-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, cM/ZgZMU+3iE6+p9vAL3SysHIjGc7B79P3vBh9EI+jqZuc5KRzyJCdmsSCqfMkHj 9DI/rkJ9mjqpUf9mty3MZw== 0000004962-94-000025.txt : 19940822 0000004962-94-000025.hdr.sgml : 19940822 ACCESSION NUMBER: 0000004962-94-000025 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN EXPRESS CO CENTRAL INDEX KEY: 0000004962 STANDARD INDUSTRIAL CLASSIFICATION: 6211 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: 94544259 BUSINESS ADDRESS: STREET 1: AMERICAN EXPRESS TWR STREET 2: WORLD FINANCIAL CTR CITY: NEW YORK STATE: NY ZIP: 10285 BUSINESS PHONE: 2126402000 10-Q 1 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, 1994 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.) American Express Tower, World Financial Center, 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, 1994 - - ---------------------------------------- ---------------------------- Common Shares (par value $.60 per share) 494,924,260 shares PAGE AMERICAN EXPRESS COMPANY FORM 10-Q INDEX Part I. Financial Information: Consolidated Statement of Income--Three and 1-2 six months ended June 30, 1994 and 1993 Consolidated Balance Sheet--June 30, 1994 3 and December 31, 1993 Consolidated Statement of Cash Flows--Six 4 months ended June 30, 1994 and 1993 Notes to Consolidated Financial Statements 5-6 Management's Discussion and Analysis of 7-15 Financial Condition and Results of Operations Review Report of Independent Auditors 16 Part II. Other Information 17 PAGE PART I--FINANCIAL INFORMATION AMERICAN EXPRESS COMPANY CONSOLIDATED STATEMENT OF INCOME (millions, except per share amounts) (Unaudited) Three Months Ended June 30, ------------------- 1994 1993 ------ ------ Net Revenues: Commissions and fees $ 2,105 $ 1,931 Interest and dividends, net 1,018 1,005 Life insurance premiums 192 177 Other 193 184 ----- ----- Total 3,508 3,297 ----- ----- Expenses: Human resources 914 814 Provisions for losses and benefits: Annuities and investment certificates 286 331 Banking, credit and other 257 317 Life insurance 182 133 Marketing and promotion 280 271 Interest 257 210 Occupancy and equipment 242 233 Professional services 174 140 Communications 91 88 Other 347 343 ----- ----- Total 3,030 2,880 ----- ----- Pretax income from continuing operations 478 417 Income tax provision 119 116 ----- ----- Income from continuing operations 359 301 Discontinued operations, net of income taxes (2) 115 ----- ----- Net income $ 357 $ 416 ===== ===== Income per common share from continuing operations $ 0.70 $ 0.60 Income (loss) per common share from discontinued operations (0.01) 0.23 ----- ----- Net income per common share $ 0.69 $ 0.83 ===== ===== Weighted average number of common shares outstanding (000's) 511,283 498,640 ======= ======= Cash dividends declared per common share $ 0.225 $ 0.25 ======= ======= See notes to Consolidated Financial Statements. 1 PAGE AMERICAN EXPRESS COMPANY CONSOLIDATED STATEMENT OF INCOME (millions, except per share amounts) (Unaudited) Six Months Ended June 30, -------------------- 1994 1993 ------- -------- Net Revenues: Commissions and fees $ 4,101 $ 3,783 Interest and dividends, net 2,032 1,955 Life insurance premiums 376 343 Other 372 326 ----- ----- Total 6,881 6,407 ----- ----- Expenses: Human resources 1,799 1,614 Provisions for losses and benefits: Annuities and investment certificates 572 649 Banking, credit and other 528 639 Life insurance 362 279 Marketing and promotion 514 521 Interest 490 421 Occupancy and equipment 485 463 Professional services 312 272 Communications 180 173 Other 721 637 Gain on sale of FDC - (779) ----- ----- Total 5,963 4,889 ----- ----- Pretax income from continuing operations 918 1,518 Income tax provision 241 517 ----- ----- Income from continuing operations 677 1,001 Discontinued operations, net of income taxes 33 (342) ----- ----- Net income $ 710 $ 659 ===== ===== Income per common share from continuing operations $ 1.31 $ 2.01 Income (loss) per common share from discontinued operations 0.07 (0.70) ----- ----- Net income per common share $ 1.38 $ 1.31 ===== ===== Weighted average number of common shares outstanding (000's) 509,284 496,744 ======= ======= Cash dividends declared per common share $ 0.475 $ 0.50 ======= ======= See notes to Consolidated Financial Statements. 2 PAGE AMERICAN EXPRESS COMPANY CONSOLIDATED BALANCE SHEET (millions) (Unaudited) June 30, December 31, Assets 1994 1993 - - ------ --------- ------------ Cash and cash equivalents $ 4,633 $ 3,312 Accounts receivable and accrued interest, less reserves: 1994, $781; 1993, $796 16,087 16,142 Investments 39,016 39,308 Loans and discounts, less reserves: 1994, $530; 1993, $655 14,584 14,796 Land, buildings and equipment--at cost, less accumulated depreciation: 1994, $1,528; 1993, $1,441 1,959 1,976 Assets held in segregated asset accounts 9,796 8,992 Deferred acquisition costs 2,132 2,025 Other assets 7,292 7,581 ------ ------ Total assets $ 95,499 $94,132 ====== ====== Liabilities and Shareholders' Equity Customers' deposits and credit balances $ 11,292 $11,131 Travelers Cheques outstanding 5,817 4,800 Accounts payable 3,788 3,737 Insurance and annuity reserves: Fixed annuities 19,255 19,149 Life and disability policies 4,458 4,257 Investment certificate reserves 2,651 2,752 Short-term debt 12,864 12,489 Long-term debt 8,565 8,561 Liabilities related to segregated asset accounts 9,796 8,992 Other liabilities 10,256 9,530 ------ ------ Total liabilities 88,742 85,398 Shareholders' equity: Preferred shares, $1.66 2/3 par value, authorized 20,000,000 shares Convertible Exchangeable Preferred shares, issued and outstanding 4,000,000 shares, stated at liquidation value 200 200 $216.75 CAP Preferred shares, issued and outstanding 122,448.98 shares, stated at par value (liquidation value of $300) 1 1 Common shares, $.60 par value, authorized 1,200,000,000 shares; issued and outstanding 494,703,115 shares in 1994 and 489,827,852 shares in 1993 297 294 Capital surplus 3,938 3,784 Net unrealized securities gains (losses) (147) 7 Foreign currency translation adjustment (57) (73) Deferred compensation (119) (128) Retained earnings 2,644 4,649 ------ ------ Total shareholders' equity 6,757 8,734 ------ ------ Total liabilities and shareholders' equity $ 95,499 $94,132 ====== ====== See notes to Consolidated Financial Statements. 3 PAGE AMERICAN EXPRESS COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS (millions) (Unaudited) Six Months Ended June 30, ---------------- 1994 1993 ---- ---- Cash Flows from Operating Activities Income from continuing operations $ 677 $1,001 Adjustments to reconcile income from continuing operations to net cash (used) provided by operating activities: Provisions for losses and benefits 718 842 Depreciation, amortization, deferred taxes and other 70 337 Changes in operating assets and liabilities, net of effects of acquisitions/dispositions: Accounts receivable and accrued interest 2 137 Other assets (648) 298 Accounts payable and other liabilities (128) 393 Increase in Travelers Cheques outstanding 1,018 684 Increase in insurance reserves 206 103 Gain on sale of FDC - (779) Net cash flows (used) provided by operating activities of discontinued operations (3,656) 1,669 ------ ------ Net cash (used) provided by operating activities (1,741) 4,685 ------ ------ Cash Flows from Investing Activities Proceeds from FDC public offerings, net of cash sold in 1993 - 871 Sale of investments 2,553 1,721 Maturity and redemption of investments 3,701 3,894 Purchase of investments (6,495) (7,208) Net increase in Cardmember receivables (261) (939) Proceeds from repayment of loans 10,756 8,687 Issuance of loans (10,023) (8,671) Sale of land, buildings and equipment 30 22 Purchase of land, buildings and equipment (138) (173) Acquisitions/dispositions, net of cash acquired/sold (15) (33) Net cash flows (used) provided by investing activities of discontinued operations (36) 49 ------ ------ Net cash provided (used) by investing activities 72 (1,780) ------ ------ Cash Flows from Financing Activities Net increase in customers' deposits and credit balances 49 238 Sale of investment and annuity certificates 2,667 2,644 Redemption of investment and annuity certificates (2,721) (1,866) Net increase in debt with maturities of 3 months or less 4,520 69 Issuance of debt 2,864 4,628 Principal payments on debt (7,011) (5,022) Issuance of American Express common shares 132 131 Repurchase of American Express common shares (111) - Cash infusion to Lehman Brothers (904) - Dividends paid (267) (262) Net cash flows provided (used) by financing activities of discontinued operations 3,737 (966) ------ ------ Net cash provided (used) by financing activities 2,955 (406) Net change in cash and cash equivalents of discontinued operations 45 752 Effect of exchange rate changes on cash 80 (79) ------ ------ Net increase in cash and cash equivalents 1,321 1,668 Cash and cash equivalents at beginning of period 3,312 3,408 ------ ------ Cash and cash equivalents at end of period $4,633 $5,076 ====== ====== See notes to Consolidated Financial Statements. 4 PAGE AMERICAN EXPRESS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The consolidated financial statements should be read in conjunction with the financial statements presented in the Annual Report on Form 10-K of American Express Company (the Company or American Express) for the year ended December 31, 1993. Certain prior year's amounts have been reclassified to conform to the current year's presentation. Significant accounting policies disclosed therein have not changed, except as disclosed in Note 4. The consolidated financial statements are unaudited; however, in the opinion of management, they include all normal recurring adjustments necessary for a fair presentation of the consolidated financial position of the Company at June 30, 1994 and December 31, 1993, the consolidated results of its operations for the three and six months ended June 30, 1994 and 1993 and cash flows for the six months ended June 30, 1994 and 1993. Results of operations reported for interim periods are not necessarily indicative of results for the entire year. 2. Interest and dividends, net, reflects gross interest and dividends, net of $222 million and $206 million of interest expense for the quarters ended June 30, 1994 and June 30, 1993, respectively, and $428 million and $436 million for the six months ended June 30, 1994 and June 30, 1993, respectively, related to the Company's international banking operations and Travel Related Services' consumer lending activities. 3. On May 31, 1994, the Company completed the spin-off of Lehman Brothers Holdings Inc. (Lehman Brothers) through a dividend to its common shareholders of all of the Lehman Brothers common stock held by American Express on that date. See Consolidated Financial Condition, which is incorporated herein by reference. As a result of this transaction, Lehman Brothers' results are reported as a discontinued operation in the Consolidated Financial Statements through May 31, 1994. For the period ended December 31, 1993, the assets and liabilities of Lehman Brothers have been reported in the Consolidated Balance Sheet as net assets of discontinued operations and are included in Other Assets. 4. As of January 1, 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities". Under SFAS No. 115, debt securities for which the Company has both the positive intent and the ability to hold to maturity are carried at amortized cost. Other debt securities and all marketable equity securities are classified as either Available for Sale or Trading and are carried at fair value. Unrealized holding gains and losses on securities classified as Available for Sale are reported as a separate component of Shareholders' Equity. Unrealized holding gains and losses on securities classified as Trading are recognized in earnings. 5 PAGE The following is a summary of investments at June 30, 1994 (in millions): Held to Maturity, at amortized cost $ 22,302 (fair value $22,295) Available for Sale, at fair value 13,956 (cost $14,182) Trading 312 Mortgage loans 2,446 ------ $39,016 ====== 5. Net income taxes paid during the six months ended June 30, 1994 and 1993 were approximately $79 million and $354 million, respectively. Interest paid during the six months ended June 30, 1994 and 1993 was approximately $783 million and $732 million, respectively. 6. In the first quarter of 1993, the Company reduced its 54 percent ownership of First Data Corporation (FDC) to 22 percent through a public offering of FDC shares. The Company recognized a gain from the sale of $433 million ($779 million pretax), which is included in the Consolidated Statement of Income for the six months ended June 30, 1993. The Company's ownership of FDC was reduced to approximately 21 percent in the second quarter of 1994 due to the Company's contribution of FDC shares to the American Express Foundation. 