-----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, DXdqI09zkhJzpEXhezhFMdxk0CwzTp2wsObvz1R6uxrsZfyvrgFgzA1mi3NSVrWf ehVzb/t/Q/dqcQc3eoIuuQ== 0000004962-97-000021.txt : 19970520 0000004962-97-000021.hdr.sgml : 19970520 ACCESSION NUMBER: 0000004962-97-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: BSE SROS: CSX SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN EXPRESS CO CENTRAL INDEX KEY: 0000004962 STANDARD INDUSTRIAL CLASSIFICATION: FINANCE SERVICES [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: 97608290 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: 2126402000 MAIL ADDRESS: STREET 1: AMERICAN EXPRESS TOWER STREET 2: 200 VESEY ST 49TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10285 10-Q 1 1ST QTR 1997 AMERICAN EXPRESS COMPANY 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 1997 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 April 30, 1997 - --------------------------------- ------------------------------- Common Shares (par value $.60 per share) 470,989,424 shares AMERICAN EXPRESS COMPANY FORM 10-Q INDEX Part I. Financial Information: Consolidated Statement of Income--Three 1 months ended March 31, 1997 and 1996 Consolidated Balance Sheet--March 31, 2 1997 and December 31, 1996 Consolidated Statement of Cash Flows--Three 3 months ended March 31, 1997 and 1996 Notes to Consolidated Financial Statements 4 Management's Discussion and Analysis of 5-15 Financial Condition and Results of Operations Review Report of Independent Accountants 16 Part II. Other Information 17 PART I--FINANCIAL INFORMATION AMERICAN EXPRESS COMPANY CONSOLIDATED STATEMENT OF INCOME (dollars in millions, except per share amounts) (Unaudited) Three Months Ended March 31, -------------------------- 1997 1996 -------- -------- Net Revenues: Discount revenue $1,306 $1,141 Interest and dividends, net 776 838 Net card fees 405 421 Travel commissions and fees 336 325 Other commissions and fees 345 305 Cardmember lending net finance charge revenue 288 275 Management and distribution fees 331 279 Life insurance premiums 106 97 Other 271 228 ------ ------ Total 4,164 3,909 ------ ------ Expenses: Human resources 1,127 1,022 Provisions for losses and benefits: Annuities and investment certificates 347 351 Life insurance and other 132 137 Charge card 190 210 Cardmember lending 211 188 Interest: Charge card 169 167 Other 26 124 Occupancy and equipment 272 288 Marketing and promotion 214 207 Professional services 214 202 Communications 112 102 Other 510 346 ------ ------ Total 3,524 3,344 ------ ------ Pretax income 640 565 Income tax provision 186 169 ------ ------ Net income $ 454 $ 396 ====== ====== Net income per common share $ 0.94 $ 0.80 ====== ====== Average common and common equivalent shares outstanding 482.1 490.6 ====== ====== Cash dividends declared per common share $0.225 $0.225 ====== ====== See notes to Consolidated Financial Statements. 1 AMERICAN EXPRESS COMPANY CONSOLIDATED BALANCE SHEET (millions) (Unaudited) March 31, December 31, 1997 1996 --------------- ------------- Assets - ------ Cash and cash equivalents $ 3,170 $ 2,677 Accounts receivable and accrued interest: Cardmember receivables, less reserves: 1997, $642; 1996, $658 16,732 17,938 Other receivables, less reserves: 1997, $73; 1996, $64 2,432 2,553 Investments 38,140 38,339 Loans: Cardmember lending, less reserves: 1997, $545; 1996, $482 12,368 12,194 International banking, less reserves: 1997, $131; 1996, $117 5,951 5,760 Other, net 863 564 Separate account assets 18,413 18,535 Deferred acquisition costs 2,728 2,660 Land, buildings and equipment--at cost, less accumulated depreciation: 1997, $1,874; 1996, $1,852 1,568 1,675 Other assets 5,740 5,617 -------- -------- Total assets $108,105 $108,512 ======== ======== Liabilities and Shareholders' Equity - ------------------------------------ Customers' deposits $ 10,603 $ 9,555 Travelers Cheques outstanding 5,766 5,838 Accounts payable 4,909 4,601 Insurance and annuity reserves: Fixed annuities 21,926 21,838 Life and disability policies 3,891 3,836 Investment certificate reserves 3,296 3,265 Short-term debt 17,324 18,402 Long-term debt 6,331 6,552 Separate account liabilities 18,413 18,535 Other liabilities 7,264 7,562 -------- -------- Total liabilities 99,723 99,984 Shareholders' equity: Common shares, $.60 par value, authorized 1.2 billion shares; issued and outstanding 470.9 million shares in 1997 and 472.9 million shares in 1996 283 284 Capital surplus 4,219 4,191 Net unrealized securities gains 172 386 Foreign currency translation adjustment (88) (89) Retained earnings 3,796 3,756 -------- -------- Total shareholders' equity 8,382 8,528 -------- -------- Total liabilities and shareholders' equity $108,105 $108,512 ======== ======== See notes to Consolidated Financial Statements. 