-----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, SlUkvqY6rBlq2IJBrPwuH+n2AK1afDI2lanZ2Y0nzq4SldkvSzhvlpGBFZiOLdHF g0dVPstTBJX2/oiqc0CyTQ== 0000004969-00-000001.txt : 20000331 0000004969-00-000001.hdr.sgml : 20000331 ACCESSION NUMBER: 0000004969-00-000001 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN EXPRESS CREDIT CORP CENTRAL INDEX KEY: 0000004969 STANDARD INDUSTRIAL CLASSIFICATION: SHORT-TERM BUSINESS CREDIT INSTITUTIONS [6153] IRS NUMBER: 111988350 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-06908 FILM NUMBER: 587750 BUSINESS ADDRESS: STREET 1: ONE CHRISTINA CENTER 301 N WALNUT STREET STREET 2: SUITE 1002 CITY: WILMINGTON STATE: DE ZIP: 19801 BUSINESS PHONE: 3025943350 MAIL ADDRESS: STREET 1: ONE CHRISTINA CENTER 301 N WALNUT STREET STREET 2: SUITE 1002 CITY: WILMINGTON STATE: DE ZIP: 19801 10-K405 1 CREDCO 1999 10-K405 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ____________________ FORM 10-K ____________________ [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission File No. 1-6908 AMERICAN EXPRESS CREDIT CORPORATION (Exact name of Registrant as specified in its charter) Delaware 11-1988350 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) One Christina Center, Wilmington, Delaware 19801 (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code: (302) 594-3350. Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ---------------------------------------- ------------------- 6 1/8% Senior Debentures due June 15, 2000 New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None. THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I(1)(a) AND (b) OF FORM 10-K AND HAS THEREFORE OMITTED CERTAIN ITEMS FROM THIS REPORT IN ACCORDANCE WITH THE REDUCED DISCLOSURE FORMAT PERMITTED UNDER INSTRUCTION I. Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No - - Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X - American Express Company, through a wholly-owned subsidiary, owns all of the outstanding common stock of the Registrant. Accordingly, there is no market for the Registrant's common stock. At March 30, 2000, 1,504,938 shares were outstanding. Documents incorporated by reference: None PART I ITEM 1. BUSINESS. INTRODUCTION American Express Credit Corporation (including its subsidiaries, where appropriate, "Credco") was incorporated in Delaware in 1962 and was acquired by American Express Company ("American Express") in December 1965. On January 1, 1983, Credco became a wholly-owned subsidiary of American Express Travel Related Services Company, Inc. (including its subsidiaries, where appropriate, "TRS"), a wholly-owned subsidiary of American Express. Credco is primarily engaged in the business of purchasing most charge Cardmember receivables arising from the use of the American Express(R) Card, including the American Express(R) Gold Card, Platinum Card(R) and Corporate Card issued in the United States, and in designated currencies outside the United States. Credco also purchases certain revolving credit receivables arising from the use of American Express credit cards (whether branded the "Optima(R)Card" or otherwise), interest-bearing extended payment plan Sign & Travel(R) receivables, Special Purchase Account(SM) receivables which provide for extended payment for certain charges, interest-bearing equipment financing installment loans and non-interest-bearing deferred merchandise receivables arising from direct mail merchandise sales by TRS. The American Express Card and American Express credit cards are collectively referred to herein as the "Card." AMERICAN EXPRESS CARD BUSINESS TRS currently issues the Card in over 50 currencies (including cards issued by banks and other qualified institutions). The Card, which is issued to individual consumers for their personal account or through a corporate account established by their employer for its business purposes, permits Cardmembers to charge purchases of goods or services in the United States and in most countries around the world at establishments that have agreed to accept the Card. TRS accepts and processes from each participating establishment the charges arising from Cardmember purchases at a discount that varies with the type of participating establishment, the charge volume, the timing and method of payment to the establishment, the method of submission of charges, and in certain instances, the average charge amount and the amount of information provided. The Charge Card is primarily designed as a method of payment and not as a means of financing purchases of goods or services and carries no pre-set spending limit. Charges are approved based on a variety of factors including a Cardmember's account history, credit record and personal resources. Except in the case of certain extended payment plans, Charge Cards require payment of the full amount billed each month from the Cardmember upon receipt of the bill, and no finance charges are assessed. Charge Card accounts that are past due are subject, in most cases, to a delinquency assessment and, if not brought to current status, subject to cancellation. The American Express credit card comprises a family of revolving credit cards marketed in the United States and other countries. The American Express Charge Card and consumer lending businesses are subject to extensive regulation in the United States under a number of federal laws and regulations, including the Equal Credit Opportunity Act, which generally prohibits discrimination in the granting and handling of credit; the Fair Credit Reporting Act, which, among other things, regulates the use by creditors of consumer credit reports and credit prescreening practices and requires certain disclosures when an application for credit is rejected; the Truth in Lending Act, which, among other things, requires extensive disclosure of the terms upon which credit is granted; the Fair Credit Billing Act, which, among other things, regulates the manner in which 1 billing inquiries are handled and specifies certain billing requirements; and the Fair Credit and Charge Card Disclosure Act, which mandates certain disclosures on credit and charge card applications. Recently, certain federal privacy-related laws were enacted governing the collection and use of customer information by financial institutions. Federal legislation also regulates abusive debt collection practices. In addition, a number of states and foreign countries have similar consumer credit protection and disclosure laws. The application of federal and state bankruptcy and debtor relief laws affect Credco to the extent such laws result in any amounts owed being classified as delinquent and/or charged off as uncollectible. These laws and regulations have not had, and are not expected to have, a material adverse effect on the Charge Card and consumer lending businesses, either in the United States or on a worldwide basis. GENERAL NATURE OF CREDCO'S BUSINESS Credco purchases certain Cardmember receivables arising from the use of the Card throughout the world pursuant to agreements (the "Receivables Agreements") with TRS. Net income primarily depends on the volume of receivables arising from the use of the Card purchased by Credco, the discount rates applicable thereto, the relationship of total discount to Credco's interest expense and the collectibility of the receivables purchased. The average life and collectibility of accounts receivable generated by the use of the Card are affected by factors such as general economic conditions, overall levels of consumer debt and the number of new Cards issued. Credco purchases Cardmember receivables without recourse. Amounts resulting from unauthorized charges (for example, those made with a lost or stolen Card) are excluded from the definition of "receivables" under the Receivables Agreements and are not eligible for purchase by Credco. If the unauthorized nature of the charge is discovered after purchase by Credco, TRS repurchases the charge from Credco. Credco generally purchases non-interest-bearing charge Cardmember receivables at face amount less a specified discount agreed upon from time to time and interest-bearing revolving credit Cardmember receivables at face amount. The Receivables Agreements generally require that non-interest-bearing receivables be purchased at discount rates which yield to Credco earnings of not less than 1.25 times its fixed charges on an annual basis. The Receivables Agreements also provide that consideration will be given from time to time to revising the discount rate applicable to purchases of new receivables to reflect changes in money market rates or significant changes in the collectibility of receivables. New groups of Cardmember receivables are generally purchased net of reserve balances applicable thereto. Extended payment plan receivables are primarily funded by subsidiaries of TRS other than Credco, although, certain extended payment plan receivables are purchased by Credco. At December 31, 1999 and 1998, extended payment plan receivables owned by Credco totaled $2.7 billion and $2.1 billion representing 11.5 percent and 11.1 percent, respectively, of all interests in receivables owned by Credco. These extended payment plan receivables consist of certain interest-bearing extended payment plan receivables comprised principally of American Express credit card and Sign & Travel receivables, Special Purchase Account receivables, interest-bearing equipment financing installment loans and non-interest-bearing deferred merchandise receivables arising from direct mail merchandise sales by TRS. Credco, through a wholly-owned subsidiary, Credco Receivables Corp. ("CRC"), purchases gross participation interests in the seller's interest in both non-interest-bearing and interest-bearing Cardmember receivables owned by two master trusts formed by TRS as part of its asset securitization programs. The gross participation interests represent undivided interests in the receivables originated by TRS and by American Express Centurion Bank, a wholly-owned subsidiary of TRS. See note 4 in "Notes to Consolidated Financial Statements" appearing herein. 2 The Card issuers, at their expense and as agents for Credco, perform accounting, clerical and other services necessary to bill and collect all Cardmember receivables owned by Credco. The Receivables Agreements provide that, without prior written consent of Credco, the credit standards used to determine whether a Card is to be issued to an applicant may not be materially reduced and that the policy as to the cancellation of Cards for credit reasons may not be materially liberalized. American Express, as the parent of TRS, has agreed with Credco that it will take all necessary steps to assure performance of certain of TRS' obligations under the Receivables Agreements between TRS and Credco. The Receivables Agreements may be terminated at any time by the parties thereto, generally upon little or no notice. Alternatively, such parties may agree to reduce the required 1.25 fixed charge coverage ratio, which could result in lower discount rates and, consequently, lower revenues and net income for Credco. The obligations of Credco are not guaranteed under the Receivables Agreements or otherwise by American Express or the Card issuers. Credco, to date, has not experienced any material systems failures related to the Year 2000 ("Y2K") rollover. Credco will continue its Y2K monitoring and address any issues that may arise from internal systems or those of third parties. VOLUME OF BUSINESS
The following table shows the volume of Cardmember receivables purchased by Credco, net of Cardmember receivables sold to affiliates, during each of the years indicated, together with receivables owned by Credco at the end of such years (millions): Volume of Cardmember Cardmember Receivables Owned Receivables Purchased at December 31, Year Domestic Foreign Total Domestic Foreign Total ---- -------- ------- ----- -------- ------- ----- 1999 $131,849 $41,822 $173,671 $18,478 $4,985 $23,463 1998 116,957 38,105 155,062 15,198 4,043 19,241 1997 108,573 37,030 145,603 15,581 4,028 19,609 1996 100,512 35,299 135,811 13,530 3,829 17,359 1995 91,299 30,638 121,937 13,179 3,260 16,439
The Card business does not experience significant seasonal fluctuation, although Card billed business tends to be moderately higher in the fourth quarter than in other quarters. TRS' asset securitization programs disclosed above have reduced the volume of domestic Cardmember receivables purchased and the amount owned by Credco. The average life of Cardmember receivables owned by Credco for each of the five years ended December 31 (based upon the ratio of the average amount of both billed and unbilled receivables owned by Credco at the end of each month during the years indicated to the volume of Cardmember receivables purchased by Credco) were: 3
Average Life of Cardmember Year Receivables (in days) ---- --------------------- 1999 42 1998 43 1997 43 1996 43 1995 43
The following table shows the aging of billed, non-interest-bearing charge Cardmember receivables: December 31, 1999 1998 ---- ---- Current 82.4% 79.4% 30 to 59 days 12.6 15.2 60 to 89 days 2.1 2.4 90 days and over 2.9 3.0
LOSS EXPERIENCE Credco generally writes off against its reserve for doubtful accounts the total balance in an account for which any portion remains unpaid twelve months from the date of original billing for non-interest-bearing Charge Card receivables and after six contractual payments are past due for interest-bearing revolving credit receivables. Accounts are written off earlier if deemed uncollectible.
