Document/Exhibit Description Pages Size
1: 10-K Annual Report 42 187K
3: EX-10.41 Material Contract 4 22K
4: EX-10.42 Material Contract 7± 24K
5: EX-10.43 Material Contract 2± 10K
2: EX-10.5 Material Contract 1 5K
6: EX-11 Statement re: Computation of Earnings Per Share 3± 15K
7: EX-12.1 Statement re: Computation of Ratios 2± 10K
8: EX-12.1 Statement re: Computation of Ratios 2± 11K
9: EX-13 Annual or Quarterly Report to Security Holders 47± 214K
10: EX-21 Subsidiaries of the Registrant 8± 29K
11: EX-23 Consent of Experts or Counsel 1 8K
12: EX-27 Financial Data Schedule (Pre-XBRL) 1 9K
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 10-K
---------------------------
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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 No. 1-7657
AMERICAN EXPRESS COMPANY
(Exact name of registrant as specified in its charter)
New York 13-4922250
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
American Express Tower
World Financial Center
New York, New York 10285
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (212) 640-2000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Shares (par value $.60 per Share) New York Stock Exchange
Boston Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
6 1/4% Exchangeable Notes Due October 15, 1996 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K / /.
Common shares of the registrant outstanding at March 6, 1995 were 497,048,645.
The aggregate market value, as of March 6, 1995, of such common shares held by
non-affiliates of the registrant was approximately $16.5 billion. (Aggregate
market value estimated solely for the purposes of this report. This shall not
be construed as an admission for the purposes of determining affiliate
status.)
DOCUMENTS INCORPORATED BY REFERENCE
Parts I, II and IV: Portions of Registrant's 1994 Annual Report to
Shareholders.
Part III: Portions of Registrant's Proxy Statement dated March 10, 1995.
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TABLE OF CONTENTS
Form 10-K
Item Number
Part I Page
1. Business. . . . . . . . . . . . . . . . . . . . . . . . . .1
Travel Related Services. . . . . . . . . . . . . . . . .1
American Express Financial Advisors. . . . . . . . . . .7
American Express Bank. . . . . . . . . . . . . . . . . 12
Discontinued Operations. . . . . . . . . . . . . . . . 19
Corporate. . . . . . . . . . . . . . . . . . . . . . . 20
Foreign Operations . . . . . . . . . . . . . . . . . . 20
Industry Segment Information and
Classes of Similar Services. . . . . . . . . . . . . 21
Executive Officers of the Registrant . . . . . . . . . 21
Employees. . . . . . . . . . . . . . . . . . . . . . . 23
2. Properties. . . . . . . . . . . . . . . . . . . . . . . . 23
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 24
4. Submission of Matters to a Vote of Security Holders . . . 25
Part II
5. Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . 25
6. Selected Financial Data . . . . . . . . . . . . . . . . . 26
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 26
8. Financial Statements and Supplementary Data . . . . . . . 26
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . 26
Part III
10. Directors and Executive Officers of the Registrant. . . . 26
11. Executive Compensation. . . . . . . . . . . . . . . . . . 26
12. Security Ownership of Certain Beneficial Owners
and Management. . . . . . . . . . . . . . . . . . . . . 26
13. Certain Relationships and Related Transactions. . . . . . 26
Part IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . 26
Signatures. . . . . . . . . . . . . . . . . . . . . . . . 28
Index to Financial Statements . . . . . . . . . . . . . .F-1
Exhibit Index . . . . . . . . . . . . . . . . . . . . . .E-1
i
PART I
ITEM 1. BUSINESS
American Express Company (the "registrant") was founded in 1850 as a joint
stock association and was incorporated under the laws of the State of New York
in 1965. The registrant and its subsidiaries are principally in the business of
providing travel related services, financial advisory services and international
banking services throughout the world.
On May 31, 1994, the registrant completed a tax-free spin-off of the common
stock of its subsidiary, Lehman Brothers Holdings Inc. ("Lehman"), through a
special dividend to the registrant's common shareholders. Lehman is in the
business of providing investment services. Lehman's results are reported as a
discontinued operation in the registrant's Consolidated Financial Statements
through the spin-off date. This transaction is described in more detail on
pages 35 and 36 of the registrant's 1994 Annual Report to Shareholders, which
description is incorporated herein by reference.
TRAVEL RELATED SERVICES
American Express Travel Related Services Company, Inc. (including its
subsidiaries, where appropriate, "TRS") provides a variety of products and
services, including the American Express-R Card (the "Card"), consumer lending,
the American Express-R Travelers Cheque (the "Travelers Cheque" or the
"Cheque"), corporate and consumer travel products and services, magazine
publishing, database marketing and management and insurance. TRS offers
products and services in over 160 countries. In addition, in certain countries
partly owned affiliates and independent operators offer some of these products
and services under licenses from TRS.
TRS's business as a whole has not experienced significant seasonal
fluctuation, although Travelers Cheque sales and Travelers Cheques outstanding
tend to be greatest each year in the summer months, peaking in the third
quarter, and Card billed business tends to be moderately higher in the fourth
quarter than in other calendar quarters.
TRS places significant importance on its trademarks and service marks. TRS
diligently protects its intellectual property rights around the world.
CARD AND CONSUMER LENDING
TRS issues the American Express Card, including the American Express-R Gold
Card, the Platinum Card-R, the American Express-R Corporate Card, the Optima-SM
Card and the American Express-R Corporate Purchasing Card. Cards are currently
issued in 35 currencies. The Card, which is issued to individuals for their
personal account or through a corporate account established by their employer
for its business purposes, permits Cardmembers to charge purchases of goods and
services in the United States and in most countries around the world at
establishments that have agreed to accept the Card.
The Card issuer accepts from each participating establishment the charges
arising from Cardmember purchases at a discount that varies with the type of
participating establishment, the charge volume, the timing and method of payment
to the establishment, the method of submission of charges and, in certain
instances, the average charge amount and the amount of information provided.
-1-
Except in the case of the Optima Card, the Card is primarily designed for
use as a method of payment and not as a means of financing purchases of goods
and services and carries no pre-set spending limit. Charges are approved based
on a Cardmember's past spending and payment patterns, credit history and
personal resources. Except in the case of the Optima Card and extended payment
plans, payment of the full amount billed each month is due from the Cardmember
upon receipt of the bill, and no finance charges are assessed. Card accounts
that are past due by a given number of days are subject, in most cases, to a
delinquency assessment.
The Card issuer charges Cardmembers an annual fee, which varies based on
the type of Card, the number of Cards for each account, the currency in which
the Card is denominated and the country of residence of the Cardmember. The
Optima Card is generally offered to pre-approved prospects on a first-year-free
basis, except that the Optima True Grace-SM Card is free of an annual fee upon
satisfaction of an annual usage requirement.
Cardmembers generally have access to a variety of special services,
including: the Membership Miles-R Program, Global Assist-R Hotline, Buyer's
Assurance-SM Protection Plan, Car Rental Loss and Damage Insurance Plan, Travel
Accident Insurance Plan and Purchase Protection-SM Plan. A Cardmember
participating in the Gold Card program in the United States has access to
certain additional services, including a Year End Summary of Charges Report and,
in many instances, the ability to draw on a line of credit. The Platinum Card,
offered to certain Cardmembers in the United States and certain other countries,
provides access to additional and enhanced travel, financial, insurance,
personal assistance and other services. Under the Express Cash program,
enrolled Cardmembers can obtain cash or American Express Travelers Cheques 24
hours a day from automated teller machines of participating financial
institutions worldwide. TRS also offers merchandise directly to Cardmembers, who
may elect to pay for the products they purchase in installments with no finance
charges. TRS is planning to offer additional rewards programs in conjunction
with other businesses, possibly on a co-branded basis.
The Corporate Card program offers travel and expense management systems and
services for all business entities and such services as the Business Travel
Accident Insurance Plan for large businesses and the Accident Disability Plan
and the FleetPlan-SM auto leasing program for small businesses. TRS is
continuing to enhance its business travel and expense management systems through
various on-line access technologies and business travel management information
reports, as described below under "Travel Services", which are integrated with
the Corporate Card. Effective on November 30, 1993, the U.S. General Services
Administration awarded TRS a contract to provide American Express-R Government
Card charge card services to federal employees who travel on official government
business.
TRS launched the Corporate Purchasing Card in January 1994. The Corporate
Purchasing Card is intended to provide an efficient, low-cost system for
managing purchases of supplies, equipment and services by companies. Employees
of the company to whom Corporate Purchasing Cards are issued can use the Cards
to order directly from suppliers, rather than using the traditional system of
requisitions, purchase orders and invoices. TRS pays the suppliers and submits
a single monthly billing statement to the company.
The Optima Card is a revolving credit card marketed to individuals in the
United States and several other countries. American Express Centurion Bank
("Centurion Bank") issues the Optima Card in the United States and owns
substantially all receivables arising from the use of Optima Cards issued in the
-2-
United States. In addition, Centurion Bank issues lines of credit in
association with many American Express Cards and offers unsecured loans to
Cardmembers in connection with their Sign & Travel-R accounts. The Sign &
Travel account allows qualified U.S. Cardmembers the option of extended payments
for airline, cruise and certain prepaid travel charges that are purchased with
the Card. Outside the United States, consumer lending activities are engaged in
by other subsidiaries of the registrant where local regulations permit. The
Optima True Grace Card was launched in September 1994 and offers an interest-
free period on new purchases, even if the accountholder is carrying a balance
from month to month.
American Express Credit Corporation ("Credco") purchases most Cardmember
receivables arising from the use of Cards (other than Optima Cards) issued in
the United States and Cardmember receivables in designated currencies arising
from the use of Cards outside the United States. Credco finances the purchase
of receivables principally through the issuance of commercial paper and the sale
of medium- and long-term notes. TRS also funds Cardmember receivables through
an asset securitization program. The cost of funding Cardmember receivables is
a major expense of Card operations.
The American Express Card and consumer lending businesses are subject to
extensive regulation in the United States under a number of federal laws and
regulations, including the Equal Credit Opportunity Act, which generally
prohibits discrimination in the granting and handling of credit; the Fair Credit
Reporting Act, which, among other things, regulates credit prescreening
practices and requires certain disclosures when an application for credit is
rejected; the Truth in Lending Act, which, among other things, requires
extensive disclosure of the terms upon which credit is granted; the Fair Credit
Billing Act, which, among other things, regulates the manner in which billing
inquiries are handled and specifies certain billing requirements; and the Fair
Credit and Charge Card Disclosure Act, which mandates certain disclosures on
credit and charge card applications. Federal legislation also regulates abusive
debt collection practices. In addition, a number of states and foreign
countries have similar consumer credit protection and disclosure laws. These
laws and regulations have not had, and are not expected to have, a material
adverse effect on the Card and consumer lending businesses, either in the United
States or on a worldwide basis.
