-----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, BIpkZeKMWtvRjKqOK7BgNbBVpE2f8INbw+cgZqc8FsrdEp2h8E6HSkxsawOkNuqm h3efe/U420Uh1DEURSyMXA== 0000004962-98-000053.txt : 19980817 0000004962-98-000053.hdr.sgml : 19980817 ACCESSION NUMBER: 0000004962-98-000053 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: BSE SROS: CSX SROS: NYSE SROS: PCX 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: SEC FILE NUMBER: 001-07657 FILM NUMBER: 98689064 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 2ND QTR 1998 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 June 30, 1998 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 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, 1998 - --------------------------------------- ---------------------------- Common Shares (par value $.60 per share) 456,382,109 shares AMERICAN EXPRESS COMPANY FORM 10-Q INDEX Part I. Financial Information: Consolidated Statements of Income - Three and 1-2 six months ended June 30, 1998 and 1997 Consolidated Balance Sheets - June 30, 1998 3 and December 31, 1997 Consolidated Statements of Cash Flows - Six 4 months ended June 30, 1998 and 1997 Notes to Consolidated Financial Statements 5-7 Management's Discussion and Analysis of 8-22 Financial Condition and Results of Operations Review Report of Independent Accountants 23 Part II. Other Information 24
PART I--FINANCIAL INFORMATION AMERICAN EXPRESS COMPANY CONSOLIDATED STATEMENTS OF INCOME (dollars in millions, except per share amounts) (Unaudited) Three Months Ended June 30, ------------------- 1998 1997 ------- ------ Net Revenues: Discount revenue $ 1,525 $ 1,407 Interest and dividends, net 811 795 Net card fees 398 403 Travel commissions and fees 403 381 Other commissions and fees 416 355 Cardmember lending net finance charge revenue 330 304 Management and distribution fees 482 360 Life and other insurance premiums 115 102 Other 281 315 ------ ------ Total 4,761 4,422 ------ ------ Expenses: Human resources 1,304 1,155 Provisions for losses and benefits: Annuities and investment certificates 350 362 International banking, life insurance and other 150 138 Charge card 236 239 Cardmember lending 187 187 Interest 250 238 Occupancy and equipment 304 286 Marketing and promotion 301 258 Professional services 287 252 Communications 114 112 Other 478 493 ------ ------ Total 3,961 3,720 ------ ------ Pretax income 800 702 Income tax provision 222 182 ------ ------ Net income $ 578 $ 520 ====== ====== Earnings Per Common Share: Basic $ 1.27 $ 1.12 ====== ====== Diluted $ 1.24 $ 1.08 ====== ====== Average common shares outstanding for earnings per common share (millions): Basic 456.3 465.1 ====== ====== Diluted 465.3 480.1 ====== ====== Cash dividends declared per common share $ 0.225 $ 0.225 ====== ======
See notes to Consolidated Financial Statements. 1
PART I--FINANCIAL INFORMATION AMERICAN EXPRESS COMPANY CONSOLIDATED STATEMENTS OF INCOME (dollars in millions, except per share amounts) (Unaudited) Six Months Ended June 30, --------------------- 1998 1997 ---- ---- Net Revenues: Discount revenue $ 2,955 $ 2,714 Interest and dividends, net 1,621 1,571 Net card fees 796 808 Travel commissions and fees 754 717 Other commissions and fees 825 699 Cardmember lending net finance charge revenue 647 592 Management and distribution fees 900 691 Life and other insurance premiums 228 208 Other 556 585 ------ ------ Total 9,282 8,585 ------ ------ Expenses: Human resources 2,523 2,282 Provisions for losses and benefits: Annuities and investment certificates 720 709 International banking, life insurance and other 515 269 Charge card 454 429 Cardmember lending 405 398 Interest 476 433 Occupancy and equipment 588 558 Marketing and promotion 566 472 Professional services 532 466 Communications 223 224 Other 867 1,003 ------ ------ Total 7,869 7,243 ------ ------ Pretax income 1,413 1,342 Income tax provision 376 368 ------ ------ Net income $ 1,037 $ 974 ====== ====== Earnings Per Common Share: Basic $ 2.26 $ 2.09 ====== ====== Diluted $ 2.22 $ 2.02 ====== ====== Average common shares outstanding for earnings per common share (millions): Basic 458.4 466.6 ====== ====== Diluted 467.4 481.8 ====== ====== Cash dividends declared per common share $ 0.45 $ 0.45 ====== ======
See notes to Consolidated Financial Statements. 2
AMERICAN EXPRESS COMPANY CONSOLIDATED BALANCE SHEETS (millions) (Unaudited) June 30, December 31, Assets 1998 1997 - ------ ---------- ---------- Cash and cash equivalents $ 3,501 $ 4,179 Accounts receivable and accrued interest: Cardmember receivables, less reserves: 1998, $691; 1997, $640 17,976 19,275 Other receivables, less reserves: 1998, $84; 1997, $72 2,570 2,499 Investments 40,602 39,648 Loans: Cardmember lending, less reserves: 1998, $522; 1997, $576 12,586 13,183 International banking, less reserves: 1998, $265; 1997, $131 5,878 6,062 Other, net 871 864 Separate account assets 26,573 23,215 Deferred acquisition costs 2,945 2,894 Land, buildings and equipment--at cost, less accumulated depreciation: 1998, $1,942; 1997, $1,838 1,517 1,533 Other assets 5,967 6,651 ------- ------- Total assets $120,986 $120,003 ======= ======= Liabilities and Shareholders' Equity - ------------------------------------- Customers' deposits $ 9,318 $ 9,444 Travelers Cheques outstanding 6,313 5,634 Accounts payable 5,485 4,876 Insurance and annuity reserves: Fixed annuities 21,656 22,112 Life and disability policies 4,151 4,053 Investment certificate reserves 4,472 4,149 Short-term debt 18,009 20,570 Long-term debt 7,832 7,873 Separate account liabilities 26,573 23,215 Other liabilities 7,880 8,503 ------- ------- Total liabilities 111,689 110,429 Shareholders' equity: Common shares, $.60 par value, authorized 1.2 billion shares; issued and outstanding 456.8 million shares in 1998 and 466.4 million shares in 1997 274 280 Capital surplus 4,628 4,624 Retained earnings 3,927 4,188 Other comprehensive income, net of tax: Net unrealized securities gains 567 579 Foreign currency translation adjustments (99) (97) ------- ------- Accumulated other comprehensive income 468 482 ------- ------- Total shareholders' equity 9,297 9,574 ------- ------- Total liabilities and shareholders' equity $120,986 $120,003 ======= =======