The following table sets forth Credco's write-offs, net of recoveries, expressed in millions and as a percentage of the volume of Cardmember receivables purchased by Credco in each of the years indicated: 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Write-offs, net of recoveries $616 $647 $615 $630 $508 % of net Cardmember receivables purchased .35% .42% .42% .46% .42%
SOURCES OF FUNDS Credco's business is financed by short-term borrowings consisting principally of commercial paper, borrowings under bank lines of credit and issuances of medium- and long-term debt, as well as through operations. The weighted average interest costs on an annual basis of all borrowings, after giving effect to commitment fees under lines of credit and the impact of interest rate swaps, during the following years were:
Weighted Average Year Interest Cost ---- ------------- 1999 5.16% 1998 5.66 1997 5.66 1996 5.67 1995 6.30
4 From time to time, American Express and certain of its subsidiaries purchase Credco's commercial paper at prevailing rates, enter into variable rate note agreements at interest rates generally above the 13-week treasury bill rate and provide lines of credit. The largest amount of borrowings from American Express or its subsidiaries at any month end during the five years ended December 31, 1999 was $5.8 billion. At December 31, 1999, the amount borrowed was $2.4 billion. See notes 5 and 6 in "Notes to Consolidated Financial Statements" appearing herein for information about Credco's debt, including Credco's lines of credit from various banks and long-term debt. FOREIGN OPERATIONS See notes 2, 8 and 11 in "Notes to Consolidated Financial Statements" appearing herein for information about Credco's foreign exchange risks and operations in different geographical regions. EMPLOYEES At December 31, 1999, Credco had 28 employees. ITEM 2. PROPERTIES. Credco neither owns nor leases any material physical properties. ITEM 3. LEGAL PROCEEDINGS. There are no material pending legal proceedings to which Credco or its subsidiaries is a party or of which any of their property is the subject. Credco knows of no such proceedings being contemplated by government authorities or other parties. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Omitted pursuant to General Instruction I(2)(c) to Form 10-K. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. American Express, through a wholly-owned subsidiary, TRS, owns all of the outstanding common stock of Credco. Therefore, there is no market for Credco's common stock. For information about limitations on Credco's ability to pay dividends, see note 7 in "Notes to Consolidated Financial Statements" appearing herein. 5 ITEM 6. SELECTED FINANCIAL DATA.
The following summary of certain consolidated financial information of Credco was derived from audited financial statements for the five years ended December 31: ($ in millions) 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- INCOME STATEMENT DATA Revenues 2,168 2,214 2,064 2,166 1,988 Interest expense 1,130 1,190 1,125 1,117 1,054 Provision for doubtful accounts, net of recoveries 672 632 584 712 625 Income tax provision 120 128 114 115 105 Net income 223 237 212 215 197 BALANCE SHEET DATA Accounts receivable 23,463 19,241 19,609 17,359 16,439 Reserve for doubtful accounts (684) (597) (633) (638) (624) Total assets 27,262 23,650 23,053 20,165 20,192 Short-term debt 20,231 17,528 16,582 14,537 14,202 Current portion of long-term debt 550 353 4 211 409 Long-term debt 2,575 3,053 3,264 2,469 2,673 Shareholder's equity 2,061 1,994 1,907 1,845 1,780 Cash dividends 150 150 150 150 150
6 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. LIQUIDITY AND CAPITAL RESOURCES Credco's receivables portfolio consists of Charge Card receivables and revolving credit receivables purchased without recourse from TRS throughout the world and participation interests purchased without recourse in the seller's interest in both non-interest-bearing and interest-bearing Cardmember receivables. These participation interests are owned by two master trusts formed by TRS as part of its asset securitization programs. At December 31, 1999 and 1998, respectively, Credco owned $20.8 billion and $17.1 billion of Charge Card receivables and participation in Charge Card receivables, representing 88.5 percent and 88.9 percent, respectively, of the total receivables owned. Revolving credit receivables, representing 11.5 percent and 11.1 percent of the total receivables owned, were $2.7 billion and $2.1 billion at December 31, 1999 and 1998, respectively. As part of Credco's business of funding receivables, Credco made variable rate loans to American Express Centurion Bank ("Centurion Bank"), a wholly-owned subsidiary of TRS, which were secured by Optima receivables owned by Centurion Bank. At December 31, 1999, there were no such loans outstanding. At December 31, 1998, $2.3 billion of such loans were outstanding. The loan agreements required Centurion Bank to maintain, as collateral, Optima receivables equal to the outstanding loan balance plus an amount equal to three times the receivable reserve applicable to such Optima receivables. Credco's assets are financed through a combination of short-term debt, long-term senior notes, equity capital and retained earnings. Daily funding requirements are met primarily by the sale of commercial paper. Credco has readily sold the volume of commercial paper necessary to meet its funding needs as well as to cover the daily maturities of commercial paper issued. The average amount of commercial paper outstanding was $16.5 billion for 1999 and $15.2 billion for 1998. An alternate source of borrowing consists of committed credit line facilities. The aggregate commitment of these facilities is generally maintained at 50 percent of short-term debt, net of short-term investments and cash equivalents. In 1999, Credco renegotiated its credit facilities, increasing available credit lines by $1 billion. Committed credit line facilities at December 31, 1999 and 1998 totaled $9 billion and $8 billion, respectively. In addition, Credco, through its wholly-owned subsidiary, American Express Overseas Credit Corporation Limited ("AEOCC"), had short-term borrowings under uncommitted lines of credit totaling $36 million and $68 million at December 31, 1999 and 1998, respectively. During 1999, 1998 and 1997, Credco's average long-term debt outstanding was $3.1 billion, $3.4 billion and $2.9 billion, respectively. At December 31, 1999, Credco had approximately $2.4 billion of medium- and long-term debt and warrants available for issuance under shelf registrations filed with the Securities and Exchange Commission. In addition, at December 31, 1999, Credco had the ability to issue $1.4 billion of debt under a Euro Medium-Term Note program for the issuance of debt outside the United States to non-U.S. persons. This program was established by Credco, TRS, AEOCC, Centurion Bank and American Express Bank, Ltd., (a wholly-owned subsidiary of American Express). The maximum aggregate principal amount of debt instruments outstanding at any one time under the program will not exceed $3.0 billion. Credco paid dividends of $150 million to TRS in both December 1999 and 1998. 7 In 1998, Credco issued $150 million 1 1/8% Cash Exchangeable Notes due February 2003. These notes were exchangeable for an amount in cash which was linked to the price of the common shares of American Express. Credco had entered into agreements to fully hedge its obligations. Credco exercised its right to call these notes in February 2000. Accordingly, the related hedging agreements were called at the same time. In 1999, the American Express Credit Account Master Trust (the "Master Trust") issued an additional $4.0 billion of loans through the public issuances of two classes of investor certificates and privately placed collateral interests in the assets of the Master Trust. At the time of these issuances, CRC sold $253 million of gross seller's interest ($247 million, net of reserves) to American Express Receivables Financing Corporation II ("RFCII"), a wholly-owned subsidiary of TRS. In addition, in 1999, CRC purchased $350 million of Class C Certificates issued by the Master Trust. In February 2000, the Master Trust securitized an additional $1.0 billion of loans. At the time of these issuances, CRC sold $66 million of gross seller's interest ($65 million, net of reserves) to RFCII. In addition, CRC purchased $85 million of Class C Certificates. In 1999, $500 million Class A Fixed Rate Accounts Receivable Trust Certificates matured from the Charge Card securitization portfolio which increased the participation interests owned by CRC. CRC owns a participation interest in the seller's interest in charge Cardmember receivables that have been conveyed to the American Express Master Trust. In addition, $29 million of Class B Certificates owned by CRC matured in 1999. RESULTS OF OPERATIONS Credco purchases Cardmember receivables without recourse from TRS. Non-interest-bearing charge Cardmember receivables are purchased at face amount less a specified discount agreed upon from time to time, and interest-bearing revolving credit Cardmember