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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000004962-01-500025.txt : 20010402
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ACCESSION NUMBER: 0000004962-01-500025
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 4
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010330
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: 10-K
SEC ACT:
SEC FILE NUMBER: 001-07657
FILM NUMBER: 1587001
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
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================================================================================
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, 2000
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to ________
Commission File No. 1-7657
American Express Company
(Exact name of registrant as specified in its charter)
New York 13-4922250
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
World Financial Center
200 Vesey Street
New York, New York 10285
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 640-2000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- --------------------
Common Shares (par value $.20 per Share) New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
7.00% Cumulative Quarterly Income New York Stock Exchange
Preferred Securities, Series I of American
Express Company Capital Trust I (and the
guarantee of American Express Company
with respect thereto)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _
-
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ___
Common shares of the registrant outstanding at March 6, 2001 were
1,333,238,520. The aggregate market value, as of March 6, 2001, of voting shares
held by non-affiliates of the registrant was approximately $57.2 billion.
Documents Incorporated By Reference
-----------------------------------
Parts I, II and IV: Portions of Registrant's 2000 Annual Report to Shareholders.
Part III: Portions of Registrant's Proxy Statement dated March 14, 2001.
================================================================================
<PAGE>
TABLE OF CONTENTS
Form 10-K
Item Number
Part I Page
------ ----
1. Business
Travel Related Services.......................................... 1
American Express Financial Advisors ............................. 16
American Express Bank ........................................... 25
Corporate and Other.............................................. 33
Foreign Operations............................................... 34
Important Factors Regarding Forward-Looking Statements .......... 35
Segment Information and Classes of Similar Services ............. 38
Executive Officers of the Company ............................... 38
Employees ....................................................... 41
2. Properties .......................................................... 41
3. Legal Proceedings.................................................... 42
4. Submission of Matters to a Vote of Security Holders ................. 44
Part II
-------
5. Market for Company's Common Equity and Related Stockholder Matters... 45
6. Selected Financial Data ............................................. 45
7. Management's Discussion and Analysis of Financial Condition and
Results of Operation ................................................ 45
7A. Quantitative and Qualitative Disclosures About Market Risk .......... 45
8. Financial Statements and Supplementary Data ......................... 45
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ................................................ 45
Part III
--------
10. Directors and Executive Officers of the Company .................... 46
11. Executive Compensation ............................................. 46
12. Security Ownership of Certain Beneficial Owners and Management ..... 46
13. Certain Relationships and Related Transactions ..................... 46
Part IV
-------
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.... 46
Signatures ......................................................... 48
Index to Financial Statements ...................................... F-1
Consent of Independent Auditors .................................... F-2
Exhibit Index....................................................... E-1
<PAGE>
PART I
------
ITEM 1. BUSINESS
American Express Company (including its subsidiaries, unless the
context indicates otherwise, the "Company") was founded in 1850 as a joint stock
association and was incorporated under the laws of the State of New York in
1965. The Company is primarily engaged in the business of providing travel
related services, financial advisory services and international banking services
throughout the world.*
TRAVEL RELATED SERVICES
-----------------------
American Express Travel Related Services Company, Inc. (including its
subsidiaries, unless the context indicates otherwise, "TRS") provides a variety
of products and services, including, among others, global card network,
issuing and processing services, the American Express(R) Card, the Optima(R)
Card, a number of cobranded Cards, and other consumer and corporate lending and
banking products, the American Express(R) Travelers Cheque, stored value
products, business expense management products and services, corporate and
consumer travel products and services, tax preparation and business planning
services, magazine publishing, and merchant transaction processing, point of
sale and back office products and services. TRS offers products and services in
more than 200 countries. In certain countries, partly owned affiliates and
unaffiliated entities offer some of these products and services under licenses
from TRS.
TRS' business as a whole has not experienced significant seasonal
fluctuation, although Travelers Cheque Sales and Travelers Cheques outstanding
tend to be greatest each year in the summer months, peaking in the third
quarter, and Card-billed business tends to be moderately higher in the fourth
quarter than in other quarters.
TRS places significant importance on its trademarks and service marks
and diligently protects its intellectual property rights around the world.
GLOBAL NETWORK SERVICES
-----------------------
TRS operates a global general-purpose card network. Network functions
include operations, service delivery, systems, authorization, clearing,
settlement, and marketing; the development of new and innovative products for
the network; and establishing and enhancing millions of relationships with
merchants globally, both online and offline. One of the key assets of TRS'
network is the American Express brand, which is one of the world's most highly
- -------------------------------------
*Various forward-looking statements are made in this 10-K Annual Report, which
generally include the words "believe," "expect," "anticipate," "optimistic,"
"intend," "aim," "will," "should" and similar expressions. Certain factors that
may cause actual results to differ materially from these forward-looking
statements are discussed on pages 35-38.
1
<PAGE>
recognized and respected brands. Cards bearing the American Express logo
("Cards") are issued by qualified institutions and are accepted at automated
teller machines ("ATMs") and at all merchant locations worldwide that accept the
American Express Card.
Globally, the Company manages both the acquiring relationship with
merchants through the American Express network and the Card issuing side of the
business. This "closed loop," which distinguishes the American Express network
from the bankcard networks, provides a rich source of information at both ends
of the Card transaction and enables TRS to provide targeted marketing
opportunities for merchants and special offers to Cardmembers through a variety
of channels.
TRS is the largest issuer of Cards on the American Express global
network. In addition, as of December 31, 2000, there were 70 arrangements in
place with banks and other qualified institutions in 74 countries providing for
Card issuance by those entities. These partnerships create more American Express
branded cards in force, drive more transaction volume through the American
Express merchant network, and significantly expand the reach of the American
Express brand. Global Network Services partners have contributed 1.4 million new
merchant outlets, a significant addition to the American Express international
merchant base. Among the new agreements announced in 2000 for cards to be issued
on the American Express global network were those with Deutsche Bank Italia
(Italy); Aeon Credit Service (Asia) Co., Ltd., in Argentina: Banco Rio de la
Plata, S.A.; Banco de la Provincia de Buenos Aires; Banco Bansud, S.A.; Hong
Leong Bank (Malaysia); and Tata Finance Ltd. (India), among others. Some of the
other arrangements have been in place for more than 20 years, but the vast
majority have been established since 1995. In May 1996, the Company invited
banks and other qualified institutions in the United States to begin issuing
Cards on the American Express network. In 1997, the Company established Global
Network Services to manage its network business, bringing increased focus and
resources to this area. Global Network Services continued to show strong growth
in billed business in 2000.
To date, the only issuers on the American Express network in the United
States are TRS and a United Kingdom financial institution with no other card
issuing activities in the United States. This is the result of rules and
policies of VISA USA, Inc. and MasterCard International, Incorporated
("MasterCard") in the United States calling for expulsion of members who issue
American Express branded cards. No banks have been willing to forfeit membership
in VISA USA, Inc. and/or MasterCard to issue cards on the American Express
network. In a lawsuit filed on October 7, 1998, against VISA USA, Inc. and VISA
International Corp. (collectively, "VISA") and MasterCard, the U.S. Department
of Justice alleged that these rules and policies violate the antitrust laws of
the United States. The trial of this lawsuit concluded in August 2000, and
the trial judge has not yet rendered a decision.
As a network, TRS encounters intense worldwide competition from other
card networks like VISA, MasterCard, Diners Club, the Discover/NOVUS Network of
Morgan Stanley Dean Witter & Co. (U.S. only) and JCB. The principal competitive
factors that affect the network business are (i) the number of cards in force
and extent of spending done with these cards; (ii) the quantity and quality of
establishments that accept the cards; (iii) the success of targeted marketing
2
<PAGE>
and promotional campaigns; (iv) reputation and brand recognition; (v)
the ability to develop and implement innovative systems and technologies cost
effectively on a global basis; (vi) the ability to develop and implement
innovative types of card products and support services for merchants and issuers
and acquirers on the network; (vii) success in implementation of strategies to
reduce suppression -- when merchants that accept cards encourage a customer to
use another card or cash; and (viii) the availability of alternative payment
systems.
CONSUMER CARD, SMALL BUSINESS AND CONSUMER TRAVEL SERVICES
----------------------------------------------------------
TRS and its licensees offer individual consumers charge cards such as
the American Express(R) Card, the American Express(R) Gold Card, the Platinum
Card(R) and the ultra-premium Centurion(SM) Card; revolving credit cards such as
the Optima(R) Card, Blue from American Express(SM), the Delta SkyMiles(R) Credit
Card from American Express, and the American Express(R) Credit Card, among
others; and a variety of cards sponsored by and cobranded with other
corporations and institutions. Cards are currently issued in over 50 currencies
(including cards issued by banks and other qualified institutions) and permit
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
Cards, and to access cash through automated teller machines at more than 500,000
locations worldwide.
Charge Cards, which are marketed in the United States and many other
countries and carry no pre-set spending limits, are primarily designed as a
method of payment and not as a means of financing purchases of goods or
services. 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 extended payment plans (such as Sign & Travel(R) and the Extended
Payment Option), Charge Cards require payment by the Cardmember of the full
amount billed each month, 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, may be cancelled.
TRS and its licensees also offer a variety of revolving credit cards in
the United States and other countries. These cards have a range of different
payment terms, grace periods and rate and fee structures. TRS continues to
expand its consumer lending activities in key markets outside the U.S.,
primarily through the introduction and increased distribution of new revolving
credit card products.
American Express Centurion Bank ("Centurion Bank"), a wholly-owned
subsidiary of TRS, issues the Optima Card, Blue from American Express and all
other American Express branded revolving credit cards in the United States and
owns most of the receivables arising from the use of these Cards. In addition,
Centurion Bank has outstanding lines of credit in association with certain
Charge Cards and offers unsecured loans to Cardmembers in connection with its
Sign & Travel and Extended Payment Option programs. The Sign & Travel program
gives qualified United States Cardmembers the option of extended payments for
airline, cruise and certain travel charges that are purchased with the Charge
Card. The Extended Payment Option offers qualified United States Cardmembers the
option of extending payment for certain charges on the Charge Card in excess of
a specified amount.
3
<PAGE>
Centurion Bank is also the issuer for certain Charge Cards. It also
offers Membership B@nking(R) -- an online banking service that provides
consumers with high-value products, such as ATM access with rebates on
surcharges from other banks, competitive rates on deposits and the convenience
of banking by the Internet, telephone, ATM or mail. During 2000, Membership
B@nking continued to grow, and customer service and website stability improved.
To help further expand its financial services businesses globally, the Company
formed the Global Brokerage and Membership B@nking unit. This unit will work
closely with American Express Financial Advisors and TRS' card business in both
the United States and select international markets to better reach consumers
through a number of distribution channels with a variety of products.
Centurion Bank's deposits are insured by the Federal Deposit Insurance
Corporation ("FDIC") up to $100,000 per depositor. Centurion Bank is a
Utah-chartered industrial loan company regulated, supervised and regularly
examined by the Utah Department of Financial Institutions and the FDIC.
Many TRS Cardmembers, particularly Charge Card holders, are charged an
annual fee, which varies based on the type of card, the number of cards for each
account, the currency in which the card is denominated and the country of
residence of the Cardmember. Most revolving credit cards are offered with no
annual fee. Each Cardmember must meet standards and criteria for
creditworthiness which are applied through a variety of means both at the time
of initial solicitation or application and on an ongoing basis during the Card
relationship. The Company uses sophisticated credit models and techniques in its
risk management operations.
TRS is concerned about fraud throughout its Card operations. The
Company continues to take measures to address fraud issues, including investing
in new technologies and educating Cardmembers through fraud protection
initiatives. For example, during 2000, the Company introduced Private
Payments(SM), a free service that enables U.S. consumer and small business
Cardmembers to use a random, unique card number for each online purchase.
Cardmembers have access to a variety of special services and programs,
depending on the type of Card they have and their country of residence. These
include MEMBERSHIP REWARDS(R), Global Assist(R) Hotline, Buyer's Assurance Plan,
Car Rental Loss and Damage Insurance Plan, Travel Accident Insurance, Purchase
Protection Plan, Best Value and Online Shopping Guarantees, Custom Extras,
Assured Reservations, and Online Fraud Protection Guarantee. Gold Cardmembers in
the United States have access to certain additional services, including a
Year-End Summary of Charges Report. The Platinum Card, offered to certain
Cardmembers in the United States and various other countries, provides access to
additional and enhanced travel, financial, insurance, personal assistance and
other services. The Centurion Card, offered in the United States during 1999
following a launch of its predecessor in the United Kingdom, is an ultra-premium
charge card providing highly personalized customer service, and an array of
4
<PAGE>
travel, lifestyle and financial benefits (and in the U.K., a smart chip enabling
additional functionality in the future). Under the Express Cash program,
enrolled Cardmembers can obtain cash or American Express Travelers Cheques 24
hours a day from automated teller machines worldwide. Personal, Gold, Platinum
and Centurion Cardmembers receive the Customer Relationship Statement, which is
used to communicate special offers for products and services of both merchants
and the Company.
American Express Credit Corporation, a wholly-owned subsidiary of TRS,
along with its subsidiaries ("Credco"), purchase most Charge Card receivables
arising from the use of cards issued in the United States and in designated
currencies outside the United States. Credco finances the purchase of
receivables principally through the issuance of commercial paper and the sale of
medium- and long-term notes. Centurion Bank finances its revolving credit
receivables through the sale of short- and medium-term notes and certificates.
TRS and Centurion Bank also fund receivables through asset securitization
programs. The cost of funding Cardmember receivables and loans is a major
expense of Card operations.
The Charge Card, ATM 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 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 billing inquiries are handled and
specifies certain billing requirements); the Fair Credit and Charge Card
Disclosure Act (which mandates certain disclosures on credit and charge card
applications); and the Electronic Funds Transfer Act (which regulates
disclosures and settlement of transactions for electronic funds transfers
including those at ATMs). Certain federal privacy-related laws and regulations
govern the collection and use of customer information by financial institutions
(see page 34). Federal legislation also regulates abusive debt collection
practices. In addition, a number of states and foreign countries have similar
consumer credit protection, disclosure and privacy-related laws. The application
of federal and state bankruptcy and debtor relief laws affect the Company to the
extent such laws result in amounts owed being classified as delinquent and/or
charged off as uncollectible. Centurion Bank is subject to a variety of state
and federal laws and regulations applicable to FDIC-insured, state-chartered
financial institutions. Changes in such laws and regulations or judicial
interpretation thereof could impact the manner in which Centurion Bank conducts
its business.
In 2000, TRS continued to deepen its relationships with core
Cardmembers and gained a greater share of the plastic spending of its customers.
TRS also maintained its focus on acquiring new Cardmembers. Billed business in
the United States grew as Cardmembers increased their use of Cards for everyday
spending at supermarkets, drugstores, gas stations and for paying utility bills,
road tolls and federal taxes. In addition, new card acquisitions had strong
growth. The number of consumer Credit Cards in the United States increased, and
consumer Charge Cards grew for the second consecutive year after nearly a decade
of declines. TRS also selectively expanded the size of credit lines and
encouraged Cardmembers to transfer outstanding balances from other card issuers.
TRS significantly increased its lending balances and continued to capture a
greater share of industry credit card lending balances.
5
<PAGE>
Two of the products launched by TRS in the United States in 1999 made
significant contributions to its results in 2000, exceeding expectations in
terms of spending and credit performance. First, Blue from American Express is
the first widely marketed credit card in the United States with an embedded
smart chip, currently designed to provide added security and rewards and to help
facilitate purchases using the Internet. TRS is actively pursuing additional
applications for the chip. Second, the cobranded cards launched with Costco were
exceptional additions to TRS' U.S. portfolio. At year-end 2000, TRS had issued
more than two million Blue from American Express cards and over one million
Costco consumer cards in the United States alone. Additional new card products
include the Hilton HHonors(R) Platinum Credit Card and Blue for Business(SM), a
credit card for small businesses that has a computer chip and design similar to
Blue from American Express and offers exclusive discounts on services from
certain Internet service providers. During the year, TRS also renewed its
cobrand card agreement with Delta Airlines and launched the Delta SkyMiles
Credit Card from American Express with the ALWAYS DOUBLE MILES(SM) feature.
ALWAYS DOUBLE MILES enables current and new cardmembers to earn two SkyMiles for
every eligible dollar charged to the Card for purchases made at supermarkets,
gas stations, drugstores, home improvement stores, the U.S. Postal Service,
wireless phone bills and Delta purchases.
TRS has been exploring the possibility of growing its business through
acquisition of credit card portfolios. During the latter part of 2000, TRS
signed agreements to acquire the ShopRite cobrand portfolio with approximately
$70 million in receivables, and the Bank of Hawaii portfolio with approximately
$226 million in receivables. TRS intends to continue to pursue opportunities to
acquire credit card portfolios as they arise.
Over the past few years, TRS has expanded its MEMBERSHIP REWARDS
program to include a broader range of travel rewards and retail merchandise and
gourmet gifts. Loyalty programs such as MEMBERSHIP REWARDS, with more than eight
million enrollees worldwide, are instrumental in increasing Cardmember retention
and profitability. In the United States, MEMBERSHIP REWARDS enrollees have 54
percent lower attrition, spend an average of 40 percent more in the first year
of enrollment, have half the credit loss rates of non-enrollees, and pay their
bills faster. In addition, the average profitability of each MEMBERSHIP REWARDS
enrollee is more than five times greater than that of a non-enrollee. MEMBERSHIP
REWARDS enrollees now represent a significant portion of Cardmember spending.
TRS makes payments to merchants pursuant to contractual arrangements
when Cardmembers redeem their MEMBERSHIP REWARDS points and establishes reserves
in connection with estimated future redemptions. Due to higher charge volumes
and reward redemption rates, the cost of MEMBERSHIP REWARDS has increased over
the past several years and continues to grow. During 2000, TRS enhanced the
MEMBERSHIP REWARDS program by allowing enrollees to redeem their points via the
American Express website in real time, thereby increasing customer satisfaction
while lowering call volume and related processing costs. TRS will continue to
seek ways to contain the overall cost of the program and make changes to enhance
its value to Cardmembers.
6
<PAGE>
Services offered for a fee to Cardmembers include travel, accident and
credit insurance products, a card registry and replacement service, credit
bureau monitoring and telecommunication services. Additional services include a
subscription service for magazines, a pre-paid legal service and various
merchandise-related offerings.
TRS continues to make significant investments in its card processing
system and infrastructure to allow faster introduction and greater customization
of products. TRS also is utilizing technology to develop and improve its service
capabilities.
TRS encounters substantial and increasingly intense competition
worldwide with respect to the Card issuing business. As a card issuer, TRS
competes with financial institutions (such as Citigroup, First USA Bank, MBNA,
Chase Manhattan, Providian Financial, Capital One Financial and Bank of America)
that are members of VISA and/or MasterCard and that issue general purpose cards,
primarily under revolving credit plans, on one or both of those systems, and the
Morgan Stanley Dean Witter & Co. affiliate that issues the Discover Card on the
Discover/NOVUS Network. TRS also encounters some very limited competition from
businesses that issue their own cards or otherwise extend credit to their
customers, such as retailers and airline associations, although these cards are
not generally substitutes for TRS' Cards due to their limited acceptance.
Numerous United States banks issuing credit cards under revolving
credit plans charge annual fees in addition to interest charges where permitted
by state law. However, the issuer of the Discover Card, as well as many issuers
of VISA cards and MasterCard cards, generally charge no annual fees.
Competing card issuers offer a variety of products and services to
attract cardholders including premium cards with enhanced services or lines of
credit, airline frequent flyer program mileage credits and other reward or
rebate programs, "teaser" promotional interest rates for both card acquisition
and balance transfers, and cobranded arrangements with partners that offer
benefits to cardholders. The trend of mergers and consolidations among banking
and financial services companies and credit card portfolio acquisitions by major
card issuers has continued, resulting in some issuers becoming even larger, with
greater resources, economies of scale and brand recognition to compete -- and a
smaller number of dominant issuers. Use of debit cards for point-of-sale
purchases has continued to increase as many banks have replaced ATM cards with
general purpose debit cards bearing either the VISA or MasterCard logo. TRS does
not currently offer point-of-sale debit card products in any significant way.