6 PAGE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES Consolidated Financial Condition On April 29, 1994, the Company's Board of Directors declared a dividend to its common shareholders of all of the Lehman Brothers Holdings Inc. (Lehman Brothers) common stock held by American Express on the dividend distribution date. The dividend was distributed on May 31, 1994 to shareholders of record on May 20, 1994 and represented approximately 98.2 million shares of Lehman Brothers common stock. Shareholders of American Express received one share of Lehman Brothers common stock for each five common shares of American Express that they held on the record date. Prior to the distribution, the Company added approximately $1.1 billion of additional equity capital to Lehman Brothers representing: The Company's purchase of approximately $903.8 million of Lehman Brothers common stock, which was included in the dividend to American Express common shareholders. The Company sold approximately $11.1 million of Lehman Brothers common stock from its holdings to certain Lehman Brothers executive officers; and The Company's purchase of $200 million of Lehman Brothers cumulative voting preferred stock which is being held for investment purposes. In addition, approximately $57 million of Lehman Brothers common stock was acquired by Lehman Brothers employees through an existing employee ownership plan, and approximately $89.2 million of the common stock was acquired by Nippon Life Insurance Company (Nippon Life). The Company also purchased 928 shares and Nippon Life purchased 72 shares of Lehman Brothers redeemable voting preferred stock for a nominal dollar amount. The redeemable voting preferred stock entitles its holders to receive an aggregate annual dividend of 50 percent of Lehman Brothers net income over $400 million for each of the next eight years, with a maximum of $50 million in any one year. In addition, the Company and Nippon Life will be entitled to receive 92.8 percent and 7.2 percent, respectively, of certain contingent revenue and earnings related payouts from Travelers Corporation (Travelers), which was assigned by Lehman Brothers to American Express and Nippon Life in connection with the spin-off transaction. The Travelers participations will yield a maximum of $50 million pretax annually for three years (of which the first installment was received in the first quarter), depending on the revenues of Smith Barney plus 10 percent of after-tax profits of Smith Barney in excess of $250 million per year over a five-year period. As a result of this transaction, Lehman Brothers' results are reported as a discontinued operation in the Consolidated Financial Statements through the spin-off date. The assets and liabilities of Lehman Brothers have been reported in the Consolidated Balance Sheet as net assets of discontinued operations and are included in Other Assets for the period ended December 31, 1993. 7 PAGE On June 27, 1994, the Company's Board of Directors declared a quarterly dividend of $0.225 per common share, payable August 10, 1994 to shareholders of record on July 8, 1994, adjusting its prior quarterly dividend rate of $0.25 per share to reflect the Lehman Brothers spin-off. During the second quarter of 1994, the Company purchased approximately four million of its common shares in the open market in order to offset any dilution resulting from the 1994 conversions of American Express Company 9% Convertible Notes Series A-G, convertible prior to April 1, 1994 at $17.755. Of the $160 million in Notes originally issued, $58 million was outstanding at December 31, 1993 and was converted into approximately 3.3 million shares during the first quarter. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities", as of January 1, 1994. See Note 4 which is incorporated herein by reference. At June 30, 1994, approximately 38 percent, or $14.0 billion, of the Company's securities were classified as Available for Sale. This does not mean that the Company expects to sell these securities, but that under SFAS No. 115 positive intent criteria, these securities are available to meet possible liquidity needs should there be significant changes in market interest rates, customer demand, funding sources and terms, or foreign currency risk. The following sections discuss changes during the six months ended June 30, 1994 in the financial condition of each of the Company's business segments. Except where indicated otherwise, comparisons of June 30, 1994 balance sheet amounts are made with comparable amounts at December 31, 1993. Travel Related Services (TRS) TRS' total assets were $41.9 billion at June 30, 1994 and $38.8 billion at December 31, 1993. The increase in total assets reflects seasonal growth in the Travelers Cheque portfolio and increased liquidity. Accounts receivable and accrued interest totaled $15.7 billion at June 30,1994 and December 31, 1993. Loans and discounts were $8.4 billion at June 30, 1994 and $8.2 billion at December 31, 1993. In 1994, TRS plans to issue the first of a series of stand-alone revolving credit products which are expected to increase significantly the size of its lending portfolio over time. TRS does not believe this action will have a material impact on its capital, liquidity, or results of operations in 1994 and 1995. TRS' prior year's assets have been restated to reflect the transfer of certain international consumer financial services businesses to American Express Bank. IDS Financial Services (IDS) IDS' total assets owned increased to $37.8 billion at June 30, 1994 from $37.4 billion at December 31, 1993. This growth primarily reflects an increase in assets held in segregated asset accounts, partially offset by declines in investment securities due to market value declines. Assets held in segregated accounts totaled $9.8 billion and $9.0 billion at June 30, 1994 and December 31, 1993, respectively. These assets, primarily investments carried at market value, are held for the exclusive benefit of variable annuity and variable life insurance contract holders. IDS earns investment management and administration fees from the related funds. 8 PAGE Assets under management increased to $62.8 billion at June 30, 1994 from $62.3 billion at December 31, 1993, reflecting strong net sales, partially offset by market depreciation. During the first six months of 1994, IDS Financial Corporation issued and sold $70 million of 6.5% Medium-Term Notes due 2004 and $50 million of 6.625% Medium-Term Notes due 2006. The Notes were sold in private placements to institutional investors. The proceeds from these issuances were used for general corporate purposes. American Express Bank (the Bank) The Bank's assets totaled $14.4 billion and $14.1 billion at June 30, 1994 and December 31, 1993, respectively. The Bank's prior year's assets have been restated to reflect the transfer of certain international consumer financial services businesses from TRS. Total loans were $5.6 billion at both June 30, 1994 and year-end 1993. The reserve for credit losses was $115 million at June 30, 1994, compared with $126 million at December 31, 1993. The Bank's credit loss reserve coverage was 2.0 percent of total loans at June 30, 1994, compared with 2.2 percent at December 31, 1993. Total loan write-offs, net of recoveries, were $20 million during both the first six months of 1994 and 1993. Nonperforming loans totaled $34 million at June 30, 1994 and $43 million at December 31, 1993. The Bank's other nonperforming assets totaled $59 million at June 30, 1994, compared with $89 million at year-end 1993. The decline in nonperforming loans and other nonperforming assets primarily reflects write-offs and the sale of a foreclosed property, respectively. American Express Bank Ltd.'s (AEBL) risk-based capital ratios were 6.6 percent for Tier 1 Capital and 13.0 percent for Total Capital at June 30, 1994, compared with 6.3 percent and 10.2 percent, respectively, at year-end 1993. AEBL's leverage ratio was 4.2 percent at June 30, 1994 and 4.4 percent at December 31, 1993. The increase in the Total Capital ratio at June 30, 1994 was primarily due to the issuance and sale outside the United States of $250 million of Floating Rate Subordinated Notes due 2004. The proceeds of this issuance were used for general corporate purposes. RESULTS OF OPERATIONS Three Months Ended June 30, 1994 and 1993 The Company reported consolidated income from continuing operations of $359 million in the second quarter of 1994, compared with $301 million last year. On May 31, 1994, the Company completed the spin-off of Lehman Brothers. Including Lehman Brothers as a discontinued operation through the spin-off date, second quarter 1994 net income totaled $357 million compared with $416 million last year. Consolidated net revenues totaled $3.5 billion in the second quarter of 1994, compared with $3.3 billion a year ago. The Company's effective tax rate was 25 percent in the second quarter of 1994, compared with 28 percent a year ago. Both years' rates were reduced by tax-advantaged investment income. 9 PAGE Six Months Ended June 30, 1994 and 1993 The Company reported consolidated net income from continuing operations of $677 million for the first six months of 1994, compared with $1.0 billion last year, including the 1993 gain of $433 million ($779 million pretax) on the sale of First Data Corporation (FDC) stock. Including Lehman Brothers, which is reflected as a discontinued operation through the spin-off date, net income for the first half of 1994 totaled $710 million, compared with $659 million a year ago. Consolidated net revenues for the first six months of 1994 were $6.9 billion, compared with $6.4 billion last year. The Company's effective tax rate was 26 percent in the first half of 1994, compared with 34 percent a year ago. This year's rate was reduced by tax- advantaged investment income, while the prior year's rate reflects the tax effects of the FDC gain, partially offset by tax-advantaged investment income. Travel Related Services Three Months Ended June 30, 1994 and 1993 TRS reported net income of $263 million in the second quarter of 1994, compared with $233 million last year. Pretax income totaled $365 million, compared with $319 million a year ago. TRS' prior year's results have been restated to reflect the transfer of certain international consumer financial services businesses to the Bank. Worldwide Card billed business increased to $34.6 billion in the second quarter of 1994 from $31.0 billion last year, reflecting higher spending per Cardmember and an increase in the number of Cards outstanding. U.S. Card billed business was $25.3 billion, compared with $22.5 billion a year ago. Non-U.S. Card billed business totaled $9.3 billion, compared with $8.5 billion last year. Worldwide Cards in force totaled 35.6 million, compared with 34.0 million a year ago. U.S. Cards in force totaled 24.8 million, compared with 23.8 million last year. Non-U.S. Cards in force were 10.8 million at June 30, 1994, compared with 10.2 million a year ago. Basic Cards in force totaled 26.1 million, compared with 25.1 million last year. The increase in worldwide Cards in force reflects the addition of approximately 1.1 million Cards issued to U.S. Government employees beginning late in 1993. The number of service establishments (SE) increased 6.6 percent to 3.7 million from 3.5 million last year. Travelers Cheque sales totaled $6.5 billion in the second quarter of 1994, compared with $6.2 billion last year. Average Travelers Cheques outstanding totaled $5.3 billion, compared with $5.0 billion a year ago. Net revenues (total revenues net of lending interest expense) increased 7.0 percent to $2.5 billion, reflecting the increase in worldwide Card billed business and growth in Business Travel sales. This increase was partially offset by discount rate reductions from SE repricing implemented throughout 1993. Discount revenue increased to $983 million from $899 million last year. Net Card fees totaled $431 million, compared with $433 million a year ago, reflecting a change in the mix of Card products. Lending finance charge revenue increased to $304 million from $302 million a year ago. Lending net finance charge revenue decreased 1.3 percent to $235 million. Interest and dividend revenue increased to $187 million from $177 million last year. Other revenues increased 13 percent to $667 million primarily due to increased travel commissions. 10 PAGE Total expenses, excluding lending interest expense, rose 5.9 percent to $2.1 billion for the second quarter of 1994, compared with $2.0 billion in the second quarter of 1993. The provision for losses and claims declined 7.5 percent to $360 million from $390 million a year ago. The worldwide charge Card provision declined to $177 million in the second quarter of 1994 from $192 million last year, reflecting continued improvement in Card credit experience, partially offset by an increase in billed business. The worldwide lending provision was $63 million, compared to $97 million a year ago, reflecting a continued decline in write-offs. Interest expense, excluding lending interest expense which is included in net revenues above, totaled $209 million in the second quarter of 1994, up from $198 million last year. Worldwide charge Card interest expense totaled $168 million, compared with $171 million last year. Excluding interest and the provision for losses, total expenses increased 9.6 percent reflecting, in part, business travel growth and investments in certain business initiatives. Human resources expense increased to $625 million in the second quarter of 1994 from $537 million a year ago, primarily reflecting growth in the Business Travel and Corporate Card businesses. Marketing and promotion expense increased 3.5 percent to $273 million in the second quarter of 1994 from $264 million last year. Six Months Ended June 30, 1994 and 1993 TRS' net income increased 13 percent to $498 million in the first six months of 1994, compared with $442 million last year. Pretax income totaled $691 million, compared with $580 million a year ago. Worldwide Card billed business increased to $66.4 billion in the first half of 1994 from $59.2 billion last year, reflecting higher spending per Cardmember, growth in Corporate Card billed business and an increase in the number of Cards outstanding. U.S. Card billed business was $48.3 billion, compared with $42.9 billion a year ago. Non-U.S. Card billed business totaled $18.1 billion, compared with $16.4 billion last year. Travelers Cheque sales increased to $11.4 billion in the first six months of 1994 from $10.9 billion last year. Average Travelers Cheques outstanding totaled $5.1 billion, compared with $4.9 billion a year ago. Net revenues increased 6.4 percent to $4.9 billion, reflecting the increase in worldwide Card billed business and growth in Business Travel sales. This increase was partially offset by discount rate reductions from SE repricing implemented throughout 1993 and a decrease in net Card fee revenues. Discount revenue increased to $1.9 billion from $1.7 billion last year. Net Card fees totaled $862 million, compared with $869 million a year ago, reflecting a change in the mix of Card products. Interest and dividend revenue increased to $361 million from $352 million last year. Lending finance charge revenue remained flat at $596 million. Lending net finance charge revenue increased slightly to $464 million from $463 million last year. Other revenues increased 12 percent to $1.3 billion primarily due to increased travel commissions. 