receivables are generally purchased at face amount. Non-interest-bearing receivables are purchased under Receivables Agreements that generally provide that the discount rate shall not be lower than a rate that yields earnings of at least 1.25 times fixed charges on an annual basis. The ratio of earnings to fixed charges was 1.30 in 1999, 1.31 in 1998 and 1.29 in 1997. The Receivables Agreements also provide that consideration will be given from time to time to revising the discount rate applicable to purchases of new receivables to reflect changes in money market interest rates or significant changes in the collectibility of the receivables. Pretax income depends primarily on the volume of Cardmember receivables purchased, the discount rates applicable thereto, the relationship of total discount to Credco's interest expense and the collectibility of receivables purchased. The average life of Cardmember receivables was 42 days for the year ended December 31, 1999 and 43 days for each of the years ended December 31, 1998 and 1997. Credco's revenues decreased in 1999 primarily due to lower interest income from affiliates as a result of a decrease in the volume of average investments outstanding and interest rates. Interest expense decreased in 1999 primarily due to a decrease in interest rates. Provision for doubtful accounts increased in 1999 reflecting a higher volume of receivables purchased. 8
The following is a further analysis of the increase (decrease) in key revenue and expense accounts (millions): 1999 1998 1997 ---- ---- ---- Revenue earned from purchased accounts receivable-changes attributable to: Volume of receivables purchased $ 230 $ 97 $ 157 Discount and interest rates (222) 40 (214) ----- ----- ----- Total $ 8 $ 137 $ (57) ===== ===== ===== Interest income from affiliates-changes attributable to: Volume of average investments outstanding $ (54) $ $11 $9 Interest rates (6) (4) 4 ----- ----- ----- Total $ (60) $ 7 $ 13 ===== ===== ===== Interest income from investments-changes attributable to: Volume of average investments outstanding $ 13 $ 6 $ (65) Interest rates (6) 0 6 ----- ----- ----- Total $7 $ 6 $ (59) ===== ===== ===== Interest expense affiliates-changes attributable to: Volume of average debt outstanding $ (9) $(14) $ 37 Interest rates (10) (1) 8 ----- ----- ----- Total $ (19) $ (15) $ 45 ===== ===== ===== Interest expense other-changes attributable to: Volume of average debt outstanding $59 $ 79 $ (31) Interest rates (100) 1 (6) ----- ----- ----- Total $ (41) $ 80 $ (37) ===== ===== ===== Provision for doubtful accounts-changes attributable to: Volume of receivables purchased $ 95 $ 50 $ 65 Provision rates and volume of recoveries (55) (2) (193) ----- ----- ----- Total $ 40 $ 48 $(128) ===== ===== =====
ACCOUNTING DEVELOPMENT In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is effective January 1, 2001. This Statement establishes accounting and reporting standards for derivative instruments, including some embedded in other contracts, and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities on the balance sheet and measure them at fair value. Changes in the fair value of a derivative will be recorded in income or directly to equity, depending on the instrument's designated use. The ultimate financial effect of the new rule will be measured based on the derivatives in place at adoption and cannot be estimated at this time. 9 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. American Express management establishes and oversees implementation of Board-approved policies covering its funding, investments and use of derivative financial instruments and monitors aggregate risk exposures on an ongoing basis. The objective is to realize returns commensurate with the level of risk assumed while achieving consistent earnings growth. See note 8 in "Notes to Consolidated Financial Statements" appearing herein for a discussion of Credco's use of derivatives. The following sections include sensitivity analyses of two different tests of market risk and estimate the effects of hypothetical sudden and sustained changes in the applicable market conditions on the ensuing year's earnings, based on year-end positions. The market changes, assumed to occur as of year-end, are a 100 basis point increase in market interest rates and a 10 percent strengthening of the U.S. dollar versus all other currencies. Computations of the prospective effects of hypothetical interest rate and foreign exchange rate changes are based on numerous assumptions, including relative levels of market interest rates and foreign exchange rates, as well as the levels of assets and liabilities. The hypothetical changes and assumptions will be different from what actually occurs in the future. Furthermore, the computations do not incorporate actions that management could take if the hypothetical market changes actually occur. As a result, actual earnings consequences will differ from those quantified below. Credco's hedging policies are established, maintained and monitored by a central treasury function. Credco generally manages its exposures along product lines. A variety of interest rate and foreign exchange hedging strategies are employed to manage interest rate and foreign currency risks. Credco funds its Charge Card receivables and Cardmember loans using on-balance sheet funding sources such as long- and short-term debt, medium-term notes and commercial paper and other debt. For Credco's Charge Card and fixed rate lending products, interest rate exposure is managed through the issuance of long- and short-term debt and the use of interest rate swaps. During 1998, Credco targeted the funding mix for these products to be approximating 100 percent floating rate and purchased interest rate caps to limit the adverse effect of an interest rate increase on substantially all U.S. dollar funding costs. The majority of these caps matured during 1998. In early 1999, Credco entered into a series of interest rate swaps to convert a majority of its domestic funding from floating rate to fixed rate. During the second half of 1999 and in early 2000, Credco entered into additional swaps. The effect of these additional swaps was to increase the amount of fixed rate funding. For the majority of Credco's Cardmember loans, which are linked to a floating rate base and generally reprice each month, Credco generally uses floating rate funding and, to the extent necessary, enters into interest rate swaps to achieve funding rates that reprice similarly with changes in the base rate of the underlying loans. The detrimental effect on Credco's pretax earnings of a hypothetical 100 basis point increase in interest rates would be approximately $92 million and $115 million, based on 1999 and 1998 year-end positions, respectively. This effect is primarily due to the extent of variable rate funding of the Charge Card and fixed rate lending products. The reduction from 1998 to 1999 is primarily due to interest rate swaps purchased beginning in early 1999. Had the swaps entered into in early 1999 been in effect at December 31, 1998, the 1998 effect would have been substantially lower. Had the series of swaps entered into in early 2000 been in effect at December 31, 1999, the 1999 effect would also have been substantially lower. Credco's foreign exchange risk arising from cross-currency charges and balance sheet exposures is managed primarily by entering into agreements to buy and sell currencies on a spot or forward basis. 10 Based on the year-end 1999 and 1998 foreign exchange positions, the effect on Credco's earnings of the hypothetical 10 percent strengthening of the U.S. dollar would be immaterial. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. 1. Financial Statements. See "Index to Financial Statements" at page F-1 hereof. 2. Supplementary Financial Information. Selected quarterly financial data. See note 12 in "Notes to Consolidated Financial Statements" appearing herein. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Omitted pursuant to General Instruction I(2)(c) to Form 10-K. ITEM 11. EXECUTIVE COMPENSATION. Omitted pursuant to General Instruction I(2)(c) to Form 10-K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Omitted pursuant to General Instruction I(2)(c) to Form 10-K. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Omitted pursuant to General Instruction I(2)(c) to Form 10-K. 11 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) 1. Financial Statements: See "Index to Financial Statements" at page F-1 hereof. 2. Financial Statement Schedule: See "Index to Financial Statements" at page F-1 hereof. 