $7,119 $3,669 $(57) $92,539 Corporate Assets 4,467 -------- -------- -------- -------- ------------ ------------ Total Assets $97,006 1993 Net revenues $10,163 $1,562 $1,087 $939 $(497) $13,254 Pretax income from continuing operations before general corporate expenses $1,262 $221 $202 $140 - $1,825 General corporate expenses 501 - - - - 501 -------- -------- -------- -------- ------------ ------------ Pretax income from continuing operations $1,763 $221 $202 $140 - $2,326 Assets $68,399 $8,221 $7,188 $3,715 $54 $87,577 Corporate Assets 6,555 -------- -------- -------- -------- ------------ ------------ Total Assets $94,132
-46- (1995 Annual Report p. 50) Most services of the Company are provided on an integrated worldwide basis. Because of the integration of U.S. and non-U.S. services, it is not practical to separate precisely the U.S. oriented services from services resulting from operations outside the United States and performed for customers outside the United States; accordingly, the separation set forth in the above table is based upon internal allocations, which necessarily involve certain management judgments. NOTE 16 LEASE COMMITMENTS AND OTHER CONTINGENT LIABILITIES The Company leases certain office facilities and operating equipment under noncancellable and cancellable agreements. Total rental expense amounted to $415 million in 1995, $425 million in 1994 and $391 million in 1993. At December 31, 1995, the minimum aggregate rental commitment under all noncancellable leases (net of subleases) was (millions): 1996, $300; 1997, $248; 1998, $162; 1999, $111; 2000, $88; and $379 for years thereafter. Many of these leases provide for additional rentals based on increases in property taxes or the general cost of living index, or for payment of property taxes or other operating expenses by the lessee; in addition, many leases contain renewal clauses. The Company is not a party to any pending legal proceedings that, in the opinion of management, would have a material adverse effect on the Company's financial position. NOTE 17 TRANSFER OF FUNDS FROM SUBSIDIARIES The Securities and Exchange Commission requires the disclosure of certain restrictions on the flow of funds to a parent company from its subsidiaries in the form of loans, advances or dividends. Principal restrictions exist under debt agreements and regulatory requirements of certain of the Company's subsidiaries. In addition, the Bank is prohibited from making loans, the proceeds of which are to be used for a U.S. domestic purpose. These restrictions have not had any effect on the Company's shareholder dividend policy and management does not anticipate any effect in the future. At December 31, 1995, the aggregate amount of net assets of subsidiaries that may be transferred to the parent company was approximately $6.5 billion. Should specific additional needs arise, procedures exist to permit immediate transfer of short-term funds between the Company and its subsidiaries, while complying with the various contractual and regulatory constraints on the internal transfer of funds. -47- (1995 Annual Report pp. 50-51)
NOTE 18 QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data is as follows: (millions, except per share amounts) 1995 1994 ------------------------------------ --------------------------------- Quarter Ended 12/31 9/30 6/30 3/31 12/31 9/30 6/30 3/31 ------ ------ ------ ------ ------ ------ ------ ------ Net revenues $4,048 $4,054 $3,967 $3,771 $3,802 $3,604 $3,506 $3,370 Pretax income from continuing operations 541 571 572 498 475 498 478 440 Income from continuing operations 384 416 410 353 335 369 359 317 Net income 384 416 410 353 335 369 357 353 Income from continuing operations per common share .77 .83 .81 .70 .65 .71 .70 .62 Net income per common share .77 .83 .81 .70 .65 .71 .69 .69 Cash dividends declared per common share .225 .225 .225 .225 .225 .225 .225 .25 Common share prices: High 45.13 45.13 37.00 36.00 31.63 32.00 28.88 29.23 Low 38.50 34.75 34.13 29.00 28.13 25.25 23.17 23.28