11 PAGE Total expenses, excluding lending interest expense, increased 4.5 percent to $4.2 billion for the first half of 1994, compared with $4.0 billion last year. The provision for losses and claims declined 7.2 percent to $726 million from $782 million a year ago. The worldwide charge Card provision declined to $325 million in the first six months of 1994 from $372 million last year, reflecting continued improvement in Card credit experience partially offset by an increase in billed business. The worldwide lending provision was $177 million, compared to $213 million a year ago, reflecting a continued decline in write-offs. Interest expense, excluding lending interest expense which is included in net revenues above, totaled $392 million for the first six months of 1994, down from $398 million last year, reflecting lower borrowing rates, partially offset by increased funding requirements. Worldwide charge Card interest expense totaled $326 million, compared with $347 million last year. Excluding interest and the provision for losses, total expenses increased 8.6 percent, in part reflecting business travel growth and investments in certain business initiatives. Human resources expense increased 14 percent to $1.2 billion in the first half of 1994 from $1.1 billion a year ago, primarily reflecting growth in the Business Travel and Corporate Card businesses. Marketing and promotion expense decreased slightly to $502 million in the first six months of 1994 from $510 million last year. IDS Financial Services Three Months Ended June 30, 1994 and 1993 IDS' net income increased 21 percent to $109 million in the second quarter of 1994 from $90 million last year. Revenues increased 3.0 percent to $815 million in the second quarter of 1994 from $791 million a year ago. Revenue and earnings growth benefited primarily from an increase in management fees and net investment income resulting from higher asset levels. Results also benefited from wider investment margins compared to year-ago levels. Pretax income totaled $161 million, compared with $132 million last year. IDS' financial planning field force totaled 7,780 at June 30, 1994, compared with 7,655 and 7,439 at December 31, 1993 and June 30, 1993, respectively. Total product sales increased in the second quarter of 1994 compared to last year. Product sales generated from financial plans were approximately 62 percent of total sales, compared with approximately 57 percent a year ago. Fees from financial plans were $9.6 million in the second quarter of 1994, compared with $8.9 million last year. Mutual fund sales totaled $2.3 billion in the second quarter of 1994, up 12 percent from $2.1 billion last year. This increase reflects higher sales of equity funds. Annuity sales increased 13 percent in the second quarter of 1994 to $1.2 billion from $1.0 billion a year ago, reflecting increased sales of annuities with variable investment options. Sales of investment certificates totaled $215 million in the second quarter of 1994, up from $157 million last year. Life and other insurance sales totaled $77 million in the second quarter of 1994, up from $70 million a year ago. Life insurance in force increased 13 percent to $49.3 billion at June 30, 1994 from $43.5 billion at June 30, 1993. Investment income decreased to $497 million in the second quarter of 1994 from $516 million last year, reflecting lower yields, partially offset by higher invested assets. Commissions and fees totaled $201 million in the second quarter of 1994, up from $177 million a year ago, reflecting management fees earned on a higher asset base. 12 PAGE Total expenses were $654 million in the second quarter of 1994, compared with $659 million last year. The provision for annuity benefits, the largest component of expenses, decreased to $252 million from $266 million a year ago, reflecting lower accrual rates, partially offset by higher annuities in force. The provision for insurance benefits increased to $85 million from $78 million a year ago. The provision for investment certificates totaled $25 million, down from $32 million last year, reflecting lower investment certificates in force and lower accrual rates. Human resources expense increased to $201 million from $183 million a year ago, reflecting an increase in the number of employees and financial planners, and increased commissionable sales. Other operating expenses decreased to $91 million in the second quarter of 1994 from $98 million last year, reflecting a lower provision for insurance industry guarantee association assessments. Six Months Ended June 30, 1994 and 1993 IDS' net income increased 21 percent to $200 million in the first six months of 1994 from $165 million last year. Revenues increased 6.5 percent to $1.6 billion in the first half of 1994 from $1.5 billion a year ago. Revenue and earnings growth benefited primarily from an increase in management fees and net investment income resulting from higher asset levels. Results also benefited from wider investment margins compared to year-ago levels. Pretax income totaled $297 million, compared with $239 million last year. Total product sales increased during the first six months of 1994 compared to last year. Product sales generated from financial plans were approximately 61 percent of total sales, compared with approximately 56 percent a year ago. Fees from financial plans were $19.8 million in the first six months of 1994, compared with $17.7 million last year. Mutual fund sales totaled $4.9 billion in the first half of 1994, up 17 percent from $4.2 billion last year. This increase reflects higher sales of equity funds. Annuity sales increased 9.9 percent in the first half of 1994 to $2.2 billion from $2.0 billion a year ago, reflecting increased sales of annuities with variable investment options. Sales of investment certificates totaled $370 million in the first six months of 1994, up from $298 million last year. Life and other insurance sales totaled $152 million in the first six months of 1994, up 9.9 percent from $139 million a year ago, reflecting increased sales of universal life insurance. Investment income of $1.0 billion in the first six months of 1994 remained unchanged from last year. Commissions and fees totaled $409 million in the first half of 1994, up from $341 million a year ago, reflecting management fees earned on a higher asset base and distribution fees earned on higher mutual fund sales. Total expenses were $1.3 billion in the first six months of 1994 and 1993. The provision for annuity benefits, the largest component of expenses, decreased to $506 million from $531 million a year ago, reflecting lower accrual rates, partially offset by higher annuities in force. The provision for insurance benefits increased to $173 million from $157 million a year ago. The provision for investment certificates totaled $47 million, down from $67 million last year, reflecting lower investment certificates in force and lower accrual rates. Human resources expense increased to $413 million from $360 million a year ago, reflecting an increase in the number of employees and financial planners, and increased commissionable sales. Other operating expenses increased to $196 million in the first six months of 1994 from $176 million last year, reflecting 13 PAGE increased amortization of deferred acquisition costs and surrenders as a result of an annuity exchange plan announced during the first quarter, partly offset by a lower provision for insurance industry guarantee association assessments. American Express Bank Three Months Ended June 30, 1994 and 1993 The Bank reported net income of $19 million in the second quarter of 1994, compared with $21 million a year ago. The Bank's results for the second quarter of 1994 reflect a decline in net interest income, primarily due to higher short-term funding costs and lower investment income, as well as higher operating expenses. Partially offsetting this decline was a lower provision for credit losses and a lower effective tax rate. Increased expenses primarily reflected spending related to systems technology. Pretax income totaled $28 million, compared with $35 million last year. The Bank's prior year's results have been restated to reflect the transfer of certain international consumer financial services businesses from TRS to the Bank. Net interest income totaled $84 million in the second quarter of 1994, compared with $94 million a year ago. Noninterest income, consisting primarily of commissions, fees and other revenues, increased to $78 million in the second quarter of 1994 from $77 million last year. Noninterest expenses, excluding the provision for credit losses, totaled $132 million in the second quarter of 1994, compared with $123 million a year ago. The provision for credit losses was $1.5 million in the second quarter of 1994, compared with $13 million a year ago. Six Months Ended June 30, 1994 and 1993 The Bank's net income totaled $44 million in the first six months of 1994, compared with $39 million a year ago. The Bank's results for the first half of 1994 reflected growth in fee income, a lower provision for credit losses and a lower effective tax rate, partially offset by lower net interest income and higher operating expenses. Pretax income totaled $64 million, compared with $62 million last year. Net interest income totaled $175 million in the first six months of 1994, compared with $181 million a year ago, reflecting higher short-term funding costs and lower investment income. Noninterest income increased to $155 million in the first half of 1994 from $146 million last year, primarily reflecting growth in fee income. Noninterest expenses, excluding the provision for credit losses, totaled $258 million in the first six months of 1994, compared with $239 million a year ago. Increased expense levels primarily reflected spending related to systems technology and higher human resources expense. The provision for credit losses was $8.3 million in the first six months of 1994, compared with $26 million a year ago, reflecting a lower level of nonperforming loans. Corporate and Other Three Months Ended June 30, 1994 and 1993 Corporate and Other reported second quarter net expenses of $32 million in 1994, compared with $43 million in 1993. 14 PAGE Six Months Ended June 30, 1994 and 1993 Corporate and Other reported net expenses of $65 million in the first six months of 1994, compared with $78 million in 1993, before a $433 million ($779 million pretax) gain from the sale of FDC stock last year. Results for the first half of 1994 include income from the Company's share of the Travelers revenue participation, in accordance with an agreement related to the 1993 sale of SLB, as well as a capital gain on the sale of Travelers preferred stock and warrants which were acquired as part of the 1993 sale. These gains were offset by the Company's costs associated with the Lehman Brothers spin-off and certain business building initiatives. Results for the first six months of 1993 included the first quarter gain on the sale of FDC stock mentioned above, which reduced the Company's ownership in FDC from 54 percent to approximately 22 percent. 15 PAGE 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, 1994, the related consolidated statements of income for the three-month and six-month periods ended June 30, 1994 and 1993 and the consolidated statement of cash flows for the six-month periods ended June 30, 1994 and 1993. 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, 1993, and the related consolidated statements of income, shareholders' equity, and cash flows for the year then ended (not presented herein), and in our report dated February 3, 1994, 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, 1993, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. ERNST & YOUNG LLP /s/Ernst & Young LLP New York, New York August 12, 1994 16 PAGE PART II. OTHER INFORMATION AMERICAN EXPRESS COMPANY Item 1. Legal Proceedings On June 2, 1994, two former employees of American Express Bank International ("AEBI"), a wholly-owned subsidiary of American Express Bank Ltd. ("AEB"), were convicted in a federal district court in Texas of money laundering, bank fraud and misapplication of funds in connection with the account of a Mexican client. AEBI was not a party in this case. However, the United States Attorney's Office and a federal grand jury in the Southern District of Texas are continuing the investigation, and a subpoena for the production of documents has been issued to AEBI. AEBI is cooperating in the investigation. If AEBI were charged with a violation of law, fines, civil penalties and possibly criminal sanctions could result. A criminal charge and conviction could also have adverse collateral consequences for AEB and AEBI, as well as certain of the registrant's other businesses. Item 4. Submission of Matters to a Vote of Securities Holders For information relating to the matters voted upon at the registrant's annual meeting for shareholders held on April 25, 1994, see Item 4 on page 16 of the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994, which is incorporated herein by reference. 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 5, 1994, Item 5, reporting the filing of a registration statement covering common shares of Lehman Brothers Holdings Inc. Form 8-K, dated April 21, 1994, Item 5, reporting the registrant's earnings for the quarter ended March 31, 1994. Form 8-K, dated May 31, 1994, Item 5, reporting the completion of the distribution of Lehman Brothers common stock. Form 8-K, dated July 25, 1994, Item 5, reporting the registrant's earnings for the quarter ended June 30, 1994. 17 PAGE SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed by the undersigned, thereunto duly authorized. AMERICAN EXPRESS COMPANY (Registrant) Date: August 15, 1994 By /s/ Michael P. Monaco ------------------------- Michael P. Monaco Executive Vice President, Chief Financial Officer and Treasurer Date: August 15, 1994 /s/ Daniel T. Henry ------------------------- Daniel T. Henry Senior Vice President and Comptroller (Chief Accounting Officer) PAGE EXHIBIT INDEX The following exhibits are filed as part of this Quarterly Report: Exhibit Description 3.2 Registrant's By-laws, as amended on June 27, 1994. 