-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G8CV7IJX3tmZbjuveyxLQ5IQZ86ijJ/Qp52MH5/L5U3Sj/9+RtCDZQ/tYjn3BTEO IdL+982hJD8oWUBKzsSxcg== 0000004962-02-000003.txt : 20020414 0000004962-02-000003.hdr.sgml : 20020414 ACCESSION NUMBER: 0000004962-02-000003 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20011231 ITEM INFORMATION: Other events FILED AS OF DATE: 20020128 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN EXPRESS CO CENTRAL INDEX KEY: 0000004962 STANDARD INDUSTRIAL CLASSIFICATION: FINANCE SERVICES [6199] IRS NUMBER: 134922250 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07657 FILM NUMBER: 02518582 BUSINESS ADDRESS: STREET 1: AMERICAN EXPRESS TWR WORLD FINANCIAL CN STREET 2: 200 VESEY ST 49TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10285 BUSINESS PHONE: 2126402000 MAIL ADDRESS: STREET 1: AMERICAN EXPRESS TOWER STREET 2: 200 VESEY ST 49TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10285 8-K 1 wrapearn.txt 8-K AMERICAN EXPRESS COMPANY ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------------- FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 -------------------------- Date of Report (Date of earliest event reported): November 26, 2001 -------------------------- AMERICAN EXPRESS COMPANY (Exact name of registrant as specified in its charter) -------------------------- New York 1-7657 13-4922250 - ------------------------------ ------------------------ ------------------- (State or other jurisdiction (Commission File Number) (I.R.S. Employer of incorporation or Identification No.) organization) 200 Vesey Street, 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 --------------------------------------------------- (Former name or former address, if changed since last report) ================================================================================ Item 5. Other Events. On November 26, 2001, the Board of Directors of the Company approved certain amendments to the By-Laws of the Company to (i) permit the Board to fix a date for the annual meeting of shareholders of the Company in addition to a date during the period between March 15 and April 30 of each year and (ii) permit only the Board of Directors or the Chief Executive Officer to call a special meeting of shareholders of the Company. A copy of the By-Laws, as amended, of the Company is filed herein as Exhibit 99.2B. On January 21, 2002, the Registrant issued a press release announcing its 2001 fourth quarter and full year earnings and distributed a 2001 Fourth Quarter/Full Year Earnings Supplement. Such press release is filed herein as Exhibit 99.1, and such Earnings Supplement is filed herein as Exhibit 99.2. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. (c) Exhibits 99.1 Press release of American Express Company announcing its 2001 fourth quarter and full year earnings, dated January 28, 2002. 99.2 2001 Fourth Quarter/Full Year Earnings Supplement of American Express Company. 99.2B Company's By-Laws, as amended through November 26, 2001. SIGNATURE 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 hereunto duly authorized. AMERICAN EXPRESS COMPANY (REGISTRANT) By /s/ Stephen P. Norman Name: Stephen P. Norman Title: Secretary DATE: January 28, 2002 EXHIBIT INDEX Item No. Description - --------- ----------- 99.1 Press release of American Express Company announcing its 2001 fourth quarter and full year earnings, dated January 28, 2002. 99.2 2001 Fourth Quarter/Full Year Earnings Supplement of American Express Company. 99.2B Company's By-Laws, as amended through November 26, 2001. EX-99.1 3 financials.txt EXHIBIT 99.1 Exhibit 99.1 NEWS RELEASE NEWS RELEASE NEWS RELEASE NEWS RELEASE Contact: Molly Faust 201/209-5595 molly.faust@aexp.com Michael J. O'Neill 201/209-5583 mike.o'neill@aexp.com FOR IMMEDIATE RELEASE AMERICAN EXPRESS COMPANY REPORTS NET INCOME OF $1.31 BILLION FOR 2001 FOURTH QUARTER RESULTS IN LINE WITH PRELIMINARY FORECAST New York - January 28, 2002 - AMERICAN EXPRESS COMPANY today reported net income for 2001 of $1.31 billion, down 53 percent from $2.81 billion a year ago. Earnings per share on a diluted basis (EPS) declined 53 percent to $0.98 from $2.07. Net revenues on a managed basis totaled $21.4 billion, down 3 percent from $22.1 billion. The company's return on equity was 10.9 percent. For the fourth quarter, American Express reported net income of $297 million, down 56 percent from $677 million a year ago. EPS decreased 56 percent to $0.22 from $0.50 a year ago. The quarterly results are in line with the company's previously announced forecast. As indicated in that prior announcement, the results include a restructuring charge of $279 million pre-tax ($179 million after-tax) to cover costs associated with the elimination of approximately 6,800 jobs as well as the consolidation of real estate facilities to reflect the reduced staffing levels. The staff reductions are taking place primarily in the travel businesses and reflect the sharp slowdown in that sector since September 11th. These initiatives are expected to produce expense savings of approximately $280 million in 2002. Excluding the restructuring charge, fourth quarter net income declined 30 percent to $476 million. Similarly, EPS was $0.36, a decline of 28 percent. Kenneth I. Chenault, chairman and chief executive officer, said: "Our 2001 results reflected the overall weakness in the economy throughout the year and the sharp slowdown in consumer spending, business travel and investment activity after the terrorist attacks of September 11th. 1 "While we are seeing signs of improvement in volumes, we are continuing to take a cautious view and expect the economy to remain weak throughout 2002. With that in mind, we have lowered our risk profile and made some important changes in our business that will position us for good earnings growth in a lower revenue growth environment. As a result, we are in a stronger position to deal with a period of economic uncertainty and to take full advantage of even a modest improvement in business conditions." Results for the full-year 2001 were negatively affected by three significant items: 1) a first-half charge of $1.01 billion pre-tax ($669 million after-tax), reflecting write downs in the investment portfolio at American Express Financial Advisors (AEFA) and losses associated with rebalancing that portfolio toward lower risk securities; 2) restructuring charges in the third and fourth quarters, which totaled $631 million pre-tax ($411 million after-tax); and 3) the one-time impact from the September 11th terrorist attacks, which totaled $98 million pre-tax ($65 million after-tax) and was recognized in the third quarter. The full-year results benefited from strong progress on reengineering efforts which, combined with the initial restructuring activities, realized savings in excess of $1.0 billion. A portion of these savings flowed through to earnings in the form of improved operating expense margins, while the rest was reinvested back into high-growth areas of the business. Adjusting for the restructuring charges and one-time September 11th related costs, EPS would have been $1.34, a decline of 35 percent from a year ago. 2 TRAVEL RELATED SERVICES (TRS) reported net income for 2001 of $1.46 billion, down 24 percent from $1.93 billion a year ago. Included in 2001 results are $414 million pre-tax ($267 million after-tax) of the restructuring charges noted earlier. Also included in the full-year results are third-quarter expenses of $87 million pre-tax ($57 million after-tax), reflecting one-time costs and waived fees, which were directly related to the September 11th terrorist attacks. Excluding these two items, TRS' net income for the full year would have been $1.78 billion, down 8 percent from last year. TRS net revenues for 2001 rose 4 percent, as growth in loans and fee revenues were partly offset by a 16 percent decline in travel commissions and fees. The total amount spent on American Express cards during 2001 was up slightly from year-ago levels as higher consumer card spending in the retail and everyday categories was largely offset by lower corporate card spending in the travel and entertainment sector, particularly after September 11th. Net finance charge revenues rose 32 percent, due to balance growth and wider net-interest yields. This increase reflects a smaller percentage of loan balances on introductory rates and the benefit of declining interest rates during the year. The provision for losses grew as a result of an increase in U.S. lending write-off rates and delinquencies, reflecting higher unemployment and the overall economic environment. The increased provisions also reflected higher lending volumes. Marketing and promotion expenses declined as TRS rationalized certain marketing efforts in light of the weaker business environment. Combined other operating and human resources expenses were up slightly, reflecting increased cardmember loyalty programs and business volumes. These increases were offset by the benefits of reengineering and cost-control efforts. TRS reported fourth quarter net income of $170 million, a 64 percent decrease from $470 million reported a year ago. Included in these results are $219 million pre-tax ($140 million after-tax) of the restructuring charge 3 noted earlier. Excluding the restructuring charge, TRS net income would have been $310 million, down 34 percent from last year. The decline reflects the weak business volumes noted earlier, as well as higher provisions for losses. These factors were partly offset by the decline in marketing and promotion and the benefit of savings from ongoing reengineering initiatives. The above discussion presents TRS results "on a managed basis" as if there had been no securitization transactions, which conforms to industry practice. The attached financials present TRS results on both a managed and reported basis. Net income is the same in both formats. On a reported basis, TRS' results for 2001 included securitization gains of $155 million pre-tax ($101 million after-tax) compared with similar gains of $142 million pre-tax ($92 million after-tax) in 2000. These gains were offset by expenses related to card acquisition activities and therefore had no material impact on net income or total expenses. AMERICAN EXPRESS FINANCIAL ADVISORS (AEFA) reported net income for 2001 of $52 million, down from $1.03 billion a year ago. Net revenues decreased 33 percent. Included in full-year 2001 results are $107 million pre-tax ($70 million after-tax) of the restructuring charges noted earlier and $11 million pre-tax ($8 million after-tax) of insurance claims directly related to September 11th. Excluding those items, AEFA net income would have been $130 million, down 87 percent from last year. In addition, as previously mentioned, AEFA incurred substantial charges in the first and second quarters of 2001 to write down high-yield securities and reduce the risk profile of its investment portfolio. 4 Full-year results at AEFA reflect weakness in equity markets and narrower spreads on the investment portfolio. The weakened equity markets led to significantly lower asset levels and lower sales of investment products. As a result, management and distribution fees fell 13 percent. Combined other operating and human resources expenses, excluding the above-mentioned charges, were essentially unchanged from 2000. This was due to lower sales commissions and the benefit of reengineering and cost-control initiatives. AEFA reported fourth quarter net income of $163 million, a 33 percent decrease from $242 million a year ago. Included in these results is the restructuring charge of $45 million pre-tax ($29 million after-tax) noted earlier. Excluding this charge, net income would have been $192 million, down 21 percent. This decline reflects a continuation of weak sales and lower asset levels and portfolio yields. AMERICAN EXPRESS BANK (AEB) reported a 2001 net loss of $13 million compared with net income of $29 million a year ago. Results for the year include $96 million pre-tax ($65 million after-tax) of the restructuring charges noted earlier. Excluding these charges, AEB's net income would have been $52 million, up 82 percent from last year. AEB's business results reflect strong performance in Personal Financial Services and Private Banking. Results also benefited from lower funding costs and lower operating expenses as a result of AEB's reengineering efforts. These benefits were offset in part by higher provisions for losses, which were primarily due to higher personal loan volumes. Revenues from Corporate Banking activities declined as the company continued to shift its business focus away from that sector and concentrated its resources on Personal Financial Services and Private Banking. 5 AEB reported fourth quarter 2001 net income of $9 million compared with $6 million a year ago. Included in these results was a restructuring charge of $12 million pre-tax ($8 million after-tax) noted earlier. Excluding the charge, net income would have been $17 million, almost triple that of a year ago. CORPORATE AND OTHER reported 2001 net expenses of $187 million, compared with $180 million a year ago. Included in 2001 results are $14 million pre-tax ($9 million after-tax) of the restructuring charges noted earlier. The 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. Corporate and Other reported fourth quarter 2001 net expenses of $45 million. Included in this expense was a restructuring charge of $3 million pre-tax ($2 million after-tax). Excluding the charge, expenses were essentially unchanged from year-ago levels. American Express Company (www.americanexpress.com), founded in 1850, is a global travel, financial and network services provider. *** Note: The 2001 Fourth Quarter Earnings Supplement will be available today on the American Express web site at http://ir.americanexpress.com. In addition, an investor conference call to discuss fourth quarter and full-year earnings results, operating performance and other topics that may be raised during the discussion will be held at 5:00 p.m. (ET) today. Live audio of the conference call will be accessible to the general public on the American Express web site at http://ir.americanexpress.com. A replay of the conference call also will be available today at the same web site address. *** 6 THIS PRESS RELEASE CONTAINS FORWARD-LOOKING STATEMENTS, WHICH ARE SUBJECT TO RISKS AND UNCERTAINTIES. THE WORDS "BELIEVE", "EXPECT", "ANTICIPATE", "OPTIMISTIC", "INTEND", "AIM", "WILL", "SHOULD" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THESE FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, THE FOLLOWING: FLUCTUATION IN THE EQUITY MARKETS, WHICH CAN AFFECT THE AMOUNT AND TYPES OF INVESTMENT PRODUCTS SOLD BY AEFA, THE MARKET VALUE OF ITS MANAGED ASSETS, AND MANAGEMENT AND DISTRIBUTION FEES RECEIVED BASED ON THOSE ASSETS; POTENTIAL DETERIORATION IN THE HIGH-YIELD SECTOR AND OTHER INVESTMENT AREAS, WHICH COULD RESULT IN FURTHER LOSSES IN AEFA'S INVESTMENT PORTFOLIO; THE ABILITY OF AEFA TO SELL CERTAIN HIGH-YIELD INVESTMENTS AT EXPECTED VALUES AND WITHIN ANTICIPATED TIMEFRAMES AND TO MAINTAIN ITS HIGH-YIELD PORTFOLIO AT CERTAIN LEVELS IN THE FUTURE; DEVELOPMENTS RELATING TO AEFA'S NEW PLATFORM STRUCTURE FOR FINANCIAL ADVISORS, INCLUDING THE ABILITY TO INCREASE ADVISOR PRODUCTIVITY, MODERATE THE GROWTH OF NEW ADVISORS AND CREATE EFFICIENCIES IN THE INFRASTRUCTURE; AEFA'S ABILITY TO EFFECTIVELY MANAGE THE ECONOMICS IN SELLING A GROWING VOLUME OF NON-PROPRIETARY PRODUCTS TO CLIENTS; INVESTMENT PERFORMANCE IN AEFA'S BUSINESSES; THE SUCCESS, TIMELINESS AND FINANCIAL IMPACT, INCLUDING COSTS, COST SAVINGS AND OTHER BENEFITS OF REENGINEERING INITIATIVES BEING IMPLEMENTED OR CONSIDERED BY THE COMPANY, INCLUDING COST MANAGEMENT, STRUCTURAL AND STRATEGIC MEASURES SUCH AS VENDOR, PROCESS, FACILITIES AND OPERATIONS CONSOLIDATION, OUTSOURCING, RELOCATING CERTAIN FUNCTIONS TO LOWER COST OVERSEAS LOCATIONS, MOVING INTERNAL AND EXTERNAL FUNCTIONS TO THE INTERNET TO SAVE COSTS, THE SCALE-BACK OF CORPORATE LENDING IN CERTAIN REGIONS, AND PLANNED STAFF REDUCTIONS RELATING TO CERTAIN OF SUCH REENGINEERING ACTIONS; THE ABILITY TO CONTROL AND MANAGE OPERATING, INFRASTRUCTURE, ADVERTISING AND PROMOTION AND OTHER EXPENSES AS BUSINESS EXPANDS OR CHANGES, INCLUDING BALANCING THE NEED FOR LONGER TERM INVESTMENT SPENDING; THE IMPACT OF AND UNCERTAINTY CREATED BY THE SEPTEMBER 11TH TERRORIST ATTACKS; THE COMPANY'S ABILITY TO RECOVER UNDER ITS INSURANCE POLICIES FOR LOSSES RESULTING FROM THE SEPTEMBER 11TH TERRORIST ATTACKS; CONSUMER AND BUSINESS SPENDING ON THE COMPANY'S TRAVEL RELATED SERVICES PRODUCTS, PARTICULARLY CREDIT AND CHARGE CARDS AND GROWTH IN CARD LENDING BALANCES, WHICH DEPEND IN PART ON THE ABILITY TO ISSUE NEW AND ENHANCED CARD PRODUCTS AND INCREASE REVENUES FROM SUCH PRODUCTS, ATTRACT NEW CARDHOLDERS, CAPTURE A GREATER SHARE OF EXISTING CARDHOLDERS' SPENDING, SUSTAIN PREMIUM DISCOUNT RATES, INCREASE MERCHANT COVERAGE, RETAIN CARDMEMBERS AFTER LOW INTRODUCTORY LENDING RATES HAVE EXPIRED, AND EXPAND THE GLOBAL NETWORK SERVICES BUSINESS; SUCCESSFULLY EXPANDING THE COMPANY'S ON-LINE AND OFF-LINE DISTRIBUTION CHANNELS AND CROSS-SELLING FINANCIAL, TRAVEL, CARD AND OTHER PRODUCTS AND SERVICES TO ITS CUSTOMER BASE, BOTH IN THE UNITED STATES AND ABROAD; EFFECTIVELY LEVERAGING THE COMPANY'S ASSETS, SUCH AS ITS BRAND, CUSTOMERS AND INTERNATIONAL PRESENCE IN THE INTERNET ENVIRONMENT; INVESTING IN AND COMPETING AT THE LEADING EDGE OF TECHNOLOGY ACROSS ALL BUSINESSES; HIGHER BORROWING COSTS DUE TO POTENTIAL NEGATIVE CHANGES IN THE COMPANY'S AND ITS SUBSIDIARIES' CREDIT RATINGS; INCREASING COMPETITION IN ALL OF THE COMPANY'S MAJOR BUSINESSES; FLUCTUATIONS IN INTEREST RATES, WHICH IMPACT THE COMPANY'S 7 BORROWING COSTS, RETURN ON LENDING PRODUCTS AND SPREADS IN THE INVESTMENT AND INSURANCE BUSINESSES; CREDIT TRENDS AND THE RATE OF BANKRUPTCIES, WHICH CAN AFFECT SPENDING ON CARD PRODUCTS, DEBT PAYMENTS BY INDIVIDUAL AND CORPORATE CUSTOMERS AND BUSINESSES THAT ACCEPT THE COMPANY'S CARD PRODUCTS AND RETURNS ON THE COMPANY'S INVESTMENT PORTFOLIOS; FOREIGN CURRENCY EXCHANGE RATES; POLITICAL OR ECONOMIC INSTABILITY IN CERTAIN REGIONS OR COUNTRIES, WHICH COULD AFFECT COMMERCIAL LENDING ACTIVITIES, AMONG OTHER BUSINESSES; LEGAL AND REGULATORY DEVELOPMENTS, SUCH AS IN THE AREAS OF CONSUMER PRIVACY AND DATA PROTECTION; ACQUISITIONS; AND OUTCOMES IN LITIGATION. A FURTHER DESCRIPTION OF THESE AND OTHER RISKS AND UNCERTAINTIES CAN BE FOUND IN THE COMPANY'S 10-K ANNUAL REPORT FOR THE FISCAL YEAR ENDING DECEMBER 31, 2000 AND ITS OTHER REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. 8 (Preliminary) AMERICAN EXPRESS COMPANY FINANCIAL SUMMARY (Unaudited)
