10-Q 1 amexdoc.txt 2000 AMERICAN EXPRESS CO. 2ND QTR - 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 2000 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from ________________ to _______________ Commission file number 1-7657 AMERICAN EXPRESS COMPANY ------------------------ (Exact name of registrant as specified in its charter) New York 13-4922250 ------------------------------- ---------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) World Financial Center, 200 Vesey Street, New York, NY 10285 ----------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 640-2000 -------------------- None ----------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at July 31, 2000 ------------------------------------ ----------------------------- Common Shares (par value $.20 per share) 1,331,880,207 shares AMERICAN EXPRESS COMPANY FORM 10-Q INDEX Page No. Part I. Financial Information: Consolidated Statements of Income - Three months ended June 30, 2000 and 1999 1 Consolidated Statements of Income - Six months ended June 30, 2000 and 1999 2 Consolidated Balance Sheets - June 30, 2000 and December 31, 1999 3 Consolidated Statements of Cash Flows - Six months ended June 30, 2000 and 1999 4 Notes to Consolidated Financial Statements 5-7 Review Report of Independent Accountants 8 Management's Discussion and Analysis of Financial Condition and Results of Operations 9-24 Part II. Other Information 25 PART I--FINANCIAL INFORMATION AMERICAN EXPRESS COMPANY CONSOLIDATED STATEMENTS OF INCOME (dollars in millions, except per share amounts) (Unaudited)
Three Months Ended June 30, ------------------- 2000 1999 ---- ---- Revenues: Discount revenue $ 1,949 $ 1,662 Interest and dividends, net 836 844 Management and distribution fees 701 553 Net card fees 411 393 Travel commissions and fees 507 469 Other commissions and fees 568 428 Cardmember lending net finance charge revenue 242 309 Life and other insurance premiums 141 127 Other 615 513 ----- ----- Total 5,970 5,298 ----- ----- Expenses: Human resources 1,677 1,499 Provisions for losses and benefits: Annuities and investment certificates 322 346 Life insurance, international banking and other 173 164 Charge card 302 249 Cardmember lending 170 137 Interest 345 255 Marketing and promotion 416 354 Occupancy and equipment 366 316 Professional services 387 317 Communications 129 131 Other 637 635 ----- ----- Total 4,924 4,403 ----- ----- Pretax income 1,046 895 Income tax provision 306 249 ----- ----- Net income $ 740 $ 646 ===== ===== Earnings Per Common Share: Basic $ 0.56 $ 0.48 ====== ====== Diluted $ 0.54 $ 0.47 ====== ====== Average common shares outstanding for earnings per common share (millions): Basic 1,328 1,342 ===== ===== Diluted 1,361 1,371 ===== ===== Cash dividends declared per common share $ 0.08 $ 0.075 ====== =======
See notes to Consolidated Financial Statements. 1 AMERICAN EXPRESS COMPANY CONSOLIDATED STATEMENTS OF INCOME (dollars in millions, except per share amounts) (Unaudited)
Six Months Ended June 30, ------------------- 2000 1999 ---- ---- Revenues: Discount revenue $ 3,754 $ 3,175 Interest and dividends, net 1,632 1,639 Management and distribution fees 1,390 1,075 Net card fees 816 796 Travel commissions and fees 945 895 Other commissions and fees 1,118 845 Cardmember lending net finance charge revenue 534 656 Life and other insurance premiums 279 251 Other 1,159 937 ------ ------ Total 11,627 10,269 ------ ------ Expenses: Human resources 3,311 2,930 Provisions for losses and benefits: Annuities and investment certificates 670 679 Life insurance, international banking and other 351 321 Charge card 543 431 Cardmember lending 346 372 Interest 644 489 Marketing and promotion 786 650 Occupancy and equipment 728 624 Professional services 704 598 Communications 255 252 Other 1,323 1,236 ----- ----- Total 9,661 8,582 ----- ----- Pretax income 1,966 1,687 Income tax provision 570 466 ----- ----- Net income $ 1,396 $ 1,221 ======= ======= Earnings Per Common Share: Basic $ 1.05 $ 0.91 ====== ====== Diluted $ 1.03 $ 0.89 ====== ====== Average common shares outstanding for earnings per common share (millions): Basic 1,330 1,342 ===== ===== Diluted 1,361 1,370 ===== ===== Cash dividends declared per common share $ 0.16 $ 0.15 ====== ======
See notes to Consolidated Financial Statements. 2 AMERICAN EXPRESS COMPANY CONSOLIDATED BALANCE SHEETS (millions) (Unaudited)
June 30, December 31, Assets 2000 1999 ------ ----------- ----------- Cash and cash equivalents $ 6,841 $ 7,471 Accounts receivable and accrued interest: Cardmember receivables, less reserves: 2000, $834; 1999, $728 22,753 22,541 Other receivables, less reserves: 2000, $97; 1999, $78 4,242 3,926 Investments 42,838 43,052 Loans: Cardmember lending, less reserves: 2000, $510; 1999, $581 17,255 17,666 International banking, less reserves: 2000, $166; 1999, $169 4,981 4,928 Other, net 1,076 988 Separate account assets 36,458 35,895 Deferred acquisition costs 3,384 3,235 Land, buildings and equipment--at cost, less accumulated depreciation: 2000, $2,128; 1999, $2,109 2,190 1,996 Other assets 6,535 6,819 ------- ------- Total assets $ 148,553 $ 148,517 ======= ======= Liabilities and Shareholders' Equity ------------------------------------ Customers' deposits $ 13,533 $ 12,197 Travelers Cheques outstanding 6,900 6,213 Accounts payable 9,103 7,309 Insurance and annuity reserves: Fixed annuities 19,939 20,552 Life and disability policies 4,564 4,459 Investment certificate reserves 6,546 5,951 Short-term debt 26,170 30,627 Long-term debt 4,836 5,995 Separate account liabilities 36,458 35,895 Other liabilities 9,495 8,724 ------- ------- Total liabilities 137,544 137,922 ------- ------- Guaranteed preferred beneficial interests in the company's junior subordinated deferrable interest debentures 500 500 Shareholders' equity: Common shares, $.20 par value, authorized 3.6 billion shares; issued and outstanding 1,333 million shares in 2000 and 1,341 million shares in 1999 267 268 Capital surplus 5,309 5,196 Retained earnings 5,535 5,033 Other comprehensive income, net of tax: Net unrealized securities losses (504) (296) Foreign currency translation adjustments (98) (106) ------- ------- Accumulated other comprehensive loss (602) (402) ------- ------- Total shareholders' equity 10,509 10,095 ------- ------- Total liabilities and shareholders' equity $ 148,553 $ 148,517 ======= =======