2 AMERICAN EXPRESS COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS (millions) (Unaudited) Three Months Ended March 31, ------------------------- 1997 1996 ---------- --------- Cash Flows from Operating Activities Net income $454 $ 396 Adjustments to reconcile net income to net cash provided by operating activities: Provisions for losses and benefits 560 617 Depreciation, amortization, deferred taxes and other 94 37 Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: Accounts receivable and accrued interest 258 500 Other assets 38 (468) Accounts payable and other liabilities (39) (497) (Decrease)/increase in Travelers Cheques outstanding (70) 203 Increase in insurance reserves 34 66 ------- ------- Net cash provided by operating activities 1,329 854 ------- ------- Cash Flows from Investing Activities Sale of investments 548 1,225 Maturity and redemption of investments 1,714 1,959 Purchase of investments (2,529) (2,367) Net decrease in Cardmember receivables 745 1,299 Proceeds from repayment of loans 6,133 6,004 Issuance of loans (6,990) (6,341) Purchase of land, buildings and equipment (55) (88) Sale of land, buildings and equipment 65 69 ------- ------- Net cash (used) provided by investing activities (369) 1,760 ------- ------- Cash Flows from Financing Activities Net increase (decrease) in customers' deposits 1,223 (516) Sale of annuities and investment certificates 1,349 1,413 Redemption of annuities and investment certificates (1,239) (1,579) Net (decrease) increase in debt with maturities of 3 months or less (249) 1,670 Issuance of debt 2,151 4,194 Principal payments on debt (3,369) (5,035) Issuance of American Express common shares 70 110 Repurchase of American Express common shares (285) (333) Dividends paid (106) (113) ------- ------- Net cash (used) provided by financing activities (455) (189) Effect of exchange rate changes on cash (12) 4 ------- ------- Net increase in cash and cash equivalents 493 2,429 Cash and cash equivalents at beginning of period 2,677 3,200 ------- ------- Cash and cash equivalents at end of period $3,170 $5,629 ======= ======= 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 in the Annual Report on Form 10-K of American Express Company (the Company or American Express) for the year ended December 31, 1996. 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 March 31, 1997 and December 31, 1996, the consolidated results of its operations for the three months ended March 31, 1997 and 1996 and cash flows for the three months ended March 31, 1997 and 1996. 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 $143 million and $129 million for the three months ended March 31, 1997 and 1996, respectively. Interest and Dividends is presented net of interest expense of $136 million and $134 million for the three months ended March 31, 1997 and 1996, respectively, related to the Company's international banking operations. 3. The following is a summary of investments: March 31, December 31, (In millions) 1997 1996 ---------- ------------ Held to Maturity, at amortized cost (fair value: 1997, $12,633; 1996, $13,439) $12,481 $13,063 Available for Sale, at fair value (cost: 1997, $21,108; 1996, $20,366) 21,369 20,978 Investment mortgage loans (fair value: 1997, $3,754; 1996, $3,827) 3,742 3,712 Trading 548 586 ------------ ----------- $38,140 $38,339 ============ =========== 4. Net income taxes paid during the three months ended March 31, 1997 were approximately $213 million. Net income taxes refunded during the three months ended March 31, 1996 were approximately $42 million. Interest paid during the three months ended March 31, 1997 and 1996 was approximately $617 million and $612 million, respectively. 