The principal competitive factors that affect the Card issuing business
are (i) the features and the quality of the services and products, including
rewards programs provided to cardmembers; (ii) the number, spending
characteristics and credit performance of cardmembers; (iii) the quantity and
quality of the establishments that accept a card; (iv) the cost of cards to
cardmembers; (v) the terms of payment available to cardmembers; (vi) the number
and quality of other payment instruments available to cardmembers; (vii) the
nature and quality of expense management data capture and reporting capability;
(viii) the success of targeted marketing and promotional campaigns; (ix)
reputation and brand recognition; and (x) the ability of issuers to implement
operational and cost efficiencies.
7
<PAGE>
TRS, through its Small Business Services Group ("SBS"), is also a
leading provider of financial and travel services to small businesses (i.e.,
generally less than 100 employees and/or sales of $10 million or less). SBS
continued to achieve strong growth during the year as demonstrated by
year-over-year increases in spending on cards, loans outstanding and the total
number of charge and credit cards issued to small business owners. This growth
has been supported by customer response to the small business versions of a
number of TRS' consumer card products, including Delta SkyMiles Credit Cards
from American Express, Optima cards and, most recently, Costco and Blue for
Business cards.
SBS is the number one card issuer and one of the largest lenders to
small businesses in the United States. Over the past five years, SBS has
broadened its product offerings to include equipment leasing, unsecured lines of
credit and term loans, which are actively marketed to existing customers and
prospects. In February 2001, TRS signed an agreement to purchase
SierraCities.com Inc., an equipment financing company. SBS is also
broadening awareness of its services through new Internet-based sponsorships and
advertising programs. TRS maintains, as part of americanexpress.com, the
American Express Small Business Exchange Website, through which it provides
small business owners with relevant information, expert advice and customer
servicing applications.
The American Express Consumer Travel business has three segments:
American Express-owned travel service offices; retail outlets owned by American
Express representatives; and American Express remote delivery call centers,
which offer travel services to Platinum, Centurion and other Cardmembers.
Through these facilities, Cardmembers are able to receive service in person, by
phone or by fax, in addition to the Company's online servicing. Since a large
number of the Company's consumer and small business Cardmembers are also active
leisure travelers, TRS seeks to leverage its consumer travel network to better
serve its customers and grow the business despite extremely challenging
competitive pressures. See pages 10-11 for a discussion of competition in the
travel industry.
TRS' retail travel network of more than 1,700 Travel and Foreign
Exchange Services locations is important in supporting the American Express
brand and providing customer service throughout the world. TRS continually
evaluates this structure to determine the best way to leverage the strength of
the travel network. At the same time, TRS is developing ways to better serve the
travel consumer, including 1-800 type services and Internet-based products and
services.
8
<PAGE>
MERCHANT SERVICES
-----------------
Over the past several years, TRS' Establishment Services Group has
focused on expanding the TRS network of merchants and increasing merchant
acceptance globally, both through employees and third-party sales agents. In
2000, TRS continued to see strong progress in merchant signings worldwide.
During the year, TRS strengthened its merchant coverage in the United
States in various industries, including government, supermarkets, insurance,
quick-service restaurants and business-to-business. Key signings included the
supermarkets of Supervalu Inc.; John Hancock Life Insurance; Arby's; KFC; the
telecommunications service provider Avaya; and airport parking locations within
the three New York metropolitan airports operated by the Port Authority of New
York and New Jersey. The merchant network in the United States can now
accommodate more than 95% of American Express Cardmembers' general purpose
plastic spending. TRS' objective is to achieve merchant coverage wherever
Cardmembers want to use the Card. In the United States, TRS acquires merchants
through three sales channels: a proprietary sales force, third-party sales
agents and telemarketing. Card acceptance by online merchants also continued to
grow in 2000, with most of the top 500 U.S. sites now accepting the Card.
As a merchant processor, 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. As a result of TRS' attractive Cardmember
base with loyal, high-spending Personal and Corporate Cardmembers, TRS is
generally able to charge higher discount rates to participating establishments
than its competitors. While many establishments understand this pricing in
relation to the value provided, TRS has encountered complaints from some
establishments, as well as suppression of the Card's use, and continues to
devote significant resources to respond to these issues through better
communication of the American Express value proposition and by canceling
merchants who suppress usage of the American Express Card.
TRS focuses on understanding and addressing key factors that influence
merchant satisfaction, on executing programs that increase Card usage at
merchants and on strengthening its relationships with merchants through an
expanded roster of services that help them meet their business goals. In 2000,
TRS launched the Offer Zone(SM) which consolidates American Express and merchant
offers in a single site, creating a one-stop online shopping experience for
consumer and small business cardmembers. TRS also continued to expand its range
of services during the year to include other Internet initiatives to help
merchants that accept Cards more effectively manage their businesses online. For
example, TRS implemented a suite of e-commerce tools to help merchants in
various stages of their e-commerce lifecycle establish and grow their web
presence. TRS also increased capabilities for online self-servicing through
which merchants may access and update their account information online.
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TRS' focus on retail and everyday spend categories continued to
contribute strongly to business growth, with expanded merchant coverage in these
categories spurring strong cardmember spending. In the United States from 1998
through 2000, TRS' charge volume in travel industries grew 14 percent, compared
with growth in retail of 48 percent and in everyday spend categories of 102
percent.
At year-end, TRS was the second-largest owner/operator of ATMs in the
United States with more than 8,600 terminals. Early in 2000, TRS announced the
purchase from EDS of more than 4,500 ATMs located in 7-Eleven stores in 27
states and the District of Columbia. TRS is also branding its entire ATM network
with the name ATM Axis(R), and plans to offer a wide variety of products and
services beyond dispensing cash, such as money transfer services, stored value
cards and retail couponing.
CORPORATE SERVICES
------------------
TRS' Corporate Services Group ("CSG") provides Corporate Card,
Corporate Travel, Corporate Purchasing Card and consulting services to leading
corporations around the world.
CSG provides Corporate Charge Card expense management services to large
and mid-sized companies for travel and entertainment spending. Companies are
offered these services through the American Express(R) Corporate Card, which is
a charge card issued to individuals through a corporate account established by
their employer for business purposes.
CSG integrates the Corporate Card and business travel services in the
United States and certain foreign countries to meet the competition for the
business traveler and to provide client companies with a customized approach to
managing their travel and entertainment budgets. Clients are provided an
information package to plan, account for and control travel and entertainment
expenses.
CSG provides a wide variety of travel services to customers traveling
for business and is one of the leading business travel providers worldwide. For
business travel accounts, CSG provides corporate travel policy consultation and
management information systems, and group and incentive travel services. CSG
receives commissions and fees for travel bookings and arrangements from
airlines, hotels, car rental companies and other travel suppliers, fees for
reservations and ticketing and management and transaction fees from certain
business travel accounts.
CSG faces vigorous competition from numerous other travel agencies
domestically as well as direct sales by airlines and travel suppliers in the
United States and abroad. This competition is mainly based on price, service,
convenience and proximity to the customer and has increased due to several
factors in recent years, including the acquisition of independent agencies by
larger travel companies. In addition, many companies have established in-house
business travel departments.
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Airlines have continued efforts to reduce their distribution expenses,
including travel agency commissions, through techniques such as caps on
commission fees and decreases in base commission rates. In addition, airlines
continue to consolidate through mergers and by forming alliances for marketing
and service delivery purposes. Those actions have caused some independent
agencies to go out of business and forced others to seek consolidation
opportunities. Consolidation of travel agencies is likely to continue as
agencies seek to better serve national and multinational business travel clients
and negotiate more effectively with the airlines. It is also expected that
travel agencies will continue to look for expense reduction opportunities such
as focusing on electronic ticketing. Customers may increasingly seek alternative
channels to make travel arrangements, such as online travel reservation services
or airline services that require booking directly with the airlines.
In 2000, the CSG business grew, although there were challenging
economic conditions in many markets and downward pressure on profit margins that
continued throughout the travel industry. The ongoing trend of airline
alliances, airline websites permitting travelers to book business directly and
airline commission rate reductions resulted in decreased business travel revenue
and price increases for travelers, fewer opportunities for data aggregation for
corporations and greater pressure on the CSG travel business. CSG continues to
modify its business model to address these ongoing industry challenges. For
example, CSG has accelerated its efforts to rely less on commission revenues
from suppliers, and has now shifted more toward fees for specific services
rendered both from suppliers and customers. Competitors also continue to
increase their focus on the Corporate Card business. For a discussion of
competition relating to the Card issuing business, see page 7.
During the year, CSG launched the Corporate Meeting Card, which
provides corporate meeting planners with a tool for consolidating expenses and
streamlines processes while minimizing paperwork. CSG also signed or re-signed a
number of important clients including Johnson & Johnson, Pfizer and Dell
Computer Corporation. In addition, CSG rolled out American Express@Work(R)
in the United States. This online service allows corporate clients to apply for
Corporate Cards using a "smart form" submitted electronically and reduces the
error rate on applications. It also enables Corporate Card program
administrators to instantly approve or cancel cards, update contact information,
or adjust spending limits.
CSG also seeks to improve client company management of non-travel and
entertainment business expenses through the Corporate Purchasing Card. This
product assists large companies in managing indirect spending including
traditional purchasing administration expenses. Employees can use the Purchasing
Card to order directly from manufacturers and suppliers, rather than using the
traditional system of requisitions, purchase orders and invoices and retail
store purchasing. CSG pays the suppliers and submits a single monthly billing
statement to the company.
To expand its capabilities relating to online purchasing, CSG is developing
a business-to-business digital marketplace. It has also developed relationships
with a number of leading e-commerce firms to provide a faster, more efficient
way for customers to purchase office supplies and related products using the
Corporate Purchasing Card. For example, CSG announced a strategic agreement with
Ariba, Inc. to accelerate and streamline business-to-business commerce through
the joint development of a suite of electronic payment services. With GetThere,
CSG introduced a web-based corporate travel booking system, Corporate Travel
Online. CSG also entered into a joint venture to form a new company, MarketMile
LLC, to build and operate an Internet-based marketplace to streamline the
purchasing of everyday business products and services.
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TRS INTERNATIONAL
-----------------
The TRS International Group continues to focus on expanding its
proprietary card business and network alliances in key markets, expanding the
network of merchants that accept American Express Cards, and leveraging
opportunities for growth in Corporate Card, Corporate Travel and in other areas
of Corporate Services. This business was strengthened in 2000 through new
product introductions, increased Global Network Services' agreements and
expanded merchant coverage.
During the year, TRS International had strong increases in total cards
in force, billed business and lending balances. TRS also increased its
international merchant coverage, which now accommodates 88 percent of
Cardmembers' general purpose plastic spending, up from 86 percent a year ago.
Key signings included Marks & Spencer in the United Kingdom, Carrefour
supermarkets in Brazil and Argentina, and Arrow Pharmaceuticals and API
Pharmaceuticals in Australia, among others. However, suppression continues to be
a problem, particularly in Europe and Asia.
TRS continued to bolster its proprietary business during the year
through the launch of proprietary charge and credit products in 15 international
markets, 25 affinity card products and seven new distribution agreements.
Products included a cobrand product with Singapore Airlines in Asia; two Costco
cobrand cards in Canada; a revitalized Personal Card in the United Kingdom; and
a cobrand agreement with British Airways, which launched in January 2001. More
customers also moved to Platinum Card(R) and Centurion(SM) Card products,
reflecting the trend toward the "premiumization" of TRS' customer base.
During the year, TRS International also continued to pursue alliances
through joint ventures or other agreements with qualified institutions that
issue cards with an American Express logo. See Global Network Services on page 2
for a discussion of these alliances. TRS expects to continue establishing
similar types of arrangements outside the United States, while at the same time
deepening its existing relationships. TRS also entered into an agreement with
JCB Co., Ltd. (Japan Credit Bureau), the largest card issuer and merchant
acquirer in Japan. The agreement provides for reciprocal card acceptance,
merchant acquisition, and merchant processing covering five markets, including
Japan.
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In 2000, the Corporate Services Group also enhanced its presence
internationally. CSG expanded relationships with a number of prominent firms,
including Total Fina Elf S.A., Deutsche Bank and BASF. In addition, the
Corporate Gold Card was launched in Hong Kong, Malaysia, the Philippines,
Singapore and Thailand.
TRS International, through its Foreign Exchange Services Group ("FES"),
also provides currency exchange and foreign payment services to consumers in
American Express Travel Offices, dedicated bureaus, airports and other
locations. FES expanded its International Payments business, which offers to
small businesses and banking customers an Internet-based service for making
payments to foreign suppliers in Australia and the UK. FES also enlarged its
global retail brand presence in Eastern Europe and South America, and extended
its partnerships in India, Thailand, Turkey and the United States.
The Company expanded its Internet presence and capabilities outside the
United States with the launch during 2000 of new websites in France, Italy, the
Netherlands, Spain and Sweden.
For a discussion of competition relating to the American Express Global
Network and Card issuing business, see pages 2-3 and 7.
TRAVELERS CHEQUE
----------------
The Company, through its Travelers Cheque Group, is a leading issuer of
travelers checks. The Company also issues Money Order and Official Check
products in the United States, and the TravelFunds Direct(R) product, which
provides direct delivery of foreign bank notes and Travelers Cheques in selected
markets.
In 2000, management of the Travelers Cheque Group was moved from the
Chief Executive Officer of American Express Bank Ltd. to TRS under the President
of Global Establishment Services. Accordingly, the Travelers Cheque Group is now
reported as part of the TRS operating segment.
The American Express(R) Travelers Cheque ("Travelers Cheque" or
"Cheque") is sold as a safe and convenient alternative to currency. The
Travelers Cheque is a negotiable instrument, has no expiration date and is
payable by the issuer in the currency of issuance when presented for the
purchase of goods and services or for redemption. Gift Cheques, a type of
Travelers Cheque, are used for gift-giving purposes.
Travelers Cheques are issued in eleven currencies, including a
Euro-denominated Travelers Cheque, both directly by the Company and through
joint venture companies in which the Company generally holds an equity interest.
As a result of the final conversion of certain European currencies to a single
Euro currency early in 2002, the French Franc, German Mark and Dutch Guilder
American Express Travelers Cheques will cease being issued or sold by the end of
2001 (but will continue to be honored, redeemed, and refunded if outstanding).
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The Company believes it is the leading issuer of travelers checks.
American Express Travelers Cheques are sold through a broad network of outlets
worldwide, including travel offices of the Company, its affiliates and
representatives, travel agents, commercial banks, savings banks, savings and
loan associations, credit unions and other financial, travel and commercial
businesses. The Company sometimes compensates selling agents for their sale of
Travelers Cheques. In 2000, the Company expanded the sale of Travelers Cheques
and Gift Cheques over the Internet. During the year, Travelers Cheque sales
increased 5.3 percent globally, and consumer Gift Cheque sales increased
approximately 30 percent. This growth was driven by new advertising and
marketing programs, Gift Cheque promotions, and the use of internet sales
capabilities.
The proceeds from sales of Travelers Cheques issued by the Company are
invested predominantly in highly-rated debt securities consisting primarily of
intermediate- and long-term state and municipal obligations.
Issuers of Travelers Cheques and Money Orders are regulated under most
state "money transmitter" laws. These laws require Travelers Cheque issuers to
obtain licenses, to meet certain safety and soundness criteria, to hold
outstanding proceeds of sale in highly rated and secure investments, and to
provide detailed reports. Many states audit Travelers Cheque and Money Order
licensees annually. In addition, Travelers Cheque and Money Order issuers are
required to comply with state unclaimed and abandoned property laws. These laws
require issuers to pay to states the face amount of any Cheque or Order that is
uncashed or unredeemed after a specified period of years.
Travelers Cheques compete with a wide variety of financial payment
products. Consumers can utilize a variety of alternative mechanisms for payment
such as other brands of travelers checks, cash, credit and debit cards and
national and international automated teller machine networks. The principal
competitive factors affecting the travelers check industry are (i) the
availability to the consumer of other forms of payment; (ii) the amount of the
fee charged to the consumer; (iii) the acceptability of the checks throughout
the world as an alternative to currency; (iv) the compensation paid to, and
frequency of settlement by, selling agents; (v) the accessibility of travelers
check sales and refunds; (vi) the success of marketing and promotional
campaigns; and (vii) the ability to service satisfactorily the check purchaser
if the checks are lost or stolen.
OTHER PRODUCTS AND SERVICES
---------------------------
Interactive Services and New Businesses ("IS&NB") leverages interactive
technologies to develop new businesses and enhance existing businesses. IS&NB
leads and coordinates the deployment of the Company's enterprise-wide
interactive strategy with a focus on providing Internet and interactive
capabilities to meet customers' needs. This has been and is expected to be an
important part of the Company's business.
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At year-end, approximately 3.5 million Cardmembers were enrolled in
"Manage Your Card Account Service." This service enables Cardmembers to review
and pay their American Express bills electronically, view their MEMBERSHIP
REWARDS(R) accounts and conduct various other functions quickly and securely
online. The Company now has an online presence in 18 markets.
In 2000, the Company launched a new home page on its website, adding
additional capabilities and functions. The Company also commenced a program
which utilizes thousands of partner websites to initially sell 12 different
American Express products and services, and developed a strategy and
infrastructure to cross sell American Express products and services at
americanexpress.com. The Company will continue to implement interactive
strategies in an effort to increase customer loyalty, generate revenue, lower
acquisition costs and extend awareness of the brand online.
Over the last several years, as part of the Company's interactive
initiatives, TRS has made numerous minority investments, which typically also
include arrangements for marketing and, in certain cases, software development.
In 2000, TRS made equity investments in over 20 additional interactive
companies, including among others: Lipstream Networks, a leader in live voice
communication over the Internet; Protege, a U.K.-based company that helps U.S.
technology companies enter the European market rapidly; RiskMetrics, an online
risk measurement provider; and Privada, an online privacy service provider.
During the year, the Company continued to develop its stored-value
business with the signing of leading retail partners. Additionally, the Company
launched with Zowi Corporation, the Cobaltcard, a stored-value card for
teenagers and young adults designed for purchasing online and in stores.
The Company is also developing global strategies for smart cards, which
are cards with computer chips that can store and process data. During the year,
the Company launched nine new smart card products in six countries and is
focused on developing valuable applications for smart card users for both the
online and offline world.
TRS also markets education loans to students and parents through
approximately 700 relationships with colleges and universities. The Educational
Loan business increased its government-backed educational loans significantly
during the year.
American Express Tax and Business Services Inc. ("TBS") is a tax
consulting and business advisory firm for small and mid-sized companies. TBS
provides a wide range of services, including tax planning and accounting,
litigation support, small business advisory services, business technology
consulting and other business consulting services. In addition, TBS has
expertise in a variety of industries, including health care, real estate,
manufacturing and distribution, among others. TBS has more than 60 offices in 18
states with approximately 2,800 employees. It continued to acquire non-attest
accounting firms in 2000.
TRS, through American Express Publishing, also publishes luxury
lifestyle magazines such as Travel + Leisure(R), T&L Golf(SM), Food & Wine(R)
and Departures; travel resources such as SkyGuide(R); business resources such as
the American Express Appointment Book and Fortune Small Business magazine; a
variety of cooking, travel, wine, time management, and financial books and
products. TRS also has a custom publishing group and is expanding service-driven
websites such as: travelandleisure.com, foodandwine.com, departures.com,
tlgolf.com, tlfamily.com, and skyguide.net.
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AMERICAN EXPRESS FINANCIAL ADVISORS
-----------------------------------
The Company, through its American Express Financial Advisors operating
segment ("AEFA"), makes available a variety of financial products and services
to help individuals, businesses and institutions establish and achieve their
financial goals. This segment generally includes American Express Financial
Corporation ("AEFC") and its subsidiaries and affiliates described below. AEFA's
products and services include financial planning and advice, insurance and
annuities, a variety of investment products, including investment certificates,
mutual funds and limited partnerships, investment advisory services, trust and
employee plan administration services, personal auto and homeowner's insurance
and retail securities brokerage services. At December 31, 2000 American Express
Financial Advisors Inc. ("AXP Advisors"), AEFA's principal marketing subsidiary,
maintained a nationwide financial planning field force of over 12,000 persons.
