10-K 1 ============================================================================= 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. ============================================================================= 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 -4- 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 -7- 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 -11- 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): -13- 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)
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 EX-10.5 2 Exhibit 10.5 Description of Pay for Performance Deferral Program The Pay for Performance Deferral Program permits eligible participants to defer annual compensation up to a maximum of one times base salary. The program annually credits interest equivalents to, or reduces the value of, deferred amounts according to a schedule based on the reported annual return on equity ("ROE") of American Express Company (the "Company"). The Compensation and Benefits Committee of the Board of Directors (the "Committee") may adjust the schedule for major accounting changes, if the Company's ROE objectives change significantly, or if the annual return on a benchmark treasury note falls below or rises above a specified level. Deferred balances are reduced in value if the annual ROE is zero or less for a given year. If a participant elects to defer any compensation under this program, he or she must defer such compensation for a least five years. The Committee may delay payments under the program until they are fully deductible under Section 162(m) of the U.S. Internal Revenue Code of 1986, as amended. Deferred amounts are linked to Company performance until paid out. EX-10.41 3 Exhibit 10.41 THE IDS SUPPLEMENTAL RETIREMENT PLAN Amended and Restated Effective January 1, 1989 The IDS Supplemental Retirement Plan ("Plan") is amended and restated effective January 1, 1989. 1. Introduction On December 29, 1987, the Executive Committee of the Board of Directors of IDS Financial Corporation ("IDS") empowered the Senior Vice President - Human Resources to create the IDS Supplemental Retirement Plan, (the "Plan"), effective January 1, 1988. The Plan is intended to supplement the retirement benefits of the IDS Retirement Plan, the IDS Incentive and Thrift Plan, and the IDS Savings Plan through the payment of benefits to those participants in such plans, and their surviving spouses and beneficiaries, as to whom benefits otherwise payable under such plans are restricted in accordance with Section 3(36) of the Employee Retirement Income Security Act of 1974 and is to be construed accordingly. 2. Administration of the Plan The Plan shall be administered by the Senior Vice President - Human Resources ("Administrator"). The Administrator shall have full power and authority to interpret, construe and administer the Plan, including the discretion to determine the amounts payable and the time of any such payments so as to conform with the intent as well as the terms of this Plan, and such interpretation and construction thereof and actions taken thereunder shall be binding on all persons for the purposes. The Administrator may correct any defect, supply any omission or reconcile any inconsistency in the Plan in the manner and to the extent the Administrator deems desirable to carry it into effect. Any decision of the Administrator in the administration of the Plan shall be final and conclusive. 3. Eligibility a. Participation in the Plan shall be limited to officers and other key employees of IDS and its subsidiaries who are designated by the Administrator, on a case-by-case basis, as eligible to participate in the Plan. In any case, participation will not extend to employees whose inclusion, in the opinion of counsel, could jeopardize the Company's position that the agreements made within the parameters of this Plan are private offerings, exempt from registration pursuant to Section 4(2) of the Securities Act of 1933. The term "Participant" as used throughout shall refer to eligible employees designated to participate in the Plan. b. The Administrator is authorized to approve, on behalf of IDS, deferred compensation agreements, and amendments thereto, with eligible employees. c. Employees who meet the eligibility requirements pursuant to Section 3.a., due to promotion or new employment during the calendar year, can request participation in the Plan, if they request to defer no later than 30 days after they receive written confirmation of their eligibility. 4. Benefits a. If an employee, under the IDS Retirement Plan ("Retirement Plan") retires, becomes disabled, dies or otherwise terminates employment such that he or she or his or her beneficiary becomes entitled to benefits under the Retirement Plan, and if any benefit was not accrued for him or her under the terms of the Retirement Plan because of the limitations of Section 415 and Section 401(a)(17) of the Internal Revenue Code of 1986, as it may be amended from time to time, and the respective regulations issued thereunder ("Code"), then IDS hereby agrees and promises to pay to such employee or his or her beneficiary an amount, if any, equal to the difference between the benefit payable to him or her or his or her beneficiary under the Retirement Plan but for the applicability of the limitations of Code Section 401(a)(17) and Section 415. Notwithstanding anything to the contrary in this Plan or the Retirement Plan, each person who is otherwise entitled to receive benefits commencing on or after January 1, 1988 hereunder, shall be entitled, to an additional benefit hereunder, if any, as would have been payable to him or her under the Retirement Plan if he or she had not elected to defer receipt of compensation pursuant to the IDS Current Service Deferred Compensation Plan ("CSDC"). The benefits payable under this Section 4.a. shall be paid in cash from the general assets of IDS in the same manner and over the same period of time as benefits are paid to such employee or beneficiary from the Retirement Plan. The beneficiary or beneficiaries entitled to receive any benefits under this Section 4.a. shall be the beneficiary or beneficiaries designated by the employee under the Retirement Plan. b. IDS shall establish a book reserve account to which shall be credited when earned or otherwise payable the following: (i) An amount equal to that portion of the contribution by IDS under the IDS Incentive and Thrift Plan which would have been made and allocated to Participant but for the deferral of compensation pursuant to the CSDC. In determining this amount, the contribution limitations of Code Section 415 and Code Section 401(a)(17) shall be disregarded. (ii) An amount equal to the contributions which would have been made by IDS as a Matching Contribution (as defined in the IDS Savings Plan) on behalf of Participant under the IDS Savings Plan with respect to that portion of Participant's base salary which is deferred pursuant to the CSDC, and assuming (i) such salary portion had not been deferred, and (ii) Participant had received appropriate benefit credits under the IDS Flexible Compensation Plan and had elected to make elective contributions under the IDS Savings Plan equal to 5% and IDS had made matching contributions equal to 2 1/2% of such Participant's salary deferred under the CSDC. (iii) An amount equal to any employer contributions which cannot be allocated under the IDS Incentive and Thrift Plan (with respect to Participant's regular, basic compensation) on account of the limitations specified in Code Section 415 and Section 401(a)(17). (iv) Any portion or all of (i) the first 5% of elective contributions under the IDS Savings Plan, with respect to Participant's adjusted compensation used to determine contributions thereunder; and (ii) any matching contributions relating to such elective contributions; which cannot be allocated for Participant's benefit under such Savings Plan on account of the limitations specified in Code Section 415. (v) An amount equal to that amount, previously credited on behalf of such Participant under Section 4.b.(1) and Section 4.b.(2) of the Current Service Deferred Compensation Plan as of and as in effect on December 31, 1987 which is scheduled to be paid in 1989 and later years. (vi) Amounts a Participant may otherwise be entitled to under this Section 4.b. shall be offset by any benefits payable from any other Plan provision or IDS benefit program the Plan payment was intended to replace. Amounts described in this subsection "b" shall be credited to the book reserve account, with the exception of amounts in paragraph (v) which shall be immediately credited, at the time contributions which are made by IDS on behalf of the Participants under the IDS Incentive and Thrift Plan and the IDS Savings Plan, as the case may be, are allocated to participants under such plans. c. Payment (i) Any benefits payable under Section 4.b. shall be paid in cash from the general assets of IDS in the manner irrevocably designated, in a form and manner acceptable to the Administrator, at the time of retirement. (ii) Notwithstanding (i) above, upon Participant's termination of employment for reasons other than retirement, death, or disability his or her deferred compensation shall be paid to him or her in a lump sum of cash no later than December 31, of the subsequent year. For purposes of this section "termination of employment" shall not include the discontinuance of services with IDS if Participant continues to perform services as an employee of American Express or its subsidiaries or affiliates. (iii) The deferred amount(s) to be paid pursuant to Section 4.b.(i) and Section 4.b.(iii) shall be restricted to the Participant's vested portion with respect to the vesting schedule from the IDS Incentive and Thrift Plan. Any nonvested portion of such deferred compensation to be paid shall be forfeited. (iv) The beneficiary or beneficiaries entitled to receive benefits under (i) above shall be those as the Participant shall designate by filing a written notice of such designation with the Administrator in such form as the Administrator may prescribe. The Participant may revoke or modify that designation at any time by a further written designation. The Participant's beneficiary designation shall be deemed automatically revoked in the event of the death of the beneficiary or, if the beneficiary is the Participant's spouse, in the event of dissolution of marriage. If no designation is in effect at the time when benefits payable under Agreement become due, the beneficiary shall be the spouse of the Participant, or if no spouse is then living, the Participant's children and their issue by right of representation or, if none, the legal representatives of the Participant's estate. d. Notwithstanding anything herein contained to the contrary, upon the request of a Participant and based on a showing of an unanticipated emergency caused by an event beyond the control of the Participant or beneficiary that would result in severe financial hardship to the individual if early withdrawal were not permitted, the IDS Board of Directors may, in its sole discretion, vary the manner and time of making the distributions provided in this Section 4. e. The book reserve account for amounts credited under subsection "b" above, shall contain four subaccounts. Solely for the purposes of determining the amount to be paid a Participant pursuant to the Plan, a Participant may designate one or more subaccounts to be used by IDS to reflect increases, decreases, interest and dividends, other income gains and losses as may, from time to time, be experienced by such reserve account. If more than one subaccount is used with respect to any amount credited under the Plan, a Participant must designate, on a form acceptable to the Administrator, in 5% increments, the allocation of amounts credited in each subaccount. A Participant is allowed to amend such designation four times during a given Plan year. All Participant designations under this subsection shall be subject to the approval and subject to change in the sole discretion of the Administrator pursuant to Section 3.b. The experience of the four subaccounts shall reflect, in as similar manner as administratively feasible, those four investments available to Participants of the IDS Savings Plan, namely: (i) Subaccount A shall reflect the experience of IDS Trust Balanced A Fund, a collective fund maintained by IDS Bank & Trust ("IBT"); (ii) Subaccount B shall reflect the experience of IDS Trust Equity A Fund, a collective fund maintained by IBT; (iii) Subaccount C shall reflect the experience of IDS Trust Income Fund, a collective fund maintained by IBT; and (iv) Subaccount D shall reflect the experience of the American Express Stock "Fund" as the term is applied to investments in the IDS Savings Plan. The subaccounts shall be valued subject to such reasonable rules and procedures as the Administrator shall adopt and apply to all Participants similarly situated with an effort to value such subaccounts as if amounts designated were invested in as similar time and manner, subject to administrative convenience, as amounts are invested, and subject to the same market fluctuation factors as used in valuing such investments in the IDS Savings Plan. 5. General Provisions a. Nothing in this Plan shall create, or be construed to create, a trust of any kind or fiduciary relationship between IDS and the Participant, his or her designated beneficiary, or any other person. Any funds deferred under the provisions of this Plan shall be construed for all purposes as a part of the general funds of IDS, and any right to receive payments from IDS under this Plan shall be no greater than the right of any unsecured general creditor. IDS may, but need not, purchase any securities or instruments as a means of hedging its obligations to any Participant under this Plan. b. The right of any Participant, or other person, to the payment of deferred compensation under this Plan shall not be assigned, transferred, pledged or encumbered except by the laws of descent and distribution. c. Participation in the Plan shall not be construed as conferring upon the Participant the right to continue in the employ of IDS as an executive or any other capacity. IDS expressly reserves the right to dismiss any employee at any time without liability for the effect such dismissal might have upon him or her hereunder. d. Any deferred compensation payable under this Plan shall not be deemed salary or other compensation to the Participant for the purpose of computing the benefits under any qualified pension or profit sharing plan. e. IDS makes no representations or warranties and assumes no responsibility as to the tax consequences to any Participant who enters into a deferred compensation agreement with IDS pursuant to this Plan. Further, payment by IDS to Participant, or to Participant's beneficiary or beneficiaries in accordance with the written designation of beneficiary on file with the Administrator at the time of Participant's death, shall be binding on all interested parties and persons, including Participant's heirs, executors, administrators and assigns, and shall discharge IDS, its directors, officers and employees from all claims, demands, actions or causes of action of every kind arising out of or on account of Participant's participation in this Plan, known or unknown, for himself or herself, his or her heirs, executors, administrators and assigns. Any agreement executed pursuant to this Plan shall include the above provision of this Section 5.e. f. The Board of Directors may, at any time, amend or terminate the Plan, provided that the Board may not reduce or modify the amount of any benefit payable to a Participant or any beneficiary receiving benefit payments at the time the Plan is amended or terminated. The President or Senior Vice President - Human Resources may, at any time, make non-material amendments to the Plan subject to the above condition. Examples of non-material amendments include, but are not limited to, such items as (a) amendments necessary to comply with changes in federal or state law or regulations, or to obtain initial or continuing IRS approval of the Plan, (b) amendments which ease the administration of the Plan but do not have significant immediate or long-term material financial impact, or (c) amendments having a non- material effect on the Company's financial commitment to the Plan. g. The Administrator may prescribe a form of agreement to be used by Participant and IDS to defer compensation under the Plan. 6. Effective Date Provisions of this amended and restated Plan shall be effective on and after January 1, 1989. The original Plan was adopted on December 29, 1987, with its provisions effective as of January 1, 1988. Notwithstanding the language of 3.c., during the first Plan Year, employees eligible to participate in the Plan, and so designated pursuant to 3.a., shall have thirty (30) days from the date of adoption of this Plan in which to elect to participate. EX-10.42 4 Exhibit 10.42 IDS CURRENT SERVICE DEFERRED COMPENSATION PLAN Amended and Restated Effective January 1, 1989 The IDS Current Service Deferred Compensation Plan ("Plan") is amended and restated effective January 1, 1989. Any compensation deferred pursuant to the Plan or any agreement between any employee and IDS Financial Corporation ("IDS") or one of its subsidiaries prior to January 1, 1989 and thereafter shall be governed by the provisions of this 1989 amended and restated Plan as provided herein. 1. Purpose of the Plan The purpose of this Plan is to provide a means for certain key executives of IDS and its subsidiaries to defer a portion of their compensation from IDS and its subsidiaries in order to derive additional supplemental pre- retirement savings opportunities and retirement and estate planning benefits. 2. Administration of the Plan The Plan shall be administered by the Senior Vice President - Human Resources ("Administrator"). The Administrator shall have full power and authority to interpret, construe and administer the Plan, and such interpretation and construction thereof and actions taken thereunder shall be binding on all persons for the purposes. The Administrator may correct any defect, supply any omission or reconcile any inconsistency in the Plan in the manner and to the extent the Administrator deems desirable to carry it into effect. Any decision of the Administrator in the administration of the Plan shall be final and conclusive. 3. Eligibility a. Participation in the Plan shall be limited to officers and other key employees of IDS and its subsidiaries who are designated by the Administrator, on a case-by-case basis, as eligible to participate in the Plan. In any case, participation will not extend to employees whose inclusion, in the opinion of counsel, could jeopardize the Company's position that the agreements made within the parameters of this Plan are private offerings exempt from registration pursuant to Section 4(2) of the Securities Act of 1933. The term "Participant" as used throughout shall refer to eligible employees designated to participate in the Plan. b. The Administrator is authorized to approve, on behalf of IDS, deferred compensation agreements, and amendments thereto, with eligible employees. 4. Prescribed Provisions of Deferred Compensation Agreements Any Deferred Compensation Agreement ("Agreement") entered into between an eligible employee and IDS pursuant to this Plan shall be subject to the following requirements and conditions: a. IDS shall establish a book reserve account to which shall be credited when earned or otherwise payable the following, to the extent elected by an eligible employee pursuant to Section 4.f.: (1) The basic compensation deferred which must be stated as a specific dollar amount determined on the date of the Agreement. (2) Awards under the Key Management Incentive Plan or any similar bonus plan, if included as a deferred item. b. The book reserve account for amounts deferred under subsection "a" above shall contain two subaccounts (Subaccount A and Subaccount B). Participants can designate one or both subaccounts to be used by IDS to reflect and credit increases, decreases, interest, dividends, other income, gains and losses as may, from time to time, be experienced by such reserve account. If both subaccounts are used with respect to any agreement of deferral, 50% of the compensation to be deferred under such agreement must be credited to each of the subaccounts. Such designations shall be irrevocable. If compensation has been credited to the stock equivalent account, however, the Participant can elect to have any number of stock equivalent units transferred from Subaccount B to Subaccount A at any time. The stock equivalent units will be valued for transfer purposes by multiplying the applicable number of units to be transferred by the average American Express common stock closing price for the 60 trading days prior to transfer date. Any transfer shall be effective at the close of the business day during which written notice of such transfer is received before the close of the business day by the Administrator. In contrast, once an amount is credited to Subaccount A, either on account of an initial deferral or a transfer, that amount cannot be transferred to Subaccount B. (1) Subaccount A - Cash Equivalent Account Amounts designated by Participant to be held in Subaccount A shall be credited with interest at the end of each calendar quarter at a rate equal to the average interest rate earned on 26-week U.S. Treasury bills auctioned during such calendar quarter. If the book reserve account is reduced during a calendar year due to payments made pursuant to Section 4.c., interest accruals shall be credited to the account on the date prior to the payment date and shall be based on the average interest rate earned on 26-week U.S. Treasury Bills auctioned during the preceding calendar quarter. (2) Subaccount B - American Express Common Stock Equivalent Account With respect to compensation deferred in Section 4.a.