-----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, JyJluHuz/jzfHGz0oi/PuXFbplzuLyERjJvfwzo1yk3D60d2P9HI5yalzmysJujs EQby2Ju/NQm/xj7eUqL6qw== 0000004962-96-000033.txt : 19960910 0000004962-96-000033.hdr.sgml : 19960910 ACCESSION NUMBER: 0000004962-96-000033 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: BSE SROS: CSX SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN EXPRESS CO CENTRAL INDEX KEY: 0000004962 STANDARD INDUSTRIAL CLASSIFICATION: 6199 IRS NUMBER: 134922250 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07657 FILM NUMBER: 96612909 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-Q 1 2ND QTR AMEX 10Q 1996 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 1996 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 number 1-7657 AMERICAN EXPRESS COMPANY ------------------------ (Exact name of registrant as specified in its charter) New York State 13-4922250 -------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) World Financial Center, 200 Vesey Street, New York, NY 10285 - - --------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 640-2000 ------------------ None - - --------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at July 31, 1996 - - -------------------------------------- ---------------------------- Common Shares (par value $.60 per share) 474,349,411 shares AMERICAN EXPRESS COMPANY FORM 10-Q INDEX Part I. Financial Information: Consolidated Statement of Income--Three and 1-2 six months ended June 30, 1996 and 1995 Consolidated Balance Sheet--June 30, 1996 and 3 December 31, 1995 Consolidated Statement of Cash Flows--Six 4 months ended June 30, 1996 and 1995 Notes to Consolidated Financial Statements 5 Management's Discussion and Analysis of 6-16 Financial Condition and Results of Operations Review Report of Independent Accountants 17 Part II. Other Information 18 PART I--FINANCIAL INFORMATION AMERICAN EXPRESS COMPANY CONSOLIDATED STATEMENT OF INCOME (dollars in millions, except per share amounts) (Unaudited) Three Months Ended June 30, ------------------------- 1996 1995 Net Revenues: ---------- --------- Discount revenue $ 1,247 $ 1,112 Interest and dividends, net 844 883 Net card fees 414 436 Travel commissions and fees 329 320 Other commissions and fees 308 321 Management and distribution fees 296 227 Cardmember lending net finance charge revenue 249 252 Life insurance premiums 99 209 Other 258 207 ---------- --------- Total 4,044 3,967 ---------- --------- Expenses: Human resources 1,052 1,006 Provisions for losses and benefits: Annuities and investment certificates 346 347 Life insurance 115 202 Charge card 248 199 Cardmember lending 126 126 Other 16 15 Interest: Charge card 171 170 Other 138 149 Occupancy and equipment 299 268 Marketing and promotion 262 260 Professional services 195 202 Communications 108 101 Other 332 350 ---------- ---------- Total 3,408 3,395 ---------- ---------- Pretax income 636 572 Income tax provision 184 162 ---------- ---------- Net income $ 452 $ 410 ========== ========== Net income per common share $ 0.93 $ 0.81 ========== ========== Average common and common equivalent shares outstanding 487.0 499.3 ========== ========== Cash dividends declared per common share $ 0.225 $ 0.225 ========== ========== See notes to Consolidated Financial Statements. 1 AMERICAN EXPRESS COMPANY CONSOLIDATED STATEMENT OF INCOME (dollars in millions, except per share amounts) (Unaudited) Six Months Ended June 30, --------------------- 1996 1995 Net Revenues: -------- --------- Discount revenue $ 2,388 $ 2,130 Interest and dividends, net 1,682 1,746 Net card fees 835 872 Travel commissions and fees 627 615 Other commissions and fees 615 636 Management and distribution fees 576 432 Cardmember lending net finance charge revenue 524 488 Life insurance premiums 196 416 Other 483 403 --------- --------- Total 7,926 7,738 --------- --------- Expenses: Human resources 2,074 1,990 Provisions for losses and benefits: Annuities and investment certificates 696 679 Life insurance 237 398 Charge card 458 364 Cardmember lending 314 232 Other 32 28 Interest: Charge card 338 326 Other 262 296 Occupancy and equipment 587 536 Marketing and promotion 469 494 Professional services 397 376 Communications 210 200 Other 652 749 --------- --------- Total 6,726 6,668 --------- --------- Pretax income 1,200 1,070 Income tax provision 351 307 --------- --------- Net income $ 849 $ 763 ========= ========= Net income per common share $ 1.73 $ 1.51 ========= ========= Average common and common equivalent shares outstanding 489.0 500.6 ========= ========= Cash dividends declared per common share $ 0.450 $ 0.450 ========= ========= See notes to Consolidated Financial Statements. 