See notes to Consolidated Financial Statements. 3
AMERICAN EXPRESS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (millions) (Unaudited) Six Months Ended June 30, ----------------- 1998 1997 ---- ---- Cash Flows from Operating Activities Net income $ 1,037 $ 974 Adjustments to reconcile net income to net cash provided by operating activities: Provisions for losses and benefits 1,427 1,145 Depreciation, amortization, deferred taxes and other 9 141 Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: Accounts receivable and accrued interest (142) 73 Other assets 151 (589) Accounts payable and other liabilities 697 22 Increase in Travelers Cheques outstanding 666 620 Increase in insurance reserves 78 66 ------- ------- Net cash provided by operating activities 3,923 2,452 ------- ------- Cash Flows from Investing Activities Sale of investments 1,074 903 Maturity and redemption of investments 3,431 2,443 Purchase of investments (5,400) (3,921) Net increase in Cardmember receivables (386) (720) Sale of Cardmember receivables/loans to Trust 1,995 - Proceeds from repayment of loans 14,071 12,943 Issuance of loans (14,991) (14,455) Purchase of land, buildings and equipment (133) (181) Sale of land, buildings and equipment 10 99 Acquisitions, net of cash acquired (313) - ------- ------- Net cash used by investing activities (642) (2,889) ------- ------- Cash Flows from Financing Activities Net increase in customers' deposits 132 1,018 Sale of annuities and investment certificates 2,647 2,810 Redemption of annuities and investment certificates (2,884) (2,512) Net (decrease) increase in debt with maturities of 3 months or less (2,542) 1,919 Issuance of debt 3,768 4,510 Principal payments on debt (3,794) (5,812) Issuance of American Express common shares 88 126 Repurchase of American Express common shares (1,130) (577) Dividends paid (209) (212) ------- ------- Net cash (used) provided by financing activities (3,924) 1,270 Effect of exchange rate changes on cash (35) (38) ------- ------- Net (decrease) increase in cash and cash equivalents (678) 795 Cash and cash equivalents at beginning of period 4,179 2,677 ------- ------- Cash and cash equivalents at end of period $ 3,501 $ 3,472 ======= =======
See notes to Consolidated Financial Statements. 4 AMERICAN EXPRESS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1.Basis of Presentation The consolidated financial statements should be read in conjunction with the financial statements in the Annual Report on Form 10-K of American Express Company (the Company or American Express) for the year ended December 31, 1997. Significant accounting policies disclosed therein have not changed. Certain reclassifications of prior period amounts have been made to conform to the current presentation. Cardmember Lending Net Finance Charge Revenue is presented net of interest expense of $163 million and $154 million for the second quarter of 1998 and 1997, respectively, and $324 million and $297 million for the six months ended June 30, 1998 and 1997, respectively. Interest and Dividends is presented net of interest expense of $151 million and $152 million for the second quarter of 1998 and 1997, respectively, and $294 million and $292 million for the six months ended June 30, 1998 and 1997, respectively, related primarily to the Company's international banking operations. The interim financial information in this report has not been audited. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial position and the consolidated results of operations for the interim periods have been made. All adjustments made were of a normal, recurring nature. Results of operations reported for interim periods are not necessarily indicative of results for the entire year. 2.Accounting Developments Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income" and No. 131, "Disclosures about Segments of an Enterprise and Related Information." Comprehensive Income -------------------- SFAS No. 130 requires the display of comprehensive income and its components. Comprehensive income is defined as the aggregate change in shareholders' equity, excluding changes in ownership interests. For the Company, it is the sum of net income and changes in (i) unrealized gains or losses on available-for-sale securities and (ii) foreign currency translation adjustments. The components of comprehensive income, net of related tax, for the three and six month periods ended June 30, 1998 and 1997 were as follows:
Three Months Ended Six Months Ended June 30, June 30, ------------------ ----------------- (in millions) 1998 1997 1998 1997 ------------------ ----------------- Net income $ 578 $ 520 $ 1,037 $ 974 Change in: Unrealized gains (losses) on securities 5 237 (12) 23 Foreign currency translation adjustments - (19) (2) (18) ------------------ ------------------ Total $ 583 $ 738 $ 1,023 $ 979 ================== ==================
5 Segment Information ------------------- SFAS No. 131 redefines operating segments based on management's internal reporting structure. Accordingly, the Travelers Cheque operation, which was previously included in the Travel Related Services (TRS) segment, is now reported with American Express Bank (the Bank). Prior year amounts have been reclassified as set forth below, to conform with the requirements of SFAS No. 131.