Centurion Bank is subject to grandfathered restrictions on its activities
under the Competitive Equality Banking Act of 1987 ("CEBA"). CEBA, among other
things, prevents the formation of new nonbank banks after March 5, 1987 and
restricts the activities of such banks that existed on that date. The
restrictions include a prohibition on new activities and affiliate overdrafts,
and limitations on asset growth and the ability to market the products and
services of the bank by an affiliate and vice versa. CEBA has had an impact on
the manner in which Centurion Bank conducts business to assure its continued
grandfathered status, but has not had a material adverse effect on the
registrant. Centurion Bank is a member of the Federal Deposit Insurance
Corporation ("FDIC") and is regulated, supervised and regularly examined by the
Delaware State Banking Commissioner and the FDIC. Another subsidiary of TRS,
American Express Deposit Corporation, is a Utah-chartered, FDIC-insured
industrial loan corporation.
TRS encounters substantial and increasingly intense competition worldwide
with respect to the Card and consumer lending businesses from general purpose
cards issued under revolving credit plans, particularly VISA cards issued by
members of VISA International Service Association, Inc. or VISA USA, Inc.
(collectively, "VISA"), and MasterCard cards issued by members of MasterCard
International, Incorporated ("MasterCard"), including cards sponsored by AT&T,
General Electric Company, General Motors Corporation and Ford Motor Company; the
-3-
Discover Card, a revolving credit card; and, to a lesser extent, charge cards
such as Diners Club and JCB. TRS also encounters competition from businesses
that issue their own cards or otherwise extend credit to their customers. Most
U.S. banks issuing credit cards under revolving credit plans charge annual fees
in addition to interest charges where permitted by state law. The issuer of the
Discover Card, as well as some issuers of VISA cards and MasterCard cards,
charge no annual fees. Certain issuers offer mileage credit to card holders
under airline frequent flyer programs or other types of reward programs or
rebates. Certain competing issuers offer premium cards with enhanced services
or lines of credit.
TRS generally charges higher discount rates to service establishments than
its competitors. As a result, TRS has encountered complaints from some
establishments, as well as suppression of the Card's use. TRS has adjusted its
discount structure in certain industries and locations. TRS has also focused on
understanding key factors that influence service establishment satisfaction and
has expanded its efforts in handling and resolving suppression problems. TRS's
strategy is to focus on achieving Card acceptance at merchants where Cardmembers
want to use the Card.
TRS anticipates that developments in payment systems will affect
competition in the Card and travelers check businesses. Such changes may
include increasing use of debit cards, stored value cards, "smart cards" or
other card-based or electronic forms of payment.
The principal competitive factors that affect the Card business are (i) the
quality of the service and services, including rewards programs, provided to
Cardmembers and participating establishments; (ii) the number and spending
characteristics of Cardmembers; (iii) the quantity and quality of the
establishments that will accept a Card; (iv) the cost of Cards to Cardmembers
and of Card acceptance to participating establishments; (v) the terms of payment
available to Cardmembers and participating establishments; (vi) the number and
quality of other payment instruments available to Cardmembers and participating
establishments; and (vii) the success of marketing and promotion campaigns.
TRAVEL SERVICES
A wide variety of travel services is offered to customers for business and
personal purposes by a network of offices in more than 120 countries. Travel
services include trip planning, reservations, ticketing, management information
systems and other incidental services. TRS receives commissions and fees for
travel bookings and arrangements from airlines, hotels, car rental companies and
other travel suppliers. In addition, TRS receives management fees from business
travel clients. In March 1995, following limits imposed by certain airlines on
commissions paid to travel agents, TRS introduced a new structure of service
fees covering bookings of lower-priced air tickets for nonbusiness consumers.
To meet the competition for the business traveler and to provide client
companies with a customized approach to managing their travel and entertainment
needs, the Travel Management Services unit ("TMS") integrates the Corporate Card
and business travel services in the United States and certain foreign countries.
TMS offers to its client companies services to manage their travel and
entertainment budgets. American Express Business Travel Centers handle
reservations, provide necessary ticketing and deliver ticket/itinerary
information. In addition, this service provides clients with an information
package to plan, account for and control travel and entertainment expenses. TMS
provides a state-of-the-art Expense Management System, which captures and
reconciles expense report data with Corporate Card charge data. TMS also
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developed On-Line Access, a user-friendly information service that can help
organizations obtain necessary travel management information and develop
customized reports through their office computers.
In 1994, TRS continued to implement its strategy of acquiring business
travel agencies on a worldwide basis to meet the needs of its multinational
business travel and Corporate Card customers. Acquisitions included the
worldwide corporate travel management business of The Thomas Cook Group Ltd., as
well as its U.S. travel licensee, Thomas Cook Partnership. In March 1995, TRS's
French travel subsidiary and Havas Voyages, the largest French travel agency,
agreed to combine their business travel operations in France in a jointly owned
company.
Vigorous competition is encountered in the travel business from more than
30,000 travel agents and direct sales by airlines and travel suppliers in the
United States and abroad. This competition is mainly based on service,
convenience and proximity to the customer and has increased due to several
factors in recent years. The number of travel agencies in the United States has
increased, and a number of independent agencies have been acquired by larger
travel companies. Travel agency groups also have increased in size, enabling
independent agencies to be more competitive in providing travel services to
regional and national business travel clients and in other activities. In
addition, many companies have established in-house business travel departments.
More recently, changes in the travel agent compensation structure (i.e.,
the limits on airfare commissions discussed above) have been imposed by airlines
in an environment of heightened competition. As a consequence, transaction and
service fees charged by travel agencies to both retail and business customers
are becoming more common. In addition, it is possible customers will
increasingly seek alternative channels to make travel arrangements, such as
direct purchases of tickets from airlines. It is also expected that travel
agencies will continue to look for expense reduction opportunities, and marginal
agencies are likely to exit the business. Consolidation of travel agencies is
likely to continue as agencies seek to better serve national and multi-national
business travel clients and negotiate more effectively with the airlines with
respect to systems and compensation arrangements.
TRAVELERS CHEQUES
American Express Travelers Cheques are sold as a safe and convenient
alternative to currency. The Cheque, a negotiable instrument, has no expiration
date and is payable by the issuer in the currency of issuance when presented for
the purchase of goods and services or for redemption. The success of the
Travelers Cheque operation is in large part related to the worldwide
acceptability of the Cheque as a means of payment for goods and services and the
worldwide refundability of Cheques that are lost or stolen. American Express
Travelers Cheques are issued directly by TRS in United States dollars, Canadian
dollars, Dutch guilders, Australian dollars, German marks and Japanese yen.
French franc and British pound Cheques are primarily issued by joint venture
companies in which TRS holds an equity interest and for which TRS provides
sales, operations, marketing and refund servicing arrangements. As of January
1995, Swiss franc cheques are being issued by a Swiss partnership in which TRS
has a partnership interest.
American Express Travelers Cheques are sold through a broad network of
outlets worldwide, including offices of TRS, its affiliates and representatives,
travel agents, commercial banks, savings banks, savings and loan associations,
credit unions and other financial, travel and commercial businesses. TRS
-5-
generally pays compensation to selling agents for their sale of Travelers
Cheques.
The proceeds from sales of Cheques issued by TRS are remitted to TRS and
are invested predominantly in highly-rated debt securities consisting primarily
of intermediate- and long-term state and municipal obligations. The investment
of these proceeds is regulated by various state laws.
TRS also issues the Corporate Travelers Cheque, a cash access product for
business travelers, Cheques for Two-SM, a Cheque product with two signature
lines designed for people who are traveling together, and the American Express-R
Gift Cheque. All of these Cheque products operate with the same
signature-countersignature negotiation procedure as Travelers Cheques and are
refundable to the purchaser in the event of loss or theft.
Although the registrant believes that TRS is the leading issuer of
travelers checks, TRS encounters significant competition from many other forms
of payment instruments, from other brands of travelers checks, from charge and
debit cards and from national and international automated teller machine
networks. The principal competitive factors affecting the travelers check
industry are (i) the acceptability of the checks throughout the world as an
alternative to currency; (ii) the ability to service satisfactorily the check
purchaser if the checks are lost or stolen; (iii) the compensation paid to, and
frequency of settlement by, selling agents; (iv) the availability to the
consumer of other forms of payment; (v) the accessibility of travelers check
sales and refunds; (vi) the success of marketing and promotion campaigns; and
(vii) the amount of the fee charged to the consumer.
PUBLISHING AND DIRECT MARKETING
TRS publishes Travel & Leisure-R, Food & Wine-R, Departures-TM and Your
Company-TM magazines. Under a March 1993 agreement between TRS and a subsidiary
of Time Inc. ("Time"), Time provides management services in connection with
these magazines. The magazine publishing business operates in a highly
competitive market. The editorial quality of the magazines and the size and
quality of their readerships are the most critical competitive factors.
TRS also provides direct mail merchandise services and, through its
subsidiary Epsilon Data Management, Inc., proprietary database marketing and
management.
INSURANCE
AMEX Life Assurance Company ("AMEX Life") and its affiliated
property-casualty insurer, AMEX Assurance Company (collectively, the "Life
Group"), provide a variety of insurance products to individuals, employers and
associations. The Life Group's primary products are individual long-term care
insurance and products for American Express Cardmembers such as Automatic Air
Flight insurance and a deferred annuity marketed under the name Privileged
Assets-R.
The Life Group's long-term care products are marketed through a network of
exclusive career agents, as well as independent agents and brokers and American
Express affiliates. Other products are marketed through direct response methods
to Cardmembers.
-6-
American Centurion Life Assurance Company, formerly a subsidiary of AMEX
Life, became a subsidiary of IDS Life Insurance Company, effective January 1,
1995.
The Life Group competes with companies in the financial services industry
that respond to consumer needs for money management, risk management and
investments. The principal factors that affect the Life Group's competitive
position are (i) premium rates; (ii) providing coverage to meet customers'
needs; (iii) the quality of service given its customers; (iv) establishing and
maintaining distribution networks to sell policies and administrative
capabilities to service policyholders; (v) marketing; and (vi) investment
performance.
The Life Group is qualified to transact business in all states of the
United States and in Puerto Rico and Canada, and is subject to comprehensive
state and federal regulations. (See page 9 for a general discussion of the
extent of state insurance regulations.)
AMERICAN EXPRESS FINANCIAL ADVISORS
American Express Financial Corporation, formerly IDS Financial Corporation,
is engaged in providing a variety of financial products and services to help
individuals, businesses and institutions establish and achieve their financial
goals. American Express Financial Corporation's products and services include
financial planning and advice, insurance and annuities, a variety of investment
products, including investment certificates, mutual funds and limited
partnerships, investment advisory services, trust and employee plan
administration services, tax preparation and bookkeeping services, personal auto
and homeowner's insurance and retail securities brokerage services. At December
31, 1994, American Express Financial Advisors Inc. (formerly IDS Financial
Services Inc.), American Express Financial Corporation's principal marketing
subsidiary, maintained a nationwide financial planning field force of 8,054
persons. American Express Financial Corporation's marketing system consists
primarily of its field force operating in 50 states, the District of Columbia
and Puerto Rico, organized in 3 regions and 45 market areas.
FINANCIAL PLANNING
American Express Financial Advisors Inc. offers financial planning and
investment advisory services to individuals for which it charges a fee.
American Express Financial Advisors Inc. financial planning services provide
financial analyses addressing six basic areas of financial planning: financial
position, protection, investment, income tax, retirement and estate planning,
as well as asset allocation. To complete their financial plans, American
Express Financial Advisors Inc. financial advisors provide clients with
recommendations of products from the more than 100 products distributed by
subsidiaries and affiliates of American Express Financial Corporation, as well
as products of approved third parties.