See notes to Consolidated Financial Statements. 3 AMERICAN EXPRESS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (millions) (Unaudited)
Six Months Ended June 30, ------------------- 2000 1999 ---- ---- Cash Flows from Operating Activities Net income $ 1,396 $1,221 Adjustments to reconcile net income to net cash provided by operating activities: Provisions for losses and benefits 1,284 1,137 Depreciation, amortization, deferred taxes and other 307 144 Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: Accounts receivable and accrued interest (276) (499) Other assets 330 86 Accounts payable and other liabilities 2,254 1,779 Increase in Travelers Cheques outstanding 694 504 Increase in insurance reserves 90 86 ----- ----- Net cash provided by operating activities 6,079 4,458 ----- ----- Cash Flows from Investing Activities Sale of investments 809 1,390 Maturity and redemption of investments 3,016 3,367 Purchase of investments (3,986) (6,534) Net increase in Cardmember receivables (1,231) (981) Cardmember loans/receivables sold to trust, net 3,203 2,492 Proceeds from repayment of loans 12,052 10,684 Issuance of loans (15,344) (12,529) Purchase of land, buildings and equipment (367) (332) Sale of land, buildings and equipment 25 8 Dispositions/acquisitions, net of cash sold/acquired 214 (27) ----- ----- Net cash used in investing activities (1,609) (2,462) ----- ----- Cash Flows from Financing Activities Net increase (decrease) in customers' deposits 1,400 (1,283) Sale of annuities and investment certificates 2,685 2,790 Redemption of annuities and investment certificates (2,851) (2,521) Net increase (decrease) in debt with maturities of three months or less 1,200 (2,214) Issuance of debt 5,352 10,007 Principal payments on debt (12,139) (6,093) Issuance of American Express common shares 111 137 Repurchase of American Express common shares (683) (634) Dividends paid (206) (202) ----- ----- Net cash used in financing activities (5,131) (13) ----- ----- Effect of exchange rate changes on cash 31 21 ----- ----- Net (decrease) increase in cash and cash equivalents (630) 2,004 Cash and cash equivalents at beginning of period 7,471 4,092 ----- ----- Cash and cash equivalents at end of period $ 6,841 $ 6,096 ======= =======
See notes to Consolidated Financial Statements. 4 AMERICAN EXPRESS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation The consolidated financial statements should be read in conjunction with the financial statements in the Annual Report on Form 10-K of American Express Company (the company or American Express) for the year ended December 31, 1999. Significant accounting policies disclosed therein have not changed. Certain reclassifications of prior period amounts have been made to conform to the current presentation. Cardmember lending net finance charge revenue is presented net of interest expense of $258 million and $156 million for the second quarter of 2000 and 1999, respectively, and $490 million and $312 million for the six months ended June 30, 2000 and 1999, respectively. Interest and dividends is presented net of interest expense of $141 million and $110 million for the second quarter of 2000 and 1999, respectively, and $274 million and $231 million for the six months ended June 30, 2000 and 1999, respectively, related primarily to the company's international banking operations. The interim financial information in this report has not been audited. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial position and the consolidated results of operations for the interim periods have been made. All adjustments made were of a normal, recurring nature. Results of operations reported for interim periods are not necessarily indicative of results for the entire year. During the second quarter of 2000, the company's shareholders approved an increase in authorized shares to effectuate a three-for-one stock split for shareholders of record as of April 25, 2000. All of the information in this financial report reflects the effect of the stock split. 2. Investment Securities The following is a summary of investments at June 30, 2000 and December 31, 1999:
June 30, December 31, (in millions) 2000 1999 -------- ------------ Held to Maturity, at amortized cost (fair value: 2000, $8,766; 1999, $9,218) $ 8,821 $ 9,221 Available for Sale, at fair value (cost: 2000, $30,591; 1999, $30,053) 29,777 29,570 Investment mortgage loans (fair value: 2000, $3,922; 1999, $3,901) 3,979 3,984 Trading 261 277 -------- -------- Total $ 42,838 $ 43,052 ======== ========
5 3. Comprehensive Income Comprehensive income is defined as the aggregate change in shareholders' equity, excluding changes in ownership interests. For the company, it is the sum of net income and changes in (i) unrealized gains or losses on available-for-sale securities and (ii) foreign currency translation adjustments. The components of comprehensive income, net of related tax, for the three and six months ended June 30, 2000 and 1999 were as follows:
Three Months Ended Six Months Ended June 30, June 30, ------------------ ------------------- (in millions) 2000 1999 2000 1999 ------------------ ------------------- Net income $ 740 $ 646 $ 1,396 $ 1,221 Change in: Net unrealized securities gains/losses (138) (384) (208) (594) Foreign currency translation adjustments 1 1 9 13 ----- ----- ------- ----- Total $ 603 $ 263 $ 1,197 $ 640 ===== ===== ======= =====
4. Taxes and Interest Net income taxes paid during the six months ended June 30, 2000 and 1999 were approximately $346 million and $225 million, respectively. Interest paid during the six months ended June 30, 2000 and 1999 was approximately $1.7 billion and $1.2 billion, respectively. 5. Earnings per Share The computations of basic and diluted earnings per common share (EPS) for the three and six months ended June 30, 2000 and 1999 are as follows:
(in millions, except per Three Months Ended Six Months Ended share amounts) June 30, June 30, ------------------- ------------------ 2000 1999 2000 1999 ------------------- ------------------ Numerator: Net income $ 740 $ 646 $ 1,396 $ 1,221 Denominator: Denominator for basic EPS - weighted-average shares 1,328 1,342 1,330 1,342 Effect of dilutive securities: Stock Options, Restricted Stock Awards and other 33 29 31 28 ----- ----- ----- ----- Potentially dilutive common shares 33 29 31 28 ----- ----- ----- ----- Denominator for diluted EPS 1,361 1,371 1,361 1,370 ----- ----- ----- ----- Basic EPS $ 0.56 $ 0.48 $ 1.05 $ 0.91 ====== ====== ====== ====== Diluted EPS $ 0.54 $ 0.47 $ 1.03 $ 0.89 ====== ====== ====== ======