3. Exhibits: See "Exhibit Index" hereof. (b) Reports on Form 8-K: None. 12 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICAN EXPRESS CREDIT CORPORATION (Registrant) DATE March 30, 2000 By /s/ Walker C. Tompkins, Jr. ------------------------------- ------------------------------- Walker C. Tompkins, Jr. President and Chief Executive Officer Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities on the dates indicated. DATE March 30, 2000 By /s/ Walker C. Tompkins, Jr. ------------------------------- ---------------------------------- Walker C. Tompkins, Jr. President and Chief Executive Officer DATE March 30, 2000 /s/ Erich Komdat ------------------------------- ---------------------------------- Erich Komdat Vice President, Chief Accounting Officer DATE March 30, 2000 /s/ Richard K. Goeltz ------------------------------- ---------------------------------- Richard K. Goeltz Chairman of the Board and Director (principal financial officer) DATE March 30, 2000 /s/ Kim D. Rosenberg ------------------------------- ---------------------------------- Kim D. Rosenberg Director DATE March 30, 2000 /s/ Jay B. Stevelman ------------------------------- ---------------------------------- Jay B. Stevelman Director 13 AMERICAN EXPRESS CREDIT CORPORATION INDEX TO FINANCIAL STATEMENTS COVERED BY REPORT OF INDEPENDENT AUDITORS (ITEM 14 (a)) Page Number ----------- FINANCIAL STATEMENTS: Report of independent auditors F - 2 Consolidated statements of income for each of the three years ended December 31, 1999, 1998 and 1997 F - 3 Consolidated balance sheets at December 31, 1999 and 1998 F - 4 Consolidated statements of cash flows for each of the three years ended December 31, 1999, 1998 and 1997 F - 5 Consolidated statements of shareholder's equity for each of the three years ended December 31, 1999, 1998 and 1997 F - 6 Notes to consolidated financial statements F - 7 to F - 17 SCHEDULE: II - Valuation and qualifying accounts for each of the three years ended December 31, 1999, 1998 and 1997 F - 18 All other schedules are omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or notes thereto. F-1 REPORT OF INDEPENDENT AUDITORS The Board of Directors American Express Credit Corporation We have audited the accompanying consolidated balance sheets of American Express Credit Corporation as of December 31, 1999 and 1998, and the related consolidated statements of income, shareholder's equity and cash flows for each of the three years in the period ended December 31, 1999. Our audits also included the financial statement schedule listed in the Index at Item 14 (a). These financial statements and schedule are the responsibility of the management of American Express Credit Corporation. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Express Credit Corporation at December 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ Ernst & Young LLP New York, New York February 3, 2000 F-2
AMERICAN EXPRESS CREDIT CORPORATION CONSOLIDATED STATEMENTS OF INCOME (millions) Years Ended December 31, 1999 1998 1997 ---- ---- ---- Revenues Revenue earned from purchased accounts receivable $1,901 $1,893 $1,756 Interest income from affiliates 120 180 173 Interest income from investments 143 136 130 Other income 4 5 5 ----- ----- ----- Total 2,168 2,214 2,064 ===== ===== ===== Expenses Interest expense - affiliates 145 164 179 Interest expense - other 985 1,026 946 Provision for doubtful accounts, net of recoveries of $172, $168 and $183 672 632 584 Other expenses 23 27 29 ----- ----- ----- Total 1,825 1,849 1,738 ===== ===== ===== Income before taxes 343 365 326 Income tax provision 120 128 114 ----- ----- ----- Net income $223 $237 $212 ===== ===== =====
See notes to consolidated financial statements. F-3
AMERICAN EXPRESS CREDIT CORPORATION CONSOLIDATED BALANCE SHEETS (millions) December 31, 1999 1998 ---- ---- Assets Cash and cash equivalents $1,102 $648 Investments 947 353 Accounts receivable 23,463 19,241 Less: reserve for doubtful accounts 684 597 ------ ------ 22,779 18,644 Loans and deposits with affiliates 1,461 3,353 Deferred charges and other assets 973 652 ------ ------ Total assets $27,262 $23,650 ====== ====== Liabilities and Shareholder's Equity Short-term debt with affiliates $1,494 $1,261 Short-term debt - other 18,737 16,267 Current portion of long-term debt 550 353 Long-term debt with affiliate 910 910 Long-term debt - other 1,665 2,143 ------ ------ Total debt 23,356 20,934 Due to affiliates 1,459 425 Accrued interest and other liabilities 248 182 ------ ------ Total liabilities 25,063 21,541 ====== ====== Deferred discount revenue 138 115 ------ ------ Shareholder's Equity Common stock - authorized 3,000,000 shares of $.10 par value; issued and outstanding 1,504,938 shares 1 1 Capital surplus 161 161 Retained earnings 1,905 1,832 Other comprehensive income, net of tax: Net unrealized securities losses (6) - ------- ------ Total shareholder's equity 2,061 1,994 ======= ====== Total liabilities and shareholder's equity $27,262 $23,650 ======= ======
See notes to consolidated financial statements. F-4
AMERICAN EXPRESS CREDIT CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (millions) Years Ended December 31, 1999 1998 1997 ---- ---- ---- Cash Flows From Operating Activities: Net Income $223 $237 $212 Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities: Provision for doubtful accounts, net of recoveries 672 632 584 Amortization of deferred underwriting fees and bond discount/premium 1 5 - Changes in operating assets and liabilities: (Increase) decrease in deferred tax assets (17) (28) 43 Increase in interest receivable and other operating assets (43) (33) (12) (Decrease) increase in due to affiliates (15) 52 8 Increase in accrued interest and other liabilities 83 42 18 Increase (decrease) in deferred discount revenue 23 (2) 17 ------ ------ ------ Net cash and cash equivalents provided by operating activities 927 905 870 ====== ====== ====== Cash Flows From Investing Activities: Increase in accounts receivable (4,976) (1,261) (2,694) Recoveries of accounts receivable previously written off 172 168 183 Purchase of investments (641) (153) (247) Maturity of investments 36 17 29 Sale of investments 2 - - Purchase of participation interest in seller's interest in accounts receivable from an affiliate (959) (312) (728) Sale of participation interest in seller's interest in accounts receivable to an affiliate 247 1,120 95 Sale of net accounts receivable to an affiliate 586 - 219 Decrease (increase) in loans and deposits due from affiliates 1,892 (201) (300) Increase (decrease) in due to affiliates 962 (949) 192 ------ ------ ------ Net cash and cash equivalents used in investing activities (2,679) (1,571) (3,251) ====== ====== ====== Cash Flows From Financing Activities: Net increase (decrease) in short-term debt with affiliates with maturities less than ninety days 233 (510) 496 Net increase in short-term debt - other with maturities less than ninety days 350 795 3,271 Proceeds from issuance of debt 10,426 5,492 8,027 Redemption of debt (8,653) (4,687) (9,156) Dividend paid to TRS (150) (150) (150) ------ ------ ------ Net cash and cash equivalents provided by financing activities 2,206 940 2,488 ------ ------ ------ Net increase in cash and cash equivalents 454 274 107 ------ ------ ------ Cash and cash equivalents at beginning of year 648 374 267 ------ ------ ------ Cash and cash equivalents at end of year $1,102 $648 $374 ------ ------ ------
See notes to consolidated financial statements. F-5
AMERICAN EXPRESS CREDIT CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY Years Ended December 31, 1999, 1998 and 1997 (millions) Accumulated Total Other Shareholder's Common Capital Comprehensive Retained Equity Stock Surplus Losses Earnings ------------ ----- ------- ----------- -------- Balances at January 1, 1997 $1,845 $1 $161 $ - $1,683 Comprehensive income: Net income 212 212 --- Total comprehensive income 212 Dividend to TRS (150) - - - (150) ------ --- ---- --- ------ Balances at December 31, 1997 1,907 1 161 - 1,745 Comprehensive income: Net income 237 237 ------ Total comprehensive income 237 Dividend to TRS (150) - - - (150) ------ --- ---- --- ------ Balances at December 31, 1998 1,994 1 161 - 1,832 Comprehensive income: Net income 223 223 Change in net unrealized securities losses (6) (6) ------ Total comprehensive income 217 Dividend to TRS (150) - - - (150) ------ --- ---- --- ------ Balances at December 31, 1999 $2,061 $1 $161 $(6) $1,905 ====== === ==== === ======