(1) amounts designated to be held in Subaccount B shall be credited to an American Express common stock equivalent account. Such deferred amounts credited to the stock equivalent account during any calendar quarter shall be converted to stock equivalent units (by dividing the total of such deferred amount by the average American Express common stock closing price for the quarter) only at the end of such calendar quarter. Based on the number of stock equivalent units credited to the account on any American Express common stock dividend record date, quarterly dividend equivalents, i.e., the dollar value of any dividends payable with respect to American Express common stock, will be converted into stock equivalent units on such dividend record date by using the closing stock price on that dividend record date. On the date that amounts deferred hereunder are paid out pursuant to Subsection "c" below, the stock equivalent units then held in the stock equivalent account will be valued for payment by multiplying the applicable number of units payable by the average American Express common stock closing price for the 60 trading days before the payment date. With respect to compensation deferred pursuant to Section 4.a.(2), the deferred award amount will be converted to stock equivalent units by dividing the deferred award amount by the average American Express common stock closing price for the 60 trading days prior to the date on which such bonus is deferred under the Plan. Once the awards pursuant to Section 4.a.(2) are converted to stock equivalent units, the units will be handled in the same manner as stock equivalent units from deferred compensation referenced above in this paragraph. (3) The book reserve account may contain additional subaccounts that the Administrator may, in the Administrator's discretion, designate from time to time. The procedures to reflect and credit increases, decreases, interest, dividends, other income, gains and losses, conversion rights and transferability will be determined by the Administrator in his or her discretion. c. IDS shall pay to Participant, or his or her beneficiary designated in accordance with subsection "d" below, his or her deferred compensation in cash in accordance with such payout schedule as the Participant shall irrevocably elect at the time the Agreement deferring such compensation is executed by Participant and IDS, subject to the following: (1) Payout may not extend beyond the earlier of the year the Participant reaches or would have reached age 90 or 15 years after payout commences, unless otherwise determined by the Administrator in his or her sole discretion. (2) Payments will be made annually during the first quarter. (3) Upon Participant's termination of employment for reasons other than retirement, death, or disability his or her deferred compensation shall be paid to him or her in a lump sum of cash no later than December 31, of the subsequent year. For purposes of this Section "termination of employment" shall not include the discontinuance of services with IDS if Participant continues to perform services as an employee of American Express or its subsidiaries or affiliates. (4) Upon Participant's death any amount held under this Plan shall be payable in cash, in accordance with Participant's elected payout schedule unless otherwise determined by the Administrator, to his or her beneficiary designated pursuant to subsection "d" below. (5) If Participant elects to have his or her deferred compensation paid in annual installments, the payout shall be subject to the following: Installment payments with respect to compensation which has been credited into Subaccount A shall be computed by dividing the outstanding account balance by the number of payments remaining, including the current payment. For compensation which has been credited into Subaccount B, annual installment payments shall be computed by dividing the outstanding number of stock equivalent units by the number of payments remaining, including the current payment, and then multiplying the applicable number of units payable by the average American Express common stock closing price for the 60 trading days prior to the payment date. The balance that remains after each installment payment shall continue to be credited with interest or dividend equivalents in accordance with this Plan and the provisions affecting the subaccounts. Installment payments with respect to compensation which has been credited into a subaccount other than Subaccount A or Subaccount B will be valued in a manner determined by the Administrator in his or her discretion at the time the Agreement deferring such compensation is executed by Participant and IDS. (6) Notwithstanding anything to the contrary contained in the Plan or any Agreement entered into thereunder or the Key Management Incentive Compensation Plan (the "KMIC"), following the occurrence of a Change of Control, as defined in paragraph E of Article VI of the KMIC, any amount held pursuant to the Plan to the credit of any Participant shall be paid to the Participant within five days following the date of such Change of Control. (7) The definition of a "Change in Control", as provided in paragraph E of Article VI of the KMIC, as may be amended from time to time, is hereby incorporated into this Plan. d. The Participant shall designate a beneficiary by filing a written notice of such designation with the Administrator in such form as the Administrator may prescribe. The Participant may revoke or modify that designation at any time by a further written designation. The Participant's beneficiary designation shall be deemed automatically revoked in the event of the death of the beneficiary or, if the beneficiary is the Participant's spouse, in the event of dissolution of marriage. If no designation is in effect at the time when benefits payable under Agreement become due, the beneficiary shall be the spouse of the Participant, or if no spouse is then living, the Participant's children and their issue by right of representation or, if none, the legal representatives of the Participant's estate. e. Notwithstanding anything herein contained to the contrary, upon the request of a Participant and based on a showing of an unanticipated emergency caused by an event beyond the control of the Participant or beneficiary that would result in severe financial hardship to the individual if early withdrawal were not permitted, the IDS Board of Directors may, in its sole discretion, vary the manner and time of making the distributions provided in this Section 4. f. The Administrator may prescribe a form of Agreement to be used by Participant and IDS to defer compensation under the Plan. Any Agreement between Participant and IDS shall conform to the following: (1) With respect to the deferral of basic compensation, the Agreement shall be entered into by the parties no later than December 31, immediately prior to the calendar year during which deferral is to be effective, or at such other date, which shall precede the rendition of services for the basic compensation that is being deferred hereunder, as the Administrator shall determine. Employees who meet the eligibility requirements pursuant to Section 3.a., due to promotion or new employment during the calendar year, can request participation in the Plan, if they request to defer no later than 30 days after they receive written confirmation of their eligibility. (2) With respect to awards under the Key Management Incentive Plan or any similar bonus plan, the Agreement shall be entered into by the parties no later than December 31, immediately prior to the calendar year(s) during which the bonus is earned, or at such other date, which shall precede the period during which the award or bonus is earned, as the Administrator shall determine. g. As of the effective date of the IDS Supplemental Retirement Plan, amounts credited to this Plan pursuant to Sections 4.b.(1) and 4.b.(2) as in effect prior to January 1, 1988, shall be governed by the provisions of the IDS Supplemental Retirement Plan as it may be amended from time to time. 5. General Provisions: a. Nothing in this Plan shall create, or be construed to create, a trust of any kind or fiduciary relationship between IDS and the Participant, his or her designated beneficiary, or any other person. Any funds deferred under the provisions of this Plan shall be construed for all purposes as a part of the general funds of IDS, and any right to receive payments from IDS under this Plan shall be no greater than the right of any unsecured general creditor. IDS may, but need not, purchase any securities or instruments as a means of hedging its obligations to any Participant under this Plan. b. The right of any Participant, or other person, to the payment of deferred compensation under this Plan shall not be assigned, transferred, pledged or encumbered except by the laws of descent and distribution. c. Participation in the Plan shall not be construed as conferring upon the Participant the right to continue in the employ of IDS as an executive or any other capacity. d. Any deferred compensation payable under this Plan shall not be deemed salary or other compensation to the Participant for the purpose of computing the benefits under any qualified pension or profit sharing plan. e. IDS makes no representations or warranties and assumes no responsibility as to the tax consequences to any Participant who enters into a deferred compensation agreement with IDS pursuant to this Plan. Further, payment by IDS to Participant, or to Participant's beneficiary or beneficiaries in accordance with the written designation of beneficiary on file with the Administrator at the time of Participant's death, shall be binding on all interested parties and persons, including Participant's heirs, executors, administrators and assigns, and shall discharge IDS, its directors, officers and employees from all claims, demands, actions or causes of action of every kind arising out of or on account of Participant's participation in this Plan, known or unknown, for himself or herself, his or her heirs, executors, administrators and assigns. Any agreement executed pursuant to this Plan shall include the above provision of this Section 5.e. f. The Board of Directors may, at any time, amend or terminate the Plan, provided that the Board may not reduce or modify the amount of any benefit payable to a Participant or any beneficiary receiving benefit payments at the time the Plan is amended or terminated. The President or Senior Vice President - Human Resources may, at any time, make non-material amendments to the Plan subject to the above condition. Examples of non-material amendments include, but are not limited to, such items as (a) amendments necessary to comply with changes in federal or state law or regulations, or to obtain initial or continuing IRS approval of the Plan, (b) amendments which ease the administration of the Plan but do not have significant immediate or long-term material financial impact, or (c) amendments having a non- material effect on the Company's financial commitment to the Plan. 6. Effective Date Provisions of this amended and restated Plan shall be effective on and after January 1, 1989. With regard to Section 4.g., prior to January 1, 1985, such agreement shall be entered into by parties no later than July 1st for basic compensation which would otherwise be payable to Participant during the next following six calendar month period. EX-10.43 5 Exhibit 10.43 February 27, 1995 Mr. Harvey Golub Chairman of the Board American Express Company American Express Tower World Financial Center New York, New York 10285-5170 Dear Mr. Golub: In consideration of the payment of $1.00 and other valuable consideration, this will serve as the agreement of Berkshire Hathaway Inc., on behalf of itself and its subsidiaries (collectively, "Berkshire"), that, if Berkshire should acquire 10% or more of the voting securities of American Express Company ("American Express"), and so long as Berkshire shall beneficially own 5% or more of the outstanding voting securities of American Express. 1. Berkshire will not dispose of any shares of voting securities of American Express without the prior consent of American Express to any person who Berkshire knows or should know (i) has made a filing with the Securities and Exchange Commission with respect to ownership of 5% or more of American Express voting securities, or (ii) would be required to do so as result of the purchase from Berkshire, or (iii) seeks to change the control of American Express in any manner; provided, however, that notwithstanding the above, Berkshire may dispose of its American Express securities in the following circumstances: (a) in a sale between Berkshire Hathaway Inc. and a subsidiary company or between two subsidiary companies of Berkshire Hathaway Inc.; or (b) in a sale by Berkshire to American Express or a subsidiary thereof; or (c) in a tender or exchange offer for American Express approved or not opposed by the Board of Directors of American Express; or (d) in one or more open market transactions effected on the New York Stock Exchange, any other national securities exchange, or in the over-the-counter market (which may include a sale to one or more broker- dealers acting as market makers or otherwise intending to resell the shares sold to it or them in accordance with its or their normal business practices), so long as Berkshire does not knowingly violate subsections (i), (ii) or (iii) above. 2. So long as Harvey Golub is Chief Executive Officer of American Express, Berkshire shall vote, or cause to be voted, all voting securities of American Express now or hereafter beneficially owned by it at any and all meetings of the shareholders of American Express and any adjournments thereof, or in any written consent solicitation or similar situation in which the voting rights associated with securities of American Express may be exercised, in accordance with the recommendation of the Board of Directors of American Express (if such recommendation is made) with respect to every matter upon which a vote is taken or consent solicited. If the foregoing meets with your approval, please sign the duplicate original of this letter agreement and return it to me. Very truly yours, /s/ Warren E. Buffett Warren E. Buffett WEB/kcn Accepted and Agreed AMERICAN EXPRESS COMPANY By /s/ Harvey Golub Harvey Golub Chairman of the Board EX-11 6
EXHIBIT 11 AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE Five Years Ended December 31, 1994 1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- 1. Weighted average number of common shares issued and outstanding 497,281,258 484,754,771 476,047,601 468,950,425 438,110,325 2. Weighted average number of shares In-Lieu/LOI 510,109 414,904 463,128 465,383 462,784 3. Common shares assuming exercise of stock options 3,084,114 2,777,899 255,139 331,756 495,716 4. Common share equivalents for Variable Rate Convertible Notes - - - 6,117 178,228 5. Berkshire Hathaway 7,939,686 12,190,155 - - - --------- ---------- ---------- ---------- ---------- 6. Primary common shares and common share equivalents 508,815,167 500,137,729 476,765,868 469,753,681 439,247,053 7. Additional common shares assuming exercise of stock options based on year-end market price 312,691 474,233 - - - 8. Common shares reserved for conversion of 9% Convertible Debentures 538,409 3,519,727 - 3,865,733 4,033,880 9. Common shares reserved for conversion of 7 1/2% Convertible Debentures 142,984 195,406 - 198,582 198,582 10.Common shares reserved for conversion of 7 3/4% Convertible Debentures - Preferred shares to Nippon- 5% Dividend 6,239,872 - - - 28,794 ----------- ---------- ----------- ---------- ----------- 11.Fully diluted common shares and common share equivalents 516,049,123 504,327,095 476,765,868 473,817,996 443,508,309 =========== =========== =========== =========== =========== 12.Income from continuing operations before accounting changes ($ millions) $ 1,380 $ 1,605 $ 578 $ 607 $ 1,148 13.Less: Dividends on Money Market Preferred Shares - - - (14) (19) Dividends on Convertible Exchangeable Preferred Shares (16) (16) (16) (16) (16) Dividends on $216.75 CAP Preferred Shares - - (27) (10) - 14.Add back: Interest on Variable Rate Convertible Notes, net of income tax benefit - - - - 1 --------- ----------- ---------- --------- ---------- 15.Income from continuing operations before accounting change applicable to primary common shares and common share equivalents 1,364 1,589 535 567 1,114 16.Discontinued operations, net of income taxes 33 (127) (149) 182 (967) 17.Cumulative effect of changes in accounting principles, net of income taxes - - 32 - - --------- ---------- ---------- --------- ---------- 18.Net income applicable to primary common shares and common share equivalents 1,397 1,462 418 749 147 19.Add back: Interest on convertible debt, net of income tax benefit 1 4 - 4 4 --------- ---------- --------- -------- --------- 20.Net income applicable to fully diluted common shares and common share equivalents $ 1,398 $ 1,466 $ 418 $ 753 $ 151 ========= ========== ========= ======== ========= 21.Income from continuing operations before accounting change applicable to fully diluted common shares and common share equivalents (20 - (16+17)) $ 1,365 $ 1,593 $ 535 $ 571 $ 1,118 ========= ========== ========= ======== ======== 22.Income from continuing operations before accounting changes per share: Primary (15/6) $ 2.68 $ 3.17 $ 1.12 $ 1.21 $ 2.54 Fully diluted (21/11) $ 2.65 $ 3.16 $ 1.12 $ 1.21 $ 2.52 23.Income (loss) from discontinued operations per share: Primary (16/6) $ .07 $ (.25) $ (.31) $ .38 $ (2.20) Fully diluted (16/11) $ .06 $ (.25) $ (.31) $ .38 $ (2.18) 24.Cumulative effect of accounting changes per share: Primary (17/6) $ - $ - $ .07 $ - $ - Fully diluted (17/11) $ - $ - $ .07 $ - $ - 25.Net income per share: Primary (18/6) $ 2.75 $ 2.92 $ .88 $ 1.59 $ .34 Fully diluted (20/11) $ 2.71 $ 2.91 $ .88 $ 1.59 $ .34
Note: The above amounts reflect changes in accounting principles relating to income taxes and postretirement benefits other than pensions in 1992. EX-12.1 7 EXHIBIT 12.1 AMERICAN EXPRESS COMPANY COMPUTATION IN SUPPORT OF RATIO OF EARNINGS TO FIXED CHARGES (Dollars in millions) Years Ended December 31, -------------------------------------------- 1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- Earnings: Pretax income from continuing operations $1,891 $2,326 $ 896 $ 622 $1,578 Interest expense 1,925 1,783 2,171 2,761 3,160 Other adjustments 103 88 196 142 209 ----- ----- ----- ----- ----- Total earnings (a) $3,919 $4,197 $3,263 $3,525 $4,947 ----- ----- ----- ----- ----- Fixed charges: Interest expense $1,925 $1,783 $2,171 $2,761 $3,160 Other adjustments 142 130 154 147 143 ----- ----- ----- ----- ----- Total fixed charges (b) $2,067 $1,913 $2,325 $2,908 $3,303 ----- ----- ----- ----- ----- Ratio of earnings to fixed charges (a/b) 1.90 2.19 1.40 1.21 1.50 Included in interest expense in the above computation is interest expense related to the Company's international banking operations and Travel Related Services' consumer lending activities, which is netted against interest and dividends in the Consolidated Statement of Income. For purposes of the "earnings" computation, other adjustments include adding the amortization of capitalized interest, the net loss of affiliates accounted for at equity whose debt is not guaranteed by the Company, the minority interest in the earnings of majority-owned subsidiaries with fixed charges, and the interest component of rental expense and subtracting undistributed net income of affiliates accounted for at equity. For purposes of the "fixed charges" computation, other adjustments include capitalized interest costs and the interest component of rental expense. On May 31, 1994, the Company completed the spin-off of Lehman Brothers through a dividend to American Express common shareholders. Accordingly, Lehman Brothers' results are reported as a discontinued operation and are excluded from the above computation for all periods presented. In March 1993, the Company reduced its ownership in First Data Corporation to approximately 22 percent through a public offering. As a result, beginning in 1993 FDC is reported as an equity investment in the above computation. EX-12.1 8 EXHIBIT 12.2 AMERICAN EXPRESS COMPANY COMPUTATION IN SUPPORT OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED SHARE DIVIDENDS (Dollars in millions) Years Ended December 31, -------------------------------------------- 1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- Earnings: Pretax income from continuing operations $1,891 $2,326 $ 896 $ 622 $1,578 Interest expense 1,925 1,783 2,171 2,761 3,160 Other adjustments 103 88 196 142 209 ----- ----- ----- ----- ----- Total earnings (a) $3,919 $4,197 $3,263 $3,525 $4,947 ----- ----- ----- ----- ----- Fixed charges and preferred share dividends: Interest expense $1,925 $1,783 $2,171 $2,761 $3,160 Dividends on preferred shares 50 66 65 61 74 Other adjustments 142 130 154 147 143 ----- ----- ----- ----- ----- Total fixed charges and preferred share dividends (b) $2,117 $1,979 $2,390 $2,969 $3,377 ----- ----- ----- ----- ----- Ratio of earnings to fixed charges and preferred share dividends (a/b) 1.85 2.12 1.37 1.19 1.46 Included in interest expense in the above computation is interest expense related to the Company's international banking operations and Travel Related Services' consumer lending activities, which is netted against interest and dividends in the Consolidated Statement of Income. For purposes of the "earnings" computation, other adjustments include adding the amortization of capitalized interest, the net loss of affiliates accounted for at equity whose debt is not guaranteed by the Company, the minority interest in the earnings of majority-owned subsidiaries with fixed charges, and the interest component of rental expense and subtracting undistributed net income of affiliates accounted for at equity. For purposes of the "fixed charges and preferred share dividends" computation, dividends on outstanding preferred shares have been increased to an amount representing the pretax earnings required to cover such dividend requirements. Other adjustments include capitalized interest costs and the interest component of rental expense. On May 31, 1994, the Company completed the spin-off of Lehman Brothers through a dividend to American Express common shareholders. Accordingly, Lehman Brothers' results are reported as a discontinued operation and are excluded from the above computation for all periods presented. In March 1993, the Company reduced its ownership in First Data Corporation to approximately 22 percent through a public offering. As a result, beginning in 1993 FDC is reported as an equity investment in the above computation. EX-13 9 Exhibit 13 FINANCIAL REVIEW CONSOLIDATED RESULTS OF OPERATIONS American Express Company's (the Company) consolidated income from continuing operations increased 18 percent to $1.4 billion in 1994, compared with $1.2 billion in 1993 before