6 6. Segment Information The following tables present three and six-month results for the company's operating segments, based on management's internal reporting structure. Net revenues (managed basis) exclude the effect of securitizations at TRS, and provisions for losses and benefits for annuities, insurance and investment certificate products of AEFA:
Net Revenues Three Months Ended Six Months Ended (managed basis) June 30, June 30, --------------------- -------------------- (in millions) 2000 1999 2000 1999 --------------------- -------------------- Travel Related Services $ 4,278 $ 3,669 $ 8,322 $ 7,103 American Express Financial Advisors 1,081 916 2,100 1,802 American Express Bank/ Travelers Cheque 262 259 513 506 Corporate and Other (63) (33) (118) (75) ------- ------- -------- ------- Total $ 5,558 $ 4,811 $ 10,817 $ 9,336 ======= ======= ======== =======
Revenues (GAAP basis) Three Months Ended Six Months Ended June 30, June 30, ---------------------- -------------------- (in millions) 2000 1999 2000 1999 ---------------------- -------------------- Travel Related Services $ 4,230 $ 3,678 $ 8,185 $ 7,099 American Express Financial Advisors 1,541 1,394 3,047 2,739 American Express Bank/ Travelers Cheque 262 259 513 506 Corporate and Other (63) (33) (118) (75) ------- ------- -------- -------- Total $ 5,970 $ 5,298 $ 11,627 $ 10,269 ======= ======= ======== ========
Net Income Three Months Ended Six Months Ended June 30, June 30, ----------------------- ---------------------- (in millions) 2000 1999 2000 1999 ----------------------- ---------------------- Travel Related Services $ 472 $ 411 $ 888 $ 774 American Express Financial Advisors 275 242 520 456 American Express Bank/ Travelers Cheque 40 38 80 79 Corporate and Other (47) (45) (92) (88) ----- ----- ------- ------- Total $ 740 $ 646 $ 1,396 $ 1,221 ===== ===== ======= =======
7 INDEPENDENT ACCOUNTANTS' REVIEW REPORT The Shareholders and Board of Directors American Express Company We have reviewed the accompanying consolidated balance sheet of American Express Company (the "Company") as of June 30, 2000 and the related consolidated statements of income for the three and six-month periods ended June 30, 2000 and 1999 and consolidated statements of cash flows for the six-month periods ended June 30, 2000 and 1999. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States, which will be performed for the full year with the objective of expressing an opinion regarding the consolidated financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States. We have previously audited, in accordance with auditing standards generally accepted in the United States, the consolidated balance sheet of the Company as of December 31, 1999, and the related consolidated statements of income, shareholders' equity, and cash flows for the year then ended (not presented herein), and in our report dated February 3, 2000, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1999 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/Ernst & Young LLP New York, New York August 11, 2000 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Consolidated Results of Operations for the Three and Six Months Ended June 30, 2000 The company's consolidated net income rose 15 percent and 14 percent and diluted earnings per share rose 15 percent and 16 percent in the three and six-month periods ended June 30, 2000, respectively. The company's return on equity was 25.5 percent. Consolidated net revenues on a managed basis grew 16 percent for both the three and six-month periods ended June 30, 2000, reflecting an increase in worldwide billed business and Cardmember loans at Travel Related Services (TRS) and greater management and distribution fees at American Express Financial Advisors (AEFA). Consolidated expenses rose due to greater marketing and promotion and interest costs, larger provisions for losses, and higher human resource and operating expenses. The increases were principally due to greater volume and business building initiatives. These results met the company's long-term targets of 12-15 percent earnings per share growth, at least 8 percent revenue growth and a return on equity of 18-20 percent. This financial review is presented on the basis used by management to evaluate operations. It differs in two respects from the accompanying financial statements, which are prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP). First, results are presented as if there had been no asset securitizations at TRS. This format is generally termed on a "managed basis." Second, revenues are shown net of AEFA's provisions for annuities, insurance and investment certificate products, which are essentially spread businesses. Consolidated Liquidity and Capital Resources In the first six months of 2000, the company repurchased 13.8 million common shares at an average price of $49.51 per share under its repurchase program. In the first quarter of 2000, the company entered into an agreement under which a third party will purchase up to 9 million company common shares in the open market over a period of up to eight months. During the term of the agreement the company will periodically issue shares to or receive shares from the third party so that the value of the shares held by the third party equals the original purchase price for the shares. At maturity in five years, the company is required to deliver to the third party an amount equal to such original purchase price. The company may elect to settle this amount (i) physically, by paying cash against delivery of the shares held by the third party or (ii) on a net cash or net share basis. The company may also prepay outstanding amounts at any time prior to the end of the five-year term. As of June 30, 2000, 1,161,800 shares have been 9 purchased pursuant to this agreement. The foregoing is in addition to a similar agreement entered into in August 1999 under which a third party purchased 21 million of the company's common shares at an average purchase price of approximately $49 per share. During the first six months of 2000, net settlements under the August 1999 agreement resulted in the company receiving 1,186,337 shares. These agreements, which partially offset the company's exposure from its stock option program, are separate from the company's previously authorized share repurchase program. Other Matters During the second quarter of 2000, the company's shareholders approved an increase in authorized shares to effectuate a three-for-one stock split for shareholders of record as of April 25, 2000. All of the information in this financial report reflects the effect of the stock split. Beginning in the third quarter of 2000, the Travelers Cheque operations, which are currently included in the American Express Bank/Travelers Cheque segment, will be reported in the same segment as TRS, to reflect recent organizational changes. 