AXP Advisors uses the shortened name "American Express" in its marketing
material to establish a stronger brand identity for the Company in financial
services.
DISTRIBUTION OF PRODUCTS AND SERVICES
-------------------------------------
AEFA has three primary financial service distribution channels: retail,
consisting of financial advisors and direct access (online, telephone and mail),
institutional and third party.
AEFA's primary distribution channel is its sales force of financial
advisors. Through this channel, AEFA offers financial planning and investment
advisory services (for which it charges a fee) to individuals and business
owners which may address six basic areas of financial planning: financial
position, protection, investment, income tax, retirement and estate planning.
AEFA's financial advisors provide clients with recommendations from more than
4,000 proprietary and non-proprietary products and services.
In March 2000, AEFA implemented a platform structure to provide
advisors choices in how they affiliate with the organization, with various
levels of service, compensation and branding. Advisors are able to choose a
salaried employee advisor platform with a high level of service and a lower
payout rate; a branded advisor platform, structured as a franchise system, in
which advisors get a higher payout rate and can purchase the services they
prefer; or an affiliated but unbranded broker-dealer platform with a yet higher
payout. The unbranded platform is Securities America, Inc., a broker-dealer
owned by AEFC. It services approximately 1,370 financial advisors and is a
distributor of mutual funds, annuities and insurance products. Approximately 35
percent of AEFA's financial advisors are American Express employees; about 55
percent are American Express-branded franchisees; and about 10 percent are in
the unbranded platform. AEFA believes it is the only U.S. company to offer these
three different career tracks for advisors, which it considers a strategic
advantage.
The use of a dedicated field force may entail higher initial costs than
other forms of marketing, such as direct-response or independent agency
distribution. However, AEFA believes that its ability to provide broad-based
integrated services on a relationship basis is a competitive advantage. At the
same time, AEFA recognizes that it needs to continue its efforts to increase
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the size of its dedicated field force due to its main competitors' larger sales
forces and more developed alternative distribution channels. In attracting and
retaining members of the field force, AEFA competes with financial planning
firms, insurance companies, securities broker-dealers and other financial
institutions.
Consistent with the Company's goal of promoting cross selling across
all of its units, AEFA has increased its sales to customers from other American
Express businesses. In 2000, American Express Cardmembers accounted for
approximately 30 percent of all new clients of AEFA's financial advisors, and
substantial mutual fund and investment certificate sales were made to American
Express Bank's foreign customers.
AEFA recently has taken further steps to integrate its direct retail
distribution channel with the advisor channel. AEFA's online brokerage business,
American Express Brokerage, allows clients to purchase and sell securities
online, obtain research and information about a wide variety of securities, use
asset allocation and financial planning tools, contact an advisor, as well as
have access to more than 2,000 proprietary and non-proprietary mutual funds,
among other services. AEFA believes it has the sixth largest online brokerage in
the U.S. based on assets and number of accounts. The Company also recently
purchased a European online broker. See page 24.
During the year, AEFA continued to expand its institutional business,
which includes separate account asset management services for corporate, public
and union retirement funds. AEFA also continued to acquire retail clients
through the workplace with its Financial Education and Planning Services
programs. Financial Education and Planning Services combines the resources of
the groups formerly known as Financial Education Services, Investing at Work,
and the Employee Education function within the American Express Retirement
Services 401(k) business. This new group provides programs in the workplace for
employers who want to offer their employees financial education and the
opportunity to save after-tax funds beyond their company retirement savings
plan. This program currently serves employees at approximately 45 companies and
plans to grow through sales both to new clients and current American Express
Retirement Services clients.
In addition to the retail and institutional distribution channels, AEFA
has a third-party channel that distributes proprietary investment, insurance and
annuity products through insurance agencies and broker-dealers who may also be
associated with financial institutions, such as banks. Although AEFA has
expanded its network of third-party distributors and the range of products
offered through them, third-party sales efforts have lagged behind expectations.
During 2000, AEFA suspended operation of its third-party broker-dealer channel,
made up of national and regional broker-dealers and insurance agencies, in order
to focus on the strategic alliance channel and the bank channel. As part of this
focus, AEFA formed strategic alliances with several financial institutions to
distribute AEFA's proprietary products through their retail networks.
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<PAGE>
The move to multiple distribution channels has implications for how
AEFA services its clients. In order to provide clients with a more integrated
service, it will be necessary to build the capability to recognize and service
the client's entire relationship with AEFA, regardless of which channel or
channels they have used. This will require, among other things, continued
investment in both technology infrastructure and the service organization. As
AEFA has expanded its distribution channels, it has also increased its sale of
non-proprietary products, which generally are less profitable than proprietary
sales.
AXP Advisors does business as a broker-dealer and investment advisor in
all 50 states, the District of Columbia and Puerto Rico. AXP Advisors is
registered as a broker-dealer and investment advisor regulated by the Securities
and Exchange Commission ("SEC") and is a member of the National Association of
Securities Dealers, Inc. ("NASD"). AEFA's financial advisors must obtain all
required state and NASD licenses.
AEFA has experienced, and believes it will continue to be subject to,
increased regulatory oversight of the securities and commodities industries at
all levels. Among other powers, the SEC, self-regulatory organizations and state
securities commissions may conduct administrative proceedings, which may result
in censure, fine, the issuance of cease-and-desist orders or suspension or
expulsion of a broker-dealer or an investment advisor and its officers or
employees. In addition, individual investors can bring complaints against AEFA.
AEFA also believes it is one of the first financial institutions to structure
itself as a franchise system. As such, AEFA is subject to Federal Trade
Commission and state franchise requirements.
Competition in the financial services industry focuses primarily on
cost, investment performance, yield, convenience, service, reliability, safety,
innovation, distribution systems, reputation and brand recognition. Competition
in this industry is very intense. AEFA competes with a variety of financial
institutions such as banks, securities brokers, mutual funds and insurance
companies. Some of these institutions are larger and more global than AEFA, and
the continuing trend towards consolidation and globalization in the financial
services industry may increase the number of these stronger competitors. Many of
these financial institutions also have products and services that increasingly
cross over the traditional lines that previously differentiated one type of
institution from another, thereby heightening competition in many of AEFA's
markets. The ability of certain financial institutions to offer, and the
dramatically increased usage by investors of, online investment and information
services has also affected the competitive landscape over the past couple of
years. Reflecting the competitive environment, certain financial institutions
have continued to seek to hire AEFA's financial advisors. AEFA anticipates that
competition in this industry will increase as a result of the implementation of
the Gramm-Leach-Bliley Financial Services Modernization Act of 1999
("Gramm-Leach-Bliley Act"), which permits banks, insurance companies and
securities firms to combine and offer a broad range of permissible financial
services. See page 34 for a discussion of privacy-related issues under this law.
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AEFA's business does not, as a whole, experience significant seasonal
fluctuations.
INSURANCE AND ANNUITIES
-----------------------
AEFA's insurance business is carried on primarily by IDS Life Insurance
Company ("IDS Life"), a stock life insurance company organized under the laws of
the State of Minnesota. IDS Life is a wholly-owned subsidiary of AEFC and serves
all states except New York. IDS Life believes it is the fourteenth largest life
insurance company in the United States, with consolidated assets at December 31,
2000 of approximately $60 billion (under generally accepted accounting
principles). IDS Life Insurance Company of New York is a wholly-owned subsidiary
of IDS Life and serves New York State residents. IDS Life also owns American
Enterprise Life Insurance Company ("American Enterprise Life"), which issues
fixed and variable dollar annuity contracts for sale through insurance agencies
and broker-dealers who may also be associated with financial institutions, such
as banks. American Centurion Life Assurance Company ("American Centurion Life")
is an IDS Life subsidiary that offers fixed and variable annuities to American
Express Cardmembers and others in New York, as well as fixed and variable
annuities for sale through insurance agencies and broker-dealers who may also be
associated with financial institutions, such as banks, in New York. IDS Life
owns American Partners Life Insurance Company ("American Partners Life"), which
offers fixed and variable annuity contracts to American Express(R) Cardmembers
and others who reside in states other than New York.
IDS Life's products include whole life, universal life (fixed and
variable), single premium life and term products (including waiver of premium
and accidental death benefits), disability income and long-term care insurance.
IDS Life also offers a variable universal life insurance product, the American
Express(R) Variable Universal Life III, in which the purchaser may choose among
investment options which include portfolios of common stocks, bonds, managed
assets and/or short-term securities, and IDS Life's "general account".
IDS Life is one of the nation's largest issuers of single premium and
flexible premium deferred annuities on both a fixed and variable dollar basis.
Immediate annuities are offered as well. IDS Life's fixed deferred annuities
guarantee a relatively low annual interest rate during the accumulation period
(the time before annuity payments begin). However, the company has the option of
paying a higher rate set at its discretion. In addition, persons owning one type
of annuity may have their interest calculated based on any upward movement in a
broad-based stock market index. IDS Life also offers a variable annuity, the
American Express Retirement Advisor Variable Annuity(R), in which the purchaser
may choose among investment options which include portfolios of common stocks,
bonds, managed assets and/or short-term securities, and IDS Life's "general
account".
Over the past five years, IDS Life's variable annuity sales have had an
increasing impact on total annuity sales. In 2000, sales of annuity products
rose 51 percent, with variable annuity sales particularly strong as a result of
new product offerings.
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IDS Life, American Enterprise Life and American Partners Life are
subject to comprehensive regulation by the Minnesota Department of Commerce
(Insurance Division), the Indiana Department of Insurance, and the Arizona
Department of Insurance, respectively. American Centurion Life and IDS Life
Insurance Company of New York are regulated by the New York State Department of
Insurance. The laws of the other states in which these companies do business
also regulate such matters as the licensing of sales personnel and, in some
cases, the marketing and contents of insurance policies and annuity contracts.
The purpose of such regulation and supervision is primarily to protect the
interests of policyholders. Regulatory scrutiny of market conduct practices of
insurance companies, including sales, marketing and replacements of fixed and
variable life insurance and annuities and "bonus" annuities, has increased
significantly in recent years and is affecting the manner in which companies
approach various operational issues, including compliance. The number of private
lawsuits alleging violations of laws in connection with insurance and annuity
market conduct has increased (see Legal Proceedings on page 42). Virtually all
states mandate participation in insurance guaranty associations, which assess
insurance companies in order to fund claims of policyholders of insolvent
insurance companies. On the federal level, there is periodic interest in
enacting new regulations relating to various aspects of the insurance industry,
including taxation of variable annuities and life insurance policies, accounting
procedures, as well as the treatment of persons differently because of gender,
with respect to terms, conditions, rates or benefits of an insurance contract.
New federal regulation in any of these areas could potentially have an adverse
effect upon AEFC's insurance subsidiaries.
As a distributor of variable annuity and life insurance contracts, IDS
Life is registered as a broker-dealer and is a member of the NASD. As investment
manager of various investment companies, IDS Life is registered as an investment
advisor under applicable federal requirements.
IDS Property Casualty Insurance Company ("IDS Property Casualty")
provides personal auto and homeowner's coverage to clients in 35 states and the
District of Columbia. This insurance is also underwritten by AMEX Assurance
Company, a subsidiary of American Express Company, and reinsured by IDS Property
Casualty. IDS Property Casualty is regulated by the Commissioner of Insurance
for Wisconsin. AMEX Assurance Company, which also provides certain American
Express Card related insurance products, is regulated by the Commissioner of
Insurance for Illinois.
The insurance and annuity business is highly competitive, and IDS
Life's competitors consist of both stock and mutual insurance companies.
Competitive factors applicable to the insurance business include the interest
rates credited to products, the charges deducted from the cash values of such
products, the financial strength of the organization and the services provided
to policyholders.
INVESTMENT CERTIFICATES
-----------------------
American Express Certificate Company ("AECC") (formerly IDS Certificate
Company), a wholly-owned subsidiary of AEFC, issues face-amount investment
certificates. AECC is registered as an investment company under the Investment
Company Act of 1940. AECC currently issues ten types of face-amount
certificates. Owners of AECC certificates are entitled to receive, at maturity,
20
<PAGE>
a stated amount of money equal to the aggregate investments in the certificate
plus interest at rates declared from time to time by AECC. In addition, persons
owning three types of certificates may have their interest calculated in whole
or in part based on any upward movement in a broad-based stock market index up
to a variable maximum return. The certificates issued by AECC are not insured by
any government agency. AEFC acts as investment manager for AECC. AECC's
certificates are sold by AEFA's field force, as well as marketed by American
Express Bank Ltd. to its foreign customers.
AECC is the largest issuer of face-amount certificates in the United
States. At December 31, 2000, it had approximately $4.0 billion in assets.
AECC's certificates compete with many other investments offered by banks,
savings and loan associations, credit unions, mutual funds, insurance companies
and similar financial institutions, which may be viewed by potential customers
as offering a comparable or superior combination of safety and return on
investment.
MUTUAL FUNDS
------------
AEFA offers a variety of mutual funds, for which AXP Advisors acts as
principal underwriter (distributor of shares). AEFC acts as investment manager
and performs various administrative services. The American Express(R) Funds
consist of 48 retail mutual funds, with varied investment objectives and
include, for example, money market, tax-exempt, bond and stock funds. The
American Express Funds, with combined net assets at December 31, 2000 of $92.7
billion, was the 20th largest mutual fund family in the United States and,
excluding money market funds, was the 10th largest. Results for the American
Express Funds were mixed in 2000, partly as a result of the downturn in all
major U.S. stock markets as well as in many global markets. Overall mutual fund
sales, including proprietary and non-proprietary funds, increased 29 percent in
2000.
During the year, AEFA launched four new proprietary funds in the United
States: AXP(R) Innovations Fund, AXP(R) European Equity Fund, AXP(R) Focus 20
and AXP(R) Growth Dimensions. Improving the investment performance of the
American Express Funds is a major focus of the Company.
For most funds, shares are sold in four classes. Class A shares are
sold at net asset value plus any applicable sales charge. The maximum sales
charge is 5.75% for equity funds and 4.75% for income funds, with reduced sales
charges for larger purchases. The sales charge may be waived for certain
purchases, including those made through an investment product sponsored by AXP
Advisors or another authorized financial intermediary. Class B shares are sold
with a rear load. The maximum sales charge is five percent, declining to no
charge for shares held over six years. Class C shares do not have a front-end
sales charge. A one percent contingent deferred sales charge may apply for
shares sold less than one year after purchase. Class Y shares are sold to
institutional clients with no load. There are five index funds, which are sold
in two no-load classes. Class D shares are sold with a 0.25% fee for
distribution services, but without a sales charge, through an investment product
sponsored by AEFA or another authorized financial institution. Class E shares
are sold without a sales or distribution fee through American Express brokerage
accounts and qualifying institutional accounts.
21
<PAGE>
Fifteen of the American Express Funds are structured as feeder funds
investing in the Preferred Master Trust Group, a group of 15 master funds,
advised by AEFC. This feeder structure provides for potential development of
additional channels of distribution.
In addition to full-commission and discount brokerage firms,
competitors include other financial institutions, such as banks and insurance
companies. Recent growth trends in the market, including the increasing sales of
mutual funds to retail investors, have expanded the number of competitors in the
industry. Some competitors are larger, more diversified and offer a greater
number of products, and may have an advantage in their ability to attract and
retain customers on the basis of one-stop shopping. The competitive factors
affecting the sale of mutual funds include sales charges ("loads") paid,
administrative expenses, services received, investment performance, the variety
of products and services offered, the convenience to the investor and general
market conditions. The funds compete with other investment products, including
funds that have no sales charge (i.e., "no load" funds) and funds distributed
through independent brokerage firms.
OTHER PRODUCTS AND SERVICES
---------------------------
American Express Asset Management Group Inc. ("AEAMG"), a subsidiary of
AEFC, is an SEC registered investment advisor that provides investment
management services for pension, profit sharing, employee savings and endowment
funds of large- and medium-sized businesses and other institutions
("institutional clients"). AEAMG, through the Portfolio Management Group and
American Express Portfolio Management Group (operating divisions of AEAMG), also
offers discretionary investment management services to wealthy individuals and
small institutions with account sizes between $1 million and $10 million. AEAMG,
through its division Portfolio Management Group, manages money for individuals
through wrap programs sponsored by affiliated and unaffiliated entities. AEAMG
owns a majority interest in Kenwood Capital Management LLC ("Kenwood"), which
provides investment management services to investment companies, corporations,
trusts, estates, charitable organizations and tax qualified pension and profit
sharing plans. Kenwood employs an active investment strategy that is based on a
disciplined approach to stock selection and portfolio risk management, and seeks
to achieve consistent excess returns relative to passive index benchmarks for
small- and mid-cap segments of the United States equity market. AEAMG also owns
a majority interest in Northwinds Marketing Group LLC, which markets investment
management services of AEAMG and its affiliated investment advisers to large
institutions, primarily union and public pension funds.
Advisory Capital Partners LLC ("ACP") and Advisory Capital Income LLC
("ACI") are majority-owned subsidiaries of Advisory Capital Strategies Group
Inc., which, in turn, is a wholly-owned subsidiary of AEAMG. ACP and ACI are
each registered with the Commodity Futures Trading Commission ("CFTC") as a
Commodity Pool Operator. ACP acts as the general partner of two Delaware limited
partnerships and ACI acts as the general partner of a non-U.S. limited
partnership. The partnerships offer hedge funds with an equity and fixed-income
focus, which are sold privately to qualified eligible persons. These
partnerships employ various investment strategies, including among other things,
the use of leverage, short selling of securities and investment in options,
22
<PAGE>
futures and other derivative instruments. For the above partnerships, AEAMG
acts as the investment manager. In addition, Advisory Alpha Partners L.P., a
registered Commodity Pool Operator with the CFTC, and AEAMG jointly provide
investment management and advisory services to two private non-U.S. investment
vehicles, which also offer hedge funds with an equity and fixed-income focus.
American Express Asset Management International Inc. and American Express Asset
Management Ltd. jointly provide investment management and advisory services to
another non-U.S. private investment vehicle, which offers a hedge fund with a
European equity focus.
AEAMG also serves as a sub-advisor to American Express Asset Management
Ltd. in providing investment advice with respect to the United States Equity
Fund Portfolio for the American Express(R) Asset Management Pooled Funds, which
is an open-end unit trust under Canadian tax law. AEAMG also provides investment
management services as collateral manager for various special purpose entities
that issue their own securities which are collateralized by a pool of assets,
e.g., collateralized debt obligations.
At December 31, 2000, AEAMG managed securities portfolios in the U.S.
totaling $19.8 billion for 690 accounts.
International or global investment management is offered to
institutional clients by American Express Asset Management International Inc.
("AEAMI"), a United States company with offices in Hong Kong, London and
Singapore, and by American Express Asset Management Ltd. ("AEAML"), a United
Kingdom company with offices in Hong Kong and London. International
institutional investment management services are also provided, primarily on a
sub-advisor basis for the clients of AEAMI and AEAML, by American Express Asset
Management International (Japan) Ltd. ("AEAMIJ"), which has offices in Tokyo. At
December 31, 2000, AEAMI managed securities portfolios totaling $9.9 billion for
33 accounts; and AEAML managed securities portfolios totaling $3.5 billion for
31 accounts. AEAMI and AEAML are wholly-owned subsidiaries of AEFC. As of
December 31, 2000, AEAMIJ managed $92 million for a mutual fund sponsored by
American Express Bank. AEAMIJ is a Japanese corporation that is a wholly-owned
subsidiary of AEAMG.
The institutional investment management business is highly competitive
and AEAMG and its affiliates must compete against a substantial number of larger
firms in seeking to acquire and maintain assets under management. Competitive
factors in this business include fees, investment performance and client
service.