4 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Consolidated Results Of Operations For The Three Months Ended March 31, 1997 and 1996 The Company's consolidated net income rose 15 percent in the first quarter of 1997 compared with a year ago; net income per share increased 18 percent. These results exceeded the Company's long-term targets of 12-15 percent annual earnings per share improvement and return on equity of 18-20 percent on average and over time. The Company also has targeted at least two-thirds of that earnings growth, or 8-10 percent, to come from higher revenues. Revenue growth for the quarter was somewhat below that target. Consolidated revenues rose 6.5 percent compared with last year as a result of higher worldwide billed business and Cardmember loans outstanding as well as higher management and distribution fees. These improvements were partially offset by revenue sacrifices resulting from the Company's lending business building strategy and declines in card fees and investment income. Consolidated expenses were 5.4 percent higher, primarily due to human resource and operating expenses to support business expansion and loyalty programs. Consolidated Liquidity and Capital Resources In October 1996, the Company's Board of Directors authorized the Company to repurchase up to 40 million common shares over the next two to three years, subject to market conditions. This authorization is in addition to two previous repurchase plans, beginning in 1994, under which the Company repurchased a total of 60 million common shares. These plans are primarily designed to allow the Company to systematically purchase shares to offset the issuance of new shares as part of employee compensation plans. Since inception of the initial plan in 1994 the Company has repurchased 65.7 million common shares and canceled 57.8 million common shares under the repurchase programs at an average price of $41.01 per share. In the first quarter of 1997, the Company repurchased 5.2 million common shares and canceled 8.9 million common shares under the repurchase programs at an average price of $65.13 per share. Accounting Development In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" which is effective and will be adopted by the Company at December 31, 1997. No material effect on the earnings per share of the Company is expected. 5 Travel Related Services Results of Operations For The Three Months Ended March 31, 1997 and 1996 Statement of Income ------------------- (Unaudited) (Amounts in millions, except percentages) Quarter Ended March 31, --------------- Percentage 1997 1996 Inc/(Dec) ---- ---- ---------- Net Revenues: Discount Revenue $1,306 $1,141 14.5% Net Card Fees 405 421 (3.9) Travel Commissions and Fees 336 325 3.9 Interest and Dividends 132 191 (30.7) Other Revenues 503 424 18.2 ------- ------- 2,682 2,502 7.2 ------- ------- Lending: Finance Charge Revenue 431 404 6.5 Interest Expense 143 129 10.5 ------- ------- Net Finance Charge Revenue 288 275 4.7 ------- ------- Total Net Revenues 2,970 2,777 6.9 ------- ------- Expenses: Marketing and Promotion 202 200 1.1 Provision for Losses and Claims: Charge Card 190 210 (9.4) Lending 211 188 12.3 Other 24 24 (3.6) ------- ------- Total 425 422 0.6 ------- ------- Interest Expense: Charge Card 169 167 1.4 Other 35 95 (63.4) ------- ------- Total 204 262 (22.3) Net Discount Expense 151 126 20.5 Human Resources 749 704 6.4 Other Operating Expenses 790 647 22.0 ------- ------- Total Expenses 2,521 2,361 6.7 ------- ------- Pretax Income 449 416 8.1 Income Tax Provision 134 130 3.8 ------- ------- Net Income $315 $286 10.1 ======= ======= 6 Travel Related Services Selected Statistical Information --------------------------------- (Unaudited) (Amounts in billions, except percentages and where indicated) Quarter Ended March 31, -------------- Percentage 1997 1996 Inc/(Dec) ---- ---- ---------- Total Cards in Force (millions): United States 29.6 27.1 9.1% Outside the United States 12.3 11.6 6.4 ------ ------ Total 41.9 38.7 8.3 ====== ====== Basic Cards in Force (millions): United States 22.9 20.5 12.0 Outside the United States 9.6 9.2 4.7 ------ ------ Total 32.5 29.7 9.7 ====== ====== Card Billed Business: United States $34.6 $29.8 16.5 Outside the United States 13.3 11.8 12.4 ------ ------ Total $47.9 $41.6 15.3 ====== ====== Average Discount Rate* 