10.1 American Express Senior Executive Severance Plan. 12.1 Computation in Support of Ratio of Earnings to Fixed Charges. 12.2 Computation in Support of Ratio of Earnings to Fixed Charges and Preferred Share Dividends. 15 Letter re Unaudited Interim Financial Information. E-1 PAGE EX-3 2 Exhibit 3.2 BY-LAWS OF AMERICAN EXPRESS COMPANY (A New York Corporation) (As Amended through June 27, 1994) PAGE BY-LAWS OF AMERICAN EXPRESS COMPANY ARTICLE I OFFICES SECTION 1.1 Principal Office. The principal office of the corporation within the State of New York shall be located in the City of New York, County of New York. SECTION 1.2 Other Offices. The corporation may have such other offices and places of business within and without the State of New York as the business of the corporation may require. ARTICLE II SHAREHOLDERS SECTION 2.1 Annual Meeting. The annual meeting of the shareholders for the election of directors and for the transaction of other business shall be held at the principal office of the corporation within the State of New York, or at such other place either within or without the State of New York as may be fixed by the Board of Directors (hereinafter referred to as the "Board") from time to time. The annual meeting shall be held on such full business day in each year not earlier than March 15 nor later than April 30 and at such hour as shall be fixed by the Board. If the election of directors shall not be held on the date so fixed for the annual meeting, a special meeting of the shareholders for the election of directors shall be called forthwith in the manner provided herein for special meetings, or as may otherwise be provided by law. (B.C.L. Section 602.) SECTION 2.2 Special Meetings. Special meetings of the shareholders may be held either within or without the State of New York, at such time and place and for such purpose or purposes (other than for the election of directors, except as provided in Section 2.1) as shall be specified in a call for such meeting made by resolution of the Board or by a majority of the directors then in office or by the Chief Executive Officer, or by the holders of a majority of the shares then outstanding and entitled to vote in the election of any directors. (B.C.L. Section 602(c).) SECTION 2.3 Notice of Meetings. Notice of all meetings of shareholders shall be in writing and shall state the place, date and hour of the meeting and such other matters as may be required by law. Notice of any special meeting shall also state the purpose or purposes for which the meeting is called and shall indicate that it is being issued by or at the direction of the person or persons calling the meeting. A copy of the notice of any meeting, shall be given, personally or by mail, not less than ten nor more than fifty days before the date of the meeting to each shareholder entitled to vote at such meeting. If mailed, such notice shall be deemed given when deposited in the United States mail, with postage thereon prepaid, directed to the shareholder at his address as it appears on the record of shareholders, or, if he shall have filed with the Secretary of the corporation a written [FN] - - ----------------------- This and other references to the New York Business Corporation Law are not part of the by-laws, but are included solely for convenience in locating relevant portions of the statute. PAGE request that notices to him be mailed at some other address, then directed to him at such other address. Notice of any adjourned meeting of the shareholders shall not be required if the time and place to which the meeting is adjourned are announced at the meeting at which the adjournment is taken, but if after the adjournment the Board or Chief Executive Officer fixes a new record date for the adjourned meeting, notice of the adjourned meeting shall be given to each shareholder of record on the new record date. (B.C.L. Section 605.) SECTION 2.4 Quorum and Voting. Except as otherwise provided by law or the certificate of incorporation, the holders of a majority of the shares entitled to vote thereat shall constitute a quorum at any meeting of the shareholders for the transaction of any business, but a lesser interest may adjourn any meeting from time to time and from place to place until a quorum is obtained. Any business may be transacted at any adjourned meeting that might have been transacted at the original meeting. When a quorum is once present to organize a meeting of shareholders, it is not broken by the subsequent withdrawal of any shareholders. Directors shall, except as otherwise required by law or the certificate of incorporation, be elected by a plurality of the votes cast at a meeting of shareholders by the holders of shares entitled to vote in the election. Any other corporate action taken by vote of the shareholders shall, except as otherwise required by law or the certificate of incorporation, be authorized by a majority of the votes cast at a meeting of shareholders by the holders of shares entitled to vote thereon. Every shareholder of record shall be entitled at every meeting of shareholders to one vote for each share standing in his name on the record of shareholders, unless otherwise provided in the certificate of incorporation. Neither treasury shares, nor shares held by any other corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held by the corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares then entitled to vote. (B.C.L. Sections 608, 614.) SECTION 2.5 Proxies. Every shareholder entitled to vote at a meeting of the shareholders may authorize another person to act for him by proxy. Every proxy must be in writing and signed by the shareholder or his attorney-in-fact. No proxy shall be valid after the expiration of eleven months from the date thereof, unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the shareholder executing it, except that a proxy which is entitled "irrevocable proxy" and which states that it is irrevocable shall be irrevocable when and to the extent permitted by law. (B.C.L. Section 609.) SECTION 2.6 List of Shareholders at Meetings. A list of shareholders as of the record date, certified by the Secretary or by the transfer agent of the corporation, shall be produced at any meeting of shareholders upon the request thereat or prior thereto of any shareholder. If the right to vote at any meeting is challenged, the inspectors of election or person presiding thereat shall require such list of shareholders to be produced as evidence of the right of the persons challenged to vote at such meeting, and all persons who appear from such list to be shareholders entitled to vote thereat may vote at such meeting. (B.C.L. Section 607.) SECTION 2.7 Waiver of Notice. Notice of a shareholders' meeting need not be given to any shareholder who submits a signed waiver of notice, in person or by proxy, whether before or after the meeting. The attendance of any shareholder at a meeting, in person or by proxy, without protesting prior to the conclusion of the meeting the lack of notice of such meeting, shall constitute a waiver of notice by him. (B.C.L. Section 606.) PAGE SECTION 2.8 Inspectors at Shareholders' Meetings. The Board, in advance of any shareholders' meeting, may appoint one or more inspectors to act at the meeting or any adjournment thereof and to perform such duties thereat as are prescribed by law. If inspectors are not so appointed, the person presiding at a shareholders' meeting shall appoint one or more inspectors. In case any person appointed fails to appear or act, the vacancy may be filled by appointment made by the Board in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. (B.C.L. Section 610.) SECTION 2.9 Business to Be Transacted at Shareholders' Meetings. No business shall be transacted at any annual meeting of shareholders, except as may be (i) specified in the notice of the meeting given by or at the direction of the Board (including, if so specified, any shareholder proposal submitted pursuant to the rules and regulations of the Securities and Exchange Commission), (ii) otherwise brought before the meeting by or at the direction of the Board or (iii) otherwise brought before the meeting in accordance with the procedure set forth in the following paragraph, by a shareholder of the corporation entitled to vote at such meeting. For business to be brought by a shareholder before an annual meeting of shareholders pursuant to clause (iii) above, the shareholder must have given written notice thereof to the Secretary of the corporation, such notice to be received at the principal executive offices of the corporation not less than 90 nor more than 120 days prior to the one year anniversary of the date of the annual meeting of shareholders of the previous year; provided, however, that in the event that the annual meeting of shareholders is called for a date that is not within 30 days before or after such anniversary date, notice by the shareholder must be received at the principal executive offices of the corporation not later than the close of business on the tenth day following the day on which the corporation's notice of the date of the meeting is first given or made to the shareholders or disclosed to the general public (which disclosure may be effected by means of a publicly available filing with the Securities and Exchange Commission), whichever occurs first. A shareholder's notice to the Secretary shall set forth, as to each matter the shareholder proposes to bring before the annual meeting of shareholders, (i) a brief description of the business proposed to be brought before the annual meeting of shareholders and of the reasons for bringing such business before the meeting and, if such business includes a proposal to amend either the certificate of incorporation or these by-laws, the text of the proposed amendment, (ii) the name and record address of the shareholder proposing such business, (iii) the number of shares of each class of stock of the corporation that are beneficially owned by such shareholder, (iv) any material interest of the shareholder in such business and (v) such other information relating to the proposal that is required to be disclosed in solicitations pursuant to the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Securities and Exchange Commission or other applicable law. Notwithstanding anything in these by-laws to the contrary, no business shall be conducted at an annual meeting of shareholders except in accordance with the procedures set forth in this Section 2.9; provided, however, that nothing in this Section 2.9 shall be deemed to preclude discussion by any shareholder of any business properly brought before the annual meeting of shareholders in accordance with such procedures. The chairman of an annual meeting of shareholders shall, if the facts warrant, determine and declare to the meeting that the business was not properly brought before the meeting in accordance with the provisions of this Section 2.9, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the annual meeting of shareholders shall not be transacted. PAGE ARTICLE III DIRECTORS SECTION 3.1 Powers, Number, Qualifications and Term of Office. The business of the corporation shall be managed by its Board, which shall consist of not less than seven persons, each of whom shall be at least twenty-one years of age. Subject to such limitation, the number of directors shall be fixed and may be increased or decreased from time to time by a majority of the entire Board. Directors need not be shareholders. Except as otherwise provided by law or these by-laws, the directors shall be elected at the annual meetings of the shareholders, and each director shall hold office until the next annual meeting of shareholders, and until his successor has been elected and qualified. Newly created directorships resulting from an increase in the number of directors and any vacancies occurring in the Board for any reason, including vacancies occurring by reason of the removal of any of the directors with or without cause, may be filled by vote of a majority of the directors then in office, although less than a quorum exists. No decrease in the number of directors shall shorten the terms of any incumbent director. A director elected to fill a vacancy shall be elected to hold office for the unexpired term of his predecessor. If the Board has not elected a Chairman of the Board as an officer, it may choose a Chairman of the Board from among its members to preside at its meetings. (B.C.L. Sections 701,702,703,705.) SECTION 3.2 Regular Meetings. There shall be regular meetings of the Board, which may be held on such dates and without notice or upon such notice as the Board may from time to time determine. Regular meetings shall be held at the principal office of the corporation within the State of New York or at such other place either within or without the State of New York and at such specific time as may be fixed by the Board from time to time. There shall also be a regular meeting of the Board, which may be held without notice or upon such notice as the Board may from time to time determine, after the annual meeting of the shareholders or any special meeting of the shareholders at which an election of directors is held. (B.C.L. Sections 710, 711.) SECTION 3.3 Special Meetings. Special meetings of the Board may be held at any place within or without the State of New York at any time when called by the Chairman of the Board or the President or four or more directors. Notice of the time and place of special meetings shall be given to each director by serving such notice upon him personally within the City of New York at least one day prior to the time fixed for such meeting, or by mailing or telegraphing it, prepaid, addressed to him at his post office address, as it appears on the books of the corporation, at least three days prior to the time fixed for such meeting. Neither the call