AXP Advisors sponsors two wrap programs marketed through financial
advisors, marketing employees and third-party referrals. American Express(R)
Wealth Management Service is a professionally managed discretionary wrap account
based on model portfolios of individual securities. American Express(R)
Strategic Portfolio Service Advantage is a non-discretionary mutual fund and
individual security wrap program built around asset-allocation strategies. At
December 31, 2000, assets in wrap programs offered by AXP Advisors totaled $17.1
billion for approximately 165,000 accounts. American Express Wealth Management
Service and American Express Strategic Portfolio Service Advantage are operating
divisions of AEFA.
23
<PAGE>
American Express Trust Company ("AETC") provides trustee, custodial,
record keeping and investment management services for pension, profit sharing,
401(k) and other qualified and non-qualified employee benefit plans. AETC is one
of the leading 401(k) service providers in the United States. AETC is trustee of
over 425 benefit plans which represent approximately $21.7 billion in assets and
1,149,000 participants. AETC also provides non-trusteed investment management of
assets in excess of $2.3 billion. AETC's institutional assets under custody are
in excess of $136.4 billion. AETC is regulated by the Minnesota Department of
Commerce (Banking Division).
In December 2000, American Express Personal Trust Services, FSB
("AEPTS") was granted a federal savings bank charter from the Office of Thrift
Supervision (the "OTS"). AEPTS is a wholly-owned subsidiary of AEFC and provides
personal trust, custodial, agency and investment management services to
individual clients. AEPTS is also registered with the SEC as an Investment
Adviser. AEPTS is authorized to transact business in all 50 states and the
District of Columbia, and utilizes AEFA as its primary distribution channel.
AEPTS is based in Minnesota and is regulated and supervised by the OTS, FDIC and
SEC.
AEFA distributes real estate investment trusts sponsored by other
companies. AEFA also distributes, from time to time, managed futures limited
partnerships in which an AEFC subsidiary is a co-general partner. Serving as
distributor and co-general partner of such limited partnerships subjects AEFA
and its affiliated co-general partner to regulation by the CFTC.
In 2000, AEFA continued to expand its securities brokerage services.
American Enterprise Investment Services Inc. ("AEIS"), a wholly-owned subsidiary
of AEFC, provides securities execution and clearance services for approximately
701,000 retail and institutional clients of AEFA. AEIS holds over $41.7 billion
in assets for clients. AEIS is registered as a broker-dealer with the SEC, is a
member of the NASD and the Chicago Stock Exchange and is registered with
appropriate states.
In January 2001, the Company acquired Sharepeople Group plc, an online
brokerage firm in the United Kingdom. This acquisition allows the Company entry
into the online brokerage business in Europe, and the new wholly-owned
subsidiary will be marketed as American Express Sharepeople. The firm offers
customers trading in U.K. and U.S. equities, as well as unit trust products.
In 2000, the Company launched the American Express Mortgage Center
("AEMC"), providing online access to hundreds of mortgage products. AEMS was
developed through an alliance with Prism Mortgage Company, a subsidiary of Prism
Financial Corporation.
AEFA and American Express Bank Ltd. operate a jointly owned subsidiary,
American Express International Deposit Company ("AEIDC"), in the Cayman Islands
to accept deposits from foreign clients of American Express Bank Ltd. AEIDC is
not regulated as a bank in the Cayman Islands.
24
<PAGE>
AEFA continues to develop new products and modify existing products for
distribution through various distribution channels.
AMERICAN EXPRESS BANK
---------------------
The Company's wholly-owned indirect subsidiary, American Express Bank
Ltd. (together with its subsidiaries, where appropriate, "AEB"), offers products
that meet the financial service needs of four client groups: retail customers,
wealthy individuals, financial institutions and corporations. AEB does not
directly or indirectly do business in the United States except as an incident to
its activities outside the United States. Accordingly, the following discussion
relating to AEB generally does not distinguish between United States and
non-United States based activities.
AEB's four primary business lines are personal financial services,
private banking, financial institutions (formerly correspondent banking) and
corporate banking. Personal financial services ("PFS") provides consumer
products in direct response to specific financial needs of retail customers and
includes interest-bearing deposits, unsecured lines of credit, installment
loans, money market funds, mortgage loans, mutual funds and life insurance
products. Private banking focuses on wealthy individuals by providing such
customers with investment management, trust and estate planning, deposit
instruments and secured lending. The Financial Institutions Group provides to
financial institution clients a wide range of products including international
payments processing (wire transfers and checks), trade-related payments and
financing, cash management, credit, treasury and investment products, including
third-party distribution of AEB offshore mutual funds. Corporate banking is
provided to corporations principally in emerging markets and includes trade
finance and working capital loans. Through global trading activities, AEB also
provides treasury and capital market products and services, including foreign
exchange, foreign exchange options, derivatives and trading, with a focus on
emerging markets.
In 2000, AEB continued to shift its business focus from corporate
clients to individuals and financial institutions. This change aligns AEB's
businesses more closely with the rest of the Company and positions it to play a
more important role in the delivery of financial services on a global basis. At
December 31, 2000, private banking client holdings rose 12 percent to a total of
over $10 billion and client volumes in PFS increased 19 percent. Due in part to
this change in emphasis, AEB reduced its corporate banking loans by $140 million
in 2000 and increased its consumer and private banking loans by $410 million
($340 million excluding the effect of asset sales and securitizations in the
consumer loan portfolio). In addition, financial institution loans rose by $40
million. At year-end, loans outstanding worldwide were approximately $5.3
billion, up from $5.1 billion at December 31, 1999.
During the year, AEB launched a number of new offshore mutual fund and
hedge fund products. AEB's mutual funds are sold by the private banking and PFS
business lines to individual customers. AEB's Financial Institutions Group also
distributes the Company's proprietary mutual funds to a growing number of
third-party distributors in several foreign markets. AEB's assets under
management in its fund products totaled approximately $2.8 billion at year-end.
25
<PAGE>
In 2000, AEB introduced three new investment alternatives within the
American Express(R) Fund family: Global Innovation and Focused U.S. Equity (both
managed by AEFC) and a Global High-Yield Euro debt fund. Additionally, AEB
launched a third portfolio in its offshore hedge fund family, the Global
Long-Short Fund-of-Funds. These products are marketed to wealthy individuals
through the Private Bank.
AEB also continued to work closely with other parts of the Company to
cross-sell products and build deeper relationships with customers. Sixty percent
of PFS customers in established PFS markets are also American Express
Cardmembers. AEB also marketed its private banking services to a highly targeted
group of Cardmembers outside the United States. AEB offers credit products such
as installment loans and revolving lines of credit to both Cardmembers and
non-Cardmembers in France, Germany, Greece, Hong Kong, India, Singapore, Taiwan
and the United Kingdom. AEB also markets a wide range of investment and savings
products to TRS Cardmembers and select non-Cardmembers in France, Germany,
Greece, Hong Kong, Indonesia, Singapore, Taiwan and the United Kingdom. In
addition, AXP Advisors has contracted with AEB to manage most of AEB's American
Express Funds and the American Express Offshore Alternative Investment Fund. AEB
has contracted with AECC to market AECC's investment certificates, and operates
a joint venture with AEFC in the Cayman Islands to accept deposits.
AEB has a global network with offices in 41 countries. Its worldwide
headquarters is located in New York City. It maintains international banking
agencies in New York City and Miami, Florida and facility offices in San
Francisco and Los Angeles, California. Its wholly-owned Edge Act subsidiary,
American Express Bank International ("AEBI"), is headquartered in Miami, Florida
and has branches in New York City and Miami.
AEB's business does not, as a whole, experience significant seasonal
fluctuations.
SELECTED FINANCIAL INFORMATION REGARDING AEB
--------------------------------------------
AEB provides banking services to the Company and its subsidiaries. AEB
is only one of many international and local banks used by the Company and its
other subsidiaries, which constitute only a few of AEB's many customers.
AEB's total assets were $11.4 billion at both December 31, 2000 and
December 31, 1999. Liquid assets, consisting of cash and deposits with banks,
trading account assets and investments, were $4.8 billion at December 31, 2000
and $5.2 billion at December 31, 1999.
26
<PAGE>
<TABLE>
<CAPTION>
The following table sets forth a summary of financial data for AEB at
and for each of the three years in the period ended December 31, 2000 (dollars
in millions):
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net financial revenues $ 591 $ 621 $ 620
Non-interest expenses 558 594 755
Net income (loss) 29 22 (84)
- --------------------------------------------------------------------------------------------------------------------
Cash and deposits with banks 2,165 2,533 2,303
Investments 2,517 2,469 2,553
Loans, net 5,206 4,928 5,404
Total assets 11,413 11,390 11,576
- --------------------------------------------------------------------------------------------------------------------
Customers' deposits 7,952 8,343 8,288
Shareholder's equity 754 691 743
- --------------------------------------------------------------------------------------------------------------------
Return on average assets (a) .26% .20% (0.70%)
Return on average common equity (a) 4.40% 3.52% (13.31%)
- --------------------------------------------------------------------------------------------------------------------
Reserve for loan losses/total loans 2.56% 3.30% 3.83%
Total loans/deposits from customers 67.19% 61.10% 67.80%
Average common equity/average assets (a) 5.82% 5.39% 5.16%
Risk-based capital ratios:
Tier 1 10.1% 9.9% 9.8%
Total 11.4% 12.0% 12.6%
Leverage ratio 5.9% 5.6% 5.5%
- --------------------------------------------------------------------------------------------------------------------
Average interest rates earned: (b)
Loans (c) 8.05% 7.94% 8.56%
Investments (d) 6.98% 7.60% 7.62%
Deposits with banks 5.79% 5.68% 6.21%
- --------------------------------------------------------------------------------------------------------------------
Total interest-earning assets (d) 7.29% 7.40% 7.90%
- --------------------------------------------------------------------------------------------------------------------
Average interest rates paid: (b)
Deposits from customers 5.65% 5.30% 5.79%
Borrowed funds, including long-term debt 6.64% 6.11% 6.17%
- --------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 5.78% 5.30% 5.84%
- --------------------------------------------------------------------------------------------------------------------
Net interest income/total average interest-earning assets (d) 2.49% 2.92% 2.72%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Calculated excluding the effect of SFAS No. 115.
(b) Based upon average balances and related interest income and expense,
including the effect of interest rate products where appropriate and
transactions with related parties.
(c) Interest rates have been calculated based upon average total loans,
including those on non-performing status.
(d) On a tax equivalent basis.
27
<PAGE>
<TABLE>
The following tables set forth the composition of AEB's loan portfolio
at year end for each of the five years in the period ended December 31, 2000
(millions):
<CAPTION>
By Geographical Region (a) 2000 1999 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Asia/Pacific $1,791 $1,698 $2,143 $2,789 $2,543
Europe 1,500 1,414 1,021 1,055 821
Indian Subcontinent 442 449 517 629 833
Latin America 856 824 1,107 1,082 916
North America 352 255 210 51 67
Middle East 302 346 544 482 580
Africa 100 111 77 105 117
- --------------------------------------------------------------------------------------------------------------
Total $5,343 $5,097 $5,619 $6,193 $5,877
==============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
2000
-----------------------------------
Due After Due
Due 1 Year After 5
Within 1 Through 5 Years
By Type and Maturity Year Years (b) (b) 2000 1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consumer and private
banking loans:
Loans secured by real estate $ 9 - $ 352 $ 361 $ 255 $ 213 $ 146 $ 37
Installment, revolving credit
and other 1,648 $ 187 4 1,839 1,637 1,429 1,231 1,090
------ ------ ------- ------- ------ ------ ------ -------
1,657 187 356 2,200 1,892 1,642 1,377 1,127
------ ------ ------- ------- ------ ------ ------ -------
Commercial loans:
Loans secured by real estate 47 104 6 157 141 302 347 386
Loans to businesses (c) 1,140 229 28 1,397 1,508 1,997 2,479 2,415
Loans to banks and other
financial institutions 1,409 110 - 1,519 1,475 1,595 1,926 1,860
Loans to governments and
official institutions 32 1 1 34 37 46 41 64
Equipment financing - - - - - - - 1
All other loans 34 2 - 36 44 37 23 24
------ ------ ------- ------- ------ ------ ------ -------
2,662 446 35 3,143 3,205 3,977 4,816 4,750
- ----------------------------------------------------------------------------------------------------------------------------------
Total $4,319 $ 633 $ 391 $5,343 $5,097 $5,619 $6,193 $5,877
==================================================================================================================================
</TABLE>
(a) Based primarily on the domicile of the borrower.
(b) Loans due after 1 year at fixed (predetermined) interest rates totaled $142
million, while those at floating (adjustable) interest rates totaled $882
million.
(c) Business loans, which accounted for approximately 26 percent of the
portfolio as of December 31, 2000, were distributed over 26 commercial and
industrial categories.
28
<PAGE>
<TABLE>
The following tables present information about AEB's impaired loans.
AEB defines an impaired loan as any loan (other than certain consumer loans) on
which the accrual of interest is discontinued because the contractual payment of
principal or interest has become 90 days past due or if, in management's
opinion, the borrower is unlikely to meet its contractual obligations (i.e.,
non-performing loans).
<CAPTION>
(in millions: December 31,) 2000 1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consumer loans $ - $ - $ 1 $ 1 $ 1
Real estate loans-commercial - 7 9 9 5
Loans to businesses 135 149 151 34 29
Loans to banks and other financial institutions 2 12 19 3 -
- ----------------------------------------------------------------------------------------------------------------------
Total $137 $168 $180 $47 $35
======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------
(in millions) 2000 1999
---- ----
<S> <C> <C>
Recorded investment in impaired loans
not requiring an allowance (a) $ 6 $ 11
Recorded investment in impaired loans
requiring an allowance $ 131 $ 157
------ ------
Total recorded investment in impaired loans $ 137 $ 168
====== ======
Credit reserves for impaired loans $ 65 $ 62
====== ======
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------------------------
(in millions) 2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Average recorded investment in impaired loans $ 166 $ 200 $ 176
Interest income recognized on a cash basis 1 5 2
</TABLE>
(a) These loans do not require a reserve for credit losses since the values
of the impaired loans equal or exceed the recorded investments in the
loans.
In addition to the above, AEB had other non-performing assets totaling
$24 million at December 31, 2000, $37 million at December 31, 1999 and $63
million at December 31, 1998. The 2000, 1999 and 1998 balances primarily
represent matured foreign exchange and derivative contracts. The decrease from
1998 to 1999 primarily reflects previously reserved write-offs.
29
<PAGE>
<TABLE>
<CAPTION>
The following table sets forth a summary of the credit loss experience
of AEB at and for each of the five years in the period ended December 31, 2000
(dollars in millions):
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Reserve for credit losses -
January 1, $189 $259 $137 $117 $111
Provision for credit losses (a) 28 29 238 20 23
Translation and other (4) 1 (4) (2) (1)
---- ---- ---- ---- ----
Subtotal 213 289 371 135 133
---- ---- ---- ---- ----
Write-offs:
Consumer loans 19 25 19 13 13
Real estate loans-commercial - 1 3 - 2
Loans to businesses (b) 43 50 72 17 7
Loans to banks and other
financial institutions 2 14 2 - 1
Foreign exchange and
derivative contracts (c) 6 20 28 - -
Recoveries:
Consumer loans (6) (7) - (11) (3)
Loans to businesses (3) (3) (5) (3) (2)
Loans to banks and other
financial institutions (1) - - - (1)
Loans to governments and
official institutions (d) - - - (18) (1)
All other loans - - (7) - -
---- ---- ---- ---- ----
Net write-offs (recoveries) 60 100 112 (2) 16
---- ---- ---- ---- ----
Reserve for credit losses
December 31, (e) $153 $189 $259 $137 $117
==== ==== ==== ==== ====
</TABLE>
(a) The increase in 1998 was mainly due to first quarter credit loss provision
related to business in the Asia/Pacific region, particularly Indonesia.
(b) The increase in 1998 was primarily due to write-offs in the Asia/Pacific
region, primarily Indonesia.
(c) The increase in 1998 was due to write-offs of Indonesian foreign exchange
and derivative contracts.
(d) The increase in 1997 was mainly due to a loan recovery from Peru.
(e) Allocation:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Loans $137 $169 $214 $131 $117
Other assets, primarily derivatives 14 16 43 6 -
Other liabilities 2 4 2 - -
---- ---- ---- ---- ----
Total reserve for credit losses $153 $189 $259 $137 $117
==== ==== ==== ==== ====
</TABLE>
30
<PAGE>
Interest income is recognized on the accrual basis. Loans other than
certain consumer loans are placed on non-performing status when payments of
principal or interest are 90 days past due or if, in management's opinion, the
borrower is unlikely to meet its contractual obligations. When loans are placed
on non-performing status, all previously accrued but unpaid interest is reversed
against current interest income. Cash receipts of interest on non-performing
loans are recognized either as interest income or as a reduction of principal,
based upon management's judgment as to the ultimate collectibility of principal.
Generally, a non-performing loan may be returned to performing status when all
contractual amounts due are reasonably assured of repayment within a reasonable
period and the borrower shows sustained repayment performance, in accordance
with the contractual terms of the loan or when the loan has become well secured
and is in the process of collection.
Credit card receivables, interest-earning advances under lines of
credit and other similar consumer loans are written off against the reserve for
credit losses upon reaching specified contractual delinquency stages, or earlier
in the event of the borrower's personal bankruptcy or if the loan is otherwise
deemed uncollectible. Interest income on these loans generally accrues until the
loan is written off.
AEB separately maintains and provides for reserves relating to credit
losses for loans, derivatives and other credit-related commitments. The reserve
is established by charging a provision for credit losses against income. The
amount charged to income is based upon several factors, including historical
credit loss experience in relation to outstanding credits, a continuous
assessment of the collectibility of each credit, and management evaluation of
exposures in each applicable country as related to current and anticipated
economic and political conditions. Management's assessment of the adequacy of
the reserve is inherently subjective, as significant estimates are required.
Amounts deemed uncollectible are charged against the reserve and subsequent
recoveries, if any, are credited to the reserve.
The reserve for credit losses related to loans is reported as a
reduction of loans. The reserve related to derivatives is reported as a
reduction of trading assets and the reserve related to other credit-related
commitments is reported in other liabilities.
RISKS
-----
The global nature of AEB's business activities is such that
concentrations of credit to particular industries and geographic regions are not
unusual. At December 31, 2000, AEB had significant investments in certain on-
and off-balance sheet financial instruments, which were primarily represented by
deposits with banks, securities, loans, forward contracts, contractual amounts
of letters of credit (standby and commercial) and guarantees. The counterparties
to these financial instruments were primarily unrelated to AEB, and principally
consisted of banks and other financial institutions and various commercial and
industrial enterprises operating geographically within the Asia/Pacific region,
Europe, North America, Latin America and the Indian Subcontinent. AEB
continuously monitors its credit concentrations and actively manages to reduce
the associated risk.
31
<PAGE>
At December 31, 2000, AEB had exposures throughout the Asia/Pacific
region, including in Hong Kong, Singapore, Taiwan, Indonesia and Korea, among
other countries. AEB had approximately $1.8 billion outstanding in loans in the
entire Asia/Pacific region at year-end. In addition to these loans, there are
other banking activities, such as forward contracts, various contingencies and
market placements, which added another approximately $1.1 billion to the credit
exposures in the region at year-end. In an ongoing effort to mitigate the
effects of these risks, as well as AEB's decision to shift its business focus
from corporations to individuals, AEB has reduced its wholesale credit exposure
in 2000, particularly with respect to its Asia/Pacific commercial loan
portfolio. AEB continues to carefully monitor its credit exposures.
AEB's earnings are sensitive to fluctuations in interest rates, as it
is not always possible to match precisely the maturities of interest-related
assets and liabilities. However, strict limits have been established for both
country and total bank mismatching. On occasion, AEB may decide to mismatch in
anticipation of a change in future interest rates in accordance with these
guidelines. Term loans extended by AEB include both floating interest rate and
fixed interest rate loans.
For a discussion relating to AEB's use of derivative financial
instruments, see pages 38 through 40 under the caption "Risk Management," and
Note 8 on pages 53 through 57, of the Company's 2000 Annual Report to
Shareholders, which portions of such report are incorporated herein by
reference.