See notes to consolidated financial statements. F-6 AMERICAN EXPRESS CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- 1. BASIS OF PRESENTATION American Express Credit Corporation together with its subsidiaries ("Credco") is a wholly-owned subsidiary of American Express Travel Related Services Company, Inc. ("TRS"), which is a wholly-owned subsidiary of American Express Company ("American Express"). American Express Overseas Credit Corporation Limited together with its subsidiaries ("AEOCC") and Credco Receivables Corp. ("CRC") are wholly-owned subsidiaries of Credco. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of Credco and all its subsidiaries. All significant intercompany transactions have been eliminated. Certain prior year amounts have been reclassified to conform to the current year presentation. USE OF ESTIMATES AND ASSUMPTIONS Credco's financial statements include amounts determined using estimates and assumptions. For example, estimates and assumptions are used in determining the reserves related to accounts receivable. While these estimates are based on the best judgment of management, actual results could differ from these estimates. REVENUE EARNED FROM PURCHASED ACCOUNTS RECEIVABLE A portion of discount revenue earned on purchases of non-interest-bearing Cardmember receivables equal to the provision for doubtful accounts is recognized as revenue at the time of purchase; the remaining portion is deferred and recorded as revenue ratably over the period that the receivables are outstanding. Finance charge income on interest-bearing extended payment plan receivables is recognized as it is earned. Credco ceases accruing this income after six contractual payments are past due, or earlier, if deemed uncollectible. Accruals that cease generally are not resumed. RESERVE FOR DOUBTFUL ACCOUNTS The reserve for doubtful accounts is based on historical collection experience and evaluation of the current status of existing receivable balances. Credco generally writes off against its reserve for doubtful accounts the total balance in an account for which any portion remains unpaid twelve months from the date of original billing for non-interest-bearing Cardmember receivables and after six contractual payments are past due for interest-bearing Cardmember receivables. Accounts are written off earlier if deemed uncollectible. INVESTMENTS Management determines the appropriate classification of debt securities at the time of purchase. Debt securities are classified as held to maturity when Credco has the positive intent and ability to hold the securities to maturity. Held to maturity securities are stated at amortized cost. F-7 Available for sale securities are stated at fair value, with the unrealized gains and losses included in shareholder's equity. FAIR VALUES OF FINANCIAL INSTRUMENTS The fair values of financial instruments are estimates based upon current market conditions and perceived risks at December 31, 1999 and 1998 and require varying degrees of management judgment. The fair values of the financial instruments presented may not be indicative of their future fair values. The fair values of investments, long-term debt and derivative instruments are included in the related footnotes. For all other financial instruments, the carrying amounts in the consolidated balance sheets approximate the fair values. INTEREST RATE TRANSACTIONS Credco enters into various interest rate agreements as a means of managing its interest rate exposure. Interest rates charged on consumer lending receivables are linked to a floating rate base and generally reprice monthly. Credco generally uses floating rate funding and, to the extent necessary, enters into interest rate swaps to achieve funding rates that reprice similarly with changes in the base rate of the underlying loans. These interest rate agreements which modify the terms of an underlying debt obligation are accounted for by recording interest expense using the revised interest rate with any fees or other payments amortized as yield adjustments. It is Credco's normal practice not to terminate, sell or dispose of interest rate agreements or the underlying debt to which the agreements are designated prior to maturity. In the event Credco terminates, sells or disposes of an agreement prior to maturity, the gain or loss would be deferred and recognized as an adjustment of yield over the remaining life of the underlying debt. FOREIGN CURRENCY Foreign currency assets and liabilities are translated into their U.S. dollar equivalents based on rates of exchange prevailing at the end of each year. Revenue and expense accounts are translated at exchange rates prevailing during the year. Credco enters into various foreign exchange contracts as a means of managing foreign exchange exposure. CASH AND CASH EQUIVALENTS Credco has defined cash and cash equivalents as cash and short-term investments with a maturity of ninety days or less at the time of purchase. ACCOUNTING CHANGE Credco adopted AICPA Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," prospectively as of January 1, 1999. This SOP requires the capitalization of certain costs incurred after the date of adoption to develop or obtain software for internal use. Credco's policy had been to expense such costs as incurred. The amounts capitalized are amortized on a straight-line basis over a period not to exceed five years. The adoption of SOP 98-1 had no material effect on Credco for the year ended December 31, 1999. F-8 3. INVESTMENTS At December 31, 1999 and 1998, Credco held $229 million and $258 million, respectively, of American Express Master Trust Class B Certificates. These securities are classified as held to maturity and are stated at amortized cost. The fair value of these securities at December 31, 1999 and 1998, was $225 million and $267 million, respectively. Available for sale securities are stated at fair value, with the unrealized gains and losses included in shareholder's equity. At December 31, 1999 and 1998, Credco held American Express Credit Account Master Trust Class C Certificates which were classified as available for sale. The cost and fair value of these available for sale securities at December 31, 1999 and 1998 was $445 million and $95 million, respectively. In addition, Credco has a portfolio of corporate and government securities which is managed by American Express Financial Advisors, a wholly-owned subsidiary of American Express. The book value and fair value of these available for sale securities as of December 31, 1999 was $281 million and $273 million, respectively. The available for sale classification does not mean that Credco necessarily expects to sell these securities. They are available to meet possible liquidity needs should there be significant changes in market interest rates, customer demands or funding sources and terms. The change in net unrealized securities losses recognized in Other Comprehensive Income includes two components: (1) unrealized gains (losses) that arose during the period from changes in market value of securities that were held during the period (holding gains (losses)), and (2) gains or losses that were previously unrealized, but have been recognized in the current period net income due to sales of available for sale securities (reclassification for realized gains). This reclassification has no effect on total Comprehensive Income or Shareholder's Equity. For the year ended December 31, 1999, the components of other comprehensive losses were $6.0 million in holding losses and $0.3 million in realized losses (net of tax). 4. ACCOUNTS RECEIVABLE At December 31, 1999 and 1998, respectively, Credco owned $20.8 billion and $17.1 billion of Charge Card receivables and participation in Charge Card receivables, representing 88.5 percent and 88.9 percent, respectively, of the total receivables owned. In connection with TRS' securitization program for U.S. charge Cardmember receivables, CRC purchases from American Express Receivables Financing Corporation ("RFC"), a wholly-owned subsidiary of TRS, a participation interest in RFC's seller's interest in the receivables owned by the American Express Master Trust (the "Trust"), which was formed in 1992 to securitize U.S. charge Cardmember receivables. The gross participation interests represent undivided interests in the receivables conveyed to the Trust by RFC. In 1999, $500 million Class A Fixed Rate Accounts Receivable Trust Certificates matured from the Charge Card securitization portfolio which increased the participation interests owned by CRC. In addition, $29 million of Class B Certificates owned by CRC matured in 1999. At December 31, 1999 and 1998, Credco owned approximately $4.0 billion and $2.9 billion, respectively, of participation interests in receivables owned by the Trust, representing 16.9 percent and 14.9 percent, respectively, of its total accounts receivable. At December 31, 1999 and 1998, Credco owned extended payment plan receivables totaling $2.7 billion and $2.1 billion, respectively, including revolving credit loans purchased directly from American Express Centurion Bank ("Centurion Bank"), a wholly-owned subsidiary of TRS, representing 11.5 percent and 11.1 percent, respectively, of its total interests in accounts receivable. The extended payment plan receivables owned at December 31, 1999 and 1998 include $465 million and $154 million, respectively, of participation F-9 interest owned by CRC. This represents a participation interest in the seller's interest in revolving credit receivables that have been conveyed to the American Express Credit Account Master Trust (the "Master Trust"), formed by Centurion Bank in 1996 to securitize revolving credit loans. In 1999, the Master Trust issued an additional $4.0 billion of loans through the public issuances of two classes of investor certificates and privately placed collateral interests in the assets of the Master Trust. At the time of these issuances, CRC sold $253 million of gross seller's interest ($247 million, net of reserves) to American Express Receivables Financing Corporation II ("RFCII"), a wholly-owned subsidiary of TRS. In addition, in 1999, CRC purchased $350 million of Class C Certificates issued by the Master Trust. In February 2000, the Master Trust securitized an additional $1.0 billion of loans. At the time of these issuances, CRC sold $66 million of gross seller's interest ($65 million, net of reserves) to RFCII. In addition, CRC purchased $85 million of Class C Certificates.