10 Travel Related Services Results of Operations for the Three and Six Months Ended June 30, 2000 and 1999
Statements of Income -------------------- (Unaudited, Managed Basis) (Dollars in millions) Three Months Ended Six Months Ended June 30, June 30, -------------------- Percentage -------------------- Percentage 2000 1999 Inc/(Dec) 2000 1999 Inc/(Dec) ------------------------------- -------------------------------- Net Revenues: Discount Revenue $ 1,949 $ 1,662 17.3 % $ 3,754 $ 3,175 18.2 % Net Card Fees 411 393 4.6 816 796 2.5 Travel Commissions and Fees 507 469 8.3 945 895 5.6 Other Revenues 848 669 26.6 1,689 1,310 29.1 Lending: Finance Charge Revenue 948 684 38.7 1,835 1,335 37.4 Interest Expense 385 208 85.2 717 408 76.0 ----- ----- ----- ----- Net Finance Charge Revenue 563 476 18.4 1,118 927 20.5 ----- ----- ----- ----- Total Net Revenues 4,278 3,669 16.6 8,322 7,103 17.2 ----- ----- ----- ----- Expenses: Marketing and Promotion 330 267 23.6 648 537 20.6 Provision for Losses and Claims: Charge Card 344 288 19.4 622 521 19.5 Lending 332 260 27.9 668 542 23.2 Other 20 14 42.3 40 27 46.7 ----- ----- ----- ----- Total 696 562 23.9 1,330 1,090 22.0 ----- ----- ----- ----- Charge Card Interest Expense 350 257 36.4 663 497 33.1 Human Resources 1,028 968 6.2 2,026 1,880 7.8 Other Operating Expenses 1,147 987 16.2 2,292 1,917 19.7 ----- ----- ----- ----- Total Expenses 3,551 3,041 16.8 6,959 5,921 17.5 ----- ----- ----- ----- Pretax Income 727 628 15.7 1,363 1,182 15.2 Income Tax Provision 255 217 17.5 475 408 16.2 ----- ----- ----- ----- Net Income $ 472 $ 411 14.8 $ 888 $ 774 14.7 ===== ===== ===== =====
11 Travel Related Services Selected Statistical Information -------------------------------- (Unaudited)
(Amounts in billions, except where indicated) Three Months Ended Six Months Ended June 30, June 30, ---------------- Percentage ---------------- Percentage 2000 1999 Inc/(Dec) 2000 1999 Inc/(Dec) -------------------------- -------------------------- Total Cards in Force (millions): United States 32.5 28.7 13.1% 32.5 28.7 13.1% Outside the United States 16.9 15.2 11.2 16.9 15.2 11.2 ---- ---- ---- ---- Total 49.4 43.9 12.5 49.4 43.9 12.5 ==== ==== ==== ==== Basic Cards in Force (millions): United States 25.3 22.5 12.6 25.3 22.5 12.6 Outside the United States 12.9 11.7 10.4 12.9 11.7 10.4 ---- ---- ---- ---- Total 38.2 34.2 11.8 38.2 34.2 11.8 ==== ==== ==== ==== Card Billed Business: United States $ 55.8 $ 46.0 21.5 $106.4 $ 87.6 21.5 Outside the United States 18.7 16.4 13.3 36.4 31.6 14.9 ------ ------ ------ ------ Total $ 74.5 $ 62.4 19.3 $142.8 $119.2 19.8 ====== ====== ====== ====== Average Discount Rate (A) 2.69% 2.73% - 2.70% 2.73% - Average Basic Cardmember Spending (dollars) (A) $ 2,085 $ 1,933 7.9 $ 4,069 $ 3,714 9.6 Average Fee per Card - Managed (dollars) (A) $ 36 $ 38 (5.3) $ 36 $ 39 (7.7) Non-Amex Brand (B): Cards in Force (millions) 0.6 0.2 # 0.6 0.2 # Billed Business $ 0.7 $ 0.2 # $ 1.3 $ 0.3 # Travel Sales $ 6.2 $ 6.0 2.9 $11.7 $11.4 3.2 Travel Commissions and Fees/Sales (C) 8.2% 7.8% - 8.1% 7.9% - Managed Charge Card Receivables: Total Receivables $27.4 $24.6 11.3 $27.4 $24.6 11.3 90 Days Past Due as a % of Total 2.4% 2.6% - 2.4% 2.6% - Loss Reserves (millions) $ 986 $ 932 5.9 $ 986 $ 932 5.9 % of Receivables 3.6% 3.8% - 3.6% 3.8% - % of 90 Days Past Due 153% 148% - 153% 148% - Net Loss Ratio 0.36% 0.39% - 0.35% 0.41% - Managed U.S. Cardmember Lending: Total Loans $25.9 $18.3 41.8 $25.9 $18.3 41.8 Past Due Loans as a % of Total: 30-89 Days 1.6% 1.8% - 1.6% 1.8% - 90+ Days 0.8% 0.9% - 0.8% 0.9% - Loss Reserves (millions): Beginning Balance $ 689 $ 623 10.6 $ 672 $ 619 8.4 Provision 268 209 28.3 553 453 22.2 Net Charge-Offs/Other (271) (230) 18.0 (539) (470) 14.7 ----- ----- ----- ----- Ending Balance $ 686 $ 602 13.9 $ 686 $ 602 13.9 ===== ===== ===== ===== % of Loans 2.6% 3.3% - 2.6% 3.3% - % of Past Due 109% 124% - 109% 124% - Average Loans $25.2 $17.4 44.7 $24.4 $17.1 43.1 Net Write-Off Rate 4.4% 5.3% - 4.5% 5.6% - Net Interest Yield 7.4% 9.3% - 7.6% 9.3% -
(A) Computed from proprietary card activities only. (B) This data relates to Visa and Eurocards issued in connection with joint venture activities. (C) Computed from information provided herein. # Denotes variance of more than 100%. 12 Travel Related Services Travel Related Services' (TRS) net income rose 15 percent for both the three and six-month periods ended June 30, 2000 compared with a year ago. Net revenues increased 17 percent in both periods, reflecting higher billed business as well as strong growth in Cardmember loans. The improvement in discount revenue for the three and six-month periods ended June 30, 2000, compared with a year ago, is the result of higher billed business, reflecting an increase of 5.5 million cards in force, up 12 percent from a year ago, and greater average spending per Cardmember, partially offset by a decline in the discount rate in the second quarter of 2000. The higher spending was driven by several factors, including rewards programs and expanded merchant coverage. The growth in billed business continued to be primarily the result of increases in retail and "everyday spend" categories; the rate of growth in airline billings also continued to improve. The increase in cards in force reflects more proactive consumer card and small business services activities over the