First-year financial advisors are compensated primarily by salary, while
veteran financial advisors receive compensation based largely on sales. The
American Express Financial Advisors Inc. field force compensation is structured
to encourage advisor retention and product persistency, while adding stability
to the financial advisor's income. In attracting and retaining members of the
field force, American Express Financial Advisors Inc. competes with financial
planning firms, insurance companies, securities broker-dealers and other
financial institutions. American Express Financial Advisors Inc. has undertaken
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a major initiative called "IDS 1994" to make changes in its business processes,
field organization and compensation arrangements to improve advisor retention
and client satisfaction. American Express Financial Advisors Inc. has four
pilot market areas implementing the IDS 1994 recommendations and plans to
introduce elements of the IDS 1994 design nationwide in 1995. In December
1994, American Express Financial Corporation entered into a 10-year contract
with Information Systems Solutions Corporation for the outsourcing of systems
management and support services.
Although the use of a dedicated field force may entail higher initial costs
than other forms of marketing, such as direct-response marketing or independent
agency distribution, American Express Financial Advisors Inc. believes that its
ability to provide broad-based integrated services on a relationship basis is a
competitive advantage.
In addition to marketing through a dedicated sales force, American Express
Financial Advisors Inc. is actively pursuing alternative approaches for the
distribution of its financial planning services, and investment, insurance and
annuity products, including the implementation of multiple classes of shares of
its mutual fund products and networking arrangements with large financial
institutions such as Shawmut Bank, as well as community banks, credit unions and
agri-banks. American Express Financial Advisors Inc. believes that it is
important to provide these alternatives to enhance its competitiveness in the
marketplace.
The registrant and American Express Financial Advisors Inc. are developing
a separate distribution system which is complementary to the existing system of
American Express Financial Advisors Inc. It will operate under the name
American Express Financial Services Direct, and will include not only products
from American Express Financial Advisors Inc., but also from other parts of the
registrant and selected outside vendors. It will entail the offering of advice
by tele-advisors and helping prospects and clients select appropriate products.
American Express Financial Advisors Inc. does business as a broker-dealer
and investment adviser in all 50 states, the District of Columbia and Puerto
Rico. American Express Financial Corporation and American Express Financial
Advisors Inc. are registered as broker-dealers and investment advisors regulated
by the Securities and Exchange Commission ("SEC"), and are members of the
National Association of Securities Dealers, Inc. ("NASD"). American Express
Financial Advisors Inc. financial advisors must obtain state and NASD licenses
required for the businesses.
American Express Financial Advisors Inc. anticipates regulatory oversight
of the securities and commodities industries to increase at all levels. The
SEC, self-regulatory organizations and state securities commissions may conduct
administrative proceedings, which may result in censure, fine, the issuance of
cease-and-desist orders or suspension or expulsion of a broker-dealer or an
investment adviser and its officers or employees.
The financial services industry responds to consumer needs for money
management, risk management and investments. Industry competition focuses
primarily on cost, investment performance, yield, convenience, service,
reliability, safety and distribution system. Competition in the financial
services market is very intense and American Express Financial Corporation
competes with a variety of financial institutions such as banks, securities
brokers, mutual funds and insurance companies, whose products and services
increasingly cross over the traditional lines that previously differentiated one
type of institution from another.
-8-
American Express Financial Corporation's business does not as a whole
experience significant seasonal fluctuations.
INSURANCE AND ANNUITIES
American Express Financial Corporation's insurance business is carried on
primarily by IDS Life Insurance Company ("IDS Life"), a stock life insurance
company organized under the laws of the State of Minnesota. IDS Life is a
wholly-owned subsidiary of American Express Financial Corporation and serves all
states except New York. IDS Life Insurance Company of New York is a wholly-
owned subsidiary of IDS Life and serves New York State residents. IDS Life also
owns American Enterprise Life Insurance Company ("American Enterprise Life"),
which issues fixed and variable dollar annuity contracts to banks, thrift
institutions and stock brokerages. American Centurion Life Assurance Company
("American Centurion Life") formerly a subsidiary of TRS, became an IDS Life
subsidiary effective January 1, 1995. American Centurion Life is a New York
company that offers a fixed annuity called Privileged Assets to American Express
Cardmembers in New York. In Fortune magazine's May 1994 listing of the 50
largest life insurance companies as ranked by assets, IDS Life ranked fifteenth.
IDS Life's products include whole life, universal life (fixed and
variable), single premium life and term products (including waiver of premium
and accidental death benefits). IDS Life also offers disability income and
long-term care insurance. IDS Life is one of the nation's largest issuers of
single premium and flexible premium deferred annuities on both a fixed and
variable dollar basis. Immediate annuities are offered as well. IDS Life
markets variable annuity contracts designed for retirement plans.
IDS Life's principal annuity products are fixed deferred annuities. These
annuities guarantee a relatively low annual interest rate during the
accumulation period (the time before annuity payments begin) although the
company may pay a higher rate reflective of current market rates. IDS Life also
offers a fixed/variable annuity, or "Flexible Annuity," in which the purchaser
may choose between mutual funds, with portfolios of common stocks, bonds,
managed assets and/or short-term securities, and IDS Life's "general account" as
the underlying investment vehicle. Additionally, IDS Life offers a variable
annuity contract that invests in real estate, real estate mortgages and sale-
leaseback transactions.
IDS Life and American Enterprise Life are subject to comprehensive
regulation by the Minnesota Department of Commerce (Insurance Division) and the
Indiana Department of Insurance, respectively. American Centurion Life and IDS
Life Insurance Company of New York are regulated by the New York Department of
Insurance. The laws of the other states in which these companies do business
also regulate such matters as the licensing of sales personnel and, in some
cases, the contents of insurance policies. The purpose of such regulation and
supervision is primarily to protect the interests of policyholders. Virtually
all states also mandate participation in insurance guaranty associations, which
assess insurance companies in order to fund claims of policyholders of insolvent
insurance companies. On the federal level, there is periodic interest in
enacting new regulations with respect to various aspects of the insurance
industry including taxation and accounting procedures, as well as the treatment
of persons differently because of sex, with respect to terms, conditions, rates
or benefits of an insurance contract. New federal regulation in any of these
areas could potentially have an adverse effect upon American Express Financial
Corporation's insurance subsidiaries.
-9-
As a distributor of variable contracts, IDS Life is registered as a
broker-dealer and is a member of the NASD. As investment manager of various
investment companies, IDS Life is registered as an investment advisor under
applicable federal requirements.
IDS Property Casualty Insurance Company provides personal auto and
homeowner's coverage to clients in nineteen states. This insurance is
underwritten to some extent by AMEX Assurance Company in seventeen of these
states and reinsured by IDS Property Casualty. IDS Property Casualty is
regulated by the Commissioner of Insurance for Wisconsin.
The insurance and annuity business is highly competitive, and IDS Life's
competitors consist of both stock and mutual insurance companies. Competitive
factors applicable to the insurance business include the interest rates credited
to its products, the charges deducted from the cash values of such products, the
financial strength of the organization and the services provided to
policyholders.
INVESTMENT CERTIFICATES
IDS Certificate Company ("IDSC"), a wholly-owned subsidiary of American
Express Financial Corporation, issues face-amount investment certificates. IDSC
is registered as an investment company under the Investment Company Act of 1940.
Owners of IDSC certificates are entitled to receive, at maturity, a stated
amount of money equal to the aggregate investments in the certificate plus
interest at rates declared from time to time by IDSC. In addition, persons
holding one type of certificate may have their interest calculated in whole or
in part based on any upward movement in a broad-based stock market index. The
certificates issued by IDSC are not insured by any government agency. American
Express Financial Corporation acts as investment manager for IDSC. IDSC's
certificates are sold primarily by American Express Financial Advisors Inc.'s
field force.
IDSC currently offers eight types of face-amount certificates. The
specified maturities of the certificates range from four to twenty years.
Within their specified maturity, most certificates have interest rate periods
ranging from one to thirty-six months. Certificate holders can withdraw their
certificate investments at the end of an interest rate period. Some
certificates are marketed by American Express Bank Ltd. to its foreign
customers.
IDSC is the largest issuer of face-amount certificates in the United
States. Such certificates compete, however, with many other investments offered
by banks, savings and loan associations, credit unions, mutual funds, insurance
companies and similar financial institutions, which may be viewed by potential
customers as offering a comparable or superior combination of safety and return
on investment.
MUTUAL FUNDS
American Express Financial Advisors Inc. offers a variety of mutual funds,
for which it acts as principal underwriter (distributor of shares). American
Express Financial Corporation acts as investment manager and performs various
administrative services. These 35 publicly-offered mutual funds, the "IDS
MUTUAL FUND GROUP", have varied investment objectives, and include, for example,
money market, tax-exempt, bond and stock funds. American Express Financial
Corporation believes that the IDS MUTUAL FUND GROUP, with combined net assets at
December 31, 1994 of $37.1 billion, was the fourteenth largest mutual fund
organization and, excluding money market funds, was the eighth largest.
American Express Financial Advisors Inc., as principal underwriter, maintains a
-10-
continuous public offering of shares of each fund. Front-end loaded shares are
sold at net asset value plus any applicable sales charge. The maximum sales
charge is five percent of the offering price with reduced sales charges for
larger purchases. Under the recently adopted multiple class of shares program,
shares are also sold with a rear load and for institutional clients at no load.
The competitive factors affecting the sale of mutual funds include sales
charges ("loads") paid, services received and investment performance. The funds
compete with other investment products, including funds that have no sales
charge (known as "no load" funds), and with funds distributed through
independent brokerage firms as well as with those distributed by other
"exclusive" sales forces.
OTHER SERVICES
American Express Financial Corporation provides investment management
services for pension, profit-sharing, employee savings and endowment funds of
large- and medium-sized businesses and other institutions through the IDS
Advisory Group. International or global investment management is offered to
U.S.-based clients of this type by IDS International, Inc., a U.S. company with
offices in London and to non-U.S.-based clients of this type by IDS Fund
Management Ltd., an English company, with offices in Hong Kong and London. The
office in Hong Kong was opened in September 1994, with the hiring of regional
specialist staff. At December 31, 1994, the IDS Advisory Group managed
securities portfolios totaling $14.3 billion for 308 accounts, up from $12.3
billion at December 31, 1993 for 236 accounts. American Express Financial
Advisors Inc. also offers investment services for wealthy individuals and small
institutions. These services, including IDS Wealth Management Service, a wrap
account program, are marketed through American Express Financial Advisors Inc.
financial advisors and marketing employees and third-party referrals. The
market for the IDS Advisory Group's services is highly competitive, with
investment performance the most critical competitive factor.
American Express Trust Company, formerly known as IDS Bank & Trust,
provides trustee, custodial, record-keeping and investment management services
for pension, profit sharing, employee savings and endowment funds. Through its
personal trust division, American Express Trust Company offers trust services to
individuals and organizations. American Express Trust Company is regulated by
the Minnesota Department of Commerce (Banking Division). On March 1, 1994,
American Express Trust Company and IDS Deposit Corp., a Utah industrial loan
corporation, assigned their deposits and sold their loans to American Express
Deposit Corporation, a subsidiary of TRS. Prior to that date, IDS Bank & Trust
and IDS Deposit Corp. made consumer loans and accepted certain kinds of
deposits. Effective March 28, 1994, IDS Bank & Trust ceased its status as an
FDIC-insured bank.