COMPETITION
-----------
The banking services of AEB are subject to vigorous competition in all
markets in which AEB operates. Competitors include local and international banks
whose assets often exceed those of AEB, other financial institutions (including
certain other subsidiaries of the Company) and, in certain cases, governmental
agencies. In some countries, AEB may be one of the more substantial financial
institutions offering banking services; in no country, however, is AEB dominant.
REGULATION
----------
AEB is a wholly-owned direct subsidiary of American Express Banking
Corp. ("AEBC"). AEBC is a New York investment company organized under Article
XII of the New York Banking Law and is a wholly-owned direct subsidiary of the
Company. AEBC, AEB and AEB's global network of offices and subsidiaries are
subject to the consolidated supervision and examination of the New York State
Banking Department ("NYSBD") pursuant to the New York Banking Law. AEBC does not
directly engage in banking activities.
AEB's branches, representative offices and subsidiaries are licensed
and regulated in the jurisdictions in which they do business and are subject to
the same local requirements as other competitors. Within the United States,
AEB's New York agency is supervised and regularly examined by the NYSBD. In
addition, the Florida Department of Banking and Finance supervises and examines
AEB's Miami agency, the Board of Governors of the Federal Reserve
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System (the "Federal Reserve Board") regulates, supervises and examines AEBI
and the California Department of Financial Institutions supervises and examines
AEB's San Francisco and Los Angeles facility offices. AEB Global Asset
Management Inc., a wholly-owned subsidiary of AEB that provides investment
advisory services to private banking clients, is registered with the SEC as an
investment advisor. AEB must also comply with various non-U.S. securities
regulations, such as those promulgated by the Financial Services Authority in
the U.K.
Since AEB does not do business in the United States, except as an
incident to its activities outside the United States, the Company's affiliation
with AEB neither causes the Company to be subject to the provisions of the Bank
Holding Company Act of 1956, as amended, nor requires it to register as a bank
holding company under the Federal Reserve Board's Regulation Y. AEB is not a
member of the Federal Reserve System, is not subject to supervision by the FDIC,
and is not subject to any of the restrictions imposed by the Competitive
Equality Banking Act of 1987 other than anti-tie-in rules with respect to
transactions involving products and services of certain of its affiliates. AEB
is not a financial holding company under the Gramm-Leach-Bliley Act.
AEB is required to comply with the Federal Reserve Board's risk-based
capital guidelines and complementary leverage constraint applicable to
state-chartered banks that are members of the Federal Reserve System. Pursuant
to the FDIC Improvement Act of 1991, the Federal Reserve Board, among other
federal banking agencies, adopted regulations defining levels of capital
adequacy. Under these regulations, a bank is deemed to be well capitalized if it
maintains a Tier 1 risk-based capital ratio of at least 6.0 percent, a total
risk-based capital ratio of at least 10.0 percent, and a leverage ratio of at
least 5.0 percent. Based on AEB's total risk-based capital and leverage ratios,
which are set forth on page 27, AEB is considered to be well capitalized at
December 31, 2000.
In recent years U.S. and foreign regulatory authorities, together with
international organizations, have raised increasing concerns over the ability of
criminal organizations and corrupt persons to use global financial
intermediaries to facilitate money laundering. These authorities are more
closely scrutinizing or regulating the practices and controls of financial
intermediaries subject to their jurisdiction in an effort to reduce worldwide
money laundering. AEB has increased its compliance efforts to combat money
laundering and may increase these efforts further to address evolving
supervisory standards and requirements.
CORPORATE AND OTHER
-------------------
The American Express brand and its attributes - trust, security,
integrity, quality and customer service - are key assets of the Company. In
2000, the Company continued to focus on the brand by educating employees about
its attributes and by further incorporating these attributes into its programs,
products and services.
During the year, the Company also continued a more aggressive strategy
in seeking patents for its businesses.
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The Company uses information about its customers to develop products
and services and to provide personal service. Regulatory activity in the areas
of privacy and data protection is growing worldwide and is generally being
driven by the growth of technology and concomitant concerns about the
potentially rapid and widespread dissemination and use of information. The
financial services modernization legislation enacted in 1999 (Gramm-Leach-Bliley
Act) provides for disclosure of a financial institution's privacy policies and
practices and affords customers the right to "opt out" of the institution's
disclosure of their personal information to unaffiliated third parties (with
limited exceptions). Federal regulations implementing the new legislation will
become effective on July 1, 2001. This legislation does not preempt state laws
that afford greater privacy protections to consumers, and several states have
proposed such legislation. In addition, the European Data Protection Directive
became effective in October 1998 and involves potential sanctions for violations
which include the possible disruption in the flow of personal data from Europe
and in the use of such data. The Company will continue its efforts to vigilantly
safeguard the data entrusted to it in accordance with applicable law and its
internal data protection policies, while seeking to properly collect and use
data to achieve its business objectives.
The Balcor Company Holdings, Inc., an indirect, wholly-owned subsidiary
of the Company, and its subsidiaries, formerly operated as a diversified real
estate investment and management company, discontinued new commercial real
estate activities in 1990 and began to liquidate its portfolio of real estate
loans and properties. The liquidation was completed in 1998. Balcor and its
subsidiaries also served as general partners in numerous public limited
partnerships, the last of which were dissolved in December 2000.
FOREIGN OPERATIONS
------------------
The Company derives a significant portion of its revenues from the use
of the Card, Travelers Cheques and travel services in countries outside the
United States and continues to broaden the use of these products and services
outside the United States. Political and economic conditions in these countries,
including the availability of foreign exchange for the payment by the local card
issuer of obligations arising out of local Cardmembers' spending outside such
country, for the payment of card bills by Cardmembers who are billed in other
than their local currency and for the remittance of the proceeds of Travelers
Cheque sales, can have an effect on the Company's revenues. Substantial and
sudden devaluation of local Cardmembers' currency can also affect their ability
to make payments to the local issuer of the card on account of spending outside
the local country. The major portion of AEB's banking revenues is from business
conducted in countries outside the United States. Some of the risks attendant to
those operations include currency fluctuations and changes in political,
economic and legal environments in each such country.
As a result of its foreign operations, the Company is exposed to the
possibility that, because of foreign exchange rate fluctuations, assets and
liabilities denominated in currencies other than the United States dollar may be
realized in amounts greater or lesser than the United States dollar amounts at
which they are currently recorded in the Company's Consolidated Financial
Statements. Examples of transactions in which this may occur include the
purchase by Cardmembers of goods and services in a currency other than the
currency in which they are
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billed; the sale in one currency of a Travelers Cheque denominated in a second
currency; foreign exchange positions held by AEB as a consequence of its
client-related foreign exchange trading operations; and, in most instances,
investments in foreign operations. These risks, unless properly monitored and
managed, could have an adverse effect on the Company's operations.
The Company's policy in this area is generally to monitor closely all
foreign exchange positions and to minimize foreign exchange gains and losses,
for example, by offsetting foreign currency assets with foreign currency
liabilities, as in the case of foreign currency loans and receivables, which are
financed in the same currency. An additional technique used to manage exposures
is the spot and forward purchase or sale of foreign currencies as a hedge of net
exposures in those currencies as, for example, in the case of the Cardmember and
Travelers Cheque transactions described above. Additionally, Cardmembers may be
charged in United States dollars for their spending outside their local country.
The Company's investments in foreign operations are hedged by forward exchange
contracts or by identifiable transactions, where appropriate.
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
------------------------------------------------------
Various forward-looking statements have been made in this Form 10-K
Annual Report. Forward-looking statements may also be made in the Company's
other reports filed with the SEC, in its press releases and in other documents.
In addition, from time to time, the Company through its management may make oral
forward-looking statements. Forward-looking statements are subject to risks and
uncertainties, including those identified below, which could cause actual
results to differ materially from such statements. The words "believe,"
"expect," "anticipate," "optimistic," "intend," "aim," "will," "should" and
similar expressions are intended to identify forward-looking statements. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date on which they are made. The Company undertakes
no obligation to update publicly or revise any forward-looking statements.
Important factors that could cause actual results to differ materially from the
Company's forward-looking statements include but are not limited to the
following:
The Company's inability to:
o extend the value of the American Express brand, which
historically has been associated with the card and travel
businesses (e.g., perception of trust, security and quality
service), to a broad range of financial products and services
in the financial services industry;
o manage credit risk related to consumer debt, business loans
and other credit exposures, both in the United States and
abroad, including unseasoned balances in TRS' lending
portfolios;
o successfully achieve significant expense reductions from its
ongoing reengineering efforts, including cost management,
structural and strategic measures such as vendor and process
consolidation, outsourcing and
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using lower-cost internal distribution channels, while also
maintaining high service levels;
o create successfully, and increase, online and offline
distribution channels and cross selling for, financial,
travel, card and other products and services to its customer
base both in the U.S. and internationally;
o participate in payment and other systems material to its
businesses on a fair and competitive basis;
o control and manage operating, infrastructure, marketing and
promotion and other expenses as business expands or changes,
including balancing the need for longer term investment
spending;
o invest successfully in, and compete at the leading edge of,
technology developments across all businesses, e.g.,
transaction processing, data management, customer interactions
and communications, travel reservations systems, stored value
products, multi-application smart cards and risk management
systems;
o effectively transition to the Euro currency in 2002, including
managing costs in technology and personnel, allocating
resources between the conversion and development and launch of
new products, and creating new Euro-based revenue sources
within Europe;
o recognize evolutionary technology developments by competitors
or others which could hasten business model obsolescence or,
because of patent rights held by such competitors or others,
limit or restrict the Company's use of desired business
technology or processes;
o develop and implement successfully enterprise-wide interactive
strategies;
o integrate its Internet applications and make the online
experience more desirable, reliable and user friendly for
customers and clients;
o leverage successfully its assets, such as its brand, customer
base, international presence, marketing and data base
management skills, in the Internet environment; and
o attract and retain qualified employees in all its businesses.
TRS' inability to:
o increase consumer and/or business spending and borrowing on
its credit and charge Cards and travel related services
products, gain market share and develop
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new or enhanced products that capture greater share of customers'
total spending on Cards issued on its network both in the United
States and in its international operations;
o successfully acquire and convert credit card portfolios from
other card issuers;
o enhance significantly its international operations, which will
depend in part on its ability to reduce expenses for
reinvestment in the international business and expand the
proprietary and third party-issued Card businesses;
o retain Cardmembers in consumer lending products after low
introductory rate periods have expired; and
o sustain premium discount rates, increase merchant coverage and
reduce suppression, all of which will depend in part on its
ability to maintain a customer base that appeals to merchants
and to develop deeper merchant relationships through creation
of new products and services.
AEFA's inability to:
o curtail potential deterioration in its high-yield investments,
which could result in further losses in AEFA's investment
portfolio;
o improve investment performance in AEFA's mutual fund business,
including attracting and retaining high quality personnel;
o balance effectively the economics in selling a growing volume
of non-proprietary products to clients;
o manage 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;
o resolve the potential conflicts inherent in its growing
multi-channel delivery systems;
o accelerate and expand client acquisition through its online
initiatives and derive revenue for its Direct Brokerage
business from sources other than trading; and
o respond effectively to market fluctuations, a short-term
financial market crash or a long-term financial market decline
or stagnation, which could affect the sale of investment
products at AEFA and the market value of AEFA's managed
assets, resulting in lower management and distribution fees.
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In general:
o credit trends and the rate of bankruptcies, which can affect
spending on card products, debt payments by individual and
corporate customers, risks arising from merchant bankruptcies,
and returns on the Company's investment portfolios;
o fluctuations in foreign exchange rates;
o the effect of changing interest rates, which could affect
AEFA's spreads between revenues from owned investments and
benefits credited to clients' accounts, TRS' borrowing costs
and TRS' and AEB's return on lending products;
o changes in laws or government regulations, such as tax laws
affecting the Company's businesses and regulatory activity in
the areas of customer privacy and data protection;
o global developments that could affect the Company's operations
abroad, such as political or economic instability in key
markets of the Company's businesses, which could affect
commercial lending activities, among other businesses, or
restrictions on convertibility of certain currencies;
o the costs and integration of acquisitions;
o competitive pressures in all of the Company's major
businesses; and
o outcomes in litigation or compliance costs.
SEGMENT INFORMATION AND CLASSES OF SIMILAR SERVICES
---------------------------------------------------
Information with respect to the Company's operating segments,
geographical operations and classes of similar services is set forth in Note 15
to the Consolidated Financial Statements of the Company, which appears on pages
64 through 66 of the Company's 2000 Annual Report to Shareholders, which Note is
incorporated herein by reference.
EXECUTIVE OFFICERS OF THE COMPANY
---------------------------------
All of the executive officers of the Company as of March 26, 2001, none
of whom has any family relationship with any other and none of whom became an
officer pursuant to any arrangement or understanding with any other person, are
listed below. Each of such officers was elected to serve until the next annual
election of officers or until his or her successor is elected and qualified.
Each officer's age is indicated by the number in parentheses next to his or her
name.
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KENNETH I. CHENAULT - President and Chief Executive Officer;
President and Chief Executive Officer, TRS
Mr. Chenault (49) has been President and Chief Executive Officer of the
Company since January 2001. Prior thereto he had been President and Chief
Operating Officer of the Company since February 1997. Prior to February 1997 he
had been Vice Chairman of the Company since January 1995. He has also been
President and Chief Executive Officer of TRS since February 1997.
JONATHAN S. LINEN - Vice Chairman
Mr. Linen (57) has been Vice Chairman of the Company since August 1993.
JAMES M. CRACCHIOLO - Group President, Global Financial Services
Mr. Cracchiolo (42) has been Group President, Global Financial Services
of the Company since June 2000. Prior thereto he had been President,
International, TRS since May 1998. Prior thereto he had been President, Global
Network Services, TRS since February 1997. Prior thereto he had been Senior Vice
President, Quality, Reengineering and Business Strategy, TRS.
GARY L. CRITTENDEN - Executive Vice President and Chief Financial Officer
Mr. Crittenden (47) has been Executive Vice President and Chief
Financial Officer of the Company since June 2000. Prior thereto he had been
Senior Vice President and Chief Financial Officer of Monsanto since September
1998. Prior thereto he had been Chief Financial Officer at Sears Roebuck & Co.
URSULA F. FAIRBAIRN - Executive Vice President, Human Resources and Quality
Mrs. Fairbairn (58) has been Executive Vice President, Human Resources
and Quality of the Company since December 1996. Prior thereto, she had been
Senior Vice President, Human Resources of Union Pacific Corporation.
EDWARD P. GILLIGAN - Group President, Global Corporate Services, TRS
Mr. Gilligan (41) has been Group President, Global Corporate Services,
TRS since June 2000. Prior thereto he had been President, Corporate Services,
TRS since February 1996. Prior thereto, he had been Executive Vice President,
Travel Management Services, TRS since June 1995.
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JOHN D. HAYES - Executive Vice President, Global Advertising
and Brand Management
Mr. Hayes (46) has been Executive Vice President, Global Advertising
and Brand Management of the Company since May 1995.
DAVID C. HOUSE - Group President, Global Establishment Services
and Travelers Cheque Group, TRS
Mr. House (51) has been Group President, Global Establishment Services
and Travelers Cheque Group, TRS since June 2000. Prior thereto he had been
President, TRS Establishment Services since October 1995.
ALFRED F. KELLY, JR. - Group President, US Consumer and Small Business
Services, TRS
Mr. Kelly (42) has been Group President, US Consumer and Small Business
Services, TRS since June 2000. Prior thereto he had been President, Consumer
Card Services Group, TRS since October 1998. Prior thereto he had been Executive
Vice President and General Manager of Consumer Marketing, TRS since February
1997. Prior thereto he had been Executive Vice President of Customer Loyalty,
TRS since September 1995.
LOUISE M. PARENT - Executive Vice President and General Counsel
Ms. Parent (50) has been Executive Vice President and General Counsel
of the Company since May 1993.
GLEN SALOW - Executive Vice President and
Chief Information Officer
Mr. Salow (45) has been Executive Vice President and Chief Information
Officer of the Company since March 2000. Prior thereto he had been Senior Vice
President, E-Commerce, United States Card and Travel Services, TRS since
December 1999. Prior thereto he had been Senior Vice President, Information
Technology Strategy and Global Platform Development, TRS since April 1999. Prior
thereto he had been Senior Vice President, Operations, TRS since November 1997.
Prior thereto he had been Chief Information Officer, Aetna Retirement Services,
Aetna Life and Casualty.
THOMAS SCHICK - Executive Vice President, Corporate Affairs
and Communications
Mr. Schick (54) has been Executive Vice President, Corporate Affairs
and Communications of the Company since March 1993.
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EMPLOYEES
The Company had approximately 89,000 employees on December 31, 2000.
ITEM 2. PROPERTIES
The Company's headquarters is in a 51-story, 2.2 million square foot
building located in lower Manhattan, which also serves as the headquarters for
TRS and AEB. This building, which is on land leased from the Battery Park City
Authority for a term expiring in 2069, is one of four office buildings in a
complex known as the World Financial Center. Lehman Brothers Holdings Inc. is
also headquartered at and owns 52% of the building.
Other principal locations of TRS include: the American Express Service
Centers in Fort Lauderdale, Florida; Phoenix, Arizona; Greensboro, North
Carolina; Salt Lake City, Utah; and the American Express Canada, Inc.
headquarters in Markham, Ontario, Canada, all of which are owned by the Company
or its subsidiaries. In March, 2000, TRS also entered into a new lease for
140,000 square feet in Phoenix for its Travel Related Services group. In
November, 2000, a 99- year lease was entered into with the State of Arizona for
land in Phoenix on which the Company plans to build 460,000 square feet of
office space. Construction is expected to commence in 2001 with construction
completed by 2003.
AEFA's principal locations are its headquarters, the American Express
Financial Center, which the company leases, and its Operations Center, which the
company owns; both are in Minneapolis, Minnesota. AEFA's lease term for the
American Express Financial Center is for 20 years with several options to extend
the term. AEFA also owns Oak Ridge Conference Center, a training facility and
conference center in Chaska, Minnesota.
AEFA is also building a new Client Service Center in downtown
Minneapolis, which the company owns. Construction started in June 1999 and the
building should be ready for occupancy in June 2002.
In 1999, IDS Property Casualty commenced construction of a new
corporate headquarters in Green Bay, Wisconsin. The building was completed in
November 2000.
Generally, the Company and its subsidiaries lease the premises they
occupy in other locations. Facilities owned or occupied by the Company and its
subsidiaries are believed to be adequate for the purposes for which they are
used and are well maintained.
In February 2000, the Company entered into a 10-year agreement with
Trammell Crow Corporate Services, Inc. for facilities, project and transaction
management and other related services. The agreement covers North and South
America and parts of Europe.
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ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are involved in a number of legal and
arbitration proceedings concerning matters arising in connection with the
conduct of their respective business activities. The Company believes it has
meritorious defenses to each of these actions and intends to defend them
vigorously. The Company believes that it is not a party to, nor are any of its
properties the subject of, any pending legal or arbitration proceedings which
would have a material adverse effect on the Company's consolidated financial
condition, although it is possible that the outcome of any such proceedings
could have a material impact on the Company's net income in any particular
period. Certain legal proceedings involving the Company are set forth below.
The Company commenced an action, AMERICAN EXPRESS COMPANY V. THE UNITED
STATES, on September 16, 1997 in the United States Court of Federal Claims (the
"Court") seeking a refund from the United States of Federal income taxes paid
(plus related interest) for the year 1987. The Company contends that the
Internal Revenue Service abused its discretion by denying the Company's request
to include annual fees from Cardmembers in taxable income ratably over the
twelve-month period to which the fees relate rather than in full at the time
they are billed. On June 30, 2000, the Court entered a judgment in favor of the
Internal Revenue Service. The Company filed a notice of appeal with the United
States Court of Appeals for the Federal Circuit ("Appeals Court") on July 19,
2000. Oral arguments are scheduled for April 2, 2001.
Since October 1, 1999, fifteen former female financial advisors at
American Express Financial Advisors ("AEFA") have filed charges with the Equal
Employment Opportunity Commission ("EEOC"), including class claims on behalf of
all women advisors at AEFA, alleging that they and other women were
discriminated against in hiring, assignment of work, distribution of leads,
training and promotions. All of the charges have been consolidated with the EEOC
in Minnesota. The claimants are seeking monetary and injunctive relief. AEFA is
responding to all charges. If this matter is not resolved at the EEOC and is
filed in federal court, AEFA intends to vigorously defend the charges, as it
believes it has meritorious defenses.