a $433 million gain on the sale of First Data Corporation (FDC) stock, and compared with $578 million in 1992. Consolidated net income totaled $1.4 billion in 1994, compared with $1.5 billion in 1993 and $461 million in 1992. Income from continuing operations per common share was $2.68 in 1994, compared with $2.30 in 1993 before the FDC gain, and $1.12 in 1992. Net income per common share was $2.75 in 1994, compared with $2.92 in 1993 and $0.88 in 1992. On May 31, 1994, the Company completed the spin-off of its subsidiary, Lehman Brothers Holdings Inc. Accordingly, the results of Lehman Brothers (Lehman) are reported as a discontinued operation in the Consolidated Financial Statements through the spin-off date. Results for 1993 included a $433 million ($779 million pretax) gain on the secondary public offering of FDC shares. Results for 1992 included a restructuring charge of $342 million ($492 million pretax) at Travel Related Services (TRS), additional reserves at Balcor of $300 million ($388 million pretax) and a $425 million ($706 million pretax) gain from the FDC public offering. Results for 1992 also reflected the impact of the Company's adoption of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," and SFAS No. 106, "Accounting for Postretirement Benefits Other Than Pensions," which together increased 1992 net income by $32 million. See Notes 9 and 10 to the Consolidated Financial Statements. Consolidated net revenues were $14.3 billion in 1994, compared with $13.3 billion in 1993 and $14.3 billion in 1992. Consolidated expenses were $12.4 billion in 1994, compared with $10.9 billion and $13.4 billion in 1993 and 1992, respectively. Effective January 1, 1993, FDC is accounted for under the equity method; 1992 amounts have not been restated. Excluding FDC, consolidated net revenues for 1992 were $13.1 billion and consolidated expenses were $12.4 billion. In October 1994, the Company announced a series of decisions that represent a continuation of a reengineering program launched in 1992 to provide better customer value at significantly lower costs. These decisions will result in significant staff reductions throughout the Company over the next several years. Costs related to these initiatives are not expected to have a material impact on current or future earnings. Future savings generated by these actions will be reinvested in the business and help facilitate the achievement of the Company's business objectives. CONSOLIDATED FINANCIAL CONDITION Over the past several years, the Company has been focused on building shareholder value by strengthening its overall financial position and allocating resources to growing its core businesses. The spin-off of Lehman through a dividend to shareholders in May 1994 was a major step towards achieving this goal. The Company believes capital allocation to businesses with a return on risk-adjusted equity in excess of its cost of equity and sustained earnings growth in its core businesses will build shareholder value. Investments are made in programs that are expected to offer superior value to our customers, achieve best-in-class economics and enhance the American Express brand. The Company's dividend philosophy is to retain enough earnings to sustain growth in the 12 percent to 15 percent range. Therefore, the Company has targeted a payout ratio of 25 percent to 30 percent of earnings. To the extent retained earnings exceed investment opportunities, the Company will return excess capital to shareholders in the form of share repurchases. During 1994, the Company has moved from the point several years ago when it needed to strengthen its capital position to where the Company has the capital to support its credit ratings, fund growth opportunities in its core businesses and return capital to shareholders through a share buyback program approved by the Board. Lehman Brothers Spin-Off On April 29, 1994, the Company's Board of Directors declared a dividend to the Company's common shareholders of all of the Lehman Brothers Holdings Inc. common stock held by the Company on the dividend distribution date. On May 31, 1994, the Company's investment in Lehman was $2.4 billion. The dividend was distributed on May 31, 1994 to shareholders of record on May 20, 1994 and represented approximately 98.2 million shares of Lehman common stock. Shareholders of the Company received one share of Lehman common stock for each five common shares of the Company that they held on the record date. Prior to the distribution, the Company added approximately $1.1 billion of additional equity capital to Lehman. As a result of the spin-off, Lehman's results are reported as a discontinued operation in the Consolidated Financial Statements through the spin-off date and for all prior years. The assets and liabilities of Lehman are reported in the Consolidated Balance Sheet as net assets of discontinued operations and included in Other Assets for all prior years. See Note 2 to the Consolidated Financial Statements. Share Repurchase Program In September 1994, the Company's Board of Directors authorized the Company to repurchase up to 20 million shares of its common stock, subject to market conditions. The plan aims to reduce the number of outstanding common shares and common share equivalents to less than 500 million shares and to target the number of shares at that level. In November 1994, in connection with the share repurchase program, the Company sold four million put options with maturities ranging from approximately one to twelve months and a weighted average strike price of $30.81 per share. Upon issuing these put options, the Company received a weighted average premium of $1.83 per share, or $7.3 million, resulting in an effective repurchase price of $28.98 per share. As of December 31, 1994, the Company had repurchased and cancelled 14,601,055 shares under this program at an average price of $30.37 per share. See Note 7 to the Consolidated Financial Statements. Risk Management The Company manages substantial daily cash flows, investment portfolios, receivables and loans and related financing requirements, as well as the related market, credit and operational risks. Management controls the risk profile of the Company through ongoing assessments of risk exposures and by retaining, hedging or transferring risk to third parties. In addition to management of the Company's aggregate risk exposures, management establishes and oversees implementation of Board-approved policies covering the Company's funding, investments and use of derivative financial instruments. The Company's objective is to manage risk in order to minimize earnings volatility and to assure that the Company's returns are appropriate for the level of risk assumed. See the Financial Review of each business segment for a discussion of their respective Risk Management activities. See Note 11 to the Consolidated Financial Statements for a discussion of the Company's use of derivatives. Financing Activities The Company monitors liquidity and has implemented procedures to effect the immediate transfer of short-term funds within the Company if necessary to meet liquidity needs. These internal transfer mechanisms are subject to and comply with various contractual and regulatory constraints. The parent company generally meets its short-term funding needs through the issuance of commercial paper. The Board of Directors has authorized a parent company commercial paper program that is supported by standby credit facilities with a number of banks. These facilities provide approximately $1.2 billion in committed funds at maturities through 1997. No borrowings have been made under any of these credit facilities. Average commercial paper outstanding was $100 million during 1994 and $193 million during 1993. Commercial paper outstanding was $100 million at December 31, 1994 and 1993. Total parent company long-term debt outstanding was $2.8 billion at December 31, 1994 and $3.2 billion at December 31, 1993. At December 31, 1994, the parent company had $1.1 billion of debt or equity securities available for issuance under a shelf registration filed with the Securities and Exchange Commission. See the Financial Review of each business segment for a discussion of 1994 financing activities of subsidiaries. Accounting Developments The Financial Accounting Standards Board's SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures," are effective January 1, 1995. The new rules are not expected to have a material impact on the Company's results of operations or financial condition. TRAVEL RELATED SERVICES Results of Operations TRS' net income increased 13 percent to $998 million in 1994, compared with $884 million in 1993 and $234 million in 1992 including a restructuring charge of $342 million ($492 million pretax) and before the accounting change (net income of $155 million after the accounting change). Pretax income totaled $1.4 billion in 1994, compared with $1.2 billion in 1993 and $264 million in 1992. TRS' prior years' results have been restated to reflect the transfer of certain international consumer financial services businesses to American Express Bank (the Bank) in 1994. Worldwide Card billed business increased to $141 billion in 1994, compared with $124 billion in 1993 and $118 billion in 1992. The increases resulted from higher average spending per Cardmember, growth in Corporate Card billed business and an increase in the average number of Cards outstanding. U.S. Card billed business was $101.2 billion in 1994, $89.8 billion in 1993 and $82.0 billion in 1992. Card billed business outside the U.S. was $39.7 billion in 1994, compared with $34.3 billion and $35.6 billion in 1993 and 1992, respectively. Worldwide Cards in force increased to 36.3 million in 1994, compared with 35.4 million in 1993 and 34.7 million in 1992. The 1994 increase reflected, in part, the introduction of the Optima True Grace Card. Total Cards in force for 1993 included the addition of approximately 900,000 Cards issued to U.S. government employees late in the year. U.S. Cards in force were 25.3 million in 1994, 24.7 million in 1993 and 24.3 million in 1992. Cards in force outside the U.S. were 11.0 million, compared with 10.7 million and 10.4 million in 1993 and 1992, respectively. Basic Cards in force totaled 26.7 million, compared with 26.0 million in 1993 and 25.5 million in 1992. TRS continues to focus on retaining the most profitable Cardmembers. The number of service establishments increased 9.6 percent to 3.9 million at December 31, 1994, compared with 3.6 million and 3.4 million at December 31, 1993 and 1992, respectively. Travelers Cheque sales increased 5.1 percent to $24.9 billion in 1994, compared with $23.6 billion and $24.0 billion in 1993 and 1992, respectively. Travel sales increased to $10.7 billion in 1994, compared with $8.0 billion in 1993 and $7.0 billion in 1992. The increases were due, in part, to acquisitions. Net revenues (total revenues net of lending interest expense) increased 8.8 percent to $10.3 billion in 1994, compared with $9.4 billion and $9.6 billion in 1993 and 1992, respectively. The 1994 increase in net revenues reflected an increase in worldwide billed business and growth in travel sales. The 1993 decline reflected discount rate reductions, a decrease in net Card fee revenue, lower insurance premium revenue and lower net finance charge revenue. These declines were largely offset by an increase in Card billed business, reflecting higher spending per Cardmember and an increase in the number of service establishments accepting the Card, as well as growth in the travel business. Discount revenue increased 10 percent to $4.0 billion, compared with $3.6 billion in 1993 and $3.7 billion in 1992. The increase in 1994 primarily resulted from an increase in Card billed business, marginally offset by a lower average discount rate. The 1993 decline in discount revenue reflected a lower average discount rate, substantially offset by increased Cardmember spending. Net Card fees were $1.7 billion in both 1994 and 1993 and $1.8 billion in 1992. Lending finance charge revenue was $1.3 billion, compared with $1.2 billion in 1993 and $1.3 billion in 1992. Lending net finance charge revenue totaled $948 million, compared with $928 million in 1993 and $994 million in 1992. The decline in 1993 reflected lower average balances, partly offset by higher net interest spreads. Interest and dividend revenue totaled $776 million, compared with $724 million and $720 million in 1993 and 1992, respectively. Other revenues increased 16 percent to $2.8 billion in 1994, compared with $2.4 billion in 1993 and $2.5 billion in 1992. The increase in 1994 primarily reflected the increase in travel business. Recent changes in the level of commissions paid by airlines to travel agents have underscored the need to continue reengineering the travel business. Management believes its reengineering plans will ensure that these changes will not have a significant impact on TRS. Total expenses, excluding lending interest expense, were $8.9 billion in 1994, compared with $8.3 billion in 1993 and $9.4 billion in 1992. The increase in 1994 reflected business travel acquisitions and growth, and investments in certain business initiatives. The 1993 decline reflected the benefit of ongoing reengineering initiatives, which offset costs associated with overall growth in business volumes and franchise building investments. Expenses for 1992 included the restructuring charge discussed above. The provision for losses and claims was $1.5 billion in both 1994 and 1993 and $2.2 billion in 1992. The 1994 provision reflected continuing improved credit experience. The decline in 1993 reflected actions taken in 1992 to restructure the portfolio, as well as ongoing improvements in credit management. The worldwide charge Card provision was $633 million, compared with $702 million in 1993 and $956 million in 1992. The declines reflected continued improvement in Card credit experience and a higher level of securitized receivables, partly offset by an increase in billed business. The worldwide lending provision was $378 million in 1994, $417 million in 1993 and $765 million in 1992. The declines reflected continued improvement in the credit quality of the worldwide lending portfolio. Interest expense, excluding lending interest expense which is included in net revenues above, totaled $831 million, compared with $799 million in 1993 and $899 million in 1992. The 1994 increase reflected increased funding requirements, partly offset by lower borrowing rates. The decline in 1993 reflected lower borrowing rates. Worldwide charge Card interest expense totaled $681 million, compared with $662 million and $788 million in 1993 and 1992, respectively. Human resources expense increased to $2.6 billion, compared with $2.2 billion in both 1993 and 1992. The 1994 increase primarily reflected growth in the business travel and Corporate Card products and the impact of travel acquisitions. Marketing and promotion expense totaled $1.04 billion in 1994, compared with $1.07 billion in 1993 and $1.08 billion in 1992. Other operating expenses increased to $2.6 billion from $2.4 billion in 1993 and 1992, before the restructuring charge discussed above. The 1994 increase was due to business acquisitions, investments to increase technology capacity and investments in software to support new products. TRS' asset securitization program, which began in the third quarter of 1992, resulted in net discount expense of $326 million in 1994, $219 million in 1993 and $100 million in 1992 and fee revenue of $79 million in 1994, $54 million in 1993 and $35 million in 1992, reduced the provision for credit losses by $127 million in 1994, $89 million in 1993 and $41 million in 1992, and reduced interest expense, with no material impact on net income for the years ended December 31, 1994, 1993 or 1992. Increases in individual categories reflect a higher volume of securitized receivables. Risk Management TRS employs a variety of interest rate and foreign exchange hedging strategies to protect its balance sheet and statement of income from market risk. TRS' hedging policies are established, maintained and monitored by a central treasury function. TRS generally hedges its exposure along product lines. For its Card product, TRS funds its Cardmember receivables using both on- and off-balance-sheet sources such as long-term debt, medium-term notes, commercial paper and other debt, as well as an off-balance-sheet asset securitization program. Such funding is provided by American Express Credit Corporation (Credco) and for the asset securitization program by American Express Receivables Financing Corporation (RFC). Interest rate exposure arising from this funding is managed through the issuance of long-term debt, short-term debt and interest rate swaps to achieve a targeted 30 percent to 40 percent fixed and 60 percent to 70 percent floating mix. From time to time, TRS may review and change this ratio. Foreign exchange risk arising from cross-currency charges and balance sheet exposures are managed primarily by entering into agreements to buy and sell currencies on a spot or forward basis. For its lending products, TRS funds its consumer loans using a mixture of short- and long-term debt, primarily through American Express Centurion Bank (Centurion Bank). TRS' lending products are linked to a floating rate base and reprice at fixed intervals. TRS enters into interest rate swaps for predominantly all of its consumer loans to lock in its funding cost for the period between each repricing, thereby locking in the interest rate spread. Foreign exchange risk arising from cross-currency charges and balance sheet exposures are managed primarily by entering into agreements to buy and sell currencies on a spot or forward basis. For its Travelers Cheque, travel and other businesses, which are predominantly self-funding, foreign exchange risk is hedged using a combination of spot foreign exchange transactions and forward foreign exchange contracts and options. Financial Condition In 1994, TRS sold additional Cardmember receivables to RFC, which transferred such receivables to a trust. The trust issued $900 million of trust certificates in a public offering, in three series of $300 million due 1998, 2001 and 2004, respectively. Trust certificates outstanding totaled $2.5 billion at December 31, 1994, compared with $1.6 billion and $1.0 billion at December 31, 1993 and 1992, respectively. Total debt outstanding at December 31, 1994 and 1993 was $18.5 billion and $16.8 billion, respectively, of which $16.0 billion and $14.1 billion, respectively, was due within one year. Through Credco and Centurion Bank, TRS issued in 1994 approximately $429 million of medium- and long-term debt at various rates and maturities. The proceeds of these issuances were used to fund Card and lending accounts receivable. At December 31, 1994, Credco had approximately $810 million of medium- and long-term debt available for issuance under shelf registrations filed with the Securities and Exchange Commission. TRS, primarily through Credco, maintained commercial paper outstanding of approximately $10.2 billion at an average interest rate of 5.8 percent and approximately $8.8 billion at an average interest rate of 3.2 percent at December 31, 1994 and 1993, respectively. Unused lines of credit of approximately $4.9 billion were available at December 31, 1994 to support a portion of TRS' commercial paper borrowings. Borrowings under bank lines of credit totaled $1.4 billion at December 31, 1994 and $1.1 billion at December 31, 1993. Total assets were $42.5 billion and $38.8 billion at December 31, 1994 and 1993, respectively. TRS' prior year's assets have been restated to reflect the transfer of certain international consumer financial services businesses to the Bank. The increase in total assets reflected higher accounts receivable, consumer lending balances and investments related to the Travelers Cheques and insurance businesses. Accounts receivable and accrued interest totaled $16.8 billion at December 31, 1994 and $15.7 billion at December 31, 1993. Loans and discounts were $9.2 billion and $8.2 billion at December 31, 1994 and 1993, respectively. In 1994, TRS issued the first of a series of stand-alone revolving credit products which are expected to increase significantly the size of its lending portfolio over time. TRS believes that it has sufficient capital to support the growth of this business. Average Travelers Cheques outstanding increased to $5.3 billion at December 31, 1994 from $5.0 billion at December 31, 1993. Travelers Cheques outstanding were $5.3 billion and $4.8 billion at December 31, 1994 and 1993, respectively. AMERICAN EXPRESS FINANCIAL ADVISORS Results of Operations American Express Financial Advisors', formerly IDS Financial Services, net income increased 20 percent to $428 million in 1994, compared with $358 million in 1993 and $297 million before the accounting change in 1992 (net income of $277 million after the accounting change). Revenues increased 3.6 percent to $3.3 billion in 1994, compared with $3.2 billion and $2.9 billion in 1993 and 1992, respectively. Revenue and earnings growth in 1994 benefited from an increase in management fees, as well as an increase in life insurance in force. For the full year, investment margins were relatively even with 1993, although margins during the fourth quarter of 1994 were below prior year levels. It is expected that this trend will continue through the first half of 1995. As a result, earnings are expected to grow at a somewhat slower pace than historical rates. Revenue and earnings growth in 1993 benefited from higher asset levels and wider investment margins compared with 1992. Pretax income totaled $631 million in 1994, compared with $518 million in 1993 and $408 million in 1992. American Express Financial Advisors' financial advisory field force totaled 8,054 at December 31, 1994, compared with 7,655 and 7,313 at December 31, 1993 and 1992, respectively. Total product sales increased during 1994 and 1993. Product sales generated from financial plans were 62 percent of total sales in 1994, compared with 58 percent and 50 percent in 1993 and 1992, respectively. Fees from financial plans were $40 million in 1994, compared with $37 million in 1993 and $34 million in 1992. Mutual fund sales increased 4.2 percent to $8.9 billion in 1994, compared with $8.6 billion and $7.0 billion in 1993 and 1992, respectively. The 1994 increase reflected higher sales of equity funds and money market funds. The increase in 1993 reflected increased