American Express Financial Advisors Inc. distributes a variety of real
estate, cable TV, equipment leasing, and venture capital limited partnership
investments issued by other companies. American Express Financial Advisors Inc.
also distributes from time to time managed futures limited partnerships in which
an American Express Financial Corporation subsidiary is a co-general partner.
American Express Financial Advisors Inc. has also distributed from time to time
in the past various real estate and cable TV limited partnerships in which
various American Express Financial Corporation subsidiaries are co-general
partners or are involved in providing services to such partnerships.
American Express Tax and Business Services Inc., formerly Tax and Business
Services, a subsidiary of American Express Financial Corporation, offers tax
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planning, tax preparation and small business consulting services to clients in
50 locations in 23 states.
In 1994, American Express Financial Corporation continued to expand its
securities services activities, which offer portfolio analysis and securities
brokerage services. American Enterprise Investment Services Inc. provides
securities execution and clearance services for American Express Securities
Services, a division of American Express Financial Advisors Inc. American
Enterprise Investment Services Inc. is registered as a broker-dealer with the
SEC, is a member of the NASD and the Chicago Stock Exchange and is registered
with appropriate states.
AMERICAN EXPRESS BANK
The registrant's wholly-owned subsidiary, American Express Bank Ltd.
(together with its subsidiaries, where appropriate, "AEB"), seeks to meet the
financial service needs of wealthy entrepreneurs and local banks through three
core businesses: private banking, correspondent banking and commercial banking.
AEB does not directly or indirectly do business in the United States except as
an incident to its activities outside the United States. Accordingly, the
following discussion relating to AEB generally does not distinguish between U.S.
and non-U.S. based activities.
AEB's private banking business focuses on wealthy entrepreneurs by
providing such customers deposit products, investment and fiduciary services,
asset management, mutual funds, trust and estate planning and secured loans.
Correspondent banking services are offered primarily to medium-sized and small
banks and include processing services (such as check clearing, money transfers,
collections and remittances), electronic banking and trade finance, in addition
to deposit and investment services. Commercial banking is provided to
businesses, most of which are owned by wealthy entrepreneurs, and includes trade
finance products such as letters of credit, payment guaranties, working capital
loans and equipment finance. AEB also provides treasury services to all
segments of its customer base. These services primarily include trading foreign
exchange, interest rate products and other derivative instruments.
In certain countries outside the United States and Canada, in some cases
by arrangement with TRS, AEB provides travel related services consisting of
Card, travel and Travelers Cheque products. In the future, AEB expects to serve
a greater role as an international platform to support TRS's business globally.
AEB has a global network with offices in 37 countries. Its international
headquarters is located in New York City. It maintains international banking
agencies in New York City and Miami, Florida. Its wholly-owned Edge Act
subsidiary, American Express Bank International ("AEBI"), is also headquartered
in New York City and has branches in New York City and Miami. Three offices in
California were closed in 1994.
In part because of a structure that lacks scale in many markets, AEB
continues to focus on initiatives to reduce and control its expense base
worldwide.
In December 1994, AEB entered into a 10-year contract with Electronic Data
Systems Corporation for the outsourcing of AEB's global systems support and
development and data processing functions.
-12-
SELECTED FINANCIAL INFORMATION
AEB's prior years' financial information has been restated to reflect the
transfer in 1994 of certain international consumer financial services businesses
from TRS.
AEB provides banking services to the registrant and its subsidiaries. AEB
is only one of many international and local banks used by the registrant and its
other subsidiaries, which constitute only a few of AEB's many customers.
AEB's total assets were $13.3 billion at December 31, 1994, compared with
$14.1 billion at December 31, 1993. Liquid assets, consisting of cash and
deposits with banks, trading account assets and investments, were $5.6 billion
at December 31, 1994, compared with $5.9 billion at December 31, 1993.
The following table sets forth a summary of financial data for AEB at and
for each of the three years in the period ended December 31, 1994 (dollars in
millions):
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1994 1993 1992
---- ---- ----
Net financial revenues $652 $677 $657
Noninterest expenses 525 499 509
Income before cumulative effect of a
change in accounting principle 80 92 35
Cumulative effect of a change in
accounting for post-retirement
benefits other than pensions, net
of related income taxes - - (7)
Net income 80 92 28
-----------------------------------------------------------------------------
Cash and deposits with banks 2,605 2,668 2,081
Investments 2,765 2,819 2,782
Loans, net 4,881 5,488 5,204
Total assets 13,291 14,137 13,937
----------------------------------------------------------------------------
Customers' deposits and credit
balances 9,103 10,178 10,028
Shareholder's equity 758 755 694
-----------------------------------------------------------------------------
Return on average assets (a) 0.54% 0.65% 0.24%
Return on average common equity (a) 10.78% 13.67% 4.96%
-----------------------------------------------------------------------------
Total loans/deposits and credit
balances from customers 54.81% 55.16% 53.41%
Average common equity/average
assets (a) 4.76% 4.57% 4.11%
Risk-based capital ratios:
Tier 1 7.5% 6.3% 5.7%
Total 14.7% 10.2% 9.1%
Leverage ratio 4.8% 4.4% 4.3%
-----------------------------------------------------------------------------
Average interest rates earned: (b)
Loans (c) 7.58% 7.06% 9.00%
Investments (d) 9.54% 9.21% 9.13%
Deposits with banks 5.73% 5.67% 6.72%
-----------------------------------------------------------------------------
Total interest-earning assets (d) 7.62% 7.17% 8.29%
-----------------------------------------------------------------------------
Average interest rates paid: (b)
Deposits and credit balances from
customers 5.41% 5.73% 6.62%
Borrowed funds, including long-term
debt 4.99% 4.18% 5.38%
-----------------------------------------------------------------------------
Total interest-bearing liabilities 5.35% 5.46% 6.46%
-----------------------------------------------------------------------------
Net interest income/total average
interest-earning assets (d) 2.85% 2.92% 2.72%
-----------------------------------------------------------------------------
(a) Computed before the accounting change.
(b) Based upon average balances and related interest income and expense,
including the effect in 1994 of interest rate products where
appropriate and transactions with related parties.
(c) Interest rates have been calculated based upon average total loans,
including those on nonperforming status.
(d) On a tax equivalent basis.
-14-
The following tables set forth the composition of AEB's loan portfolio at year
end for each of the five years in the period ended December 31, 1994 (millions):
By Geographical Region (a) 1994 1993 1992 1991 1990
--------------------------------------------------------------------------------
Asia/Pacific $2,144 $2,186 $1,792 $1,891 $1,683
Europe 903 1,091 1,177 1,498 1,549
Indian Subcontinent 721 850 908 624 636
Latin America 589 749 675 546 653
North America 81 283 382 468 537
Middle East 345 368 357 365 340
Africa 207 87 65 61 38
Other - - - - -
--------------------------------------------------------------------------------
Total $4,990 $5,614 $5,356 $5,453 $5,436
================================================================================
1994
----------------------------
Due After
1 Year
Due Through Due
By Type Within 5 After 5
and Maturity 1 Year Years(b) Years(b) 1994 1993 1992 1991 1990
--------------------------------------------------------------------------------
Loans to $2,066 $232 $30 $2,328 $2,652 $2,628 $2,355 $2,431
businesses(c)
Real estate
loans 437 124 31 592 708 665 751 815
Loans to banks and
other financial
institutions 853 61 1 915 1,083 666 731 778
Equipment
financing(d) 28 51 - 79 105 386 501 509
Consumer loans 893 2 46 941 912 850 945 451
Loans to governments
and official 78 - 3 81 89 96 96 324
institutions
All other loans 54 - - 54 65 65 74 128
--------------------------------------------------------------------------------
Total $4,409 $470 $111 $4,990 $5,614 $5,356 $5,453 $5,436
==============================================================================
(a) Based primarily on the domicile of the borrower.
(b) Loans due after 1 year at fixed (predetermined) interest rates totaled
$119 million, while those at floating (adjustable) interest rates totaled
$462 million.
(c) Business loans, which accounted for approximately 47 percent of the
portfolio as of December 31, 1994, were distributed over 25 commercial and
industrial categories.
(d) The decrease from December 31, 1992 to December 31, 1993 reflects $163
million of equipment finance (aircraft) loans transferred to other
performing assets upon foreclosure. The total value of aircraft assets
leased to others at December 31, 1994 was approximately $400 million.
-15-
The following tables set forth AEB's nonperforming loans at year end for
each of the five years in the period ended December 31, 1994 (millions):
1994 1993 1992 1991 1990
-------------------------------------------------------------------------
Credit $ 20 $ 43 $102 $ 38 $189
Lesser Developed Countries - - - - 238
-------------------------------------------------------------------------
Total (a) $ 20 $ 43 $102 $ 38 $427
=========================================================================
1994 1993 1992 1991 1990
------------------------------------------------------------------------
Loans to businesses $ 12 $ 24 $ 22 $ 21 $174
Real estate loans 4 19 69 5 15
Equipment financing 3 - 6 5 -
Loans to banks and other
financial institutions - - 4 4 -
Loans to governments
and official institutions 1 - 1 3 238
------------------------------------------------------------------------
Total (a) (b) $20 $ 43 $102 $ 38 $427
========================================================================
(a) AEB's other nonperforming assets totaled $56 million at December
31, 1994, $89 million at December 31, 1993 and $83 million at
December 31, 1992, and represent balances transferred from
nonperforming loans as a result of foreclosures and in-substance
foreclosures. The 1994 decrease primarily reflected the sale of
foreclosed properties. The increase in 1993 from 1992 was
primarily related to real estate exposures.
(b) Reduced rate loans were immaterial in amount.
-16-
The following table sets forth a summary of the credit loss experience of
AEB at and for each of the five years in the period ended December 31, 1994
(dollars in millions):
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Total loans at year end $4,990 $5,614 $5,356 $5,453 $5,436
====== ====== ====== ====== ======
Reserve for credit losses-
January 1, $ 126 $ 153 $ 116 $ 326 $ 452
Provision for credit losses 8 44 121 44 58
Translation and other (a) - (21) (1) 3 (3)
------- ---------------------------
Subtotal 134 176 236 373 507
------- ---------------------------
Write-offs:
Real estate loans 1 16 30 7 -
Loans to businesses 21 19 21 88 24
Loans to banks and other
financial institutions 3 - 4 18 3
Loans to governments and
official institutions - - 2 149 163
Consumer loans 19 20 40 4 3
All other loans - 6 1 - 1
Recoveries:
Loans to businesses (4) (4) (8) (6) (9)
Loans to banks and other
financial institutions (3) (1) (1) (1) (1)
Real estate loans - - - (1) -
Equipment financing (2) - - - -
Loans to governments and
official institutions - - - - (2)
Consumer loans (10) (6) (5) (1) -
All other loans - - (1) - (1)
------ ------ ------ ----- ------
Net write-offs 25 50 83 257 181
------ ------ ----- ----- ------
Reserve for credit losses-
December 31, $ 109 $ 126 $ 153 $ 116 $ 326
====== ======= ===== ===== ======
Reserve for credit losses/
total loans 2.19% 2.24% 2.85% 2.13% 6.00%
====== ====== ===== ===== =====
(a) The decline in 1993 was primarily due to the transfer of reserves relating
to loans reclassified to other performing assets upon foreclosure.