(Dollars in millions) Quarters Ended Years Ended December 31, December 31, -------------------------- Percentage -------------------------- Percentage 2001 2000 Inc/(Dec) 2001 2000 Inc/(Dec) ---- ---- --------- ---- ---- --------- NET REVENUES (MANAGED BASIS) (A) Travel Related Services $ 4,527 $ 4,543 - % $ 18,102 $ 17,441 4 % American Express Financial Advisors 949 1,066 (11) 2,825 4,219 (33) American Express Bank 168 144 16 649 591 10 ----------- ------------ ----------- ----------- 5,644 5,753 (2) 21,576 22,251 (3) Corporate and Other, including adjustments and eliminations (54) (39) (37) (217) (166) (30) ----------- ------------ ----------- ----------- CONSOLIDATED NET REVENUES (MANAGED BASIS) (A) $ 5,590 $ 5,714 (2) $ 21,359 $ 22,085 (3) =========== ============ =========== =========== CONSOLIDATED REVENUES (GAAP BASIS) $ 5,871 $ 6,067 (3) $ 22,582 $ 23,675 (5) =========== ============ =========== =========== PRETAX INCOME (LOSS) (B) Travel Related Services $ 196 $ 641 (69) $ 1,979 $ 2,713 (27) American Express Financial Advisors 220 344 (36) (24) 1,483 - American Express Bank 16 8 # (14) 33 - ----------- ------------ ----------- ----------- 432 993 (56) 1,941 4,229 (54) Corporate and Other (85) (80) (6) (345) (321) (8) ----------- ------------ ----------- ----------- PRETAX INCOME (B) $ 347 $ 913 (62) $ 1,596 $ 3,908 (59) =========== ============ =========== =========== NET INCOME (LOSS) (B) Travel Related Services $ 170 $ 470 (64) $ 1,459 $ 1,929 (24) American Express Financial Advisors 163 242 (33) 52 1,032 (95) American Express Bank 9 6 45 (13) 29 - ----------- ------------ ----------- ----------- 342 718 (52) 1,498 2,990 (50) Corporate and Other (45) (41) (9) (187) (180) (4) ----------- ------------ ----------- ----------- NET INCOME (B) $ 297 $ 677 (56) $ 1,311 $ 2,810 (53) =========== ============ =========== ===========
# Denotes a variance of more than 100%. (A) Managed net revenues are reported net of interest expense, where applicable, and American Express Financial Advisors' provision for losses and benefits, and exclude the effect of TRS' securitization activities. (B) Included in 2001 income are two significant items: (a) restructuring charges of $631 million ($411 million after-tax), of which $279 million ($179 million after-tax) was recognized in the fourth quarter 2001, and (b) one-time costs (including waived fees) in the third quarter of $98 million ($65 million after-tax) resulting from the September 11th terrorist attacks. 9 (Preliminary) AMERICAN EXPRESS COMPANY FINANCIAL SUMMARY (CONTINUED) (Unaudited)
Quarters Ended Years Ended December 31, December 31, ----------------------- Percentage ------------------------- Percentage 2001 2000 Inc/(Dec) 2001 2000 Inc/(Dec) ---- ---- --------- ---- ---- -------- EARNINGS PER SHARE BASIC Earnings Per Common Share $ 0.22 $ 0.51 (57)% $ 0.99 $ 2.12 (53)% ========= =========== ========== =========== Average common shares outstanding (millions) 1,329 1,322 1 1,324 1,327 - ========= =========== ========== =========== DILUTED Earnings Per Common Share $ 0.22 $ 0.50 (56) $ 0.98 $ 2.07 (53) ========= =========== ========== =========== Average common shares outstanding (millions) 1,336 1,355 (1) 1,336 1,360 (2) ========= =========== ========== =========== Cash dividends declared per common share $ 0.08 $ 0.08 - $ 0.32 $ 0.32 - ========= =========== ========== =========== SELECTED STATISTICAL INFORMATION (Unaudited) Quarters Ended Years Ended December 31, December 31, ------------------------ Percentage ------------------------- Percentage 2001 2000 Inc/(Dec) 2001 2000 Inc/(Dec) ---- ---- --------- ---- ---- -------- Return on Average Equity* 10.9 % 25.3 % - 10.9 % 25.3 % - Common Shares Outstanding (millions) 1,331 1,326 - 1,331 1,326 - Book Value per Common Share: Actual $ 9.05 $ 8.81 3% $ 9.05 $ 8.81 3% Pro Forma* $ 9.02 $ 8.92 1% $ 9.02 $ 8.92 1% Shareholders' Equity (billions) $ 12.0 $ 11.7 3% $ 12.0 $ 11.7 3%
* Excludes the effect on Shareholders' Equity of SFAS No. 115 and SFAS No. 133. The Company adopted SFAS No. 133 on January 1, 2001. 10 (Preliminary) AMERICAN EXPRESS COMPANY FINANCIAL SUMMARY (Unaudited)
(Dollars in millions) Quarters Ended --------------------------------------------------------------------------- December 31, September 30, June 30, March 31, December 31, 2001 2001 2001 2001 2000 ---- ---- ---- ---- ---- NET REVENUES (MANAGED BASIS) (A) Travel Related Services $ 4,527 $ 4,466 $ 4,644 $ 4,465 $ 4,543 American Express Financial Advisors 949 908 162 806 1,066 American Express Bank 168 165 159 158 144 ------- ------- ------- ------- ------- 5,644 5,539 4,965 5,429 5,753 Corporate and Other, including adjustments and eliminations (54) (61) (55) (48) (39) ------- ------- ------- ------- ------- CONSOLIDATED NET REVENUES (MANAGED BASIS) (A) $ 5,590 $ 5,478 $ 4,910 $ 5,381 $ 5,714 ======= ======= ======= ======= ======= CONSOLIDATED REVENUES (GAAP BASIS) $ 5,871 $ 5,724 $ 5,268 $ 5,719 $ 6,067 ======= ======= ======= ======= ======= PRETAX INCOME (LOSS) (B) Travel Related Services $ 196 $ 316 $ 730 $ 737 $ 641 American Express Financial Advisors 220 194 (508) 70 344 American Express Bank 16 (62) 18 14 8 ------- ------- ------- ------- ------- 432 448 240 821 993 Corporate and Other (85) (94) (87) (80) (80) ------- ------- ------- ------- ------- PRETAX INCOME (B) $ 347 $ 354 $ 153 $ 741 $ 913 ======= ======= ======= ======= ======= NET INCOME (LOSS) (B) Travel Related Services $ 170 $ 248 $ 519 $ 522 $ 470 American Express Financial Advisors 163 145 (307) 51 242 American Express Bank 9 (43) 12 9 6 ------- ------- ------- ------- ------- 342 350 224 582 718 Corporate and Other (45) (52) (46) (44) (41) ------- ------- ------- ------- ------- NET INCOME (B) $ 297 $ 298 $ 178 $ 538 $ 677 ======= ======= ======= ======= =======
(A) Managed net revenues are reported net of interest expense, where applicable, and American Express Financial Advisors' provision for losses and benefits, and exclude the effect of TRS' securitization activities. (B) Included in 2001 income are two significant items: (a) restructuring charges of $279 million ($179 million after-tax) and $352 million ($232 million after-tax) recognized in the fourth and third quarters, respectively, and (b) one-time costs (including waived fees) in the third quarter of $98 million ($65 million after-tax) resulting from the September 11th terrorist attacks. 11 (Preliminary) AMERICAN EXPRESS COMPANY FINANCIAL SUMMARY (CONTINUED) (Unaudited)
Quarters Ended -------------------------------------------------------------------- December 31, September 30, June 30, March 31, December 31, 2001 2001 2001 2001 2000 ---- ---- ---- ---- ---- EARNINGS PER SHARE BASIC Earnings Per Common Share $ 0.22 $ 0.23 $ 0.13 $ 0.41 $ 0.51 ====== ====== ====== ====== ========= Average common shares outstanding (millions) 1,329 1,324 1,321 1,323 1,322 ====== ====== ====== ====== ========= DILUTED Earnings Per Common Share $ 0.22 $ 0.22 $ 0.13 $ 0.40 $ 0.50 ====== ====== ====== ====== ========= Average common shares outstanding (millions) 1,336 1,335 1,336 1,344 1,355 ====== ====== ====== ====== ========= Cash dividends declared per common share $ 0.08 $ 0.08 $ 0.08 $ 0.08 $ 0.08 ====== ====== ====== ====== ========= SELECTED STATISTICAL INFORMATION (Unaudited) Quarters Ended --------------------------------------------------------------------- December 31, September 30, June 30, March 31, December 31, 2001 2001 2001 2001 2000 ---- ---- ---- ---- ---- Return on Average Equity* 10.9% 14.2% 18.2% 23.5% 25.3% Common Shares Outstanding (millions) 1,331 1,336 1,324 1,326 1,326 Book Value per Common Share: Actual $ 9.05 $ 9.16 $ 8.88 $ 9.02 $ 8.81 Pro Forma* $ 9.02 $ 8.92 $ 8.84 $ 8.94 $ 8.92 Shareholders' Equity (billions) $ 12.0 $ 12.2 $ 11.8 $ 12.0 $ 11.7
* Excludes the effect on Shareholders' Equity of SFAS No. 115 and SFAS No. 133. The Company adopted SFAS No. 133 on January 1, 2001. 12 (Preliminary) AMERICAN EXPRESS COMPANY RESTRUCTURING CHARGES SUMMARY (Unaudited)
(Dollars in millions) QUARTER ENDED DECEMBER 31, 2001: - -------------------------------- Restructuring Charges Expected Cost Savings ------------------------- Employee --------------------------- Pre-tax After-tax Reductions 2002 2003 ------- --------- ---------- ---- ---- Travel Related Services $ 219 $ 140 6,200 $ 245 $ 315 American Express Financial Advisors 45 29 400 20 45 American Express Bank 12 8 100 5 10 Corporate and Other 3 2 100 10 10 ----------- ----------- -------------- ----------- ----------- TOTAL $ 279 $ 179 6,800 $ 280 $ 380 =========== =========== ============== =========== =========== YEAR ENDED DECEMBER 31, 2001: Restructuring Charges Expected Cost Savings - ----------------------------- ------------------------- Employee --------------------------- Pre-tax After-tax Reductions 2002 2003 ------- --------- ---------- ---- ---- Travel Related Services $ 414 $ 267 10,900 $ 495 $ 575 American Express Financial Advisors 107 70 1,300 60 95 American Express Bank 96 65 500 30 45 Corporate and Other 14 9 200 20 25 ----------- ----------- -------------- ----------- ----------- TOTAL $ 631 $ 411 12,900 $ 605 $ 740 =========== =========== ============== =========== ===========
13 (Preliminary) TRAVEL RELATED SERVICES STATEMENTS OF INCOME (Unaudited, Managed Basis)
(Dollars in millions) Quarters Ended Years Ended December 31, December 31, ------------------------- Percentage ------------------------- Percentage 2001 2000 Inc/(Dec) 2001 2000 Inc/(Dec) ---- ---- -------- ---- ---- -------- Net Revenues: Discount Revenue $ 1,913 $ 2,062 (7.2)% $ 7,714 $ 7,779 (0.8)% Net Card Fees 426 417 2.2 1,691 1,653 2.3 Lending: Finance Charge Revenue 1,156 1,090 6.2 4,622 3,977 16.2 Interest Expense 289 448 (35.5) 1,484 1,594 (6.9) ---------- ---------- ---------- ---------- Net Finance Charge Revenue 867 642 35.2 3,138 2,383 31.7 Travel Commissions and Fees 334 442 (24.6) 1,537 1,821 (15.6) Travelers Cheque Investment Income 94 95 (0.7) 394 387 1.9 Other Revenues 893 885 0.9 3,628 3,418 6.1 ---------- ---------- ---------- ---------- Total Net Revenues 4,527 4,543 (0.3) 18,102 17,441 3.8 ---------- ---------- ---------- ---------- Expenses: Marketing and Promotion 282 314 (10.1) 1,145 1,348 (15.1) Provision for Losses and Claims: Charge Card 343 262 31.0 1,231 1,157 6.4 Lending 605 432 40.0 2,243 1,486 50.9 Other 81 19 # 164 105 56.5 ---------- ---------- ---------- ---------- Total 1,029 713 44.2 3,638 2,748 32.4 Charge Card Interest Expense 335 383 (12.6) 1,476 1,408 4.8 Human Resources 918 1,046 (12.3) 3,992 4,126 (3.2) Other Operating Expenses 1,548 1,446 7.1 5,379 5,098 5.5 Restructuring Charges 219 - - 414 - - Disaster Recovery Charge (A) - - - 79 - - ---------- ---------- ---------- ---------- Total Expenses 4,331 3,902 11.0 16,123 14,728 9.5 ---------- ---------- ---------- ---------- Pretax Income 196 641 (69.4) 1,979 2,713 (27.1) Income Tax Provision 26 171 (84.9) 520 784 (33.7) ---------- ---------- ---------- ---------- Net Income $ 170 $ 470 (63.7) $ 1,459 $ 1,929 (24.4) ========== ========== ========== ==========
# Denotes a variance of more than 100%. (A) The disaster recovery charge excludes approximately $8 million of waived finance charges and late fees recognized in the third quarter 2001. These Statements of Income are provided on a Managed Basis for analytical purposes only. They present the income statements of TRS as if there had been no securitization transactions. On a GAAP reporting basis, TRS recognized pretax gains of $155 million ($101 million after-tax) and $142 million ($92 million after-tax) in 2001 and 2000, respectively, related to the securitization of U.S. receivables. These gains were invested in card acquisition activities and had no material impact on Net Income or Total Expenses in 2001 or 2000. For purposes of this presentation such gains and corresponding changes in Marketing and Promotion and Other Operating Expenses have been eliminated in 2001 and 2000. 14 (Preliminary) TRAVEL RELATED SERVICES STATEMENTS OF INCOME (Unaudited, GAAP Reporting Basis)
(Dollars in millions) Quarters Ended Years Ended December 31, December 31, ------------------------ Percentage ------------------------- Percentage 2001 2000 Inc/(Dec) 2001 2000 Inc/(Dec) ---- ---- --------- ---- ---- -------- Net Revenues: Discount Revenue $ 1,913 $ 2,062 (7.2)% $ 7,714 $ 7,779 (0.8)% Net Card Fees 426 417 2.2 1,675 1,651 1.4 Lending: Finance Charge Revenue 423 498 (15.1) 1,865 2,026 (7.9) Interest Expense 173 277 (37.8) 953 1,039 (8.3) ---------- ---------- ---------- ---------- Net Finance Charge Revenue 250 221 13.4 912 987 (7.6) Travel Commissions and Fees 334 442 (24.6) 1,537 1,821 (15.6) Travelers Cheque Investment Income 94 95 (0.7) 394 387 1.9 Other Revenues 1,290 1,184 9.0 5,127 4,495 14.0 ---------- ---------- ---------- ---------- Total Net Revenues 4,307 4,421 (2.6) 17,359 17,120 1.4 ---------- ---------- ---------- ---------- Expenses: Marketing and Promotion 282 314 (10.1) 1,237 1,434 (13.7) Provision for Losses and Claims: Charge Card 343 228 50.3 1,195 1,006 18.7 Lending 381 277 37.9 1,318 891 48.0 Other 81 19 # 164 105 56.5 ---------- ---------- ---------- ---------- Total 805 524 53.5 2,677 2,002 33.7 Charge Card Interest Expense 339 336 0.8 1,443 1,202 20.0 Net Discount Expense - 114 - 96 489 (80.3) Human Resources 918 1,046 (12.3) 3,992 4,126 (3.2) Other Operating Expenses 1,548 1,446 7.1 5,442 5,154 5.6 Restructuring Charges 219 - - 414 - - Disaster Recovery Charge (A) - - - 79 - - ---------- ---------- ---------- ---------- Total Expenses 4,111 3,780 8.8 15,380 14,407 6.7 ---------- ---------- ---------- ---------- Pretax Income 196 641 (69.4) 1,979 2,713 (8.9) Income Tax Provision 26 171 (84.9) 520 784 (33.7) ---------- ---------- ---------- ---------- Net Income $ 170 $ 470 (63.7) $ 1,459 $ 1,929 (24.4) ========== ========== ========== ==========
# Denotes a variance of more than 100%. (A) The disaster recovery charge excludes approximately $8 million of waived finance charges and late fees recognized in the third quarter 2001. 15 (Preliminary) TRAVEL RELATED SERVICES SELECTED STATISTICAL INFORMATION (Unaudited)
(Amounts in billions, except percentages and where indicated) Quarters Ended Years Ended December 31, December 31, ------------------------ Percentage ------------------------ Percentage 2001 2000 Inc/(Dec) 2001 2000 Inc/(Dec) ---- ---- -------- ---- ---- -------- Total Cards in Force (millions): United States 34.6 33.3 3.8 % 34.6 33.3 3.8 % Outside the United States 20.6 18.4 12.1 20.6 18.4 12.1 ----------- --------- ---------- ---------- Total 55.2 51.7 6.8 55.2 51.7 6.8 =========== ========= ========== ========== Basic Cards in Force (millions): United States 26.8 26.3 2.2 26.8 26.3 2.2 Outside the United States 15.6 13.9 12.2 15.6 13.9 12.2 ----------- --------- ---------- ---------- Total 42.4 40.2 5.7 42.4 40.2 5.7 =========== ========= ========== ========== Card Billed Business: United States $ 55.8 $ 59.0 (5.5) $ 224.5 $ 221.7 1.3 Outside the United States 18.6 20.0 (7.2) 73.5 75.0 (2.1) ----------- --------- ---------- ---------- Total $ 74.4 $ 79.0 (5.9) $ 298.0 $ 296.7 0.4 =========== ========= ========== ========== Average Discount Rate (A) 2.66 % 2.69 % - 2.67 % 2.70 % - Average Basic Cardmember Spending (dollars) (A) $ 1,897 $ 2,113 (10.2) $ 7,666 $ 8,229 (6.8) Average Fee per Card - Managed (dollars) (A) $ 34 $ 35 (2.9) $ 34 $ 36 (5.6) Non-Amex Brand (B): Cards in Force (millions) 0.7 0.6 6.0 0.7 0.6 6.0 Billed Business $ 0.9 $ 1.1 (21.6) $ 3.4 $ 3.2 6.6 Travel Sales $ 3.3 $ 5.5 (40.2) $ 17.2 $ 22.6 (24.1) Travel Commissions and Fees/Sales (C) 10.2 % 8.0 % - 8.9 % 8.1 % - Travelers Cheque: Sales $ 4.7 $ 5.1 (9.3) $ 23.5 $ 24.6 (4.5) Average Outstanding $ 6.2 $ 6.2 - $ 6.4 $ 6.4 (0.7) Average Investments $ 6.5 $ 6.2 4.8 $ 6.6 $ 6.2 5.2 Tax Equivalent Yield 9.1 % 9.1 % - 9.0 % 8.9 % - Total Debt $ 37.8 $ 40.0 (5.7) $ 37.8 $ 40.0 (5.7) Shareholder's Equity $ 6.7 $ 6.6 2.2 $ 6.7 $ 6.6 2.2 Return on Average Equity (D) 21.9 % 33.0 % - 21.9 % 33.0 % - Return on Average Assets (E) 2.1 % 3.0 % - 2.1 % 3.0 % -
(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. (D) Excludes the effect on Shareholder's Equity of SFAS No. 115 and SFAS No. 133. The Company adopted SFAS No. 133 on January 1, 2001. (E) Excludes the effect on total assets of SFAS No. 115 and SFAS No. 133 to the extent that they directly affect Shareholder's Equity. 16 (Preliminary) TRAVEL RELATED SERVICES SELECTED STATISTICAL INFORMATION (CONTINUED) (Unaudited, Managed Basis)
(Amounts in billions, except percentages and where indicated) Quarters Ended Years Ended December 31, December 31, -------------------------- Percentage ------------------------- Percentage 2001 2000 Inc/(Dec) 2001 2000 Inc/(Dec) ---- ---- -------- ---- ---- -------- Charge Card Receivables: Total Receivables $ 26.2 $ 29.0 (9.6)% $ 26.2 $ 29.0 (9.6)% 90 Days Past Due as a % of Total 2.9 % 2.3 % - 2.9 % 2.3 % - Loss Reserves (millions) $ 1,032 $ 964 7.1 $ 1,032 $ 964 7.1 % of Receivables 3.9 % 3.3 % - 3.9 % 3.3 % - % of 90 Days Past Due 136 % 142 % - 136 % 142 % - Net Loss Ratio 0.47 % 0.36 % - 0.42 % 0.36 % - U.S. Lending: Total Loans $ 32.0 $ 28.7 11.5 $ 32.0 $ 28.7 11.5 Past Due Loans as a % of Total: 30-89 Days 2.1 % 1.9 % - 2.1 % 1.9 % - 90+ Days 1.2 % 0.9 % - 1.2 % 0.9 % - Loss Reserves (millions): Beginning Balance $ 1,018 $ 731 39.3 $ 820 $ 672 22.0 Provision 519 377 37.7 1,933 1,258 53.6 Net Charge-Offs/Other (460) (288) 59.5 (1,676) (1,110) 50.9 ----------- ---------- ---------- ---------- Ending Balance $ 1,077 $ 820 31.4 $ 1,077 $ 820 31.4 =========== ========== ========== ========== % of Loans 3.4 % 2.9 % - 3.4 % 2.9 % - % of Past Due 101 % 104 % - 101 % 104 % - Average Loans $ 31.5 $ 27.6 13.9 $ 30.7 $ 25.8 18.9 Net Write-Off Rate 5.9 % 4.4 % - 5.6 % 4.4 % - Net Interest Yield 9.6 % 7.7 % - 8.8 % 7.6 % -