On March 29, 1999 an action entitled LAMBERT V. AMERICAN EXPRESS
FINANCIAL CORPORATION, AMERICAN EXPRESS FINANCIAL ADVISORS INC., IDS LIFE
INSURANCE AGENCIES, INC., IDS LIFE INSURANCE COMPANY, AMERICAN EXPRESS BENEFIT
PLAN COMMITTEE, CAREER DISTRIBUTORS PLAN COMMITTEE AND JOHN/JANE DOES 1-20 was
commenced in U.S. District Court, District of Minnesota, Fourth Division. The
original named plaintiff purports to represent a class consisting of financial
advisors who were independent contractors from January 1, 1993 to the present.
The complaint alleges class members were misclassified as independent
contractors and seeks retroactive coverage in all employee health, welfare,
retirement and compensation plans, and payment of FICA and FUTA taxes. The
complaint also alleges violation of ERISA, breach of contract, breach of duty of
good faith and fair dealing and unjust enrichment. The complaint was amended on
July 26, 1999, adding three plaintiffs, adding new claims for conversion,
rescission of the financial advisors agreement and declaratory judgment and
adding the Company's Employee Benefits Administration Committee as a defendant.
The hearing on the class certification motion and on the defendants' motion for
partial summary judgment on the
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retirement plans was held on January 17, 2001. The Company believes it has
meritorious defenses to such action and continues to pursue them vigorously.
On December 13, 1996, an action entitled LESA BENACQUISTO AND DANIEL
BENACQUISTO V. IDS LIFE INSURANCE COMPANY ("IDS LIFE") AND AMERICAN EXPRESS
FINANCIAL CORPORATION was commenced in Minnesota state court. The action is
brought by individuals who replaced an existing IDS Life insurance policy with a
new IDS Life policy. The plaintiffs purport to represent a class consisting of
all persons who replaced existing IDS Life policies with new IDS Life policies
from and after January 1, 1985.
The complaint puts at issue various alleged sales practices and
misrepresentations, alleged breaches of fiduciary duties and alleged violations
of consumer fraud statutes. Plaintiffs seek damages in an unspecified amount and
also seek to establish a claims resolution facility for the determination of
individual issues. A second action, entitled ARNOLD MORK, ISABELLA MORK, RONALD
MELCHERT AND SUSAN MELCHERT V. IDS LIFE INSURANCE COMPANY AND AMERICAN EXPRESS
FINANCIAL CORPORATION was commenced in the same court on March 21, 1997. In
addition to claims that are included in the BENACQUISTO lawsuit, the second
action includes an allegation of improper replacement of an existing IDS Life
annuity contract. It seeks similar relief to the initial lawsuit.
On October 13, 1998, an action entitled RICHARD W. AND ELIZABETH J.
THORESEN V. AMERICAN EXPRESS FINANCIAL CORPORATION, AMERICAN CENTURION LIFE
ASSURANCE COMPANY, AMERICAN ENTERPRISE LIFE INSURANCE COMPANY, AMERICAN PARTNERS
LIFE INSURANCE COMPANY, IDS LIFE INSURANCE COMPANY AND IDS LIFE INSURANCE
COMPANY OF NEW YORK was also commenced in Minnesota state court. The action was
brought by individuals who purchased an annuity in a qualified plan. They allege
that the sale of annuities in tax-deferred contributory retirement investment
plans (e.g., IRAs) is never appropriate. The plaintiffs purport to represent a
class consisting of all persons who made similar purchases. The plaintiffs seek
damages in an unspecified amount, including restitution of allegedly lost
investment earnings and restoration of contract values.
In January 2000, AEFC reached an agreement in principle to settle the
three class-action lawsuits described above. It is expected the settlement will
provide $215 million of benefits to more than two million participants and for
release by class members of all insurance and annuity market conduct claims
dating back to 1985.
In August, 2000 an action entitled LESA BENACQUISTO, DANIEL
BENACQUISTO, RICHARD THORESEN, ELIZABETH THORESEN, ARNOLD MORK, ISABELLA MORK,
RONALD MELCHERT AND SUSAN MELCHERT V. AMERICAN EXPRESS FINANCIAL CORPORATION,
AMERICAN EXPRESS FINANCIAL ADVISORS, AMERICAN CENTURION LIFE ASSURANCE COMPANY,
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY, AMERICAN PARTNERS LIFE INSURANCE
COMPANY, IDS LIFE INSURANCE COMPANY AND IDS LIFE INSURANCE COMPANY OF NEW YORK
was commenced in the United States District Court for the District of Minnesota.
The complaint put at issue various alleged sales practices and
misrepresentations and allegations of violations of federal laws.
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On September 18, 2000 the District Court, Fourth Judicial District for
the State of Minnesota, County of Hennepin and the United States District Court
for the District of Minnesota entered an order conditionally certifying a class
for settlement purposes, preliminarily approving the class settlement, directing
the issuance of a class notice to the class and scheduling a hearing to
determine the fairness of settlement for March, 2001. On March 6, 2001 these
courts heard oral arguments on plaintiffs' motions for final approval of the
class action settlement. Six motions to intervene were filed together with
objections to the proposed settlement. The Company is awaiting a final order
from the court.
On August 15, 2000, Roger M. Lindmark ("Lindmark") filed a putative
class action lawsuit against American Express Company, American Express Travel
Related Services Company, Inc. and American Express Centurion Bank ("AECB") in
the United States District Court for the Central District of California. The
complaint principally alleges that class members improperly were charged daily
compounded interest on the Optima line of credit cards and that AECB improperly
applied credits for returned merchandise against Optima balance transfer
balances. Lindmark asserts various claims including violation of the federal
Truth In Lending Act, breach of contract, fraud and unfair and deceptive
practices and violations of the California Consumer Legal Remedies Act. The
action seeks statutory and actual damages, restitution and injunctive relief.
Plaintiff has moved for class certification; defendants intend to oppose. The
case is in the early stages of discovery. The Company believes it has
meritorious defenses to this action and continues to vigorously defend its
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the last quarter of its fiscal year ended December 31, 2000.
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PART II
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ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The principal market for the Company's Common Shares is The New York
Stock Exchange under the trading symbol AXP. Its Common Shares are also listed
in the U.S. on the Chicago and Pacific Stock Exchanges. The Company had 53,884
common shareholders of record at December 31, 2000. For price and dividend
information with respect to such Common Shares, see Note 18 to the Consolidated
Financial Statements on page 67 of the Company's 2000 Annual Report to
Shareholders, which Note is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The "Consolidated Five-Year Summary of Selected Financial Data"
appearing on page 70 of the Company's 2000 Annual Report to Shareholders is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
The information set forth under the heading "Financial Review"
appearing on pages 26 through 41 of the Company's 2000 Annual Report to
Shareholders is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The information set forth under the heading "Risk Management" appearing
on pages 38 through 40 and Note 8 to the Consolidated Financial Statements on
pages 53 through 57 of the Company's 2000 Annual Report to Shareholders is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The "Consolidated Financial Statements", the "Notes to Consolidated
Financial Statements" and the "Report of Ernst & Young LLP Independent Auditors"
appearing on pages 42 through 67 and 69 of the Company's 2000 Annual Report to
Shareholders are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
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PART III
--------
ITEMS 10, 11, 12 AND 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY;
EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT; CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
The Company filed with the SEC, within 120 days after the close of its
last fiscal year, a definitive proxy statement dated March 14, 2001 pursuant to
Regulation 14A, which involves the election of directors. The following portions
of such proxy statement are incorporated herein by reference: pages 8 through 10
- - material included under the heading "Compensation of Directors," pages 11
through 13 - material included under the heading "Ownership of Our Common
Shares," pages 13 through 16 - material included under the heading "Item 1 -
Election of Directors," pages 26 starting with "Summary Compensation Table"
through 42 including material included under the heading "Section 16(a)
Beneficial Ownership Reporting Compliance" (excluding the portions titled
"Performance Graph" on page 33 and "Directors and Officers Liability Insurance"
and "Requirements, Including Deadlines for Submission of Proxy Proposals,
Nomination of Directors and Other Business of Shareholders" on page 42). In
addition, the Company has provided, under the caption "Executive Officers of the
Company" at pages 38 through 40 above, the information regarding executive
officers called for by Item 401(b) of Regulation S-K.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
---------------------
See Index to Financial Statements on page F-1 hereof.
2. Financial Statement Schedules:
------------------------------
See Index to Financial Statements on page F-1 hereof.
3. Exhibits:
---------
See Exhibit Index on pages E-1 through E-6 hereof.
46
<PAGE>
(b) Reports on Form 8-K:
Form 8-K, dated October 10, 2000, Item 5, reporting that the Company
Travelers Cheque (TC) operation, which had been included in the
American Express Bank/Travelers Cheque (AEB/TC) operating segment since
the first quarter of 1998, will be included beginning in the third
quarter of 2000 in the Travel Related Services (TRS) operating segment
to reflect organizational changes, and restated financial information
related thereto.
Form 8-K, dated October 23, 2000, Item 5, reporting the Company's
earnings for the quarter ended September 30, 2000 and including a Third
Quarter Earnings Supplement.
Form 8-K dated November 17, 2000, Item 5, reporting retirement and
succession plans of Harvey Golub, the Company's Chairman and Chief
Executive Officer.
Form 8-K dated January 22, 2001, Item 5, reporting the Company's
earnings for the quarter and year ended December 31, 2000, and
including a Fourth Quarter/Full Year Earnings Supplement and an
amendment to the agreement between the Company and Berkshire Hathaway
Inc.
Form 8-K, dated February 7, 2001, Item 5, reporting adjustment of
certain preliminary statistical data in the Earnings Release dated
January 22, 2001, and information from presentations by Ken Chenault,
Chief Executive Officer and Al Kelly, Group President, U.S. Consumer
and Small Business Services, to the financial community on February 7,
2001.
47
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMERICAN EXPRESS COMPANY
March 26, 2001 By /s/Gary L. Crittenden
-------------------------
Gary L. Crittenden
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the date indicated.
/s/Harvey Golub /s/Beverly Sills Greenough
- --------------- --------------------------
Harvey Golub Beverly Sills Greenough
Chairman and Director Director
/s/Kenneth I. Chenault /s/F. Ross Johnson
- ---------------------- ------------------
Kenneth I. Chenault F. Ross Johnson
Chief Executive Officer Director
and Director
/s/Gary L. Crittenden /s/Vernon E. Jordan, Jr.
- --------------------- ------------------------
Gary L. Crittenden Vernon E. Jordan, Jr.
Executive Vice President and Director
Chief Financial Officer
/s/Daniel T. Henry /s/Jan Leschly
- ------------------ --------------
Daniel T. Henry Jan Leschly
Senior Vice President Director
and Comptroller
/s/Daniel F. Akerson /s/Richard A. McGinn
- -------------------- --------------------
Daniel F. Akerson Richard A. McGinn
Director Director
/s/Edwin L. Artzt /s/Frank P. Popoff
- ----------------- ------------------
Edwin L. Artzt Frank P. Popoff
Director Director
/s/William G. Bowen
- -------------------
William G. Bowen
Director
March 26, 2001
48
<PAGE>
<TABLE>
AMERICAN EXPRESS COMPANY
INDEX TO FINANCIAL STATEMENTS
-----------------------------
COVERED BY REPORT OF INDEPENDENT AUDITORS
-----------------------------------------
(Item 14(a))
<CAPTION>
Annual Report to
Shareholders
Form 10-K (Page)
-------------------- --------------------
<S> <C> <C>
American Express Company and Subsidiaries:
Data incorporated by reference from attached
2000 Annual Report to Shareholders:
Report of independent auditors . . . . . . . . . . . . . . . . . . . . 69
Consolidated statements of income for the three
years ended December 31, 2000 . . . . . . . . . . . . . . . . . 42
Consolidated balance sheets at December 31, 2000
and 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Consolidated statements of cash flows for the
three years ended December 31, 2000 . . . . . . . . . . . . . . . 44
Consolidated statements of shareholders' equity for the
three years ended December 31, 2000 . . . . . . . . . . . . . . . 45
Notes to consolidated financial statements . . . . . . . . . . . . . . 46-67
Consent of independent auditors . . . . . . . . . . . . . . . . . . . . F-2
Schedules:
I - Condensed financial information of the Company . . . . . . . . . . . F-3 - F-6
II - Valuation and qualifying accounts for the three years
Ended December 31, 2000 . . . . . . . . . . . . . . . . . . . . . . . F-7
</TABLE>
All other schedules for American Express Company and subsidiaries have
been omitted since the required information is not present or not present in
amounts sufficient to require submission of the schedule, or because the
information required is included in the respective financial statements or notes
thereto.
The consolidated financial statements of American Express Company
(including the report of independent auditors) listed in the above index, which
are included in the Annual Report to Shareholders for the year ended December
31, 2000, are hereby incorporated by reference. With the exception of the pages
listed in the above index, unless otherwise incorporated by reference elsewhere
in this Annual Report on Form 10-K, the 2000 Annual Report to Shareholders is
not to be deemed filed as part of this report.
F-1
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report on
Form 10-K of American Express Company of our report dated February 8, 2001
(hereinafter referred to as our Report), included in the 2000 Annual Report to
Shareholders of American Express Company.
Our audits included the financial statement schedules of American
Express Company listed in Item 14(a). These schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statements (Form S-8 No. 2-46918, No. 2-59230, No. 2-64285, No. 2-73954, No.
2-89680, No. 33-01771, No. 33-02980, No. 33-28721, No. 33-33552, No. 33-36422,
No. 33-48629, No. 33-62124, No. 33-65008, No. 33-53801, No. 333-12683, No.
333-41779, No. 333-52699 and No. 333-73111; Form S-3 No. 2-89469, No. 33-43268,
No. 33-50997, No. 333-32525, No. 333-45445, No. 333-47085, No. 333-55761 and
333-51828) and in the related Prospecti of our Report with respect to the
consolidated financial statements and schedules of American Express Company
included and incorporated by reference in this Annual Report on Form 10-K for
the year ended December 31, 2000.
/s/ Ernst & Young LLP
New York, New York
March 28, 2001
F-2
<PAGE>
<TABLE>
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF THE COMPANY
CONDENSED STATEMENTS OF INCOME
(Parent Company Only)
(millions)
<CAPTION>
Years Ended December 31,
------------------------
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
Revenues $ 290 $ 235 $ 260
------ ------ ------
Expenses:
Interest 341 316 293
Human resources 97 85 80
Other (a) 276 129 -
------ ------ ------
Total 714 530 373
------ ------ ------
Pretax loss (424) (295) (113)
Income tax benefit (188) (158) (107)
------ ------ ------
Net loss before equity in net income
of subsidiaries and affiliates (236) (137) (6)
Equity in net income of subsidiaries
and affiliates 3,046 2,612 2,147
------ ------ ------
Net income $2,810 $2,475 $2,141
======= ======= =======
</TABLE>
(a) 1998 includes pretax income of $106 million ($78 million after-tax)
comprising a $60 million ($39 million after-tax) gain from sales of common
stock of First Data Corporation and $46 million ($39 million after-tax)
preferred stock dividend based on earnings from Lehman Brothers.
See Notes to Condensed Financial Information of the Company on page F-6.
F-3
<PAGE>
<TABLE>
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF THE COMPANY
CONDENSED BALANCE SHEETS
(Parent Company Only)
(millions, except share amounts)
<CAPTION>
ASSETS
------
December 31,
--------------------------------
2000 1999
------- -------
<S> <C> <C>
Cash and cash equivalents $ 2 $ 18
Equity in net assets of subsidiaries and affiliates 11,604 9,987
Accounts receivable and accrued interest, less reserves 11 18
Land, buildings and equipment--at cost, less
accumulated depreciation: 2000, $72; 1999, $70 87 80
Due from subsidiaries (net) 2,392 1,968
Other assets 298 588
------- -------
Total assets $14,394 $12,659
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Accounts payable and other liabilities $ 771 $ 966
Long-term debt 1,424 1,083
Intercompany debentures 515 515
------- -------
Total liabilities 2,710 2,564
Shareholders' equity:
Common shares, $.20 par value, authorized
3.6 billion shares; issued and outstanding 1,326
million shares in 2000 and 1,341 million shares in 1999 265 268
Capital surplus 5,439 5,196
Retained earnings 6,198 5,033
Other comprehensive income, net of tax:
Net unrealized securities gains (145) (296)
Foreign currency translation adjustments (73) (106)
------- -------
Accumulated other comprehensive income (218) (402)
------- -------
Total shareholders' equity 11,684 10,095
------- -------
Total liabilities and shareholders' equity $14,394 $12,659
======= =======
</TABLE>
See Notes to Condensed Financial Information of the Company on page F-6.
F-4
<PAGE>
<TABLE>
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF THE COMPANY
STATEMENTS OF CASH FLOWS
(Parent Company Only)
(millions)
<CAPTION>
Years Ended December 31,
------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,810 $ 2,475 $ 2,141
Adjustments to reconcile net income to cash
provided by operating activities:
Equity in net income of subsidiaries and
affiliates (3,046) (2,612) (2,147)
Dividends received from subsidiaries and
affiliates 2,139 1,955 1,666
------- ------- -------
Net cash provided by operating activities 1,903 1,818 1,660
------- ------- -------
Net cash (used) provided by investing activities - (36) 91
------- ------- -------
Cash flows from financing activities:
Issuance of American Express common shares 226 233 137
Repurchase of American Express common
shares (1,377) (1,120) (1,890)
Dividends paid (421) (404) (414)
Net increase (decrease) in debt 333 (6) 6
Issuance of intercompany debentures - - 515
Other (680) (473) (112)
------- ------- -------
Net cash used in financing activities (1,919) (1,770) (1,758)
------- ------- -------
Net (decrease) increase in cash and cash equivalents (16) 12 (7)
------- ------- -------
Cash and cash equivalents at beginning of year 18 6 13
------- ------- -------
Cash and cash equivalents at end of year $ 2 $ 18 $ 6
======= ======= =======
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest (net of amounts capitalized) in 2000, 1999 and 1998 was
$88 million, $83 million and $81 million, respectively. Net cash received for
income taxes in 2000, 1999 and 1998 was $376 million, $431 million and $145
million, respectively.
F-5
<PAGE>
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF THE COMPANY
NOTES TO CONDENSED FINANCIAL INFORMATION OF THE COMPANY
(Parent Company Only)
1. Principles of Consolidation
The accompanying financial statements include the accounts of American
Express Company and on an equity basis its subsidiaries and affiliates.
These financial statements should be read in conjunction with the
consolidated financial statements of the Company.
<TABLE>
<CAPTION>
2. Long-term debt consists of (millions):
December 31,
-----------------------------
2000 1999
------ ------
<S> <C> <C>
6 3/4% Senior Debentures due June 23, 2004 $ 500 $ 499
6 7/8% Notes due November 1, 2005 496 -
8 1/2% Notes due August 15, 2001 300 300
8 5/8% Senior Debentures due 2022 123 123
Floating Medium-Term Note due December 31, 2000 - 88
WFC Series Z Zero Coupon Notes due December 12, 2000 - 58
Other Fixed and Floating rate notes maturing 2000-2001 5 15
------- -------
$1,424 $1,083
======= =======
</TABLE>
Aggregate annual maturities of long-term debt for the five years ending
December 31, 2005 are as follows (millions): 2001, $305; 2002, $0; 2003,
$0; 2004, $500; 2005, $500.