2 AMERICAN EXPRESS COMPANY CONSOLIDATED BALANCE SHEET (millions) (Unaudited) June 30, December 31, Assets 1996 1995 - - ------- ----------- ----------- Cash and cash equivalents $ 4,970 $ 3,200 Accounts receivable and accrued interest: Cardmember receivables, less reserves: 1996, $787; 1995, $753 17,214 17,154 Other receivables, less reserves: 1996, $45; 1995, $76 2,163 2,760 Investments 41,123 42,561 Loans: Cardmember lending, less reserves: 1996, $455; 1995, $489 9,830 10,268 International banking, less reserves: 1996, $113; 1995, $111 5,361 5,317 Other, net 495 506 Separate account assets 16,713 14,974 Deferred acquisition costs 2,440 2,262 Land, buildings and equipment--at cost, less accumulated depreciation: 1996, $1,794; 1995, $1,763 1,766 1,783 Other assets 5,572 6,620 ---------- ---------- Total assets $107,647 $107,405 ========== ========== Liabilities and Shareholders' Equity - - ------------------------------------ Customers' deposits and credit balances $ 8,570 $ 9,889 Travelers Cheques outstanding 6,603 5,697 Accounts payable 4,607 4,686 Insurance and annuity reserves: Fixed annuities 21,400 21,405 Life and disability policies 3,840 3,752 Investment certificate reserves 3,140 3,606 Short-term debt 16,593 17,654 Long-term debt 8,391 7,570 Separate account liabilities 16,713 14,974 Other liabilities 9,835 9,952 ---------- --------- Total liabilities 99,692 99,185 Shareholders' equity: Preferred shares, $1.66 2/3 par value, authorized 20 million shares Convertible Exchangeable Preferred shares, issued and outstanding 4 million shares at December 31, 1995, stated at liquidation value - 200 Common shares, $.60 par value, authorized 1.2 billion shares; issued and outstanding 476.6 million shares in 1996 and 483.1 million shares in 1995 286 290 Capital surplus 3,880 3,781 Net unrealized securities gains 533 875 Foreign currency translation adjustment (92) (85) Retained earnings 3,348 3,159 ----------- --------- Total shareholders' equity 7,955 8,220 ----------- --------- Total liabilities and shareholders' equity $107,647 $107,405 =========== ============ See notes to Consolidated Financial Statements. 3 AMERICAN EXPRESS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The consolidated financial statements should be read in conjunction with the financial statements presented in the Annual Report on Form 10-K of American Express Company (the Company or American Express) for the year ended December 31, 1995. Certain prior year's amounts have been reclassified to conform to the current year's presentation. Significant accounting policies disclosed therein have not changed. The consolidated financial statements are unaudited; however, in the opinion of management, they include all normal recurring adjustments necessary for a fair presentation of the consolidated financial position of the Company at June 30, 1996 and December 31, 1995, the consolidated results of its operations for the three and six months ended June 30, 1996 and 1995 and cash flows for the six months ended June 30, 1996 and 1995. Results of operations reported for interim periods are not necessarily indicative of results for the entire year. 2. Cardmember Lending Net Finance Charge Revenue is presented net of interest expense of $122 million and $124 million for the three months ended June 30, 1996 and 1995, respectively, and $251 million and $242 million for the six months ended June 30, 1996 and 1995, respectively. Interest and Dividends is presented net of interest expense of $135 million and $152 million for the three months ended June 30, 1996 and 1995, respectively, and $269 million and $309 million for the six months ended June 30, 1996 and 1995, respectively, related to the Company's international banking operations. 