sales of both equity and income funds. Annuity sales increased 6.2 percent to $4.4 billion in 1994, compared with $4.1 billion in 1993 and $3.6 billion in 1992. The increases reflected increased sales of annuities with variable investment options. Sales of investment certificates increased 86 percent to $1.1 billion in 1994, compared with a 13 percent decline in 1993. The 1994 increase resulted from higher interest rates. The decline in 1993 reflected an overall decline in short-term rates compared with 1992. Life and other insurance sales increased 5.0 percent in 1994, compared with an increase of 34 percent in 1993. Both years reflected increased sales of variable universal life insurance. Investment income totaled $2.0 billion in both 1994 and 1993 and $1.9 billion in 1992. The increase in 1993 primarily reflected higher invested assets, partly offset by lower yields. Commissions and fees increased 11 percent to $806 million, compared with $727 million in 1993 and $598 million in 1992. The increases reflected management fees earned on a higher asset base and, in 1993, higher distribution fees earned on higher mutual fund sales. Total expenses were $2.6 billion in both 1994 and 1993 and $2.5 billion in 1992. The provision for annuity benefits, the largest component of expenses, totaled $1.0 billion, compared with $1.1 billion in 1993 and $1.0 billion in 1992. The decline in 1994 reflected lower accrual rates, partly offset by higher annuities in force. The 1993 increase reflected higher annuities in force, partially offset by lower accrual rates. The provision for insurance benefits totaled $370 million, compared with $321 million and $308 million in 1993 and 1992, respectively. The increases reflected increased life insurance in force. The provision for investment certificates declined to $107 million, compared with $124 million in 1993 and $178 million in 1992. The declines reflected lower investment certificates in force, and lower accrual rates in 1993 and the first half of 1994. Human resources expense increased 8.8 percent to $823 million in 1994, compared with $757 million in 1993 and $635 million in 1992. The increases reflected an increase in the number of employees and financial advisors, and increased commissionable sales. Other operating expenses declined to $311 million in 1994, compared with $366 million and $309 million in 1993 and 1992, respectively. The 1994 decline primarily reflected a lower provision for insurance industry guarantee association assessments. Risk Management American Express Financial Advisors' owned investment securities are, for the most part, held by its life insurance and investment certificate subsidiaries. These subsidiaries primarily invest in long-term and intermediate-term fixed income securities for the purpose of providing their fixed annuity and investment certificate clients with a competitive rate of return on their investments while minimizing risk, as well as to provide American Express Financial Advisors with a dependable and consistent margin between the interest rate earned on investments and the interest rate credited to clients' accounts. American Express Financial Advisors does not invest in securities to generate trading profits for its own account. The life insurance and investment certificate subsidiaries have investment committees that hold regularly scheduled meetings and, when necessary, special meetings. At these meetings, the committees review models projecting different interest rate scenarios and their impact on the profitability of each subsidiary. The objective of the committees is to structure their investment security portfolios based upon the type and behavior of products in their liability portfolios so as to achieve targeted levels of profitability. Rates credited to customers' accounts are generally reset at shorter intervals than the maturity of underlying investments. Therefore, American Express Financial Advisors' margins may be negatively impacted by increases in the general level of interest rates. Part of the committees' strategy includes the purchase of some types of derivatives, such as interest rate caps and corridors, for hedging purposes. These derivatives protect margins by increasing investment returns if there is a sudden and severe rise in interest rates, thereby mitigating the impact of an increase in rates credited to clients' accounts. Financial Condition Total owned assets increased 7.5 percent to $40.2 billion at December 31, 1994 from $37.4 billion at December 31, 1993. Investments totaled $25.2 billion and $24.6 billion at December 31, 1994 and 1993, respectively. American Express Financial Advisors' investments are comprised primarily of mortgage-backed securities, and corporate bonds and obligations, including below investment grade debt securities of $2.1 billion in 1994 and 1993. Investments are principally funded by sales of insurance and annuities, and by reinvested income. Maturities of these investments are matched, for the most part, with the expected future payments of insurance and annuity obligations. Assets held in segregated asset accounts increased to $10.9 billion at December 31, 1994 from $9.0 billion at December 31, 1993. These assets, primarily investments carried at market value, are held for the exclusive benefit of variable annuity and variable life insurance contract holders. American Express Financial Advisors earns investment management and administration fees from the related funds. Assets under management increased 4.9 percent to $65.3 billion at December 31, 1994 from $62.3 billion at December 31, 1993, reflecting strong net sales, partly offset by market depreciation. In 1994, American Express Financial Corporation, formerly IDS Financial Corporation, issued and sold $70 million of 6.5% Medium-Term Notes due 2004 and $50 million of 6.625% Medium-Term Notes due 2006. The Notes were sold in private placements to institutional investors. The proceeds from these issuances were used for general corporate purposes. Deferred annuities in force totaled $28.2 billion and $25.8 billion at December 31, 1994 and 1993, respectively. Investment certificate reserves were $2.9 billion at December 31, 1994 and $2.8 billion at December 31, 1993. Life insurance in force increased 14 percent to $52.7 billion at December 31, 1994 from $46.1 billion at December 31, 1993. AMERICAN EXPRESS BANK Results of Operations The Bank's net income totaled $80 million in 1994, compared with $92 million in 1993 and $35 million before the accounting change in 1992 (net income of $28 million after the accounting change). Results for 1994 reflected lower net revenues and higher operating expenses, in part due to spending related to systems technology. The decline in 1994 results was partially offset by a reduction in the provision for credit losses. Effective January 1, 1993, the U.S. federal income tax rate was increased from 34 percent to 35 percent. The Bank's results for 1993 included a $5 million benefit from the impact of the tax rate change on its net deferred tax assets as of January 1, 1993. The earnings increase in 1993 as compared with 1992 reflected a lower level of credit-related reserves, growth in fee income and benefits from continued lower short-term funding costs. The Bank's pretax income was $119 million in 1994, compared with $134 million in 1993 and $27 million in 1992. The Bank's prior years' results have been restated to reflect the transfer of certain international consumer financial services businesses from TRS to the Bank in 1994. Net interest income totaled $348 million in 1994, compared with $365 million in 1993 and $370 million in 1992. The declines in net interest income reflected higher short-term funding costs in 1994 and lower investment income. The net yield on interest-earning assets (net interest income on a tax equivalent basis as a percentage of total average interest-earning assets) was 2.85 percent in 1994, compared with 2.92 percent and 2.72 percent in 1993 and 1992, respectively. Noninterest income, consisting primarily of commissions, fees and other revenues, totaled $304 million in 1994, compared with $312 million in 1993 and $287 million in 1992. The 1994 decline reflected a lower level of revenues from the Bank's trading portfolio. The increase in 1993 primarily reflected growth in private banking and correspondent banking fee income and improved foreign exchange results. Noninterest expenses, excluding the provision for credit losses, totaled $525 million in 1994, compared with $499 million in 1993 and $509 million in 1992. The 1994 increase in noninterest expenses primarily reflected spending related to systems technology and higher human resources expense. Noninterest expenses in 1992 included the recognition of restructuring charges associated with the Bank's headquarters operation and certain other overseas businesses. Excluding these restructuring charges, noninterest expenses increased in 1993 compared with 1992 reflecting additional expenses to support the Bank's ongoing investment in the Asian/Pacific markets. The provision for credit losses was $8.3 million in 1994, compared with $44 million in 1993 and $121 million in 1992. The 1994 decline reflected a lower level of nonperforming loans and overall lower loan balances. The 1992 provision reflected the recognition of a reserve on the Bank's U.K. commercial real estate loan portfolio, additional reserves on other identified credit-related exposures and an overall increase in credit loss reserve coverage. In 1994, the Bank recognized an income tax provision of $39 million, compared with $42 million in 1993 and an income tax benefit of $8.2 million in 1992. A smaller proportion of the Bank's overall income was derived from tax-exempt interest in 1994 and 1993 in comparison with 1992. Risk Management The Bank employs a variety of on-balance-sheet and derivative financial instruments in managing its exposure to fluctuations in interest and currency rates. The derivative instruments consist principally of foreign exchange spot and forward contracts, interest rate swaps, currency options and forward rate agreements. Generally, these derivative instruments are used to manage specific on-balance-sheet interest rate and foreign exchange exposures related to deposits, long-term debt, loans and securities holdings. The Bank utilizes foreign exchange and interest rate products to meet the needs of its customers. In the common scenario, a Bank customer desires to enter into a foreign exchange or other derivatives contract and contacts the Bank. If the pricing is acceptable to both the Bank and the customer, the Bank enters into two transactions: the contract desired by the customer and an offsetting contract with a third party dealer; therefore, the Bank has no market risk. Customer positions are not always offset. They are evaluated in terms of the Bank's overall interest rate or foreign exchange exposure. If they naturally offset an exposure, an offsetting contract with a dealer will not be executed. Furthermore, to a limited extent, the Bank will take short-term proprietary positions. Asset/liability management is supervised by the Bank's Asset and Liability Committee (ALCO) which is comprised of senior business managers. ALCO meets at least monthly and monitors (a) interest rate sensitivity and liquidity gaps, (b) foreign exchange trading and translation exposures, and (c) investment securities portfolios. ALCO evaluates current market conditions and determines the Bank's strategy within monetary and maturity risk limits approved by the Bank's Board of Directors. The Bank's treasurer issues policies and control procedures and delegates risk limits throughout the Bank's country treasury operations. The Bank's overall credit policies are approved by the Finance and Credit Policy Committee of the Bank's Board of Directors. Credit lines are approved using a tiered approval authorities ladder with levels of authority delegated to each country, geographic area, the Bank's Credit Approval Committee, and Board of Directors. Approval authorities are based on characteristics such as type of borrower, nature of transaction, nature of collateral, and overall risk rating. The Loan Quality Control department reviews all significant exposures periodically. The Bank controls the credit risk arising from derivative transactions through the same credit procedures as it uses for traditional lending products. Risk amount factors for all foreign exchange and derivative transactions are reviewed by the Bank on a regular basis. Financial Condition The Bank's assets totaled $13.3 billion at December 31, 1994 and $14.1 billion at December 31, 1993. The Bank's prior year's assets have been restated to reflect the transfer of certain international consumer financial services businesses from TRS. Total loans were $5.0 billion at December 31, 1994, compared with $5.6 billion at December 31, 1993. The reserve for credit losses was $109 million at December 31, 1994, compared with $126 million at December 31, 1993. The Bank's credit loss reserve coverage was 2.2 percent of total loans at both December 31, 1994 and 1993. Total loan write-offs, net of recoveries, were $25 million in 1994 and $50 million in 1993. Nonperforming loans totaled $20 million at December 31, 1994 and $43 million at December 31, 1993, while other nonperforming assets (in-substance foreclosures, other real estate owned and assets acquired in loan settlements) totaled $56 million at December 31, 1994 and $89 million at December 31, 1993. The decline in nonperforming loans and other nonperforming assets primarily reflected the sale of foreclosed properties, write-offs and repayments. The Bank's risk-based capital ratios were 7.5 percent for Tier 1 Capital and 14.7 percent for Total Capital at December 31, 1994, compared with 6.3 percent and 10.2 percent, respectively, at December 31, 1993. The Bank's leverage ratio was 4.8 percent and 4.4 percent at December 31, 1994 and 1993, respectively. The increase in the Total Capital ratio was primarily due to the issuance and sale outside the United States of $250 million of Floating Rate Subordinated Notes due 2004. The proceeds of this issuance were used for general corporate purposes. The Tier 1 and leverage ratios increased primarily due to reductions in total assets. CORPORATE AND OTHER Corporate and Other reported net expenses of $126 million in 1994, compared with net income of $271 million in 1993 and net income of $12 million before accounting changes in 1992 (net income of $151 million after accounting changes). For purposes of this discussion, Other includes the Company's share of FDC's net income. Before consideration of the gains on the sales of FDC common stock and the Balcor reserves which are discussed below, Corporate and Other reported net expenses of $162 million in 1993 and $113 million in 1992. Results for 1994 included income from the Company's share of the Travelers Inc. (Travelers) revenue participation, in accordance with an agreement related to the 1993 sale of certain Lehman Brothers Inc. retail and asset management businesses, as well as a capital gain on the sale of Travelers preferred stock and warrants which were acquired as part of the 1993 sale. These gains were offset by the Company's costs associated with the Lehman spin-off and certain business building initiatives. As a result of its public offering of FDC common stock in April 1992, the Company's former 100 percent ownership interest in FDC was reduced to approximately 54 percent. In March 1993, the Company further reduced its ownership interest in FDC to approximately 22 percent by the sale of FDC shares. As a result of the Company's reduced ownership, effective January 1, 1993, FDC is reported under the equity method of accounting. The Company's equity in the net income of FDC is included in Other Expenses in the Consolidated Statements of Income for 1994 and 1993. Results for 1993 included a gain of $433 million ($779 million pretax) on the Company's sale of FDC shares. Results for 1992 reflected a $425 million ($706 million pretax) gain from the FDC public offering, and a $300 million ($388 million pretax) addition to reserves at Balcor included in Other Expenses in the Consolidated Statement of Income. Results for 1992 included a $147 million benefit related to the adoption of SFAS No. 109 and an after-tax charge to earnings of $8.0 million representing the cumulative effect of adopting SFAS No. 106. CONSOLIDATED STATEMENT OF INCOME American Express Company Years Ended December 31, (millions, except per share amounts) 1994 1993 1992 ---- ---- ---- NET REVENUES Commissions and fees $ 8,591 $ 7,818 $ 8,817 Interest and dividends, net 4,120 3,995 3,975 Life insurance premiums 783 702 776 Other 788 739 687 ------- ------- ------- Total 14,282 13,254 14,255* ------- ------- ------- EXPENSES Human resources 3,769 3,380 3,714 Provisions for losses and benefits: Annuities and investment certificates 1,173 1,259 1,315 Credit, banking and other 1,066 1,238 1,901 Life insurance 757 610 596 Marketing and promotion 1,063 1,091 1,113 Occupancy and equipment 1,058 965 1,167 Interest 1,011 864 939 Professional services 687 598 526 Communications 376 357 419 Other 1,431 1,345 2,375 Gain on sale of FDC - (779) (706) ------- ------- ------- Total 12,391 10,928 13,359* ------- ------- ------- Pretax income from continuing operations before accounting changes 1,891 2,326 896 Income tax provision 511 721 318 ------- ------- ------- Income from continuing operations before accounting changes 1,380 1,605 578 Discontinued operations, net of income taxes 33 (127) (149) ------- ------- ------- Income before accounting changes 1,413 1,478 429 Cumulative effect of accounting changes, net of income taxes - - 32 ------- ------- ------- Net income $ 1,413 $ 1,478 $ 461 ======= ======= ======= EARNINGS PER COMMON SHARE Income from continuing operations before accounting changes $ 2.68 $ 3.17 $ 1.12 Discontinued operations .07 (.25) (.31) ------- ------- ------- Income before accounting changes 2.75 2.92 .81 Cumulative effect of accounting changes - - .07 ------- ------- ------- Net income $ 2.75 $ 2.92 $ .88 ======= ======= ======= See notes to consolidated financial statements. *Includes FDC revenues of $1,205 million and expenses of $1,023 million. CONSOLIDATED BALANCE SHEET American Express Company December 31, (millions of dollars) 1994 1993 ----- ----- ASSETS Cash and cash equivalents $ 3,433 $ 3,312 Accounts receivable and accrued interest, less reserves: 1994, $807; 1993, $796 17,147 16,142 Investments 40,108 39,308 Loans and discounts, less reserves: 1994, $545; 1993, $655 14,722 14,796 Land, buildings and equipment-at cost, less accumulated depreciation: 1994, $1,563; 1993, $1,441 1,840 1,976 Assets held in segregated asset accounts 10,881 8,992 Deferred acquisition costs 2,280 2,025 Other assets 6,595 7,581 ------ ------- Total assets $97,006 $94,132 ------- ------- LIABILITIES AND SHAREHOLDER'S EQUITY Customers' deposits and credit balances $10,013 $11,131 Travelers Cheques outstanding 5,271 4,800 Accounts payable 4,228 3,737 Insurance and annuity reserves: Fixed annuities 20,163 19,149 Life and disability policies 4,686 4,257 Investment certificate reserves 2,866 2,752 Short-term debt 14,810 12,489 Long-term debt 7,162 8,561 Liabilities related to segregated asset accounts 10,881 8,992 Other liabilities 10,493 9,530 ------- ------- Total liabilities 90,573 85,398 ------- ------- SHAREHOLDERS' EQUITY: Preferred shares, $1.66 2/3 par value, authorized 20,000,000 shares Convertible Exchangeable Preferred shares, issued and outstanding 4,000,000 shares, stated at liquidation value 200 200 $216.75 CAP Preferred shares, issued and outstanding 122,448.98 shares 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 gains (losses) (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 $97,006 $94,132 ======= ======= See notes to consolidated financial statements. CONSOLIDATED STATEMENT OF CASH FLOWS American Express Company Years Ended December 31, (millions) 1994 1993 1992 ----- ----- ----- CASH FLOWS FROM OPERATING ACTIVITIES Income from continuing operations $ 1,380 $ 1,605 $ 578 Adjustments to reconcile income from continuing operations to net cash provided (used) by operating activities: Provisions for losses and benefits 1,456 1,627 2,213 Depreciation, amortization, deferred taxes and other 378 411 410 Changes in operating assets and liabilities, net of effects of acquisitions/dispositions: Accounts receivable and accrued interest (180) (982) 199 Other assets 525 (987) 184 Accounts payable and other liabilities 969 355 517 Increase in Travelers Cheques outstanding 471 72 481 Increase in insurance reserves 471 452 366 Restructuring charges - - 492 Gain on sale of FDC - (779) (706) Balcor reserves - - 388 Net cash flows used by operating activities of discontinued operations (3,656) (1,361) (6,268) ------- ------ ------ Net cash provided (used) by operating activities 1,814 413 (1,146) ------- ------- ------ CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from FDC public offerings, net of cash sold in 1993 - 871 1,057 Sale of investments 4,757 2,296 2,995 Maturity and redemption of investments 6,794 8,308 7,463 Purchase of investments (13,224) (13,802) (14,785) Net increase in Cardmember receivables (3,189) (2,524) (1,150) Cardmember accounts receivable sold to Trust 900 600 1,000 Proceeds from repayment of loans 21,282 18,817 13,670 Issuance of loans (21,037) (19,465) (13,821) Purchase of land, buildings and equipment (333) (286) (451) Sale of land, buildings and equipment 122 120 95 (Acquisitions) dispositions, net of cash acquired/sold (310) 121 (94) Net cash flows (used) provided by investing activities of discontinued operations (36) 2,467 23 ------- ------ ------- Net cash used by investing activities (4,274) (2,477) (3,998) ------- ------ ------- CASH FLOWS FROM FINANCING ACTIVITIES Net (decrease) increase in customers' deposits and credit balances (1,089) 29 (1,020) Sale of annuities and investment certificates 5,994 5,217 5,458 Redemption of annuities and investment certificates (5,004) (3,748) (3,283) Net increase (decrease) in debt with maturities of 3 months or less 5,494 (253) 122 Issuance of debt 3,921 13,561 8,938 Principal payments on debt (8,729) (11,397) (10,207) Issuance of American Express common shares 179 259 159 Redemption of American Express Money Market Preferred shares - - (150) Repurchase of American Express common shares (555) - - Cash infusion to Lehman Brothers (904) - - Dividends paid (504) (526) (518) Net cash flows provided (used) by financing activities of discontinued operations 3,737 (372) 4,913 ------- ------ ------ Net cash provided by financing activities 2,540 2,770 4,412 Net change in cash and cash equivalents of discontinued operations 45 734 (1,332) Effect of exchange rate changes on cash 86 (68) (583) ------- ------ ------ Net increase (decrease) in cash and cash equivalents 121 (96) 17 Cash and cash equivalents at beginning of year 3,312 3,408 3,391 ------- ------ ------ Cash and cash equivalents at end of year $ 3,433 $ 3,312 $ 3,408 ======= ====== ======= See notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY American Express Company Net Unrealized Securities Preferred Common Capital Gains/ Retained Total Shares Shares Surplus (Losses) Other Earnings ----- --------- ------ ------- ----------- ----- -------- Three Years Ended December 31, 1994 (millions) Balances at December 31, 1991 $7,465 $ 351 $ 283 $3,370 $ (37) $ (259) $3,757 ------ ------ ------ ------ ------- ------ ------ Net income 461 461 Change in net unrealized securities gains (losses) 36 36 Foreign currency translation adjustments 9 9 Redemption of Money Market Preferred shares (150) (150) Other changes, primarily benefit plans 199 5 164 30 Cash dividends declared: Preferred (43) (43) Common, $1.00 per share (478) (478) ----- ------ ------ ------ ----- ------- ------ Balances at December 31, 1992 7,499 201 288 3,534 (1) (220) (3,697) ----- ------ ------ ------ ----- ------- ------ Net income 1,478 1,478 Change in net unrealized securities gains (losses) 8 8 Foreign currency translation adjustments 10 10 Other changes, primarily benefit plans 268 6 250 9 3 Cash dividends declared: Preferred (42) (42) Common, $1.00 per share (487) (487) ----- ------ ------ ------ ------ ------ ------ Balances at December 31, 1993 8,734 201 294 3,784 7 (201) 4,649 ----- ------ ------ ------ ------ ------ ------ Net income 1,413 1,413 Repurchase of common shares (555) (11) (144) (400) Issuance of put options, net (104) (104) Impact of Lehman spin-off (2,410) (4) 11 (2,417) Conversion of 9% Notes 58 2 56 Change in net unrealized securities gains (losses) (396) (396) Foreign currency translation adjustments (15) (15) Other changes, primarily benefit plans 202 (1) 13 166 25 (1) Cash dividends declared: Preferred (32) (32) Common, $.925 per share (462) (462) ------ ------ ------ ------ ------ ------ ------ Balances at December 31, 1994 $6,433 $ 200 $ 298 $3,754 $ (389) $(180)$2,750 ====== ====== ====== ====== ====== ====== ======