3. Intercompany debentures consist solely of Junior Subordinated
Debentures issued to American Express Company Capital Trust I, a
wholly-owned subsidiary of the Company. See Note 6 to the Consolidated
Financial Statements on page 52 of the Company's 2000 Annual Report to
Shareholders (which Note is incorporated herein by reference).
F-6
<PAGE>
<TABLE>
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 2000
(millions)
<CAPTION>
Reserve for credit losses, Reserve for doubtful
loans and discounts accounts receivable
------------------------------- --------------------------------------
2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning
of period $ 753 $ 812 $ 707 $ 806 $ 599 $ 712
Additions:
Charges to income 924 832 1,165 1,365(a) 1,209(a) 948(a)
Recoveries of amounts
previously written-off 150 171 74 - - -
Deductions:
Charges for which
reserves were provided (1,031) (1,062) (1,134) (1,239) (1,002) (1,061)
-------- -------- -------- -------- ------ -------
Balance at end of period $ 796 $ 753 $ 812 $ 932 $ 806 $ 599
======== ======== ======== ========== ======== =======
</TABLE>
(a) Before recoveries on accounts previously written-off, which are credited
to income (millions): 2000--$214, 1999--$225 and 1998--$231.
F-7
<PAGE>
EXHIBIT INDEX
-------------
The following exhibits are filed as part of this Annual Report or, where
indicated, were already filed and are hereby incorporated by reference
(*indicates exhibits electronically filed herewith). Exhibits numbered 10.1
through 10.21, 10.29 through 10.38, 10.41 and 10.43 are management contracts or
compensatory plans or arrangements.
3.1 Company's Restated Certificate of Incorporation (incorporated
by reference to Exhibit 4.1 of the Company's Registration Statement
on Form S-3, dated July 31, 1997 (Commission File No. 333-32525)).
3.2 Company's Certificate of Amendment of the Certificate of
Incorporation (incorporated by reference to Exhibit 3.1 of the
Company's Quarterly report on Form 10-Q (Commission File No. 1-7657)
for the quarter ended March 31, 2000).
3.3 Company's By-Laws, as amended through February 23, 1998
(incorporated by reference to Exhibit 3.2 of the Company's Annual
Report on Form 10-K (Commission File No. 1-7657) for the fiscal
year ended December 31, 1997).
4. The instruments defining the rights of holders of long-term
debt securities of the Company and its subsidiaries are omitted
pursuant to Section (b)(4)(iii)(A) of Item 601 of Regulation S-K.
The Company hereby agrees to furnish copies of these instruments to
the SEC upon request.
10.1 American Express Company 1989 Long-Term Incentive Plan, as
amended and restated (incorporated by reference to Exhibit 10.1 of
the Company's Quarterly Report on Form 10-Q (Commission File No.
1-7657) for the quarter ended March 31, 1996).
10.2 Amendment of American Express Company 1989 Long-Term Incentive
Compensation Plan Master Agreement dated February 27, 1995
(incorporated by reference to Exhibit 10.2 of the Company's Quarterly
Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended
March 31, 2000).
10.3 American Express Company 1998 Incentive Compensation Plan
(incorporated by reference to Exhibit 4.4 of the Company's
Registration Statement on Form S-8, dated May 15, 1998 (Commission
File No. 333-52699)).
10.4 Amendment of American Express Company 1998 Incentive
Compensation Plan Master Agreement dated April 27, 1998 (incorporated
by reference to Exhibit 10.1 of the Company's Quarterly Report on
Form 10-Q (Commission File No. 1-7657) for the quarter ended March
31, 2000).
E-1
<PAGE>
10.5 American Express Company Deferred Compensation Plan for
Directors, as amended effective July 28, 1997 (incorporated by
reference to Exhibit 10.1 of the Company's Quarterly Report on Form
10-Q (Commission File No. 1-7657) for the quarter ended June 30,
1997).
10.6 Description of American Express Company Pay for Performance Deferral
Program (incorporated by reference to Exhibit 10.8 of the Company's
Quarterly Report on Form 10-Q (Commission File No. l-7657) for the
quarter ended March 31, 2000).
10.7 Amendment to American Express Company Pay for Performance Deferral
Program (incorporated by reference to Exhibit 10.9 of the Company's
Quarterly Report on Form 10-Q (Commission File No. l-7657) for the
quarter ended March 31, 2000).
10.8 American Express Company 1983 Stock Purchase Assistance Plan, as
amended (incorporated by reference to Exhibit 10.6 of the Company's
Annual Report on Form 10-K (Commission File No. 1-7657) for the fiscal
year ended December 31, 1988).
10.9 American Express Company Retirement Plan for Non-Employee Directors,
as amended (incorporated by reference to Exhibit 10.12 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657) for
the fiscal year ended December 31, 1988).
10.10 Certificate of Amendment of the American Express Company
Retirement Plan for Non-Employee Directors dated March 21, 1996
(incorporated by reference to Exhibit 10.11 of the Company's Annual
Report on Form 10-K (Commission File No. 1-7657) for the fiscal
year ended December 31, 1995).
10.11 American Express Key Executive Life Insurance Plan, as amended
(incorporated by reference to Exhibit 10.12 of the Company's Annual
Report on Form 10-K (Commission File No. 1-7657) for the fiscal
year ended December 31, 1991).
10.12 Amendment of American Express Company Key Executive Life Insurance
Plan (incorporated by reference to Exhibit 10.3 of the Company's
Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the
quarter ended September 30, 1994).
10.13 Amendment of American Express Company Key Executive Life Insurance
Plan (incorporated by reference to Exhibit 10.4 of the Company's
Quarterly report on Form 10-Q (Commission File No. 1-7657) for the
quarter ended March 31, 2000).
10.14 American Express Key Employee Charitable Award Program for Education
(incorporated by reference to Exhibit 10.13 of the Company's Annual
Report on Form 10-K (Commission File No. 1-7657) for the fiscal
year ended December 31, 1990).
E-2
<PAGE>
10.15 American Express Directors' Charitable Award Program (incorporated by
reference to Exhibit 10.14 of the Company's Annual Report on Form 10-K
(Commission File No. 1-7657) for the fiscal year ended December 31,
1990).
10.16 Description of separate pension arrangement and loan agreement
between the Company and Harvey Golub (incorporated by reference to
Exhibit 10.17 of the Company's Annual Report on Form 10-K (Commission
File No. 1-7657) for the fiscal year ended December 31, 1988).
10.17 Shearson Lehman Brothers Capital Partners I Amended and Restated
Agreement of Limited Partnership (incorporated by reference to Exhibit
10.18 of the Company's Annual Report on Form 10-K (Commission File No.
1-7657) for the fiscal year ended December 31, 1988).
10.18 Shearson Lehman Hutton Capital Partners II, L.P. Amended and Restated
Agreement of Limited Partnership (incorporated by reference to Exhibit
10.19 of the Company's Annual Report on Form 10-K (Commission File No.
1-7657) for the fiscal year ended December 31, 1988).
10.19 American Express Company Salary/Bonus Deferral Plan (incorporated by
reference to Exhibit 10.20 of the Company's Annual Report on Form 10-K
(Commission File No. 1-7657) for the fiscal year ended December 31,
1988).
10.20 Amendment of American Express Company Salary/Bonus Deferral Plan
(incorporated by reference to Exhibit 10.4 of the Company's Quarterly
Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended
September 30, 1994).
10.21 Amendment of American Express Salary/Bonus Deferral Plan
(incorporated by reference to Exhibit 10.5 of the Company's
Quarterly report on Form 10-Q (Commission File No. 1-7657) for the
quarter ended March 31, 2000).
10.22 Restated and Amended Agreement of Tenants-In-Common, dated May 27,
1994, by and among the Company, American Express Bank Ltd., American
Express Travel Related Services Company, Inc., Lehman Brothers Inc.,
Lehman Government Securities, Inc. and Lehman Commercial Paper
Incorporated (incorporated by reference to Exhibit 10.1 of Lehman
Brothers Holdings Inc.'s Transition Report on Form 10-K (Commission
File No. 1-9466) for the transition period from January 1, 1994 to
November 30, 1994).
10.23 Tax Allocation Agreement, dated May 27, 1994, between Lehman Brothers
Holdings Inc. and the Company (incorporated by reference to Exhibit
10.2 of Lehman Brothers Holdings Inc.'s Transition Report on Form 10-K
(Commission File No. 1-9466) for the transition period from January 1,
1994 to November 30, 1994).
E-3
<PAGE>
10.24 Intercompany Agreement, dated May 27, 1994, between the Company and
Lehman Brothers Holdings Inc. (incorporated by reference to Exhibit
10.3 of Lehman Brothers Holdings Inc.'s Transition Report on Form 10-K
(Commission File No. 1-9466) for the transition period from January 1,
1994 to November 30, 1994).
10.25 Purchase and Exchange Agreement, dated April 28, 1994, between Lehman
Brothers Holdings Inc. and the Company (incorporated by reference to
Exhibit 10.29 of Lehman Brothers Holdings Inc.'s Transition Report on
Form 10-K (Commission File No. 1-9466) for the transition period from
January 1, 1994 to November 30, 1994).
10.26 Registration Rights Agreement, dated as of May 27, 1994, between
the Company and Lehman Brothers Holdings Inc. (incorporated by
reference to Exhibit 10.30 of Lehman Brothers Holdings Inc.'s
Transition Report on Form 10-K (Commission File No. 1-9466) for the
transition period from January 1, 1994 to November 30, 1994).
10.27 Option Agreement, dated May 27, 1994, by and among the Company,
American Express Bank Ltd., American Express Travel Related Services
Company, Inc., Lehman Brothers Holdings Inc., Lehman Brothers Inc.,
Lehman Government Securities, Inc. and Lehman Commercial Paper
Incorporated (incorporated by reference to Exhibit 10.31 of Lehman
Brothers Holdings Inc.'s Transition Report on Form 10-K (Commission
File No. 1-9466) for the transition period from January 1, 1994 to
November 30, 1994).
10.28 Letter Agreement, dated January 30, 1998, between the Company
and Nippon Life Insurance Company (incorporated by reference to
Exhibit 10.24 of the Company's Annual Report on Form 10-K (Commission
File No. 1-7657) for the fiscal year ended December 31, 1997).
10.29 American Express Company 1993 Directors' Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.11 of the Company's Quarterly
Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended
March 31, 2000).
10.30 American Express Senior Executive Severance Plan Effective
January 1, 1994 (as amended and restated through May 1, 2000)
(incorporated by reference to Exhibit 10.10 of the Company's Quarterly
Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended
March 31, 2000).
10.31 Amendment of Long-Term Incentive Awards under the American Express
Company 1979 and 1989 Long-Term Incentive Plans (incorporated by
reference to Exhibit 10.6 of the Company's Quarterly Report on Form
10-Q (Commission File No. 1-7657) for the quarter ended September 30,
1994).
E-4
<PAGE>
10.32 Amendments of (i) Long-Term Incentive Awards under the American
Express Company 1979 and 1989 Long-Term Incentive Plans, (ii) the
American Express Senior Executive Severance Plan, (iii) the American
Express Supplemental Retirement Plan, (iv) the American Express
Salary/Bonus Deferral Plan, (v) the American Express Key Executive
Life Insurance Plan and (vi) the IDS Current Service Deferred
Compensation Plan (incorporated by reference to Exhibit 10.37 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657) for
the fiscal year ended December 31, 1997).
10.33 IDS Current Service Deferred Compensation Plan (incorporated by
reference to Exhibit 10.42 of the Company's Annual Report on Form 10-K
(Commission File No. 1-7657) for the fiscal year ended December 31,
1994).
10.34 Action To Amend IDS Current Service Deferred Compensation Plan
(incorporated by reference to Exhibit 10.7 of the Company's Quarterly
Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended
March 31, 2000).
10.35 American Express Company Supplemental Retirement Plan Amended and
Restated Effective March 1, 1995 (incorporated by reference to Exhibit
10.1 of the Company's Quarterly Report on Form 10-Q (Commission File
No. 1-7657) for the quarter ended September 30, 1999).
10.36 Amendment to American Express Company Supplemental Retirement Plan
Amended and Restated Effective March 1, 1995 (incorporated by
reference to Exhibit 10.3 of the Company's Quarterly Report on Form
10-Q (Commission File No. 1-7657) for the quarter ended March 31,
2000).
10.37 American Express Directors' Stock Plan (incorporated by reference to
Exhibit 4.4 of the Company's Registration Statement on Form S-8, dated
December 9, 1997 (Commission File No. 333-41779)).
10.38 American Express Annual Incentive Award Plan (incorporated by
reference to Exhibit 10.6 of the Company's Quarterly Report on Form
10-Q (Commission File No. 1-7657) for the quarter ended March 31,
2000).
10.39 Agreement dated February 27, 1995 between the Company and Berkshire
Hathaway Inc. (incorporated by reference to Exhibit 10.43 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657) for
the fiscal year ended December 31, 1994).
10.40 Agreement dated July 20, 1995 between the Company and Berkshire
Hathaway Inc. and its subsidiaries (incorporated by reference to
Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q
(Commission File No. 1-7657) for the quarter ended September 30,
1995).
10.41 Letter agreement dated April 12, 1999 with Harvey Golub, the Company's
Chairman and Chief Executive Officer (incorporated by reference to
Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q
(Commission File No. 1-7657) for the quarter ended June 30, 1999).
E-5
<PAGE>
10.42 Amendment dated September 8, 2000 to the agreement dated February 27,
1995 between the Company and Berkshire Hathaway Inc. (incorporated by
reference to Exhibit 99.3 of the Company's Current Report on Form 8-K
(Commission File No. 1-7657) dated January 22, 2001).
10.43 Description of a special grant of a stock option and restricted stock
award to Kenneth I. Chenault, the Company's President and Chief
Operating Officer (incorporated by reference to Exhibit 10.2 of the
Company's Quarterly Report on Form 10-Q (Commission File No. 1-7657)
for the quarter ended June 30, 1999).
*12.1 Computation in Support of Ratio of Earnings to Fixed Charges.
*12.2 Computation in Support of Ratio of Earnings to Fixed Charges and
Preferred Share Dividends.
*13 Portions of the Company's 2000 Annual Report to Shareholders that are
incorporated herein by reference.
*21 Subsidiaries of the Company.
*23 Consent of Ernst & Young LLP (contained on page F-2 of this Annual
Report on Form 10-K).
E-6
<PAGE>
================================================================================
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000 Commission File No. 1-7657
------------------------
American Express Company
(Exact name of Company as specified in charter)
E X H I B I T S
================================================================================
================================================================================
<PAGE>
EXHIBIT INDEX
-------------
The following exhibits are filed as part of this Annual Report or, where
indicated, were already filed and are hereby incorporated by reference
(*indicates exhibits electronically filed herewith). Exhibits numbered 10.1
through 10.21, 10.29 through 10.38, 10.41 and 10.43 are management contracts or
compensatory plans or arrangements.
3.1 Company's Restated Certificate of Incorporation (incorporated
by reference to Exhibit 4.1 of the Company's Registration Statement
on Form S-3, dated July 31, 1997 (Commission File No. 333-32525)).
3.2 Company's Certificate of Amendment of the Certificate of
Incorporation (incorporated by reference to Exhibit 3.1 of the
Company's Quarterly report on Form 10-Q (Commission File No. 1-7657)
for the quarter ended March 31, 2000).
3.3 Company's By-Laws, as amended through February 23, 1998
(incorporated by reference to Exhibit 3.2 of the Company's Annual
Report on Form 10-K (Commission File No. 1-7657) for the fiscal
year ended December 31, 1997).
4. The instruments defining the rights of holders of long-term
debt securities of the Company and its subsidiaries are omitted
pursuant to Section (b)(4)(iii)(A) of Item 601 of Regulation S-K.
The Company hereby agrees to furnish copies of these instruments to
the SEC upon request.
10.1 American Express Company 1989 Long-Term Incentive Plan, as
amended and restated (incorporated by reference to Exhibit 10.1 of
the Company's Quarterly Report on Form 10-Q (Commission File No.
1-7657) for the quarter ended March 31, 1996).
10.2 Amendment of American Express Company 1989 Long-Term Incentive
Compensation Plan Master Agreement dated February 27, 1995
(incorporated by reference to Exhibit 10.2 of the Company's Quarterly
Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended
March 31, 2000).
10.3 American Express Company 1998 Incentive Compensation Plan
(incorporated by reference to Exhibit 4.4 of the Company's
Registration Statement on Form S-8, dated May 15, 1998 (Commission
File No. 333-52699)).
10.4 Amendment of American Express Company 1998 Incentive
Compensation Plan Master Agreement dated April 27, 1998 (incorporated
by reference to Exhibit 10.1 of the Company's Quarterly Report on
Form 10-Q (Commission File No. 1-7657) for the quarter ended March
31, 2000).
E-1
<PAGE>
10.5 American Express Company Deferred Compensation Plan for
Directors, as amended effective July 28, 1997 (incorporated by
reference to Exhibit 10.1 of the Company's Quarterly Report on Form
10-Q (Commission File No. 1-7657) for the quarter ended June 30,
1997).
10.6 Description of American Express Company Pay for Performance Deferral
Program (incorporated by reference to Exhibit 10.8 of the Company's
Quarterly Report on Form 10-Q (Commission File No. l-7657) for the
quarter ended March 31, 2000).
10.7 Amendment to American Express Company Pay for Performance Deferral
Program (incorporated by reference to Exhibit 10.9 of the Company's
Quarterly Report on Form 10-Q (Commission File No. l-7657) for the
quarter ended March 31, 2000).
10.8 American Express Company 1983 Stock Purchase Assistance Plan, as
amended (incorporated by reference to Exhibit 10.6 of the Company's
Annual Report on Form 10-K (Commission File No. 1-7657) for the fiscal
year ended December 31, 1988).
10.9 American Express Company Retirement Plan for Non-Employee Directors,
as amended (incorporated by reference to Exhibit 10.12 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657) for
the fiscal year ended December 31, 1988).
10.10 Certificate of Amendment of the American Express Company
Retirement Plan for Non-Employee Directors dated March 21, 1996
(incorporated by reference to Exhibit 10.11 of the Company's Annual
Report on Form 10-K (Commission File No. 1-7657) for the fiscal
year ended December 31, 1995).
10.11 American Express Key Executive Life Insurance Plan, as amended
(incorporated by reference to Exhibit 10.12 of the Company's Annual
Report on Form 10-K (Commission File No. 1-7657) for the fiscal
year ended December 31, 1991).
10.12 Amendment of American Express Company Key Executive Life Insurance
Plan (incorporated by reference to Exhibit 10.3 of the Company's
Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the
quarter ended September 30, 1994).
10.13 Amendment of American Express Company Key Executive Life Insurance
Plan (incorporated by reference to Exhibit 10.4 of the Company's
Quarterly report on Form 10-Q (Commission File No. 1-7657) for the
quarter ended March 31, 2000).
10.14 American Express Key Employee Charitable Award Program for Education
(incorporated by reference to Exhibit 10.13 of the Company's Annual
Report on Form 10-K (Commission File No. 1-7657) for the fiscal
year ended December 31, 1990).
E-2
<PAGE>
10.15 American Express Directors' Charitable Award Program (incorporated by
reference to Exhibit 10.14 of the Company's Annual Report on Form 10-K
(Commission File No. 1-7657) for the fiscal year ended December 31,
1990).
10.16 Description of separate pension arrangement and loan agreement
between the Company and Harvey Golub (incorporated by reference to
Exhibit 10.17 of the Company's Annual Report on Form 10-K (Commission
File No. 1-7657) for the fiscal year ended December 31, 1988).
10.17 Shearson Lehman Brothers Capital Partners I Amended and Restated
Agreement of Limited Partnership (incorporated by reference to Exhibit
10.18 of the Company's Annual Report on Form 10-K (Commission File No.
1-7657) for the fiscal year ended December 31, 1988).
10.18 Shearson Lehman Hutton Capital Partners II, L.P. Amended and Restated
Agreement of Limited Partnership (incorporated by reference to Exhibit
10.19 of the Company's Annual Report on Form 10-K (Commission File No.