17 (Preliminary) TRAVEL RELATED SERVICES STATEMENTS OF INCOME (Unaudited, Managed Basis)
(Dollars in millions) Quarters Ended --------------------------------------------------------------------------------- December 31, September 30, June 30, March 31, December 31, 2001 2001 2001 2001 2000 ---- ---- ---- ---- ---- Net Revenues: Discount Revenue $ 1,913 $ 1,870 $ 2,007 $ 1,925 $ 2,062 Net Card Fees 426 423 420 422 417 Lending: Finance Charge Revenue 1,156 1,187 1,159 1,120 1,090 Interest Expense 289 358 408 429 448 ------------ ------------- ------------- ------------ ----------- Net Finance Charge Revenue 867 829 751 691 642 Travel Commissions and Fees 334 358 427 418 442 Travelers Cheque Investment Income 94 103 100 98 95 Other Revenues 893 883 939 911 885 ------------ ------------- ------------- ------------ ----------- Total Net Revenues 4,527 4,466 4,644 4,465 4,543 ------------ ------------- ------------- ------------ ----------- Expenses: Marketing and Promotion 282 298 269 296 314 Provision for Losses and Claims: Charge Card 343 284 320 285 262 Lending 605 573 564 501 432 Other 81 34 25 24 19 ------------ ------------- ------------- ------------ ----------- Total 1,029 891 909 810 713 Charge Card Interest Expense 335 365 383 393 383 Human Resources 918 987 1,053 1,034 1,046 Other Operating Expenses 1,548 1,335 1,300 1,195 1,446 Restructuring Charges 219 195 - - - Disaster Recovery Charge (A) - 79 - - - ------------ ------------- ------------- ------------ ----------- Total Expenses 4,331 4,150 3,914 3,728 3,902 ------------ ------------- ------------- ------------ ----------- Pretax Income 196 316 730 737 641 Income Tax Provision 26 68 211 215 171 ------------ ------------- ------------- ------------ ----------- Net Income $ 170 $ 248 $ 519 $ 522 $ 470 ============ ============= ============= ============ ===========
(A) The disaster recovery charge excludes approximately $8 million of waived finance charges and late fees recognized in the third quarter 2001. These Statements of Income are provided on a Managed Basis for analytical purposes only. They present the income statements of TRS as if there had been no securitization transactions. On a GAAP reporting basis, TRS recognized pretax gains of $29 million ($19 million after-tax) in the third quarter of 2001, $84 million ($55 million after-tax) in the second quarter of 2001, and $42 million ($27 million after-tax) in the first quarter of 2001, related to the securitization of U.S. receivables. These gains were invested in card acquisition activities and had no material impact on Net Income or Total Expenses in any quarter. For purposes of this presentation such gains and corresponding changes in Marketing and Promotion and Other Operating Expenses have been eliminated in each quarter. 18 (Preliminary) TRAVEL RELATED SERVICES STATEMENTS OF INCOME (Unaudited, GAAP Reporting Basis)
(Dollars in millions) Quarters Ended ------------------------------------------------------------------------------------ December 31, September 30, June 30, March 31, December 31, 2001 2001 2001 2001 2000 ---- ---- ---- ---- ---- Net Revenues: Discount Revenue $ 1,913 $ 1,870 $ 2,007 $ 1,925 $ 2,062 Net Card Fees 426 423 404 422 417 Lending: Finance Charge Revenue 423 458 467 518 498 Interest Expense 173 236 267 278 277 ------------- ------------- ------------ ----------- ----------- Net Finance Charge Revenue 250 222 200 240 221 Travel Commissions and Fees 334 358 427 418 442 Travelers Cheque Investment Income 94 103 100 98 95 Other Revenues 1,290 1,252 1,358 1,223 1,184 ------------- ------------- ------------ ----------- ----------- Total Net Revenues 4,307 4,228 4,496 4,326 4,421 ------------- ------------- ------------ ----------- ----------- Expenses: Marketing and Promotion 282 314 320 321 314 Provision for Losses and Claims: Charge Card 343 284 319 249 228 Lending 381 302 346 287 277 Other 81 34 25 24 19 ------------- ------------- ------------ ----------- ----------- Total 805 620 690 560 524 Charge Card Interest Expense 339 369 387 349 336 Net Discount Expense - - (17) 113 114 Human Resources 918 987 1,053 1,034 1,046 Other Operating Expenses 1,548 1,348 1,333 1,212 1,446 Restructuring Charges 219 195 - - - Disaster Recovery Charge (A) - 79 - - - ------------- ------------- ------------ ----------- ----------- Total Expenses 4,111 3,912 3,766 3,589 3,780 ------------- ------------- ------------ ----------- ----------- Pretax Income 196 316 730 737 641 Income Tax Provision 26 68 211 215 171 ------------- ------------- ------------ ----------- ----------- Net Income $ 170 $ 248 $ 519 $ 522 $ 470 ============= ============= ============ =========== ===========
(A) The disaster recovery charge excludes approximately $8 million of waived finance charges and late fees recognized in the third quarter 2001. 19 (Preliminary) TRAVEL RELATED SERVICES SELECTED STATISTICAL INFORMATION (Unaudited)
(Amounts in billions, except percentages and where indicated) Quarters Ended ------------------------------------------------------------------------------- December 31, September 30, June 30, March 31, December 31, 2001 2001 2001 2001 2000 ---- ---- ---- ---- ---- Total Cards in Force (millions): United States 34.6 34.7 34.6 34.2 33.3 Outside the United States 20.6 20.2 19.7 19.0 18.4 ------------- ------------ ----------- ----------- ------------ Total 55.2 54.9 54.3 53.2 51.7 ============= ============ =========== =========== ============ Basic Cards in Force (millions): United States 26.8 26.9 26.9 26.9 26.3 Outside the United States 15.6 15.4 15.0 14.4 13.9 ------------- ------------ ----------- ----------- ------------ Total 42.4 42.3 41.9 41.3 40.2 ============= ============ =========== =========== ============ Card Billed Business: United States $ 55.8 $ 54.4 $ 58.8 $ 55.6 $ 59.0 Outside the United States 18.6 18.0 18.5 18.4 20.0 ------------- ------------ ----------- ----------- ------------ Total $ 74.4 $ 72.4 $ 77.3 $ 74.0 $ 79.0 ============= ============ =========== =========== ============ Average Discount Rate (A) 2.66 % 2.67 % 2.67 % 2.68 % 2.69 % Average Basic Cardmember Spending (dollars) (A) $ 1,897 $ 1,846 $ 1,986 $ 1,933 $ 2,113 Average Fee per Card - Managed (dollars) (A) $ 34 $ 34 $ 34 $ 35 $ 35 Non-Amex Brand (B): Cards in Force (millions) 0.7 0.7 0.7 0.6 0.6 Billed Business $ 0.9 $ 0.9 $ 0.8 $ 0.8 $ 1.1 Travel Sales $ 3.3 $ 3.9 $ 4.9 $ 5.0 $ 5.5 Travel Commissions and Fees/Sales (C) 10.2 % 9.2 % 8.7 % 8.4 % 8.0 % Travelers Cheque: Sales $ 4.7 $ 7.3 $ 6.5 $ 5.0 $ 5.1 Average Outstanding $ 6.2 $ 6.8 $ 6.5 $ 6.1 $ 6.2 Average Investments $ 6.5 $ 7.0 $ 6.5 $ 6.3 $ 6.2 Tax Equivalent Yield 9.1 % 8.8 % 9.0 % 9.1 % 9.1 % Total Debt $ 37.8 $ 38.0 $ 37.6 $ 35.5 $ 40.0 Shareholder's Equity $ 6.7 $ 6.6 $ 6.7 $ 6.7 $ 6.6 Return on Average Equity (D) 21.9 % 27.0 % 32.0 % 33.0 % 33.0 % Return on Average Assets (E) 2.1 % 2.6 % 3.0 % 3.1 % 3.0 %
(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. (D) Excludes the effect on Shareholder's Equity of SFAS No. 115 and SFAS No. 133. The Company adopted SFAS No. 133 on January 1, 2001. (E) Excludes the effect on total assets of SFAS No. 115 and SFAS No. 133 to the extent that they directly affect Shareholder's Equity. 20 (Preliminary) TRAVEL RELATED SERVICES SELECTED STATISTICAL INFORMATION (CONTINUED) (Unaudited, Managed Basis)
(Amounts in billions, except percentages and where indicated) Quarters Ended ---------------------------------------------------------------------------------- December 31, September 30, June 30, March 31, December 31, 2001 2001 2001 2001 2000 ---- ---- ---- ---- ---- Charge Card Receivables: Total Receivables $ 26.2 $ 24.8 $ 26.1 $ 26.4 $ 29.0 90 Days Past Due as a % of Total 2.9% 3.0 % 2.9 % 2.7 % 2.3 % Loss Reserves (millions) $ 1,032 $ 1,026 $ 1,034 $ 1,004 $ 964 % of Receivables 3.9 % 4.1 % 4.0 % 3.8 % 3.3 % % of 90 Days Past Due 136 % 136 % 138 % 139 % 142 % Net Loss Ratio 0.47 % 0.45 % 0.42 % 0.35 % 0.36 % U.S. Lending: Total Loans $ 32.0 $ 31.3 $ 31.2 $ 30.2 $ 28.7 Past Due Loans as a % of Total: 30-89 Days 2.1 % 2.2 % 1.9 % 2.0 % 1.9 % 90+ Days 1.2 % 1.0 % 1.0 % 0.9 % 0.9 % Loss Reserves (millions): Beginning Balance $ 1,018 $ 959 $ 907 $ 820 $ 731 Provision 519 493 495 426 377 Net Charge-Offs/Other (460) (434) (443) (339) (288) ------------- ------------ ------------- ------------- ----------- Ending Balance $ 1,077 $ 1,018 $ 959 $ 907 $ 820 ============= ============ ============= ============= =========== % of Loans 3.4 % 3.3 % 3.1 % 3.0 % 2.9 % % of Past Due 101 % 101 % 107 % 103 % 104 % Average Loans $ 31.5 $ 31.0 $ 30.3 $ 28.9 $ 27.6 Net Write-Off Rate 5.9 % 5.6 % 5.7 % 5.1 % 4.4 % Net Interest Yield 9.6 % 8.8 % 8.6 % 8.3 % 7.7 %
21 (Preliminary) AMERICAN EXPRESS FINANCIAL ADVISORS STATEMENTS OF INCOME (Unaudited)
(Dollars in millions) Quarters Ended Years Ended December 31, December 31, -------------------------- Percentage ------------------------ Percentage 2001 2000 Inc/(Dec) 2001 2000 Inc/(Dec) ---- ---- -------- ---- ---- ------ Net Revenues: Investment Income $ 549 $ 546 0.6 % $ 1,162 $ 2,292 (49.3)% Management and Distribution Fees 603 722 (16.6) 2,458 2,812 (12.6) Other Revenues 299 273 9.5 1,171 1,026 14.2 ---------- ----------- ---------- ---------- Total Revenues 1,451 1,541 (5.9) 4,791 6,130 (21.8) Provision for Losses and Benefits: Annuities 256 251 1.7 989 1,018 (2.8) Insurance 168 134 26.0 648 556 16.6 Investment Certificates 78 90 (14.1) 329 337 (2.3) ---------- ----------- ---------- ---------- Total 502 475 5.6 1,966 1,911 2.9 ---------- ----------- ---------- ---------- Net Revenues 949 1,066 (11.0) 2,825 4,219 (33.0) ---------- ----------- ---------- ---------- Expenses: Human Resources 455 540 (15.7) 1,969 2,093 (5.9) Other Operating Expenses 229 182 26.0 762 643 18.4 Restructuring Charges 45 - - 107 - - Disaster Recovery Charge - - - 11 - - ---------- ----------- ---------- ---------- Total Expenses 729 722 1.0 2,849 2,736 4.1 ---------- ----------- ---------- ---------- Pretax Income 220 344 (36.2) (24) 1,483 - Income Tax Provision 57 102 (44.0) (76) 451 - ---------- ----------- ---------- ---------- Net Income $ 163 $ 242 (32.9) $ 52 $ 1,032 (94.9) ========== =========== ========== ==========
22 (Preliminary) AMERICAN EXPRESS FINANCIAL ADVISORS SELECTED STATISTICAL INFORMATION (Unaudited)
(Dollars in millions, except where indicated) Quarters Ended Years Ended December 31, December 31, -------------------------- Percentage ------------------------- Percentage 2001 2000 Inc/(Dec) 2001 2000 Inc/(Dec) ---- ---- -------- ---- ---- ------- Investments (billions)* $ 33.6 $ 30.5 10.3 % $ 33.6 $ 30.5 10.3 % Client Contract Reserves (billions) $ 32.8 $ 31.4 4.2 $ 32.8 $ 31.4 4.2 Shareholder's Equity (billions) $ 5.4 $ 4.4 22.1 $ 5.4 $ 4.4 22.1 Return on Average Equity ** 1.0 % 22.6 % - 1.0 % 22.6 % - Life Insurance in Force (billions) $ 107.9 $ 98.1 10.0 $ 107.9 $ 98.1 10.0 Assets Owned, Managed or Administered (billions): Assets Managed for Institutions $ 49.7 $ 55.0 (9.8) $ 49.7 $ 55.0 (9.8) Assets Owned, Managed or Administered for Individuals: Owned Assets: Separate Account Assets 27.3 32.3 (15.5) 27.3 32.3 (15.5) Other Owned Assets 44.2 41.3 7.1 44.2 41.3 7.1 ----------- ----------- ----------- ----------- Total Owned Assets 71.5 73.6 (2.8) 71.5 73.6 (2.8) Managed Assets 98.7 112.0 (11.8) 98.7 112.0 (11.8) Administered Assets 33.4 34.4 (2.9) 33.4 34.4 (2.9) ----------- ----------- ----------- ----------- Total $ 253.3 $ 275.0 (7.9) $ 253.3 $ 275.0 (7.9) =========== =========== =========== =========== Market Appreciation (Depreciation) During the Period: Owned Assets: Separate Account Assets $ 2,674 $ (4,937) - $ (5,752) $ (5,109) - Other Owned Assets $ (493) $ 153 - $ 879 $ 106 - Total Managed Assets $ 9,162 $(14,923) - $(18,662) $(14,467) - Cash Sales: Mutual Funds $ 7,913 $ 9,890 (20.0) $ 33,581 $ 44,068 (23.8) Annuities 1,507 1,493 1.0 5,648 5,886 (4.0) Investment Certificates 876 722 21.3 3,788 3,297 14.9 Life and Other Insurance Products 218 225 (3.3) 895 900 (0.5) Institutional 747 1,571 (52.5) 5,006 6,601 (24.2) Other 1,150 1,508 (23.7) 5,276 3,557 48.3 ----------- ----------- ----------- ----------- Total Cash Sales $ 12,411 $ 15,409 (19.5) $ 54,194 $ 64,309 (15.7) =========== =========== =========== =========== Number of Financial Advisors 11,535 12,663 (8.9) 11,535 12,663 (8.9) Fees from Financial Plans and Advice Services $ 27.1 $ 21.4 26.5 $ 107.5 $ 97.7 10.1 Percentage of Total Sales from Financial Plans and Advice Services 72.4 % 70.3 % - 72.5 % 68.1 % -
* Excludes cash, derivatives, short term and other investments. ** Excludes the effect on Shareholder's Equity of SFAS No. 115 and SFAS No. 133. The Company adopted SFAS No. 133 on January 1, 2001. 23 (Preliminary) AMERICAN EXPRESS FINANCIAL ADVISORS STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in millions) Quarters Ended ------------------------------------------------------------------------------------ December 31, September 30, June 30, March 31, December 31, 2001 2001 2001 2001 2000 ---- ---- ---- ---- ---- Net Revenues: Investment Income $ 549 $ 490 $ (246) $ 368 $ 546 Management and Distribution Fees 603 595 623 638 722 Other Revenues 299 307 290 277 273 ------------- ------------- ------------ ------------- ------------- Total Revenues 1,451 1,392 667 1,283 1,541 Provision for Losses and Benefits: Annuities 256 242 255 238 251 Insurance 168 171 152 157 134 Investment Certificates 78 71 98 82 90 ------------- ------------- ------------ ------------- ------------- Total 502 484 505 477 475 ------------- ------------- ------------ ------------- ------------- Net Revenues 949 908 162 806 1,066 ------------- ------------- ------------ ------------- ------------- Expenses: Human Resources 455 469 496 548 540 Other Operating Expenses 229 172 174 188 182 Restructuring Charges 45 62 - - - Disaster Recovery Charge - 11 - - - ------------- ------------- ------------ ------------- ------------- Total Expenses 729 714 670 736 722 ------------- ------------- ------------ ------------- ------------- Pretax Income (Loss) 220 194 (508) 70 344 Income Tax Provision (Benefit) 57 49 (201) 19 102 ------------- ------------- ------------ ------------- ------------- Net Income (Loss) $ 163 $ 145 $ (307) $ 51 $ 242 ============= ============= ============ ============= =============
24 (Preliminary) AMERICAN EXPRESS FINANCIAL ADVISORS SELECTED STATISTICAL INFORMATION (Unaudited)
(Dollars in millions, except where indicated) Quarters Ended -------------------------------------------------------------------------------- December 31, September 30, June 30, March 31, December 31, 2001 2001 2001 2001 2000 ---- ---- ---- ---- ---- Investments (billions)* $ 33.6 $ 32.9 $ 32.0 $ 31.2 $ 30.5 Client Contract Reserves (billions) $ 32.8 $ 32.6 $ 32.1 $ 31.7 $ 31.4 Shareholder's Equity (billions) $ 5.4 $ 5.5 $ 4.6 $ 4.7 $ 4.4 Return on Average Equity** 1.0 % 2.7 % 5.4 % 17.8 % 22.6 % Life Insurance in Force (billions) $ 107.9 $ 104.8 $ 102.3 $ 100.0 $ 98.1 Assets Owned, Managed or Administered (billions): Assets Managed for Institutions $ 49.7 $ 47.8 $ 54.3 $ 53.7 $ 55.0 Assets Owned, Managed or Administered for Individuals: Owned Assets: Separate Account Assets 27.3 24.3 28.9 27.4 32.3 Other Owned Assets 44.2 42.5 41.6 42.0 41.3 -------------- ------------ ----------- ------------ ------------ Total Owned Assets 71.5 66.8 70.5 69.4 73.6 Managed Assets 98.7 91.2 104.0 99.8 112.0 Administered Assets 33.4 28.6 33.0 30.8 34.4 -------------- ------------ ----------- ------------ ------------ Total $ 253.3 $ 234.4 $ 261.8 $ 253.7 $ 275.0 ============== ============ =========== ============ ============ Market Appreciation (Depreciation) During the Period: Owned Assets: Separate Account Assets $ 2,674 $ (4,470) $ 1,248 $ (5,204) $ (4,937) Other Owned Assets $ (493) $ 535 $ 229 $ 608 $ 153 Total Managed Assets $ 9,162 $ (15,719) $ 4,552 $ (16,657) $ (14,923) Cash Sales: Mutual Funds $ 7,913 $ 7,384 $ 8,394 $ 9,889 $ 9,890 Annuities 1,507 1,308 1,406 1,427 1,493 Investment Certificates 876 941 1,017 954 722 Life and Other Insurance Products 218 200 233 244 225 Institutional 747 488 1,265 2,506 1,571 Other 1,150 1,115 1,058 1,955 1,508 -------------- ------------ ----------- ------------ ------------ Total Cash Sales $ 12,411 $ 11,436 $ 13,373 $ 16,975 $ 15,409 ============== ============ =========== ============ ============ Number of Financial Advisors 11,535 11,385 11,646 12,052 12,663 Fees from Financial Plans and Advice Services $ 27.1 $ 23.1 $ 29.7 $ 27.6 $ 21.4 Percentage of Total Sales from Financial Plans and Advice Services 72.4 % 72.4 % 72.3 % 73.0 % 70.3 %
* Excludes cash, derivatives, short term and other investments. ** Excludes the effect on Shareholder's Equity of SFAS No. 115 and SFAS No. 133. The Company adopted SFAS No. 133 on January 1, 2001. 25 (Preliminary) AMERICAN EXPRESS BANK STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in millions) Quarters Ended Years Ended December 31, December 31, ------------------------ Percentage ----------------------- Percentage 2001 2000 Inc/(Dec) 2001 2000 Inc/(Dec) ---- ---- --------- ---- ---- -------- Net Revenues: Interest Income $ 154 $ 181 (14.7)% $ 698 $ 735 (5.0)% Interest Expense 65 122 (46.3) 396 484 (18.2) ---------- ---------- ---------- --------- Net Interest Income 89 59 50.2 302 251 20.4 Commissions and Fees 49 52 (6.4) 203 214 (5.4) Foreign Exchange Income & Other Revenue 30 33 (10.7) 144 126 13.9 ---------- ---------- ---------- --------- Total Net Revenues 168 144 15.9 649 591 9.7 ---------- ---------- ---------- --------- Expenses: Human Resources 62 60 2.2 247 257 (4.0) Other Operating Expenses 57 68 (17.4) 255 273 (6.4) Provision for Losses: Ongoing 21 8 # 65 28 # Restructuring Related* - - - 26 - - ---------- ---------- ---------- --------- Total 21 8 # 91 28 # Restructuring Charges* 12 - - 70 - - ---------- ---------- ---------- --------- Total Expenses 152 136 10.6 663 558 18.6 ---------- ---------- ---------- --------- Pretax Income (Loss) 16 8 # (14) 33 - Income Tax Provision (Benefit) 7 2 # (1) 4 - ---------- ---------- ---------- --------- Net Income (Loss) $ 9 $ 6 44.5 $ (13) $ 29 - ========== ========== ========== =========