3. The following is a summary of investments: June 30, December 31, (In millions) 1996 1995 ---------- ----------- Held to Maturity, at amortized cost (fair value: 1996, $16,362; 1995, $17,549) $16,198 $16,790 Available for Sale, at fair value (cost: 1996, $19,497; 1995, $20,452) 21,158 22,435 Investment mortgage loans (fair value: 1996, $3,563; 1995, $3,434) 3,539 3,180 Trading 228 156 ----------- ----------- $41,123 $42,561 =========== =========== 4. Net income taxes paid during the six months ended June 30, 1996 and 1995 were approximately $234 million and $284 million, respectively. Interest paid during the six months ended June 30, 1996 and 1995 was approximately $1.2 billion and $1.3 billion, respectively. 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Consolidated Results Of Operations For The Three and Six Months Ended June 30, 1996 and 1995 The Company's consolidated net income increased 10 percent and 11 percent in the second quarter and first half of 1996, respectively, compared with a year ago. Net income per share in both the second quarter and first half of 1996 increased 15 percent. The growth in earnings per share reflected revenue growth, improved margins and a reduction in average shares outstanding. Excluding the revenues of AMEX Life Assurance Company (AMEX Life), a subsidiary that was sold in October 1995, consolidated revenues increased 6 percent in both the second quarter and first half of 1996, compared with last year. Proceeds from this sale are being used to partially fund the Company's share repurchase program which is discussed below. Consolidated Liquidity and Capital Resources 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 maintain the number of outstanding common shares and common share equivalents below 500 million and to offset issuances of common shares in connection with the Company's employee compensation plans. The average number of outstanding common shares and common share equivalents was 487 million and 499 million for the quarter ended June 30, 1996 and 1995, respectively, and 489 million and 501 million for the six months ended June 30, 1996 and 1995, respectively. Since inception of the initial repurchase plan in 1994, the Company has repurchased 56.2 million shares under the repurchase programs at an average price of $38.01 per share through July 31, 1996. During the first six months of 1996, 2.3 million put options issued in connection with the share repurchase programs expired unexercised. At June 30, 1996, the Company had a total of 1.0 million put options outstanding with a weighted average strike price of $41.74 per share. On May 6, 1996, after receiving a redemption notice from the Company, Nippon Life Insurance Company converted all of its four million $3.875 Convertible Exchangeable Preferred shares into 4,705,882 of the Company's common shares. The increase in outstanding common shares was offset by the elimination of the preferred dividend. As a result, there was no impact on earnings per common share. 6 Travel Related Services Results of Operations For The Three and Six Months Ended June 30, 1996 and 1995
Statement of Income ------------------- (Unaudited) (Dollars in millions) Three Months Ended Six Months Ended June 30, Percentage June 30, Percentage ------------ ----------- 1996 1995 Inc/(Dec) 1996 1995 Inc/(Dec) ------------------------ --------------------------- Net Revenues: Discount Revenue $1,247 $1,112 12.2% $2,388 $2,130 12.1% Net Card Fees 414 436 (5.1) 835 872 (4.3) Travel Commissions and Fees 329 320 3.0 627 615 1.9 Interest and Dividends 211 256 (17.6) 401 499 (19.6) Other Revenues 451 526 (14.4) 876 1,039 (15.8) ---------------- --------------- 2,652 2,650 0.1 5,127 5,155 (0.6) ---------------- --------------- Lending: Finance Charge Revenue 371 376 (1.3) 775 730 6.3 Interest Expense 122 124 (1.2) 251 242 3.9 ---------------- --------------- Net Finance Charge Revenue 249 252 (1.4) 524 488 7.5 ---------------- --------------- Total Net Revenues 2,901 2,902 (0.1) 5,651 5,643 0.1 ---------------- --------------- Expenses: Marketing and Promotion 252 250 0.6 452 480 (5.8) Provision for Losses and Claims: Charge Card 248 199 24.5 458 364 25.9 Lending 126 126 0.2 314 232 35.7 Other 26 124 (79.0) 50 246 (79.5) ---------------- --------------- Total 400 449 (10.9) 822 842 (2.2) ---------------- --------------- Interest Expense: Charge Card 171 170 0.6 338 326 3.6 Other 114 114 0.3 210 224 (6.2) ---------------- --------------- Total 285 284 0.5 548 550 (0.4) Net Discount Expense 125 107 16.7 251 207 21.2 Human Resources 721 705 2.3 1,426 1,398 2.0 Other Operating Expenses 659 684 (3.8) 1,277 1,366 (6.6) ---------------- --------------- Total Expenses 2,442 2,479 (1.5) 4,776 4,843 (1.4) ---------------- --------------- Pretax Income 459 423 8.4 875 800 9.3 Income Tax Provision 137 125 9.3 266 238 11.7 ---------------- --------------- Net Income $322 $298 8.1 $609 $562 8.3 ================ ===============