or notice nor any waiver of notice need specify the purpose of any meeting of the Board. (B.C.L. Sections 710, 711.) SECTION 3.4 Waiver of Notice. Notice of a meeting need not be given to any director who signs a waiver of notice whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to him. (B.C.L. Section 711(c).) SECTION 3.5 Quorum and Voting. One-third of the entire Board shall constitute a quorum. A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place. Notice of any adjournment shall be given to the directors who were not present at the time of the adjournment and, unless the time and place of such adjournment are announced at the meeting, to the other directors. The vote of a majority of the directors present at the time of the vote, if a quorum is present at such time, shall be the act of the Board, except where a larger vote is required by law, the certificate of incorporation or these by-laws. (B.C.L. Sections 701, 708, 711(d).) PAGE SECTION 3.6 Action by the Board. Any reference in these by-laws to corporate action to be taken by the Board shall mean such action at a meeting of the Board. However, any action required or permitted to be taken by the Board or any committee thereof may be taken without a meeting if all members of the Board or the committee consent in writing to the adoption of a resolution authorizing the action. The resolution and the written consent thereto by the members of the Board or committee shall be filed with the minutes of the proceedings of the Board or committee. Any one or more members of the Board or any committee thereof may participate in a meeting of such Board or committee by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at the meeting. (B.C.L. Section 708.) SECTION 3.7 Committees of the Board. The Board by resolution adopted by a majority of the entire Board may designate from among its members one or more committees, each consisting of three or more directors. Each such committee shall have all the authority of the Board to the extent provided in such resolution, except as limited by law. No such committee shall exercise its authority in a manner inconsistent with any action, direction, or instruction of the Board. The Board may appoint a Chairman of any committee (except for the Executive Committee, if one is established, in the case where the Chairman of the Executive Committee has been elected pursuant to Section 4.1 of these by-laws), who shall preside at meetings of their respective committees. The Board may fill any vacancy in any committee and may designate one or more directors as alternate members of such committee, who may replace any absent member or members at any meeting of such committee. Each such committee shall serve at the pleasure of the Board, but in no event beyond its first meeting following the annual meeting of the shareholders. All acts done and powers conferred by any committee pursuant to the foregoing authorization shall be deemed to be and may be certified as being done or conferred under authority of the Board. A record of the proceedings of each committee shall be kept and submitted at the next regular meeting of the Board. At least one-third but not less than two of the members of any committee shall constitute a quorum for the transaction of business, and the vote of a majority of the members present at the time of the vote, if a quorum is present at such time, shall be the act of the committee. If a committee or the Board shall establish regular meetings of any committee, such meetings may be held without notice or upon such notice as the committee may from time to time determine. Notice of the time and place of special meetings of any committee shall be given to each member of the committee in the same manner as in the case of special meetings of the Board. Notice of a meeting need not be given to any member of a committee who signs a waiver of notice whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to him. Except as otherwise provided in these by-laws, each committee shall adopt its own rules of procedure. (B.C.L. Section 712.) SECTION 3.8 Compensation of Directors. The Board shall have authority to fix the compensation of directors for services in any capacity. (B.C.L. Section 713(e).) SECTION 3.9 Resignation and Removal of Directors. Any director may resign at any time by giving written notice thereof to the Chief Executive Officer or to the Board, and such resignation shall take effect at the time therein specified without the necessity of further action. Any director may be removed with or without cause by vote of the shareholders, or with cause by action of the Board. (B.C.L. Section 706.) PAGE SECTION 3.10 The "Entire Board". As used in these by-laws the term "the entire Board" or "the entire Board of Directors" means the total number of directors which the corporation would have if there were no vacancies. (B.C.L Section 702.) SECTION 3.11 Nomination of Directors. Subject to the rights of holders of any class or series of stock having a preference over the common shares as to dividends or upon liquidation, nominations for the election of directors may only be made (i) by the Board or a committee appointed by the Board or (ii) by a shareholder of the corporation entitled to vote at the meeting at which a person is to be nominated in accordance with the procedure set forth in the following paragraph. A shareholder may nominate a person or persons for election as directors only if the shareholder has given written notice of its intent to make such nomination to the Secretary of the corporation, such notice to be received at the principal executive offices of the corporation (i) with respect to an annual meeting of shareholders, not less than 90 nor more than 120 days prior to the one year anniversary of the date of the annual meeting of shareholders of the previous year; provided, however, that in the event that the annual meeting of shareholders is called for a date that is not within 30 days before or after such anniversary date, notice by the shareholder must be received at the principal executive offices of the corporation not later than the close of business on the tenth day following the day on which the corporation's notice of the date of the meeting is first given or made to the shareholders or disclosed to the general public (which disclosure may be effected by means of a publicly available filing with the Securities and Exchange Commission), whichever occurs first and (ii) with respect to a special meeting of shareholders called for the purpose of electing directors, not later than the close of business on the tenth day following the day on which the corporation's notice of the date of the meeting is first given or made to the shareholders or disclosed to the general public (which disclosure may be effected by means of a publicly available filing with the Securities and Exchange Commission), whichever occurs first. A shareholder's notice to the Secretary shall set forth (i) the name and record address of the shareholder who intends to make such nomination, (ii) the name, age, business and residence addresses and principal occupation of each person to be nominated, (iii) the number of shares of each class of stock of the corporation that are beneficially owned by the shareholder, (iv) a description of all arrangements and understandings between the shareholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such shareholder, (v) such other information relating to the person(s) that is required to be disclosed in solicitations for proxies for election of directors pursuant to the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Securities and Exchange Commission or other applicable law and (vi) the written consent of each proposed nominee to be named as a nominee and to serve as a director of the corporation if elected, together with an undertaking, signed by each proposed nominee, to furnish to the corporation any information it may request upon the advice of counsel for the purpose of determining such proposed nominee's eligibility to serve as a director. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedures and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. PAGE ARTICLE IV OFFICERS AND OFFICIALS SECTION 4.1 Officers. The Board shall elect a Chairman of the Board or a President or both, and a Secretary, a Treasurer and a Comptroller and may elect such other officers, including a Chairman of the Executive Committee and one or more Vice Chairmen of the Board, as the Board shall determine. Each officer shall have such powers and perform such duties as are provided in these by-laws and as may be provided from time to time by the Board or by the Chief Executive Officer. Each officer shall at all times be subject to the control of the Board, and any power or duty assigned to an officer by these by-laws or the Board or the Chief Executive Officer shall be subject to control, withdrawal or limitation by the Board. (B.C.L. Section 715.) SECTION 4.2 Qualifications. Any person may hold two or more offices, except that neither the Chairman nor the President shall be Secretary or Treasurer. The Board may require any officer to give security for the faithful performance of his duties. (B.C.L. Sections 715(e) and (f).) SECTION 4.3 Election and Termination. The Board shall elect officers at the meeting of the Board following the annual meeting of the shareholders and may elect additional officers and fill vacancies at any other time. Unless the Board shall otherwise specify, each officer shall hold office until the meeting of the Board following the next annual meeting of the shareholders, and until his successor has been elected and qualified, except as hereinafter provided. The Board may remove any officer or terminate his duties and powers, at any time, with or without cause. Any officer may resign at any time by giving written notice thereof to the Chief Executive Officer or to the Board, or by retiring or by leaving the employ of the corporation (without being employed by a subsidiary or affiliate) and any such action shall take effect as a resignation without necessity of further action. The Chief Executive Officer may suspend any officer until the next meeting of the Board. (B.C.L. Sections 715, 716.) SECTION 4.4 Delegation of Powers. Each officer may delegate to any other officer and to any official, employee or agent of the corporation, such portions of his powers as he shall deem appropriate, subject to such limitations and expirations as he shall specify, and may revoke such delegation at any time. SECTION 4.5 Chairman of the Board. The Chairman of the Board may be, but need not be, a person other than the Chief Executive Officer of the corporation. The Chairman of the Board may be, but need not be, an officer or employee of the corporation. The Chairman of the Board shall preside at meetings of the Board of Directors and shall establish agendas for such meetings. In addition, he shall assure that matters of significant interest to shareholders and the investment community are addressed by management. The Chairman of the Board shall be an ex-officio member of each of the standing committees of the Board, except for the Executive Committee, of which he shall be a member. SECTION 4.6 Chief Executive Officer. The Chief Executive Officer shall, subject to the direction of the Board, have general and active control of the affairs and business of the corporation and general supervision of its officers, officials, employees and agents. He shall preside at all meetings of the shareholders. He shall also preside at all meetings of the Board and any committee thereof of which he is a member, unless the Board or such committee shall have chosen another chairman. He shall see that all orders and resolutions of the Board are carried into effect, and in addition he shall have all the powers and perform all the duties generally appertaining to the office of the Chief Executive Officer of a corporation. PAGE The Chief Executive Officer shall designate the person or persons who shall exercise his powers and perform his duties in his absence or disability and the absence or disability of the President. SECTION 4.7 President. The President may be Chief Executive Officer if so designated by the Board. If not, he shall have such powers and perform such duties as are prescribed by the Chief Executive Officer or by the Board, and, in the absence or disability of the Chief Executive Officer, he shall have the powers and perform the duties of the Chief Executive Officer, except to the extent that the Board shall have otherwise provided. SECTION 4.8 Chairman of the Executive Committee. The Chairman of the Executive Committee shall be a member of the Executive Committee. He shall preside at meetings of the Executive Committee and shall have such other powers and perform such other duties as are prescribed by the Board or by the Chief Executive Officer. SECTION 4.9 Vice Chairman of the Board. Each Vice Chairman of the Board shall have such powers and perform such duties as are prescribed by the Chief Executive Officer or by the Board. SECTION 4.10 Secretary. The Secretary shall attend all meetings and keep the minutes of all proceedings of the shareholders, the Board, the Executive Committee and any other committee unless it shall have chosen another secretary. He shall give notice of all such meetings and all other notices required by law or by these by-laws. He shall have custody of the seal of the corporation and shall have power to affix it to any instrument and to attest thereto. He shall have charge of the record of shareholders required by law, which may be kept by any transfer agent or agents under his direction. He shall maintain the records of directors and officers as required by law. He shall have charge of all documents and other records, except those for which some other officer or agent is properly accountable, and shall generally perform all duties appertaining to the office of secretary of a corporation. (B.C.L. Sections 605, 624, 718.) SECTION 4.11 Treasurer. The Treasurer shall have the care and custody of all of the funds, securities and other valuables