Net Revenues Three Months Ended Six Months Ended June 30, June 30, -------------------- -------------------- (in millions) 1998 1997 1998 1997 -------------------- -------------------- Travel Related Services $ 3,270 $ 3,031 $ 6,353 $ 5,895 American Express Financial Advisors 1,282 1,143 2,503 2,227 American Express Bank/ Travelers Cheque 251 282 508 551 Corporate and Other (42) (34) (82) (88) -------------------- -------------------- Total $ 4,761 $ 4,422 $ 9,282 $ 8,585 ==================== ==================== Net Income Three Months Ended Six Months Ended June 30, June 30, -------------------- ------------------- (in millions) 1998 1997 1998 1997 -------------------- ------------------- Travel Related Services $ 360 $ 305 $ 676 $ 572 American Express Financial Advisors 212 183 398 340 American Express Bank/ Travelers Cheque 47 70 (36) 139 Corporate and Other (41) (38) (1) (77) -------------------- ------------------- Total $ 578 $ 520 $ 1,037 $ 974 ==================== ===================
3.Earnings per Share The computation of basic and diluted earnings per common share (EPS) for the three and six months ended June 30, 1998 and 1997 are as follows:
(in millions,except per share Three Months Ended Six Months Ended amounts) June 30, June 30, ------------------ ------------------ 1998 1997 1998 1997 ------------------ ------------------ Numerator for basic and diluted EPS $ 578 $ 520 $ 1,037 $ 974 Denominator: Denominator for basic EPS - weighted-average shares 456.3 465.1 458.4 466.6 Effect of dilutive securities: Stock Options and Restricted Stock Awards 8.9 8.7 8.9 8.9 5% Exchangeable Lehman Brothers Holdings, Inc. Preferred Shares - 6.2 - 6.2 Other 0.1 0.1 0.1 0.1 ------------------ ------------------ Potentially dilutive common shares 9.0 15.0 9.0 15.2 ------------------ ------------------ Denominator for diluted EPS 465.3 480.1 467.4 481.8 ------------------ ------------------ Basic EPS $ 1.27 $ 1.12 $ 2.26 $ 2.09 ------------------ ------------------ Diluted EPS $ 1.24 $ 1.08 $ 2.22 $ 2.02 ------------------ ------------------
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4.Investment Securities The following is a summary of investments at June 30, 1998 and December 31, 1997: June 30, December 31, (in millions) 1998 1997 --------- ------------ Held to Maturity, at amortized cost (fair value: 1998, $11,451; 1997, $12,429) $10,898 $11,871 Available for Sale, at fair value (cost: 1998, $24,734; 1997, $22,816) 25,620 23,727 Investment mortgage loans (fair value: 1998, $4,085; 1997, $4,026) 3,863 3,831 Trading 221 219 ------- ------- $40,602 $39,648 ======= =======
5.Taxes and Interest Net income taxes paid during the six months ended June 30, 1998 and 1997 were approximately $415 million and $471 million, respectively. Interest paid during the six months ended June 30, 1998 and 1997 was approximately $1.1 billion and $1.2 billion, respectively. 6.Cumulative Quarterly Income Preferred Shares On July 16, 1998, American Express Company Capital Trust I, a subsidiary of the Company established as a Delaware statutory business trust (the Trust), completed a public offering of 20,000,000 shares (carrying value of $500 million) of 7.0% Cumulative Quarterly Income Preferred Shares (QUIPS) (liquidation preference of $25 per share). Proceeds of the issue were invested in Junior Subordinated Debentures issued by the Company due 2028 which represent the sole assets of the Trust. The QUIPS are subject to mandatory redemption upon repayment of the Junior Subordinated Debentures at maturity or their earlier redemption. The Company has the option to redeem the Junior Subordinated Debentures, in whole or in part, at any time on or after July 16, 2003, which will result in the redemption of a corresponding amount of QUIPS. The Company used the proceeds from the Junior Subordinated Debentures for general corporate purposes. Distributions on the QUIPS will be reported as interest expense in the Consolidated Statements of Income. 7 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, 1998 and 1997 The Company's consolidated net income rose 11 percent and 7 percent in the three and six month periods ended June 30, 1998, respectively. Diluted earnings per share increased 15 percent and 10 percent for the three and six month periods ended June 30, 1998, respectively. These results were in line with the Company's long-term targets of: 12-15 percent earnings per share growth, with at least 8 percent coming from higher revenue; and a return on equity of 18-20 percent. Consolidated revenues were 8 percent higher for both the three and six months ended June 30, 1998, as a result of growth in worldwide billed business, Cardmember spending and Cardmember loans, wider interest margins in the lending portfolio as well as higher management and distribution fees. Consolidated expenses rose, primarily due to higher expenses related to human resources, marketing and promotion and provision for losses. The 1998 six month results include a $213 million ($138 million after-tax) credit loss provision at AEB relating to its Asia/Pacific portfolio. In addition, these results include income in the first quarter of $106 million ($78 million after-tax) representing a $60 million gain ($39 million after-tax) from sales of common stock of First Data Corporation and a $46 million preferred stock dividend ($39 million after-tax) based on earnings from Lehman Brothers. Consolidated Liquidity and Capital Resources In the first half of 1998, the Company repurchased 11.9 million common shares at an average price of $96.95 per share and canceled 12.6 million common shares under its repurchase program. In July 1998, American Express Company Capital Trust I, a subsidiary of the Company created as a Delaware statutory business trust (the Trust), sold 20,000,000 shares (carrying value of $500 million) of 7.0% Cumulative Quarterly Income Preferred Shares (QUIPS) (liquidation preference of $25 per share). Proceeds of the issue, which represent the sole assets of the Trust, were invested in Junior Subordinated Debentures issued by the Company, due 2028. The Company used the proceeds from the Junior Subordinated Debentures for general corporate purposes. (See Note 6 to Consolidated Financial Statements for further information.) 