--------------------------
Interest income is recognized on the accrual basis. Loans, other than
consumer loans, are placed on nonperforming status when payments of principal or
interest are 90 days past due, or if in the opinion of management the borrower
is unlikely to meet its contractual commitments. When loans are placed on
nonperforming status, all previously accrued interest not yet received is
reversed against current interest income. Cash receipts of interest on
nonperforming loans are recognized either as income or as a reduction of
-17-
principal, based upon management's judgment as to the collectibility of
principal. Consumer loans principally consist of lines of credit. These loans
are written-off against the reserve for credit losses generally on a formula
basis upon reaching specified contractual delinquency stages or earlier if the
loan is otherwise deemed uncollectible. Interest income assessed on customers
generally accrues until such time a loan is written-off.
A reserve for credit losses is established by charging a provision for
credit losses against income. The amount charged to income is based upon
several factors, which include the historical credit loss experience in relation
to outstanding credits, a continuous determination as to the collectibility of
each credit, and management's evaluation of exposures in each applicable country
as related to current and anticipated economic and political conditions.
RISKS
The global nature of AEB's business activities are such that concentrations
of credit to particular industries and geographic regions are not unusual. At
December 31, 1994, AEB had significant investments in certain on- and off-
balance sheet financial instruments, which were primarily represented by
deposits with banks, investments, loans, commitments to purchase and sell
foreign currencies and U.S. dollars, interest rate swaps and certain other
derivative instruments. The counterparties to these financial instruments were
primarily unrelated to AEB, and principally consisted of banks and other
financial institutions and various commercial and industrial enterprises
operating geographically within the Asia/Pacific region, the Indian
Subcontinent, Europe and North America. AEB continuously monitors its credit
concentrations and actively manages to reduce the associated risk. AEB does
not anticipate any material losses as a result of these concentrations.
In 1991, AEB completed the liquidation of its long-term lesser developed
country ("LDC") cross border loan portfolio. At December 30, 1994, AEB had $64
million of equity investments in LDC-based enterprises (net of reserves)
resulting from certain debt for equity conversions. These remaining conversions
included 7 equity investments, the value of which were primarily represented by
a minority interest in a Brazilian petrochemical holding company and two Mexican
hotel projects. On December 30, 1994, these investments were sold to the
registrant.
AEB's earnings are sensitive to fluctuations in interest rates, as it is
not always possible to match precisely the maturities of interest-related assets
and liabilities. However, strict limits have been established for both country
and total bank mismatching. On occasion, AEB may decide to mismatch in
anticipation of a change in future interest rates in accordance with these
guidelines. Term loans extended by AEB include both floating interest rate and
fixed interest rate loans.
For a discussion relating to AEB's use of derivative financial instruments,
see pages 28 and 29 under the caption "Risk Management," and Note 11 on pages 44
through 47, of the registrant's 1994 Annual Report to Shareholders, which
portions of such report are incorporated herein by reference.
COMPETITION
The banking services of AEB are subject to vigorous competition in all
markets in which AEB operates. Competitors include local and international
banks whose assets often exceed those of AEB, other financial institutions
(including certain other subsidiaries of the registrant) and, in certain cases,
-18-
governmental agencies. In some countries, AEB may be one of the more
substantial financial institutions offering banking services; in no country,
however, has AEB been a major factor.
REGULATION
AEB's branches, representative offices and subsidiaries are licensed and
regulated in the jurisdictions in which they do business and are subject to the
same local requirements as other competitors. AEB's New York Agency is
supervised and regularly examined by the Superintendent of Banks of the State of
New York. At the request of management, the New York State Banking Department
has extended its supervision and examination of the New York Agency to cover
AEB's global network of branches and subsidiaries. The Florida Department of
Banking and Finance supervises and examines the Miami Agency.
In addition, the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") regulates, supervises and examines AEBI. AEBI is
subject to a September 1993 agreement with the Federal Reserve Board pursuant to
which AEBI agreed to correct two alleged violations of regulations of the
Federal Reserve Board and amend certain internal policies and procedures.
Since AEB does not do business in the United States except as an incident
to its activities outside the United States, the registrant's affiliation with
AEB neither causes the registrant to be subject to the provisions of the Bank
Holding Company Act of 1956, nor requires it to register as a bank holding
company under the Federal Reserve Board's Regulation Y. AEB is not a member of
the Federal Reserve System, is not subject to supervision by the FDIC, and is
not subject to any of the restrictions imposed on grandfathered nonbank banks by
CEBA, other than anti-tie-in rules with respect to transactions involving
products and services of certain of its affiliates and restrictions on loans to
certain executive officers and directors.
As a matter of policy, AEB actively monitors compliance with regulatory
capital requirements. These requirements are essentially represented by the
Federal Reserve Board's risk-based capital guidelines and complementary leverage
constraint. Pursuant to the Federal Deposit Insurance Corporation Improvement
Act of 1991, the relevant provisions of which became effective for year-end
1992, the Federal Reserve Board, among other federal banking agencies, adopted
regulations defining levels of capital adequacy. Under these regulations, a
bank is deemed to be well capitalized and adequately capitalized if it maintains
a Tier 1 risk-based capital ratio of at least 6.0 percent and 4.0 percent,
respectively, a total risk-based capital ratio of at least 10.0 percent and 8.0
percent, respectively, and a leverage ratio of at least 5.0 percent and 4.0
percent, respectively. Based on AEB's total risk-based capital and leverage
ratios, which are set forth on page 14, AEB is considered to be adequately
capitalized at December 31, 1994.
DISCONTINUED OPERATIONS
Lehman, through its subsidiaries, is a global investment bank serving
institutional, corporate, government and high net-worth individual clients in
major financial centers worldwide. Lehman's businesses include capital raising
for clients through securities underwriting and direct placements; corporate
finance and strategic advisory services; merchant banking; securities sales and
trading; institutional asset management; research; and the trading of foreign
exchange, derivative products and certain commodities. Lehman acts as a market
-19-
maker in all major fixed income and equity products in both the domestic and
international markets.
On May 31, 1994, the registrant completed a tax-free spin-off of the common
stock of Lehman through a special dividend to the registrant's common
shareholders. Lehman's results are reported as a discontinued operation in the
registrant's Consolidated Financial Statements. This transaction is described
in more detail on pages 35 and 36 of the registrant's 1994 Annual Report to
Shareholders, which description is incorporated herein by reference.
CORPORATE
The Balcor Company Holdings, Inc. and its subsidiaries (collectively,
"Balcor"), formerly operating as a diversified real estate investment and
management company, discontinued new commercial real estate activities in 1990
and began to liquidate its portfolio of real estate loans and properties. The
liquidation is expected to be substantially completed in 1996. In 1994, Balcor
sold its property management business. At December 31, 1994, Balcor's assets,
excluding cash and cash equivalents, totaled $843 million with related reserves
of $263 million. Balcor's assets at December 31, 1994 included investments in
real estate, interests in partnerships, real estate loans and advances to
limited partnerships originated by Balcor.
FOREIGN OPERATIONS
TRS derives a significant portion of its revenues from the use of the Card,
Travelers Cheques and travel services in countries outside the United States and
is in the process of broadening use of these products and services outside the
United States. Political and economic conditions in these countries, including
the availability of foreign exchange for the payment by the local Card issuer of
obligations arising out of local Cardmembers' spending outside such country, for
the payment of Card bills by Cardmembers who are billed in other than their
local currency and for the remittance of the proceeds of Travelers Cheque sales,
can have an effect on TRS's revenues. Substantial and sudden devaluation of
local Cardmembers' currency can also affect their ability to make payments to
the local issuer of the Card on account of spending outside the local country.
American Express Financial Corporation does not have substantial business
outside the United States.
The major portion of AEB's banking revenues is from business conducted in
countries outside the United States. Some of the risks attendant to those
operations include currency fluctuations and changes in political, economic and
legal environments in each such country.
As a result of its foreign operations, the registrant is exposed to the
possibility that, because of foreign exchange rate fluctuations, assets and
liabilities denominated in currencies other than the U.S. dollar may be realized
in amounts greater or lesser than the U.S. dollar amounts at which they are
currently recorded in the registrant's Consolidated Financial Statements.
Examples of transactions in which this may occur include the purchase by
Cardmembers of goods and services in a currency other than the currency in which
they are billed; the sale in one currency of a Travelers Cheque denominated in
a second currency; foreign exchange positions held by AEB as a consequence of
its client-related foreign exchange trading operations; and, in most instances,
-20-
investments in foreign operations. These risks, unless properly monitored and
managed, could have an adverse effect on the registrant's operations.
The registrant's policy in this area is generally to monitor closely all
foreign exchange positions and to minimize foreign exchange gains and losses,
for example, by offsetting foreign currency assets with foreign currency
liabilities, as in the case of foreign currency loans and receivables, which are
financed in the same currency. An additional technique used to manage exposures
is the spot and forward purchase or sale of foreign currencies as a hedge of net
exposures in those currencies as, for example, in the case of the Cardmember and
Travelers Cheque transactions described above. Additionally, Cardmembers may be
charged in U.S. dollars for their spending outside their local country. The
registrant's investments in foreign operations are hedged by forward exchange
contracts or by identifiable transactions, where appropriate.
INDUSTRY SEGMENT INFORMATION AND CLASSES OF SIMILAR SERVICES
Information with respect to the registrant's industry segments,
geographical operations and classes of similar services is set forth in Note 15
to the Consolidated Financial Statements of the registrant, which appears on
pages 51 through 53 of the registrant's 1994 Annual Report to Shareholders,
which note is incorporated herein by reference.
EXECUTIVE OFFICERS OF THE REGISTRANT
All of the executive officers of the registrant as of March 30, 1995, none
of whom has any family relationship with any other and none of whom became an
officer pursuant to any arrangement or understanding with any other person, are
listed below. Each of such officers was elected to serve until the next annual
election of officers or until his or her successor is elected and qualified.
Each officer's age is indicated by the number in parentheses next to his or her
name.
HARVEY GOLUB - Chairman and Chief Executive Officer; Chairman and
Chief Executive Officer, TRS
Mr. Golub (56) has been Chief Executive Officer of the registrant since
February 1993, Chairman of the registrant since August 1993 and Chairman and
Chief Executive Officer of TRS since November 1991. Prior to August 1993, he
had been President of the registrant since July 1991. Prior to January 1992, he
was also Chairman of American Express Financial Corporation. Prior to July
1991, he had been Vice Chairman of the registrant and Chairman and Chief
Executive Officer of American Express Financial Corporation since September
1990. Prior thereto, he had been President and Chief Executive Officer of
American Express Financial Corporation.
JEFFREY E. STIEFLER - President
Mr. Stiefler (48) has been President of the registrant since August 1993.
Prior thereto, he had been President and Chief Executive Officer of American
Express Financial Corporation since July 1991, and President of American Express
Financial Corporation since September 1990. Prior thereto, he had been
Executive Vice President for Sales and Marketing of American Express Financial
Corporation.