2.75% 2.76% - Average Basic Cardmember Spending (dollars)* $1,498 $1,427 5.0 Average Fee per Card (dollars)* $39 $44 (11.4) Travel Sales $3.9 $3.6 9.0 Travel Commissions and Fees/Sales** 8.6% 9.0% - Travelers Cheque Sales $5.1 $5.3 (3.4) Average Travelers Cheques Outstanding $5.8 $5.7 0.3 Owned and Managed Charge Card Receivables: Total Receivables $21.2 $18.8 12.9% 90 Days Past Due as a % of Total 3.5% 4.1% - Loss Reserves (millions) $921 $991 (7.1) % of Receivables 4.3% 5.3% - % of 90 Days Past Due 124% 129% - Net Loss Ratio 0.50% 0.51% - Owned and Managed U.S. Cardmember Lending: Total Loans $12.9 $10.2 25.9 Past Due Loans as a % of Total: 30-89 Days 2.6% 2.5% - 90+ Days 1.0% 1.0% - Loss Reserves (millions): Beginning Balance $488 $443 10.0 Provision 201 170 18.3 Net Charge-Offs/Other (156) (130) 20.0 ------ ------ Ending Balance $533 $483 10.2 ====== ====== % of Loans 4.1% 4.7% - % of Past Due 115% 136% - Average Loans $12.8 $10.2 25.6 Net Write-Off Rate 5.1% 5.2% - Net Interest Yield 8.7% 9.4% - Note: Owned and managed Cardmember receivables and loans include securitized assets not reflected in the consolidated balance sheet. * Computed excluding Cards issued by strategic alliance partners and independent operators as well as business billed on those Cards. ** Computed from information provided herein. 7 Travel Related Services' (TRS) net income rose 10 percent from last year's first quarter. Net revenues increased 7 percent, primarily due to higher worldwide billed business and growth in Cardmember loans outstanding. This increase was partially offset by lower card fees and interest revenues. Excluding the impact of securitizing a portion of the card portfolios and a reduction in investments related to the consolidation of certain legal entities within the consumer lending business, revenues rose 9 percent from last year's first quarter. The improvement in discount revenue is due to an increase in billed business, which reflects a greater number of cards outstanding and higher spending per Cardmember, in part due to the benefits of rewards programs and expanded merchant coverage. The growth in cards is largely attributable to the introduction of new consumer and small business credit card products consistent with the Company's strategy of building its lending portfolio through the issuance of low- and no-fee credit cards. This strategy and a decline in consumer charge cards outstanding led to a 4 percent decrease in net card fees. Interest and dividends declined primarily as a result of a reduction in investments related to the consolidation of certain legal entities within the consumer lending business. This consolidation resulted in a decrease in both interest revenue and other interest expense by approximately $36 million. Lending net finance charge revenue was reduced by the effect of the $1 billion asset securitization in the second quarter of 1996. Excluding this asset securitization, lending net finance charge revenue rose by 16 percent primarily as a result of a 25 percent growth in worldwide lending balances. The growth in balances was partially offset by lower net interest yields on the U.S. portfolio, as a higher portion of the portfolio is subject to introductory rates. The charge card provision for losses declined, particularly in Latin America and the small business card portfolio. The lending provision for losses rose primarily because of growth in outstanding loans. Human resource expenses rose due to merit increases and higher contract programmer costs for technology related projects. Other operating expenses were above the prior year due to the cost of Cardmember loyalty programs, business growth and investment spending. TRS' charge card securitization program resulted in net discount expense of $151 million and $126 million in the first quarter of 1997 and 1996, respectively. For the first quarter of 1997 and 1996, the charge card securitization reduced charge card provision by $62 million and $54 million, respectively, and charge card interest expense by $58 million and $41 million, respectively. The second quarter 1996 loan securitization program decreased lending net finance charge revenue and the lending provision by $30 million and $11 million, respectively in the first quarter of 1997. The asset securitization programs resulted in fee revenue of $50 million and $31 million in the first quarter of 1997 and 1996, respectively. Securitizations did not have a material effect on net income. 