5. SHORT-TERM DEBT At December 31, short-term debt consisted of (millions): 1999 1998 ---- ---- Commercial paper $18,471 $16,064 Borrowings from affiliates 1,494 1,261 Borrowings under lines of credit 36 68 Borrowing agreements with bank trust departments and others 230 135 ------- ------- Total short-term debt $20,231 $17,528 ------- -------
Credco has various facilities available to obtain short-term credit, including the issuance of commercial paper and agreements with banks. In 1999, Credco renegotiated its credit line facilities, increasing available credit lines by $1 billion. Credco had committed credit line facilities totaling $9 billion and $8 billion at December 31, 1999 and 1998, respectively. Credco pays fees to the financial institutions that provide these credit line facilities. The fair value of the unused lines of credit is not significant at December 31, 1999 and 1998. At December 31, 1999 and 1998, Credco, through AEOCC, had short-term borrowings under uncommitted lines of credit totaling $36 million and $68 million, respectively. Credco's annual weighted average short-term interest rate was 5.12 percent, 5.62 percent and 5.60 percent for the years ended December 31, 1999, 1998 and 1997, respectively. These rates include the cost of maintaining credit line facilities for the periods and the impact of interest rate swaps. At December 31, 1999, $4.9 billion of short-term debt outstanding was modified by interest rate swaps, resulting in a year-end weighted average effective interest rate of 5.04 percent. Credco paid $962 million, $977 million and $940 million of interest on short-term debt obligations in 1999, 1998 and 1997, respectively. F-10
6. LONG-TERM DEBT 1999 ---- Year-End Notional Stated Rate December 31, (millions) Outstanding Amount of on Debt Balance Swaps (a,b) ---------- -------- ------- Senior notes due 2000-2005 $1,199 $1,200 6.34% Variable rate debt with American Express due 2004 910 - 5.84% Medium-term fixed rate notes due 2002 400 400 6.50% Medium-term variable rate notes due 400 400 6.26% 2002 Exchangeable notes due 2003 214 150 1.13% Swiss franc notes due 2002-2003 1 - 5.13% Other senior notes due 2006-2017 1 - 5.94% Net unamortized bond discount - - - ------ ------ ----- Total long-term debt $3,125 $2,150 ====== ======
1999 ---- Year-End Effective Interest December 31, Rate with Maturity Swaps (a,b) of Swaps ----------- -------- Senior notes due 2000-2005 6.41% 2000-2005 Variable rate debt with American Express due 2004 - - Medium-term fixed rate notes due 2002 6.06% 2002 Medium-term variable rate notes due 6.51% 2002 2002 Exchangeable notes due 2003 6.11% 2003 Swiss franc notes due 2002-2003 - - Other senior notes due 2006-2017 - - Net unamortized bond discount - - ---- ----- Total long-term debt
1998 ---- Year-End Notional Stated Rate December 31, (millions) Outstanding Amount of on Debt Balance Swaps (a,b) ------- ----- ------- Senior notes due 2000-2005 $1,548 $1,550 6.69% Variable rate debt with American Express due 2004 910 - 5.11% Medium-term fixed rate notes due 2002 400 400 6.50% Medium-term variable rate notes due 399 399 5.27% 2002 Exchangeable notes due 2003 143 150 1.13% Swiss franc notes due 2002-2003 5 - 3.87% Other senior notes due 2006-2017 2 - 7.40% Net unamortized bond discount (1) - - ------ ------ ----- Total long-term debt $3,406 $2,499 ====== ====== (a) For floating rate debt issuances, the stated and effective interest rates were based on the respective rates at December 31, 1999 and 1998; these rates are not an indication of future interest rates. (b) Weighted average rates were determined where appropriate.
The above table includes the current portion of long-term debt of $550 million and $353 million at December 31, 1999 and 1998, respectively. The book value of variable rate long-term debt that reprices within a year approximates fair value. The fair value of other long-term debt is based on quoted market price or discounted cash flow. The aggregate fair value of long-term debt, including the current portion outstanding at December 31, 1999 and 1998, was $3.1 billion and $3.5 billion, respectively. Aggregate annual maturities of long-term debt for the five years ending December 31, 2004 are as follows (millions): 2000 - $550; 2001 - $550; 2002 - $800; 2003 - $214; 2004 - $910. In 1998, Credco issued $150 million 1 1/8% Cash Exchangeable Notes due February 2003. These notes were exchangeable for an amount in cash which was linked to the price of the common shares of American Express. Credco had entered into agreements to fully hedge its obligations. Credco exercised its right to call these notes in February 2000. Accordingly, the related hedging agreements were called at the same time. Credco paid $175 million in 1999, $209 million in 1998 and $192 million in 1997 of interest on long-term debt obligations. 7. RESTRICTIONS AS TO DIVIDENDS AND LIMITATIONS ON INDEBTEDNESS The most restrictive limitation on dividends imposed by the debt instruments issued by Credco is the requirement that Credco maintain a minimum consolidated net worth of $50 million. There are no limitations on the amount of debt that can be issued by Credco. 8. DERIVATIVE INSTRUMENTS Credco uses derivative financial instruments for nontrading purposes to manage its exposure to interest and foreign exchange rates, financial indices and funding costs. F-11 There are a number of risks associated with derivatives. Market risk is the possibility that the value of the derivative financial instrument will change. Credco is not exposed to market risk related to derivatives held for nontrading purposes beyond that inherent in cash market transactions. Credco does not enter into derivative contracts with features that would leverage or multiply its market risk. Credit risk related to derivatives and other off-balance sheet financial instruments is the possibility that the counterparty will not fulfill the terms of the contract. It is monitored through established approval procedures, including setting concentration limits by counterparty and country, reviewing credit ratings and requiring collateral where appropriate. A significant portion of Credco's transactions are with counterparties rated A or better by nationally recognized credit rating agencies. Credco also uses master netting agreements which allows Credco to settle multiple contracts with a single counterparty in one net receipt or payment in the event of counterparty default. At December 31, 1999 and 1998, the aggregate notional amount of Credco's derivative instruments was $15.7 billion ($348 million with affiliates) and $9.5 billion ($360 million with affiliates), respectively. Credit risk approximates the fair value of contracts in a gain position (asset) and totaled $127 million ($0.4 million with affiliates) at December 31, 1999 and $101 million ($1.7 million with affiliates) at December 31, 1998. The fair value represents the replacement cost and is determined by market values, dealer quotes or pricing models.
The following tables detail information regarding Credco's derivatives (millions): Notional Carrying Value Fair Value December 31, 1999 Amount Asset Liability Asset Liability - ----------------- ------ ----- --------- ----- --------- Interest rate products $12,930 $53 $55 $123 $96 Forward contracts 2,767 29 3 4 27 ------ ------ ------ ------ ------ Total $15,697 $82 $58 $127 $123 ------ ------ ------ ------ ------ Notional Carrying Value Fair Value December 31, 1998 Amount Asset Liability Asset Liability - ----------------- ------ ----- --------- ----- --------- Interest rate products $7,505 $68 $52 $83 $83 Forward contracts 2,037 12 3 18 4 ------ ----- ------ ------ ------ Total $9,542 $80 $55 $101 $87 ------ ----- ------ ------ ------
INTEREST RATE PRODUCTS Credco uses interest rate products to maintain a predetermined mix of fixed and variable rate debt in order to achieve a desired level of interest rate exposure to manage funding costs related to its Cardmember receivables and Cardmember loans. The principal product used is interest rate swaps, which involve the exchange, for a specified period of time, of fixed or floating rate interest payments based on a notional or contractual amount. During 1998, Credco targeted the funding mix for its Charge Card and fixed rate lending products to be approximating 100 percent floating rate and purchased interest rate caps to limit the adverse effect of an interest rate increase on substantially all U.S. dollar funding costs. The majority of these caps matured during 1998. In early 1999, Credco entered into a series of interest rate swaps to convert a F-12 majority of its domestic funding from floating rate to fixed rate. During the second half of 1999 and in early 2000, Credco entered into additional swaps. The effect of these additional swaps was to increase the amount of fixed rate funding. Credco enters into currency swaps to convert U.S. dollar denominated debt into other currencies in order to match foreign denominated receivables with funding of the same currency and to achieve a desired level of interest rate exposure. Currency swap agreements are contracts to exchange currency and interest payments for a specific period of time. Interest rates charged on Credco's revolving credit receivables are linked to a floating rate base and generally reprice each month. Credco generally uses floating rate funding and, to the extent necessary enters into interest rate swaps paying rates that reprice similarly with changes in the base rate of the underlying loans. As interest rate products manage interest rate exposure, interest is accrued and reported in accounts receivable and other assets, or accrued interest and other liabilities, and interest expense, as appropriate. Aggregate annual expirations of interest rate products are as follows (notional amount in millions): 2000 - $7,592; 2001 - $3,721; 2002 - $1,125; 2003 - $274; 2004 - $118; 2005 - $100.