Note: Historical common share prices have been adjusted to reflect the Lehman spin-off in 1994 at a ratio based on the trading prices of the Company's common shares and shares of Lehman common stock on May 31, 1994. -48- (1995 Annual Report p. 51) REPORT OF MANAGEMENT Responsibility for Preparation of Financial Statements The management of American Express Company is responsible for the preparation and fair presentation of its financial statements. The financial statements have been prepared in conformity with generally accepted accounting principles appropriate in the circumstances, and include amounts based on the best judgment of management. The Company's management is also responsible for the accuracy and consistency of other financial information included in this annual report. In recognition of its responsibility for the integrity and objectivity of data in the financial statements, the Company maintains a system of internal control over financial reporting. The system is designed to provide reasonable, but not absolute, assurance with respect to the reliability of the Company's financial statements. The concept of reasonable assurance is based on the notion that the cost of the internal control system should not exceed the benefits derived. The internal control system is founded on an ethical climate and includes an organizational structure with clearly defined lines of responsibility, policies and procedures, a Code of Conduct, and the careful selection and training of employees. Internal auditors monitor and assess the effectiveness of the internal control system and report their findings to management and the Board of Directors throughout the year. The Company's independent auditors are engaged to express an opinion on the year-end financial statements and, with the coordinated support of the internal auditors, review the financial records and related data and test the internal control system over financial reporting. The Audit Committee of the Board of Directors, composed solely of outside directors, meets regularly with the internal auditors, management and independent auditors to review their work and discuss the Company's financial controls and audit and reporting practices. The independent auditors and the internal auditors independently have full and free access to the Committee, without the presence of management, to discuss any matters which they feel require attention. -49- (1995 Annual Report p. 52) Report of ERNST & YOUNG LLP INDEPENDENT AUDITORS The Shareholders and Board of Directors of American Express Company We have audited the accompanying consolidated balance sheets of American Express Company as of December 31, 1995 and 1994, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the management of American Express Company. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Express Company at December 31, 1995 and 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in Note 4 to the financial statements, the Company changed its method of accounting for certain investments in debt and equity securities in 1994. /s/ Ernst & Young LLP New York, New York February 8, 1996 -50- (1995 Annual Report p. 52)
CONSOLIDATED FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA American Express Company (millions, except per share amounts and where italicized) 1995 1994 1993 1992 1991 ------- ------- ------- ------- ------- OPERATING RESULTS Net revenues $15,841 $14,282 $13,254 $14,255 $13,244 Percent increase (decrease) 11% 8% (7%) 8% 5% Expenses 13,658 12,391 10,928 13,359 12,622 Income from continuing operations before accounting changes: As reported 1,564 1,380 1,605 578 607 Adjusted* 1,564 1,380 1,172 153 607 Net income 1,564 1,413 1,478 461 789 Return on average shareholders' equity** 22.0% 20.3% 20.9% 3.1% 13.2% ------- ------- ------- ------- ------- ASSETS AND LIABILITIES Cash and cash equivalents $3,200 $3,433 $3,312 $3,408 $3,391 Accounts receivable and accrued interest, net 19,914 17,147 16,142 15,293 16,866 Investments 42,561 40,108 39,308 37,629 32,634 Loans, net 16,091 14,722 14,796 14,750 15,670 Total assets 107,405 97,006 94,132 90,112 84,541 Customers' deposits and credit balances 9,889 10,013 11,131 11,637 12,693 Travelers Cheques outstanding 5,697 5,271 4,800 4,729 4,375 Insurance and annuity reserves 25,157 24,849 23,406 20,893 17,741 Short-term debt 17,654 14,810 12,489 11,163 12,396 Long-term debt 7,570 7,162 8,561 8,614 8,734 Shareholders' equity 8,220 6,433 8,734 7,499 7,465 ------- ------- ------- ------- ------- COMMON SHARE STATISTICS Income per share from continuing operations before accounting changes: As reported $3.11 $2.68 $3.17 $ 1.12 $1.21 Adjusted* $3.11 $2.68 $2.30 $.23 $1.21 Percent increase (decrease): As reported 16% (15%) 183% (7%) (52%) Adjusted* 16% 17% 900% (81%) (52%) Net income per share $3.11 $2.75 $2.92 $ .88 $1.59 Cash dividends declared per share: Actual $.90 $.925 $1.00 $1.00 $ .96 Proforma $.90 $.90 $.90 $.90 $ .86 Book value per share: Actual $16.60 $12.57 $16.81 $14.58 $14.43 Pro forma** $14.79 $13.35 $11.81 $8.84 $8.62 Market price per share: High $45.13 $32.00 $32.32 $22.39 $26.81 Low $29.00 $23.17 $19.75 $17.65 $15.89 Close $41.38 $29.50 $27.25 $21.95 $18.09 -51- (1995 Annual Report p. 53) Average common shares outstanding for income per share 498 509 500 477 470 Shares outstanding at year end 483 496 490 480 472 Number of shareholders of record 57,010 60,520 58,179 54,526 54,960 OTHER STATISTICS Number of employees at year end: United States 41,700 43,421 40,342 38,266 37,018 Outside United States 28,647 28,991 24,151 24,388 24,090 ------- ------- ------- ------- ------- Total 70,347 72,412 64,493 62,654 61,108 ======= ======= ======= ======= =======
Note: Historical common share prices have been adjusted to reflect the Lehman spin-off at a ratio based on the trading prices of the Company's common shares and shares of Lehman common stock on May 31, 1994. Pro forma cash dividends declared and book value per share have also been adjusted to reflect the Lehman spin-off. For purposes of the pro forma book value per share calculation, it is assumed that the spin-off includes the book value of the Company's investment in Lehman at the balance sheet date plus the capital infusion of approximately $904 million that was made immediately prior to the spin-off. Excluding FDC from 1992 and 1991, net revenues were $13.1 billion and $12.3 billion, respectively, and expenses were $12.4 billion and $11.8 billion, respectively. *Adjusted to exclude the gains on the sale of FDC in 1993 and 1992 of $433 million and $425 million, respectively. **Return on average shareholders' equity is based on adjusted income from continuing operations before accounting changes and excludes the effect of SFAS No. 115 in 1995 and 1994. In addition, book value per share excludes the effect of SFAS No. 115 in 1995 and 1994. -52- (1995 Annual Report p. 53) EX-21 6 Exhibit 21 SUBSIDIARIES OF THE REGISTRANT Unless otherwise indicated, all of the voting securities of these subsidiaries are directly or indirectly owned by the registrant. Where the name of the subsidiary is indented, the voting securities of such subsidiary are owned directly by the company under which its name is indented. Certain subsidiaries have been omitted which, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as defined in Rule 1-02(v) of Regulation S-X. Jurisdiction Name of Subsidiary of Incorporation I. American Express Travel Related Services Company, Inc. and its Subsidiaries American Express Travel Related New York Services Company, Inc. Amex Canada, Inc. Canada 1001674 Ontario, Inc. Canada 1001675 Ontario, Inc. Canada Amex Bank of Canada Canada American Express Deposit Corporation Utah American Express Company (Mexico) S.A. de C.V. Mexico American Express Centurion Bank Delaware American Express Centurion Services Corporation Delaware American Express Credit Corporation Delaware American Express Overseas Credit Jersey, Channel Corporation Limited Islands AEOCC Management Company, Ltd. Jersey, Channel Islands American Express Overseas Finance Netherlands Company N.V. Antilles American Express Overseas Credit Netherlands Corporation N.V. Antilles Credco Receivables Corp. Delaware American Express Financial Services Ltd.