past year, including the successful launch of Blue and co-branded Costco cards. The decline in the second quarter discount rate from a year ago reflects the cumulative impact on our mix of business of stronger than average growth in lower rate retail and other "everyday spend" merchant categories. Growth in travel commissions and fees reflects new fees related to certain client services, which were partly offset by continued cost containment efforts by airlines and corporate clients. The net interest yield on Cardmember loans decreased for the three and six-month periods ended June 30, 2000 compared with a year ago, reflecting a higher percentage of loan balances on introductory rates and a broader mix of lower rate products. Other revenues increased for both periods, reflecting higher fee income, greater foreign exchange conversion revenue and acquisitions. The provision for losses on the charge card and lending portfolios grew for the three and six-month periods ended June 30, 2000 as a result of higher volume, partly offset by a continued improvement in credit quality in the lending portfolio. Charge Card interest expense rose for both periods due to higher volumes and increased borrowing costs. Marketing and promotion expenses rose in both periods as a result of increased card acquisition and media advertising activities. Human resource expenses increased for both periods as a result of a higher average number of employees and merit increases. Other operating expenses increased on higher costs related to business growth, Cardmember loyalty programs and various business building initiatives. Included in other operating expenses for the current quarter was a gain on the sale of an international leisure travel business; other operating expenses for the six-month period ended June 30, 2000 also included a gain on an investment in an Internet company that TRS was required to write-up when that company was acquired by a third party. These gains were offset by increased spending on Internet activities in both periods and other business building initiatives in the current quarter and, therefore, had no material impact on net income or total expenses in either period. 13
Travel Related Services The preceding statements of income and related discussion present TRS results on a managed basis, as if there had been no securitization transactions. On a GAAP reporting basis, TRS recognized pretax gains of $80 million ($52 million after-tax) and $99 million ($64 million after-tax) in the second quarter of 2000 and 1999, respectively, and $115 million ($75 million after-tax) and $99 million ($64 million after-tax) for the six months ended June 30, 2000 and 1999, respectively, related to the securitization of U.S. receivables. These gains were invested in additional card acquisition activities and had no material impact on net income, total net revenues or total expenses in any period. The following tables reconcile TRS' income statements from a managed basis to a GAAP basis. These tables are not complete statements of income, as they include only those income statement items that are affected by securitizations. (Dollars in millions) Three Months Ended Three Months Ended June 30, 2000 June 30, 1999 -------------------------------- --------------------------------- Managed Securitization GAAP Managed Securitization GAAP Basis Effect Basis Basis Effect Basis ------- --------------- ----- ------- --------------- ----- Net Revenues: Other Revenues $ 848 $ 273 $ 1,121 $ 669 $ 176 $ 845 Lending Net Finance Charge Revenue 563 (321) 242 476 (167) 309 Total Net Revenues 4,278 (48) 4,230 3,669 9 3,678 Expenses: Marketing and Promotion 330 48 378 267 58 325 Provision for Losses and Claims: Charge Card 344 (42) 302 288 (39) 249 Lending 332 (162) 170 260 (123) 137 Charge Card Interest Expense 350 (55) 295 257 (59) 198 Net Discount Expense - 131 131 - 131 131 Other Operating Expenses 1,147 32 1,179 987 41 1,028 Total Expenses 3,551 (48) 3,503 3,041 9 3,050 Pretax Income $ 727 $ - $ 727 $ 628 $ - $ 628 ---------------------------------------------------------------------
Six Months Ended Six Months Ended June 30, 2000 June 30, 1999 -------------------------------- --------------------------------- Managed Securitization GAAP Managed Securitization GAAP Basis Effect Basis Basis Effect Basis ------- --------------- ----- ------- --------------- ----- Net Revenues: Other Revenues $ 1,689 $ 447 $ 2,136 $ 1,310 $ 267 $ 1,577 Lending Net Finance Charge Revenue 1,118 (584) 534 927 (271) 656 Total Net Revenues 8,322 (137) 8,185 7,103 (4) 7,099 Expenses: Marketing and Promotion 648 69 717 537 58 595 Provision for Losses and Claims: Charge Card 622 (79) 543 521 (90) 431 Lending 668 (322) 346 542 (170) 372 Charge Card Interest Expense 663 (108) 555 497 (116) 381 Net Discount Expense - 257 257 - 273 273 Other Operating Expenses 2,292 46 2,338 1,917 41 1,958 Total Expenses 6,959 (137) 6,822 5,921 (4) 5,917 Pretax Income $ 1,363 $ - $ 1,363 $ 1,182 $ - $ 1,182 ---------------------------------------------------------------------
14 Travel Related Services Liquidity and Capital Resources
Selected Balance Sheet Information ---------------------------------- (Unaudited, GAAP Basis) (Dollars in billions, except percentages) June 30, December 31, Percentage June 30, Percentage 2000 1999 Inc/(Dec) 1999 Inc/(Dec) ------------- ------------- ---------- -------------- ----------- Accounts Receivable, net $ 25.9 $ 25.3 2.1 % $ 21.7 19.2 % U.S. Cardmember Loans $ 15.4 $ 16.1 (4.3) $ 12.8 20.5 Total Assets $ 54.1 $ 56.3 (3.9) $ 46.9 15.3 Short-term Debt $ 27.9 $ 31.4 (11.2) $ 25.8 8.0 Long-term Debt $ 3.2 $ 4.4 (26.0) $ 4.8 (33.2) Total Liabilities $ 48.4 $ 50.9 (5.0) $ 41.6 16.2 Total Shareholder's Equity $ 5.7 $ 5.4 6.9 $ 5.3 8.5 Return on Average Equity* 31.2% 30.1% - 28.8% - Return on Average Assets* 3.2% 3.2% - 3.3% -