The impact on the Statement of Income related to TRS' securitized receivables and loans was as follows: Increase Other Revenues $42 $20 $73 $42 Decrease Lending Finance Charge Revenue (32) - (32) - Decrease Lending Interest Expense 8 - 8 - Decrease Provision for Losses and Claims: Charge Card 54 46 108 83 Lending 12 - 12 - Decrease Interest Expense - Charge Card 41 41 82 82 Increase Net Discount Expense (125) (107) (251) (207) ---------------- ---------------- Pretax Income $0 $0 $0 $0 ================ ================ 7 Travel Related Services
Selected Statistical Information -------------------------------- (Unaudited) (Amounts in billions, except percentages and where indicated) Three Months Ended Six Months Ended June 30, Percentage June 30, Percentage --------- --------- 1996 1995 Inc/(Dec) 1996 1995 Inc/(Dec) ----------------------- -------------------------- Total Cards in Force (millions): United States 27.5 25.7 7.1% 27.5 25.7 7.1% Outside the United States* 11.8 11.5 2.2 11.8 11.5 2.2 ------------- -------------- Total 39.3 37.2 5.6 39.3 37.2 5.6 ============= ============== Basic Cards in Force (millions): United States 20.9 19.1 9.5 20.9 19.1 9.5 Outside the United States* 9.3 9.1 2.5 9.3 9.1 2.5 ------------- -------------- Total 30.2 28.2 7.3 30.2 28.2 7.3 ============= ============== Card Billed Business: United States $32.6 $28.7 13.7 $62.2 $54.7 13.7 Outside the United States* 13.2 11.9 10.7 25.1 22.8 10.1 ------------- -------------- Total $45.8 $40.6 12.8 $87.3 $77.5 12.6 ============= ============== Travelers Cheque Sales $6.7 $6.9 (2.3) $12.0 $12.2 (2.1) Average Travelers Cheques Outstanding $6.1 $6.1 (1.0) $5.9 $5.8 2.6 Travel Sales $4.0 $4.0 2.3 $7.6 $7.4 3.9
* Both years include Cards issued by strategic alliance partners and independent operators as well as business billed on those Cards. 8 Travel Related Services' (TRS) 1995 results included income from AMEX Life. Excluding AMEX Life results from the three and six month periods of 1995, TRS' net income grew approximately 12 percent and 13 percent, respectively, revenues increased approximately 5 percent and 6 percent, respectively, and expenses were up approximately 4 percent in both periods. For the three and six months ended June 30, 1996, net revenues reflected an increase in worldwide billed business on American Express Cards and growth in Cardmember loans outstanding. The increase in billed business resulted from higher spending per Cardmember, due in part to the benefits of rewards programs and increased merchant coverage, as well as growth in the number of Cards outstanding. These increases were partially offset by a decrease in net Card fees reflecting TRS' strategy of growing its lending portfolio through the issuance of low- and no-fee credit cards. The decline in lending net finance charge revenue in the second quarter reflects the impact of the $1 billion asset securitization completed in the second quarter of 1996 (see TRS' Liquidity and Capital Resources discussion). Excluding the impact of the asset securitization, lending net finance charge revenue increased in the second quarter. The increase in both periods reflects higher average loan balances, partly offset by lower net interest spreads due to introductory interest rates on new products. Interest and dividends and other revenues declined primarily reflecting the sale of AMEX Life. The Charge Card provision for losses increased primarily reflecting volume growth. Excluding the impact of the asset securitization in 1996, the lending provision for losses increased in the second quarter. The increase in both periods reflects higher loss rates. The other provision for losses declined reflecting the sale of AMEX Life. 9 Travel Related Services Liquidity and Capital Resources Selected Balance Sheet Information ---------------------------------- (Unaudited)