8 Travel Related Services Liquidity and Capital Resources Selected Balance Sheet Information ----------------------------------- (Unaudited) (Amounts in billions, except percentages) March 31, December 31, Percentage March 31, Percentage 1997 1996 Inc/(Dec) 1996 Inc/(Dec) --------- ------------ ----------- --------- --------- Accounts Receivable, net $18.1 $19.5 (7.2)% $16.5 9.9% Investments $ 6.1 $ 6.5 (5.7) $ 9.0 (32.2) U.S. Cardmember Lending Balances $11.9 $11.7 1.5 $10.2 16.1 Total Assets $41.7 $43.1 (3.2) $45.2 (7.8) Travelers Cheques Outstanding $ 5.8 $ 5.8 (1.2) $ 5.9 (2.3) Short-term debt $17.3 $18.4 (6.4) $18.5 (7.0) Long-term debt $ 4.8 $ 5.0 (4.1) $ 4.6 5.6 Total Liabilities $36.9 $38.4 (3.8) $40.3 (8.4) Total Shareholder's Equity $ 4.8 $ 4.7 1.9 $ 4.9 (2.4) Return on Average Equity* 26.3% 25.6% - 24.7% - Return on Average Assets* 2.9% 2.8% - 2.5% - * Excluding the effect of SFAS #115 and the fourth quarter 1996 restructuring charge of $125 million after-tax. Growth in the U.S. Small Business and Consumer Lending portfolios led to an increase in Cardmember loans since year end. During the quarter, management responsibility for approximately $300 million of consumer loans sold through American Express Financial Advisors (AEFA) was transferred to that unit; therefore, the balances are no longer reported within TRS. 9 American Express Financial Advisors Results of Operations For The Three Months Ended March 31, 1997 and 1996 Statement of Income -------------------- (Unaudited) (Amounts in millions, except percentages and where indicated) Quarter Ended March 31, ------------------ Percentage 1997 1996 Inc/(Dec) ---- ---- ---------- Revenues: Investment Income $570 $569 0.1% Management and Distribution Fees 331 279 18.6 Other Revenues 183 155 18.4 ------ ------ Total Revenues 1,084 1,003 8.1 ------ ------ Expenses: Provision for Losses and Benefits: Annuities 305 298 2.6 Insurance 104 109 (4.0) Investment Certificates 42 53 (21.8) ------ ------ Total 451 460 (1.8) Human Resources 300 246 21.6 Other Operating Expenses 97 101 (4.0) ------ ------ Total Expenses 848 807 5.1 ------ ------ Pretax Income 236 196 20.5 Income Tax Provision 79 66 19.4 ------ ------ Net Income $157 $130 21.0 ====== ====== Revenues, Net of Provisions $633 $544 16.4% Life Insurance in Force (billions) $69.2 $61.2 13.1 Deferred Annuities in Force (billions) $38.0 $33.4 13.5 Assets Owned and/or Managed (billions): Assets managed for institutions $36.4 $32.7 11.4 Assets owned and managed for individuals: Owned Assets: Separate Account Assets 18.4 15.8 16.8 Other Owned Assets 34.9 33.2 4.9 ----- ------ Total Owned Assets 53.3 49.0 8.7 Managed Assets 60.0 51.4 16.6 ----- ------ Total $149.7 $133.1 12.4 ===== ====== Market Appreciation (Depreciation) During the Period: Owned Assets: Separate Account Assets $(544) $458 - Other Owned Assets $(244) $(283) (13.8) Total Managed Assets $(1,624) $1,165 - Sales of Selected Products: Mutual Funds $4,029 $3,569 12.9 Annuities $870 $1,155 (24.6) Investment Certificates $190 $136 40.1 Life and Other Insurance Sales $103 $95 8.1 Number of Financial Advisors 8,426 7,954 5.9 Fees From Financial Plans(thousands) $13,336 $11,623 14.7 Product Sales Generated from Financial Plan as a Percentage of Total Sales 64.6% 63.3% - 10 American Express Financial Advisors' (AEFA) revenue and earnings growth for the first quarter of 1997 was due to increased management fees from higher managed asset levels, including separate account assets, and greater distribution fees driven by record mutual fund sales. The growth in managed assets was caused by net sales and market appreciation since the year ago period. The first quarter 1997 results are consistent with a shift in the mix of product sales from fixed-return to fee generating variable return products, as well as maturities and calls of higher yielding investments. Investment revenues were even with a year ago, as a slight increase in investments was offset by lower yields. Other revenues rose primarily as a result of higher life insurance premiums, as well as growth in financial planning