The following table details information regarding Credco's interest rate products at December 31, 1999 (millions): Weighted Average Interest Rate Notional Primary Variable ------------------------------ Type Amount Rate Index Fixed Floating -------------------- ------- --------------- ---------------- ------------- Floating to fixed $9,137 USD CP H15/1 month LIBOR 5.45% 5.39% Fixed to floating $3,393 1 month LIBOR and 5.75% 5.88% 3 month LIBOR Floating to floating $ 400 1 month LIBOR and - 5.85%/6.00% 3 month LIBOR
FOREIGN CURRENCY PRODUCTS Credco uses foreign currency products to manage transactions denominated in foreign currencies. Foreign currency exposures are hedged, where practical and economical, through foreign currency forward contracts. Foreign currency forward contracts involve the purchase or sale of a designated currency at an agreed upon rate for settlement on a specified date. As Credco is exposed to transaction risk with regard to receivables denominated in foreign currencies and since foreign currency forward contracts reduce that exposure, the contracts are accounted for as hedges. These foreign currency forward contracts are marked to the current spot rate with the gain or loss recorded in income to offset the transaction gain or loss resulting from the receivables. The receivable or payable with the counterparty to the foreign currency forward contracts which result from this process is reported in other assets or liabilities, as appropriate. The discount or premium on foreign currency forward contracts is reported in other assets or liabilities, as appropriate, and amortized to interest expense over the terms of the contracts. F-13
The following table summarizes Credco's forward contracts by major currencies as of December 31 (millions): 1999 1998 ---- ---- Pound Sterling $1,413 $ 915 Canadian Dollar 549 501 Australian Dollar 225 35 German Mark 160 178 Hong Kong Dollar 155 223 Swedish Krona 110 97 Other 155 88 ----- ----- Total forward contracts $2,767 $2,037 ====== ======
Foreign currency forward contracts generally mature within one year. At December 31, 1999, Credco had no significant unhedged foreign currency exposures. 9. TRANSACTIONS WITH AFFILIATES In 1999, 1998 and 1997, Credco purchased Cardmember receivables without recourse from TRS and certain of its subsidiaries totaling approximately $174 billion, $155 billion and $146 billion, respectively. Agreements for the purchase of non-interest-bearing receivables generally provide that Credco purchase such receivables at a discount rate which yields earnings to Credco equal to at least 1.25 times its fixed charges on an annual basis. The agreements require TRS, at its expense, to perform accounting, clerical and other services necessary to bill and collect all Cardmember receivables owned by Credco. Since settlements under the agreements occur monthly, an amount due from, or payable to, such affiliates may arise at the end of each month. At December 31, 1999 and 1998, Credco owned approximately $4.0 billion and $2.9 billion, respectively, of participation interests in receivables owned by the Trust, representing 16.9 percent and 14.9 percent, respectively, of its total accounts receivable. In July 1999, $500 million Class A Fixed Rate Accounts Receivable Trust Certificates matured from the Charge Card securitization portfolio which increased the participation interests owned by CRC. CRC owns a participation interest in the seller's interest in charge Cardmember receivables that have been conveyed to the Trust. The extended payment plan receivables owned at December 31, 1999 and 1998 include $465 million and $154 million, respectively, of participation interest owned by CRC. This represents a participation interest in the seller's interest in revolving credit receivables that have been conveyed to the Master Trust. F-14
Other transactions with American Express and its subsidiaries for the years ended December 31 were as follows (millions): 1999 1998 1997 ---- ---- ---- Cash and cash equivalents at December 31 $5 $4 $6 Maximum month-end level of cash and cash equivalents during the year 7 17 9 Secured loans to American Express Centurion Bank at December 31 0 2,300 2,300 Other loans and deposits to affiliates at December 31 1,461 1,053 850 Maximum month-end level of loans and deposits to affiliates during the year 3,433 3,353 3,150 Borrowings at December 31 2,404 2,171 2,680 Maximum month-end level of borrowings during the year 4,725 5,819 4,588 Interest income 120 180 173 Other income 4 5 5 Interest expense 145 164 179 ------ ------ -----
At December 31, 1999, Credco had no variable rate secured loans to Centurion Bank and $2.3 billion at both December 31, 1998 and 1997. These loans were secured by certain interest-bearing extended payment plan receivables owned by Centurion Bank. At December 31, 1999, 1998 and 1997, Credco held variable rate loans to American Express due in 2004 of $850 million. Additionally, Credco had $605 million and $199 million loans to American Express ATM Holdings, Inc., a wholly-owned subsidiary of TRS, at December 31, 1999 and 1998, respectively. Interest income from these loans were $120 million, $180 million and $173 million for 1999, 1998 and 1997, respectively. 10. INCOME TAXES The taxable income of Credco is included in the consolidated U.S. federal income tax return of American Express. Under an agreement with TRS, taxes are recognized on a stand-alone basis. If benefits for all future tax deductions, foreign tax credits and net operating losses cannot be recognized on a stand-alone basis, such benefits are then recognized based upon a share, derived by formula, of those deductions and credits that are recognizable on a TRS consolidated reporting basis.
The income tax expense for the years ended December 31 consists of the following ($ in millions): 1999 1998 1997 ---- ---- ---- Federal 110 126 114 Foreign 10 2 - ---- ---- ---- Total 120 128 114 ==== ==== ====
Deferred income tax assets and liabilities result from the recognition of temporary differences. Temporary differences are differences between the tax bases of assets and liabilities and their reported amounts in the F-15 financial statements that will result in differences between income for tax purposes and income for financial statement purposes in future years. The current and deferred components of the provision (benefit) for income taxes consist of the following (millions):
1999 1998 1997 ---- ---- ---- Current $134 $156 $71 Deferred (14) (28) 43 ---- ---- ---- Total income tax provision $120 $128 $114 ==== ==== ====
Credco's net deferred tax assets, which are included in other assets, consisted of the following (millions): 1999 1998 ---- ---- Deferred tax assets $218 $203 Deferred tax liabilities - (1) ---- ---- Net deferred tax assets $218 $202 ==== ====
Deferred tax assets for 1999 and 1998 consists primarily of reserve for loan losses of $216 million and $201 million, respectively. Deferred tax liabilities for 1998 consisted primarily of foreign exchange contracts. At December 31, 1999 and 1998, no valuation allowances were required. Included in due to affiliates is the current federal tax payable to TRS of $4.4 million and $30 million at December 31, 1999 and 1998, respectively. In 1999, 1998 and 1997, total net income taxes paid, including taxes paid to TRS, were $159 million, $97 million and $74 million, respectively. The U.S. Statutory tax rate and effective tax rate for 1999, 1998 and 1997 was approximately 35%. The items comprising comprehensive income in the consolidated statements of shareholder's equity are presented net of income tax. The changes in net unrealized securities losses are presented net of tax benefits of $3 million for 1999. There were no net unrealized securities losses for 1998. 11. GEOGRAPHIC SEGMENTS Credco is principally engaged in the business of purchasing Cardmember receivables arising from the use of the American Express Card in the United States and foreign locations. The following presents information about operations in different geographic areas (millions): F-16
1999 1998 1997 ---- ---- ---- Revenues United States $1,811 $1,857 $1,723 International 357 357 341 ------ ------ ------ Consolidated $2,168 $2,214 $2,064 ------ ------ ------ Income before taxes United States $ 295 $ 316 $ 286 International 48 49 40 ------ ------ ------ Consolidated $ 343 $ 365 $ 326 ------ ------ ------
12. QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data is as follows (millions): Quarter Ended 12/31 9/30 6/30 3/31 ----- ----- ---- ---- 1999 ---- Revenues $623 $503 $543 $499 Income before taxes 80 77 93 93 Net income 52 50 61 60 ---- ---- ---- ---- 1998 ---- Revenues $548 $545 $581 $540 Income before taxes 98 87 94 86 Net income 63 57 61 56 ---- ---- ---- ----
F-17