* Included in the 2001 net income (loss) are restructuring charges of $96 million ($65 million after-tax), of which $12 million ($8 million after-tax) was recognized in the fourth quarter. # Denotes a variance of more than 100%. 26 (Preliminary) AMERICAN EXPRESS BANK SELECTED STATISTICAL INFORMATION (Unaudited)
(Dollars in billions, except where indicated) Quarters Ended Years Ended December 31, December 31, ------------------------- Percentage ----------------------- Percentage 2001 2000 Inc/(Dec) 2001 2000 Inc/(Dec) ---- ---- -------- ---- ---- -------- Total Shareholder's Equity (millions) $ 761 $ 754 0.9 % $ 761 $ 754 0.9 % Return on Average Common Equity (A) (2.0)% 4.4 % - (2.0)% 4.4 % - Return on Average Assets (B) (0.11)% 0.26 % - (0.11)% 0.26 % - Total Loans $ 5.3 $ 5.3 (1.1) $ 5.3 $ 5.3 (1.1) Total Non-performing Loans (millions) $ 123 $ 137 (10.3) $ 123 $ 137 (10.3) Other Non-performing Assets (millions) $ 22 $ 24 (6.6) $ 22 $ 24 (6.6) Reserve for Credit Losses (millions) (C) $ 148 $ 153 (3.3) $ 148 $ 153 (3.3) Loan Loss Reserves as a % of Total Loans 2.4 % 2.6 % - 2.4 % 2.6 % - Deposits $ 8.4 $ 8.0 5.8 $ 8.4 $ 8.0 5.8 Assets Managed (D) / Administered $ 11.4 $ 10.6 7.3 $ 11.4 $ 10.6 7.3 Assets of Non-Consolidated Joint Ventures $ 1.9 $ 2.1 (10.0) $ 1.9 $ 2.1 (10.0) Risk-Based Capital Ratios: Tier 1 11.1 % 10.1 % - 11.1 % 10.1 % - Total 12.2 % 11.4 % - 12.2 % 11.4 % - Leverage Ratio 5.3 % 5.9 % - 5.3 % 5.9 % - (A) Excludes the effect on Shareholder's Equity of SFAS No. 115 and SFAS No. 133. The Company adopted SFAS No. 133 on January 1, 2001. (B) Excludes the effect on total assets of SFAS No. 115 and SFAS No. 133 to the extent that they directly affect Shareholder's Equity. (C) Allocation (millions): Loans $ 128 $ 137 $ 128 $ 137 Other Assets, primarily derivatives 4 14 4 14 Other Liabilities 16 2 16 2 ----------- ---------- ---------- --------- Total Reserve for Credit Losses $ 148 $ 153 $ 148 $ 153 =========== ========== ========== =========
(D) Includes assets managed by American Express Financial Advisors. 27 (Preliminary) AMERICAN EXPRESS BANK STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in millions) Quarters Ended ---------------------------------------------------------------------------------- December 31, September 30, June 30, March 31, December 31, 2001 2001 2001 2001 2000 ---- ---- ---- ---- ---- Net Revenues: Interest Income $ 154 $ 174 $ 182 $ 187 $ 181 Interest Expense 65 98 110 122 122 ------------ ------------ ------------- ------------- ------------- Net Interest Income 89 76 72 65 59 Commissions and Fees 49 51 51 52 52 Foreign Exchange Income & Other Revenue 30 38 36 41 33 ------------ ------------ ------------- ------------- ------------- Total Net Revenues 168 165 159 158 144 ------------ ------------ ------------- ------------- ------------- Expenses: Human Resources 62 60 62 62 60 Other Operating Expenses 57 69 65 66 68 Provision for Losses: Ongoing 21 14 14 16 8 Restructuring Related* - 26 - - - ------------ ------------ ------------- ------------- ------------- Total 21 40 14 16 8 Restructuring Charges* 12 58 - - - ------------ ------------ ------------- ------------- ------------- Total Expenses 152 227 141 144 136 ------------ ------------ ------------- ------------- ------------- Pretax Income (Loss) 16 (62) 18 14 8 Income Tax Provision (Benefit) 7 (19) 6 5 2 ------------ ------------ ------------- ------------- ------------- Net Income (Loss) $ 9 $ (43) $ 12 $ 9 $ 6 ============ ============ ============= ============= =============
* Included in 2001 net income (loss) are restructuring charges of $12 million ($8 million after-tax) and $84 million ($57 million after-tax) recognized in the fourth and third quarters, respectively. 28 (Preliminary) AMERICAN EXPRESS BANK SELECTED STATISTICAL INFORMATION (Unaudited)
(Dollars in billions, except where indicated) Quarters Ended ------------------------------------------------------------------------------ December 31, September 30, June 30, March 31, December 31, 2001 2001 2001 2001 2000 ---- ---- ---- ---- ---- Total Shareholder's Equity (millions) $ 761 $ 771 $ 767 $ 774 $ 754 Return on Average Common Equity (A) (2.0)% (2.4)% 5.2 % 4.6 % 4.4 % Return on Average Assets (B) (0.11)% (0.13)% 0.30 % 0.26 % 0.26 % Total Loans $ 5.3 $ 5.6 $ 5.5 $ 5.4 $ 5.3 Total Non-performing Loans (millions) $ 123 $ 133 $ 159 $ 187 $ 137 Other Non-performing Assets (millions) $ 22 $ 2 $ 4 $ 24 $ 24 Reserve for Credit Losses (millions) (C) $ 148 $ 149 $ 130 $ 164 $ 153 Loan Loss Reserves as a % of Total Loans 2.4 % 2.6 % 2.3 % 2.8 % 2.6 % Deposits $ 8.4 $ 8.7 $ 8.5 $ 8.5 $ 8.0 Assets Managed (D) / Administered $ 11.4 $ 11.3 $ 11.1 $ 10.7 $ 10.6 Assets of Non-Consolidated Joint Ventures $ 1.9 $ 2.0 $ 2.0 $ 2.1 $ 2.1 Risk-Based Capital Ratios: Tier 1 11.1 % 9.9 % 10.4 % 10.7 % 10.1 % Total 12.2 % 10.6 % 11.1 % 11.4 % 11.4 % Leverage Ratio 5.3 % 5.4 % 5.8 % 5.8 % 5.9 % (A) Excludes the effect on Shareholder's Equity of SFAS No. 115 and SFAS No. 133. The Company adopted SFAS No. 133 on January 1, 2001. (B) Excludes the effect on total assets of SFAS No. 115 and SFAS No. 133 to the extent that they directly affect Shareholder's Equity. (C) Allocation (millions): Loans $ 128 $ 144 $ 126 $ 149 $ 137 Other Assets, primarily derivatives 4 3 3 12 14 Other Liabilities 16 2 1 3 2 ---------- ------------ ------------ ----------- ------------ Total Reserve for Credit Losses $ 148 $ 149 $ 130 $ 164 $ 153 ========== ============ ============ =========== ============
(D) Includes assets managed by American Express Financial Advisors. 29 EX-99.2 4 rsnotes.txt EXHIBIT 99.2 EXHIBIT 99.2 2001 FOURTH QUARTER/FULL YEAR EARNINGS SUPPLEMENT THE ENCLOSED SUMMARY SHOULD BE READ IN CONJUNCTION WITH THE TEXT AND STATISTICAL TABLES INCLUDED IN AMERICAN EXPRESS COMPANY'S (THE "COMPANY" OR "AXP") FOURTH QUARTER 2001 EARNINGS RELEASE. - ------------------------------------------------------------------------------ THIS SUMMARY CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WHICH ARE SUBJECT TO RISKS AND UNCERTAINTIES AND SPEAK ONLY AS OF THE DATE ON WHICH THEY ARE MADE. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THESE FORWARD-LOOKING STATEMENTS, INCLUDING THE COMPANY'S FINANCIAL AND OTHER GOALS, ARE SET FORTH ON PAGE 22 HEREIN AND IN THE COMPANY'S 2000 10-K ANNUAL REPORT, AND OTHER REPORTS, ON FILE WITH THE SECURITIES AND EXCHANGE COMMISSION. - ------------------------------------------------------------------------------ AMERICAN EXPRESS COMPANY FOURTH QUARTER 2001 HIGHLIGHTS o Fourth quarter diluted EPS of $0.22 declined 56%, net revenues (managed basis) decreased 2%, and ROE was 11%. Results for the quarter were negatively impacted by the previously announced restructuring charge of $279MM ($179MM after-tax). - Excluding the restructuring charge, diluted EPS of $0.36, which came in within the pre-announced range of $0.34 to $0.36 per share, declined 28%. o Compared with the fourth quarter of 2000: - Worldwide billed business declined 6% on particularly weak travel-related spending; - TRS' worldwide lending balances on a managed asset basis of $36.0B were up 13%; - Worldwide cards in force increased 7%, up 3.5MM from last year; and, - AEFA assets owned, managed and administered of $253B were 8% lower than last year reflecting substantial market depreciation during the year. o American Express further expanded its products and services during the quarter as it: - Introduced new products at American Express Financial Advisors: --Three proprietary mutual funds: - AXP Mid Cap Value, which will primarily invest in stocks of companies with capitalizations in the range of the Russell Mid Cap Value Index; - AXP Large Cap Equity, which will invest in companies with market capitalizations greater than $5B and will be managed with a bias towards value; and - AXP U.S. Government Mortgage Fund, which will invest mostly in mortgage-backed securities. --Two subadvised mutual funds: - AXP Partners Select Value Fund, subadvised by Gabelli Asset Management Company; and - AXP Partners Small Cap Core Fund, subadvised by Pilgrim Baxter & Associates Ltd. and Wellington Management Company, LLP. --Two new term life insurance products, 15-year and 20-year policies, which are also convertible to permanent life insurance. - Signed an agreement with BSB Bank & Trust Company (Binghamton, NY) to acquire the credit card portfolio of BSB Bank & Trust, consisting of nearly 7,000 active consumer and business accounts with receivables of approximately $11.2 million. - Acquired two co-branded card portfolios -- the Gold and Classic Credit Cards of SOGO department store and the credit card of UNY department store from ORIX Asia Limited in Hong Kong, the first portfolio acquisition outside the U.S., which will bring in more than 78,000 cards in Hong Kong. - Announced the American Express Business Card in Thailand, specially designed to help small and medium enterprises better manage and save on everyday business expenses. - Announced the formation of the Mobile Payment Forum, created with JCB Co., Ltd., MasterCard International and Visa International, which will develop a framework for standardized secure mobile payments and address current mobile commerce issues. - Enhanced American Express Brokerage through new online features, including: --A state-of-the-art portfolio analysis tool; --E-signature capability for online applications; --Enhanced equity research; --Direct deposit capabilities for brokerage accounts; --The ability to download account information to Quicken and Microsoft Money; and --An FDIC-insured sweep option. 1 AMERICAN EXPRESS COMPANY FOURTH QUARTER 2001 OVERVIEW CONSOLIDATED (UNAUDITED)
(millions, except per share amounts) Quarters Ended Percentage December 31, Inc/(Dec) ------------------------------------------ ----------------- 2001 2000 ---- ---- CONSOLIDATED REVENUES: Net (managed basis) $5,590 $5,714 (2)% ====== ====== GAAP reporting basis $5,871 $6,067 (3) ====== ====== NET INCOME: Reported $297 $677 (56) Restructuring charge 179 - - ---- ---- Adjusted net income $476 $677 (30) ==== ==== EPS: Reported - Basic $0.22 $0.51 (57) ===== ===== Reported - Diluted $0.22 $0.50 (56) ===== ===== Adjusted - Diluted $0.36 $0.50 (28) ===== =====
o Results reflect the negative effect of a previously announced restructuring charge to cover severance and the related expenses of eliminating approximately 6,800 jobs, as well as the cost of consolidating real estate facilities to reflect the reduced staffing levels. - Excluding the restructuring charge, net income would have been $476MM, 30% lower than last year and diluted EPS would have been $0.36, 28% lower, reflecting weaker economic and market conditions. - The restructuring charge of $279MM ($179MM after-tax) includes $187MM for severance relating to the elimination of approximately 6,800 jobs, and $92MM of other charges primarily relating to the consolidation of real estate facilities. The expense savings for 2002 resulting from these initiatives is expected to be approximately $280MM, a portion of which will flow through to earnings in the form of improved operating expenses. The rest is expected to be reinvested back into business areas with attractive growth potential. These charges are further discussed within each operating segment's overview. The charge, planned employee reductions and estimated cost savings by segment are as follows:
Restructuring Charge Cost Savings ------------------------------ Employee ------------------------------- ($MM) Pretax After-tax Reductions 2002 2003 ------------ -------------- --------------------- ------------- ------------- TRS $219 $140 6,200 $245 $315 AEFA 45 29 400 20 45 AEB 12 8 100 5 10 Corporate & Other 3 2 100 10 10 ---- ---- ----- ---- ---- Total $279 $179 6,800 $280 $380 ==== ==== ===== ==== ====
-- The above reduction in force is in addition to approximately 7,700 positions, which have been or are in the process of being eliminated through the 3Q '01 restructuring charge and other reengineering activities. The total number of jobs to be eliminated of approximately 14,500 represents approximately 16% of the workforce as of the beginning of 2001. These activities, in addition to other reengineering programs, have generated gross realized savings in excess of $1B during 2001, before reinvestment back into the businesses. o CONSOLIDATED REVENUES: Net revenues declined due to lower billed business volumes, lower spreads on AEFA's investment portfolio, weaker travel revenues, as well as lower management and distribution fees. These items were partially offset by an increase in cards in force, higher cardmember lending spreads and loan balances and greater insurance revenues. 2 AMERICAN EXPRESS COMPANY FOURTH QUARTER 2001 OVERVIEW CONSOLIDATED (CONT'D) (UNAUDITED) o CONSOLIDATED EXPENSES: Rose due to the restructuring charge, larger provisions for losses and higher other operating expenses. These increases were partially offset by lower marketing costs, a decline in human resource expenses, and other reengineering activities and expense control initiatives. o SHARE REPURCHASES: There were no share repurchases during 4Q '01. Since the inception of repurchase programs in September 1994, 357.2MM shares have been acquired. The decision to curtail share repurchases during the second half of 2001 was previously announced as a result of the negative impact of the second quarter charges related to AEFA's investment portfolio on book equity.
Millions of Shares --------------------------------------------------------- - AVERAGE SHARES: 4Q '01 3Q '01 4Q '00 ------ ------ ------ Basic 1,329 1,324 1,322 ===== ===== ===== Diluted 1,336 1,335 1,355 ===== ===== ===== - ACTUAL SHARES: Shares outstanding - beginning of period 1,336 1,324 1,329 Repurchase of common shares - - (6) Net settlements - 3rd party share purchase agreements (8) 11 - Employee benefit plans, compensation and other 3 1 3 ----- ----- ----- Shares outstanding - end of period 1,331 1,336 1,326 ===== ===== =====
CORPORATE AND OTHER o The net expense of $45MM in 4Q '01 compared with $41MM in 4Q '00 and $52MM in 3Q '01. Included in the 4Q '01 results are $3MM ($2MM after-tax) of costs related to the previously discussed restructuring charge. 3 AMERICAN EXPRESS COMPANY FOURTH QUARTER 2001 OVERVIEW TRAVEL RELATED SERVICES (preliminary) STATEMENTS OF INCOME (UNAUDITED, MANAGED BASIS)
Quarters Ended Percentage (millions) December 31, Inc/(Dec) --------------------------------------- ------------------ 2001 2000 ---- ---- Net revenues: Discount revenue $1,913 $2,062 (7)% Net card fees 426 417 2 Lending: Finance charge revenue 1,156 1,090 6 Interest expense 289 448 (35) ------ ------ Net finance charge revenue 867 642 35 Travel commissions and fees 334 442 (25) TC investment income 94 95 (1) Other revenues 893 885 1 ------ ------ Total net revenues 4,527 4,543 - ------ ------ Expenses: Marketing and promotion 282 314 (10) Provision for losses and claims: Charge card 343 262 31 Lending 605 432 40 Other 81 19 # ------ ------ Total 1,029 713 44 ------ ------ Charge card interest expense 335 383 (13) Human resources 918 1,046 (12) Other operating expenses 1,548 1,446 7 Restructuring charge 219 - - ------ ------ Total expenses 4,331 3,902 11 ------ ------ Pretax income 196 641 (69) Income tax provision 26 171 (85) ------ ------ Net income $170 $470 (64) ====== ======
# Denotes variance in excess of 100%. Note: Unless indicated otherwise, the following discussion addresses the "managed basis" Statements of Income. The GAAP Statements of Income are also included in the Company's Earnings Release. o Net income declined 64% reflecting the effect of the restructuring charge, as well as weak economic conditions. - Excluding the restructuring charge, net income declined 34%. o Net revenues declined slightly as lower discount revenue and travel commissions and fees, reflecting continued weakness in the economy, particularly within the Corporate travel arena, were partially offset by increased cards in force and growth in cardmember loans outstanding. o The higher expenses reflect the previously mentioned restructuring charge, as well as greater provisions for losses and increased other operating expenses, which were partially offset by reduced marketing and promotion costs, lower human resource expenses and expense control initiatives. - TRS recorded a restructuring charge of $219MM ($140MM after-tax) in the quarter. The largest component of this charge is $150MM in severance costs for the elimination of approximately 6,200 jobs. The majority of these eliminations relate to staff reductions in the travel businesses and reflect the sharp slowdown in that sector since September 11. The remaining charge of $69MM primarily reflects costs to consolidate various facilities. o The pretax margin was 4.3% in 4Q '01, down from 14.1% last year due to the effect of weaker revenue conditions and the restructuring charge this year. o The effective tax rate was 13% in 4Q '01 versus 22% in 3Q '01 and 27% in 4Q '00. The decline this quarter reflects the restructuring charge and weaker revenue conditions, which created a relatively higher Travelers Cheque tax benefit contribution during the quarter. 4 AMERICAN EXPRESS COMPANY FOURTH QUARTER 2001 OVERVIEW TRAVEL RELATED SERVICES (CONT'D) o DISCOUNT REVENUE: Lower billed business and a lower discount rate yielded a 7% decrease in discount revenue. - The average discount rate in 4Q '01 was 2.66% versus 2.67% in 3Q '01 and 2.69% in 4Q '00. The declines reflect the cumulative impact of stronger than average growth in the lower rate retail and other "everyday spend" merchant categories (e.g., supermarkets, discounters, etc.), as well as significantly weaker T&E spending. -- We believe the AXP value proposition is strong. However, as indicated in prior quarters, continued changes in the mix of business, the continued shift to electronic data capture, volume related pricing discounts, and selective repricing initiatives will probably result in some rate erosion over time.