and tax preparation fees. Provisions for annuities increased in the first quarter of 1997 reflecting higher business in force; accrual rates remained constant. The provision for insurance declined resulting from favorable claims experience. The provision for investment certificates fell due to lower certificates in force and accrual rates. Human resources expense rose due to volume- driven growth in sales compensation and rising home office expenses reflecting growth within the technology and client service organizations and from recent acquisitions. The decline in other operating expenses is primarily due to lower accruals for state insurance guarantee assessments. 11 American Express Financial Advisors Liquidity and Capital Resources American Express Financial Advisors ----------------------------------- Selected Statistical Information -------------------------------- (Unaudited) (Amounts in billions, except percentages) March 31, December 31, Percentage March 31, Percentage 1997 1996 Inc./(Dec) 1996 Inc./(Dec) -------- ----------- ---------- --------- ---------- Investments $28.9 $28.6 0.7% $28.2 2.3% Separate Account Assets $18.4 $18.5 (0.7) $15.8 16.8 Total Assets $53.3 $52.7 1.2 $49.0 8.7 Client Contract Reserves $29.1 $28.9 0.6 $28.6 1.8 Total Liabilities $50.1 $49.5 1.4 $46.1 8.9 Total Shareholder's Equity $3.1 $3.2 (2.1) $2.9 6.4 Return on Average Equity* 20.8% 20.4% - 19.6% - * Excluding the effect of SFAS #115. AEFA's total assets rose slightly from year end as net sales and the transfer of approximately $300 million of consumer loans to AEFA from TRS were partially offset by market depreciation. 12 American Express Bank Results of Operations For The Three Months Ended March 31, 1997 and 1996 Statement of Income -------------------- (Unaudited) (Amounts in millions, except percentages) Quarter Ended March 31, ------------- Percentage 1997 1996 Inc/(Dec) ---- ---- ---------- Net Revenues: Interest Income $218 $211 3.2% Interest Expense 136 134 1.6% ------ ------ Net Interest Income 82 77 6.1% Commissions, Fees and Other Revenues 52 49 7.2% Foreign Exchange Income 19 20 (2.3)% ------ ------ Total Net Revenues 153 146 5.3% ------ ------ Provision for Credit Losses 2 4 (45.4)% ------ ------ Expenses: Human Resources 58 56 3.2% Other Operating Expenses 61 57 8.3% ------ ------ Total Expenses 119 113 5.7% ------ ------ Pretax Income 32 29 10.5% Income Tax Provision 12 10 14.7% ------ ------ Net Income $20 $19 8.2% ====== ====== The improvement in American Express Bank's (the Bank) first quarter 1997 earnings primarily reflects higher revenues due to increased net interest income on loans and investments. These were largely offset by growth in operating expenses, principally due to technology systems investments. 13 American Express Bank Liquidity and Capital Resources Selected Statistical Information --------------------------------- (Unaudited) (Amounts in billions, except percentages and where indicated) March 31, December 31, Percentage March 31, Percentage 1997 1996 Inc/(Dec) 1996 Inc/(Dec) ----------- ----------- ---------- -------- --------- Investments $2.8 $2.8 (1.8)% $2.4 17.5% Total Loans $6.1 $5.9 3.5 $5.3 14.2 Reserve for Credit Losses (millions) $131 $117 12.4 $110 19.3 Reserves as a Percentage of Total Loans 2.2% 2.0% - 2.1% - Total Nonperforming Loans (millions) $46 $35 31.7 $35 31.0 Other Real Estate Owned (millions) $35 $36 (2.6) $43 (19.8) Total Assets $12.7 $12.3 2.7 $11.8 7.8 Deposits $9.1 $8.7 4.8 $8.1 12.3 Total Liabilities $11.9 $11.6 3.0 $11.0 8.0 Total Shareholder's Equity (millions) $787 $799 (1.5) $746 5.5 Risk-Based Capital Ratios: Tier 1 8.7% 8.8% - 9.0% - Total 11.8% 12.5% - 12.9% - Leverage Ratio 5.6% 5.6% - 5.5% - Return on Average Assets* 0.69% 0.55% - 0.64% - Return on Average Common Equity* 11.14% 8.89% - 10.57% - * Excluding the effect of SFAS #115. During the first quarter of 1997, the Bank had an $18 million loan recovery from Peru, which was used to increase the reserve for credit losses. The Bank also received an unfavorable court ruling relating to the collapse of the Bank of Credit and Commerce International (BCCI) in 1991. When BCCI assets were forfeited to the Federal Government, the Bank turned over funds that it held in accounts of BCCI, including approximately $24 million in funds it claimed as setoffs against obligations of BCCI then outstanding to the Bank. The recent court ruling, in effect, denied the Bank's claims to the funds that were taken as setoffs. This matter is not expected to have a material impact on the Bank's results.