(50% owned) England & Wales American Express Receivables Financing Corp. Delaware American Express Receivables Financing Corp. II Delaware American Express do Brasil Tempo & Cia, Inc. Delaware American Express do Brasil Servicos Brazil Internacionais, Ltda. (90% owned) American Express do Brazil Brazil Tempo & Cia American Express do Brasil S.A. Brazil Turismo American Express Limited Delaware American Express Argentina, S.A. Argentina American Express (Malaysia) Sdn. Bhd. Malaysia American Express (Thai) Co. Ltd. (77.5% owned) Thailand TRS Card International Inc. Delaware (75% owned, 25% by CFS, Ltd.) American Express de Espana, S.A. Spain American Express Viajes, S.A. Spain Amex Asesores de Seguros, SA Spain American Express International (B) SDN.BHD (Brunei) Brunei (50% owned by American Express International, Inc.) Centurion Finance, Ltd. New Zealand American Express International, Inc. Delaware American Express Hungary KFT Hungary American Express Company A/S Norway American Express Reisebyra A/S Norway AMEX Services, Inc. Delaware American Express Company, S.p.A. Italy American Express Locazioni Italy Finanziarie, Sr1. Amex Broker Assicurativo Srl. (2.5% owned) Italy American Express Int'l A.E. (Greece) Greece American Express Int'l (Taiwan), Inc. Taiwan American Express of Egypt, Ltd. Delaware American Express Carte France, S.A. France AllCard Service GmbH Germany Schenker Rhenus Reisen (51% owned) Germany American Express Bureau de Change S.A. Greece Amex (Middle East) E.C. (50% owned) Bahrain American Express Exposure Management, Ltd. Jersey, Channel Islands American Express Travel Poland Sp.Zo.O Poland American Express Czechoslovakia, Spol.SRO. Czechoslovakia American Express Company A/B Sweden American Express Resebyra A/B Sweden Amex Services Sweden A/B Sweden American Express Services Finland OY Finland Sociedad Internacional de Servicios Panama de Panama, S.A. American Express Voyages Tourisme France Havas Voyages American Express (20% owned) France Amex Sumigin Service Company, Ltd. (40% owned) Japan American Express International Services Limited Russia Amex Marketing Japan Ltd. Delaware American Express Holdings AB Sweden Nyman & Schultz Resebyraer AB Sweden Nyman & Schultz AB (95% owned 5% TMG Sweden Intressenter AB) Nyman & Schultz Grupp och Konferens AB Sweden Resespecialisterna Syd AB (84% owned) Sweden Resespecialisterna Helsingborg AB Sweden (84% owned) Nyman & Schultz Group AB Sweden Book Hotel AB Sweden Forsakringsaktiebolaget Viator Sweden First Card AB Sweden Profil Rejser A/S (30% owned 20% Denmark Resespecialisterna Syd AB) Resespecialisterna Enkoping AB (26% owned) Sweden Resepecialisterne ApS Sweden Scandinavian Express AB Sweden Oy Scandinavian Express Finland AB Sweden -2- Central Hotel AB Sweden Nyman & Schultz Forretningsreiser A/S Norway American Express Insurance Marketing, Inc. Taiwan American Express Publishing Corp. New York Southwest Media Corporation Texas Societe Francaise du Cheque de Voyage, S.A. France (34% owned) Repertoire International, Inc. Delaware Travellers Cheque Associates, Ltd. (54% owned) England & Wales American Express Service Corporation Delaware Bansamex S.A. (50% owned, 50% owned by Banco Spain Santander) American Express Europe, Ltd. Delaware Travel Places (City) Ltd. England & Wales Travel Places (Incentives) Ltd. England & Wales American Express Services Europe Limited England & Wales & Delaware American Express Ireland, Ltd. Ireland American Express Insurance Services, Ltd. England & Wales Amex Services Europe Limited England & Wales American Express Group and Incentive