(Dollars in billions) June 30, December 31, Percentage June 30, Percentage 1996 1995 Inc/(Dec) 1995 Inc/(Dec) ------------------------------------------------------ Accounts Receivable, net $18.3 $18.9 (3.0%) $17.1 7.1% Cardmember Loans, net $9.8 $10.3 (4.3) $9.0 9.5 Owned and Managed Cardmember Receivables (excluding Revolving Card Products): Total Cardmember Receivables $20.6 $20.5 0.5 $17.9 14.9 90 Days Past Due as a % of Total Cardmember Receivables 3.7% 3.5% - 3.6% - Total Loss Reserves $1.1 $1.0 10.7 $0.9 17.6 % of Cardmember Receivables 5.1% 4.6% - 5.0% - % of 90 Days Past Due 138% 131% - 140% - Cardmember Receivables Loss Ratio, Net of Recoveries 0.5% 0.5% - 0.5% - Owned and Managed U.S. Cardmember Lending (including Revolving Card Products): Total Cardmember Loans $10.5 $10.0 5.5 $8.6 21.4 30 Days Past Due as a % of Total Cardmember Loans 3.2% 3.8% - 3.6% - Total Loss Reserves $0.5 $0.4 5.6 $0.4 22.2 % of Cardmember Loans 4.5% 4.5% - 4.4% - % of 30 Days Past Due 135% 116% - 123% - Write-Off Rates 5.2% 4.4% - 4.3% - Investments $9.0 $9.2 (1.6) $11.5 (21.6) Total Assets $44.3 $45.2 (1.9) $45.3 (2.2) Travelers Cheques Outstanding $6.6 $5.7 15.9 $6.7 (0.8) Short-term Debt $16.7 $17.9 (7.1) $15.8 5.6 Long-term Debt $5.2 $4.4 18.7 $3.5 48.2 Total Liabilities $39.4 $40.3 (2.2) $40.7 (3.2) Total Shareholder's Equity $4.9 $4.9 0.4 $4.6 6.4 Return on Average Equity 24.8% 24.6% - 24.5% -
TRS' total assets declined from year end due to a decline in accounts receivable and a decline in Cardmember loans reflecting the $1 billion asset securitization discussed below which was completed in the second quarter. American Express Centurion Bank (Centurion Bank) and American Express Receivables Financing Corporation II, a newly formed wholly-owned subsidiary of TRS, created a new trust, the American Express Credit Account Master Trust (the Trust), for the securitization of revolving credit loans. On May 16, 1996, the Trust securitized $1 billion of loans through the issuance of two classes of investor certificates and a collateral interest. The securitized assets consist of loans arising in a portfolio of designated Optima Card, Optima Line of Credit and Sign & Travel revolving credit accounts owned by Centurion Bank. 10 American Express Financial Advisors Results of Operations For The Three and Six Months Ended June 30, 1996 and 1995
Statement of Income ------------------- (Unaudited) (Dollars in millions, except where indicated) Three Months Ended Six Months Ended June 30, Percentage June 30, Percentage --------- --------- 1996 1995 Inc/(Dec) 1996 1995 Inc/(Dec) -------------------------------------------------- Revenues: Investment Income $562 $549 2.4% $1,131 $1,084 4.3% Management and Distribution Fees 296 227 30.8 576 432 33.2 Other Income 159 135 17.4 313 269 16.7 ------------- ------------ Total Revenues 1,017 911 11.7 2,020 1,785 13.2 ------------- ------------ Expenses: Provision for Losses and Benefits: Annuities 298 290 2.7 595 562 5.8 Insurance 102 103 (1.1) 210 197 6.6 Investment Certificates 48 46 3.6 101 96 6.1 ------------ ------------ Total 448 439 1.9 906 855 6.0 Human Resources 252 216 16.2 498 424 17.5 Other Operating Expenses 86 64 36.6 188 150 24.9 ------------ ------------ Total Expenses 786 719 9.3 1,592 1,429 11.4 ------------ ------------- Pretax Income 231 192 20.6 428 356 20.3 Income Tax Provision 78 63 24.8 145 120 21.5 ------------ ------------ Net Income $153 $129 18.6 $283 $236 19.7 ============ ============ Selected Statistical Information ------------------------------- Life Insurance in Force (billions) $63.0 $55.9 12.7 $63.0 $55.9 12.7 ============= ============== Assets Owned and/or Managed (billions): Assets managed for institutions $34.8 $33.1 5.4 $34.8 $33.1 5.4 Assets owned and managed for individuals: Owned Assets 49.7 45.0 10.5 49.7 45.0 10.5 Managed Assets 54.0 43.3 24.3 54.0 43.3 24.3 ------------- ------------- Total $138.5 $121.4 14.0 $138.5 $121.4 14.0 ============= ============== Sales of Selected Products: Mutual Funds $3,762 $2,364 59.1 $7,332 $4,652 57.6 Annuities $1,125 $961 17.0 $2,279 $2,057 10.8 Investment Certificates $186 $604 (69.3) $322 $1,016 (68.4) Life and Other Insurance Sales $113 $96 17.8 $209 $179 16.4 Number of Financial Advisors 7,997 7,918 1.0 7,997 7,918 1.0 Fees From Financial Plans (thousands) $11,584 $9,625 20.4 $23,207 $20,044 15.8 Product Sales Generated from Financial Plans as a Percentage of Total Sales 62.9% 64.1% - 63.0% 63.8% -