8 Accounting Development In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is effective January 1, 2000. This Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires an entity to recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. Changes in the fair value of a derivative will be recorded either to the Statement of Income or Shareholders' Equity, depending on the intended use of the derivative. Based on the derivatives the Company currently has in place, the adoption of this Statement is not expected to have a material impact on net income. However, the actual impact will depend on the derivatives the Company has in place at the time of adoption. - -------------------------------------- [FN] This is a forward-looking statement which is subject to risks and uncertainties. Important actors that could cause results to differ materially from the forward-looking statement include, among other things, unanticipated changes in the volume, type, use and price of derivatives held by the Company. 9
Travel Related Services Results of Operations For The Three and Six Months Ended June 30, 1998 and 1997 Statement of Income ------------------- (Unaudited) (Dollars in millions) Three Months Six Months Ended Ended June 30, June 30, ------------- Percentage ------------ Percentage 1998 1997 Inc/(Dec) 1998 1997 Inc/(Dec) ------------------------ ----------------------- Net Revenues: Discount Revenue $1,525 $1,407 8.4% $2,955 $2,714 8.9% Net Card Fees 398 403 (1.2) 796 808 (1.5) Travel Commissions and Fees 403 381 5.9 754 717 5.1 Other Revenues 614 536 14.4 1,201 1,064 12.9 Lending: Finance Charge Revenue 493 458 7.7 971 889 9.2 Interest Expense 163 154 5.8 324 297 9.1 -------------- -------------- Net Finance Charge Revenue 330 304 8.6 647 592 9.3 -------------- -------------- Total Net Revenues 3,270 3,031 7.9 6,353 5,895 7.8 -------------- -------------- Expenses: Marketing and Promotion 275 233 17.7 519 428 21.3 Provision for Losses and Claims: Charge Card 236 239 (1.2) 454 429 5.8 Lending 187 187 0.1 405 398 1.7 Other 11 15 (21.5) 24 30 (19.0) -------------- -------------- Total 434 441 (1.3) 883 857 3.0 -------------- -------------- Charge Card Interest Expense 203 174 16.3 399 343 16.3 Net Discount Expense 170 165 2.9 310 317 (2.1) Human Resources 843 764 10.3 1,630 1,495 9.0 Other Operating Expenses 799 794 0.7 1,584 1,578 0.3 -------------- -------------- Total Expenses 2,724 2,571 5.9 5,325 5,018 6.1 -------------- -------------- Pretax Income 546 460 18.8 1,028 877 17.3 Income Tax Provision 186 155 20.3 352 305 15.8 -------------- -------------- Net Income $360 $305 18.0 $676 $572 18.0 ============== ==============
The following table, which is presented for analytical purposes only, presents the effect on the above Statement of Income related to TRS' securitized receivables. It includes a pretax gain of $36 million in the second quarter of 1998 ($23 million after-tax) related to the securitizations of U.S. receivables, which was recognized in accordance with Statement of Financial Accounting Standards No. 125. This gain was invested in additional Marketing and Promotion expenses which have also been included in the table below and had no material effect on net income or total expenses in 1998.
Three Months Ended Six Months Ended June 30, June 30, ------------------ ----------------- 1998 1997 1998 1997 ------------------ ----------------- Increase (Decrease) in Net Card Fees $5 $(1) $5 $(1) Increase in Other Revenues 78 43 155 95 Decrease in Lending Finance Charge Revenue (102) (47) (208) (95) Decrease in Lending Interest Expense 34 17 67 34 Increase in Marketing and Promotion Expense (36) - (36) - Decrease in Provision for Losses and Claims: Charge Card 71 74 125 136 Lending 64 16 94 27 Decrease in Charge Card Interest Expense 56 63 108 121 Increase in Net Discount Expense (170) (165) (310) (317) ---------------- ---------------- Pretax Income $ - $ - $ - $ - ---------------- ----------------
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Travel Related Services Selected Statistical Information -------------------------------- (Unaudited) (Amounts in billions, except where indicated) Three Months Six Months Ended Ended June 30, June 30, ---------- Percentage ---------- Percentage 1998 1997 Inc/(Dec) 1998 1997 Inc/(Dec) --------------------- --------------------- Total Cards in Force (millions): United States 29.6 29.7 (0.3)% 29.6 29.7 (0.3)% Outside the United States 14.2 12.6 13.1 14.2 12.6 13.1 ------------ ------------ Total 43.8 42.3 3.7 43.8 42.3 3.7 ============ ============ Basic Cards in Force (millions): United States 23.3 23.2 0.7 23.3 23.2 0.7 Outside the United States 11.0 9.7 13.0 11.0 9.7 13.0 ------------ ------------ Total 34.3 32.9 4.4 34.3 32.9 4.4 ============ ============ Card Billed Business: United States $41.4 $37.2 11.4 $79.9 $71.8 11.3 Outside the United States 15.4 14.7 4.3 29.5 28.0 5.2 ------------ ------------ Total $56.8 $51.9 9.4 $109.4 $99.8 9.6 ============ ============ Average Discount Rate* 2.72% 2.74% - 2.73% 2.74% - Average Basic