Quarters Ended Percentage December 31, Inc/(Dec) ---------------------------------- ------------------ 2001 2000 ---- ---- Card billed business (billions): United States $55.8 $59.0 (6)% Outside the United States 18.6 20.0 (7) ----- ----- Total $74.4 $79.0 (6) ===== ===== Cards in force (millions): United States 34.6 33.3 4 Outside the United States 20.6 18.4 12 ----- ----- Total 55.2 51.7 7 ===== ===== Basic cards in force (millions): United States 26.8 26.3 2 Outside the United States 15.6 13.9 12 ----- ----- Total 42.4 40.2 6 ===== ===== Spending per basic card in force (dollars) (a): United States $2,073 $2,266 (9) Outside the United States $1,469 $1,724 (15) Total $1,897 $2,113 (10)
(a) Proprietary card activity only. - - BILLED BUSINESS: The 6% decrease in billed business resulted from lower spending per basic cardmember worldwide, which was partially offset by growth in cards in force. Generally weaker economic conditions during the quarter drove a lower level of spending, particularly within the travel related categories. -- U.S. billed business decreased 6% reflecting 1% growth within the consumer card business on 10% higher transaction volume, a 6% decrease within small business services and a 24% decline within Corporate Services. - Spending per basic card in force declined 9% reflecting the economic and industry factors cited above and the dilutive effect of strong card growth over recent years. -- Excluding the impact of foreign exchange translation: - Total billed business outside the U.S. was down 5% reflecting general weakness across all regions as declines ranged from 3% in Asia to 9% in Latin America. - Spending per proprietary basic card in force outside the U.S. declined 13% reflecting the same factors present within the U.S. -- Network partnership and Purchasing Card volumes sustained their relatively stronger performance, growing during the quarter. -- U.S. non-T&E related volume categories (which represented approximately 67% of 4Q '01 U.S. billed business) continued to grow during the quarter, increasing 5%, but were offset by a 21% decrease in T&E volumes. -- Airline related volume, which represented approximately 10% of total U.S. volumes during the quarter, declined approximately 30% worldwide as both the average airline charge and transaction volume were down double digits. -- Monthly volumes versus last year declined approximately 10% in October, 6% in November and 2% in December. While the sequential monthly reduction in the Worldwide Billed Business decline during the quarter is encouraging, it also reflects the seasonally lower impact of airline volumes during the latter part of the quarter. - - CARDS IN FORCE worldwide rose 7% versus last year. -- U.S. cards in force declined slightly during the quarter reflecting more selective consumer card and small business services acquisition activities as the year progressed in light of economic conditions. -- Outside the United States, 400K cards in force were added during the quarter on continued proprietary card and network card growth. 5 AMERICAN EXPRESS COMPANY FOURTH QUARTER 2001 OVERVIEW TRAVEL RELATED SERVICES (CONT'D) o NON-AMEX BRANDED STATISTICS: Total cards in force and billed business exclude activities on Non-Amex Branded cards (Visa and Eurocards) issued in connection with joint venture activities. These are reported as separate line items within TRS' selected statistical information.
Quarters Ended Percentage December 31, Inc/(Dec) --------------------------------- --------------- 2001 2000 ---- ---- Cards in force (millions) 0.7 0.6 6% Billed business (billions) $0.9 $1.1 (22)
o NET CARD FEES: Rose 2% as the increase in cards in force was offset by the mix shift toward lower and no fee products. The average fee per card in force of $34 in 4Q '01 and 3Q '01 declined from $35 in 4Q '00. o NET FINANCE CHARGE REVENUE: Rose 35% on 16% growth in average worldwide lending balances. - The yield on the U.S. portfolio rose to 9.6% in 4Q '01 from 7.7% in 4Q '00 and 8.8% in 3Q '01 as a decrease in the proportion of the portfolio on introductory rates and the benefit of lower funding costs, which lag in their effect on finance charge revenue, were partially offset by the evolving mix of products toward more lower-rate offerings. o TRAVEL COMMISSIONS AND FEES: Declined 25% on a 40% contraction in travel sales due to the effects of the terrorist attacks on 9/11 and the previously existing weaker corporate travel environment. The revenue earned per dollar of sales increased (10.2% in 4Q '01 versus 9.2% in 3Q '01 and 8.0% in 4Q '00), reflecting new fees related to the migration to transaction-based customer relationships, which were partially offset by continued efforts by airlines to reduce distribution costs and by corporate clients to contain travel and entertainment expenses. o TC INVESTMENT INCOME: Was down 1% as a higher average investment was offset by a decline in the pretax yield. TC sales declined 9% in the quarter. o OTHER REVENUES: Increased 1% due to higher card-related fees and larger insurance premiums, which were offset by significantly lower interest income on investment and liquidity pools held within card funding vehicles. o MARKETING AND PROMOTION EXPENSES: Decreased 10% as the Company continued to rationalize certain marketing efforts in light of the weaker business environment. o OTHER PROVISIONS FOR LOSSES: Increased substantially due in part to reserve additions related to credit exposures to travel industry service establishments and insurance claims and benefits from the crash of Flight #587. o CHARGE CARD INTEREST EXPENSE: Was down 13% due to a lower effective cost of funds and lower billed business volumes. o HUMAN RESOURCE EXPENSES: Decreased 12% versus last year as a result of a lower average number of employees and lower levels of incentive compensation. - The employee count at 12/01 of 71,900 was down approximately 3,000, or 4%, versus last year and down approximately 2,600 versus last quarter, reflecting the previously discussed reengineering initiatives. o OTHER OPERATING EXPENSES: Were up 7% as higher costs related to customer service activity growth and cardmember loyalty programs, as well as write-downs of certain strategic corporate venture investments, were partially offset by reengineering initiatives and cost containment efforts. 6 AMERICAN EXPRESS COMPANY FOURTH QUARTER 2001 OVERVIEW TRAVEL RELATED SERVICES (CONT'D) o CREDIT QUALITY: - As a result of the weaker economy, overall credit quality deteriorated modestly in the quarter, but remained at relatively attractive levels versus historical comparisons. - The provision for losses on charge card products rose 31% due to the higher past due and write-off levels versus last year. - The lending provision for losses was 40% above last year on growth in outstanding loans and the weaker credit environment. - Reserve coverage ratios at more than 100% of past due balances remained strong. - WORLDWIDE CHARGE CARD: -- The write-off rate increased from the historically low levels achieved last year and 3Q '01. Past due rates also rose versus last year but fell versus last quarter. The increases mostly reflect economic conditions, but also the impact of lower volumes and a reduced receivable base on the calculation.
12/01 9/01 12/00 -------------- ------------ ------------- Loss ratio, net of recoveries 0.47% 0.45% 0.36% 90 days past due as a % of receivables 2.9% 3.0% 2.3%
-- Reserve coverage of past due accounts remained strong.
12/01 9/01 12/00 -------------- ------------ ------------- Reserves (MM) $1,032 $1,026 $964 % of receivables 3.9% 4.1% 3.3% % of past due accounts 136% 136% 142%
- U.S. LENDING: -- The write-off and past due rate increased from last quarter and last year. The lagged write-off rate actually declined slightly versus 3Q '01.
12/01 9/01 12/00 -------------- ------------ ------------- Write-off rate, net of recoveries 5.9% 5.6% 4.4% 30 days past due as a % of loans 3.3% 3.2% 2.8%
-- The lending reserve balance increased during the quarter.
12/01 9/01 12/00 -------------- ------------ ------------- Reserves (MM) $1,077 $1,018 $820 % of total loans 3.4% 3.3% 2.9% % of past due accounts 101% 101% 104%
7 AMERICAN EXPRESS COMPANY FOURTH QUARTER 2001 OVERVIEW AMERICAN EXPRESS FINANCIAL ADVISORS (preliminary) STATEMENTS OF INCOME (UNAUDITED)
(millions) Quarters Ended Percentage December 31, Inc/(Dec) ------------------------------- ------------------- 2001 2000 ----- ----- Revenues: Investment income $549 $546 1% Management and distribution fees 603 722 (17) Other revenues 299 273 9 ----- ----- Total revenues 1,451 1,541 (6) Provision for losses and benefits: Annuities 256 251 2 Insurance 168 134 26 Investment certificates 78 90 (14) ----- ----- Total 502 475 6 ----- ----- Total net revenues 949 1,066 (11) ----- ----- Expenses: Human resources 455 540 (16) Other operating expenses 229 182 26 Restructuring charge 45 - - ----- ----- Total expenses 729 722 1 ----- ----- Pretax income 220 344 (36) Income tax provision 57 102 (44) ----- ----- Net income $163 $242 (33) ===== =====
o Net income declined 33% reflecting the effect of the restructuring charge and the continuing effect of the weak economy and financial markets. - AEFA recorded a restructuring charge of $45MM ($29MM after-tax) during the quarter. This charge reflects $20MM of severance for the elimination of approximately 400 jobs and $25MM related to facility consolidation costs. - Excluding this charge, net income declined 21%. o Net revenues declined 11% reflecting: - Lower spreads on investment portfolio products, mostly reflecting the impact of the portfolio repositioning activities to improve overall credit quality discussed as part of our 2Q '01 results; - Reduced management fees from lower average managed asset levels; - A decrease in mutual fund-related distribution fees from weaker sales levels; partially offset by - Higher advice services fees. o The substantial pretax margin decline reflects the relatively weaker revenue environment and the negative impact of the restructuring charge this year. o The effective tax rate was 26.0% in 4Q '01, versus 25.2% in 3Q '01 and 29.6% in 4Q '00. The decline versus last year reflects the relatively greater impact this quarter of tax credits from affordable housing project investments due to the substantially lower level of pretax income. o ASSETS OWNED, MANAGED AND ADMINISTERED:
Percentage (billions) December 31, Inc/(Dec) ---------------------------------- --------------- 2001 2000 ---- ---- Assets owned (excluding separate accounts) $44.2 $41.3 7% Separate account assets 27.3 32.3 (16) Assets managed 148.4 167.0 (11) Assets administered 33.4 34.4 (3) ------ ------ Total $253.3 $275.0 (8) ====== ======
8 AMERICAN EXPRESS COMPANY FOURTH QUARTER 2001 OVERVIEW AMERICAN EXPRESS FINANCIAL ADVISORS (CONT'D) o ASSET QUALITY: - Except for modest deterioration within the high-yield market sector, which was in line with our expectations, asset quality remains strong. - Non-performing assets relative to invested assets were 0.1% and were 250% covered by reserves, including those related to the impairment of high-yield securities. - High-yield investments totaled $1.3B at 12/31/01, down from $1.4B at 9/30/01, and represented approximately 4% of AEFA's portfolio. Going forward, AEFA targets a level that is more in line with industry averages of approximately 7%. -- As previously reported, in October, the Company completed a transaction which securitized a large portion of its rated CDO securities. The transaction has the following consequences: - Pools the performance of 44 separate CDO securities allowing recognition of the investment return related to the overall performance of the portfolio. The ability to evaluate future cash flows at the portfolio level, rather than on a security-by-security basis, should increase the predictability of future earnings; and, - Monetizes a small portion of the CDO securities by selling notes in this structure to third-party investors. - The SFAS No. 115 related mark-to-market adjustment on the portfolio (reported in assets pretax) was appreciation of $224MM at 12/01 and $717MM at 9/01 versus depreciation of ($655MM) at 12/00. o INVESTMENT INCOME: - Gross investment income increased 1% as higher invested assets were partially offset by a lower average yield, mostly due to the repositioning of the portfolio. In addition, the value of options hedging outstanding stock market certificates and equity indexed annuities increased on appreciation in the S&P 500 this year versus depreciation last year, which was offset in the related provisions. - Average invested assets of $35.2B (excluding unrealized appreciation/depreciation) rose 7% versus $32.8B in 4Q '00. - The average yield on invested assets was 6.4% versus 7.2% in 4Q '00. - Underlying spreads within the insurance and annuity products were down versus last year and last quarter, while spreads for certificates were up versus last year and last quarter. o MANAGEMENT AND DISTRIBUTION FEES: The decrease of 17% was due to lower average assets under management and weaker mutual fund sales, reflecting the continued negative impact of weak equity market conditions. - ASSETS MANAGED:
Percentage (billions) December 31, Inc/(Dec) ------------------------------- ----------------- 2001 2000 ---- ---- Assets managed for individuals $98.7 $112.0 (12)% Assets managed for institutions 49.7 55.0 (10) Separate account assets 27.3 32.3 (16) ------ ------ Total $175.7 $199.3 (12) ====== ======
-- The decline in managed assets since 12/00 resulted from $24.4B of market depreciation, reflecting the 13% decline in the S&P 500 during the past year, offset in part by $0.8B of net new money. -- The $12.4B increase in managed assets during 4Q '01 resulted from market appreciation of $11.8B and net inflows of $0.6B. 9 AMERICAN EXPRESS COMPANY FOURTH QUARTER 2001 OVERVIEW AMERICAN EXPRESS FINANCIAL ADVISORS (CONT'D) o PRODUCT SALES: - Total gross cash sales from all products were down 19% versus 4Q '00 as generally weak sales conditions persisted throughout the quarter. - Mutual fund sales decreased 20% as both proprietary and non-proprietary fund sales declined. The largest portion of non-proprietary fund sales continued to occur in "wrap" accounts. Within proprietary funds: -- Bond fund sales grew; sales of equity and money market funds declined. -- Redemption rates held relatively steady and continued to compare favorably with industry levels. - Annuity sales increased 1%, as strong growth in fixed annuity sales was offset by a decline in variable annuity sales. - Sales of insurance products fell 3% reflecting lower sales of life products, partially offset by higher property-casualty sales, in part due to sales through Costco. - Certificate sales increased 21% reflecting particularly strong advisor sales, which were partially offset by lower sales of certificates sold to clients outside the U.S. through a joint venture between AEFA and AEB. - Institutional sales declined 52% versus a relatively strong fourth quarter last year, reflecting lower new account additions. - Other sales decreased 24% due to the addition last year of a higher level of new 401(k) plan sponsors, partially offset by sales growth in limited partnerships and wealth management account activities. - Advisor product sales generated through financial planning and advice services were 72% of total sales in 4Q '01 versus 70% in 4Q '00. o OTHER REVENUES: Were up 9%, primarily on higher life and property-casualty insurance premiums and charges. - Financial planning and advice services fees of $27.1MM rose 26% versus 4Q '00 reflecting the negative impact during 4Q '00 of a change in policy, which deferred revenues and a comparable amount of human resource expense. Advice services volumes actually remained weak in the quarter, declining 13%. o PROVISIONS FOR LOSSES AND BENEFITS: Annuity product provisions increased due to the impact of a lower accrual rate and flat inforce levels, which was more than offset by the effect of S&P 500 appreciation on equity indexed annuities. Insurance provisions rose due to higher inforce levels, partially offset by lower accrual rates. Certificate provisions decreased as higher inforce levels and the effect on the stock market certificate product of depreciation last year and appreciation this year in the S&P 500 were offset by lower accrual rates. o HUMAN RESOURCES: Expenses declined 16% reflecting lower field force compensation-related expenses due to the decline in advisors and the impact of lower volumes on advisor compensation, as well as the benefits of reengineering and cost containment initiatives within the home office where average employees were down 15% versus 4Q '00. - TOTAL ADVISOR FORCE: 11,535 at 12/01; down 1,128 advisors, or (9)%, versus 12/00 and up 150 advisors versus 9/01. -- The decrease in advisors versus 12/00 reflects reduced recruiting activities during the year as we worked to improve the advisor platform economics, and higher termination rates due to the weaker environment and proactive efforts to eliminate unproductive advisors. - Veteran advisor retention rates remain strong. -- The increase in advisors during the quarter reflects more proactive recruiting and training activities recently as actions taken to rebalance the advisor platform economics have repositioned AEFA for controlled growth. We expect to continue to carefully manage new advisor additions in coming quarters to ensure overall field force costs are appropriately controlled and advisor production is maximized. -- Total production, advisor productivity and client acquisitions were down versus last year reflecting the more difficult selling environment. - The total number of clients was up 4% and accounts per client were flat. Client retention exceeded 95%. o OTHER OPERATING EXPENSES: The increase reflects higher investment activities related to the acceleration of various strategic, reengineering, technology and product development projects, a higher minority interest related to premium deposits (the joint venture with AEB) and real estate write-downs from facility consolidation. 10 AMERICAN EXPRESS COMPANY FOURTH QUARTER 2001 OVERVIEW AMERICAN EXPRESS BANK (preliminary) STATEMENTS OF INCOME (UNAUDITED)
(millions) Quarters Ended Percentage December 31, Inc/(Dec) ----------------------------------- ---------------------- 2001 2000 ---- ---- Net revenues: Interest income $154 $181 (15)% Interest expense 65 122 (46) ---- ---- Net interest income 89 59 50 Commissions and fees 49 52 (6) Foreign exchange income and other revenue 30 33 (11) ---- ---- Total net revenues 168 144 16 ---- ---- Expenses: Human resources 62 60 2 Other operating expenses 57 68 (17) Provision for losses 21 8 # Restructuring charge 12 - - ---- ---- Total expenses 152 136 11 ---- ---- Pretax income 16 8 # Income tax provision 7 2 # ---- ---- Net income $9 $6 44 ==== ====
# Denotes variance in excess of 100%. o AEB recorded a restructuring charge of $12MM ($8MM after-tax) primarily reflecting $7MM of severance for approximately 100 employees. - Excluding the effect of the restructuring charge, net income of $17MM almost tripled last year's amount. o Revenues grew 16% as higher net interest income was partially offset by weaker foreign exchange and other revenue and lower commissions and fees. AEB's two individual oriented businesses continued to grow, despite a more difficult market environment, as Private Banking client holdings rose 19% and client volumes in Personal Financial Services (PFS) increased 9%. Revenues within Corporate Banking declined as we continued to de-emphasize these activities. - Net interest income rose 50% due to higher consumer loans and lower funding costs, partially offset by decreases in Corporate Banking. - Commissions and fees were down 6% from lower results in Corporate Banking. - Foreign exchange income and other revenue decreased 11% as higher revenue from premium deposits (the joint venture with AEFA) was more than offset by lower earnings from other joint ventures and lower Corporate Banking-related revenue. o Human resource expenses rose 2% primarily due to merit and benefit related cost increases, partially offset by a lower employee level. o Other operating expenses decreased 17% largely due to lower technology costs and T&E expenses. o The provision for losses increased primarily due to PFS loan growth. o AEB remained "well-capitalized".