11 During the three and six months ended June 30, 1996, the increase in American Express Financial Advisors' investment income reflected higher average asset levels, partly offset by lower investment yields compared with the year-ago periods. Management and distribution fees increased reflecting increased management fees earned on a higher asset base and increased distribution fees attributable to higher mutual fund sales. The growth in managed assets reflects market appreciation and, to a lesser extent, positive net sales. Other income increased primarily due to higher life insurance contract charges and premiums. The provision for annuity benefits increased reflecting higher annuities in force, partly offset by lower accrual rates. The provision for insurance benefits reflects higher life insurance in force, partially offset by lower accrual rates. The provision for investment certificates increased reflecting higher average investment certificates in force and, in the six month period, higher accrual rates. The increase in human resources expense reflected higher financial advisors' compensation reflecting higher commissionable sales and, to a lesser extent, an increase in the number of employees compared with last year. Other operating expenses increased primarily reflecting higher amortization of deferred acquisition costs and higher data processing costs. The increase in other operating expenses in the six month period also reflected a higher provision for insurance industry guarantee association assessments. 12 American Express Financial Advisors Liquidity and Capital Resources Selected Balance Sheet Information ------------------------------------ (Unaudited) (Dollars in billions) June 30, December 31, Percentage June 30, Percentage 1996 1995 Inc/(Dec) 1995 Inc/(Dec) -------------------------------------------------------- Investments $27.9 $28.8 (3.0%) $27.9 - Separate Account Assets $16.7 $15.0 11.6 $13.0 28.9% Total Assets $49.7 $48.3 3.0 $45.0 10.5 Reserves for Losses and Benefits $28.3 $28.6 (1.3) $27.3 3.7 Total Liabilities $46.8 $45.2 3.6 $42.2 10.8 Total Shareholder's Equity $2.9 $3.1 (4.6) $2.8 6.2 Return on Average Equity 19.9% 19.4% - 19.0% - American Express Financial Advisors' total assets increased from year end primarily reflecting an increase in separate account assets due to market appreciation and positive net sales. The declines in investments and total shareholder's equity from year end reflect a lower level of unrealized securities gains due to a decline in market value reflecting an increase in market interest rates. 13 American Express Bank Results of Operations For The Three and Six Months Ended June 30, 1996 and 1995
Statement of Income ------------------- (Unaudited) (Dollars in millions) Three Months Ended Six Months Ended June 30, Percentage June 30, Percentage --------- --------- 1996 1995 Inc/(Dec) 1996 1995 Inc/(Dec) --------------------- --------------------- Net Revenues: Interest Income $207 $233 (11.1%) $418 $472 (11.5%) Interest Expense 135 152 (11.2) 269 309 (13.1) ----------- ------------- Net Interest Income 72 81 (11.0) 149 163 (8.3) Commissions, Fees and Other Revenues 48 61 (22.8) 96 120 (20.3) Foreign Exchange Income 20 21 (3.2) 40 40 (0.1) ----------- ------------- Total Net Revenues 140 163 (14.4) 285 323 (11.8) ----------- ------------- Provision for Credit Losses 4 1 # 8 4 88.5 ----------- ------------- Expenses: Human Resources 54 65 (17.2) 110 129 (14.9) Other Operating Expenses 60 69 (14.2) 116 140 (17.2) ------------ ------------- Total Expenses 114 134 (15.6) 226 269 (16.1) ------------ ------------- Pretax Income 22 28 (21.1) 51 50 2.7 Income Tax Provision 8 9 (12.4) 18 15 17.8 ------------ ------------- Net Income $14 $19 (25.1) $33 $35 (4.0) ============ =============