Cardmember Spending (dollars)* $1,717 $1,602 7.2 $3,313 $3,103 6.8 Average Fee per Card (dollars)* $38 $39 (2.6) $38 $39 (2.6) Travel Sales $4.9 $4.5 10.2 $9.2 $8.4 9.6 Travel Commissions and Fees/Sales** 8.2% 8.5% - 8.2% 8.5% - Owned and Managed Charge Card Receivables: Total Receivables $23.4 $22.2 5.2 $23.4 $22.2 5.2 90 Days Past Due as a % of Total 3.1% 3.3% - 3.1% 3.3% - Loss Reserves (millions) $1,015 $976 4.1 $1,015 $976 4.1 % of Receivables 4.3% 4.4% - 4.3% 4.4% - % of 90 Days Past Due 142% 134% - 142% 134% - Net Loss Ratio 0.46% 0.50% - 0.46% 0.50% - Owned and Managed U.S. Cardmember Lending: Total Loans $14.8 $13.2 12.7 $14.8 $13.2 12.7 Past Due Loans as a % of Total: 30-89 Days 2.3% 2.5% - 2.3% 2.5% - 90+ Days 1.1% 1.1% - 1.1% 1.1% - Loss Reserves (millions): Beginning Balance $591 $533 10.9 $589 $488 20.8 Provision 219 198 10.3 440 399 10.0 Net Charge- Offs/Other (233) (197) 18.1 (452) (353) 27.8 ------------ ------------- Ending Balance $577 $534 8.1 $577 $534 8.1 ============ ============= % of Loans 3.9% 4.1% - 3.9% 4.1% - % of Past Due 115% 113% - 115% 113% - Average Loans $14.5 $13.2 10.0 $14.3 $13.0 10.4 Net Write-Off Rate 6.6% 6.0% - 6.5% 5.5% - Net Interest Yield 9.5% 8.7% - 9.5% 8.7% -
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. 11 Travel Related Services Travel Related Services' (TRS) net income rose 18 percent for the three and six months ended June 30, 1998 compared with a year ago. Net revenues increased 8 percent in both periods, reflecting higher billed business in the United States and internationally, as well as growth in Cardmember loans and wider interest margins. In the second quarter of 1998 TRS recognized a gain of $36 million ($23 million after-tax) from the securitizations of U.S. receivables; this treatment is required by Statement of Financial Accounting Standards No. 125. This gain was invested in additional Marketing and Promotion expenses and had no material effect on net income or total expenses. The improvement in discount revenue resulted from higher billed business, which arose from a greater number of cards outstanding and higher spending per basic Cardmember. The average discount rate declined two basis points and one basis point for the three and six month periods ended June 30, 1998, respectively. Changes in the mix of billed business, the continued shift to electronic data capture, volume related pricing discounts, and selective repricing initiatives probably will result in some discount rate erosion over time. The increase in Cardmember spending, which is in part due to the benefits of rewards programs and expanded merchant coverage, reflects higher growth in domestic consumer, corporate and small business Cardmember spending. Travel commissions and fees rose due to higher sales, partially offset by lower commission rates. Lending net finance charge revenue, excluding securitizations, rose by 19 percent and 21 percent for the three and six months ended June 30, 1998, respectively, compared with a year ago. This increase was largely due to the 13 percent growth in worldwide lending balances and higher yields on the U.S. portfolio which resulted primarily from changes in the product mix and a lower portion of the portfolio on introductory rates compared with the prior year. The provisions for losses for the three and six months ended June 30, 1998 were due to higher volumes overall and increased loss rates in the consumer lending portfolio. For the second quarter of 1998, such increases are partially offset by improved charge card loss rates and the benefit of securitizing a portion of the loan portfolio. The securitization gains described above were offset by higher marketing and promotion expenses. Human resource expenses increased as a result of higher average employee levels, merit increases and greater contract programmer costs for technology related projects. Other operating expenses were essentially flat, with higher costs for loyalty programs and Cardmember service related volumes offset by the benefits of ongoing cost containment efforts. - -------------------------------------- [FN] 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 changes in TRS' mix of business and competitive pressures. 12
Travel Related Services Liquidity and Capital Resources Selected Balance Sheet Information ---------------------------------- (Unaudited) (Dollars in billions, except percentages) June 30, December 31, Percentage June 30, Percentage 1998 1997 Inc/(Dec) 1997 Inc/(Dec) ------ ------ --------- ------ --------- Accounts Receivable, net $19.4 $20.5 (5.1)% $18.4 5.6% U.S. Cardmember Loans $11.8 $12.6 (5.8) $12.2 (2.7) Total Assets $38.9 $40.7 (4.5) $37.4 3.9 Short-term debt $18.1 $20.9 (13.9) $18.4 (2.1) Long-term debt $5.9 $6.0 (0.6) $5.6 7.0 Total Liabilities $33.9 $36.1 (6.1) $32.7 3.5 Total Shareholder's Equity $5.0 $4.6 7.5 $4.7 6.8 Return on Average Equity* 26.5% 25.1% - 24.2% - Return on Average Assets* 3.2% 3.0% - 3.0% -
* Computed based on the past twelve months of net income and excludes the effect of SFAS No. 115. June 30, 1997 also excludes a fourth quarter 1996 restructuring charge of $125 million (after-tax). In February 1998, American Express Credit Corporation (Credco), a wholly owned subsidiary of TRS, issued $150 million 1.125% Cash Exchangeable Notes due February, 2003. These Notes are exchangeable for an amount in cash which is linked to the price of the common stock of the Company. Credco has entered into hedging agreements designed to fully hedge its obligations under these Notes. In May 1998, the American Express Master Trust issued an additional $1 billion Class A Floating Rate Accounts Receivable Trust Certificates. The securitized assets consist of receivables generated under designated American Express Card, Gold Card, and Platinum Card consumer accounts. In June 1998, the American Express Credit Account Master Trust (the Trust) securitized an additional $1 billion of loans through the public issuance of two classes of investor certificates and a privately placed collateral interest in the assets of the Trust. The securitized assets consist of loans arising in a portfolio of designated Optima Card, Optima Line of Credit and Sign and Travel revolving credit accounts owned by American Express Centurion Bank, a wholly owned subsidiary of TRS. 13