-21-
KENNETH I. CHENAULT - Vice Chairman; President, U.S.A, TRS
Mr. Chenault (43) has been Vice Chairman of the registrant since January
1995 and President, U.S.A. of TRS since August 1993. Prior thereto, he had been
President, Consumer Card Group, TRS.
JONATHAN S. LINEN - Vice Chairman
Mr. Linen (51) has been Vice Chairman of the registrant since August 1993.
Prior thereto, he had been President and Chief Operating Officer of TRS since
March 1992. Prior thereto, he had been President and Chief Executive Officer of
the Shearson Lehman Brothers Division of Shearson Lehman Brothers Inc. since
June 1990. Before June 1990, he had been President and Chief Executive Officer
of TRS's Direct Marketing and Travelers Cheque Group.
ROGER H. BALLOU - President, Travel Services Group, TRS
Mr. Ballou (43) has been President of TRS's Travel Services Group since May
1989.
STEVEN D. GOLDSTEIN - Chairman and Chief Executive Officer, American
Express Bank Ltd.
Mr. Goldstein (43) has been Chief Executive Officer of AEB since March
1991, and Chairman since March 1994. Prior thereto, he had been President of
Consumer Financial Services, American Express International.
R. CRAIG HOENSHELL - President, International, TRS
Mr. Hoenshell (50) has been President, International of TRS since August
1993. Prior thereto, he had been President of TRS's Travelers Cheque Group
since 1990. Prior thereto, he was President of American Express Centurion Bank.
DAVID R. HUBERS - President and Chief Executive Officer, American
Express Financial Corporation
Mr. Hubers (52) has been President and Chief Executive Officer of American
Express Financial Corporation since August 1993. Prior thereto, he had been a
Senior Vice President of American Express Financial Corporation.
JOSEPH W. KEILTY - Executive Vice President
Mr. Keilty (57) has been Executive Vice President since November 1991.
Prior thereto, he had been Managing Director of Keilty, Goldsmith & Company, a
consulting company.
ALLAN Z. LOREN - Executive Vice President and Chief Information
Officer
Mr. Loren (56) has been Executive Vice President and Chief Information
Officer since May 1994. Prior thereto, he had been President and Chief
Executive Officer of Galileo International since January 1991. Prior thereto,
he had been President of Apple U.S.A., a division of Apple Computer Corp.
-22-
MICHAEL P. MONACO - Executive Vice President, Chief Financial Officer
and Treasurer
Mr. Monaco (47) has been Executive Vice President and Chief Financial
Officer since September 1990 and Treasurer since April 1992. Prior thereto, he
had been Senior Vice President.
LOUISE M. PARENT - Executive Vice President and General Counsel
Ms. Parent (44) has been Executive Vice President and General Counsel of
the registrant since May 1993. Prior thereto, she had been Deputy General
Counsel of the registrant since January 1992. Prior thereto, she had been
General Counsel of First Data Corporation.
PHILLIP J. RIESE - President, Cardmember Financial Services Group,
TRS; Chairman of the Board of American Express
Centurion Bank
Mr. Riese (45) has been President, Cardmember Financial Services Group, TRS
since September 1993. He has been Chairman of the Board of American Express
Centurion Bank since August 1993. Prior to September 1993, he had been
Executive Vice President and General Manager of the Charge Card Group since June
1990. Prior thereto, he had been Executive Vice President, General Manager
of the Establishment Services Division.
THOMAS O. RYDER - President, Establishment Services Worldwide, TRS
Mr. Ryder (50) has been President, Establishment Services Worldwide, TRS
since 1993. Prior thereto, he had been President and General Manager of the
Establishment Services Division, TRS since 1990. Prior thereto, he had been
President and Worldwide Executive Publisher, American Express Publishing
Corporation.
THOMAS SCHICK - Executive Vice President
Mr. Schick (48) has been Executive Vice President since March 1993. Prior
thereto, he had been Executive Vice President of TRS since October 1992 and
Senior Executive Vice President of Shearson Lehman Brothers Inc.
FRANK SKILLERN - President, Consumer Card Group, U.S., TRS
Mr. Skillern (58) has been President, Consumer Card Group, U.S. since
August 1993. Prior thereto he had been Executive Vice President, TRS Consumer
Lending and Chairman and President of American Express Centurion Bank since
November 1991. Prior thereto he had been Senior Vice President, American
Express Financial Advisors, Inc.
EMPLOYEES
The registrant had 72,412 employees on December 31, 1994.
ITEM 2. PROPERTIES
The registrant's headquarters are in a 51-story, 2.2 million square foot
building located in lower Manhattan, known as American Express Tower, which also
serves as the headquarters for TRS and AEB. This building, which is on land
-23-
leased from the Battery Park City Authority for a term expiring in 2069, is one
of four office buildings in a complex known as the World Financial Center.
Lehman is also headquartered at the building and is a co-owner.
Other principal locations of TRS include: the Southern Regional Operations
Center, Fort Lauderdale, Florida; the Western Regional Operations Center and the
Travel Group Service Center, Phoenix, Arizona; the Northern Regional Operations
Center, Greensboro, North Carolina; the Optima Regional Operations Center,
Jacksonville, Florida; the Travelers Cheque Group Operating Center, Salt Lake
City, Utah; and American Express Canada, Inc. headquarters, Markham, Ontario,
Canada, all of which are owned by the registrant or its subsidiaries. In 1994,
the registrant announced plans to close the Western Regional Operations Center
and the Optima Regional Operations Center and to consolidate the work performed
there into other operations centers.
American Express Financial Corporation's principal locations are its
headquarters, the IDS Tower, a portion of which the company leases until 2002,
and its Operations Center, which the company owns; both are in Minneapolis,
Minnesota. American Express Financial Corporation also owns Oak Ridge
Conference Center, its principal training facility, in Chaska, Minnesota.
Generally, the registrant and its subsidiaries lease the premises they
occupy in other locations. Facilities owned or occupied by the registrant and
its subsidiaries are believed to be adequate for the purposes for which they are
used and are well maintained.
ITEM 3. LEGAL PROCEEDINGS
The registrant and its subsidiaries are involved in a number of legal and
arbitration proceedings concerning matters arising in connection with the
conduct of their respective business activities. The registrant believes it has
meritorious defenses to each of these actions and intends to defend them
vigorously. The registrant believes that it is not a party to, nor are any of
its properties the subject of, any pending legal proceedings which would have a
material adverse effect on the registrant's consolidated financial condition.
SAFRA-RELATED ACTIONS
Two purported shareholder derivative actions, now consolidated, were
brought in October 1990 in New York State Supreme Court and three purported
derivative actions, also consolidated, were brought in early 1991 in the United
States District Court for the Southern District of New York against all of the
then current directors, certain former directors and certain former officers and
employees of the registrant. The consolidated state court complaint alleges
that defendants breached their duty of care in managing the registrant,
purportedly resulting in losses and in the registrant's payment of $8 million in
July 1989 to certain charities agreed to by the registrant and Edmond J. Safra.
The federal complaints also alleged breach of duty in connection with a
severance arrangement of a former executive officer of the registrant and that
certain proxy statements of the registrant were misleading in failing to
disclose such alleged breaches. Plaintiffs in the state court action seek a
declaratory judgment, unspecified money damages and an accounting. The federal
actions were dismissed in December 1993, and the dismissal was upheld by the
Second Circuit Court of Appeals in November 1994. One of the plaintiffs in the
federal action subsequently commenced another state court action raising the
same allegations as the consolidated state court complaint.
-24-
FCH-RELATED ACTION
A purported shareholder derivative action was brought in June 1991 in the
United States District Court for the Eastern District of New York against the
then current directors of the registrant. In January 1992, this action was
transferred to the United State District Court for the Central District of
California for coordinated or consolidated proceedings with all other federal
actions related to First Capital Holdings Corp. ("FCH"). The complaint alleges
that the Board of Directors should have required Lehman to divest its investment
in FCH and to write down its investment sooner. In addition, the complaint
alleges that the failure to act constituted a waste of corporate assets and
caused damage to the registrant's reputation. The complaint seeks a judgment
declaring that the directors named as defendants breached their fiduciary duties
and duties of loyalty and requiring the defendants to pay money damages to the
registrant and remit their compensation for the periods in which the duties were
breached, attorneys' fees and costs and other relief. Lehman has agreed to
indemnify the registrant for any losses incurred in connection with this and
other actions that arose related to FCH.
AEBI SETTLEMENT
On June 2, 1994, two former employees of American Express Bank
International ("AEBI"), a wholly-owned subsidiary of American Express Bank Ltd.,
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
continued the investigation. On November 21, 1994, AEBI reached an agreement
with the Justice Department to settle claims arising out of the case.
The settlement included the payment by AEBI of $7 million to settle a civil
action against AEBI and $7 million to settle forfeiture claims, both of which
related to activities of the former employees. AEBI and its affiliates will
also spend at least $3 million through the end of 1995 to continue to enhance
compliance programs. In addition, the terms of the settlement call for AEBI to
withdraw its claims to a $30 million client account that served as collateral
for $19 million in AEBI loans to the client. Under the settlement, AEBI did not
admit to any wrongdoing and the U.S. government released AEBI from any liability
arising out of this matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the registrant's security holders
during the last quarter of its fiscal year ended December 31, 1994.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The principal market for the registrant's Common Shares is The New York
Stock Exchange. Its Common Shares are also listed on the Boston, Chicago,
Pacific, London, Zurich, Geneva, Basle, Dusseldorf, Frankfurt, Paris, Amsterdam,
Tokyo and Brussels Stock Exchanges. The registrant had 60,520 common
shareholders of record at December 31, 1994. For price and dividend information
with respect to such Common Shares, see Note 18 to the Consolidated Financial
Statements on page 55 of the registrant's 1994 Annual Report to Shareholders,
which note is incorporated herein by reference.
-25-
ITEM 6. SELECTED FINANCIAL DATA
The "Consolidated Five-Year Summary of Selected Financial Data" appearing
on page 57 of the registrant's 1994 Annual Report to Shareholders is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information set forth under the heading "Financial Review" appearing
on pages 22 through 29 of the registrant's 1994 Annual Report to Shareholders is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The "Consolidated Financial Statements", the "Notes to Consolidated
Financial Statements" and the "Report of Ernst & Young LLP Independent Auditors"
appearing on pages 30 through 56 of the registrant's 1994 Annual Report to
Shareholders are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEMS 10, 11, 12 and 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT; EXECUTIVE COMPENSATION; SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT; CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
The registrant filed with the SEC, within 120 days after the close of its
last fiscal year, a definitive proxy statement dated March 10, 1995 pursuant to
Regulation 14A, which involves the election of directors. The following
portions of such proxy statement are incorporated herein by reference: pages 3
and 4 under the heading "The Shares Voting," pages 4 through 7 under the
headings "Security Ownership of Directors and Executive Officers," and "Security
Ownership of Named Executives," pages 10 through 12 under the heading
"Directors' Fees and Other Compensation," pages 12, beginning at "Election of
Directors" through 32, ending at "Selection of Auditors" (excluding the portions
under the headings, "Board Compensation Committee Report on Executive
Compensation" appearing on pages 15 through 20 and "Performance Graph" appearing
on page 26), and page 38 under the heading "Certain Filings." In addition, the
registrant has provided, under the caption "Executive Officers of the
Registrant" at pages 20 through 23 above, the information regarding executive
officers called for by Item 401(b) of Regulation S-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
See Index to Financial Statements on page F-1 hereof.