of the corporation, except to the extent they shall be entrusted to other officers, employees or agents by direction of the Chief Executive Officer or the Board. The Treasurer may hold the funds, securities and other valuables in his care in such vaults or safe deposit facilities, or may deposit them in and entrust them to such bank, trust companies and other depositories, all as he shall determine with the written concurrence of the Chief Executive Officer or his delegate. The Treasurer shall account regularly to the Comptroller for all of his receipts, disbursements and deliveries of funds, securities and other valuables. The Treasurer or his delegate, jointly with the Chief Executive Officer or his delegate, may designate in writing and certify to any bank, trust company, safe deposit company or other depository the persons (including themselves) who are authorized, singly or jointly as they shall specify in each case, to open accounts in the name of the corporation with banks, trust companies and other depositories, to deposit therein funds, instruments and securities belonging to the corporation, to draw checks or drafts on such accounts in amounts not exceeding the credit balances therein, to order the delivery of securities therefrom, to rent safe deposit boxes or vaults in the name of the corporation, to have access to such facility and to deposit therein and remove therefrom securities and other valuables. Any such designation and certification shall contain the regulations, terms and conditions applicable to such authority and may be amended or terminated at any time. Such powers may also be granted to any other officer, official, employee or agent of the corporation by resolution of the Board or by power of attorney authorized by the Board. SECTION 4.12 Comptroller. The Comptroller shall be the chief accounting officer of the corporation and shall have control of all its books of account. He shall see that correct and complete books and records of account are kept as required by law, showing fully, in such form as he shall prescribe, all transactions of the corporation, and he shall require, keep and preserve all vouchers relating thereto for such period as may be necessary. The Comptroller shall render periodically such financial statements and such other reports relating to the corporation's business as may be required by the Chief Executive Officer or the Board. He shall generally perform all duties appertaining to the office of comptroller of a corporation. (B.C.L. Section 624.) SECTION 4.13 Officials and Agents. The Chief Executive Officer or his delegate may appoint such officials and agents of the corporation as the conduct of its business may require and assign to them such titles, powers, duties and compensation as he shall see fit and may remove or suspend or modify such titles, powers, duties or compensation at any time with or without cause. ARTICLE V SHARES SECTION 5.1 Certificates. The shares of the corporation shall be represented by certificates in such form, consistent with law, as prescribed by the Board, and signed and sealed as provided by law. (B.C.L. Section 508.) SECTION 5.2 Transfer of Shares. Except as provided in the certificate of incorporation, upon surrender to the corporation or to its transfer agent of a certificate representing shares, duly endorsed or accompanied with proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto and to cancel the old certificate. The corporation shall be entitled to treat the holder of record of any shares as the holder in fact thereof, and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not the corporation shall have express or other notice thereof, except as may be required by law. (B.C.L. Section 508(d).) SECTION 5.3 Record of Shareholders. The corporation shall keep at its principal office within the State of New York, or at the office of its transfer agent or registrar in the State of New York, a record in written form, or in any other form capable of being converted into written form within a reasonable time, which shall contain the names and addresses of all shareholders, the numbers and class of shares held by each, and the dates when they respectively became the owners of record thereof. (B.C.L. Section 624(a).) SECTION 5.4 Lost or Destroyed Certificates. In case of the alleged loss, destruction or mutilation of a certificate or certificates representing shares, the Board may direct the issuance of a new certificate or certificates in lieu thereof upon such terms and conditions in conformity with law as the Board may prescribe. (B.C.L. Section 508(e).) SECTION 5.5 Fixing Record Date. The Board or the Chief Executive Officer may fix, in advance, a date as the record date for the purpose of determining the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or for the purpose of determining shareholders entitled to receive payment of any dividend or the allotment of any rights, or for the purpose of any other action. Such date shall not be more than fifty nor less than ten days before the date of such meeting, nor more than fifty days prior to any other action. (B.C.L. Section 604.) ARTICLE VI INDEMNIFICATION OF CORPORATION PERSONNEL SECTION 6.1 Directors and Officers. The corporation shall, to the fullest extent permitted by applicable law as the same exists or may hereafter be in effect, indemnify any person who is or was or has agreed to become a director or officer of the corporation and who is or was made or threatened to be made a party to, and may, in its discretion, indemnify, any person who is or was or has agreed to become a director or officer and is otherwise involved in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, legislative or investigative, including an action by or in the right of the corporation to procure a judgment in its favor and an action by or in the right of any other corporation of any type or kind, domestic or foreign, or any partnership, joint venture, trust, employee benefit plan or other enterprise, which such person is serving or has served or has agreed to serve in any capacity at the request of the corporation, by reason of the fact that he is or was or has agreed to become a director or officer of the corporation, or is or was serving or has agreed to serve such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity, against judgments, fines, amounts paid or to be paid in settlement, penalties, costs, charges and expenses, including attorneys' fees, incurred in connection with such action or proceeding or any appeal thereof; provided, however, that no indemnification shall be provided to any such person if a judgment or other final adjudication adverse to the director or officer establishes that (i) his acts were committed in bad faith or were the result of active and deliberate dishonesty and, in either case, were material to the cause of action so adjudicated, or (ii) he personally gained in fact a financial profit or other advantage to which he was not legally entitled. The benefits of this Section 6.1 shall extend to the heirs, executors, administrators and legal representatives of any person entitled to indemnification under this Section. (B.C.L. Sections 721, 722.) SECTION 6.2 Other Personnel. The Board in its discretion may authorize the corporation to indemnity any person, other than a director or officer, for expenses incurred or other amounts paid in any civil or criminal action, suit or proceeding, to which such person was, or was threatened to be, made a party by reason of the fact that he, his testator or intestate is or was an employee of the corporation. SECTION 6.3 Other Indemnification. The corporation may indemnify any person to whom the corporation is permitted by applicable law or these by-laws to provide indemnification or the advancement of expenses, whether pursuant to rights granted pursuant to, or provided by, the New York Business Corporation Law or any other law or these by-laws or other rights created by (i) a resolution of shareholders, (ii) a resolution of directors, or (iii) an agreement providing for such indemnification, it being expressly intended that these by-laws authorize the creation of other rights in any such manner. The right to be indemnified and to the reimbursement or advancement of expenses incurred in defending a proceeding in advance of its final disposition authorized by this Section 6.3, shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the certificate of incorporation, by-laws, agreement, vote of shareholders or disinterested directors or otherwise. (B.C.L. Sections 721, 723(c).) SECTION 6.4 Miscellaneous. The right to indemnification conferred by Section 6.1, and any indemnification extended under Section 6.3, (i) is a contract right pursuant to which the person entitled thereto may bring suit as if the provisions thereof were set forth in a separate written contract between the corporation and such person, (ii) is intended to be retroactive to events occurring prior to the adoption of this Article VI, to the fullest extent permitted by applicable law, and (iii) shall continue to exist after the rescission or restrictive modification thereof with respect to events occurring prior thereto. ARTICLE VII MISCELLANEOUS SECTION 7.1 Fiscal Year. The fiscal year of the corporation shall be the calendar year. SECTION 7.2 Voting of Shares of Other Corporations. The Board may authorize any officer, agent or proxy to vote shares of any domestic or foreign corporation of any type or kind standing in the name of this corporation and to execute written consents respecting the same, but in the absence of such specific authorization the Chief Executive Officer of this corporation or his delegate may vote such shares and may execute proxies and written consents with relation thereto. ARTICLE VIII AMENDMENTS SECTION 8.1 General. Except as otherwise provided by law, these by- laws may be amended or repealed or new by-laws may be adopted by the Board of Directors, or by vote of the holders of the shares at the time entitled to vote in the election of any directors, except that the Board may not amend or repeal any by-law, or adopt any new by-law with respect to the subject matter of any by-law, which specifically states that it may be amended or repealed only by the shareholders. (B.C.L. Section 601.) SECTION 8.2 Amendment of this Article. This Article VIII may be amended or repealed only by the shareholders entitled to vote hereon as provided in Section 8.1 above. PAGE EX-10 3 Exhibit 10.1 AMERICAN EXPRESS SENIOR EXECUTIVE SEVERANCE PLAN EFFECTIVE JANUARY 1, 1994 PAGE AMERICAN EXPRESS SENIOR EXECUTIVE SEVERANCE PLAN INTRODUCTION The Board of Directors of American Express Company established the American Express Senior Executive Severance Plan (hereinafter referred to as the "Plan") effective as of January 1, 1994, to provide for severance benefits for certain eligible executive officers of American Express Company and its participating subsidiaries whose employment is terminated under certain conditions. Severance benefits under the Plan are to be provided to such eligible executives in exchange for a signed agreement and release. ARTICLE ONE DEFINITIONS 1.1 "Administration Committee" means the Committee established and appointed by the Board of Directors or by a committee of the Board of Directors. 1.2 "Affiliated Company" means any corporation which is a member of a controlled group of corporations (determined in accordance with Section 4l4(b) of the Code) of which the Company is a member and any other trade or business (whether or not incorporated) which is controlled by, or under common control (determined in accordance with Section 4l4(c) of the Code) with the Company, but which has not been admitted to participation in the Plan. 1.3 "Base Salary" means the regular basic cash remuneration before deductions for taxes and other items withheld, payable to an Employee for services rendered to an Employing Company, but not including pay for bonuses, incentive compensation, special pay, awards or commissions. 1.4 "Board of Directors" means the board of directors of the Company. 1.5 "Bonus" means annual incentive compensation paid to an Employee over and above Base Salary earned and paid in cash or otherwise under any executive bonus or sales incentive plan or program of an Employing Company. 1.6 "Code" means the Internal Revenue Code of 1986, as amended from time to time. 1.7 "Company" means American Express Company, a New York corporation, its successors and assigns. 1.8 "Comparable Position" means a job with the Company, an Employing Company, an Affiliated Company or successor company at the same or higher Base Salary as an Employee's current job and at a work location within reasonable commuting distance from an Employee's home, as determined by such Employee's Employing Company. 1.9 "Completed Year of Service" means the period of time beginning with an Employee's date of hire or the anniversary of such date of hire and ending twelve months thereafter. 1.10 "CBN Committee" means the Compensation, Benefits and Nominating Committee of the Board of Directors of the Company. 1.11 "Employee" means any person, at the senior executive level as defined by the Administration Committee, employed on a regular full-time PAGE basis (i.e., an employee whose scheduled workweek is consistent with the standard workweek schedule of a business unit or department) or regular part-time basis (i.e., an employee who is scheduled to work at least 14 hours per week, but fewer than the hours of a regular full-time employee) by an Employing Company (i) within the United States or (ii) outside the United States if a career expatriate in the Employing Company's international expatriate program, who receives from an Employing Company a regular stated compensation paid in whole or in part in United States currency. Independent contractors and employees of independent contractors who render services to an Employing Company shall not be considered Employees under the Plan. 1.12 "Employing Company" means the Company and such of its subsidiaries and affiliated companies and other trades or businesses as have adopted the Plan and have been admitted to participation by the CBN Committee or any one or more of them, and any corporation or other entity succeeding to the rights and assuming the obligations of any such company hereunder in the manner described in Section 6.1. 