American Express Financial Advisors Results of Operations For The Three and Six Months Ended June 30, 1998 and 1997 Statement of Income ------------------- (Unaudited) (Amounts in millions, except percentages and where indicated) Three Months Six Months Ended Ended June 30, June 30, ------------ Percentage ---------- Percentage 1998 1997 Inc/(Dec) 1998 1997 Inc/(Dec) ----------------------- -------------------- Revenues: Investment Income $603 $586 2.9% $1,216 $1,156 5.2% Management and Distribution Fees 482 360 33.8 900 691 30.2 Other Revenues 197 197 - 387 380 1.8 ------------ ------------- Total Revenues 1,282 1,143 12.2 2,503 2,227 12.4 ------------ ------------- Expenses: Provision for Losses and Benefits: Annuities 292 304 (4.1) 589 610 (3.4) Insurance 125 113 10.0 242 217 11.4 Investment Certificates 58 58 1.5 131 99 32.1 ------------ ------------- Total 475 475 (0.1) 962 926 3.9 Human Resources 364 294 23.8 700 594 18.0 Other Operating Expenses 134 109 23.2 261 205 26.7 ------------ ------------- Total Expenses 973 878 10.8 1,923 1,725 11.4 ------------ ------------- Pretax Income 309 265 16.6 580 502 15.8 Income Tax Provision 97 82 18.1 182 162 12.3 ------------ ------------- Net Income $212 $183 16.0 $398 $340 17.1 ------------ -------------
14
American Express Financial Advisors Selected Statistical Information -------------------------------- (Unaudited) (Amounts in millions, except percentages and where indicated) Three Months Six Months Ended Ended June 30, June 30, ------------ Percentage ---------- Percentage 1998 1997 Inc/(Dec) 1998 1997 Inc/(Dec) ----------------------- -------------------- Revenues, Net of Provisions $807 $668 20.9% $1,541 $1,301 18.4% Investments (billions) $31.0 $29.3 5.7 $31.0 $29.3 5.7 Client Contract Reserves (billions) $30.2 $29.4 2.7 $30.2 $29.4 2.7 Shareholder's Equity (billions) $4.0 $3.4 17.5 $4.0 $3.4 17.5 Return on Average Equity* 22.3% 21.2% - 22.3% 21.2% - Life Insurance in force (billions) $77.8 $71.0 9.7 $77.8 $71.0 9.7 Deferred Annuities in force (billions) $43.5 $38.6 12.6 $43.5 $38.6 12.6 Assets Owned, Managed or Administered (billions): Assets managed for institutions $44.0 $39.3 11.9 $44.0 $39.3 11.9 Assets owned, managed or administered for individuals: Owned Assets: Separate Account Assets 26.6 21.1 26.2 26.6 21.1 26.2 Other Owned Assets 37.2 35.2 5.7 37.2 35.2 5.7 ------------- ------------- Total Owned Assets 63.8 56.3 13.3 63.8 56.3 13.3 Managed Assets 83.0 66.7 24.5 83.0 66.7 24.5 Administered Assets 11.2 6.3 79.5 11.2 6.3 79.5 ------------- ------------- Total $202.0 $168.6 19.8 $202.0 $168.6 19.8 ============= ============= Market Appreciation (Depreciation) During the Period: Owned Assets: Separate Account Assets $361 $2,260 (84.0)% $2,971 $1,716 73.1% Other Owned Assets $24 $265 (90.9) $42 $21 # Total Managed Assets $1,045 $8,406 (87.6) $9,889 $7,609 30.0 Sales of Selected Products: Mutual Funds $5,474 $4,091 33.8 $10,569 $8,120 30.2 Annuities $702 $947 (25.8) $1,353 $1,817 (25.5) Investment Certificates $383 $285 34.4 $841 $475 76.9 Life and Other Insurance Products $104 $100 4.2 $187 $203 (7.7) Number of Financial Advisors** 9,869 8,476 16.4 9,869 8,476 16.4 Fees from Financial Plans (millions) $20.9 $15.2 37.2 $38.4 $28.6 34.5 Product Sales Generated from Financial Plans as a percentage of total sales 64.7% 66.3% - 64.9% 65.4% -
# Denotes variances of more than 100%. * Computed based on the past twelve months of net income and excludes the effect of SFAS No. 115. ** Includes 1,105 advisors from the acquisition of Securities America in the first quarter of 1998. 15 American Express Financial Advisors American Express Financial Advisors' (AEFA) revenue and earnings growth for the three and six month periods ended June 30, 1998 was due to higher management fees from increased managed asset levels, including separate account assets, and greater distribution fees driven by record mutual fund sales and higher asset levels. Managed assets rose due to both market appreciation and net sales since the prior year. The increase in investment income reflects higher asset levels and higher yields compared with the prior year. Other revenues benefited from higher life insurance premiums. The provision for annuities declined due to flat in-force levels and lower accrual rates. The provision for insurance benefits rose, reflecting greater policies in force and unfavorable claims experience in life insurance. The greater provision for investment certificates was a result of higher in-force levels and accrual rates. Human resource expenses rose as a result of a volume-driven increase in advisors' compensation reflecting growth in sales and asset levels. The rise in other operating expenses is due to increased spending on systems technology, advertising and other costs related to higher business volumes. 16
American Express Financial Advisors Liquidity and Capital Resources Selected Balance Sheet Information ---------------------------------- (Unaudited) (Amounts in billions, except percentages) June 30, December 31, Percentage June 30, Percentage 1998 1997 Inc/(Dec) 1997 Inc/(Dec) ------ ------ --------- ------ --------- Investments $31.0 $30.7 1.0% $29.3 5.7% Separate Account Assets $26.6 $23.2 14.5 $21.1 26.2 Total Assets $63.8 $59.8 6.6 $56.3 13.3 Client Contract Reserves $30.2 $30.2 0.1 $29.4 2.7 Total Liabilities $59.8 $56.1 6.6 $53.0 13.0 Total Shareholder's Equity $4.0 $3.7 6.1 $3.4 17.5 Return on Average Equity* 22.3% 21.8% - 21.2% -