-26-
2. Financial Statement Schedules:
See Index to Financial Statements on page F-1 hereof.
3. Exhibits:
See Exhibit Index on pages E-1 through E-5 hereof.
(b) Reports on Form 8-K:
1. Form 8-K, dated October 5, 1994, Item 5, reporting a
continuation of the registrant's reengineering program.
2. Form 8-K, dated October 24, 1994, Item 5, reporting earnings
for the quarter ended September 30, 1994.
3. Form 8-K, dated November 21, 1994, Item 5, reporting a
settlement with the Justice Department arising from the
conviction of two former employees of AEBI.
4. Form 8-K, dated January 23, 1995, Item 5, reporting earnings
for the quarter and year ended December 31, 1994.
-27-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
AMERICAN EXPRESS COMPANY
March 27, 1995 By /s/ Michael P. Monaco
Michael P. Monaco
Executive Vice President,
Chief Financial Officer
and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By /s/ Harvey Golub By /s/ Richard M. Furlaud
Harvey Golub Richard M. Furlaud
Chairman, Chief Executive Director
Officer and Director
By /s/ Jeffrey E. Stiefler By /s/ Beverly Sills Greenough
Jeffrey E. Stiefler Beverly Sills Greenough
President and Director Director
By /s/ Michael P. Monaco By /s/ F. Ross Johnson
Michael P. Monaco F. Ross Johnson
Executive Vice President, Director
Chief Financial Officer
and Treasurer
By /s/ Daniel T. Henry By/s/ Vernon E. Jordan Jr.
Daniel T. Henry Vernon E. Jordan Jr.
Senior Vice President Director
and Comptroller
By /s/ Anne L. Armstrong By /s/ Henry A. Kissinger
Anne L. Armstrong Henry A. Kissinger
Director Director
By /s/ Edwin L. Artzt By
Edwin L. Artzt Drew Lewis
Director Director
By /s/ William G. Bowen By/s/ Aldo Papone
William G. Bowen Aldo Papone
Director Director
By /s/ David M. Culver By
David M. Culver Roger S. Penske
Director Director
By /s/ Charles W. Duncan Jr. By /s/ Frank P. Popoff
Charles W. Duncan Jr. Frank P. Popoff
Director Director
March 27, 1995
-28-
AMERICAN EXPRESS COMPANY
INDEX TO FINANCIAL STATEMENTS
COVERED BY REPORT OF INDEPENDENT AUDITORS
(Item 14(a))
Annual
Report to
Shareholders
Form 10-K (Page)
--------- ------------
American Express Company and Subsidiaries:
Data incorporated by reference from attached
1994 Annual Report to Shareholders:
Report of independent auditors .......... 56
Consolidated statement of income for the
three years ended December 31, 1994 ..... 30
Consolidated balance sheet at December 31,
1994 and 1993 ........................... 31
Consolidated statement of cash flows for
the three years ended December 31, 1994 . 32
Consolidated statement of shareholders' equity
for the three years ended December 31, 1994 33
Notes to consolidated financial statements 34-55
Consent of independent auditors .............. F-2
Schedules:
I-- Condensed financial information of F-3-6
registrant
II-- Valuation and qualifying accounts for the
three years ended December 31, 1994 F-7
All other schedules for American Express Company and subsidiaries have been
omitted since the required information is not present or not present in
amounts sufficient to require submission of the schedule, or because the
information required is included in the respective financial statements or
notes thereto.
The consolidated financial statements of American Express Company
(including the report of independent auditors) listed in the above index,
which are included in the Annual Report for the year ended December 31,
1994, are hereby incorporated by reference. With the exception of the
pages listed in the above index, unless otherwise incorporated by reference
elsewhere in this Annual Report on Form 10-K, the 1994 Annual Report is not
to be deemed filed as part of this report.
F-1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual
Report on Form 10-K of American Express Company of our report dated
February 2, 1995 (hereinafter referred to as our Report), included
in the 1994 Annual Report to Shareholders of American Express
Company.
Our audits included the financial statement schedules of
American Express Company listed in Item 14(a). These schedules are
the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion, the
financial statement schedules referred to above, when considered in
relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in the
Registration Statements (Form S-8 No. 2-46918, No. 2-59230, No.
2-64285, No. 2-73954, No. 2-89680, No. 33-01771, No. 33-02980, No.
33-17133, No. 33-28721, No. 33-32876, No. 33-33552, No. 33-36422,
No. 33-38777, No. 33-43671, No. 33-48629, No. 33-62124, No. 33-
65008 and No. 33-53801; Form S-3 No. 2-89469, No. 33-06038, No.
33-07435, No. 33-17706, No. 33-43268, No. 33-66654 and No. 33-
50997) and in the related Prospecti of our Report with respect to
the consolidated financial statements and schedules of American
Express Company included and incorporated by reference in this
Annual Report on Form 10-K for the year ended December 31, 1994.
ERNST & YOUNG
/s/ Ernst & Young LLP
New York, New York
March 30, 1995
F-2
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENT OF INCOME (A)
(Parent Company Only)
(millions)
Years Ended
December 31,
------------------------
1994 1993 1992
---- ---- ----
Revenues $ 187 $ 123 $ 146
---- ---- ----
Expenses:
Interest 216 181 174
Human resources 84 82 84
Other (B) 164 (659) (592)
---- ---- ----
Total 464 (396) (334)
---- ---- ----
Pretax (loss) income from continuing operations
before accounting changes (277) 519 480
Income tax provision (benefit) (110) 271 237
---- ---- ----
Net (loss) income before equity in net income
of subsidiaries and affiliates (167) 248 243
Equity in net income of subsidiaries (C)
and affiliates 1,547 1,357 228
----- ----- -----
Income from continuing operations
before accounting changes 1,380 1,605 471
Equity in income (loss) of discontinued
operations 33 (127) (149)
Cumulative effect of changes in accounting
principles, net of income taxes - - 139
----- ----- -----
Net income $1,413 $1,478 $ 461
===== ===== =====
(A) Prior year amounts have been restated to reflect Lehman Brothers as a
discontinued operation.
(B) Includes pretax gains on the sale of First Data Corporation of $779
($433 million after-tax) million and $706 ($425 million after-tax)
million in 1993 and 1992, respectively.
(C) Equity in net income of subsidiaries for 1992 includes a $106 million
charge related to the adoption of SFAS 106.
See Notes to Condensed Financial Information of Registrant
F-3
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEET
(Parent Company Only)
(millions, except share amounts)
ASSETS
December 31,
--------------
1994 1993
---- ----
Cash and cash equivalents $ 164 $ 8
Investment securities 246 1,304
Securities purchased under agreement to resell - 746
Equity in net assets of subsidiaries and affiliates
- continuing operations 7,415 6,875
Investment in discontinued operations - 1,540
Accounts receivable and accrued interest, less reserves 13 14
Land, buildings and equipment--at cost, less
accumulated depreciation: 1994, $64; 1993, $65 91 95
Due from subsidiaries (net) 1,863 1,363
Other assets 630 804
------ ------
Total assets $ 10,422 $12,749
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and other liabilities $ 1,116 $ 762
Long-term debt 2,773 3,153
Short-term debt 100 100
------ ------
Total liabilities 3,989 4,015
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 in 1994 and 1993, stated
at liquidation value 200 200
$216.75 CAP Preferred Shares, issued and
outstanding 122,448.98 shares in 1993,
stated at par value (liquidation value of $300) - 1
Common shares, $.60 par value, authorized
1,200,000,000 shares; issued and outstanding
495,865,678 shares in 1994 and 489,827,852 shares
in 1993 298 294
Capital surplus 3,754 3,784
Net unrealized securities (losses) gains (389) 7
Foreign currency translation adjustment (77) (73)
Deferred compensation (103) (128)
Retained earnings 2,750 4,649
------ ------
Total shareholders' equity 6,433 8,734
------ ------
Total liabilities and shareholders' equity $ 10,422 $12,749
====== ======
See Notes to Condensed Financial Information of Registrant
F-4
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOWS
(Parent Company Only)
(millions)
Years Ended December 31,
------------------------
1994 1993 1992
---- ---- ----
Cash flows from operating activities:
Net income $1,413 $1,478 $ 461
Adjustments to reconcile net income to cash
provided by operating activities:
Equity in net income of subsidiaries
and affiliates (1,547) (1,357) (228)
Equity in (income) loss of discontinued
operations (33) 127 149
Dividends received from subsidiaries
and affiliates 877 868 492
Gain on sale of First Data Corporation - (779) (706)
Changes in accounting - - (139)
Other (net) 25 42 (12)
---- ---- ----
Net cash provided by operating activities 735 379 17
---- ---- ----
Net cash provided (used) by investing
activities 1,536 (655) 309
----- ---- ----
Cash flows from financing activities:
Issuance of American Express common shares 179 259 159
Repurchase of American Express common shares (555) - -
Redemption of American Express Money Market
Preferred shares - - (150)
Dividends paid (504) (526) (518)
Cash infusion to Lehman Brothers (904) - -
Net (decrease) increase in debt (331) 524 128
---- ---- ----
Net cash provided (used) by financing
activities (2,115) 257 (381)
----- ---- ----
Net increase (decrease) in cash and cash 156 (19) (55)
equivalents ---- ---- ----
Cash and cash equivalents at beginning
of year 8 27 82
---- ---- ----
Cash and cash equivalents at end of year $ 164 $ 8 $ 27
==== ==== ====
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest (net of amounts capitalized) in 1994, 1993, and 1992
was $169 million, $105 million and $129 million, respectively. Net cash
received for income taxes was $185 for 1994; net cash paid for income taxes
was $256 and $113 for 1993 and 1992, respectively.
F-5
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
1. Principles of Consolidation
The accompanying financial statements include the accounts of American
Express Company and on an equity basis its subsidiaries and affiliates.
Lehman Brothers is reported as a discontinued operation and,
accordingly, prior years' amounts have been restated. These financial
statements should be read in conjunction with the consolidated financial
statements of the Company. Certain prior year's amounts have been
reclassified to conform to the current year's presentation.
2. Long-term debt consists of (millions):
December 31,
-------------
1994 1993
---- ----
Floating Medium-Term Note Due June 28, 1996 945 945
6 1/4% DECS Due October 15, 1996 868 868
8 5/8% Notes due July 15, 1994 - 300
8 1/2% Notes due August 15, 2001 298 298
8 3/4% Notes due June 15, 1996 200 199
8 5/8% Senior Debentures Due 2022 198 197
Employee Stock Ownership Plan 63 83
9% Convertible Notes due April 1, 1994 - 58
11.95% Private Placement Notes due 1995 102 102
WFC Series C 12 1/5% Guaranteed Notes due December 12, 1997 15 19
WFC Series D 11 5/8% Guaranteed Notes due December 12, 2000 22 22
WFC Series Z Zero Coupon Notes due December 12, 2000 33 30
WFC $60 million 8.15% Japanese Yen PPN due July 1996 9 9
WFC $80 million 7.86% Japanese Yen PPN due August 1996 11 11
7 1/2% Debentures due February 27, 1999 4 7
12 3/4% Industrial Revenue Bonds due October 31, 2001 5 5
----- -----
$2,773 $3,153
===== =====
Aggregate annual maturities of long-term debt for the five years ending
December 31, 1999 are as follows (millions): 1995, $170; 1996, $2,038;
1997, $6; 1998, $6; 1999, $11.