Michigan Services, Inc. (90% owned) American Express TRS, Inc. Florida Cardmember Financial Services, Ltd. Jersey, Channel Islands Holdinsco, Inc. Delaware Integrated Travel Systems, Inc. Texas Epsilon Data Management, Inc. Delaware Epsilon Master Software Corporation Delaware Controlled Airspace Corporation Texas Tour and Incentive Management Corporation Delaware Lifeco Travel Management, Ltd. England & Wales Mark Allan Travel Inc. California American Express (China) Ltd. Utah American Express Special Teams, Inc. South Dakota American Express General Insurance Agency Taiwan American Express Telecom, Inc. Delaware American Express Bank (Mexico), S.A. Mexico II. American Express Financial Corporation and its Subsidiaries American Express Financial Corporation Delaware American Express Financial Advisors Inc. Delaware IDS Real Estate Services, Inc. Delaware IDS Securities Corporation Delaware American Express Trust Company Minnesota American Express Tax and Business Services, Inc. Minnesota IDS International, Inc. Delaware IDS Life Insurance Company Minnesota American Partners Life Insurance Company Arizona IDS Life Insurance Company of New York New York American Enterprise Life Insurance Company Indiana American Centurion Life Assurance Company New York -3- IDS Certificate Company Delaware Investors Syndicate Development Corp. Nevada IDS Fund Management Limited England & Wales IDS Insurance Agency of North Carolina Inc. North Carolina IDS Insurance Agency of Arkansas Inc. Arkansas IDS Insurance Agency of Alabama Inc. Alabama IDS Insurance Agency of New Mexico Inc. New Mexico IDS Insurance Agency of Utah Inc. Utah IDS Insurance Agency of Wyoming Inc. Wyoming American Express Insurance Agency of Nevada Inc. Nevada IDS Insurance Agency of Massachusetts Inc. Massachusetts IDS Advisory Group Inc. Minnesota IDS Capital Holdings Inc. Minnesota IDS Management Corporation Minnesota IDS Partnership Services Corporation Minnesota IDS Cable Corporation Minnesota IDS Futures Corporation Minnesota IDS Realty Corporation Minnesota IDS Futures III Corporation Minnesota IDS Cable II Corporation Minnesota IDS Property Casualty Insurance Company Wisconsin American Express Minnesota Foundation Minnesota IDS Deposit Corp. Utah IDS Sales Support Inc. Minnesota IDS Plan Services of California, Inc. Minnesota American Enterprise Investment Services Inc. Minnesota IDS Aircraft Services Corporation Minnesota III. American Express Bank Ltd. and its Subsidiaries American Express Bank Ltd. Connecticut American Express International Netherlands Finance Corporation B.V. Antilles American Express International Finance Netherlands Corporation N.V. Antilles American Express Management Services Inc. Delaware Amex Human Resources (Japan) Inc. Delaware Amex Holdings, Inc. Delaware American Express Bank GmbH Germany Amex Grundstuecksverwaltung GmbH Germany AEB - International Portfolios Management Company Luxembourg American Express International Development Cayman Islands Company (Cayman) Limited Egyptian American Bank (49% owned) Egypt Guaramex, Inc. Delaware Paramex, Inc. Delaware Amtrade Holdings, Inc. Delaware American Express Bank (Switzerland) S.A. Switzerland Cristal Trust Services S.A.-Geneva Switzerland International Trade Services Pte Ltd. Singapore Amex International Trust (Guernsey) Limited Guernsey January Real Estate Cayman Islands Etoral Finance, Inc. Panama -4- Sociedad Del Desarrollo Mercantil Chile Ltda. (50% owned by each of Amex Holdings, Inc. and Etoral Finance, Inc.) Remor and Associates Inc. Panama American Express Bank Asset Management Jersey, Channel (Jersey) Ltd. Islands Priory Centre Investments Limited (35.7% owned) Guernsey American Express Bank (Luxembourg) S.A. Luxembourg AEB WorldFolio Capital Preservation Management Co. S.A. Luxembourg American Express Bank (Uruguay) S.A. Uruguay Amex International Trust (Cayman) Ltd. Cayman Islands OLP Investments Ltd. Cayman Islands American Express Leasing Corporation Delaware