1.13 "Employment" means Credited Service as an employee with an Employing Company, an Affiliated Company or a Predecessor Company. 1.14 "ERISA" means the Employee Retirement Income Security Act of l974, as amended from time to time. 1.15 "Leave of Absence" means the period during which an Employee is absent from work pursuant to a leave of absence granted by an Employing Company. 1.16 "Plan" means the American Express Senior Executive Severance Plan, as set forth herein and as hereafter amended from time to time. 1.17 "Predecessor Company" means any corporation or unincorporated entity heretofore or hereafter merged or consolidated with or otherwise absorbed by an Employing Company or any substantial part of the business of which has been or shall be acquired by an Employing Company. 1.18 "Plan Year" means calendar year 1994 and any subsequent calendar year. 1.19 "Retirement" means early, normal or deferred retirement as defined in and meeting the terms and conditions of the American Express Retirement Plan or IDS Retirement Plan, as amended, or any successor plans. 1.20 "Separation Period" means the period of time over which an Employee receives severance benefits under the Plan in biweekly or other installment payments. 1.21 "Termination of Active Employment" means the date on which an Employee ceases performing services for an Employing Company. 1.22 The masculine pronoun shall be construed to mean the feminine and the singular shall be construed to mean the plural, wherever appropriate herein. 1.23 Headings in this document are for identification purposes only and do not constitute a part of the Plan. -2- ARTICLE TWO PARTICIPATION 2.1 Eligibility for Participation. Each Employee shall be eligible to participate in the Plan in the event his employment is terminated by an Employing Company for one of the following reasons: 2.1.1 Reduction in force; 2.1.2 Position elimination; 2.1.3 Office closing; 2.1.4 Inability to perform position requirements; 2.1.5 Poor performance; 2.1.6 Mutually satisfactory resignation; 2.1.7 Transfer to unsuitable position; or 2.1.8 Relocation, provided Employee continues at work through transition period. The CBN Committee may, in its discretion, grant participation eligibility to any Employee or group of Employees employed in a business unit of the Company or an Employing Company who terminate employment due to a sale of such business unit not later than six months following such sale. 2.2 Limitation on Eligibility. In the event an Employee who is otherwise eligible for participation in the Plan is offered a Comparable Position (whether the position is accepted or rejected by the Employee), he will not be eligible to participate in the Plan with respect to the resultant termination of employment for failure to accept such Comparable Position. 2.3 Ineligibility for Participation. An Employee is ineligible to participate in the Plan in the event his employment by an Employing Company terminates for a reason other than those enumerated in Section 2.1 above, including, but not limited to, the following: 2.3.1 Voluntary resignation; 2.3.2 Failure to report for work; 2.3.3 Failure to return from leave; 2.3.4 Return from a Leave of Absence which extends beyond the policy reinstatement period, if applicable, and no position is available; 2.3.5 Excessive absenteeism or lateness; 2.3.6 Merger, acquisition, sale, transfer or reorganization of all or part of the Employing Company where employment is offered by a Successor Company, whether affiliated or unaffiliated with the Employing Company; 2.3.7 Violation of a policy or procedure of the Employing Company, insubordination, unwillingness to perform the duties of a position, suspected dishonesty, or other misconduct; 2.3.8 Retirement, including the acceptance of any Employing Company sponsored retirement incentive; provided, however, that in the event an Employee is otherwise eligible for a severance pay benefit in accordance with Section 2.1 above and also eligible for Retirement, the Employee shall be eligible to participate in the Plan in accordance with Article 3 below; or 2.3.9 Death. -3- ARTICLE THREE AMOUNT OF BENEFITS 3.1 Amount of Benefits. The severance benefit payable to an eligible Employee under the Plan shall be based on his Completed Years of Service with the Company, Employing Company or an Affiliated Company. The formula for determining an Employee's severance benefit payment shall be calculated by first adding together (i) the Employee's annual Base Salary in effect immediately prior to the date of Termination of Active Employment and (ii) the Employee's annual Bonus approved for the performance year completed prior to the date of Termination of Active Employment, or the annual Bonus applicable to the performance year completed prior to the date of notification by the Employing Company of Termination of Active Employment, or the annual Bonus applicable to the performance year of the date of Termination of Active Employment, all as determined by the Administration Committee. In the case of a recently hired Employee who has not yet received a Bonus, the Employee's designated target Bonus may be used as the subparagraph (ii) portion of the calculation above. The sum of subparagraphs (i) and (ii) above shall then be divided by 52 to calculate the weekly severance benefit. The amount of the total severance benefit shall be determined according to the following schedule: Schedule for Severance Pay Benefits Number of Weekly Number of Weekly Severance Benefit Severance Benefit Payments: Completed Years of Payments: Planning and Policy Service Executives Committee 12 or fewer 52 104 13 56 104 14 60 104 15 65 104 16 69 104 17 73 104 18 or more 78 Maximum 104 Maximum 3.2 Limitations on Amount of Severance Benefits. The number of weeks of severance benefits payable to any eligible Employee under the Plan shall not exceed 104 weeks. Such benefits payable under the Plan shall be inclusive of and offset by any other severance or termination payment made by an Employing Company, including, but not limited to, any amounts paid pursuant to federal, state, local or foreign government worker notification (e.g., Worker Adjustment and Retraining Notification Act) or office closing requirements. 3.3 Reemployment. In the event an Employee is reemployed by the Employing Company or an Affiliated Company within the period covered by the schedule of severance benefits in Section 3.1 above, the severance benefits, if any, that are in excess of the number of weeks between the prior active Employment termination date and the rehire date shall be repaid by the Employee or withheld by the Employing Company, as the case may be. In the further event an eligible Employee who is receiving severance benefits under the Plan is later rehired by an Employing Company or an Affiliated Company, and Employment later terminates under conditions making such Employee -4- eligible for severance benefits under the Plan, the amount of the second severance benefit will be based on such Employee's rehire date and not the original date of Employment; provided, however, that any benefits withheld or repaid in accordance with the preceding sentence shall be additionally paid to the terminating Employee. 3.4 Withholding Tax. The Employing Company shall deduct from the amount of any severance benefits payable under the Plan, any amount required to be withheld by the Employing Company by reason of any law or regulation, for the payment of taxes or otherwise to any federal, state, local or foreign government. In determining the amount of any applicable tax, the Employing Company shall be entitled to rely on the number of personal exemptions on the official form(s) filed by the Employee with the Employing Company for purposes of income tax withholding on regular wages. 3.5 Requirement of Signed Agreement and Release. Payment of severance benefits under the Plan is conditioned upon the Employee signing an Agreement and Release with his Employing Company including appropriate restrictive covenants in a form satisfactory to the Company. ARTICLE FOUR METHOD OF PAYMENT 4.1 Payment. A severance benefit under the Plan may be paid in biweekly or other installments as determined by the Administration Committee during the Separation Period. 4.2 Inactive Employment Status. During the Separation Period (where severance benefits are paid in biweekly or other installments) the Employee receiving such payments will remain in an inactive Employment status until receipt of such payments is completed, at which time Employment will be terminated. During the Separation Period, certain other employee benefits may be continued, payment for which shall be deducted from such severance payments in accordance with the Employee's previously elected benefit coverage. 4.3 Limitations on Severance Payments. In no event shall the period of time during which an Employee receives severance payments exceed 104 weeks. Nothing in this Section shall affect the total number of weeks payable under the Plan pursuant to Section 3.1, including, but not limited to, the 104-week maximum payment. 4.4 Death. In the event an Employee dies before full receipt of severance benefits payable under the Plan, the remaining severance benefits will be paid to the legal representative of such Employee's estate in a lump sum as soon as practicable after receipt of notice of such death and evidence satisfactory to the Company of the payment or provision for the payment of any estate, transfer, inheritance or death taxes which may be payable with respect thereto. ARTICLE FIVE ADMINISTRATION OF THE PLAN 5.1 Powers of the Employing Company. The Employing Company shall have such powers, authorities and discretion as are necessary or -5- appropriate in order to carry out its duties under the Plan, including, but not limited to, the power: 5.1.1 To obtain such information as it shall deem necessary or appropriate in order to carry out its duties under the Plan; 5.1.2 To make determinations with respect to the grounds for termination of employment of any Employee; and 5.1.3 To establish and maintain necessary records. 5.2 Employing Company Authority. Nothing contained in the Plan shall be deemed to qualify, limit or alter in any manner the Employing Company's sole and complete authority and discretion to establish, regulate, determine or modify at any time, the terms and conditions of employment, including, but not limited to, levels of employment, hours of work, the extent of hiring and employment termination, when and where work shall be done, marketing of its products, or any other matter related to the conduct of its business or the manner in which its business is to be maintained or carried on, in the same manner and to the same extent as if the Plan were not in existence. 5.3 Administration Committee Duties and Powers. The Administration Committee shall be responsible for the general administration and interpretation of the Plan and the proper execution of its provisions and shall have full discretion to carry out its duties. The Administration Committee shall be the "Administrator" of the Plan and shall be, in its capacity as Administrator, a "Named Fiduciary," as such terms are defined or used in ERISA. For the purposes of carrying out its duties as Administrator, the Administration Committee may, in its sole discretion, allocate its responsibilities under the Plan among its members, and may, in its sole discretion, designate persons other than members of the Administration Committee to carry out such of its responsibilities under the Plan as it may deem fit. In addition to the powers of the Administration Committee specified elsewhere in the Plan, the Administration Committee shall have all discretionary powers necessary to discharge its duties under the Plan, including, but not limited to, the following discretionary powers and duties: 5.3.1 To interpret or construe the Plan, and resolve ambiguities, inconsistencies and omissions; 5.3.2 To make and enforce such rules and regulations and prescribe the use of such forms as it deems necessary or appropriate for the efficient administration of the Plan; and 5.3.3 To decide all questions on appeal concerning the Plan and the eligibility of any person to participate in the Plan. 5.4 Determinations. The determination of the Administration Committee as to any question involving the general administration and interpretation or construction of the Plan shall be within its sole discretion and shall be final, conclusive and binding on all persons, except as otherwise provided herein or by law. 5.5 Claims Review Procedure. Consistent with the requirements of ERISA and the regulations thereunder as promulgated by the Secretary of Labor from time to time, the following claims review procedure shall -6- be followed with respect to the denial of severance benefits to any Employee: 5.5.1 Within thirty (30) days from the date of an Employee's termination of active Employment, the Employing Company shall furnish such Employee either an agreement and release offering severance benefits under the Plan or notice of such Employee's ineligibility for or denial of severance benefits, either in whole or in part. Such notice from the Employing Company will be in writing and sent to the Employee or the legal representatives of his estate stating the reasons for such ineligibility or denial and, if applicable, a description of additional information that might cause a reconsideration by the Administration Committee or its delegate of the decision and an explanation of the Plan's claims review procedure. In the event such notice is not furnished within thirty (30) days, any claim for severance benefits shall be deemed denied and the Employee shall be permitted to proceed to Section 5.5.2 below. 