See notes to consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 Summary of Significant Accounting Policies Principles of Consolidation The accompanying Consolidated Financial Statements include the accounts of American Express Company and its subsidiaries (the Company). All significant intercompany transactions are eliminated. As discussed in Note 2, the Company completed the spin-off of Lehman Brothers (Lehman) on May 31, 1994. Accordingly, Lehman's results are reported as a discontinued operation through the spin-off date and for all prior years. As a result of the public offerings of First Data Corporation's (FDC) common stock described in Note 3, FDC is no longer consolidated in the Company's financial statements, but is accounted for under the equity method. Prior years' amounts have not been restated. Certain prior years' amounts have been reclassified to conform to the current year's presentation. Foreign Currency Translation Revenues and expenses denominated in foreign currencies are translated at average monthly exchange rates during the year. Assets and liabilities are translated into U.S. dollars based upon exchange rates prevailing at the end of each year. The resulting translation adjustment is a component of Shareholders' Equity. In countries with highly inflationary economies, foreign currency denominated nonmonetary items, primarily fixed assets, are translated at historical exchange rates, with the remaining assets and liabilities translated at prevailing year-end rates and the resulting gains and losses recognized currently in income. Income Per Share Income per share is computed on the basis of the weighted monthly average number of common shares outstanding and common share equivalents (dilutive stock options and certain convertible debt, as well as $216.75 CAP Preferred shares through August 1994), after adjustment for dividends on preferred shares and interest on the convertible debt. The weighted average shares used in the computations were 508,815,000; 500,138,000; and 476,766,000 for 1994, 1993 and 1992, respectively. Investments Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Under SFAS No. 115, debt securities that the Company has both the positive intent and ability to hold to maturity are carried at amortized cost. Other debt securities and all marketable equity securities are classified as either Available for Sale or Trading and carried at fair value. The Available for Sale classification does not mean that the Company expects to sell these securities, but that under SFAS No. 115 positive intent criteria, these securities are available to meet possible liquidity needs should there be significant changes in market interest rates, customer demand, funding sources and terms, or foreign currency risk. Unrealized gains and losses on securities classified as Available for Sale are reported, net of income taxes, as a separate component of Shareholders' Equity. Trading securities consist of debt and equity securities that are held primarily for resale in the short term, usually to benefit from short-term market movements. Gains and losses, both realized and unrealized, on securities classified as Trading are recognized in earnings. In the event of an other than temporary decline in value, investments are carried at their estimated realizable value with the amount of the writedown included in income. See Note 4. Annuity and Life Insurance Accounting Profits on annuity products are recognized over the lives of the annuity contracts and represent the excess of income earned from investment of contract considerations over interest credited to contract owners and other expenses. For universal life-type and single premium life insurance, the profits are recognized over the lives of the policies in proportion to the estimated gross profits expected to be realized. Premiums on traditional life insurance and disability income and health insurance policies are recognized as revenues when collected or due, and related benefits and expenses are associated with premium revenue in a manner that results in recognition of profits over the lives of the insurance policies. For annuity products, deferred acquisition costs (principally sales compensation and other costs of issuing new policies) are amortized in proportion to investment margins. These costs for universal life-type and single premium life insurance are amortized over the life of the policy as a percentage of the estimated gross profits expected to be realized on the policy. The deferred acquisition costs for traditional life insurance and disability income and health insurance policies are amortized over an appropriate period in proportion to premium revenue. Assets and liabilities relating to segregated asset accounts represent funds held for the exclusive benefit of the variable annuity and variable life insurance contract holders. The Company receives investment management fees, mortality and expense assurance fees, minimum death benefit guarantee fees and cost of insurance charges from the related accounts. Net Revenues Revenues are presented net of interest expense related to the Company's international banking operations and Travel Related Services' (TRS) consumer lending activities. Interest expense netted against Interest and Dividends revenue was $914 million, $919 million and $1,232 million for the years ended December 31, 1994, 1993 and 1992, respectively. Marketing and Promotion The Company expenses advertising costs in the year in which the advertising first takes place. Cash and Cash Equivalents The Company has defined cash and cash equivalents as cash and time deposits with original maturities of 90 days or less, excluding those that are restricted by law or regulation. Cash includes interest-bearing deposits, which generally can be withdrawn in less than 30 days, amounting to approximately $1.3 billion and $1.2 billion at December 31, 1994 and 1993, respectively. Accounting Changes Effective January 1, 1992, the Company adopted new accounting rules related to postretirement benefits other than pensions and income taxes. See Notes 9 and 10, respectively. The Company's adoption of SFAS No. 115 is discussed under Investments above. NOTE 2 Lehman Brothers Spin-Off On April 29, 1994, the Company's Board of Directors declared a dividend to the Company's common shareholders of all of the Lehman Brothers Holdings Inc. common stock held by the Company on the dividend distribution date. On May 31, 1994, the Company's investment in Lehman was $2.4 billion. The dividend was distributed on May 31, 1994 to shareholders of record on May 20, 1994 and represented approximately 98.2 million shares of Lehman common stock. Shareholders of the Company received one share of Lehman common stock for each five common shares of the Company that they held on the record date. Prior to the distribution, the Company added approximately $1.1 billion of additional equity capital to Lehman representing: -- The Company's purchase of approximately $904 million of Lehman common stock, which was included in the dividend to the Company's common shareholders. The Company sold approximately $11 million of Lehman common stock from its holdings to certain Lehman executive officers; and -- The Company's purchase of $200 million of Lehman cumulative voting preferred stock, which is being held for investment purposes. In connection with the spin-off, the Company also acquired 928 shares and Nippon Life Insurance Company (Nippon Life) acquired 72 shares of Lehman redeemable voting preferred stock for a nominal dollar amount. The redeemable voting preferred stock entitles its holders to receive an aggregate annual dividend of 50 percent of Lehman net income in excess of $400 million for each of eight years ending in May 2002, with a maximum of $50 million in any one year. In addition, the Company and Nippon Life will be entitled to receive 92.8 percent and 7.2 percent, respectively, of certain contingent revenue and earnings-related payouts from Travelers Inc. (Travelers), which were assigned by Lehman to the Company and Nippon Life in connection with the spin-off transaction. The Travelers participations will yield a maximum of $50 million pretax annually for three years, depending on the revenues of Smith Barney ($50 million was received in 1994), plus 10 percent of after-tax profits of Smith Barney in excess of $250 million per year over a five-year period ($19 million was received in 1994). Discontinued Operations Discontinued operations represents the results of Lehman through May 31, 1994, the spin-off date. Discontinued operations are summarized as follows: Period ending Years ended May 31, December 31, ------------- --------------- (millions) 1994 1993 1992 ------- ----- ------ Net revenues $1,311 $5,431 $5,993 ====== ====== ====== Income (loss) before accounting changes $ 57 $ (102) $ (116) Accounting changes (13) - (8) ------ ------ ------ 44 (102) (124) Preferred dividends (11) (25) (25) ----- ------ ------ Discontinued operations $ 33 $ (127) $ (149) ====== ====== ====== Lehman's assets, liabilities and stockholders' equity at December 31, 1993 were $80 billion, $78 billion and $2 billion, respectively. The Company's investment in Lehman at December 31, 1993 was $1.5 billion and is included in Other Assets in the Consolidated Balance Sheet. NOTE 3 First Data Corporation In April 1992, the Company and FDC completed an initial public offering of 50.6 million shares of FDC's common stock at $22 per share. The Company recognized a $706 million pretax gain from the sale ($425 million after-tax). As a result of the offering, the Company's ownership interest in FDC was reduced from 100 percent to approximately 54 percent of FDC's outstanding common shares. In March 1993, the Company further reduced its ownership interest in FDC to approximately 22 percent through a public offering of 34.6 million shares of FDC common stock at $32 per share. The Company recognized a $779 million pretax gain from the sale ($433 million after-tax). As a result of the Company's reduced ownership, effective January 1, 1993, FDC is reported under the equity method of accounting and, therefore, is not consolidated in the Company's 1994 and 1993 Consolidated Financial Statements. The 1992 Consolidated Financial Statements have not been restated. The Company's investment in FDC, which is included in Other Assets in the Consolidated Balance Sheet, had a book value of $240 million and $201 million at December 31, 1994 and 1993, respectively. In October 1993, the Company sold Debt Exchangeable for Common Stock of FDC. See Note 12. NOTE 4 Investments In May 1993, the Financial Accounting Standards Board (FASB) issued SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which the Company adopted as of January 1, 1994. The following is a summary of investments included in the Consolidated Balance Sheet at December 31: (millions) 1994 1993 Held to Maturity, at amortized cost $21,909 Available for Sale, at Amortized cost $38,134 fair value 15,293 Lower of Cost or Market Trading 225 (fair value $362) 343 Investment mortgage loans 2,681 Market 831 ------- ------- $40,108 $39,308 Investments classified as Held to Maturity and Available for Sale at December 31, 1994 are distributed by type and maturity as presented below:
Held to Maturity Available for Sale -------------------------------------- ---------------------------------- Gross Gross Gross Gross Fair Unrealized Unrealized Fair Unrealized Unrealized (millions) Cost Value Gains Losses Cost Value Gains Losses ------ ------ ---------- ---------- ------ ------ ---------- ---------- U.S. Government and agencies obligations $ 3,450 $ 3,445 - $ 5 $ 355 $ 344 - $ 11 State and municipal obligations 4,816 4,841 $ 115 90 312 321 $ 10 1 Corporate debt securities 10,627 10,294 172 505 3,014 3,007 31 38 Foreign government bonds and obligations 104 105 3 2 1,618 1,592 11 37 Mortgage-backed securities 2,596 2,386 13 223 8,515 7,977 125 50 Equity securities - - - - 732 691 15 56 Other 316 316 - - 1,366 1,361 8 13 ------- ------ ------- ------- ------- ------- ------ ---- Total $21,909 $21,387 $ 303 $ 825 $15,912 $15,293 $ 87 $706 ======= ======= ======= ======= ======= ======= ====== =====
Held to Maturity Available for Sale ---------------- ------------------ Fair Fair Cost Value Cost Value ------ ------ ------ ------ Due within 1 year $ 4,220 $ 4,208 $ 1,736 $ 1,742 Due after 1 year through 5 years 3,367 3,483 3,188 3,155 Due after 5 years through 10 years 7,922 7,743 1,330 1,316 Due after 10 years 3,804 3,567 411 412 ------ ------- ------- ------- 19,313 19,001 6,665 6,625 Mortgage-backed securities 2,596 2,386 8,515 7,977 Equity securities - - 732 691 ------ -------- ------- ------- Total $21,909 $21,387 $15,912 $15,293 ====== ======== ======= ======= Mortgage-backed securities include GNMA, FNMA and FHLMC securities totaling $11 billion in 1994. The fair value of investments is based on quoted market prices, where available. If quoted market prices are not available, fair value is based on quoted market prices of comparable instruments. The fair value of investment mortgage loans of $2.6 billion is estimated using discounted cash flows, based on interest rates currently being offered for mortgage loans. To reflect the adoption of SFAS No. 115, the opening balance of Shareholders' Equity was increased by $325 million (net of deferred taxes) representing the net unrealized gains on securities classified as Available for Sale. For the year ended December 31, 1994, the change in net unrealized gains on Available for Sale securities was a decrease of $721 million (net of deferred taxes). The decline in market value of the Company's investment portfolio during 1994 was primarily due to rising interest rates. The net unrealized gains on Trading securities included in income was $10 million (pretax) at December 31, 1994. During the year ended December 31, 1994, securities Available for Sale were sold with proceeds of $3.8 billion and gross realized gains and losses on such sales were $28 million and $30 million, respectively. The average cost method was used to determine the realized gain or loss. In addition, $73 million of securities Held to Maturity were sold during the year ended December 31, 1994, resulting in gross realized gains and losses of $1 million and $4 million, respectively. These sales were due to credit deterioration. The table below includes the purchases, sales and maturities of investments classified as Held to Maturity and Available for Sale for the year ended December 31, 1994: Held to Available (millions) Maturity for Sale -------- -------- Purchases $14,344 $10,498 Sales $ 73 $ 3,833 Maturities $15,866 $ 3,945 ======== ======== Investments carried at amortized cost at December 31, 1993 are distributed by type and maturity as presented below: Gross Gross Fair Unrealized Unrealized (millions) Cost Value Gains Losses ------ ---------- ---------- ---------- U.S. Government and agencies obligations $ 3,640 $ 3,641 $ 3 $ 2 State and municipal obligations 4,943 5,367 425 1 Corporate bonds and obligations 12,935 13,773 893 55 Foreign government obligations 1,508 1,538 38 8 Mortgage-backed securities 11,413 11,724 377 66 Investment mortgage loans and other 3,695 3,851 168 12 ------ ------- ------ ----- Total $38,134 $39,894 $1,904 $ 144 ======= ======= ====== ===== Fair Cost Value ------- ------- Due within 1 year $ 5,669 $ 5,682 Due after 1 year through 5 years 4,819 5,085 Due after 5 years through 10 years 8,470 9,177 Due after 10 years 4,068 4,375 ------- ------- 23,026 24,319 Mortgage-backed securities 11,413 11,724 Investment mortgage loans and other 3,695 3,851 ------- ------- Total $38,134 $39,894 ======= ======= Proceeds from sales of investments held at cost were $2 billion in 1993. Gross gains and gross losses realized on those sales were $119 million and $111 million, respectively. Mortgage-backed securities include GNMA, FNMA and FHLMC securities totaling $11 billion in 1993. NOTE 5 Loans and Discounts Loans and discounts at December 31 consist of: (millions) 1994 1993 ------- ------- Consumer Loans $10,183 $ 9,519 Commercial Loans: Commercial and industrial 2,407 2,744 Mortgage and real estate 693 931 Loans to banks and other institutions 996 1,164 Other Loans 988 1,093 ------- ------- 15,267 15,451 Less: Reserve for credit losses 545 655 ------- ------- Total $14,722 $14,796 ======= ======= Note: American Express Financial Advisors' mortgage loans of $2.7 billion and $2.2 billion in 1994 and 1993, respectively, are included in Investment Mortgage Loans and are reflected in Note 4. NOTE 6 Preferred Shares In August 1991, the Company sold 122,448.98 non-transferable $216.75 CAP Preferred shares (CAP Preferred shares) to subsidiaries of Berkshire Hathaway Inc. for $300 million. In August 1994, the Company mandatorily redeemed the CAP Preferred shares through the issuance of 13,997,141 common shares to such subsidiaries (adjusted to reflect the Lehman spin-off). In January 1990, the Company sold to Nippon Life for $200 million, four million of the Company's $3.875 Convertible Exchangeable Preferred shares (Convertible Preferred shares) having a liquidation preference of $50 per share and paying dividends at an annual rate of 7.75 percent. The shares are convertible at the option of the holder into the Company's common shares at an initial conversion price of $42.50 per share. The Convertible Preferred shares are redeemable in whole at the option of the Company, for the Company's 7.75% Convertible Subordinated Debentures due 2015 at $1,000 principal amount of Debentures for each $1,000 liquidation preference of Convertible Preferred shares. The Company also has the option of redeeming the Convertible Preferred shares for cash at $51.94 and at prices declining to $50 per share on and after January 2000. The Board of Directors is authorized to permit the Company to issue up to approximately 16 million additional preferred shares without further shareholder approval. NOTE 7 Common Shares In September 1994, the Company's Board of Directors authorized the Company to repurchase up to 20,000,000 shares of its common stock, subject to market conditions. As part of this plan, the Company intends to fund contributions to various employee plans with cash, and offset the issuance of new shares as part of employee compensation plans by repurchasing an equivalent number of shares in the open market. As of December 31, 1994, the Company had repurchased and cancelled 14,601,055 shares under this program at an average price of $30.37 per share. In November 1994, in connection with the share repurchase program, the Company sold four million put options with maturities ranging from approximately one to twelve months and a weighted average strike price of $30.81 per share. Upon issuing these put options, the Company received a weighted average premium of $1.83 per share, or $7.3 million, which is included in Shareholders' Equity, resulting in an effective repurchase price of $28.98 per share. The aggregate strike price of approximately $111 million related to 3.6 million put options outstanding at year-end has been reclassified from Shareholders' Equity to Temporary Equity and is included in Other Liabilities in the Consolidated Balance Sheet at December 31, 1994. In 1994, the Company repurchased and cancelled four million shares of its common stock at an average price of $27.67, primarily to offset the issuance of new shares resulting from the conversion of American Express Company 9% Convertible Notes Series A-G due April 1, 1994. Of the common shares authorized but unissued at December 31, 1994, 81,200,682 shares were reserved for issuance with respect to employee stock plans, employee benefit plans, convertible preferred stock and debentures and the dividend reinvestment plan. The common shares activity for the three years ended December 31, 1994 is as follows: 1994 1993 1992 ----- ----- ----- Shares outstanding at beginning of year 489,827,852 479,976,358 472,165,838 Repurchase of common shares (18,601,055) - - Conversion of CAP Preferred shares 13,997,141 - - Conversion of 9% Notes 3,273,062 - - Employee benefit plans, compensation and other 7,368,678 9,851,494 7,810,520 ----------- ------------ ----------- Shares outstanding at end of year 495,865,678 489,827,852 479,976,358 =========== =========== =========== NOTE 8 Employee Stock Plans Under the 1989 Long-Term Incentive Plan (the 1989 Plan), awards may be granted to officers, key employees and other key individuals who perform services for the Company and its participating subsidiaries. These awards may be in the form of stock options, stock appreciation rights, restricted stock, performance grants and other awards deemed by the Compensation and Benefits Committee of the Board of Directors to be consistent with the purposes of the 1989 Plan. The Company also has options outstanding pursuant to the Director's Stock Option Plans. Stock options are granted at a price not less than the fair market value of the common shares at the date of grant. The Company adjusted its outstanding restricted stock and stock options by 799,027 shares and 4,027,120 shares, respectively, to reflect the Lehman spin-off discussed in Note 2. The respective stock options had exercise prices ranging from $10.30 to $67.09, which were adjusted to $9.03 to $58.83. In addition, all outstanding restricted stock and stock options held by Lehman employees were cancelled. There were 15,731,259; 23,528,235; and 3,437,116 common shares available for grant at December 31, 1994, 1993 and 1992, respectively, under various employee stock plans. At December 31, 1994, options outstanding had an average exercise price of $24.89 per share and expiration dates ranging from February 24, 1995 to November 27, 2004. The Company also has an Incentive Savings Plan (ISP) under which purchases of the Company's common shares are made by or for participating employees. The Company did not, as originally authorized, terminate its Stock Ownership Plan (SOP), but merged the SOP into the ISP as of December 1, 1994. The unpaid SOP loan balance was repaid on January 31, 1995. The SOP's remaining deferred compensation of $48 million was reduced with the repayment of the loan. Expenses related to share allocations from the SOP were $15 million and $21 million for 1993 and 1992, respectively. There was no share allocation to employee accounts for 1994. The details of transactions provided in the following table include the plans described above. 