Aires Aircraft Leasing (US), Inc. New York AEB Worldfolio Management Company Luxembourg American Express Bank (France) S.A. France Amex Gestion S.A. France American Express Bank International United States American Express Leasing (UK) Limited England & Wales Bexim International S.A. (45% owned) Panama American Express Nominees Private Limited India The American Express Nominees Limited England & Wales Argentamex S.A. Argentina Amex do Brasil Empreendimentos e Participacoes Ltda. Brazil (57.84% owned, 42.15% AHI, 0.01% Amex International Inc.) Amex Capital Investments (UK) Ltd. England & Wales Logicfull Limited England & Wales Amexnet Limited England & Wales AEB (UK) PLC England & Wales Amex Nominees (S) Pte Ltd. Singapore Amex Bank Nominee Hong Kong Limited Hong Kong First International Investment Bank Ltd. Pakistan (20% owned) American Express (Poland) Ltd. Delaware Geneva Nominees Limited England & Wales Tata Finance Ltd. (3.2% owned) India Purbeck Petroleum Limited (25.1% owned) England & Wales American Express Bank Asset Management (Cayman) Ltd. Cayman Islands Columbus Real Estate Corp. New York American Express Bank S.A. Argentina (56,810,000 shares owned by American Express Bank Ltd., 1 share owned by American Express Limited) IV. Other Subsidiaries of the Registrant Acuma Financial Services Ltd. Delaware Ainwick Corporation Texas Alair Holdings, Incorporated Delaware American Express Asset Management Holdings, Inc. Delaware American Express Corporation Delaware Amexco Insurance Company Vermont Amexco Risk Financing Holding Company Delaware AMEX Assurance Company Illinois -5- Union Bancaire Privee CBI-TDB (20% owned) Switzerland National Express Company, Inc. New York The Balcor Company Holdings, Inc. Delaware Balcor Real Estate Holdings, Inc. Delaware The Balcor Company Delaware Balcor Securities Company Illinois Balcor Development Company Illinois Balcor Institutional Realty Advisors, Inc. Illinois Balcor Financial Resources, Inc. Delaware Balcor Capital Markets, Inc. Illinois Balcor Consulting Group Illinois Balcor Realty Company Illinois Balcor Management Services, Inc. Illinois International Capital Corporation Delaware Intercapital Comercio e Participacoes Ltda. Brazil Conepar Compania Nordestina de Brazil Participacoes S.A. (31.92% owned) Convertible Holding Ltd. Cayman Islands CTH Common Holdings Ltd. Cayman Islands CTH Preferred Holdings Ltd. Cayman Islands Complejos Turisticos Huatulco, Mexico S.A. de C.V. (84% of preferred stock) Acamex Holdings Ltd. Cayman Islands Etisa Holdings Ltd. Cayman Islands Empresas Turisticas Integradas, Mexico S.A. de C.V. (92.35% owned) Asesoria Empresarial ICC, S.A. de C.V. Mexico Floriano Representacoes Ltda. Brazil Rexport, Inc. Delaware Drillamex, Inc. Delaware UMPAWAUG I Corporation Delaware UMPAWAUG II Corporation Delaware UMPAWAUG III Corporation Delaware UMPAWAUG IV Corporation Delaware WGT Leasing Corporation Delaware Daedalus Leasing Corp. New York Dash 200 + Ltd. (50% owned) Cayman Islands Carter Leasing Inc. Delaware Aries Aircraft Leasing Limited Cayman Islands Nora Leasing, Inc. New York Nora 737 Leasing, Inc. New York Gemini Leasing Ltd. Cayman Islands Wings Aircraft Leasing Corp. Belgium AKW Aircraft Leasing Corporation Limited England & Wales Jesem Aviation Corp. New York MME Leasing Corp. New York C Power, Inc. New York Exatco Limited (50% owned) Bermuda Far East Leasing Ltd. Cayman Islands 747-2, Inc. New York -6- EX-27 7
5 This schedule contains summary financial information extracted from the Company's Consolidated Balance Sheet at December 31, 1995 and Consolidated Statement of Income for the year ended December 31, 1995 and is qualified in its entirety by reference to such financial statements. 1,000,000 12-MOS DEC-31-1995 DEC-31-1995 3,200 42,561 20,743 829 0 0 3,546 1,763 107,405 0 25,224 0 200 290 7,730 107,405 0 15,841 0 7,351 1,523 3,542 1,242 2,183 619 1,564 0 0 0 1,564 3.11 0
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