* Computed based on the past twelve months of net income and excludes the effect of SFAS No. 115. In the first and second quarters of 2000, the American Express Credit Account Master Trust (the Trust) securitized $1 billion and $2.2 billion of loans, respectively, through the public issuance of investor certificates. The securitized assets consist of loans arising in a portfolio of designated consumer American Express credit card, Optima Line of Credit and Sign & Travel/Special Purchase Account revolving credit accounts or features and, in the future, may include other charge or credit accounts or features or products. In the first quarter of 2000, American Express Credit Corporation (Credco), a wholly-owned subsidiary of TRS, called $150 million 1.125% Cash Exchangeable Notes due 2003. These notes were exchangeable for an amount in cash which was linked to the price of the common shares of American Express. Credco had entered into agreements to fully hedge its obligations. Accordingly, the related hedging agreements were called at the same time. 15 American Express Financial Advisors Results of Operations for the Three and Six Months Ended June 30, 2000 and 1999
Statements of Income -------------------- (Unaudited) (Dollars in millions) Three Months Ended Six Months Ended June 30, June 30, ------------------ Percentage ----------------- Percentage 2000 1999 Inc/(Dec) 2000 1999 Inc/(Dec) ----------------------------- ----------------------------- Net Revenues: Investment Income $ 592 $ 615 (3.7) % $ 1,164 $ 1,210 (3.8) % Management and Distribution Fees 701 553 27.0 1,389 1,075 29.3 Other Revenues 248 226 9.5 494 454 8.8 ----- ----- ----- ----- Total Revenues 1,541 1,394 10.6 3,047 2,739 11.3 Provision for Losses and Benefits: Annuities 254 273 (6.9) 513 543 (5.6) Insurance 138 132 4.6 277 258 7.4 Investment Certificates 68 73 (6.2) 157 136 15.7 ----- ----- ----- ----- Total 460 478 (3.6) 947 937 1.1 ----- ----- ----- ----- Net Revenues 1,081 916 18.0 2,100 1,802 16.6 ----- ----- ----- ----- Expenses: Human Resources 528 430 22.8 1,026 846 21.3 Other Operating Expenses 156 133 17.4 322 291 11.0 ----- ----- ----- ----- Total Expenses 684 563 21.5 1,348 1,137 18.6 ----- ----- ----- ----- Pretax Income 397 353 12.4 752 665 13.1 Income Tax Provision 122 111 9.3 232 209 10.7 ----- ----- ----- ----- Net Income $ 275 $ 242 13.8 $ 520 $ 456 14.1 ===== ===== ===== =====
16 American Express Financial Advisors
Selected Statistical Information -------------------------------- (Unaudited) (Dollars in millions, except percentages and where indicated) Three Months Ended Six Months Ended June 30, June 30, -------------------- Percentage -------------------- Percentage 2000 1999 Inc/(Dec) 2000 1999 Inc/(Dec) -------------------------------- -------------------------------- Life Insurance in Force (billions) $ 93.8 $ 84.6 10.9 % $ 93.8 $ 84.6 10.9 % Deferred Annuities in Force (billions) $ 48.3 $ 44.8 7.8 $ 48.3 $ 44.8 7.8 Assets Owned, Managed or Administered (billions): Assets Managed for Institutions $ 56.1 $ 49.8 12.7 $ 56.1 $ 49.8 12.7 Assets Owned, Managed or Administered for Individuals: Owned Assets: Separate Account Assets 36.5 30.1 21.3 36.5 30.1 21.3 Other Owned Assets 39.9 37.8 5.5 39.9 37.8 5.5 ------- ------- ------- ------- Total Owned Assets 76.4 67.9 12.5 76.4 67.9 12.5 Managed Assets 119.6 102.1 17.1 119.6 102.1 17.1 Administered Assets 34.1 20.8 64.1 34.1 20.8 64.1 ------- ------- ------- ------- Total $ 286.2 $ 240.6 19.0 $ 286.2 $ 240.6 19.0 ======= ======= ======= ======= Market Appreciation (Depreciation) During the Period: Owned Assets: Separate Account Assets $ (2,301) $1,520 - $ 31 $2,432 (98.7) Other Owned Assets $ (90) $ (395) (77.2) $ (210) $ (599) (64.9) Total Managed Assets $ (6,488) $5,329 - $ 532 $8,347 (93.6) Cash Sales: Mutual Funds $ 10,376 $8,872 17.0 $ 22,480 $ 17,355 29.7 Annuities 1,566 980 59.8 2,928 1,773 65.1 Investment Certificates 871 835 4.3 1,706 1,537 11.0 Life and Other Insurance Products 219 169 29.9 455 327 39.7 Institutional 1,557 1,432 8.7 3,108 2,175 42.9 Other 661 805 (18.0) 1,235 1,696 (27.2) -------- -------- -------- -------- Total Cash Sales $ 15,250 $ 13,093 16.5 $ 31,912 $ 24,863 28.4 ======== ======== ======== ======== Number of Financial Advisors 11,486 10,489 9.5 11,486 10,489 9.5 Fees from Financial Plans and Advice Services $ 23.9 $ 22.8 4.6 $ 50.1 $ 44.1 13.8 Percentage of Total Sales from Financial Plans and Advice Services 66.1% 65.2% - 66.5% 65.8% -
Note: In the first quarter of 2000, reporting of data related to cash sales and assets owned, managed and administered was revised to better reflect AEFA's multiple sales channel strategy and broadening of its product portfolio through additional non-proprietary offerings. 17 American Express Financial Advisors American Express Financial Advisors' (AEFA) net income rose 14 percent for both the three and six-month periods ended June 30, 2000 compared with a year ago. Net revenues and earnings grew in both periods due to greater fee revenues. Management fees rose as a result of increased managed asset levels, including separate account assets; distribution fees also grew reflecting greater mutual fund sales and asset levels. The increase in managed assets from a year ago reflects positive net sales and market appreciation over the past twelve months, despite market depreciation during the second quarter of 2000. Investment income, net of provisions for losses and benefits, decreased in both periods due to a lower average yield on invested assets, partly offset by a higher average level of invested assets; additionally, the six-month period includes losses related to the high-yield investment portfolio. Other revenues benefited from higher insurance premiums and greater fees from financial planning and advice services. Human resources expenses rose for both the three and six-month periods ended June 30, 2000, largely as a result of an increase in advisors' compensation, reflecting growth in sales, asset levels, the new advisor platforms, and the number of financial advisors. Other operating expenses also increased from year-ago levels due to higher business volumes and ongoing investments to build the business. 18 American Express Financial Advisors Liquidity and Capital Resources
Selected Balance Sheet Information ---------------------------------- (Unaudited) (Dollars in billions, except percentages) June 30, December 31, Percentage June 30, Percentage 2000 1999 Inc/(Dec) 1999 Inc/(Dec) ------------- ------------- ----------- ------------- ---------- Investments $ 30.0 $ 30.3 (0.7)% $ 30.7 (2.0)% Separate Account Assets $ 36.5 $ 35.9 1.6 $ 30.1 21.3 Total Assets $ 76.4 $ 74.6 2.4 $ 67.9 12.5 Client Contract Reserves $ 31.0 $ 31.0 0.3 $ 30.8 0.9 Total Liabilities $ 72.4 $ 70.7 2.4 $ 63.9 13.3 Total Shareholder's Equity $ 4.0 $ 3.9 2.6 $ 4.0 - Return on Average Equity* 23.1% 22.9% - 22.8% -