12/01 9/01 12/00 Well-Capitalized --------------- ------------- -------------- --------------------- Tier 1 11.1% 9.9% 10.1% 6.0% Total 12.2% 10.6% 11.4% 10.0% Leverage Ratio 5.3% 5.4% 5.9% 5.0%
11 AMERICAN EXPRESS COMPANY FOURTH QUARTER 2001 OVERVIEW AMERICAN EXPRESS BANK (CONT'D) o EXPOSURES - AEB's loans outstanding were $5.3B at 12/01 and 12/00, and $5.6B at 9/01. Activity since 12/00 included a $900MM decrease in corporate banking loans, a $100MM decrease in financial institution loans and a $1.0B increase in consumer and private banking loans, including the transfer of approximately $200MM of collateralized loans from Corporate Banking. Compared to 9/01, corporate banking loans decreased by $300MM and financial institution loans decreased by $100MM, while consumer and private banking loans increased by $100MM. As of 12/01, consumer and private banking loans comprised 60% of total loans versus 55% at 9/01 and 41% at 12/00; corporate banking loans comprised 18% of total loans versus 22% at 9/01 and 34% at 12/00; and financial institution loans comprised 22% of total loans at 12/01, 23% at 9/01 and 25% at 12/00. - In addition to the loan portfolio, there are other banking activities, such as forward contracts, various contingencies and market placements, which added approximately $7.3B to the credit exposures at 12/01, $8.0B at 9/01 and $7.4B at 12/00. Of the $7.3B of additional exposures at 12/01, $5.3B were relatively less risky cash and securities related balances.
($ in billions) 12/31/01 ------------------------------------------------------------------ Net Guarantees 9/30/01 FX and And Total Total Country Loans Derivatives Contingents Other(1) Exposure(2) Exposure(2) ------- ----- ----------- ----------- ----- -------- -------- Hong Kong $1.1 - $0.1 $0.1 $1.3 $1.2 Indonesia - - - - 0.1 0.1 Singapore 0.5 - 0.1 0.1 0.7 0.7 Korea 0.1 - - 0.1 0.2 0.3 Taiwan 0.2 - - 0.1 0.3 0.3 Japan - - - 0.2 0.2 0.1 Other 0.1 - - 0.1 0.1 0.1 ---- ---- ---- ---- ----- ---- Total Asia/Pacific Region (2) 2.1 - 0.2 0.7 3.0 2.9 ---- ---- ---- ---- ----- ---- Chile 0.1 - - - 0.2 0.3 Brazil 0.3 - - - 0.3 0.4 Mexico 0.1 - - - 0.1 0.1 Argentina (3) - - - - 0.1 0.1 Peru - - - - - 0.1 Other 0.4 - 0.2 0.1 0.8 0.7 ---- ---- ---- ---- ----- ---- Total Latin America (2) 0.9 0.1 0.3 0.2 1.4 1.6 ---- ---- ---- ---- ----- ---- India 0.3 - 0.1 0.3 0.7 0.7 Pakistan 0.1 - - 0.1 0.2 0.2 Other - - - 0.1 0.2 0.2 ---- ---- ---- ---- ----- ---- Total Subcontinent (2) 0.4 - 0.1 0.5 1.1 1.1 ---- ---- ---- ---- ----- ---- Egypt 0.2 - - 0.2 0.4 0.4 Other 0.1 - - - 0.2 0.2 ---- ---- ---- ---- ----- ---- Total Middle East and Africa (2) 0.3 - - 0.2 0.6 0.6 ---- ---- ---- ---- ----- ---- Total Europe (2) 1.4 - 0.4 2.5 4.4 5.0 Total North America (2) 0.3 - 0.2 1.6 2.1 2.3 ----- ----- ----- ----- ------ ----- Total Worldwide (2) $5.3 $0.2 $1.3 $5.8 $12.6 $13.6 ===== ===== ===== ===== ===== =====
(1) Includes cash, placements and securities. (2) Individual items may not add to totals due to rounding. (3) Total exposures to Argentina at 12/31/01 were $56MM, which includes loans of $25MM. Note: Includes cross-border and local exposure and does not net local funding or liabilities against any local exposure. 12 AMERICAN EXPRESS COMPANY FOURTH QUARTER 2001 OVERVIEW AMERICAN EXPRESS BANK (CONT'D) o Total non-performing loans of $123MM were down from $133MM at 9/01 and $137MM at 12/00 as a result of decreases within the Corporate Banking business. The decreases in both periods are due to loan payments and write-offs, mostly in Indonesia, partially offset by net downgrades of the risk status of various loans. o Other non-performing assets were $22MM at 12/01 versus $2MM at 9/01 and $24MM at 12/00. The increase from 9/01 reflects additional risks surrounding certain contingent liabilities, which are almost fully reserved. Since 12/00, payments/maturities and write-offs, mainly in Indonesia, were offset by the addition of those contingent liabilities. o AEB's total reserves at 12/01 of $148MM compared with $149MM at 9/01 and $153MM at 12/00 and are allocated as follows:
(millions) 12/01 9/01 12/00 ---------- --------- --------- Loans $128 $144 $137 Other Assets, primarily derivatives 4 3 14 Other Liabilities 16 2 2 ---- ---- ---- Total $148 $149 $153 ==== ==== ====
- Reserve coverage of non-performing loans of 104% at 12/01 compared with 108% at 9/01 and 100% at 12/00. o Management formally reviews the loan portfolio and evaluates credit risk throughout the year. This evaluation takes into consideration the financial condition of the borrowers, fair market value of collateral, status of delinquencies, historical loss experience, industry trends and the impact of current economic conditions. As of December 31, 2001, management considers the loss reserve to be appropriate. 13 AMERICAN EXPRESS COMPANY FULL YEAR 2001 OVERVIEW CONSOLIDATED (UNAUDITED)
(millions, except per share amounts) Years Ended Percentage December 31, Inc/(Dec) ------------------------------------------ ----------------- 2001 2000 ---- ---- CONSOLIDATED REVENUES: Net (managed basis) $21,359 $22,085 (3)% ======= ======= GAAP reporting basis $22,582 $23,675 (5) ======= ======= NET INCOME: Reported $1,311 $2,810 (53) Restructuring charges 411 - - September 11th items 65 - - ------- ------- Adjusted net income $1,787 $2,810 (36) ======= ======= EPS: Reported - Basic $0.99 $2.12 (53) ======= ======= Reported - Diluted $0.98 $2.07 (53) ======= ======= Adjusted - Diluted $1.34 $2.07 (35) ======= =======
o Results reflect the negative effect of various items related to the terrorist attacks of 9/11 and restructuring charges to cover severance and related expenses of eliminating approximately 12,900 jobs, the cost of consolidating real estate facilities to reflect the reduced staffing levels and other charges relating to the exit of certain business lines. - The $98MM ($65MM after-tax) of one-time costs and business interruption losses in the third quarter related to the September 11th terrorist attacks include provisions related to credit exposures to travel industry service establishments, insurance claims, and waived finance charges and late fees. -- The Company has also incurred costs of approximately $58MM since September 11th, which are expected to be covered by insurance and, consequently, did not impact the results. These include the cost of duplicate facilities and equipment associated with the relocation of offices in lower Manhattan and certain other business recovery expenses. Costs associated with the damage to the Company's offices, extra operating expenses and business interruption losses are still being evaluated. To-date, approximately $30MM of such costs relating to our portion of the repair of our headquarters building have been identified. The company expects that a substantial portion of these costs and losses will be covered by insurance. - The total restructuring charges of $631MM ($411MM after-tax) - $352MM ($232MM after-tax) in 3Q '01 and $279MM ($179MM after-tax) in 4Q '01 - include $369MM for severance and $262MM of other charges. The savings for 2002 resulting from these initiatives is expected to be approximately $605MM, a portion of which will flow through to earnings in the form of improved operating expense margins. The rest is expected to be reinvested back into business areas with high-growth potential. These charges are further discussed within each operating segment's overview. The combined charges, planned employee reductions and estimated cost savings by segment are as follows.
Restructuring Charges Cost Savings ----------------------------- Employee ------------------------------- Pretax After-tax Reductions 2002 2003 ------------ ------------- -------------------- ------------- ------------- TRS $414 $267 10,900 $495 $575 AEFA 107 70 1,300 60 95 AEB 96 65 500 30 45 Corporate & Other 14 9 200 20 25 ------ ------ ------ ------ ------ Total $631 $411 12,900 $605 $740 ====== ====== ====== ====== ======
- Excluding the effect of the restructuring charges and the 9/11 costs, diluted EPS was $1.34, down 35% versus last year. o Results also include $182MM ($132MM after-tax), recorded in 1Q '01 and $826MM ($537MM after-tax), recorded in 2Q '01, of losses related to the writedown and sale of certain high-yield securities and the reduction of the risk profile within AEFA's investment portfolio. 2000's results reflect approximately $123MM of such losses. 14 AMERICAN EXPRESS COMPANY FULL YEAR 2001 OVERVIEW CONSOLIDATED (CONT'D) o CONSOLIDATED REVENUES: Net revenues declined due to lower spreads on AEFA's investment portfolio, which reflect the investment losses and portfolio repositioning mentioned above, weaker travel revenues, as well as lower management and distribution fees. These items were partially offset by an increase in cards in force, larger loan balances and greater insurance premiums. o CONSOLIDATED EXPENSES: Rose due to the previously mentioned charges, larger provisions for losses and higher operating expenses. These increases were partially offset by lower marketing costs, a decline in human resource expenses, and other reengineering activities and expense control initiatives. o AVERAGE SHARES:
Millions of Shares ---------------------------------------------- 2001 2000 ---- ---- Basic 1,324 1,327 ===== ===== Diluted 1,336 1,360 ===== ===== o ACTUAL SHARE ACTIVITY: Shares outstanding - beginning of period 1,326 1,341 Repurchase of common shares (14) (25) Net settlements - 3rd party share purchase agreements 12 - Employee benefit plans, compensation and other 7 10 ----- ----- Shares outstanding - end of period 1,331 1,326 ===== =====
CORPORATE AND OTHER o The 2001 net operating expense was $187MM compared with $180MM in 2000. - Both 2001 and 2000 include a $46MM ($39MM after-tax) Lehman Brothers preferred dividend based on its earnings. - 2001 also reflects $14MM ($9MM after-tax) of costs related to the previously discussed restructuring charges. 15 AMERICAN EXPRESS COMPANY FULL YEAR 2001 OVERVIEW TRAVEL RELATED SERVICES (preliminary) STATEMENTS OF INCOME (UNAUDITED, MANAGED BASIS)
Years Ended Percentage (millions) December 31, Inc/(Dec) -------------------------------------- ----------------- 2001 2000 ------ ------ Net revenues: Discount revenue $7,714 $7,779 (1)% Net card fees 1,691 1,653 2 Lending: Finance charge revenue 4,622 3,977 16 Interest expense 1,484 1,594 (7) ------ ------ Net finance charge revenue 3,138 2,383 32 ------ ------ Travel commissions and fees 1,537 1,821 (16) TC investment income 394 387 2 Other revenues 3,628 3,418 6 ------ ------ Total net revenues 18,102 17,441 4 ------ ------ Expenses: Marketing and promotion 1,145 1,348 (15) Provision for losses and claims: Charge card 1,231 1,157 6 Lending 2,243 1,486 51 Other 164 105 57 ------ ------ Total 3,638 2,748 32 ------ ------ Charge card interest expense 1,476 1,408 5 Human resources 3,992 4,126 (3) Other operating expenses 5,379 5,098 6 Restructuring charges 414 - - Disaster recovery charge 79 - - ------ ------ Total expenses 16,123 14,728 9 ------ ------ Pretax income 1,979 2,713 (27) Income tax provision 520 784 (34) ------ ------ Net income $1,459 $1,929 (24) ====== ======
Note: Unless indicated otherwise, the following discussion addresses the "managed basis" Statements of Income. The GAAP Statements of Income are also included in the Company's Earnings Release. o Net income declined 24% reflecting the effect of the restructuring charges and the costs related to the 9/11 terrorist attacks, as well as generally weaker economic conditions throughout the year. - Excluding these costs and restructuring charges, net income declined 8%. o Net revenues rose 4% from increased cards in force and growth in cardmember loans outstanding, which was partially offset by lower discount revenue and travel commissions and fees, reflecting overall weakness in the economy, especially within the travel and entertainment sectors. o The higher expenses reflect the previously mentioned restructuring and disaster recovery charges, as well as greater provisions for losses and increased operating costs, which were partially offset by reduced marketing and promotion costs, lower human resource expenses and cost control initiatives. - For 2001, TRS recorded restructuring charges of $414MM ($267MM after-tax). Included in this charge is $278MM in severance costs for the elimination of 10,900 jobs, the largest component of which is within the travel business. The remaining charge of $136MM is primarily related to facilities consolidation costs. - The September 11th disaster recovery charge includes provisions related to credit exposures to travel industry service establishments and insurance claims, but excludes approximately $8MM of waived finance charges and late fees. o On a GAAP reporting basis, TRS recognized net pretax gains of $155MM ($101MM after-tax) in 2001 and $142MM ($92MM after-tax) in 2000 related to the securitization of $4.3B and $4.0B of U.S. Lending receivables, respectively. In 2001, this gain was net of a pretax loss of $25MM ($16MM after-tax) related to the maturity of a $1.0B U.S. lending receivable securitization in 2Q '01. In both periods, these net gains were offset by expenses related to card acquisition initiatives and, therefore, had no material impact on net income or total expenses in either period. For purposes of the above "managed basis" Statements of Income, which present TRS' results as if there had been no securitizations, such net gains (reported on the GAAP Statement of Income as a $73MM and a $92MM reduction in the Lending Provision for Losses in 2001 and 2000, respectively, and increases in Other Revenue and Lending Interest Expense) and corresponding growth in Marketing and Promotion and Other Operating Expenses have been eliminated. 16 AMERICAN EXPRESS COMPANY FULL YEAR 2001 OVERVIEW TRAVEL RELATED SERVICES (CONT'D) o The pretax margin was 10.9% in 2001 versus 15.6% in 2000 due to the impact of the charges discussed above and the weak revenue conditions. o The effective tax rate declined to 26% in 2001 from 29% in 2000 on a higher relative Travelers Cheque contribution. o DISCOUNT REVENUE: Relatively flat billed business and a lower discount rate yielded a 1% decrease in discount revenue. - The average discount rate was 2.67% in 2001 versus 2.70% in 2000. The decline from last year reflects the cumulative impact of stronger than average growth in the lower rate retail and other "everyday spend" merchant categories (e.g., supermarkets, discounters, etc.), as well as significantly weaker T&E spending during the year.
Years Ended Percentage December 31, Inc/(Dec) ---------------------------- -------------- 2001 2000 ---- ---- Card billed business (billions): United States $224.5 $221.7 1% Outside the United States 73.5 75.0 (2) ------ ------ Total $298.0 $296.7 - ====== ====== Spending per basic card in force (dollars) (a): United States $8,364 $8,844 (5) Outside the United States $5,939 $6,682 (11) Total $7,666 $8,229 (7)
(a) Proprietary card activity only. - BILLED BUSINESS: The slight increase in billed business resulted from growth in cards in force, partially offset by lower spending per basic cardmember worldwide. The lower cardmember spending reflects generally weaker economic conditions during the year, as well as a significantly lower level of spending, particularly within the travel related categories, subsequent to the 9/11 terrorist attacks. -- U.S. billed business increased 1% reflecting 6% growth within the consumer card business on 12% higher transaction volume, a 2% increase within small business services and an 11% decline within Corporate Services. - Spending per basic card in force declined 5%. -- Excluding the impact of foreign exchange translation: - Total billed business outside the U.S. rose approximately 3% on growth in Europe and Asia, offset by declines in Canada and Latin America. - Spending per proprietary basic card in force outside the U.S. declined 7%. -- Network partnership and Purchasing Card volumes sustained their stronger growth levels, in excess of the consolidated worldwide billed business growth rate. -- U.S. non-T&E related volume categories (which represented approximately 60% of U.S. billed business during 2001) grew 9% versus last year. U.S. T&E related volume declined 9%. -- Airline related volume declined 15% on high single digit declines in both the average airline charge and transaction volumes. o NON-AMEX BRANDED STATISTICS: Total billed business excludes activities on Non-Amex Branded cards (Visa and Eurocards) issued in connection with joint venture activities. These are reported as separate line items within TRS' selected statistical information.