5.5.2 Within sixty (60) days after receiving notice of such denial or ineligibility or within ninety (90) days after employment termination if no notice is received, the Employee, the legal representatives of his estate or a duly authorized representative may then submit to the Administration Committee a written request for a review of such decision of denial. 5.5.3 The Administration Committee will review the claim and within sixty (60) days (or one hundred twenty (120) days in special circumstances) provide a written response to the appeal setting forth specific reasons for such decision. In the event the decision on review is not furnished within such time period, the claim shall be deemed denied. ARTICLE SIX SUCCESSOR COMPANIES AND PLAN MERGERS 6.1 Successor Companies. Any corporation which succeeds to the business and assets of the Company or any part of its operations, may by appropriate resolution adopt the Plan and shall thereupon succeed to such rights and assume such obligations hereunder as the Company and said corporation shall have agreed upon in writing. Any corporation which succeeds to the business of any Employing Company other than the Company, or any part of the operations of such Employing Company, may by appropriate resolution adopt the Plan and shall thereupon succeed to such rights and assume such obligations hereunder as such Employing Company and said corporation shall have agreed upon in writing; provided, however, that such adoption and the terms thereof agreed upon in such writing have been approved by the Company. ARTICLE SEVEN AMENDMENT AND TERMINATION 7.1 Right to Amend or Terminate. The Company reserves the right, by action of the Board of Directors or the CBN Committee, to amend or terminate this Plan in whole or in part at any time and from time to time, and any amendment or effective date of termination may be given retroactive effect. -7- 7.2 Termination by an Employing Company. Any Employing Company other than the Company may withdraw from participation in the Plan at any time by delivering to the Administration Committee written notification to that effect signed by such Employing Company's chief executive officer or his delegate. Withdrawal by any Employing Company pursuant to this paragraph or complete discontinuance of severance benefits under the Plan by any Employing Company other than the Company, shall constitute termination of the Plan with respect to such Employing Company. 7.3 Limitation on Benefits. In the event any Employing Company withdraws from participation or the Company terminates the Plan as provided in this Article Seven, no Employee shall be entitled to receive benefits hereunder for Employment either before or after such action. ARTICLE EIGHT FINANCIAL PROVISIONS 8.1 Funding. All severance benefits payable under the Plan shall be payable and provided for solely from the general assets of the Employing Company in accordance with the Plan, at the time such severance benefits are payable, unless otherwise determined by the Employing Company. The Employing Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any severance benefits under the Plan. ARTICLE NINE LIABILITY AND INDEMNIFICATION 9.1 Standard of Conduct. To the extent permitted by ERISA and other applicable law, no member (which term, as used in this Article Nine, shall include any employee of any Employing Company designated to carry out any responsibility of the Administration Committee pursuant to Section 5.3 above) of the Administration Committee shall be liable for anything done or omitted to be done by him in connection with the Plan, unless the act or omission claimed to be the basis for liability amounted to a failure to act in good faith for a purpose which such member reasonably believed to be in accordance with the intent of the Plan. The Company or Employing Company as applicable hereby indemnifies each person made, or threatened to be made, a party to an action or proceeding, whether civil or criminal, or against whom any claim or demand is made, by reason of the fact that he, his testator or intestate, was or is a member of the Administration Committee, against judgments, fines, amounts paid in settlement and reasonable expenses (including attorney's fees) actually and necessarily incurred as a result of such action or proceeding, or any appeal therein, or as a result of such claim or demand, if such member of the Administration Committee acted in good faith for a purpose which he reasonably believed to be in accordance with the intent of the Plan and, in criminal actions or proceedings, in addition, had no reasonable cause to believe that his conduct was unlawful. 9.2 Presumption of Good Faith. The termination of any such civil or criminal action or proceeding or the disposition of any such claim or demand, by judgment, settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not in itself create a -8- presumption that any such member of the Administration Committee did not act in good faith for a purpose which he reasonably believed to be in accordance with the intent of the Plan or that he had reasonable cause to believe that his conduct was unlawful. 9.3 Successful Defense. A person who has been wholly successful, on the merits or otherwise, in the defense of a civil or criminal action or proceeding or claim or demand of the character described in Section 9.1 above shall be entitled to indemnification as authorized in such Section 9.1. 9.4 Unsuccessful Defense. Except as provided in Section 9.3 above, any indemnification under Sections 9.1 and 9.2 above, unless ordered by a court of competent jurisdiction, shall be made by the Company only if authorized in the specific case: 9.4.1 By the Board of Directors acting by a quorum consisting of directors who are not parties to such action, proceeding, claim or demand, upon a finding that the member of the Administration Committee has met the standard of conduct set forth in Section 9.1 above; or 9.4.2 If a quorum under Section 9.4.1 above is not obtainable with due diligence: 9.4.2.1 By the Board of Directors upon the opinion in writing of independent legal counsel (who may be counsel to any Employing Company) that indemnification is proper in the circumstances because the standard of conduct set forth in Section 9.1 above has been met by such member of the Administration Committee; or 9.4.2.2 By the shareholders of the Company upon a finding that the member of the Administration Committee has met the standard of conduct set forth in such Section 9.1 above. 9.5 Advance Payments. Expenses incurred in defending a civil or criminal action or proceeding or claim or demand may be paid by the Company or Employing Company as applicable in advance of the final disposition of such action or proceeding, claim or demand, if authorized in the manner specified in Section 9.4 above, except that, in view of the obligation of repayment set forth in Section 9.6 below, there need be no finding or opinion that the required standard of conduct has been met. 9.6 Repayment of Advance Payments. All expenses incurred in defending a civil or criminal action or proceeding, claim or demand, which are advanced by the Company or Employing Company as applicable under Section 9.5 above shall be repaid in case the person receiving such advance is ultimately found, under the procedures set forth in this Article Nine, not to be entitled to indemnification or, where indemnification is granted, to the extent the expenses so advanced by the Company exceed the indemnification to which he is entitled. -9- 9.7 Right to Indemnification. Notwithstanding the failure of the Company or Employing Company as applicable to provide indemnification in the manner set forth in Section 9.4 or 9.5 above, and despite any contrary resolution of the Board of Directors or of the shareholders in the specific case, if the member of the Administration Committee has met the standard of conduct set forth in Section 9.1 above, the person made or threatened to be made a party to the action or proceeding or against whom the claim or demand has been made, shall have the legal right to indemnification from the Company or Employing Company as applicable as a matter of contract by virtue of this Plan, it being the intention that each such person shall have the right to enforce such right of indemnification against the Company or Employing Company as applicable in any court of competent jurisdiction. ARTICLE TEN MISCELLANEOUS 10.1 No Right to Continued Employment. Nothing in the Plan shall be construed as giving any Employee the right to be retained in the employ of any Employing Company or any right to any payment whatsoever, except to the extent of the severance benefits provided for by the Plan. Each Employing Company expressly reserves the right to dismiss any Employee at any time and for any reason without liability for the effect which such dismissal might have upon him as a participant of the Plan. 10.2 Construction. This Plan shall be governed by and construed in accordance with the substantive laws but not the choice of law rules of the state of New York, except to the extent that such laws have been superseded by federal law. 10.3 Expenses of the Plan. The expenses of establishment and administration of the Plan shall be paid by the Employing Companies. Any expenses paid by the Company pursuant to this Section 10.3 and indemnification under Article Nine shall be subject to reimbursement by the other Employing Companies of their proportionate shares of such expenses and indemnification, as determined by the Administration Committee in its sole discretion. 10.4 Discretionary Acts. Any discretionary acts to be taken under the Plan by the Company, any Employing Company or the Administration Committee with respect to classification of employees, severance benefits or elections shall be uniform in their nature with respect to those who are similarly situated, and no discretionary act shall be taken which shall be discriminatory under the provisions of the Code or ERISA applicable to similar plans. -10- EX-12 4 EXHIBIT 12.1 AMERICAN EXPRESS COMPANY COMPUTATION IN SUPPORT OF RATIO OF EARNINGS TO FIXED CHARGES (Dollars in millions) Six Months Ended June 30, Years Ended December 31, 1994 1993 1992 1991 1990 -------------- ---- ---- ---- ---- Earnings: Pretax income from continuing operations $ 918 $2,326 $ 896 $ 622 $1,578 Interest expense 918 1,783 2,171 2,761 3,160 Other adjustments 67 88 196 142 209 ----- ----- ----- ----- ----- Total earnings (a) $1,903 $4,197 $3,263 $3,525 $4,947 ----- ----- ----- ----- ----- Fixed charges: Interest expense $ 918 $1,783 $2,171 $2,761 $3,160 Other adjustments 64 130 154 147 143 ----- ----- ----- ----- ----- Total fixed charges (b) $ 982 $1,913 $2,325 $2,908 $3,303 ----- ----- ----- ----- ----- Ratio of earnings to fixed charges (a/b) 1.94 2.19 1.40 1.21 1.50 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 is reported as an equity investment in the above computation. PAGE EX-12 5 EXHIBIT 12.2 AMERICAN EXPRESS COMPANY COMPUTATION IN SUPPORT OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED SHARE DIVIDENDS (Dollars in millions) Six Months Ended June 30, Years Ended December 31, 1994 1993 1992 1991 1990 -------------- ---- ---- ---- ---- Earnings: Pretax income from continuing operations $ 918 $2,326 $ 896 $ 622 $1,578 Interest expense 918 1,783 2,171 2,761 3,160 Other adjustments 67 88 196 142 209 ----- ----- ----- ----- ----- Total earnings (a) $1,903 $4,197 $3,263 $3,525 $4,947 ----- ----- ----- ----- ----- Fixed charges and preferred share dividends: Interest expense $ 918 $1,783 $2,171 $2,761 $3,160 Dividends on preferred shares 32 66 65 61 74 Other adjustments 64 130 154 147 143 ----- ----- ----- ----- ----- Total fixed charges and preferred share dividends (b) $1,014 $1,979 $2,390 $2,969 $3,377 ----- ----- ----- ----- ----- Ratio of earnings to fixed charges and preferred share dividends (a/b) 1.88 2.12 1.37 1.19 1.46 For purposes of the "earnings" computation, other adjustments include adding the amortization of capitalized interest, the net loss of affiliates accounted for at equity whose debt is not guaranteed by the Company, the minority interest in the earnings of majority-owned subsidiaries with fixed charges, and the interest component of rental expense and subtracting undistributed net income of affiliates accounted for at equity. For purposes of the "fixed charges and preferred share dividends" computation, dividends on outstanding preferred shares have been increased to an amount representing the pretax earnings required to cover such dividend requirements. Other adjustments include capitalized interest costs and the interest component of rental expense. On May 31, 1994, the Company completed the spin-off of Lehman Brothers through a dividend to American Express common shareholders. Accordingly, Lehman Brothers' results are reported as a discontinued operation and are excluded from the above computation for all periods presented. In March 1993, the Company reduced its ownership in First Data Corporation to approximately 22 percent through a public offering. As a result, beginning in 1993 FDC is reported as an equity investment in the above computation. PAGE EX-15 6 Exhibit 15 August 15, 1994 The Shareholders and Board of Directors American Express Company We are aware of the incorporation by reference in Registration Statements (Forms S-8 No. 2-46918, No. 2-59230, No. 2-64285, No. 2-73954, No. 2-74368, No. 2-89115, No. 2-89680, No. 2-93654, No. 2-97617, No. 33-01771, No. 33-02980, No. 33-05875, No. 33-06350, No. 33-17133, No. 33-19724, No. 33-24675, No. 33-28721, No. 33-32876, No. 33-33552, No. 33-34005, No. 33-34625, No. 33-36422, No. 33-37882, No. 33-38777, No. 33-43671, No. 33-43695, No. 33-45584, No. 33-48629, No. 33-55344, No. 33-62124 and 33-65008; Forms S-3 No. 2-89469, No. 2-95771, No. 33-06038, No. 33-07435, No. 33-17706, No. 33-40636, No. 33-43268, No. 33-66654 and No. 33-50997) of American Express Company of our report dated August 12, 1994 relating to the unaudited consolidated interim financial statements of American Express Company which are included in its Form 10-Q for the three-month and six-month periods ended June 30, 1994. 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 PAGE -----END PRIVACY-ENHANCED MESSAGE-----