* Computed based on the past twelve months of net income and excludes the effect of SFAS No. 115. Separate account assets and liabilities increased from December 31, 1999, primarily due to higher net sales. 19 American Express Bank/Travelers Cheque (AEB/TC) Results of Operations for the Three and Six Months Ended June 30, 2000 and 1999
Statements of Income -------------------- (Unaudited) (Dollars in millions) Three Months Ended Six Months Ended June 30, June 30, -------------- Percentage -------------- Percentage 2000 1999 Inc/(Dec) 2000 1999 Inc/(Dec) ------------------------- ------------------------- Net Revenues: Interest Income $ 183 $ 183 (0.1)% $ 366 $ 376 (2.7)% Interest Expense 120 108 10.5 238 228 4.3 ---- ---- ---- ---- Net Interest Income 63 75 (15.5) 128 148 (13.5) TC Investment Income 98 86 13.6 189 166 14.3 Commissions and Fees 59 47 26.0 113 89 26.3 Foreign Exchange Income & Other Revenue 42 51 (18.1) 83 103 (19.5) ---- ---- ---- ---- Total Net Revenues 262 259 1.1 513 506 1.4 ---- ---- ---- ---- Expenses: Human Resources 84 85 (0.5) 168 166 0.9 Other Operating Expenses 159 150 5.4 307 287 7.2 Provision for Losses 15 18 (15.5) 31 35 (10.2) ---- ---- ---- ---- Total Expenses 258 253 1.9 506 488 3.8 ---- ---- ---- ---- Pretax Income 4 6 (34.0) 7 18 (62.8) Income Tax Benefit (36) (32) 13.4 (73) (61) 20.5 ---- ---- ---- ---- Net Income $ 40 $ 38 6.0 $ 80 $ 79 1.4 ==== ==== ==== ====
Selected Statistical Information --------------------------------
(Amounts in billions, except percentages) Three Months Ended Six Months Ended June 30, June 30, ------------------ Percentage ----------------- Percentage 2000 1999 Inc/(Dec) 2000 1999 Inc/(Dec) ----------------------------- ---------------------------- American Express Bank: Assets Managed */ Administered $10.3 $ 7.0 47.4 % $10.3 $ 7.0 47.4 % Assets of Non-Consolidated Joint Ventures $ 2.3 $ 2.2 8.0 $ 2.3 $ 2.2 8.0 Travelers Cheque: Sales $ 6.7 $ 6.1 10.6 $11.8 $10.6 10.5 Average Outstanding $ 6.5 $ 6.1 7.3 $ 6.3 $ 6.0 6.0 Average Investments $ 6.2 $ 5.7 7.4 $ 6.1 $ 5.7 6.8 Tax Equivalent Yield 8.9% 8.8% - 8.9% 8.8% -
* Includes assets managed by American Express Financial Advisors. 20 American Express Bank/Travelers Cheque (AEB/TC) AEB/TC net income for the three and six-month periods ended June 30, 2000 rose 6% and 1%, respectively, from a year ago. Net income at American Express Bank rose for both periods. Net interest income declined from a year ago, primarily due to the effects of a lower loan portfolio and higher funding costs. Commissions and fees grew on greater Private Banking, Correspondent Banking and Personal Financial Services fees. Foreign exchange income and other revenue declined due to lower security gains and joint venture earnings in the second quarter of 2000; additionally, the decline for the six-month period reflects a decrease in client related trading activities due to the stabilization of currencies in key markets. Human resources expenses declined for both periods from a year ago, reflecting personnel reductions as AEB rationalizes certain country activities. Travelers Cheque results for the second quarter of 2000 rose slightly from a year ago but were essentially flat for the six-month period. Results for both periods reflect strong sales and greater investment income, as well as higher other operating expenses on increased business building initiatives. 21 American Express Bank/Travelers Cheque (AEB/TC) Liquidity and Capital Resources
Selected Balance Sheet Information ---------------------------------- (Unaudited) (Amounts in billions, except percentages and where indicated) June 30, December 31, Percentage June 30, Percentage 2000 1999 Inc/(Dec) 1999 Inc/(Dec) -------- ------------ --------- --------- --------- Total Assets $ 20.2 $ 18.9 6.9 % $ 18.7 7.8 % Total Liabilities $ 19.2 $ 18.0 6.8 $ 17.7 8.8 Total Shareholder's Equity (millions) $ 956 $ 875 9.3 $ 1,048 (8.8) Return on Average Assets* 0.80% 0.82% - 0.86% - Return on Average Common Equity* 17.6% 17.5% - 18.5% - American Express Bank: Shareholder's Equity (millions) $ 707 $ 691 2.4 $ 714 (1.0) Total Loans $ 5.1 $ 5.1 0.2 $ 5.2 (2.3) Total Non-performing Loans (millions) $ 174 $ 168 3.8 $ 210 (17.0) Other Non-performing Assets (millions) $ 36 $ 37 (0.1) $ 55 (33.5) Reserve for Credit Losses (millions)** $ 187 $ 189 (0.9) $ 249 (25.1) Loan Loss Reserves as a Percentage of Total Loans 3.3% 3.3% - 4.1% - Deposits $ 8.2 $ 8.3 (2.0) $ 8.0 2.1 Risk-Based Capital Ratios: Tier 1 10.3% 9.9% - 9.8% - Total 11.9% 12.0% - 12.1% - Leverage Ratio 5.8% 5.6% - 5.7% - Travelers Cheque: Travelers Cheque Investments $ 6.7 $ 6.0 12.1 $ 6.3 6.0 Travelers Cheques Outstanding $ 6.9 $ 6.2 11.1 $ 6.3 9.1 * Computed based on the past twelve months of net income and excludes the effect of SFAS No. 115. ** Allocation (millions): Loans $ 166 $ 169 $ 216 Other Assets, primarily derivatives 16 16 32 Other Liabilities 5 4 1 ----- ----- ----- Total Credit Loss Reserves $ 187 $ 189 $ 249 ===== ===== =====
AEB had loans outstanding of $5.1 billion at June 30, 2000, unchanged from December 31, 1999, and down from $5.2 billion at June 30, 1999. The reduction since second quarter 1999 resulted from a $330 million decrease in corporate and correspondent banking loans, partially offset by an increase in consumer and private banking loans of $153 million ($500 million excluding the effect of asset sales and securitizations in the consumer loan portfolio). Since December 31, 1999, corporate and correspondent bank loans fell by $40 million and consumer and private banking loans rose by $24 million. As of June 30, 2000, consumer and private banking loans comprised 37% of total loans versus 35% at December 31, 1999 and 33% at June 30, 1999. 22 As presented in the table below, there are other banking activities, such as forward contracts, various contingencies and market placements, which added approximately $7.2 billion to AEB's credit exposures at June 30, 2000, compared with $7.6 billion at both June 30, 1999 and December 31, 1999. Of the $7.2 billion of additional exposures at June 30, 2000, $4.8 billion were relatively less risky cash and securities related balances.