Years Ended Percentage December 31, Inc/(Dec) ---------------------------------- ------------------ 2001 2000 ---- ---- Billed business (billions) $3.4 $3.2 7%
o NET CARD FEES: Rose 2% as the increase in cards in force was partially offset by the mix shift toward lower and no fee products. The average fee per card in force was $34 in 2001 versus $36 in 2000. 17 AMERICAN EXPRESS COMPANY FULL YEAR 2001 OVERVIEW TRAVEL RELATED SERVICES (CONT'D) o NET FINANCE CHARGE REVENUE: Rose 32% on 21% growth in average worldwide lending balances. - The net yield on the U.S. portfolio rose to 8.8% versus 7.6% in 2000 as a decrease in the proportion of the portfolio on introductory rates and the benefit of declining funding costs throughout the year were partially offset by the evolving mix of products toward more lower-rate offerings. - The variance between the gross revenue and interest expense growth rates of 16% and (7)%, respectively, reflects the lagged effect of interest rate decreases on the revenue earned from cardmembers. o TRAVEL COMMISSIONS AND FEES: Declined 16% on a 24% contraction in travel sales due to the effects of the 9/11 terrorist attacks and the weaker corporate travel environment throughout the year. The revenue earned per dollar of sales increased (8.9% in 2001 versus 8.1% in 2000), reflecting new fees related to certain client services, which were partially offset by continued efforts by airlines to reduce distribution costs and by corporate clients to contain travel and entertainment expenses. o TC INVESTMENT INCOME: Increased 2% reflecting a higher yield and higher average investments. o OTHER REVENUES: Increased 6% due to higher card-related fees and larger insurance premiums. o MARKETING AND PROMOTION EXPENSES: Decreased 15% as we rationalized certain marketing efforts in light of the weaker business environment. o OTHER PROVISION FOR LOSSES: Increased 57% due in part to reserve additions related to credit exposures to travel industry service establishments. o CHARGE CARD INTEREST EXPENSE: Rose 5% due to a higher effective cost of funds offset by lower billed business volumes. o HUMAN RESOURCE EXPENSES: Decreased 3% versus last year as a result of a lower average number of employees, lower levels of incentive compensation, and reduced contract programmer expenses, which offset merit increases. o OTHER OPERATING EXPENSES: Were up 6% as higher costs related to business growth, cardmember loyalty programs, and professional fees for outsourcing activities were partially offset by reengineering activities and cost containment efforts. o CREDIT PROVISIONS: - The provision for losses on charge card products increased 6% on higher loss rates. The net loss ratio increased to 0.42% from 0.36% last year. - The lending provision for losses was 51% above last year on growth in outstanding loans and the weaker credit environment. The net write-off rate for 2001 was 5.6% versus 4.4% in 2000. 18 AMERICAN EXPRESS COMPANY FULL YEAR 2001 OVERVIEW AMERICAN EXPRESS FINANCIAL ADVISORS (preliminary) STATEMENTS OF INCOME (UNAUDITED)
(millions) Years Ended Percentage December 31, Inc/(Dec) ---------------------------------------- ---------------- 2001 2000 ---- ---- Revenues: Investment income $1,162 $2,292 (49)% Management and distribution fees 2,458 2,812 (13) Other revenues 1,171 1,026 14 ------ ------ Total revenues 4,791 6,130 (22) Provision for losses and benefits: Annuities 989 1,018 (3) Insurance 648 556 17 Investment certificates 329 337 (2) ------ ------ Total 1,966 1,911 3 ------ ------ Total net revenues 2,825 4,219 (33) ------ ------ Expenses: Human resources 1,969 2,093 (6) Other operating expenses 762 643 18 Restructuring charges 107 - - Disaster Recovery charge 11 - - ------ ------ Total expenses 2,849 2,736 4 ------ ------ Pretax (loss)/income (24) 1,483 - Income tax (benefit)/provision (76) 451 - ------ ------ Net income $52 $1,032 (95) ====== ======
o Net income declined 95% reflecting the effect of the weak economy and financial markets as well as the following: - Restructuring charges of $107MM ($70MM after-tax) and an $11MM ($8MM after-tax) disaster recovery charge for costs related to life insurance claims by clients impacted by the 9/11 terrorist attacks. -- Excluding these items, net income declined 87% versus last year. - $1.0B of pretax losses ($669MM after-tax) in 1Q '01 and 2Q '01 from the write-down and sale of certain high yield securities and the reduction of the risk profile within the investment portfolio. o Net revenues declined 33% reflecting: - Lower spreads on investment portfolio products, mostly reflecting the investment losses and yield impact of the portfolio repositioning discussed above; - Reduced management fees from lower average managed asset levels; - A decrease in distribution fees from weaker mutual fund sales levels; partially offset by - Higher insurance revenues. o INVESTMENT INCOME: - Gross investment income decreased 49% reflecting the losses related to the investment portfolio and a lower average yield, partially resulting from the repositioning of the portfolio. In addition, there is a larger decrease this year in the value of options hedging outstanding stock market certificates, which was offset in the certificate provision. - Average invested assets of $34.1B (excluding unrealized appreciation/depreciation) rose 4% versus $32.9B in 2000. - The average yield on invested assets was 6.2% versus 7.2% in 2000. - Underlying spreads within the insurance and annuity products were down versus last year; spreads for certificates were up. o MANAGEMENT AND DISTRIBUTION FEES: The decrease of 13% was due to lower average assets under management and weaker sales, reflecting the negative impact of weak equity market conditions throughout the year. 19 AMERICAN EXPRESS COMPANY FULL YEAR 2001 OVERVIEW AMERICAN EXPRESS FINANCIAL ADVISORS (CONT'D) o PRODUCT SALES: - Total gross cash sales from all products were down 16% versus 2000. - Mutual fund sales decreased 24% as both proprietary and non-proprietary fund sales declined. The largest portion of non-proprietary fund sales continued to occur in "wrap" accounts. Within proprietary funds: -- Bond fund sales grew; sales of equity and money market funds declined. -- Redemption rates held relatively steady and continued to compare favorably with industry levels. - Annuity sales decreased 4%, as substantial growth in fixed annuity sales was offset by a decline in variable annuity sales. - Sales of insurance products fell 1% reflecting lower sales of life products, partially offset by higher property-casualty sales, in part due to sales through Costco. - Certificate sales increased 15% reflecting particularly strong advisor sales and increased sales of certificates sold to clients outside the U.S. through a joint venture between AEFA and AEB. - Institutional sales declined 24% versus relatively strong levels last year, reflecting both lower new sales and lower additional contributions. - Other sales increased 48% due to both new accounts and additional contributions from existing 401(k) plan sponsors, as well as sales growth in limited partnerships and wealth management account activities. - Advisor product sales generated through financial planning and advice services were 73% of total sales versus 68% last year. o OTHER REVENUES: Were up 14% on higher life and property-casualty insurance premiums and charges. - Financial planning and advice services fees of $107.5MM rose 10% versus 2000. o PROVISIONS FOR LOSSES AND BENEFITS: Annuity product provisions decreased reflecting a smaller inforce level and a lower accrual rate. Insurance provisions rose due to higher inforce levels. Certificate provisions decreased as higher inforce levels were offset by lower accrual rates and the effect on the stock market certificate product of greater depreciation this year in the S&P 500. o HUMAN RESOURCES: Expenses declined 6% reflecting lower field force compensation-related expenses due to the decline in advisors and the impact of lower volumes on advisor compensation, as well as the benefits of reengineering and cost containment initiatives within the home office where average employees were down 7% versus last year. o OTHER OPERATING EXPENSES: the 18% increase reflects higher investment activities related to the acceleration of various strategic, reengineering, technology and product development projects, a higher minority interest related to premium deposits (the joint venture with AEB) and real estate write-downs from facility consolidation. 20 AMERICAN EXPRESS COMPANY FULL YEAR 2001 OVERVIEW AMERICAN EXPRESS BANK (preliminary) STATEMENTS OF INCOME (UNAUDITED)
(millions) Years Ended Percentage December 31, Inc/(Dec) -------------------------------------- ------------------- 2001 2000 ---- ---- Net revenues: Interest income $698 $735 (5)% Interest expense 396 484 (18) ---- ---- Net interest income 302 251 20 Commissions and fees 203 214 (5) Foreign exchange income and other revenue 144 126 14 ---- ---- Total net revenues 649 591 10 ---- ---- Expenses: Human resources 247 257 (4) Other operating expenses 255 273 (6) Provision for losses - ongoing 65 28 # - restructuring related 26 - - ---- ---- Total provision 91 28 # Restructuring charges 70 - - ---- ---- Total expenses 663 558 19 ---- ---- Pretax (loss)/income (14) 33 # Income tax (benefit)/provision (1) 4 # ---- ---- Net (loss)/income $(13) $29 # ==== ====
# Denotes variance in excess of 100%. o AEB recorded restructuring charges of $96MM ($65MM after-tax). - The charges include a $26MM provision for losses to further scale back corporate lending activities in parts of Asia, Latin America and Europe, as well as $36MM of severance and $24MM of currency translation losses previously recorded in shareholder's equity. - Excluding the effect of the restructuring charges, net income was approximately 82% above last year's amount. o Revenues grew 10% as higher net interest income and foreign exchange and other revenue were partially offset by lower commissions and fees. - Net interest income rose 20% due to higher consumer loans and lower funding costs, partially offset by decreases in Corporate Banking. - Commissions and fees were down 5% from lower results in Corporate Banking and lower mutual fund fees within our third party activities in the Financial Institutions Group. - Foreign exchange income and other revenue increased 14% due to higher revenue from premium deposits (the joint venture with AEFA), partially offset by lower Corporate Banking revenue and earnings from other joint ventures. o Human resource expenses were down reflecting the benefits of a lower employee level and reduced costs related to reengineering activities. o The ongoing provision for losses increased primarily due to PFS loan growth. 21 THIS PRESS RELEASE CONTAINS FORWARD-LOOKING STATEMENTS, WHICH ARE SUBJECT TO RISKS AND UNCERTAINTIES. THE WORDS "BELIEVE", "EXPECT", "ANTICIPATE", "OPTIMISTIC", "INTEND", "AIM", "WILL", "SHOULD" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THESE FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, THE FOLLOWING: Fluctuation in the equity markets, which can affect the amount and types of investment products sold by AEFA, the market value of its managed assets, and management and distribution fees received based on those assets; potential deterioration in the high-yield sector and other investment areas, which could result in further losses in AEFA's investment portfolio; the ability of AEFA to sell certain high-yield investments at expected values and within anticipated timeframes and to maintain its high-yield portfolio at certain levels in the future; developments relating to AEFA's new platform structure for financial advisors, including the ability to increase advisor productivity, moderate the growth of new advisors and create efficiencies in the infrastructure; AEFA's ability to effectively manage the economics in selling a growing volume of non-proprietary products to clients; investment performance in AEFA's businesses; the success, timeliness and financial impact, including costs, cost savings and other benefits of reengineering initiatives being implemented or considered by the company, including cost management, structural and strategic measures such as vendor, process, facilities and operations consolidation, outsourcing, relocating certain functions to lower cost overseas locations, moving internal and external functions to the Internet to save costs, the scale-back of corporate lending in certain regions, and planned staff reductions relating to certain of such reengineering actions; the ability to control and manage operating, infrastructure, advertising and promotion and other expenses as business expands or changes, including balancing the need for longer term investment spending; the impact of and uncertainty created by the September 11th terrorist attacks; the company's ability to recover under its insurance policies for losses resulting from the September 11th terrorist attacks; consumer and business spending on the company's travel related services products, particularly credit and charge cards and growth in card lending balances, which depend in part on the ability to issue new and enhanced card products and increase revenues from such products, attract new cardholders, capture a greater share of existing cardholders' spending, sustain premium discount rates, increase merchant coverage, retain cardmembers after low introductory lending rates have expired, and expand the global network services business; successfully expanding the company's on-line and off-line distribution channels and cross-selling financial, travel, card and other products and services to its customer base, both in the United States and abroad; effectively leveraging the company's assets, such as its brand, customers and international presence in the Internet environment; investing in and competing at the leading edge of technology across all businesses; higher borrowing costs due to potential negative changes in the company's and its subsidiaries' credit ratings; increasing competition in all of the company's major businesses; fluctuations in interest rates, which impact the company's borrowing costs, return on lending products and spreads in the investment and insurance businesses; credit trends and the rate of bankruptcies, which can affect spending on card products, debt payments by individual and corporate customers and businesses that accept the company's card products and returns on the company's investment portfolios; foreign currency exchange rates; political or economic instability in certain regions or countries, which could affect commercial lending activities, among other businesses; legal and regulatory developments, such as in the areas of consumer privacy and data protection; acquisitions; and outcomes in litigation. A further description of these and other risks and uncertainties can be found in the company's 10-K Annual Report for the fiscal year ending December 31, 2000 and its other reports filed with the Securities and Exchange Commission. 22 EX-99.2B BYLAWS 5 bylaws.txt EXHIBIT 99.2B BY-LAWS Exhibit 99.2B BY-LAWS OF AMERICAN EXPRESS COMPANY (A New York Corporation) (as amended through November 26, 2001) BY-LAWS OF AMERICAN EXPRESS COMPANY ARTICLE I OFFICES SECTION 1.1 PRINCIPAL OFFICE. The principal office of the corporation within the State of New York shall be located in the City of New York, County of New York. SECTION 1.2 OTHER OFFICES. The corporation may have such other offices and places of business within and without the State of New York as the business of the corporation may require. ARTICLE II SHAREHOLDERS SECTION 2.1 ANNUAL MEETING. The annual meeting of the shareholders for the election of directors and for the transaction of other business shall be held at the principal office of the corporation within the State of New York, or at such other place either within or without the State of New York as may be fixed by the Board of Directors (hereinafter referred to as the "Board") from time to time. The annual meeting shall be held on such full business day in each year not earlier than March 15 nor later than April 30 and at such hour as shall be fixed by the Board, or on such other day and at such hour as shall be fixed by the Board. If the election of directors shall not be held on the date so fixed for the annual meeting, a special meeting of the shareholders for the election of directors shall be called forthwith in the manner provided herein for special meetings, or as may otherwise be provided by law. (B.C.L. Section 602.) SECTION 2.2 SPECIAL MEETINGS. Special Meetings of the shareholders may be held for such purpose or purposes as shall be specified in a call for such meeting made by resolution of the Board or by a majority of the directors then in office or by the Chief Executive Officer. - ------------------- This and other references to the New York Business Corporation Law are not part of the by-laws, but are included solely for convenience in locating relevant portions of the statute. 1 At any such special meeting only such business may be transacted which is related to the purpose or purposes set forth in the notice of meeting. (B.C.L. Section 602(c). SECTION 2.3 NOTICE OF MEETINGS. Notice of all meetings of shareholders shall be in writing and shall state the place, date and hour of the meeting and such other matters as may be required by law. Notice of any special meeting shall also state the purpose or purposes for which the meeting is called and shall indicate that it is being issued by or at the direction of the person or persons calling the meeting. A copy of the notice of any meeting, shall be given, personally or by mail, not less than ten nor more than sixty days before the date of the meeting, provided that a copy of such notice may be given by third class mail not less than twenty-four nor more than sixty days before the date of the meeting, to each shareholder entitled to vote at such meeting. If mailed, such notice shall be deemed given when deposited in the United States mail, with postage thereon prepaid, directed to the shareholder at his address as it appears on the record of shareholders, or, if he shall have filed with the Secretary of the corporation a written request that notices to him be mailed at some other address, then directed to him at such other address. Notice of any adjourned meeting of the shareholders shall not be required if the time and place to which the meeting is adjourned are announced at the meeting at which the adjournment is taken, but if after the adjournment the Board or Chief Executive Officer fixes a new record date for the adjourned meeting, notice of the adjourned meeting shall be given to each shareholder of record on the new record date. (B.C.L. Section 605.) SECTION 2.4 QUORUM AND VOTING. Except as otherwise provided by law or the certificate of incorporation, the holders of a majority of the votes of the shares entitled to vote thereat shall constitute a quorum at any meeting of the shareholders for the transaction of any business, but a lesser interest may adjourn any meeting from time to time and from place to place until a quorum is obtained. Any business may be transacted at any adjourned meeting that might have been transacted at the original meeting. When a quorum is once present to organize a meeting of shareholders, it is not broken by the subsequent withdrawal of any shareholders. Directors shall, except as otherwise required by law or the certificate of incorporation or a by-law adopted by the shareholders, be elected by a plurality of the votes cast in favor of or against such action at a meeting of shareholders by the holders of shares entitled to vote in the election. Any other corporate action taken by vote of the shareholders shall, except as otherwise required by law or the certificate of incorporation, be authorized by a majority of the votes cast at a meeting of shareholders by the holders of shares entitled to vote thereon. Every shareholder of record shall be entitled at every meeting of shareholders to one vote for each share standing in his name on the record of shareholders, unless otherwise provided in the certificate of incorporation. Neither treasury shares, nor shares held by any other corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held by the corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares then entitled to vote. (B.C.L. Sections 608, 614.) 2 SECTION 2.5 PROXIES. Every shareholder entitled to vote at a meeting of the shareholders may authorize another person to vote for him by proxy executed in writing (or in such manner permitted by law) by the shareholder or his attorney-in-fact. No proxy shall be valid after the expiration of eleven months from the date thereof, unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the shareholder executing it, except that a proxy which is entitled "irrevocable proxy" and which states that it is irrevocable shall be irrevocable when and to the extent permitted by law. (B.C.L. Section 609.) SECTION 2.6 LIST OF SHAREHOLDERS AT MEETINGS. A list of shareholders as of the record date, certified by the Secretary or by the transfer agent of the corporation, shall be produced at any meeting of shareholders upon the request thereat or prior thereto of any shareholder. If the right to vote at any meeting is challenged, the inspectors of election or person presiding thereat shall require such list of shareholders to be produced as evidence of the right of the persons challenged to vote at such meeting, and all persons who appear from such list to be shareholders entitled to vote thereat may vote at such meeting. (B.C.L. Section 607.) SECTION 2.7 WAIVER OF NOTICE. Notice of a shareholders' meeting need not be given to any shareholder who submits a signed waiver of notice, in person or by proxy, whether before or after the meeting. The attendance of any shareholder at a meeting, in person or by proxy, without protesting prior to the conclusion of the meeting the lack of notice of such meeting, shall constitute a waiver of notice by him. (B.C.L. Section 606.) SECTION 2.8 INSPECTORS AT SHAREHOLDERS' MEETINGS. The Board, in advance of any shareholders' meeting, may appoint one or more inspectors to act at the meeting or any adjournment thereof and to perform such duties thereat as are prescribed by law. If inspectors are not so appointed, the person presiding at a shareholders' meeting shall appoint one or more inspectors. In case any person appointed fails to appear or act, the vacancy may be filled by appointment made by the Board in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. (B.C.L. Section 610.) SECTION 2.9 BUSINESS TO BE TRANSACTED AT SHAREHOLDERS' MEETINGS. No business shall be transacted at any annual meeting of shareholders, except as may be (i) specified in the notice of the meeting given by or at the direction of the Board (including, if so specified, any shareholder proposal submitted pursuant to the rules and regulations of the Securities and Exchange Commission), (ii) otherwise brought before the meeting by or at the direction of the Board or (iii) otherwise brought before the meeting in accordance with the procedure set forth in the following paragraph, by a shareholder of the corporation entitled to vote at such meeting. For business to be brought by a shareholder before an annual meeting of shareholders pursuant to clause (iii) above, the shareholder must have given written notice thereof to the Secretary of the corporation, such notice to be received at the principal executive offices of the corporation not less than 90 nor more than 120 days prior to the one year anniversary of the date of the annual meeting of shareholders of the previous year; provided, however, that 3 in the event that the annual meeting of shareholders is called for a date that is not within 30 days before or after such anniversary date, notice by the shareholder must be received at the principal executive offices of the corporation not later than the close of business on the tenth day following the day on which the corporation's notice of the date of the meeting is first given or made to the shareholders or disclosed to the general public (which disclosure may be effected by means of a publicly available filing with the Securities and Exchange Commission), whichever occurs first. A shareholder's notice to the Secretary shall set forth, as to each matter the shareholder proposes to bring before the annual meeting of shareholders, (i) a brief description of the business proposed to be brought before the annual meeting of shareholders and of the reasons for bringing such business before the meeting and, if such business includes a proposal to amend either the certificate of incorporation or these by-laws, the text of the proposed amendment, (ii) the name and record address of the shareholder proposing such business, (iii) the number of shares of each class of stock of the corporation that are beneficially owned by such shareholder, (iv) any material interest of the shareholder in such business and (v) such other information relating to the proposal that is required to be disclosed in solicitations pursuant to the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Securities and Exchange Commission or other applicable law. Notwithstanding anything in these by-laws to the contrary, no business shall be conducted at an annual meeting of shareholders except in accordance with the procedures set forth in this Section 2.9; provided, however, that nothing in this Section 2.9 shall be deemed to preclude discussion by any shareholder of any business properly brought before the annual meeting of shareholders in accordance with such procedures. The chairman of an annual meeting of shareholders shall, if the facts warrant, determine and declare to the meeting that the business was not properly brought before the meeting in accordance with the provisions of this Section 2.9, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the annual meeting of shareholders shall not be transacted. ARTICLE III DIRECTORS SECTION 3.1 POWERS, NUMBER, QUALIFICATIONS AND TERM OF OFFICE. The business of the corporation shall be managed by its Board, which shall consist of not less than seven persons, each of whom shall be at least twenty-one years of age. Subject to such limitation, the number of directors shall be fixed and may be increased or decreased from time to time by a majority of the entire Board. Directors need not be shareholders. Except as otherwise provided by law or these by-laws, the directors shall be elected at the annual meetings of the shareholders, and each director shall hold office until the next annual meeting of shareholders, and until his successor has been elected and qualified. Newly created directorships resulting from an increase in the number of directors and any vacancies occurring in the Board for any reason, including vacancies occurring by reason of the removal of any of the directors with or without cause, may be filled by vote of a majority of the directors then in office, although less than a quorum exists. No decrease in the number of directors shall shorten the terms of any incumbent director. A director 4 elected to fill a vacancy shall be elected to hold office for the unexpired term of his predecessor. If the Board has not elected a Chairman of the Board as an officer, it may choose a Chairman of the Board from among its members to preside at its meetings. (B.C.L. Sections 701, 702, 703, 705.) SECTION 3.2 REGULAR MEETINGS. There shall be regular meetings of the Board, which may be held on such dates and without notice or upon such notice as the Board may from time to time determine. Regular meetings shall be held at the principal office of the corporation within the State of New York or at such other place either within or without the State of New York and at such specific time as may be fixed by the Board from time to time. There shall also be a regular meeting of the Board, which may be held without notice or upon such notice as the Board may from time to time determine, after the annual meeting of the shareholders or any special meeting of the shareholders at which an election of directors is held. (B.C.L. Sections 710, 711.) SECTION 3.3 SPECIAL MEETINGS. Special meetings of the Board may be held at any place within or without the State of New York at any time when called by the Chairman of the Board or the President or four or more directors. Notice of the time and place of special meetings shall be given to each director by serving such notice upon him personally within the City of New York at least one day prior to the time fixed for such meeting, or by mailing or telegraphing it, prepaid, addressed to him at his post office address, as it appears on the books of the corporation, at least three days prior to the time fixed for such meeting. Neither the call or notice nor any waiver of notice need specify the purpose of any meeting of the Board. (B.C.L. Sections 710, 711.) SECTION 3.4 WAIVER OF NOTICE. Notice of a meeting need not be given to any director who signs a waiver of notice whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to him. (B.C.L. Section 711(c).) SECTION 3.5 QUORUM AND VOTING. One-third of the entire Board shall constitute a quorum. A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place. Notice of any adjournment shall be given to the directors who were not present at the time of the adjournment and, unless the time and place of such adjournment are announced at the meeting, to the other directors. The vote of a majority of the directors present at the time of the vote, if a quorum is present at such time, shall be the act of the Board, except where a larger vote is required by law, the certificate of incorporation or these by-laws. (B.C.L. Sections 701, 708, 711(d).) SECTION 3.6 ACTION BY THE BOARD. Any reference in these by-laws to corporate action to be taken by the Board shall mean such action at a meeting of the Board. However, any action required or permitted to be taken by the Board or any committee thereof may be taken without a meeting if all members of the Board or the committee consent in writing to the adoption of a resolution authorizing the action. The resolution and the written consent thereto by the members of the Board or committee shall be filed with the minutes of the proceedings of the Board or committee. Any one or more members of the Board or any committee thereof may participate in a meeting of such Board or committee by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at the meeting. (B.C.L. Section 708.) 