* Computed based on the past twelve months of net income and excludes the effect of SFAS No. 115. AEFA's total assets rose from year-end primarily as a result of market appreciation in separate account assets. 17
American Express Bank/Travelers Cheque (AEB/TC) Results of Operations For The Three and Six Months Ended June 30, 1998 and 1997 Statement of Income ------------------- (Unaudited) (Amounts in millions, except percentages) Three Months Six Months Ended Ended June 30, June 30, ------------ Percentage ---------- Percentage 1998 1997 Inc/(Dec) 1998 1997 Inc/(Dec) ----------------------- -------------------- Net Revenues: Interest Income $218 $226 (3.4)% $428 $444 (3.6)% Interest Expense 147 148 (0.7) 286 284 0.6 ----------- ----------- Net Interest Income 71 78 (8.6) 142 160 (11.1) Travelers Cheque Investment Income 80 83 (3.4) 161 164 (2.5) Foreign Exchange Income 35 21 68.4 83 40 # Commissions, Fees and Other Revenues 65 100 (35.0) 122 187 (34.3) ----------- ----------- Total Net Revenues 251 282 (10.8) 508 551 (7.7) ----------- ----------- Expenses: Human Resources 79 75 5.7 153 148 3.5 Other Operating Expenses 136 133 2.3 261 254 2.3 Provision for Losses 13 8 68.9 245 18 # ----------- ----------- Total Expenses 228 216 5.9 659 420 56.9 ----------- ----------- Pretax Income/(Loss) 23 66 (65.4) (151) 131 - Income Tax Benefit (24) (4) # (115) (8) # ----------- ----------- Net Income/(Loss) $47 $70 (33.7) $(36) $139 - =========== =========== Selected Statistical Information -------------------------------- Three Months Six Months Ended Ended June 30, June 30, ------------ Percentage ---------- Percentage 1998 1997 Inc/(Dec) 1998 1997 Inc/(Dec) ----------------------- -------------------- American Express Bank: Assets Managed / Administered * $5.6 $5.0 11.8% $5.6 $5.0 11.8% Assets of Non-Consolidated Joint Ventures $2.7 $1.4 96.3 $2.7 $1.4 96.3 Travelers Cheque: Sales $6.4 $6.6 (3.3) $11.2 $11.7 (4.4) Average Outstanding $6.0 $6.0 0.2 $5.8 $5.9 (0.6) Average Investments $5.7 $5.7 - $5.6 $5.5 0.3 Tax equivalent yield 9.0% 9.3% - 9.1% 9.3% -
# Denotes variance of more than 100%. * Includes assets managed by American Express Financial Advisors. 18 American Express Bank/Travelers Cheque (AEB/TC) Net income declined for the three and six month periods ended June 30, 1998. The six month period ended June 30, 1998 included a $213 million ($138 million after-tax) credit loss provision related to AEB's business in the Asia/Pacific region, particularly Indonesia. The prior year's results included approximately $24 million ($16 million after-tax) in the first and second quarters related to increased recognition of recoveries on abandoned property related to the TC business. These recoveries are included in commissions, fees and other revenues. The continuing economic downturn in Asia contributed to reduced net interest income, and commissions and fees. This decline was offset by significant growth in foreign exchange trading revenue, primarily in Asia. 19
American Express Bank/Travelers Cheque (AEB/TC) Liquidity and Capital Resources Selected Balance Sheet Information --------------------------------- (Unaudited) (Amounts in billions, except percentages and where indicated) June 30, December 31, Percentage June 30, Percentage 1998 1997 Inc/(Dec) 1997 Inc/(Dec) ------ ------ --------- ------ --------- Travelers Cheque Investments $6.5 $5.9 9.2% $6.4 2.0% Total Loans $6.1 $6.2 (0.8) $6.4 (4.3) Total Nonperforming Loans (millions) $205 $47 # $80 # Other Nonperforming Assets (millions) $73 $11 # $4 # Reserve for Credit Losses (millions)* $350 $137 # $131 # Loan Loss Reserves as a Percentage of Total Loans 4.3% 2.1% - 2.0% - Total Assets $18.8 $19.7 (4.1) $20.5 (8.2) Deposits $8.1 $8.5 (4.8) $9.0 (9.8) Travelers Cheques Outstanding $6.3 $5.6 12.0 $6.5 (2.2) Total Liabilities $17.7 $18.4 (3.8) $19.4 (8.6) Total Shareholder's Equity (millions) $1,135 $1,248 (9.0) $1,157 (1.9) Return on Average Assets** 0.50% 1.40% - 1.38% - Return on Average Common Equity** 10.4% 28.7% - 27.8% - Risk-Based Capital Ratios: Tier 1 9.2% 8.8% - 8.4% - Total 12.2% 12.3% - 11.3% - Leverage Ratio 5.6% 5.3% - 5.5% -
# Denotes variance of more than 100%. * Allocation: Loans $265 $131 $130 Other Assets, primarily derivatives 84 6 1 Other Liabilities 1 - - ---- ---- ---- Total Credit Loss Reserves $350 $137 $131 ==== ==== ==== ** Computed based on the past twelve months of net income and excludes the effect of SFAS No. 115. AEB/TC total assets declined from year end primarily due to lower unrealized gains on foreign exchange and derivatives contracts in Asia. As presented in the table below, AEB had approximately $2.4 billion outstanding in loans in the Asia/Pacific region at June 30, 1998, down from $2.8 billion at December 31, 1997. In addition, there are other banking activities in the region, such as forward contracts, various contingencies and market placements, which added approximately $1.3 billion to AEB's credit exposures at June 30, 1998 (compared with $1.5 billion at December 31, 1997). American Express has taken steps to ensure that AEB remains well capitalized, as defined by regulatory guidelines. In April 1998, American Express purchased $225 million of deferred tax assets from AEB, thereby reducing non-qualifying assets and increasing regulatory capital. American Express expects to be able to utilize these deferred tax assets over time within its consolidated tax return and, therefore, realize full value. 