1994 1993 1992 --------- ----------- -------- Restricted stock awarded 1,349,400 1,584,052 1,321,448 Options outstanding at beginning of year 25,733,675 28,690,159 25,983,322 Option price $10.30 to $67.09 $10.00 to $67.09 $10.00 to $67.09 Options granted 5,175,049 4,818,473 5,518,000 Option price $26.13 to $30.94 $22.59 to $35.63 $18.83 to $23.06 Options exercised 3,326,731 4,526,835 561,889 Exercise price $9.82 to $31.64 $10.00 to $34.81 $10.30 to $23.88 Options expired or cancelled 2,610,878 3,248,122 2,249,274 Option adjustment pursuant to Lehman spin-off 4,027,120 - - Options outstanding at end of year 28,998,235 25,733,675 28,690,159 Option price $9.03 to $58.83 $10.30 to $67.09 $10.00 to $67.09 Options exercisable at end of year 18,331,687 16,774,856 18,136,786 =============== ================ ================ NOTE 9 Retirement Plans Pension Plans The Company and certain subsidiaries have plans under which the cost of retirement benefits for eligible employees in the United States, measured by length of service, compensation and other factors, is currently being funded through trusts established under these plans. In addition, the Company sponsors certain unfunded, unqualified supplemental plans for which the aggregate accrued liability is not material. Funding of retirement costs for these plans complies with the applicable minimum funding requirements specified by the Employee Retirement Income Security Act of 1974, as amended. In 1994, the Company's Board of Directors approved an amendment of the American Express Retirement Plan (the Plan) which covers U.S. employees. The amendment, which is expected to be effective July 1995, converts the discounted accrued benefits to a lump sum individual account balance and credits annual additions equal to a percentage of base pay plus annual incentives, based on age plus service. The employees' account will be credited with interest based on published 5-year Treasury rates. Lump sum payout at termination or retirement will be available. The changes are initially expected to significantly decrease the Plan's projected benefit obligation and annual pension cost. This decrease will be largely offset by higher expense associated with amendments to the Company's ISP, which include a profit-sharing component as of July 1, 1994. Most employees outside the United States are covered by local retirement plans, some of which are funded, or receive payments at the time of retirement or termination under applicable labor laws or agreements. Benefits under labor laws are generally not funded. Plan assets consist principally of equities and fixed income securities. Net pension cost for 1994, 1993 and 1992 consisted of the following components: (millions) 1994 1993 1992 ---- ---- ---- Service cost $ 71 $ 59 $ 69 Interest cost 71 65 71 Actual return on plan assets (22) (116) (45) Net amortization and deferral (31) 67 6 ---- ---- ---- Net periodic pension cost $ 89 $ 75 $101 ==== ==== ==== The following table sets forth the funded status and amounts recognized in the Consolidated Balance Sheet for the Company's defined benefit plans, including certain unfunded, nonqualified supplemental plans, at December 31, 1994 and 1993: 1994 1993 ----------------------- ------------------------ Assets Accumulated Assets Accumulated Exceed Benefits Exceed Benefits Accumulated Exceed Accumulated Exceed (millions) Benefits Assets Benefits Assets ----------- ----------- ------------ ----------- Actuarial present value of benefit obligations: Vested benefit obligation $(453) $(106) $(438) $(106) ------ ------ ------ ------ Accumulated benefit obligation $(490) $(123) $(478) $(125) ------ ------ ------ ------ Projected benefit obligation $(724) $(213) $(738) $(220) Plan assets at fair value 774 16 708 24 ------ ------ ------ ------ Projected benefit obligation (in excess of) or less than plan assets 50 (197) (30) (196) Unrecognized net (gain) loss (70) 3 19 11 Unrecognized prior service cost 3 19 - 21 Unrecognized net obligation at transition 9 10 11 22 Adjustment required to recognize minimum liability - (5) - (11) ------ ------ ------ ------ Pension (liability) included in the Consolidated Balance Sheet $ (8) $(170) $ - $(153) ====== ====== ====== ====== The range of assumptions used in the majority of the Company's plans at December 31, 1994 and 1993 was: 1994 1993 ------------ ------------- Weighted average discount rates 7.5% to 9.0% 7.0% to 8.0% Rates of increase in compensation levels 4.5% to 7.0% 4.0% to 7.0% Expected long-term rates of return on assets 7.5% to 12.0% 7.0% to 10.0% Other Postretirement Benefits The Company sponsors postretirement benefit plans that provide health care, life insurance and other postretirement benefits to retired U.S. employees. The health care plans include participant contributions, deductibles, co-insurance provisions, limitations on the Company's obligation and service-related eligibility requirements. The Company generally pays these benefits as they are incurred. Effective January 1, 1992, the Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," for the Company's U.S. retiree health and other welfare benefit plans. SFAS No. 106 requires the accrual method of accounting for these benefits, rather than the Company's previous policy, which was to record these benefits as they were paid. The cumulative effect on 1992 results of adopting SFAS No. 106 was an after-tax charge of $114 million ($.23 per share). Postretirement benefits other than pension benefits for non-U.S. employees are immaterial. Net periodic postretirement benefit cost consisted of the following components: (millions) 1994 1993 1992 ---- ---- ---- Service cost $ 4 $ 3 $ 4 Interest cost 15 15 14 ---- ---- ---- Net periodic postretirement benefit cost $19 $18 $18 ==== ==== ==== The following table sets forth the amount recognized in the Consolidated Balance Sheet for the Company's defined postretirement benefit plans (other than pension plans) at December 31, 1994 and 1993: (millions) 1994 1993 ---- ---- Accumulated postretirement benefit obligation: Retirees $137 $154 Fully eligible active plan participants 26 30 Other active plan participants 20 28 ---- ---- 183 212 Unrecognized prior service cost 5 - Unrecognized net gain (loss) 7 (26) ---- ---- Postretirement benefit liability included in the Consolidated Balance Sheet $195 $186 ==== ==== The weighted average discount rate used in determining the accumulated postretirement benefit obligation for 1994 and 1993 was 8.75 percent and 7.25 percent, respectively. The rate of increase in the per capita cost of covered benefits was assumed to be 12 percent for 1995 and 13 percent for 1994; the rate in both years was assumed to decrease one percent per year to seven percent in 2000 and remain at that level thereafter. An increase in the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1994 by $8 million and the aggregate of service and interest cost for 1994 by $1 million. NOTE 10 Income Taxes The Company adopted SFAS No. 109, "Accounting for Income Taxes," effective January 1, 1992. The cumulative effect of adopting SFAS No. 109 was an increase to 1992 income from continuing operations of $147 million ($.30 per share). The provision for income taxes consists of the following: (millions) 1994 1993 1992 ---- ---- ---- Federal $316 $551 $145 State and local 42 72 62 Foreign 153 98 111 ---- ---- ---- Total $511 $721 $318 ==== ==== ==== Accumulated net earnings of certain foreign subsidiaries, which totaled $397 million at December 31, 1994, are intended to be permanently reinvested outside the United States. Accordingly, federal taxes, which would have aggregated $127 million, have not been provided. Deferred income tax assets and liabilities result from the recognition of temporary differences. Temporary differences are differences between the tax bases of assets and liabilities and their reported amounts in the financial statements that will result in differences between income for tax purposes and income for financial statement purposes in future years. The current and deferred components of the provision for income taxes consist of the following: (millions) 1994 1993 1992 ---- ---- ---- Current $596 $677 $604 Deferred (85) 44 (286) ---- ---- ---- Total $511 $721 $318 ==== ==== ==== At December 31, 1994 and 1993, the Company's net deferred tax assets consisted of the following: (millions) 1994 1993 ------ ------ Gross deferred tax assets $2,621 $2,246 Less: Valuation allowance 45 45 ------ ------ Deferred tax assets net of valuation allowance 2,576 2,201 Gross deferred tax liabilities 1,162 1,060 ------ ------ Net deferred tax assets $1,414 $1,141 ====== ====== Gross deferred tax assets for 1994 and 1993 consist primarily of: reserves not yet deducted for tax purposes of $1.6 billion and $1.4 billion, respectively, and deferred Cardmember fees of $184 million for both years. Gross deferred tax assets for 1994 also includes $209 million related to SFAS No. 115. Gross deferred tax liabilities for 1994 and 1993 consist primarily of: deferred acquisition costs of $688 million and $632 million, respectively, and accelerated depreciation of $159 million and $145 million, respectively. The Company's valuation allowance relates to certain deferred tax assets for which realization requires taxable income in the subsidiary which gave rise to the deferred tax asset. The aggregate income tax provision in 1994, 1993 and 1992 is different from that computed by using the U.S. statutory rate of 35 percent in 1994 and 1993 and 34 percent in 1992. The principal causes of the difference in each year are shown below: (millions) 1994 1993 1992 ----- ----- ----- Combined tax at U.S. statutory rate $662 $814 $305 Changes in taxes resulting from: Tax-exempt interest income (150) (148) (139) Tax-exempt element of dividend income (33) (37) (42) Change in valuation allowance - - 44 FDC public offering - 74 42 Foreign income taxed at rates other than U.S. statutory rate (13) (25) 17 State and local income taxes 26 25 36 Non-deductible amortization 9 4 19 Minority interest - - 17 Impact of rate change on opening net deferred tax assets - (30) - All other 10 44 19 ----- ----- ----- Income tax provision $511 $721 $318 ===== ===== ===== Net income taxes paid by the Company during 1994, 1993 and 1992 were $289 million, $639 million and $576 million, respectively, and include estimated tax payments, as well as cash settlements relating to prior tax years. NOTE 11 Derivative and Other Off-Balance-Sheet Financial Instruments In 1994, the FASB issued SFAS No. 119, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments," which expanded disclosure requirements for financial instruments. The Company enters into transactions involving derivative financial instruments as an end user, as well as for trading purposes at American Express Bank (the Bank). The Company uses derivatives for end user (nontrading) purposes to manage its exposure to interest and foreign exchange rate risks and to manage its funding costs. These instruments are used when providing a more efficient means for the Company to manage its risk exposure than if the Company entered into the cash marketplace. For trading purposes, the Bank enters into derivative contracts on behalf of its clients, and to a lesser extent, takes proprietary positions. The Company manages risks associated with derivatives as described below. Market risk is the possibility that the value of the derivative financial instrument will change due to fluctuations in a factor from which the instrument derives its value, primarily an interest rate or a foreign exchange rate. The Company is not impacted by market risk related to derivatives held for nontrading purposes beyond that inherent in cash market transactions. Foreign currency and certain interest rate products that manage related risks have cash flow and income effects that are inverse to the effects of the underlying transactions. The Bank is generally not subject to market risk when it enters into a contract on a client's behalf as it enters into an offsetting contract or uses the position to offset an existing exposure. The Bank takes proprietary positions within approved limits. These positions are monitored daily at the local level and reviewed for compliance centrally. The Company does not enter into derivative contracts with imbedded options or other complex features that would expose it to additional market risk. Credit exposure is the possibility that the counterparty will not fulfill the terms of the contract. The Company monitors credit exposure related to derivative financial instruments through established approval procedures, including setting concentration limits by counterparty and industry, reviewing credit ratings and requiring collateral where appropriate. For its trading activities, the Bank requires collateral when it is not willing to assume credit exposure to counterparties for either contract mark-to-market risk or delivery risk. The majority of the Company's counterparties are rated A or better by nationally recognized credit rating agencies. Wherever possible, the Company's credit exposure is further reduced through the use of master netting agreements, which allow the Company to settle all contracts under the agreement in one net receipt or payment in the event of counterparty default. The notional or contract amount of a derivative financial instrument is generally used to calculate the cash flows that are received or paid over the life of the agreement. Notional amounts do not represent market risk or credit exposure. At December 31, 1994, the aggregate notional amount of the Company's derivative instruments was $57 billion. The related credit exposure approximates the fair value of contracts in a gain position (asset) totaling $375 million. Including contracts in a loss position, the Company's net exposure was $16 million. The fair value represents the replacement cost and is determined by market values, dealer quotes or pricing models. The following tables detail information regarding the Company's derivatives: Non-Trading ----------------------------------------------- Notional Carrying Value Fair Value December 31, 1994 Amount Asset Liability Asset Liability (millions) ------- ---------------- ------------------ Interest Rate Products Interest rate swaps $17,374 $ 57 $ 62 $131 $249 Interest rate caps and corridors purchased 5,420 44 - 67 - Interest rate options 706 3 2 5 - Forward rate agreements 675 - - - 2 ------ ------ ---- ---- ----- Total Interest Rate Products 24,175 104 64 203 251 ------ ------ ---- ---- ----- Foreign Currency Products Forward and spot contracts 8,030 39 12 59 27 Foreign currency options purchased 128 2 - 2 - ------ ------ ---- ---- ----- Total Foreign Currency Products 8,158 41 12 61 27 ------ ------ ----- ---- ----- Other Products 533 16 2 19 - ------ ------ ----- ---- ----- Total $32,866 $161 $ 78 $283 $278 ======= ===== ==== ====== ===== Trading ------------------------------------------------ Notional Carrying/Fair Value Average Fair Value December 31, 1994 Amount Asset Liability Asset Liability (millions) ------- ------------------- ------------------ Interest Rate Products Interest rate swaps $ 722 $11 $ 8 $ 8 $ 6 Forward rate agreements 359 1 1 1 - Other 94 - - - - ------- ----- ----- ----- ----- Total Interest Rate Products 1,175 12 9 9 6 ------- ----- ----- ----- ----- Foreign Currency Products* Forward and spot contracts 20,574 71 63 77 72 Foreign currency options written 1,114 - 9 - 11 Foreign currency options purchased 1,062 9 - 11 - ------- ----- ----- ----- ----- Total Foreign Currency Products 22,750 80 72 88 83 ------- ----- ----- ----- ----- Total $23,925 $92 $81 $97 $89 ======= ===== ===== ===== ===== *These are predominantly contracts with clients and the related hedges of those client contracts. The Company's net trading foreign currency exposure was approximately $7 million at December 31, 1994. The average aggregate fair values of derivative financial instruments held for trading purposes during the year were computed based on quarterly information. Net derivative trading gains of $66 million for 1994 were primarily due to trading in foreign currency forward and spot contracts and were included in Commissions and Fees. Notional Total Credit December 31, 1993 (millions) Amount Exposure -------- ------------ Interest Rate Products Interest rate swaps $13,105 $138 Interest rate options 2,330 - Forward rate agreements 1,064 - ------ ----- Total Interest Rate Products 16,499 138 ------ ----- Foreign Currency Products Forward and spot contracts 22,275 105 Foreign currency options written 812 - ------ ----- Total Foreign Currency Products 23,087 105 ------ ----- Other Products 208 - ------ ----- Total $39,794 $243 ------ ----- Interest Rate Products The Company uses interest rate products, for the most part, to manage funding costs related to TRS' charge Card and consumer lending businesses. The principal products used are interest rate swaps, which involve the exchange for a specified period of time of fixed or floating rate interest payments based on a notional or contractual amount. TRS uses interest rate swaps to obtain the most cost effective and flexible funding structure to fund its charge Card and consumer lending receivables, as well as to lock in the spread on consumer lending receivables. TRS uses interest rate swaps to achieve a targeted, predetermined mix of fixed and floating rate debt on its charge Card receivables. Interest rates charged on TRS' consumer lending receivables are linked to a floating rate base and reprice every six months. TRS generally enters into interest rate swaps paying a rate that reprices when the base rate of the underlying receivables changes. At December 31, 1994, the notional amount for interest rate swaps in the nontrading table above includes $5.7 billion of swaps that go into effect in January and February of 1995. These swaps replace swaps that mature at that time and, accordingly, are not reflected in the notional amount of swaps disclosed in Note 12. In addition, the Bank uses interest rate swaps to manage the interest characteristics of loans, deposits and, to a lesser extent, securities holdings. The termination dates of these swaps are generally matched with the maturity dates of the underlying assets and liabilities. For interest rate swaps that are used for nontrading purposes and meet the criteria for hedge accounting, interest is accrued and reported in Accounts Receivable and Accrued Interest, and Interest and Dividends or Accounts Payable and Interest Expense, as appropriate. Products used for trading purposes are reported at fair value in Other Assets or Other Liabilities, as appropriate, with unrealized gains and losses recognized currently in Other Revenues. In addition,interest rate caps and corridors limit the Company's exposure to rising interest rates. These instruments are used primarily by American Express Financial Advisors to protect the margin between the interest rate earned on investments and the interest rate accrued to related certificate and annuity holders. Interest rate caps and corridors generally mature within five years. The costs of interest rate caps and corridors are reported in Other Assets and amortized into Interest and Dividends on a straight line basis over the term of the contract; benefits are recognized in income when earned. See Note 12 for further information related to the Company's use of interest rate products to modify its short- and long-term debt. Foreign Currency Products As an end user, the Company uses foreign currency products to hedge primarily net investments in foreign operations and to manage transactions denominated in foreign currencies. For trading purposes, the Bank enters into contracts on behalf of its clients, and to a lesser extent, takes proprietary positions. The increase in the aggregate notional amount of all forward and spot contracts from December 31, 1993 to December 31, 1994 was caused primarily by client-related contracts. Foreign currency exposures are hedged, where practicable, through foreign currency forward and spot contracts. Foreign currency forward and spot contracts involve the purchase and sale of a designated currency at an agreed upon rate for settlement on a specified