** **This is a forward-looking statement which is subject to risks and uncertainties. Important factors that could cause results to differ materially from the forward looking statement include, among other things, unanticipated events at the Bank during the remainder of the year such as other litigation and credit losses. 14 Corporate and Other Corporate and Other reported first quarter 1997 net expenses of $38 million which was level with the past year. The first quarter of 1997 includes a $7 million pretax benefit from an earnings payout by Lehman Brothers Holdings, Inc. (related to its 1994 spin-off by the Company) which was fully offset by costs associated with the Company's business initiatives such as Financial Direct and Workplace Services. The first quarter of 1996 included a $46 million pretax benefit from a revenue payout by Travelers Inc. (related to the sale of the Shearson Lehman Brothers Division in 1993) which was also fully offset by costs associated with the Company's business initiatives. 1996 was the last year the Company was eligible to receive this revenue payout. 15 INDEPENDENT ACCOUNTANTS' REVIEW REPORT The Shareholders and Board of Directors American Express Company We have reviewed the accompanying consolidated balance sheet of American Express Company (the "Company") as of March 31, 1997 and the related consolidated statements of income and cash flows for the three-month periods ended March 31, 1997 and 1996. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, which will be performed for the full year with the objective of expressing an opinion regarding the consolidated financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of the Company as of December 31, 1996, 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 7, 1997, 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, 1996 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ Ernst & Young LLP New York, New York May 15, 1997 16 PART II. OTHER INFORMATION AMERICAN EXPRESS COMPANY Item 1. Legal Proceedings Several shareholder derivative actions were brought in 1990 and in early 1991 in the New York Federal District Court (Lewis v. Robinson, et al.) and in New York State Supreme Court (Seinfeld v. Robinson) against all of the then current directors, certain former directors and certain former officers and employees of the registrant. The federal actions were dismissed in 1993. The consolidated state actions were settled with the state court's approval in February 1997 with the implementation of certain internal procedures. The state court denied the request of plaintiffs' counsel for attorneys' fees and expenses payable by the registrant, which denial was appealed by the plaintiffs on May 1, 1997. On December 13, 1996, an action entitled Lesa Benacquisto and Daniel Benacquisto vs. IDS Life Insurance Company ("IDS Life") and American Express Financial Corporation was commenced in Minnesota state court. The action is brought by individuals who replaced an existing IDS Life insurance policy with a new IDS Life policy. The plaintiffs purport to represent a class consisting of all persons who replaced existing IDS Life policies with new IDS Life policies from and after January 1, 1985. The complaint puts at issue various alleged sales practices and misrepresentations, alleged breaches of fiduciary duties and alleged violations of consumer fraud statutes. Plaintiffs seek damages in an unspecified amount and also seek to establish a claims resolution facility for the determination of individual issues. IDS Life and AEFC filed an answer to the complaint on February 18, 1997, denying the allegations. A second action, entitled Arnold Mork, Isabella Mork, Ronald Melchert and Susan Melchert v. IDS Life Insurance Company and American Express Financial Corporation was commenced in the same court on March 21, 1997. In addition to claims that are included in the Benacquisto lawsuit, the second action includes an allegation of improper replacement of an existing IDS Life annuity contract. Both matters described above were previously reported in the registrant's Annual Report on Form 10-K for the year ended December 31, 1996. 