# Denotes variance of more than 100%. The decline in American Express Bank's (the Bank) earnings for the three and six months ended June 30, 1996 reflects lower revenues, partly offset by expense savings. These results reflect the impact of the Bank's continued efforts to focus on strategic markets and eliminate low return activities, as well as the impact of cost reduction initiatives. Net interest income declined reflecting balance sheet reduction and higher short-term funding costs. The declines in commissions, fees and other revenues and other operating expenses primarily reflected the impact of exiting nonstrategic businesses, including the transfer of certain aircraft assets to the Bank's parent, American Express Company, in January 1996. 14 American Express Bank Liquidity and Capital Resources Selected Balance Sheet Information ---------------------------------- (Unaudited) (Dollars in billions, except where indicated) June 30, December 31, Percentage June 30, Percentage 1996 1995 Inc/(Dec) 1995 Inc/(Dec) ------------------------------------------------------- Investments $2.1 $2.5 (17.0%) $2.9 (26.8%) Total Loans $5.5 $5.4 0.9 $5.4 0.8 Reserve for Credit Losses (millions) $113 $111 2.5 $115 (1.4) Reserves as a Percentage of Total Loans 2.1% 2.0% - 2.1% - Total Nonperforming Loans (millions) $38 $34 13.6 $32 19.3 Other Real Estate Owned (millions) $48 $44 8.7 $53 (9.9) Total Assets $11.5 $12.3 (6.7) $13.0 (11.8) Deposits $7.8 $8.5 (7.5) $8.9 (11.8) Total Liabilities $10.7 $11.5 (6.5) $12.2 (12.2) Total Shareholder's Equity (millions) $755 $837 (9.8) $798 (5.4) Risk-Based Capital Ratios: Tier 1 9.1% 8.9% - 8.3% - Total 12.9% 13.0% - 15.8% - Leverage Ratio 5.8% 5.8% - 5.2% - Return on Average Assets* 0.57% 0.59% - 0.52% - Return on Average Common Equity* 9.20% 9.99% - 9.02% - * For the year-to-date period The Bank's total assets declined from year end reflecting a decline in investments due to a lower level of client deposits. 15 Corporate and Other Corporate and Other reported second quarter 1996 net expenses of $37 million, compared with net expenses of $36 million a year ago. The 1995 second quarter included a gain from the sale of common stock and warrants of Mellon Bank Corporation, which was offset by expenses related to certain business building initiatives. Corporate and Other reported net expenses of $76 million in the first six months of 1996, compared with $70 million last year. Results for the first half of 1996 and 1995 include the Company's share of the Travelers Inc. revenue participation in accordance with an agreement related to the 1993 sale of the Shearson Lehman Brothers Division, which was offset by expenses related to certain business building initiatives. 16 INDEPENDENT ACCOUNTANTS REVIEW REPORT The Shareholders and Board of Directors American Express Company We have reviewed the accompanying consolidated balance sheet of American Express Company (the "Company") as of June 30, 1996 the related consolidated statements of income for the three month and six month periods ended June 30, 1996 and 1995, and the consolidated statement of cash flows for the six month periods ended June 30, 1996 and 1995. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, which will be performed for the full year with the objective of expressing an opinion regarding the consolidated financial statements taken as a whole. Accordingly, we do not express such an opinion. Based our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of the Company as of December 31, 1995, and the related consolidated statements of income, shareholders' equity, and cash flows for the year then ended (not presented herein), and in our report dated February 8, 1996, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1995 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/Ernst & Young LLP New York, New York August 12, 1996 17 PART II. OTHER INFORMATION AMERICAN EXPRESS COMPANY Item 1. Legal Proceedings SAFRA-RELATED ACTIONS The parties have agreed to settle the consolidated action, entitled Seinfeld, et ano., v. Robinson, et. al., subject to court approval after a hearing scheduled for November 14, 1996. The proposed settlement does not provide for monetary damages. As part of the settlement the Company will implement certain procedures with respect to retention of outside consultants. This consolidated action was previously reported in the registrant's Annual Report on Form 10-K for the year ended December 31, 1995. FCH-RELATED ACTIONS In June 1996 the United States District Court for the Central District of California approved settlement of a class action and a shareholder derivative action brought against the Company and certain of its officers and directors arising out of the investment by Shearson Lehman, then a subsidiary of the Company, in First Capital Holdings Corp. The settlement amount, including fees and expenses, is the responsibility