date. Foreign currency forward contracts generally mature within one year, whereas foreign currency spot contracts generally settle within two days. At December 31, 1994, the Company had no significant unhedged foreign currency exposures; the Company's largest foreign currency exposure was a net investment of $96 million in India. For foreign currency products used to hedge net investments in foreign operations, unrealized gains and losses as well as related premiums and discounts are reported in Shareholders' Equity. For foreign currency contracts that manage transactions denominated in foreign currencies, unrealized gains and losses are reported in Other Assets and Commissions and Fees or Other Liabilities and Other Expenses, as appropriate. Related premiums and discounts are reported in Other Assets or Other Liabilities, as appropriate, and amortized into Interest Expense and Other Expenses over the term of the contract. Foreign currency products used for trading purposes are reported at fair value in Other Assets or Other Liabilities, as appropriate, with unrealized gains and losses recognized currently in Commissions and Fees. To a limited extent, the Company uses foreign currency forward contracts to hedge its firm commitments primarily related to its travel programs. In addition, for selected major overseas markets, the Company uses foreign currency forward contracts to hedge future income generally for periods not exceeding one year; related unrealized gains and losses are recognized currently in income. The impact of these activities was not material. Other Off-Balance-Sheet Financial Instruments The Company primarily enters into other off-balance-sheet financial instruments to extend credit to satisfy the needs of its clients. The contractual amount of these instruments represents the maximum accounting loss the Company would record assuming the contract amount is fully utilized, the counterparty defaults and collateral held is worthless. Management does not expect any material adverse impact to the Company's financial position to result from these contracts. December 31, (millions) 1994 1993 ------- ------- Unused Credit Available to Cardmembers $19,018 $18,919 Loan Commitments $ 354 $ 526 Standby Letters of Credit and Guarantees $ 1,668 $ 1,367 Commercial and Other Letters of Credit $ 969 $ 933 ======= ======= The Company is committed to extend credit to certain Cardmembers as part of established contractual agreements. The Company's right to approve all charges, the ability to cancel the right to incur new charges and sophisticated credit analysis limit its exposure. The Company, through its account and Card issuing subsidiaries, establishes credit limits for spending on its consumer lending products. However, the Company's charge Card products have no preset spending limit, and are not reflected in unused credit available to Cardmembers. In addition, since the Company does not charge a specific fee to Cardmembers for providing available credit, the fair value of unused credit available to Cardmembers is nil. Since many of the commitments extended to Cardmembers are not expected to be drawn upon, unused credit available to Cardmembers does not represent future cash requirements. Collateral is generally not required to support these credit arrangements. The Company may require collateral in support of its loan commitments based on the creditworthiness of the borrower. Standby letters of credit and guarantees primarily represent conditional commitments to insure the performance of the Company's customers to third parties. These commitments generally expire within one year. The Company primarily issues commercial and other letters of credit to facilitate the short-term trade-related needs of its clients. These letters of credit typically mature within six months. When necessary, collateral is required in support of the various letters of credit and guarantees. This collateral primarily consists of cash, securities and counterguarantees. At December 31, 1994 and 1993, the Company held $852 million and $577 million, respectively, of collateral supporting standby letters of credit and guarantees and $447 million and $464 million, respectively, of collateral supporting commercial and other letters of credit. Other financial institutions have extended lines of credit to the Company of $7.9 billion and $6.9 billion at December 31, 1994 and 1993, respectively. Commitments, letters of credit and guarantees are generally recorded in the Consolidated Balance Sheet when the Company makes payment on these obligations. Fees attributable to commitments and guarantees issued are generally recognized in income over the life of the commitment. NOTE 12 Short- and Long-Term Debt and Borrowing Agreements The Company has various borrowing agreements, both fixed and floating rate and short- and long-term. The Company manages interest rate risk associated with these borrowings, in part, through the use of interest rate products, principally interest rate swaps. In addition, TRS uses interest rate swaps to achieve a targeted, predetermined mix of fixed and floating rate debt. See Note 11 for further information related to the Company's use of interest rate products. Short-Term Debt The Company has various facilities to obtain short-term credit, including borrowing agreements with banks and the issuance of commercial paper. At December 31, 1994 and 1993, the Company's total short-term debt outstanding was $14.8 billion and $12.5 billion, respectively, with weighted average interest rates of 6.13% and 3.09%, respectively. At December 31, 1994, $7.6 billion of short-term debt outstanding was modified by interest rate swaps, resulting in a year-end weighted average effective interest rate of 5.93%. The Company generally pays a fixed rate on these swaps, which are primarily used to achieve a targeted, predetermined fixed to floating funding mix on charge Card receivables and to lock in the spread on its consumer lending products. Unused lines of credit in support of commercial paper borrowing arrangements were approximately $6.1 billion at December 31, 1994. Long-Term Debt
1994 1993 -------------------------------------------------------------- ------------------------- Year-End Effective Notional Year-End Interest Year-End Outstanding Amount of Stated Rate Rate with Maturity of Outstanding Stated Rate December 31, (dollars in millions) Balance Swaps on Debt(a,b) Swaps (a,b) Swaps Balance on Debt (a,b) ----------------------------------------------------------------------------------------- Floating Medium-Term Note due June 28, 1996 $ 945 - 6.63% - - $ 945 3.90% DECS due October 15, 1996 868 - 6.25% - - 868 6.25% Notes due June 15, 2000 299 $ 299 6.125% 7.11% 2000 299 6.125% Notes due August 15, 2001 298 - 8.50% - - 298 8.50% Swiss franc Bonds due October 14, 1996 to December 16, 1996 (c) 272 272 5.00% 4.13% 1996 246 5.00% Floating Medium-Term Senior Notes due 1994-1997 270 - 5.40% - - 424 5.40% Notes due July 15, 1994 - - - - - 300 8.625% Other Fixed Senior Notes due 1995-2022 2,380 903 8.35% 8.47% 1995-2000 3,324 7.88% Other Floating Senior Notes due 1995-1998 569 424 6.00% 6.04% 1995-1998 988 4.76% Other floating rate notes due 1995-2004 906 425 6.04% 6.00% 1996-2004 498 4.52% Other fixed rate notes due 1995-2006 355 - 6.75% - - 371 7.42% ------ ------ ------ ------ --------- ------ ----- Total $7,162 $2,323 $8,561 ====== ====== ====== ====== ========= ====== =====
(a) For floating rate debt issuances, the stated and effective interest rates were based on the respective rates at December 31, 1994 and 1993; these rates are not an indication of future interest rates. (b) Weighted average rates were determined where appropriate. (c) Debt hedged through Swiss franc to U.S. dollar cross-currency interest rate swaps. The above interest rate swaps generally require the Company to pay a floating rate, with a predominant index of LIBOR (London Interbank Offered Rate). Aggregate annual maturities of long-term debt for the five years ending December 31, 1999 are as follows (millions): 1995, $1,205; 1996, $3,237; 1997, $349; 1998, $235; and 1999, $676. The Company paid interest (net of amounts capitalized) of $1.7 billion in 1994 and $1.9 billion in both 1993 and 1992. Approximately $260 million of the long-term financing for the Company's headquarters building is secured by certain mortgages on the interests of the Company in the building. In 1993, the Company issued 23,618,500 DECS (Debt Exchangeable for Common Stock), in the form of 6-1/4% Exchangeable Notes due October 15, 1996. The DECS were issued at a principal amount of $36.75 per DECS, resulting in net proceeds of approximately $842 million. At maturity, holders of DECS will receive, in exchange for the principal amount thereof, shares of FDC common stock, or at the Company's option, an equivalent amount of cash in lieu of such shares. The number of such shares or the amount of such cash will be based on the average market price of FDC common stock calculated during a period shortly before the maturity of the DECS. If the Company elects to deliver shares of FDC at maturity, the Company's holdings of FDC will be reduced to between zero (if the average market price of FDC shares is at or below $36.75) and approximately 3.3 million shares if the average market price of FDC shares is at or above $44.875. The market value of the Company's holdings in FDC at December 31, 1994 was approximately $1.1 billion. NOTE 13 Fair Values of Financial Instruments The Company is required to disclose fair value information for most on- and off-balance-sheet financial instruments for which it is practicable to estimate that value. Certain financial instruments, such as life insurance obligations, employee benefit obligations, investments accounted for under the equity method and all non-financial instruments, such as land, buildings and equipment, deferred acquisition costs and goodwill, are excluded from required disclosure. The Company's off-balance-sheet intangible assets, such as the American Express Company name and the future earnings of core businesses, are also excluded. The Company's management believes the value of these excluded assets is significant. The fair value of the Company, therefore, cannot be estimated by aggregating the amounts presented below. The fair values of financial instruments are estimates based upon market conditions and perceived risks at December 31, 1994 and 1993 and require varying degrees of management judgment. The fair values of the financial instruments presented may not be indicative of their future fair values. 1994 1993 ----------------- ------------------ Carrying Fair Carrying Fair December 31, (millions) Value Value Value Value -------- ------- -------- ------- Financial Assets Assets for which carrying values approximate fair values $31,078 $31,078 $28,342 $28,342 Investments $40,108 $39,520 $39,308 $41,087 Loans and discounts $14,282 $14,370 $14,378 $14,464 Other assets $ 2,122 $ 2,122 $ 2,334 $ 2,334 Derivative financial instruments, net $ 94 $ 16 $ 57 $ 81 ------- ------- ------- ------- Financial Liabilities Liabilities for which carrying values approximate fair values $34,105 $34,105 $32,131 $32,131 Fixed annuity reserves $18,390 $17,652 $17,579 $16,882 Investment certificate reserves $ 2,866 $ 2,800 $ 2,752 $ 2,680 Long-term debt $ 7,112 $ 7,025 $ 8,493 $ 8,812 Liabilities related to segregated asset accounts $10,399 $ 9,944 $ 8,645 $ 8,305 Other liabilities $ 5,330 $ 5,330 $ 6,140 $ 6,140 ======= ======= ====== ======= The carrying and fair values of other off-balance-sheet financial instruments are not material as of December 31, 1994 and 1993. See Notes 4 and 11 for carrying and fair value information regarding investments and derivative financial instruments, respectively. The following methods were used to estimate the fair values of financial assets and financial liabilities: Financial Assets Assets for which Carrying Values Approximate Fair Values: The carrying values of Cash and Cash Equivalents, Accounts Receivable and Accrued Interest, and Assets Held in Segregated Accounts approximate their fair values. Loans and Discounts: For variable rate loans that reprice within a year where there has been no significant change in counterparties' creditworthiness, fair values are based on carrying values. The fair values of all other loans, except for loans with significant credit deterioration, are estimated using discounted cash flow analysis, based on current interest rates for loans with similar terms to borrowers of similar credit quality. For loans with significant credit deterioration, fair values are based on revised estimates of future cash flows discounted at rates commensurate with the risk inherent in the revised cash flow projections, or for collateral dependent loans, on collateral values. Other Assets: The carrying values of applicable Other Assets which primarily include securities purchased under agreements to resell and customers' acceptance liabilities approximate their fair values. Financial Liabilities Liabilities for which Carrying Values Approximate Fair Values: The carrying values of Customers' Deposits and Credit Balances, Travelers Cheques Outstanding, Accounts Payable and Short-Term Debt approximate their fair values. Fixed Annuity Reserves: Fair values of annuities in deferral status are estimated as the accumulated value less applicable surrender charges and loans. For annuities in payout status, fair value is estimated using discounted cash flow analysis, based on current interest rates. The fair value of these reserves excludes life insurance-related elements of $1.8 billion in 1994 and $1.6 billion in 1993. Investment Certificate Reserves: For variable rate investment certificates that reprice within a year, fair values approximate carrying values. For other investment certificates, fair value is estimated using discounted cash flow analysis, based on current interest rates. The valuations are reduced by the amount of applicable surrender charges and related loans. Long-Term Debt: For variable rate long-term debt that reprices within a year, fair values approximate carrying values. For other long-term debt, fair value is estimated using either quoted market prices or discounted cash flow analysis based on the Company's current borrowing rates for similar types of borrowing arrangements. Liabilities Related to Segregated Accounts: Fair values of these liabilities, after excluding life insurance-related elements of $482 million in 1994 and $347 million in 1993, are estimated as the accumulated value less applicable surrender charges. Other Liabilities: The carrying values of applicable Other Liabilities which primarily include securities sold under agreements to repurchase, acceptances outstanding and income taxes payable approximate their fair values. NOTE 14 Significant Credit Concentrations A credit concentration exists if the Company's customers are involved in similar industries. The Company's businesses generate significant investments in both on- and off-balance-sheet financial instruments. The counterparties in these investments operate in diverse economic sectors. Therefore, management does not expect any material adverse impact to the Company's financial position to result from credit concentrations. Certain distinctions between categories required management judgment. December 31, (dollars in millions) 1994 1993 ------- ------- Financial institutions (a) $11,591 $12,575 Individuals (b) 45,165 44,186 U.S. Government and agencies (c) 18,491 17,977 All other 23,918 23,345 ------- ------- Total $99,165 $98,083 ======= ======= Composition: On-balance-sheet 78% 78% Off-balance-sheet 22 22 ------- ------- Total 100% 100% ======= ======= (a) Financial institutions primarily include banks, broker-dealers, insurance companies and savings and loan associations. (b) Charge Card products have no preset spending limit; therefore, the quantified credit amount includes only the Card receivables recorded in the Consolidated Balance Sheet. (c) U.S. Government and agencies represent the U.S. Government and its agencies, states and municipalities, and quasi-government agencies. NOTE 15 Industry Segments and Geographic Operations Industry Segments The Company is principally in the business of providing travel related services, financial advisory services and international banking services throughout the world. The following table presents certain information regarding these industry segments at December 31, 1994, 1993 and 1992 and for the years then ended. Pretax income (loss) from continuing operations and income (loss) from continuing operations amounts reflect the Company's results before accounting changes. For 1994 and 1993, FDC is reported under the equity method of accounting and, therefore, is not consolidated in the Company's Financial Statements. The Company's equity in the net income of FDC is included in the Corporate and Other segment for 1994 and 1993; 1992 has not been restated. Prior years' segment amounts have been restated to reflect the transfer of certain international consumer financial services businesses from TRS to the Bank.
American Travel Express American Adjustments Related Financial Express First Data Corporate and (millions) Services Advisors Bank Corporation and Other Eliminations Consolidated -------- --------- -------- ----------- --------- ------------ ------------ 1994 Net revenues $10,256 $ 3,270 $ 652 - $ 188 $ (84) $14,282 Pretax income from continuing operations before general corporate expenses $ 1,396 $ 631 $ 119 - - - $ 2,146 ------ ------ ------ ------ ------ ------ ------ General corporate expenses - - - - $ (255) - $ (255) Pretax income (loss) from continuing operations $ 1,396 $ 631 $ 119 - $ (255) - $ 1,891 Income (loss) from continuing operations $ 998 $ 428 $ 80 - $ (126) - $ 1,380 Assets $42,483 $40,155 $13,281 - $4,467 $(3,380) $97,006 ====== ====== ====== ====== ===== ====== ====== 1993 Net revenues $ 9,432 $ 3,156 $ 677 - $ 163 $ (174) $13,254 Pretax income from continuing operations before general corporate expenses $ 1,173 $ 518 $ 134 - - - $ 1,825 General corporate expenses - - - - $ 501 - $ 501 ------- ------- ------- ------ ------ ------ ------ Pretax income from continuing operations $ 1,173 $ 518 $ 134 - $ 501 - $ 2,326 Income from continuing operations $ 884 $ 358 $ 92 - $ 271 - $ 1,605 Assets $38,804 $37,351 $14,137 - $6,555 $(2,715) $94,132 ====== ====== ====== ===== ===== ====== ====== 1992 Net revenues $ 9,643 $ 2,874 $ 658 $1,205 $ 232 $ (357) $14,255 Pretax income (loss) from continuing operations before general corporate expenses $ 264 $ 408 $ 27 $ 183 $ (1) - $ 881 General corporate expenses - - - - $ 15 - $ 15 ------- ------- ------- ------ ------ ------- ------- Pretax income from continuing operations $ 264 $ 408 $ 27 $ 183 $ 14 - $ 896 Income (loss) from continuing operations $ 234 $ 297 $ 35 $ 92 $ (80) - $ 578 Assets $36,412 $31,949 $13,937 $3,916 $5,606 $(1,708) $90,112 ======= ======= ======= ====== ====== ======= =======
Net revenues includes interest earned on the investment of funds attributable to each industry segment. Pretax income (loss) from continuing operations before general corporate expenses is net revenues less operating expenses, including interest, related to each industry segment's revenues. Net income (loss) from continuing operations includes a provision for income taxes calculated on a separate return basis; however, additional benefits from operating losses, loss carrybacks and tax credits (principally foreign tax credits) recognizable for the Company's consolidated reporting purposes are allocated based upon the tax sharing agreement among members of the American Express Company consolidated U.S. tax group. Assets are those that are used or generated exclusively by each industry segment. The adjustments and eliminations required to arrive at the consolidated amounts shown above consist principally of the elimination of intersegment financial revenues and assets. Geographic Operations The following table presents certain information regarding the Company's operations in different geographic regions at December 31, 1994, 1993 and 1992 and for the years then ended. Pretax income from continuing operations amounts reflect the Company's results before the accounting changes discussed in Note 1.
Adjustments United Asia/ All and (millions) States Europe Pacific Other Eliminations Consolidated ------- ------ ------- ------ ------------ ------------ 1994 Net revenues $10,801 $1,858 $1,220 $1,028 $ (625) $14,282 Pretax income from continuing operations before general corporate expenses $1,405 $ 364 $ 225 $ 152 $ - $ 2,146 General corporate expenses (255) - - - - (255) ------ ------ ------ ------ ------ ------- Pretax income from continuing operations $ 1,150 $ 364 $ 225 $ 152 $ - $ 1,891 Assets $72,447 $9,361 $7,119 $3,669 $ (57) $92,539 Corporate assets 4,467 ------ ------ ------ ------ ------- ------- Total assets $97,006 ====== ====== ====== ====== ======= ======= 1993 Net revenues $10,163 $1,562 $1,087 $ 939 $ (497) $13,254 Pretax income from continuing operations before general corporate expenses $ 1,262 $ 221 $ 202 $ 140 - $ 1,825 General corporate expenses 501 - - - - 501 ------ ------ ------ ------ ------- ------- Pretax income from continuing operations $ 1,763 $ 221 $ 202 $ 140 - $ 2,326 Assets $68,399 $8,221 $7,188 $3,715 $ 54 $87,577 Corporate assets 6,555 ------ ------ ------ ------ ------- ------ Total assets $94,132 ====== ====== ====== ====== ======= ======= 1992 Net revenues $10,818 $1,695 $1,000 $1,001 $ (259) $14,255 Pretax income from continuing operations before general corporate expenses $ 574 $ 5 $ 140 $ 162 - $ 881 General corporate expenses 15 - - - - 15 ------ ------ ------ ------ ------- ------ Pretax income from continuing operations $ 589 $ 5 $ 140 $ 162 - $ 896 Assets $64,674 $9,000 $5,943 $3,393 $1,496 $84,506 Corporate assets 5,606 ------ ------ ------ ------ ------ ------ Total assets $90,112 ====== ====== ====== ====== ======= =======