20
American Express Bank Asia/Pacific Region Exposure By Country --------------------------------------- (Unaudited) ($ in billions) Net FX Guarantees 6/30/98 3/31/98 12/31/97 and and Total Total Total Country Loans Derivatives Contingents Other* Exposure** Exposure Exposure - ------- ----- ----------- ----------- ------ --------- -------- -------- Hong Kong $1.0 $ - $ 0.1 $0.1 $1.2 $1.0 $1.0 Indonesia 0.4 0.1 0.1 0.1 0.6 0.8 0.9 Singapore 0.3 - 0.1 0.1 0.5 0.6 0.6 Korea 0.1 0.1 0.1 0.1 0.4 0.5 0.7 Taiwan 0.3 - 0.1 0.1 0.5 0.4 0.5 China 0.1 - - - 0.1 0.1 0.1 Japan - - - 0.1 0.1 0.1 0.2 Thailand 0.1 - - - 0.1 0.1 0.1 Other 0.1 - - 0.1 0.2 0.2 0.2 ---- ---- ---- ---- ---- ---- ---- Total Asia** $2.4 $0.2 $0.5 $0.6 $3.7 $3.7 $4.3 ==== ==== ==== ==== ==== ==== ====
* Includes cash, placements and securities. ** Individual items may not add to totals due to rounding. 21 Corporate and Other Corporate and Other had net expenses of $41 million and $1 million for the three months and six months ended June 30, 1998, respectively, compared with net expenses of $38 million and $77 million in the same periods last year. Included in Other Expenses for the six months ended June 30, 1998 is income in the first quarter of $106 million ($78 million after-tax) comprising a $60 million gain ($39 million after-tax) from sales of common stock of First Data Corporation and a $46 million preferred stock dividend ($39 million after-tax) based on earnings from Lehman Brothers. 22 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, 1998 and the related consolidated statements of income for the three and six-month periods ended June 30, 1998 and 1997 and consolidated statements of cash flows for the six month periods ended June 30, 1998 and 1997. 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, 1997, 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 5, 1998, 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, 1997 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 13, 1998 23 PART II. OTHER INFORMATION AMERICAN EXPRESS COMPANY Item 4. Submission of Matters to a Vote of Security Holders For information relating to the matters voted upon at the registrant's annual meeting for shareholders held on April 27, 1998, see Item 4 on page 21 of the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, which is incorporated herein by reference. Item 5. Other information Under the Registrant's By-laws, shareholders who wish to present a proposal at the 1999 annual meeting of shareholders (other than a proposal that will be included in the Registrant's proxy materials) must notify the Registrant no earlier than December 28, 1998 and no later than January 27, 1999. 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 July 27, 1998, Item 5, relating to the registrant's earnings for the quarter ended June 30, 1998. Form 8-K dated August 5, 1998, Item 5, reporting certain information from speeches presented by Harvey Golub, the Company's Chairman and Chief Executive Officer, and Steve Alesio, President of American Express Small Business Services, on August 5, 1998, to the financial community. 24 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 13, 1998 By/s/ Richard Karl Goeltz ----------------------- Richard Karl Goeltz Vice Chairman and Chief Financial Officer Date: August 13, 1998 By /s/ Daniel T. Henry ----------------------- Daniel T. Henry Senior Vice President and Comptroller (Chief Accounting Officer) 25 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, ---------------------------------------- 1998 (Unaudited) 1997 1996 1995 1994 1993 ---------- ---- ---- ---- ---- ---- Earnings: Pretax income from continuing operations $1,413 $2,750 $2,664 $2,183 $1,891 $2,326 Interest expense 1,094 2,122 2,160 2,343 1,925 1,776 Other adjustments 63 127 139 95 103 88 ----- ----- ----- ----- ----- ----- Total earnings (a) $2,570 $4,999 $4,963 $4,621 $3,919 $4,190 ----- ----- ----- ----- ----- ----- Fixed charges: Interest expense $1,094 $2,122 $2,160 $2,343 $1,925 $1,776 Other adjustments 58 129 130 135 142 130 ----- ----- ----- ----- ----- ----- Total fixed charges(b) $1,152 $2,251 $2,290 $2,478 $2,067 $1,906 ----- ----- ----- ----- ----- ----- Ratio of earnings to fixed charges (a/b) 2.23 2.22 2.17 1.86 1.90 2.20
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 Statements 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 (FDC) 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 13, 1998 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, No. 333-12683, No. 333-41779 and No. 333-52699; Form S-3 No. 2-89469, No. 33-43268, No. 33-50997, No. 333-32525, No. 333-45445, No. 333-47085 and 333-55761) of American Express Company of our report dated August 13, 1998 relating to the unaudited consolidated interim financial statements of American Express Company which are included in its Form 10-Q for the three and six month periods ended June 30, 1998. 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, 1998 and Consolidated Statement of Income for the six months ended June 30, 1998 and is qualified in its entirety by reference to such financial statements. 1,000,000 6-MOS DEC-31-1998 JUN-30-1998 3,501 40,602 21,321 775 0 0 3,459 1,942 120,986 0 25,841 0 0 274 9,023 120,986 0 9,282 0 4,432 867 2,094 476 1,413 376 1,037 0 0 0 1,037 2.26 2.22 Represents basic earnings per share.
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