AMERICAN EXPRESS CREDIT CORPORATION SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (millions) 1999 1998 1997 Reserve for doubtful accounts: ---- ---- ---- Balance at beginning of year $597 $633 $638 Additions: Provision for doubtful accounts charged to income (1) 844 800 767 Other credits (2) 71 48 53 Foreign translation - (1) (5) Deductions: Accounts written off 788 815 798 Other charges (3) 40 68 22 ---- ---- ---- Balance at end of year $684 $597 $633 ==== ==== ==== Reserve for doubtful accounts as a percentage of Cardmember receivables owned at year end 2.91% 3.10% 3.23% ==== ==== ====
(1) Before recoveries on accounts previously written off of (millions): 1999-$172, 1998-$168 and 1997-$183. (2) Reserve balances applicable to new groups of Cardmember receivables purchased from TRS and certain of its subsidiaries and participation interests purchased from affiliates. (3) Reserve balances applicable to certain groups of Cardmember receivables and participation interests sold to affiliates. F-18 EXHIBIT INDEX PURSUANT TO ITEM 601 OF REGULATION S-K EXHIBIT NO. DESCRIPTION 3 (a) Registrant's Certificate of Incorporated by reference to Incorporation, as amended Exhibit 3(a) to Registrant's Registration Statement on Form S-1 dated February 25, 1972 (File No. 2-43170). 3 (b) Registrant's By-Laws, amended Incorporated by reference to and restated as of November Exhibit 3 (b) to 24, 1980 Registrant's Annual Report on Form 10-K (Commission File No. 1-6908) for the year ended December 31, 1985. 4 (a) Registrant's Debt Securities Incorporated by reference to Indenture dated as of Exhibit 4 (s) to September 1, 1987 Registrant's Registration Statement on Form S-3 dated September 2, 1987 (File No. 33-16874). 4 (b) Form of Note with optional Incorporated by reference to redemption provisions Exhibit 4 (t) to Registrant's Registration Statement on Form S-3 dated September 2, 1987 (File No. 33-16874). 4 (c) Form of Debenture with optional Incorporated by reference to redemption and sinking fund Exhibit 4 (u) to provisions Registrant's Registration Statement on Form S-3 dated September 2, 1987 (File No. 33-16874). 4 (d) Form of Original Issue Discount Incorporated by reference to Note with optional redemption Exhibit 4 (v) to provision Registrant's Registration Statement on Form S-3 dated September 2, 1987 (File No. 33-16874). 4(e) Form of Zero Coupon Note with Incorporated by reference to optional redemption provisions Exhibit 4 (w) to Registrant's Registration Statement on Form S-3 dated September 2, 1987 (File No. 33-16874). 4 (f) Form of Variable Rate Note with Incorporated by reference to optional redemption and Exhibit 4 (x) to repayment provisions Registrant's Registration Statement on Form S-3 dated September 2, 1987 (File No. 33-16874). 4 (g) Form of Extendible Note with Incorporated by reference to optional redemption and Exhibit 4 (y) to repayment provisions Registrant's Registration Statement on Form S-3 dated September 2, 1987 (File No. 33-16874). 4 (h) Form of Fixed Rate Medium-Term Incorporated by reference to Note Exhibit 4 (z) to Registrant's Registration Statement on Form S-3 dated September 2, 1987 (File No. 33-16874). 4 (i) Form of Floating Rate Incorporated by reference to Medium-Term Note Exhibit 4 (aa) to Registrant's Registration Statement on Form S-3 dated September 2, 1987 (File No. 33-16874). 4 (j) Form of Warrant Agreement Incorporated by reference to Exhibit 4 (bb) to Registrant's Registration Statement on Form S-3 dated September 2, 1987 (File No. 33-16874). 4 (k) Form of Supplemental Indenture Incorporated by reference to Exhibit 4 (cc) to Registrant's Registration Statement on Form S-3 dated September 2, 1987 (File No. 33-16874). 4 (l) Terms and conditions of debt Incorporated by reference to instruments to be issued Exhibit 4(l) to Registrant's outside the U.S. Annual Report on Form 10-K (Commission File No. 1-6908) for the year ended December 31, 1997. 4 (m) The Registrant hereby agrees to furnish the Commission, upon request, with copies of the instruments defining the rights of holders of each issue of long-term debt of the Registrant for which the total amount of securities authorized thereunder does not exceed 10% of the total assets of the Registrant 10 (a) Receivables Agreement dated as Incorporated by reference to of January 1,1983 between the Exhibit 10 (b) to Registrant and American Express Registrant's Annual Report Travel Related Services Company, on Form 10-K (Commission Inc. File No. 1-6908) for the year ended December 31, 1987. 10 (b) Secured Loan Agreement dated as Incorporated by reference to of June 30,1988 between the Exhibit 10 (b) to Registrant and American Express Registrant's Annual Report Centurion Bank on Form 10-K (Commission File No. 1-6908) for the year ended December 31, 1988. 10 (c) Participation Agreement dated Incorporated by reference to as of August 3,1992 between Exhibit 10(c) to American Express Receivables Registrant's Annual Report Financing Corporation and on Form 10-K (Commission Credco Receivables Corp. File No. 1-6908) for the year ended December 31, 1992. 12.1 Computation in Support of Ratio Electronically filed of Earnings to Fixed Charges herewith. of American Express Credit Corporation 12.2 Computation in Support of Ratio Electronically filed of Earnings to Fixed Charges herewith. of American Express Company 23 Consent of Independent Auditors Electronically filed herewith. 27 Financial Data Schedule Electronically filed herewith. EX-12 2
EXHIBIT 12.1 AMERICAN EXPRESS CREDIT CORPORATION COMPUTATION IN SUPPORT OF RATIO OF EARNINGS TO FIXED CHARGES (millions) Years Ended December 31, ------------------------ 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Earnings: Net Income $223 $237 $212 $215 $197 Income tax provision 120 128 114 115 105 Interest expense 1,130 1,190 1,125 1,117 1,054 ----- ----- ----- ----- ----- Total earnings $1,473 $1,555 $1,451 $1,447 $1,356 ===== ===== ===== ===== ===== Fixed charges - interest expense $1,130 $1,190 $1,125 $1,117 $1,054 ===== ===== ===== ===== ===== Ratio of earnings to fixed charges 1.30 1.31 1.29 1.30 1.29
Note: Gross rentals on long-term leases were minimal in amount in each of the periods shown.
EXHIBIT 12.2 AMERICAN EXPRESS COMPANY COMPUTATION IN SUPPORT OF RATIO OF EARNINGS TO FIXED CHARGES (Dollars in millions) Years Ended December 31, ------------------------ 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Earnings: Pretax income from continuing operations $3,438 $2,925 $2,750 $2,664 $2,183 Interest expense 2,178 2,224 2,122 2,160 2,343 Other adjustments 151 124 127 139 95 ------ ------ ------ ------ ------ Total earnings (a) $5,767 $5,273 $4,999 $4,963 $4,621 ------ ------ ------ ------ ------ Fixed charges: Interest expense $2,178 $2,224 $2,122 $2,160 $2,343 Other adjustments 152 129 129 130 135 ------ ------ ------ ------ ------ Total fixed charges (b) $2,330 $2,353 $2,251 $2,290 $2,478 ------ ------ ------ ------ ------ Ratio of earnings to fixed charges (a/b) 2.48 2.24 2.22 2.17 1.86
Included in interest expense in the above computation is interest expense related to the international banking operations of American Express Company ("American Express") and Travel Related Services' Cardmember lending activities, which is netted against interest and dividends and Cardmember lending net finance charge revenue, respectively, in the Consolidated Statements of Income of American Express. For purposes of the "earnings" computation, other adjustments include adding the amortization of capitalized interest, the net loss of affiliates accounted for at equity whose debt is not guaranteed by American Express, the minority interest in the earnings of majority-owned subsidiaries with fixed charges, and the interest component of rental expense and subtracting undistributed net income of affiliates accounted for at equity. For purposes of the "fixed charges" computation, other adjustments include capitalized interest costs and the interest component of rental expense. In the fourth quarter of 1995, American Express' ownership in First Data Corporation ("FDC") was reduced to approximately 10 percent as a result of shares issued by FDC in connection with a merger transaction. Accordingly, as of December 31, 1995, American Express' investment in FDC is accounted for as Investments - Available for Sale. EX-23 3 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements on Form S-3 (Registration Statement Nos. 33-47497, 33-62797, 333-38199) of American Express Credit Corporation and in the related Prospecti of our report dated February 3, 2000, with respect to the consolidated financial statements and schedule of American Express Credit Corporation included in this Annual Report on Form 10-K for the year ended December 31, 1999. /s/ Ernst & Young LLP New York, New York March 30, 2000 EX-27 4
5 This schedule contains summary financial information extracted from Credco's Condensed Consolidated Balance Sheet at December 31, 1999 and Condensed Consolidated Statement of Income for the twelve months ended December 31, 1999 and is qualified in its entirety by reference to such financial statements. 1,000,000 12-MOS DEC-31-1999 DEC-31-1999 1,102 947 23,463 684 0 0 0 0 27,262 0 23,356 0 0 1 2,060 27,262 0 2,168 0 0 23 672 1,130 343 120 223 0 0 0 223 0 0
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