American Express Bank Exposures By Country and Region (Unaudited) ($ in billions) Net Guarantees 6/30/00 12/31/99 FX and and Total Total Country Loans Derivatives Contingents Other* Exposure** Exposure** --------- ----- ----------- ----------- ------ ---------- ---------- Hong Kong $0.5 - $0.1 $0.1 $0.6 $0.8 Indonesia 0.1 - 0.1 0.1 0.3 0.4 Singapore 0.5 - 0.1 0.1 0.6 0.6 Korea 0.2 - - 0.3 0.5 0.3 Taiwan 0.2 - - 0.1 0.4 0.4 China - - - - - - Japan - - - - 0.1 0.1 Thailand - - - - - - Other 0.1 - - 0.1 0.2 0.3 ------ ----------- --------- -------- ---------- ---------- Total Asia/Pacific Region** 1.6 - 0.4 0.7 2.7 2.9 ------ ----------- ---------- -------- ---------- ---------- Chile 0.2 - - 0.1 0.4 0.3 Brazil 0.2 - - 0.1 0.3 0.3 Mexico 0.1 - - - 0.1 0.1 Peru - - - - - - Argentina 0.1 - - - 0.1 0.1 Other 0.2 - 0.2 0.1 0.5 0.5 ------- ----------- ---------- -------- ---------- ---------- Total Latin America** 0.9 - 0.2 0.3 1.4 1.2 ------- ----------- ---------- -------- ---------- ---------- India 0.3 - 0.1 0.3 0.7 0.7 Pakistan 0.1 - - 0.2 0.3 0.3 Other 0.1 - 0.1 0.1 0.2 0.2 ------- ----------- ---------- -------- ----------- --------- Total Subcontinent** 0.5 - 0.2 0.6 1.2 1.2 ------- ----------- ---------- -------- ---------- ---------- Egypt 0.3 - - 0.2 0.5 0.5 Other 0.1 - - - 0.2 0.2 ------- ----------- ---------- -------- ---------- --------- Total Middle East & Africa** 0.4 - 0.1 0.2 0.7 0.8 ------- ----------- ---------- -------- ---------- --------- Total Europe*** 1.4 $0.1 0.5 2.3 4.4 4.7 Total North America** 0.3 0.1 0.2 1.3 1.8 2.0 ------- ----------- ---------- -------- ---------- --------- Total Worldwide** $5.1 $0.2 $1.5 $5.4 $12.3 $12.7 ======= =========== ========== ======== ========== =========
* Includes cash, placements and securities. ** Individual items may not add to totals due to rounding. *** Total exposures at 6/30/00 and 12/31/99 include $5 million and $11 million of exposures to Russia, respectively. Note: Includes cross-border and local exposure and does not net local funding or liabilities against any local exposure. 23 Corporate and Other Corporate and Other reported net expenses of $47 million and $92 million for the three and six months ended June 30, 2000, respectively, compared with net expenses of $45 million and $88 million in the same periods a year ago. Results for the current quarter include an investment gain that was offset by expenses related to business building initiatives during the quarter. The six-month results for both years include a preferred stock dividend based on earnings from Lehman Brothers, which was offset by expenses related to business building initiatives in both years and by Y2K expenses a year ago. 24 PART II. OTHER INFORMATION AMERICAN EXPRESS COMPANY ITEM 1. LEGAL PROCEEDINGS The Company commenced an action, AMERICAN EXPRESS COMPANY V. THE UNITED STATES, on September 16, 1997 in the United States Court of Federal Claims (the "Court") seeking a refund from the United States of Federal income taxes paid (plus related interest) for the year 1987. The Company contends that the Internal Revenue Service abused its discretion by denying the Company's request to include annual fees from Cardmembers in taxable income ratably over the twelve-month period to which the fees relate rather than in full at the time they are billed. On June 30, 2000, the Court entered a judgment in favor of the Internal Revenue Service. The Company filed a notice of appeal with the United States Court of Appeals for the Federal Circuit on July 19, 2000. Since October 1, 1999, eight former female financial advisors at American Express Financial Advisors ("AEFA") have filed charges with the Equal Employment Opportunity Commission ("EEOC"), including class claims on behalf of all women advisors at AEFA, alleging that they and other women were discriminated against in hiring, assignment of work, distribution of leads, training and promotions. Five of the charges were filed with the EEOC in Minnesota, two in New Jersey and one in Michigan. The claimants are seeking monetary and injunctive relief. AEFA is responding to all charges. If this matter is not resolved at the EEOC and is filed in Federal Court, AEFA intends to vigorously defend the charges. The two matters described above were previously reported in the Company's Form 10-Q for the quarter ended March 30, 2000. On March 29, 1999 an action entitled LAMBERT V. AMERICAN EXPRESS FINANCIAL CORPORATION, AMERICAN EXPRESS FINANCIAL ADVISORS INC., IDS LIFE INSURANCE AGENCIES, INC., IDS LIFE INSURANCE COMPANY, AMERICAN EXPRESS BENEFIT PLAN COMMITTEE, CAREER DISTRIBUTORS PLAN COMMITTEE AND JOHN/JANE DOES 1-20 was commenced in U.S. District Court, District of Minnesota, Fourth Division. The original named plaintiff purports to represent a class consisting of financial advisors who were independent contractors from January 1, 1993 to the present. The complaint alleges class members were misclassified as independent contractors and seeks retroactive coverage in all employee health, welfare, retirement and compensation plans, and payment of FICA and FUTA taxes. The complaint also alleges violation of ERISA, breach of contract, breach of duty of good faith and fair dealing and unjust enrichment. The complaint was amended on July 26, 1999, adding three plaintiffs, adding new claims for conversion, rescission of the financial advisors agreement and declaratory judgment and adding the Company's Employee Benefits Administration Committee as a defendant. The parties are actively engaged in discovery. The plaintiff's motion for class certification was filed on July 31, 2000. The Company intends to file its motion opposing class certification on August 31, 2000. The Company believes it has meritorious defenses to such action and intends to pursue them vigorously. This matter was previously reported in the Company's Form 10-K for the year ended December 31, 1999. Item 4. Submission of Matters to a Vote of Security Holders For information relating to the matters voted upon at the Company's annual meeting for shareholders held on April 24, 2000, see Item 4 on page 24 of the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, which is incorporated herein by reference. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits See Exhibit Index on page E-1 hereof. (b) Reports on Form 8-K: Form 8-K, dated April 26, 2000, Item 5, reporting the Company's earnings for the quarter ended March 31, 2000 and including a First Quarter Earnings Supplement. Form 8-K, dated April 27, 2000, Item 5, announcing the appointment of Gary Crittenden as its Executive Vice President and Chief Financial Officer. Form 8-K, dated May 3, 2000, Item 5, 1) announcing a leave of absence of Steve Alesio, President of the Small Business Services group, and resulting organizational changes and 2) making publicly available a consolidated five-year and quarterly summary of restated common share statistics to reflect the Company's recent 3-for-1 stock split. Form 8-K, dated June 27, 2000, Item 5, announcing a number of organizational changes. Form 8-K, dated July 24, 2000, Item 5, reporting the Company's earnings for the quarter ended June 30, 2000 and including a Second Quarter Earnings Supplement. Form 8-K/A, dated July 24, 2000, Item 5, amending the Company's earnings for the quarter ended June 30, 2000 and including a Second Quarter Earnings Supplement. Form 8-K, dated August 2, 2000, Item 5, reporting certain information from presentations to the financial community on August 2, 2000 by Harvey Golub, the Company's Chairman and Chief Executive Officer, and Ken Chenault, the Company's President and Chief Operating Officer. 25 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICAN EXPRESS COMPANY ------------------------ (Registrant) Date: August 11, 2000 By /s/ Gary L. Crittenden ----------------------- ------------------------ Gary L. Crittenden Executive Vice President and Chief Financial Officer Date: August 11, 2000 /s/ Daniel T. Henry ----------------------- ----------------------- Daniel T. Henry Senior Vice President and Comptroller (Chief Accounting Officer) 26 EXHIBIT INDEX The following exhibits are filed as part of this Quarterly Report: Exhibit Description ------- ----------- 12 Computation in Support of Ratio of Earnings to Fixed Charges. 15 Letter re Unaudited Interim Financial Information. 27 Financial Data Schedule. E-1