F-6
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1994
(millions)
[Download Table]
Reserve for credit losses, Reserve for doubtful
loans and discounts accounts receivable
-------------------------- ------------------------
1994 1993 1992 1994 1993 1992
---- ---- ---- ---- ---- ----
Balance at beginning
of period $ 655 $ 911 $ 847 $ 796 $ 1,124 $1,306
Additions:
Charges to income 362 535 1,044 1,104(a) 1,020(a) 1,143(a)
Recoveries of amounts
previously written-off 150 26 14 - - -
Other credits (debits) (19) (85) 3 - - -
Deductions:
Charges for which
reserves were
provided (603) (732) (997) (1,093) (1,348) (1,325)
---- ---- ---- ----- ----- -----
Balance at end of
period $ 545 $ 655 $ 911 $ 807 $ 796 $1,124
==== ==== ==== ===== ===== =====
(a) Before recoveries on accounts previously written-off, which are
credited to income: 1994--$332, 1993--$333, 1992--$243.
F-7
EXHIBIT INDEX
The following exhibits are filed as part of this Annual Report or, where
indicated, were heretofore filed and are hereby incorporated by reference (*
indicates exhibits electronically filed herewith.) Exhibits numbered 10.1
through 10.20 and 10.31 through 10.42 are management contracts or compensatory
plans or arrangements.
3.1 Registrant's Restated Certificate of Incorporation (incorporated by
reference to Exhibit 4.1 of the registrant's Registration Statement on
Form S-8, dated October 31, 1991 (File No. 33-43671)).
3.2 Registrant's By-Laws, as amended (incorporated by reference to Exhibit
3.2 of the registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994.)
4 The instruments defining the rights of holders of long-term debt
securities of the registrant and its subsidiaries are omitted pursuant
to Section (b)(4)(iii)(A) of Item 601 of Regulation S-K. The
registrant hereby agrees to furnish copies of these instruments to the
SEC upon request.
10.1 American Express Company 1979 Long-Term Incentive Plan, as amended
(incorporated by reference to Exhibit 10.2 of the registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987).
10.2 American Express Company 1989 Long-Term Incentive Plan, as amended
(incorporated by reference to Exhibit 28.1 of the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1993).
10.3 American Express Company Deferred Compensation Plan for Directors, as
amended (incorporated by reference to Exhibit 10.3 of the registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1992).
10.4 American Express Company Executives' Incentive Compensation Plan
(incorporated by reference to Exhibit 10.4 of the registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1988).
10.5* Description of American Express Pay for Performance Deferral Program.
10.6 American Express Company Supplementary Pension Plan, as amended
(incorporated by reference to Exhibit 10.6 of the registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1988).
10.7 American Express Company 1983 Stock Purchase Assistance Plan, as
amended (incorporated by reference to Exhibit 10.6 of the registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1988).
10.8 Consulting Agreement dated March 3, 1994 between the registrant and
Aldo Papone Consulting (incorporated by reference to Exhibit 10.8 of
the registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993).
10.9 Written description of consulting agreement between American Express
Company and Kissinger Associates, Inc. (incorporated by reference to
E-1
Exhibit 10.20 of the registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1984).
10.10 American Express Company Retirement Plan for Non-Employee Directors, as
amended (incorporated by reference to Exhibit 10.12 of the registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1988).
10.11 American Express Company Directors' Stock Option Plan (incorporated by
reference to Exhibit 10.16 of the registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1987).
10.12 American Express Key Executive Life Insurance Plan, as amended
(incorporated by reference to Exhibit 10.12 of the registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1991).
10.13 American Express Key Employee Charitable Award Program for Education
(incorporated by reference to Exhibit 10.13 of the registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1990).
10.14 American Express Directors' Charitable Award Program (incorporated by
reference to Exhibit 10.14 of the registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1990).
10.15 Description of separate pension arrangement and loan agreement between
the registrant and Harvey Golub (incorporated by reference to Exhibit
10.17 of registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1988).
10.16 Shearson Lehman Brothers Capital Partners I Amended and Restated
Agreement of Limited Partnership (incorporated by reference to Exhibit
10.18 of registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1988).
10.17 Shearson Lehman Hutton Capital Partners II, L.P. Amended and Restated
Agreement of Limited Partnership (incorporated by reference to Exhibit
10.19 of registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1988).
10.18 American Express Company Salary Deferral Plan (incorporated by
reference to Exhibit 10.20 of registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1988).
10.19 Written description of certain pension arrangements with Jonathan S.
Linen (incorporated by reference to Exhibit 10.14 of the registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1991).
10.20 Consulting Agreement dated March 3, 1994 between American Express
Travel Related Services Company, Inc. and Aldo Papone Consulting
(incorporated by reference to Exhibit 10.23 of the registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993).
10.21 Restated and Amended Agreement of Tenants-In-Common, dated May 27,
1994, by and among the registrant, American Express Bank Ltd., American
Express Travel Related Services Company, Inc., Lehman Brothers Inc.,
Lehman Government Securities, Inc. and Lehman Commercial Paper
Incorporated (incorporated by reference to Exhibit 10.1 of Lehman
E-2
Brothers Holdings Inc.'s Transition Report on Form 10-K for the
transition period from January 1, 1994 to November 30, 1994 (File No.
1-9466)).
10.22 Tax Allocation Agreement, dated May 27, 1994, between Lehman Brothers
Holdings Inc. and the registrant (incorporated by reference to Exhibit
10.2 of Lehman Brothers Holdings Inc.'s Transition Report on Form 10-K
for the transition period from January 1, 1994 to November 30, 1994
(File No. 1-9466)).
10.23 Intercompany Agreement, dated May 27, 1994, between the registrant and
Lehman Brothers Holdings Inc. (incorporated by reference to Exhibit
10.3 of Lehman Brothers Holdings Inc.'s Transition Report on Form 10-K
for the transition period from January 1, 1994 to November 30, 1994
(File No. 1-9466)).
10.24 Purchase and Exchange Agreement, dated April 28, 1994, between Lehman
Brothers Holdings Inc. and the registrant (incorporated by reference to
Exhibit 10.29 of Lehman Brothers Holdings Inc.'s Transition Report on
Form 10-K for the transition period from January 1, 1994 to November
30, 1994 (File No. 1-9466)).
10.25 Registration Rights Agreement, dated as of May 27, 1994, between the
registrant and Lehman Brothers Holdings Inc. (incorporated by reference
to Exhibit 10.30 of Lehman Brothers Holdings Inc.'s Transition Report
on Form 10-K for the transition period from January 1, 1994 to November
30, 1994 (File No. 1-9466)).
10.26 Option Agreement, dated May 27, 1994, by and among the registrant,
American Express Bank Ltd., American Express Travel Related Services
Company, Inc., Lehman Brothers Holdings Inc., Lehman Brothers Inc.,
Lehman Government Securities, Inc. and Lehman Brothers Commercial Paper
Inc. (incorporated by reference to Exhibit 10.31 of Lehman Brothers
Holdings Inc.'s Transition Report on Form 10-K for the transition
period from January 1, 1994 to November 30, 1994 (File No. 1-9466)).
10.27 1994 Agreement, dated April 28, 1994, between the registrant, Lehman
Brothers Holdings Inc. and Nippon Life Insurance Company (incorporated
by reference to Exhibit 10.32 of Lehman Brothers Holdings Inc.'s
Transition Report on Form 10-K for the transition period from January
1, 1994 to November 30, 1994 (File No. 1-9466)).
10.28 1990 Agreement, dated as of June 12, 1990, by and between American
Express Company and Nippon Life Insurance Company (incorporated by
reference to Exhibit 10.25 of Shearson Lehman Brothers Holdings Inc.'s
Annual Report on Form 10-K for the fiscal year ended December 31,
1990).
10.29 Stock Purchase Agreement dated as of September 14, 1992 between Mellon
Bank Corporation and Shearson Lehman Brothers Inc. (incorporated by
reference to Exhibit 10.15 of Shearson Lehman Brothers Holdings Inc.'s
Annual Report on Form 10-K for the fiscal year ended December 31,
1992).
10.30 Asset Purchase Agreement dated as of March 12, 1993 between Smith
Barney, Harris Upham & Co. Incorporated, Primerica Corporation and
Shearson Lehman Brothers Inc. (incorporated by reference to Exhibit
E-3
10.16 of Shearson Lehman Brothers Holdings Inc.'s Annual Report on Form
10-K for the fiscal year ended December 31, 1992).
10.31 Consulting Agreement dated February 25, 1991 between Shearson Lehman
Brothers Inc. and Kissinger Associates, Inc., as amended (incorporated
by reference to Exhibit 10.27 of the registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1992).
10.32 American Express Company 1993 Directors' Stock Option Plan
(incorporated by reference to Exhibit 28.2 of the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1993).
10.33 Agreement dated July 15, 1993 between the registrant and Richard M.
Furlaud (incorporated by reference to Exhibit 10.33 of the registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1993).
10.34 American Express Senior Executive Severance Plan (incorporated by
reference to Exhibit 10.1 of the registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1994).
10.35 Amendment of American Express Senior Executive Severance Plan.
(incorporated by reference to Exhibit 10.1 of the registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1994).
10.36 Amendment of American Express Company Executives' Incentive
Compensation Plan (incorporated by reference to Exhibit 10.2 of the
registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994).
10.37 Amendment of American Express Company Key Executive Life Insurance Plan
(incorporated by reference to Exhibit 10.3 of the registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1994).
10.38 Amendment of American Express Salary/Bonus Deferral Plan (incorporated
by reference to Exhibit 10.4 of the registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994).
10.39 Amendment of American Express Supplementary Pension Plan (incorporated
by reference to Exhibit 10.5 of the registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994).
10.40 Amendment of Long-Term Incentive Awards under the American Express
Company 1979 and 1989 Long-Term Incentive Plans (incorporated by
reference to Exhibit 10.6 of the registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1994).
10.41* IDS Supplemental Retirement Plan.
10.42* IDS Current Service Deferred Compensation Plan.
10.43* Agreement dated February 27, 1995 between the registrant and Berkshire
Hathaway Inc.
11* Computation of Earnings Per Share.
E-4
12.1* Computation in Support of Ratio of Earnings to Fixed Charges.
12.2* Computation in Support of Ratio of Earnings to Fixed Charges and
Preferred Share Dividends.
13* Portions of the registrant's 1994 Annual Report to Shareholders that
are incorporated herein by reference.
21* Subsidiaries of the registrant.
23* Consent of Ernst & Young LLP (contained on page F-2 hereof).
27* Financial Data Schedule
E-5
Dates Referenced Herein and Documents Incorporated by Reference
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