Most services of the Company are provided on an integrated worldwide basis. Because of the integration of U.S. and non-U.S. services, it is not practical to separate precisely the U.S. oriented services from services resulting from operations outside the United States and performed for customers outside the United States; accordingly, the separation set forth in the above table is based upon internal allocations, which necessarily involve certain management judgments. NOTE 16 Lease Commitments and Other Contingent Liabilities The Company leases certain office facilities and operating equipment under noncancellable and cancellable agreements. Total rental expense amounted to $425 million in 1994, $391 million in 1993 and $461 million in 1992. At December 31, 1994, the minimum aggregate rental commitment under all noncancellable leases (net of subleases) was (millions): 1995, $281; 1996, $239; 1997, $180; 1998, $106; 1999, $87; and $393 for years thereafter. Many of these leases provide for additional rentals based on increases in property taxes or the general cost of living index, or for payment of property taxes or other operating expenses by the lessee; in addition, many leases contain renewal clauses. The Company is not a party to, nor are any of its properties the subject of, any pending legal proceedings that, in the opinion of management, would have a material adverse effect on the Company's financial position. In addition to the off-balance-sheet risks discussed in Note 11, the Company has various other commitments and contingent liabilities not reflected in the Consolidated Balance Sheet. The Company does not anticipate any material adverse effect on its financial position resulting from these commitments and contingent liabilities. NOTE 17 Transfer of Funds from Subsidiaries The Securities and Exchange Commission requires the disclosure of certain restrictions on the flow of funds to a parent company from its subsidiaries in the form of loans, advances or dividends. Principal restrictions exist under debt agreements and regulatory requirements of certain of the Company's subsidiaries. In addition, the Bank is prohibited from making loans, the proceeds of which are to be used for a U.S. domestic purpose. These restrictions have not had any effect on the Company's shareholder dividend policy and management does not anticipate any effect in the future. At December 31, 1994, the aggregate amount of net assets of subsidiaries that may be transferred to the parent company was approximately $5.8 billion. Should specific additional needs arise, procedures exist to permit immediate transfer of short-term funds between the Company and its subsidiaries, while complying with the various contractual and regulatory constraints on the internal transfer of funds. NOTE 18 Quarterly Financial Data (Unaudited) Summarized quarterly financial data is as follows (millions, except per share amounts):
1994 1993 --------------------------- ---------------------------- Quarter Ended 12/31 9/30 6/30 3/31 12/31 9/30 6/30 3/31 ------ ------ ------ ------ ------ ------ ------ ------ Net revenues $3,802 $3,604 $3,506 $3,370 $3,478 $3,369 $3,297 $3,110 Pretax income from continuing operations 475 498 478 440 392 416 417 1,101 Income from continuing operations 335 369 359 317 291 313 301 701 Net income 335 369 357 353 399 420 416 243 Income from continuing operations per common share .65 .71 .70 .62 .57 .61 .60 1.41 Net income per common share .65 .71 .69 .69 .78 .83 .83 .48 Cash dividends declared per common share .225 .225 .225 .25 .25 .25 .25 .25 Common share prices: High 31.63 32.00 28.88 29.23 31.99 32.32 28.57 25.59 Low 28.13 25.25 23.17 23.28 26.25 26.92 23.39 19.75 ====== ====== ====== ====== ====== ====== ====== ======
Notes: Historical common share prices have been adjusted to reflect the Lehman spin-off at a ratio based on the trading prices of the Company's common shares and shares of Lehman common stock on May 31, 1994. First quarter 1993 results reflected a gain of $433 million ($779 million pretax) on the sale of FDC shares. REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS The Shareholders and Board of Directors of American Express Company We have audited the accompanying consolidated balance sheets of American Express Company as of December 31, 1994 and 1993, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the management of American Express Company. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Express Company at December 31, 1994 and 1993, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. As discussed in Note 1 to the financial statements, the Company changed its method of accounting for certain investments in debt and equity securities in 1994 and for income taxes and postretirement benefits other than pensions in 1992. /s/ Ernst & Young LLP New York, New York February 2, 1995
CONSOLIDATED FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA (millions, except per share amounts and where italicized) 1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- OPERATING RESULTS Net revenues $14,282 $13,254 $14,255 $13,244 $12,600 Percent increase (decrease) 8% (7)% 8% 5% 15% Expenses 12,391 10,928 13,359 12,622 11,022 Income from continuing operations before accounting changes: As reported 1,380 1,605 578 607 1,148 Adjusted* 1,380 1,172 153 607 1,148 Percent increase (decrease): As reported (14)% 178% (5)% (47)% 4% Adjusted* 18% 666% (75)% (47)% 4% Net income 1,413 1,478 461 789 181 Percent increase (decrease) (4)% 220% (42)% 335% (84)% Return on average shareholders' equity** 20.5% 20.9% 3.1% 13.2% 30.8% ASSETS AND LIABILITIES Cash and cash equivalents $ 3,433 $ 3,312 $ 3,408 $ 3,391 $ 4,277 Accounts receivable and accrued interest, net 17,147 16,142 15,293 16,866 16,852 Investments 40,108 39,308 37,629 32,634 30,532 Loans and discounts, net 14,722 14,796 14,750 15,670 13,948 Total assets 97,006 94,132 90,112 84,541 77,989 Customers' deposits and credit balances 10,013 11,131 11,637 12,693 14,360 Travelers Cheques outstanding 5,271 4,800 4,729 4,375 4,225 Insurance and annuity reserves 24,849 23,406 20,893 17,741 14,789 Short-term debt 14,810 12,489 11,163 12,396 11,555 Long-term debt 7,162 8,561 8,614 8,734 7,276 Shareholders' equity 6,433 8,734 7,499 7,465 6,635 COMMON SHARE STATISTICS Income per share from continuing operations before accounting changes $ 2.68 $ 3.17 $ 1.12 $ 1.21 $ 2.54 Net income per share $ 2.75 $ 2.92 $ .88 $ 1.59 $ .34 Cash dividends declared per share $ .925 $ 1.00 $ 1.00 $ .96 $ .92 Book value per share $ 12.57 $ 16.81 $ 14.58 $ 14.43 $ 13.21 Cash dividends declared per share - pro forma $ .90 $ .90 $ .90 $ .864 $ .828 Book value per share - pro forma $ 12.57 $ 11.81 $ 8.84 $ 8.62 $ 7.99 Market price per share: High $ 32.00 $ 32.32 $ 22.39 $ 26.81 $ 31.11 Low $ 23.17 $ 19.75 $ 17.65 $ 15.89 $ 15.44 Close $ 29.50 $ 27.25 $ 21.95 $ 18.09 $ 18.20 Average shares outstanding for income per share 509 500 477 470 439 Shares outstanding at year end 496 490 480 472 464 Number of shareholders of record 60,520 58,179 54,526 54,960 54,368 ------ ------ ------ ------ ------ OTHER STATISTICS Number of employees at year end United States 43,421 40,342 38,266 37,018 36,605 Outside United States 28,991 24,151 24,388 24,090 23,687 Total 72,412 64,493 62,654 61,108 60,292
* Adjusted to exclude the gains on the sale of FDC in 1993 and 1992 of $433 million and $425 million, respectively. ** Based on adjusted income from continuing operations before accounting changes. Note: Prior year amounts have been restated to present Lehman as a discontinued operation. Historical common share prices have been adjusted to reflect the Lehman spin-off at a ratio based on the trading prices of the Company's common shares and shares of Lehman common stock on May 31, 1994. Pro forma cash dividends declared and book value per share have also been adjusted to reflect the Lehman spin-off. For purposes of the pro forma book value per share calculation, it is assumed that the spin-off includes the book value of the Company's investment in Lehman at the balance sheet date plus the capital infusion of approximately $904 million that was made immediately prior to the spin-off. In addition, the number of employees has been restated to exclude FDC, which is accounted for as an equity investment as of January 1, 1993. Excluding FDC from 1992, 1991 and 1990, net revenues were $13.1 billion, $12.3 billion and $11.8 billion, respectively, and expenses were $12.4 billion, $11.8 billion and $10.4 billion, respectively. EX-21 10 Exhibit 21 SUBSIDIARIES OF THE REGISTRANT Unless otherwise indicated, all of the voting securities of these subsidiaries are directly or indirectly owned by the registrant. Where the name of the subsidiary is indented, the voting securities of such subsidiary are owned directly by the company under which its name is indented. Certain subsidiaries have been omitted which, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as defined in Rule 1-02(v) of Regulation S-X. Jurisdiction Name of Subsidiary of Incorporation I. American Express Travel Related Services Company, Inc. and its Subsidiaries American Express Travel Related New York Services Company, Inc. Amex Canada, Inc. Canada 1001674 Ontario, Inc. Canada 1001675 Ontario, Inc. Canada Amex Bank of Canada Canada American Express Deposit Corporation Utah American Express Company (Mexico) S.A. de C.V. Mexico American Express Centurion Bank Delaware American Express Centurion Services Corporation Delaware American Express Credit Corporation Delaware American Express International Credit Corporation Delaware American Express Overseas Credit Jersey, Channel Corporation, Ltd. Islands AEOCC Management Co., Ltd. Jersey, Channel Islands American Express Overseas Finance Netherlands Company, N.V. Antilles American Express Overseas Credit Netherlands Corporation, N.V. Antilles American Express Overseas Credit Belgium Corporation, S.A. Credco Receivables Corp. Delaware American Express Direct Response Corporation Delaware American Express Financial Services Ltd.(50% owned) England American Express Receivables Financing Corp. Delaware American Express do Brasil Tempo & Cia, Inc. Delaware American Express do Brasil Servicos Brazil Internacionais, Ltda. (90% owned) American Express do Brazil Brazil Tempo & Cia (61% owned) American Express do Brasil S.A. Brazil Turismo (50.50% owned) American Express International (B) SDN.BHD (Brunei) Brunei (50% owned by American Express International, Inc.) American Express Limited Delaware American Express Argentina, S.A. Argentina American Express (Malaysia) Sdn. Bhd. Malaysia American Express (Thai) Co. Ltd. (77.5% owned) Thailand TRS Card International Inc. Delaware (75% owned, 25% by CFS, Ltd.) American Express de Espana, S.A. Spain American Express Viajes, S.A. Spain Amex Asesores de Seguros, SA Spain Centurion Finance, Ltd. New Zealand American Express International, Inc. Delaware Amex TGP One Inc. Delaware Amex TGP Two Inc. Delaware American Express Travel Partnership (99% owned Massachusetts by Amex TGP One Inc. and 1% owned by Amex TGP Two Inc.) American Express Hungary KFT Hungary American Express Company A/S Norway American Express Reisebyria A/S Norway AMEX Services Inc. Delaware American Express Company, S.P.A. Italy American Express Factoring, Srl. Italy American Express Locazioni Italy Finanziarie, Sr1. Amex Broker Assicurativo Srl. (2.5% owned) Italy American Express Int'l A.E. (Greece) Greece American Express Int'l (Taiwan), Inc. Taiwan American Express of Egypt, Ltd. Delaware American Express Carte France, S.A. France American Express Daro Voyages France, S.A. France AllCard Service GmbH Germany Schenker Rhenus Reisen (51% owned) Germany American Express Bureau de Change S.A. Greece Amex (Middle East) E.C. (50% owned) Bahrain American Express Exposure Management, Ltd Jersey, Channel Islands American Express Travel Poland Sp.Zo.O Poland American Express Czechoslovakia, Spol.SRO. Czechoslovakia AMEX Insurance Marketing, Inc. Taiwan American Express Company A/B Sweden American Express Resebyra A/B Sweden Amex Services Sweden A/B Sweden American Express Services Finland OY Finland Sociedad Internacional de Servicios Panama de Panama, S.A. Amex Sumigin Service Company, Ltd. (40% owned) Japan American Express International Services Limited Russia American Express Holdings AB Sweden Nyman & Schultz Resebyraer AB Sweden Nyman & Schultz UK Plc England TMG Intressenter AB Sweden Nyman & Schultz AB (95% owned 5% TMG Sweden Intressenter AB) Book Hotel AB Sweden Forsakringsaktiebolaget Viator Sweden Nyman & Schultz Affarsresor AB Sweden First Card AB Sweden Nyman & Schultz Grupp och Konferens AB Sweden Pluresor AB (67% owned) Sweden Profil Rejser A/S (30% owned 20% Denmark Resespecialisterna Syd AB) Resespecialisterna Enkoping AB (26% owned) Sweden Resespecialisterna Syd AB (84% owned) Sweden Resespecialisterna Helsingborg AB Sweden (84% owned) Scandinavian Express AB Sweden Destination Kiruna AB (30% owned) Sweden Oy Scandinavian Express Finland AB Sweden Svensk-Kinesiskan Resebyran AB (21% owned) Sweden Fastighetsaktiebolaget AB Ostanan Sweden Central Hotel AB Sweden Nyman & Schultz Norge A/S Norway Nyman & Schultz Forretningsreiser A/S Norway Nyman & Schultz Gruppe-og Norway Spesialreiser A/S American Express Publishing Corp. New York Soutwest Media Corporation Texas Amexco, Inc. Delaware Societe Francaise du Cheque de Voyage, S.A. France (34% owned) Repertoire International, Inc. Delaware Travellers Cheque Associates, Ltd. (54% owned) England American Express Service Corporation Delaware Bansamex S.A. (50% owned, 50% owned by Banco Spain Santander) American Express Europe, Ltd. Delaware Travel Places (City) Ltd. England Travel Places (Incentives) Ltd. England American Express Services, Ltd. England American Express Ireland, Ltd. Ireland American Express Insurance Services, Ltd. England Amex Services Europe Limited England Amex Marketing Japan Ltd. Delaware American Express Realty Mgt. Co. California American Express Group and Incentive Michigan Services, Inc. (90% owned) American Express TRS, Inc. Florida Cardmember Financial Services, Ltd. Jersey, Channel Islands AMEX Life Assurance Company California Holdinsco, Inc. Delaware AMEX Assurance Company Illinois Integrated Travel Systems, Inc. Texas Epsilon Data Management, Inc. Delaware Epsilon Master Software Corporation Delaware Controlled Airspace Corporation Texas Tour and Incentive Management Corporation Delaware Lifeco Management (Canada), Inc. Canada Lifeco Travel (Canada), Inc. Canada Lifeco Travel Management S.A.R.L. France Lifeco Travel Management, Ltd. United Kingdom Mark Allan Travel Inc. California Competitive Technologies, Inc. Texas II. American Express Financial Corporation and its Subsidiaries American Express Financial Corporation Delaware American Express Financial Advisors Inc. Delaware IDS Real Estate Services, Inc. Delaware IDS Securities Corporation Delaware American Express Trust Company Minnesota American Express Tax and Business Services, Inc IDS International, Inc. Delaware IDS Life Insurance Company Minnesota American Partners Life Insurance Company Arizona IDS Life Insurance Company of New York New York American Enterprise Life Insurance Company Indiana American Centurion Life Assurance Company New York IDS Certificate Company Delaware Investors Syndicate Development Corp. Nevada IDS Fund Management Limited England IDS Insurance Agency of North Carolina Inc. North Carolina IDS Insurance Agency of Arkansas Inc. Arkansas IDS Insurance Agency of Alabama Inc. Alabama IDS Insurance Agency of New Mexico Inc. New Mexico IDS Insurance Agency of Utah Inc. Utah IDS Insurance Agency of Wyoming Inc. Wyoming IDS Insurance Agency of Nevada Inc. Nevada IDS Insurance Agency of Ohio Inc. Ohio IDS Insurance Agency of Massachusetts Inc. Massachusetts IDS Advisory Group Inc. Minnesota IDS Capital Holdings Inc. Minnesota IDS Management Corporation Minnesota IDS Partnership Services Corporation Minnesota IDS Cable Corporation Minnesota IDS Futures Corporation Minnesota IDS Realty Corporation Minnesota IDS Futures III Corporation Minnesota IDS Cable II Corporation Minnesota IDS Property Casualty Insurance Company Wisconsin American Express Minnesota Foundation Minnesota IDS Deposit Corp. Utah IDS Sales Support Inc. Minnesota IDS Plan Services of California, Inc. Minnesota American Enterprise Investment Services Inc. Minnesota IDS Aircraft Services Corporation Minnesota III. American Express Bank Ltd. and its Subisidiaries American Express Bank Ltd. Connecticut American Express International Netherlands Finance Corporation B.V. Antilles American Express International Thailand Investment Limited American Express Management Services Inc. Delaware Amex Human Resources (Japan) Inc. Delaware Amex Holdings, Inc. Delaware American Express International Finance Netherlands Corporation N.V. Antilles American Express Bank GmbH Germany Amex Grundstuecksverwaltung GmbH Germany American Express International Development Cayman Islands Company (Cayman) Limited Egyptian American Bank (49% owned) Egypt Guaramex, Inc. Delaware Paramex, Inc. Delaware Amtrade Holdings, Inc. Delaware American Express Bank (Switzerland) S.A. Switzerland Cristal Trust Services S.A.-Geneva Switzerland AEB Aviation Services, Inc. Delaware International Trade Services Pte Ltd. Singapore Dash 200 + Ltd. (50% owned) Cayman Islands Queens House Properties Limited (36.97% owned) Guernsey Amex International Trust (Guernsey) Limited Guernsey January Real Estate Cayman Islands Etoral Finance, Inc. Panama Sociedad Del Desarrollo Mercantil Chile Ltda. (50% owned by each of Amex Holdings, Inc. and Etoral Finance, Inc.) Remor and Associates Inc. Panama Anangel-American Shipholdings Limited (3.7% owned) Cayman Islands American Express Bank Asset Management Jersey, Channel (Jersey) Ltd. Islands Priory Centre Investments Limited (35.7% owned) Guernsey American Express Bank (Luxembourg) S.A. Luxembourg Multistakes Company S.A. Luxembourg American Express Bank (Uruguay) S.A. Uruguay Tribute Royalties, Inc. Delaware Amex International Trust (Cayman) Ltd. Cayman Islands OLP Investments Ltd. Cayman Islands American Express Leasing Corporation Delaware AELC-Jinoriwon A.S. Panama AELC Australia Proprietary Limited Australia AMP-Amex Leasing Limited Australia (50% owned - joint venture) AMP-Amex Securities Pty. Ltd. Australia American Express Leasing Corporation, Brazil S.A. - Arrendamento Mercantil (50% owned by American Express Leasing Corporation and 50% owned by ANIF Comercio, Empreendimento e Negocios Ltda.) Reedco Leasing, Inc. Delaware Mark Leasing Inc. Delaware Carter Leasing Inc. Delaware JBB Leasing Inc. Delaware Ashley Leasing Inc. Delaware Aries Aircraft Leasing Limited Cayman Islands Aries Aircraft Leasing (US), Inc. New York Daniel Leasing Corporation Delaware Nora Leasing, Inc. New York Nora 737 Leasing, Inc. New York Gemini Leasing Ltd. Cayman Islands Wings Aircraft Leasing Corp. Belgium (Amex Holdings, Inc. - 1 share of 1250 shares) AKW Aircraft Leasing Corporation Limited England Jesem Aviation Corp. New York MME Leasing Corp. New York C Power, Inc. New York AEB Worldfolio Management Company Luxembourg American Express Bank (France) S.A. France Amex Gestion S.A. France American Express Bank International United States American Express Leasing (UK) Limited England Amex Asia Limited Hong Kong Amex Finance Japan Ltd. Hong Kong Bexim International S.A. (45% owned) Panama American Express Middle East Development Lebanon Company, S.A.L. American Express Nominees Private Limited India The American Express Nominees Limited England Argentamex S.A. Argentina Amex do Brasil Empreendimentos e Participacoes Ltda. Brazil (57.84% owned, 42.15% AHI, 0.01% Amex International Inc.) INAF Incorporated Delaware INAF Comercio, Empreendimentos e Negocios Ltda. Brazil ANIF Comercio, Empreendimentos e Brazil Negocios Ltda. (37.4% owned, and 47.3% owned by American Express Bank Ltd. and 15.3% by Amex Do Brazil) Amex Capital Investments (UK) Ltd. England Maineye Limited England Logicfull Limited England Amexnet Limited England AEB (UK) P.L.C. England Amex Nominees (S) Pte Ltd. Singapore Amex Bank Nominee Hong Kong Limited Hong Kong First International Investment Bank Ltd. Pakistan (23.62% owned) Investment and Capital Corporation (20% owned) Philippines American Express (Poland) Ltd. Delaware Exatco Limited (50% owned) Bermuda Far East Leasing Ltd. Cayman Islands Geneva Nominees Limited England 747-2, Inc. New York Tata Finance Ltd. (3.2% owned) India Purbeck Petroleum Limited (25.1% owned) England American Express Bank CFS, Ltd. Jersey Channel Islands American Express Bank Asset Management (Cayman) Ltd. Cayman Islands Columbus Real Estate Corp. New York American Express Bank S.A. Argentina (56,810,000 shares owned by American Express Bank Ltd., 1 share owned by American Express Limited) IV. Other Subsidiaries of the Registrant Acuma Financial Services Ltd. Delaware Acuma Ltd. Delaware Ainwick Corporation Texas Alair Holdings, Inc. Delaware American Express Asset Management Holdings, Inc. Delaware American Express Corporation Delaware Amexco Insurance Company Vermont Amexco Risk Financing Holding Company Delaware Brighton Corporation Delaware National Express Company, Inc. New York The Balcor Company Holdings, Inc. Delaware Balcor Real Estate Holdings, Inc. Illinois The Balcor Company Delaware Balcor Securities Company Illinois Balcor Development Company Illinois Balcor Institutional Realty Advisors, Inc. Illinois Balcor Financial Resources, Inc. Delaware Balcor Capital Markets, Inc. Illinois Balcor Consulting Group Illinois Balcor Realty Company Illinois Balcor Management Services, Inc. Illinois International Capital Corporation Delaware Intercapital Comercio e Participacoes Ltda. Brazil Conepar Compania Nordestina de Brazil Participacoes S.A. (31.92% owned) Convertible Holding Ltd. Cayman Islands CTH Common Holdings Ltd. Cayman Islands Complejos Turisticos Huatulco, Mexico S.A. de C.V. (15% of common stock) CTH Preferred Holdings Ltd. Cayman Islands Complejos Turisticos Huatulco, Mexico S.A. de C.V. (68% of preferred stock) Banco American Express (5.80% Amex do Brasil, 94.2% Brazil Intercapital Comercio e Participacoes Ltda.) Acamex Holdings Ltd. Cayman Islands Etisa Holdings Ltd. Cayman Islands Empresas Turisticas Integradas, Mexico S.A. de C.V. (92.35% owned) Asesoria Empresarial ICC, S.A. de C.V. Mexico Floriano Representacoes Ltda. Brazil Amex Distribuidora De Titulos E Valores Brazil Mobiliarios Ltda (90% owned) Rexport, Inc. Delaware Drillamex, Inc. Delaware UMPAWAUG I Corporation Delaware UMPAWAUG II Corporation Delaware UMPAWAUG III Corporation Delaware UMPAWAUG IV Corporation Delaware WGT Leasing Corporation Delaware EX-23 11 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 EX-27 12
5 This schedule contains summary financial information extracted from the Company's Consolidated Balance Sheet at December 31, 1994 and Consolidated Statement of Income for the year ended December 31, 1994 and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS DEC-31-1994 DEC-31-1994 3,433 40,108 17,954 807 0 0 3,403 1,563 97,006 0 21,972 298 0 200 5,935 97,006 0 14,282 0 6,953 1,431 2,996 1,011 1,891 511 1,380 33 0 0 1,413 2.75 0