of Lehman Brothers. These actions were previously reported in the registrant's Annual Report on Form 10-K for the year ended December 31, 1995. Item 4. Submission of Matters to a Vote of Securities Holders For information relating to the matters voted upon at the registrant's annual meeting for shareholders held on April 22, 1996, see Item 4 on page 17 of the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, which is incorporated herein by reference. Item 5. Other Information On August 12, 1996, the Company announced the appointment of Richard Goeltz as vice chairman and chief financial officer. Mr. Goeltz will also be a member of the Company's Office of the Chief Executive. Mr. Goeltz will join the Company on September 3, 1996, from NatWest Group in London, where he is group chief financial officer and member of the Board of Directors. Prior to joining NatWest, Mr. Goeltz was executive vice president and chief financial officer of Joseph E. Seagram & Sons, Inc. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits See Exhibit Index on page E-1 hereof. (b) Reports on Form 8-K: Form 8-K, dated April 18, 1996, Item 5, relating to the registrant's earnings for the quarter ended March 31, 1996. Form 8-K, dated April 24, 1996, Item 5, relating to the resignation of the registrant's Chief Financial Officer. Form 8-K, dated July 22, 1996, Item 5, relating to the registrant's earnings for the quarter ended June 30, 1996. 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICAN EXPRESS COMPANY (Registrant) Date: August 14, 1996 By /s/ Daniel T. Henry --------------------- ----------------------- Daniel T. Henry Senior Vice President and Comptroller (Duly Authorized Officer and Chief Accounting Officer) EXHIBIT INDEX The following exhibits are filed as part of this Quarterly Report: Exhibit Description 12 Computation in Support of Ratio of Earnings to Fixed Charges. 15 Letter re Unaudited Interim Financial Information. 27 Financial Data Schedule. E-1 EX-12 2 EXHIBIT 12 AMERICAN EXPRESS COMPANY COMPUTATION IN SUPPORT OF RATIO OF EARNINGS TO FIXED CHARGES (Dollars in millions) Six Months Years Ended December 31, Ended June 30, ----------------------------------- 1996 (Unaudited) 1995 1994 1993 1992 1991 --------- ---- ---- ---- ---- ---- Earnings: Pretax income from continuing operations $1,200 $2,183 $1,891 $2,326 $ 896 $ 622 Interest expense 1,120 2,343 1,925 1,776 2,171 2,761 Other adjustments 64 95 103 88 196 142 ------ ------ ------ ------ ------ ------ Total earnings (a) $2,384 $4,621 $3,919 $4,190 $3,263 $3,525 ------ ------ ------ ------ ------ ------ Fixed charges: Interest expense $1,120 $2,343 $1,925 $1,776 $2,171 $2,761 Other adjustments 65 135 142 130 154 147 ------ ------ ------ ------ ------ ------ Total fixed charges (b) $1,185 $2,478 $2,067 $1,906 $2,325 $ 2,908 ------ ------ ------ ------ ------ ------ Ratio of earnings to fixed charges (a/b) 2.01 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 under the equity method 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 under the equity method. 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. EX-15 3 Exhibit 15 August 14, 1996 The Shareholders and Board of Directors American Express Company We are aware of the incorporation by reference in the 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) of American Express Company of our report dated August 12, 1996 relating to the unaudited consolidated interim financial statements of American Express Company which are included in its Form 10-Q for the three-month and six-month periods ended June 30, 1996. Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not a part of the registration statement prepared or certified by accountants within the meaning of Section 7 or 11 of the Securities Act of 1933. /s/Ernst & Young LLP New York, New York EX-27 4
5 This schedule contains summary financial information extracted from the Company's Consolidated Balance Sheet at June 30, 1996 and Consolidated Statement of Income for the six months ended June 30, 1996 and is qualified in its entirety by reference to such financial statements. 1,000,000 6-MOS DEC-31-1996 JUN-30-1996 4,970 41,123 20,209 832 0 0 3,560 1,794 107,647 0 24,984 0 0 286 7,669 107,647 0 7,926 0 3,737 652 1,737 600 1,200 351 849 0 0 0 849 1.73 0
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