5 SECTION 3.7 COMMITTEES OF THE BOARD. The Board by resolution adopted by a majority of the entire Board may designate from among its members one or more committees, each consisting of three or more directors. Each such committee shall have all the authority of the Board to the extent provided in such resolution, except as limited by law. No such committee shall exercise its authority in a manner inconsistent with any action, direction, or instruction of the Board. The Board may appoint a Chairman of any committee (except for the Executive Committee, if one is established, in the case where the Chairman of the Executive Committee has been elected pursuant to Section 4.1 of these by-laws), who shall preside at meetings of their respective committees. The Board may fill any vacancy in any committee and may designate one or more directors as alternate members of such committee, who may replace any absent member or members at any meeting of such committee. Each such committee shall serve at the pleasure of the Board, but in no event beyond its first meeting following the annual meeting of the shareholders. All acts done and powers conferred by any committee pursuant to the foregoing authorization shall be deemed to be and may be certified as being done or conferred under authority of the Board. A record of the proceedings of each committee shall be kept and submitted at the next regular meeting of the Board. At least one-third but not less than two of the members of any committee shall constitute a quorum for the transaction of business, and the vote of a majority of the members present at the time of the vote, if a quorum is present at such time, shall be the act of the committee. If a committee or the Board shall establish regular meetings of any committee, such meetings may be held without notice or upon such notice as the committee may from time to time determine. Notice of the time and place of special meetings of any committee shall be given to each member of the committee in the same manner as in the case of special meetings of the Board. Notice of a meeting need not be given to any member of a committee who signs a waiver of notice whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to him. Except as otherwise provided in these by-laws, each committee shall adopt its own rules of procedure. (B.C.L. Section 712.) SECTION 3.8 COMPENSATION OF DIRECTORS. The Board shall have authority to fix the compensation of directors for services in any capacity. (B.C.L. Section 713(e).) SECTION 3.9 RESIGNATION AND REMOVAL OF DIRECTORS. Any director may resign at any time by giving written notice thereof to the Chief Executive Officer or to the Board, and such resignation shall take effect at the time therein specified without the necessity of further action. Any director may be removed with or without cause by vote of the shareholders, or with cause by action of the Board. (B.C.L. Section 706.) SECTION 3.10 THE "ENTIRE BOARD". As used in these by-laws the term "the entire Board" or "the entire Board of Directors" means the total number of directors which the corporation would have if there were no vacancies. (B.C.L. Section 702.) 6 SECTION 3.11 NOMINATION OF DIRECTORS. Subject to the rights of holders of any class or series of stock having a preference over the common shares as to dividends or upon liquidation, nominations for the election of directors may only be made (i) by the Board or a committee appointed by the Board or (ii) by a shareholder of the corporation entitled to vote at the meeting at which a person is to be nominated in accordance with the procedure set forth in the following paragraph. A shareholder may nominate a person or persons for election as directors only if the shareholder has given written notice of its intent to make such nomination to the Secretary of the corporation, such notice to be received at the principal executive offices of the corporation (i) with respect to an annual meeting of shareholders, not less than 90 nor more than 120 days prior to the one year anniversary of the date of the annual meeting of shareholders of the previous year; provided, however, that in the event that the annual meeting of shareholders is called for a date that is not within 30 days before or after such anniversary date, notice by the shareholder must be received at the principal executive offices of the corporation not later than the close of business on the tenth day following the day on which the corporation's notice of the date of the meeting is first given or made to the shareholders or disclosed to the general public (which disclosure may be effected by means of a publicly available filing with the Securities and Exchange Commission), whichever occurs first and (ii) with respect to a special meeting of shareholders called for the purpose of electing directors, not later than the close of business on the tenth day following the day on which the corporation's notice of the date of the meeting is first given or made to the shareholders or disclosed to the general public (which disclosure may be effected by means of a publicly available filing with the Securities and Exchange Commission), whichever occurs first. A shareholder's notice to the Secretary shall set forth (i) the name and record address of the shareholder who intends to make such nomination, (ii) the name, age, business and residence addresses and principal occupation of each person to be nominated, (iii) the number of shares of each class of stock of the corporation that are beneficially owned by the shareholder, (iv) a description of all arrangements and understandings between the shareholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such shareholder, (v) such other information relating to the person(s) that is required to be disclosed in solicitations for proxies for election of directors pursuant to the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Securities and Exchange Commission or other applicable law and (vi) the written consent of each proposed nominee to be named as a nominee and to serve as a director of the corporation if elected, together with an undertaking, signed by each proposed nominee, to furnish to the corporation any information it may request upon the advice of counsel for the purpose of determining such proposed nominee's eligibility to serve as a director. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedures and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. 7 ARTICLE IV OFFICERS AND OFFICIALS SECTION 4.1 OFFICERS. The Board shall elect a Chairman of the Board or a President or both, and a Secretary, a Treasurer and a Comptroller and may elect such other officers, including a Chairman of the Executive Committee and one or more Vice Chairmen of the Board, as the Board shall determine. Each officer shall have such powers and perform such duties as are provided in these by-laws and as may be provided from time to time by the Board or by the Chief Executive Officer. Each officer shall at all times be subject to the control of the Board, and any power or duty assigned to an officer by these by-laws or the Board or the Chief Executive Officer shall be subject to control, withdrawal or limitation by the Board. (B.C.L. Section 715.) SECTION 4.2 QUALIFICATIONS. Any person may hold two or more offices, except that neither the Chairman nor the President shall be Secretary or Treasurer. The Board may require any officer to give security for the faithful performance of his duties. (B.C.L. Sections 715(e) and (f).) SECTION 4.3 ELECTION AND TERMINATION. The Board shall elect officers at the meeting of the Board following the annual meeting of the shareholders and may elect additional officers and fill vacancies at any other time. Unless the Board shall otherwise specify, each officer shall hold office until the meeting of the Board following the next annual meeting of the shareholders, and until his successor has been elected and qualified, except as hereinafter provided. The Board may remove any officer or terminate his duties and powers, at any time, with or without cause. Any officer may resign at any time by giving written notice thereof to the Chief Executive Officer or to the Board, or by retiring or by leaving the employ of the corporation (without being employed by a subsidiary or affiliate) and any such action shall take effect as a resignation without necessity of further action. The Chief Executive Officer may suspend any officer until the next meeting of the Board. (B.C.L. Sections 715, 716.) SECTION 4.4 DELEGATION OF POWERS. Each officer may delegate to any other officer and to any official, employee or agent of the corporation, such portions of his powers as he shall deem appropriate, subject to such limitations and expirations as he shall specify, and may revoke such delegation at any time. SECTION 4.5 CHAIRMAN OF THE BOARD. The Chairman of the Board may be, but need not be, a person other than the Chief Executive Officer of the corporation. The Chairman of the Board may be, but need not be, an officer or employee of the corporation. The Chairman of the Board shall preside at meetings of the Board of Directors and shall establish agendas for such meetings. In addition, he shall assure that matters of significant interest to shareholders and the investment community are addressed by management. The Chairman of the Board shall be an ex-officio member of each of the standing committees of the Board, except for the Executive Committee, of which he shall be a member. SECTION 4.6 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall, subject to the direction of the Board, have general and active control of the affairs and business of the corporation and general supervision of its 8 officers, officials, employees and agents. He shall preside at all meetings of the shareholders. He shall also preside at all meetings of the Board and any committee thereof of which he is a member, unless the Board or such committee shall have chosen another chairman. He shall see that all orders and resolutions of the Board are carried into effect, and in addition he shall have all the powers and perform all the duties generally appertaining to the office of the Chief Executive Officer of a corporation. The Chief Executive Officer shall designate the person or persons who shall exercise his powers and perform his duties in his absence or disability and the absence or disability of the President. SECTION 4.7 PRESIDENT. The President may be Chief Executive Officer if so designated by the Board. If not, he shall have such powers and perform such duties as are prescribed by the Chief Executive Officer or by the Board, and, in the absence or disability of the Chief Executive Officer, he shall have the powers and perform the duties of the Chief Executive Officer, except to the extent that the Board shall have otherwise provided. SECTION 4.8 CHAIRMAN OF THE EXECUTIVE COMMITTEE. The Chairman of the Executive Committee shall be a member of the Executive Committee. He shall preside at meetings of the Executive Committee and shall have such other powers and perform such other duties as are prescribed by the Board or by the Chief Executive Officer. SECTION 4.9 VICE CHAIRMAN OF THE BOARD. Each Vice Chairman of the Board shall have such powers and perform such duties as are prescribed by the Chief Executive Officer or by the Board. SECTION 4.10 SECRETARY. The Secretary shall attend all meetings and keep the minutes of all proceedings of the shareholders, the Board, the Executive Committee and any other committee unless it shall have chosen another secretary. He shall give notice of all such meetings and all other notices required by law or by these by-laws. He shall have custody of the seal of the corporation and shall have power to affix it to any instrument and to attest thereto. He shall have charge of the record of shareholders required by law, which may be kept by any transfer agent or agents under his direction. He shall maintain the records of directors and officers as required by law. He shall have charge of all documents and other records, except those for which some other officer or agent is properly accountable, and shall generally perform all duties appertaining to the office of secretary of a corporation. (B.C.L. Sections 605, 624, 718.) SECTION 4.11 TREASURER. The Treasurer shall have the care and custody of all of the funds, securities and other valuables of the corporation, except to the extent they shall be entrusted to other officers, employees or agents by direction of the Chief Executive Officer or the Board. The Treasurer may hold the funds, securities and other valuables in his care in such vaults or safe deposit facilities, or may deposit them in and entrust them to such bank, trust companies and other depositories, all as he shall determine with the written concurrence of the Chief Executive Officer or his delegate. The Treasurer shall account regularly to the Comptroller for all of his receipts, disbursements and deliveries of funds, securities and other valuables. 9 The Treasurer or his delegate, jointly with the Chief Executive Officer or his delegate, may designate in writing and certify to any bank, trust company, safe deposit company or other depository the persons (including themselves) who are authorized, singly or jointly as they shall specify in each case, to open accounts in the name of the corporation with banks, trust companies and other depositories, to deposit therein funds, instruments and securities belonging to the corporation, to draw checks or drafts on such accounts in amounts not exceeding the credit balances therein, to order the delivery of securities therefrom, to rent safe deposit boxes or vaults in the name of the corporation, to have access to such facility and to deposit therein and remove therefrom securities and other valuables. Any such designation and certification shall contain the regulations, terms and conditions applicable to such authority and may be amended or terminated at any time. Such powers may also be granted to any other officer, official, employee or agent of the corporation by resolution of the Board or by power of attorney authorized by the Board. SECTION 4.12 COMPTROLLER. The Comptroller shall be the chief accounting officer of the corporation and shall have control of all its books of account. He shall see that correct and complete books and records of account are kept as required by law, showing fully, in such form as he shall prescribe, all transactions of the corporation, and he shall require, keep and preserve all vouchers relating thereto for such period as may be necessary. The Comptroller shall render periodically such financial statements and such other reports relating to the corporation's business as may be required by the Chief Executive Officer or the Board. He shall generally perform all duties appertaining to the office of comptroller of a corporation. (B.C.L. Section 624.) SECTION 4.13 OFFICIALS AND AGENTS. The Chief Executive Officer or his delegate may appoint such officials and agents of the corporation as the conduct of its business may require and assign to them such titles, powers, duties and compensation as he shall see fit and may remove or suspend or modify such titles, powers, duties or compensation at any time with or without cause. ARTICLE V SHARES SECTION 5.1 CERTIFICATES. The shares of the corporation shall be represented by certificates or shall be uncertificated shares. Certificates shall be in such form, consistent with law, as prescribed by the Board, and signed and sealed as provided by law. (B.C.L. Section 508.) SECTION 5.2 TRANSFER OF SHARES. Except as provided in the certificate of incorporation, upon surrender to the corporation or to its transfer agent of a certificate representing shares, duly endorsed or accompanied with proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto and to cancel the old certificate. The corporation shall be entitled to treat the holder of record of any shares as the holder in fact thereof, and, 10 accordingly, shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not the corporation shall have express or other notice thereof, except as may be required by law. (B.C.L. Section 508(d).) SECTION 5.3 RECORD OF SHAREHOLDERS. The corporation shall keep at its principal office within the State of New York, or at the office of its transfer agent or registrar in the State of New York, a record in written form, or in any other form capable of being converted into written form within a reasonable time, which shall contain the names and addresses of all shareholders, the numbers and class of shares held by each, and the dates when they respectively became the owners of record thereof. (B.C.L. Section 624(a).) SECTION 5.4 LOST OR DESTROYED CERTIFICATES. In case of the alleged loss, destruction or mutilation of a certificate or certificates representing shares, the Board may direct the issuance of a new certificate or certificates in lieu thereof upon such terms and conditions in conformity with law as the Board may prescribe. (B.C.L. Section 508(e).) SECTION 5.5 FIXING RECORD DATE. The Board or the Chief Executive Officer may fix, in advance, a date as the record date for the purpose of determining the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or for the purpose of determining shareholders entitled to receive payment of any dividend or the allotment of any rights, or for the purpose of any other action. Such date shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. (B.C.L. Section 604.) ARTICLE VI INDEMNIFICATION OF CORPORATION PERSONNEL SECTION 6.1 DIRECTORS AND OFFICERS. The corporation shall, to the fullest extent permitted by applicable law as the same exists or may hereafter be in effect, indemnify any person who is or was or has agreed to become a director or officer of the corporation and who is or was made or threatened to be made a party to, and may, in its discretion, indemnify, any person who is or was or has agreed to become a director or officer and is otherwise involved in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, legislative or investigative, including an action by or in the right of the corporation to procure a judgment in its favor and an action by or in the right of any other corporation of any type or kind, domestic or foreign, or any partnership, joint venture, trust, employee benefit plan or other enterprise, which such person is serving or has served or has agreed to serve in any capacity at the request of the corporation, by reason of the fact that he is or was or has agreed to become a director or officer of the corporation, or is or was serving or has agreed to serve such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity, against judgments, fines, amounts paid or to be paid in settlement, penalties, costs, charges and expenses, including attorneys' fees, incurred in connection with such action or proceeding or any appeal thereof; provided, however, that no indemnification shall be provided to any such person if a judgment or other final adjudication adverse to the director or officer establishes that (i) his acts were committed in bad faith 11 or were the result of active and deliberate dishonesty and, in either case, were material to the cause of action so adjudicated, or (ii) he personally gained in fact a financial profit or other advantage to which he was not legally entitled. The benefits of this Section 6.1 shall extend to the heirs, executors, administrators and legal representatives of any person entitled to indemnification under this Section. (B.C.L. Sections 721, 722.) SECTION 6.2 OTHER PERSONNEL. The Board in its discretion may authorize the corporation to indemnity any person, other than a director or officer, for expenses incurred or other amounts paid in any civil or criminal action, suit or proceeding, to which such person was, or was threatened to be, made a party by reason of the fact that he, his testator or intestate is or was an employee of the corporation. SECTION 6.3 OTHER INDEMNIFICATION. The corporation may indemnify any person to whom the corporation is permitted by applicable law or these by-laws to provide indemnification or the advancement of expenses, whether pursuant to rights granted pursuant to, or provided by, the New York Business Corporation Law or any other law or these by-laws or other rights created by (i) a resolution of shareholders, (ii) a resolution of directors, or (iii) an agreement providing for such indemnification, it being expressly intended that these by-laws authorize the creation of other rights in any such manner. The right to be indemnified and to the reimbursement or advancement of expenses incurred in defending a proceeding in advance of its final disposition authorized by this Section 6.3, shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the certificate of incorporation, by-laws, agreement, vote of shareholders or disinterested directors or otherwise. (B.C.L. Sections 721, 723(c).) SECTION 6.4 MISCELLANEOUS. The right to indemnification conferred by Section 6.1, and any indemnification extended under Section 6.3, (i) is a contract right pursuant to which the person entitled thereto may bring suit as if the provisions thereof were set forth in a separate written contract between the corporation and such person, (ii) is intended to be retroactive to events occurring prior to the adoption of this Article VI, to the fullest extent permitted by applicable law, and (iii) shall continue to exist after the rescission or restrictive modification thereof with respect to events occurring prior thereto. ARTICLE VII MISCELLANEOUS SECTION 7.1 FISCAL YEAR. The fiscal year of the corporation shall be the calendar year. SECTION 7.2 VOTING OF SHARES OF OTHER CORPORATIONS. The Board may authorize any officer, agent or proxy to vote shares of any domestic or foreign corporation of any type or kind standing in the name of this corporation and to execute written consents respecting the same, but in the absence of such specific authorization the Chief Executive Officer of this corporation or his delegate may vote such shares and may execute proxies and written consents with relation thereto. 12 ARTICLE VIII AMENDMENTS SECTION 8.1 GENERAL. Except as otherwise provided by law, these by-laws may be amended or repealed or new by-laws may be adopted by the Board of Directors, or by vote of the holders of the shares at the time entitled to vote in the election of any directors, except that the Board may not amend or repeal any by-law, or adopt any new by-law with respect to the subject matter of any by-law, which specifically states that it may be amended or repealed only by the shareholders. (B.C.L. Section 601.) SECTION 8.2 AMENDMENT OF THIS ARTICLE. This Article VIII may be amended or repealed only by the shareholders entitled to vote hereon as provided in Section 8.1 above. 13 -----END PRIVACY-ENHANCED MESSAGE-----