17 Item 4. Submission of Matters to a Vote of Security Holders The registrant's annual meeting of shareholders was held on April 28, 1997. The matters that were voted upon at the meeting, and the number of votes cast for, against or withheld, as well as the number of abstentions and broker non-votes, as to each such matter, where applicable, are set forth below. Votes Votes Votes Broker For Against Withheld Abstentions Non-Votes ----- ------- -------- ----------- --------- Selection of Ernst & Young LLP as independent auditors 400,745,454 794,065 - 920,188 - Proposal relating to amendment of the Certificate of Incorp- oration 393,674,764 2,517,722 - 6,267,221 - Shareholder proposal relating to cumula- tive voting 81,259,859 222,949,438 - 50,056,610 48,193,800 Shareholder proposal relating to compensation of executives over $250,000 11,486,606 337,796,742 - 4,982,559 48,193,800 Shareholder proposal relating to the CERES Principles 26,725,478 300,407,311 - 27,133,118 48,193,800 Shareholder proposal relating to charitable contributions 7,265,848 328,847,250 - 18,151,966 48,194,643 Election of Directors: D.F. Akerson 401,289,046 - 1,170,661 - - A.L. Armstrong 401,076,639 - 1,383,068 - - E.L. Artzt 401,165,594 - 1,294,113 - - W.G. Bowen 401,239,567 - 1,220,140 - - K.I. Chenault 401,267,110 - 1,192,597 - - C.W. Duncan Jr. 401,110,465 - 1,349,242 - - H. Golub 401,281,313 - 1,178,394 - - B. Sills Greenough 400,937,888 - 1,521,819 - - F.R. Johnson 400,730,446 - 1,729,261 - - V.E. Jordan Jr. 397,192,362 - 5,267,345 - - J. Leschly 398,959,809 - 3,499,898 - - D. Lewis 401,120,877 - 1,338,830 - - A. Papone 397,554,677 - 4,905,030 - - F.P. Popoff 401,254,204 - 1,205,503 - - 18 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 25, 1997, Item 5, relating to the registrant's earnings for the quarter ended March 31, 1997. Form 8-K/A, dated April 28, 1997, Item 5, amending the Form 8-K dated April 25, 1997. 19 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: May 15, 1997 By /s/ Richard Karl Goeltz ----------------------- ------------------------ Richard Karl Goeltz Vice Chairman and Chief Financial Officer Date: May 15, 1997 /s/ Daniel T. Henry ----------------------- ----------------------- Daniel T. Henry Senior Vice President and Comptroller (Chief Accounting Officer) 20 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) Three Months Years Ended December 31, Ended March 31, ---------------------------------------- 1997 (Unaudited) 1996 1995 1994 1993 1992 ----------- ---- ---- ---- ---- ---- Earnings: Pretax income from continuing operations $ 640 $2,664 $2,183 $1,891 $2,326 $ 896 Interest expense 474 2,160 2,343 1,925 1,776 2,171 Other adjustments 32 139 95 103 88 196 ------ ------ ------ ------ ------ ------ Total earnings (a) $1,146 $4,963 $4,621 $3,919 $4,190 $3,263 ------ ------ ------ ------ ------ ------ Fixed charges: Interest expense $ 474 $2,160 $2,343 $1,925 $1,776 $2,171 Other adjustments 33 130 135 142 130 154 ------ ------ ------ ------ ------ ------ Total fixed charges (b) $ 507 $2,290 $2,478 $2,067 $1,906 $2,325 ------ ------ ------ ------ ------ ------ Ratio of earnings to fixed charges (a/b) 2.26 2.17 1.86 1.90 2.20 1.40 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. EX-15 3 Exhibit 15 May 15, 1997 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. 33-48629, No. 33-62124, No. 33-65008, No. 33-53801 and No. 333-12683; Form S-3 No. 2-89469, No. 33-43268, and No. 33-50997) of American Express Company of our report dated May 15, 1997 relating to the unaudited consolidated interim financial statements of American Express Company which are included in its Form 10-Q for the three-month period ended March 31, 1997. 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 March 31, 1997 and Consolidated Statement of Income for the three months ended March 31, 1997 and is qualified in its entirety by reference to such financial statements. 1,000,000 3-MOS DEC-31-1997 MAR-31-1997 3,170 38,140 19,879 715 0 0 3,442 1,874 108,105 0 23,655 0 0 283 8,099 108,105 0 4,164 0 1,939 510 880 195 640 186 454 0 0 0 454 0.94 0
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