1-7657) for the fiscal year ended December 31, 1988).
10.19 American Express Company Salary/Bonus Deferral Plan (incorporated by
reference to Exhibit 10.20 of the Company's Annual Report on Form 10-K
(Commission File No. 1-7657) for the fiscal year ended December 31,
1988).
10.20 Amendment of American Express Company Salary/Bonus Deferral Plan
(incorporated by reference to Exhibit 10.4 of the Company's Quarterly
Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended
September 30, 1994).
10.21 Amendment of American Express Salary/Bonus Deferral Plan
(incorporated by reference to Exhibit 10.5 of the Company's
Quarterly report on Form 10-Q (Commission File No. 1-7657) for the
quarter ended March 31, 2000).
10.22 Restated and Amended Agreement of Tenants-In-Common, dated May 27,
1994, by and among the Company, American Express Bank Ltd., American
Express Travel Related Services Company, Inc., Lehman Brothers Inc.,
Lehman Government Securities, Inc. and Lehman Commercial Paper
Incorporated (incorporated by reference to Exhibit 10.1 of Lehman
Brothers Holdings Inc.'s Transition Report on Form 10-K (Commission
File No. 1-9466) for the transition period from January 1, 1994 to
November 30, 1994).
10.23 Tax Allocation Agreement, dated May 27, 1994, between Lehman Brothers
Holdings Inc. and the Company (incorporated by reference to Exhibit
10.2 of Lehman Brothers Holdings Inc.'s Transition Report on Form 10-K
(Commission File No. 1-9466) for the transition period from January 1,
1994 to November 30, 1994).
E-3
<PAGE>
10.24 Intercompany Agreement, dated May 27, 1994, between the Company and
Lehman Brothers Holdings Inc. (incorporated by reference to Exhibit
10.3 of Lehman Brothers Holdings Inc.'s Transition Report on Form 10-K
(Commission File No. 1-9466) for the transition period from January 1,
1994 to November 30, 1994).
10.25 Purchase and Exchange Agreement, dated April 28, 1994, between Lehman
Brothers Holdings Inc. and the Company (incorporated by reference to
Exhibit 10.29 of Lehman Brothers Holdings Inc.'s Transition Report on
Form 10-K (Commission File No. 1-9466) for the transition period from
January 1, 1994 to November 30, 1994).
10.26 Registration Rights Agreement, dated as of May 27, 1994, between
the Company and Lehman Brothers Holdings Inc. (incorporated by
reference to Exhibit 10.30 of Lehman Brothers Holdings Inc.'s
Transition Report on Form 10-K (Commission File No. 1-9466) for the
transition period from January 1, 1994 to November 30, 1994).
10.27 Option Agreement, dated May 27, 1994, by and among the Company,
American Express Bank Ltd., American Express Travel Related Services
Company, Inc., Lehman Brothers Holdings Inc., Lehman Brothers Inc.,
Lehman Government Securities, Inc. and Lehman Commercial Paper
Incorporated (incorporated by reference to Exhibit 10.31 of Lehman
Brothers Holdings Inc.'s Transition Report on Form 10-K (Commission
File No. 1-9466) for the transition period from January 1, 1994 to
November 30, 1994).
10.28 Letter Agreement, dated January 30, 1998, between the Company
and Nippon Life Insurance Company (incorporated by reference to
Exhibit 10.24 of the Company's Annual Report on Form 10-K (Commission
File No. 1-7657) for the fiscal year ended December 31, 1997).
10.29 American Express Company 1993 Directors' Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.11 of the Company's Quarterly
Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended
March 31, 2000).
10.30 American Express Senior Executive Severance Plan Effective
January 1, 1994 (as amended and restated through May 1, 2000)
(incorporated by reference to Exhibit 10.10 of the Company's Quarterly
Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended
March 31, 2000).
10.31 Amendment of Long-Term Incentive Awards under the American Express
Company 1979 and 1989 Long-Term Incentive Plans (incorporated by
reference to Exhibit 10.6 of the Company's Quarterly Report on Form
10-Q (Commission File No. 1-7657) for the quarter ended September 30,
1994).
E-4
<PAGE>
10.32 Amendments of (i) Long-Term Incentive Awards under the American
Express Company 1979 and 1989 Long-Term Incentive Plans, (ii) the
American Express Senior Executive Severance Plan, (iii) the American
Express Supplemental Retirement Plan, (iv) the American Express
Salary/Bonus Deferral Plan, (v) the American Express Key Executive
Life Insurance Plan and (vi) the IDS Current Service Deferred
Compensation Plan (incorporated by reference to Exhibit 10.37 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657) for
the fiscal year ended December 31, 1997).
10.33 IDS Current Service Deferred Compensation Plan (incorporated by
reference to Exhibit 10.42 of the Company's Annual Report on Form 10-K
(Commission File No. 1-7657) for the fiscal year -ended December 31,
1994).
10.34 Action To Amend IDS Current Service Deferred Compensation Plan
(incorporated by reference to Exhibit 10.7 of the Company's Quarterly
Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended
March 31, 2000).
10.35 American Express Company Supplemental Retirement Plan Amended and
Restated Effective March 1, 1995 (incorporated by reference to Exhibit
10.1 of the Company's Quarterly Report on Form 10-Q (Commission File
No. 1-7657) for the quarter ended September 30, 1999).
10.36 Amendment to American Express Company Supplemental Retirement Plan
Amended and Restated Effective March 1, 1995 (incorporated by
reference to Exhibit 10.3 of the Company's Quarterly Report on Form
10-Q (Commission File No. 1-7657) for the quarter ended March 31,
2000).
10.37 American Express Directors' Stock Plan (incorporated by reference to
Exhibit 4.4 of the Company's Registration Statement on Form S-8, dated
December 9, 1997 (Commission File No. 333-41779)).
10.38 American Express Annual Incentive Award Plan (incorporated by
reference to Exhibit 10.6 of the Company's Quarterly Report on Form
10-Q (Commission File No. 1-7657) for the quarter ended March 31,
2000).
10.39 Agreement dated February 27, 1995 between the Company and Berkshire
Hathaway Inc. (incorporated by reference to Exhibit 10.43 of the
Company's Annual Report on Form 10-K (Commission File No. 1-7657) for
the fiscal year ended December 31, 1994).
10.40 Agreement dated July 20, 1995 between the Company and Berkshire
Hathaway Inc. and its subsidiaries (incorporated by reference to
Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q
(Commission File No. 1-7657) for the quarter ended September 30,
1995).
10.41 Letter agreement dated April 12, 1999 with Harvey Golub, the Company's
Chairman and Chief Executive Officer (incorporated by reference to
Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q
(Commission File No. 1-7657) for the quarter ended June 30, 1999).
E-5
<PAGE>
10.42 Amendment dated September 8, 2000 to the agreement dated February 27,
1995 between the Company and Berkshire Hathaway Inc. (incorporated by
reference to Exhibit 99.3 of the Company's Current Report on Form 8-K
(Commission File No. 1-7657) dated January 22, 2001).
10.43 Description of a special grant of a stock option and restricted stock
award to Kenneth I. Chenault, the Company's President and Chief
Operating Officer (incorporated by reference to Exhibit 10.2 of the
Company's Quarterly Report on Form 10-Q (Commission File No. 1-7657)
for the quarter ended June 30, 1999).
*12.1 Computation in Support of Ratio of Earnings to Fixed Charges.
*12.2 Computation in Support of Ratio of Earnings to Fixed Charges and
Preferred Share Dividends.
*13 Portions of the Company's 2000 Annual Report to Shareholders that are
incorporated herein by reference.
*21 Subsidiaries of the Company.
*23 Consent of Ernst & Young LLP (contained on page F-2 of this Annual
Report on Form 10-K).
E-6
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12
<SEQUENCE>2
<FILENAME>axp_ex12.txt
<TEXT>
<TABLE>
EXHIBIT 12.1
AMERICAN EXPRESS COMPANY
COMPUTATION IN SUPPORT OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings:
Pretax income from
continuing operations $ 3,908 $ 3,438 $ 2,925 $ 2,750 $ 2,664
Interest expense 2,952 2,178 2,224 2,122 2,160
Other adjustments 163 151 124 127 139
------- ------- ------- ------- -------
Total earnings (a) $ 7,023 $ 5,767 $ 5,273 $ 4,999 $ 4,963
------- ------- ------- ------- -------
Fixed charges:
Interest expense $ 2,952 $ 2,178 $ 2,224 $ 2,122 $ 2,160
Other adjustments 165 152 129 129 130
------- ------- ------- ------- -------
Total fixed charges (b) $ 3,117 $ 2,330 $ 2,353 $ 2,251 $ 2,290
------- ------- ------- ------- -------
Ratio of earnings to
fixed charges (a/b) 2.25 2.48 2.24 2.22 2.17
</TABLE>
Included in interest expense in the above computation is interest expense
related to the international banking operations of American Express Company (the
"Company") 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.
For purposes of the "earnings" computation, other adjustments include adding the
amortization of capitalized interest, the net loss of affiliates accounted for
at equity whose debt is not guaranteed by the Company, the minority interest in
the earnings of majority-owned subsidiaries with fixed charges, and the interest
component of rental expense and subtracting undistributed net income of
affiliates accounted for at equity.
For purposes of the "fixed charges" computation, other adjustments include
capitalized interest costs and the interest component of rental expense.
<PAGE>
<TABLE>
EXHIBIT 12.2
AMERICAN EXPRESS COMPANY
COMPUTATION IN SUPPORT OF RATIO OF EARNINGS TO FIXED CHARGES AND
PREFERRED SHARE DIVIDENDS
(Dollars in millions)
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings:
Pretax income from
continuing operations $ 3,908 $ 3,438 $ 2,925 $ 2,750 $ 2,664
Interest expense 2,952 2,178 2,224 2,122 2,160
Other adjustments 163 151 124 127 139
------- ------- ------- ------- -------
Total earnings (a) $ 7,023 $ 5,767 $ 5,273 $ 4,999 $ 4,963
------- ------- ------- ------- -------
Fixed charges and
Preferred share
dividends:
Interest expense $ 2,952 $ 2,178 $ 2,224 $ 2,122 $ 2,160
Dividends on preferred
shares - - - - 8
Other adjustments 165 152 129 129 130
------- ------- ------- ------- -------
Total fixed charges and
Preferred share
Dividends (b) $ 3,117 $ 2,330 $ 2,353 $ 2,251 $ 2,298
------- ------- ------- ------- -------
Ratio of earnings to
fixed charges and
Preferred share
dividends (a/b) 2.25 2.48 2.24 2.22 2.16
</TABLE>
Included in interest expense in the above computation is interest expense
related to the international banking operations of American Express Company (the
"Company") 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.
For purposes of the "earnings" computation, other adjustments include adding the
amortization of capitalized interest, the net loss of affiliates accounted for
at equity whose debt is not guaranteed by the Company, the minority interest in
the earnings of majority-owned subsidiaries with fixed charges, and the interest
component of rental expense and subtracting undistributed net income of
affiliates accounted for at equity.
For purposes of the "fixed charges and preferred share dividends" computation,
dividends on outstanding preferred shares have been increased to an amount
representing the pretax earnings required to cover such dividend requirements.
Other adjustments include capitalized interest costs and the interest component
of rental expense.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>3
<FILENAME>axp_ex13a.txt
<TEXT>
EXHIBIT 13
FINANCIAL REVIEW
CONSOLIDATED RESULTS OF OPERATIONS
2000 was a strong year for American Express Company (the company). We delivered
very positive financial results while also making significant investments to
develop our business. We had solid growth in cards-in-force, average spending
per card and average loans in both the United States and internationally at
Travel Related Services (TRS), as well as higher sales and greater average
managed assets at American Express Financial Advisors (AEFA). The company's 2000
results met or exceeded its long-term targets of achieving, on average and over
time: 12 to 15 percent earnings per share growth, at least 8 percent growth in
revenues and return on equity of 18 to 20 percent.
The company reported record 2000 net income of $2.81 billion, 14 percent higher
than the $2.48 billion in 1999, which represented 16 percent growth from 1998.
The 1998 results included several first quarter items: a $138 million
(after-tax) credit loss provision at American Express Bank (AEB) relating to its
Asia/Pacific portfolio, as well as income in the Corporate segment of $78
million (after-tax) representing gains on the sale of First Data Corporation
shares and a preferred dividend based on Lehman Brothers' earnings. Excluding
these items, 1999 net income rose 12 percent.
Diluted earnings per share were $2.07, $1.81 and $1.54 in 2000, 1999 and 1998,
respectively. After adjusting 1998 for the above-mentioned AEB credit loss
provision and the Corporate gains, diluted earnings per share were $1.59 for
that year. On this basis, 2000 and 1999 earnings per share both rose 14 percent.
Consolidated net revenues on a managed basis rose 13 percent in 2000 to $22.1
billion, compared with $19.5 billion in 1999, which also represented 13 percent
growth from the prior year.
The company expects that the weak financial markets and the economic slowdown of
the last quarter of 2000 will continue to present challenges in 2001, and be
most pronounced early in the year, particularly at AEFA. These challenges are
expected to be mitigated by reengineering and cost reduction initiatives that
should gain momentum as the year progresses; as a result, full-year 2001
earnings per share growth is expected to be at the low end of our target range.
This financial review is presented on the basis used by management to evaluate
operations. It differs in two respects from the accompanying financial
statements, which are prepared in accordance with accounting principles
generally accepted in the United States. First, results are presented as if
there had been no asset securitizations at TRS. This format is generally termed
on a "managed basis." Second, revenues are shown net of AEFA's provisions for
annuities, insurance and investment certificates products, which are essentially
spread businesses.
1 (2000 Annual Report p. 26)
<PAGE>
TRAVEL RELATED SERVICES
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
STATEMENTS OF INCOME
(Managed Basis)
Years Ended December 31, (Millions) 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Revenues:
Discount Revenue $ 7,779 $ 6,741 $ 6,115
Net Card Fees 1,653 1,604 1,584
Lending:
Finance Charge Revenue 3,977 2,884 2,470
Interest Expense 1,594 955 810
- ---------------------------------------------------------------------------------------------------------------
Net Finance Charge Revenue 2,383 1,929 1,660
Travel Commissions and Fees 1,821 1,802 1,647
Travelers Cheque Investment Income 387 345 330
Other Revenues 3,418 2,813 2,188
- ---------------------------------------------------------------------------------------------------------------
Total Net Revenues 17,441 15,234 13,524
- ---------------------------------------------------------------------------------------------------------------
Expenses:
Marketing and Promotion 1,348 1,247 1,130
Provision for Losses and Claims:
Charge Card 1,157 995 994
Lending 1,486 1,186 1,093
Other 105 85 90
- ---------------------------------------------------------------------------------------------------------------
Total 2,748 2,266 2,177
Charge Card Interest Expense 1,408 1,055 1,040
Human Resources 4,126 3,931 3,610
Other Operating Expenses 5,098 4,352 3,497
- ---------------------------------------------------------------------------------------------------------------
Total Expenses 14,728 12,851 11,454
- ---------------------------------------------------------------------------------------------------------------
Pretax Income 2,713 2,383 2,070
Income Tax Provision 784 691 579
- ---------------------------------------------------------------------------------------------------------------
Net Income $ 1,929 $ 1,692 $ 1,491
===============================================================================================================
</TABLE>
Travel Related Services reported earnings of $1.93 billion in 2000, a 14 percent
increase from $1.69 billion in 1999. 1998 earnings were $1.49 billion.
TRS' net revenues on a managed basis rose 14 percent and 13 percent in 2000 and
1999, respectively. In both years, TRS' net revenues benefited from growth in
worldwide billed business and Cardmember loans outstanding; in addition, 1999
benefited from higher travel commissions and fees. In both 2000 and 1999, growth
in billed business was due to higher average spending per Basic Cardmember and
growth in average cards outstanding. Greater average spending per Basic
Cardmember resulted from several factors, including the benefits of rewards
programs and expanded merchant coverage. The increase in U.S. cards during both
2000 and 1999 reflects a greater level of consumer and small business services
card acquisition activities, including those related to the Blue and co-branded
Costco card products launched in 1999. The international increase in both 2000
and 1999 includes growth in proprietary products, as well as the addition of a
substantial number of new network cards.
2 (2000 Annual Report p. 27)
<PAGE>
Discount revenue rose 15 percent in 2000 and 10 percent in 1999 as a result of
higher worldwide billed business. The growth in billed business in both 2000 and
1999 reflects increases in retail and "everyday spend" categories. The increase
in 2000 is also the result of growth in airline billings. In 1999, billed
business increased despite (i) a general tightening of corporate travel and
entertainment expenses which began in the latter half of 1998 and (ii) the
company's decision to withdraw from the U.S. Government Card business in the
fourth quarter of 1998, which caused the cancellation of 1.6 million U.S.
Government cards, representing approximately $3.5 billion in annualized
spending.
Net card fees increased slightly in 2000 and 1999, reflecting growth in
cards-in-force. Lending net finance charge revenue rose 23 percent and 16
percent in 2000 and 1999, respectively, from higher worldwide lending balances.
In both 2000 and 1999, the increases were partly offset by a narrowing of
interest margins in the U.S. portfolio, as a greater portion of the portfolio
was on lower introductory rates, and relatively more products were offered with
fixed and lower rates.
Travel commissions and fees improved in 2000 and 1999 on an increase in travel
sales; the slight increase for 2000 reflects the impact of the sale of an
international leisure travel business. In 1999, the improvement was a result of
acquisitions during 1998; these acquisitions increased revenues and expenses but
did not have a material effect on net income. Both 2000 and 1999 include
increased travel sales volumes, offset in part by the continued efforts by
airlines to reduce distribution costs and by corporate travel and entertainment
expense containment efforts.
Travelers Cheque (TC) investment income rose in both years because of an
increase in average investments. The increase in other revenues in 2000 and 1999
include the effect of acquisitions and higher fee income.
The growth in marketing and promotion expense in both years reflects higher
media, card acquisition and merchant-related advertising costs.
In 2000, the worldwide Charge Card provision rose mainly due to higher volumes;
in 1999, the provision was essentially unchanged from the prior year, as higher
volumes were offset by lower loss rates. The worldwide lending provision rose in
both 2000 and 1999 due to portfolio growth, offset in part by improved credit
quality. Charge Card interest expense rose in 2000 and 1999 as a result of
higher volumes; in addition, the increase in 2000 was due to higher borrowing
rates. In 1999, the increase was partly offset by lower borrowing rates.
The growth in human resources expense in both years was primarily due to larger
business volumes and merit increases; in 1999, this increase was also due to
acquisitions and greater contract programmer costs for technology-related
projects. Other operating expenses rose in 2000 and 1999 due to Cardmember
loyalty programs, business growth and investment spending.
3 (2000 Annual Report p. 28)
<PAGE>
<TABLE>
<CAPTION>
SELECTED STATISTICAL INFORMATION
(Billions, except percentages and where indicated)
Years Ended December 31, 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Cards-In-Force (millions):
United States 33.3 29.9 27.8
Outside the United States 18.4 16.1 14.9
- ----------------------------------------------------------------------------------------------------------------------
Total 51.7 46.0 42.7
- ----------------------------------------------------------------------------------------------------------------------
Basic Cards-In-Force (millions):
United States 26.3 23.4 21.7
Outside the United States 13.9 12.3 11.5
- ----------------------------------------------------------------------------------------------------------------------
Total 40.2 35.7 33.2
- ----------------------------------------------------------------------------------------------------------------------
Card Billed Business:
United States $ 221.7 $ 186.4 $ 165.6
Outside the United States 75.0 67.7 61.9
- ----------------------------------------------------------------------------------------------------------------------
Total $ 296.7 $ 254.1 $ 227.5
- ----------------------------------------------------------------------------------------------------------------------
Average Discount Rate* 2.70% 2.72% 2.73%
Average Basic Cardmember Spending (dollars)* $ 8,229 $ 7,758 $ 6,885
Average Fee per Card--Managed (dollars)* $ 36 $ 39 $ 38
Non-Amex Brand:**
Cards-in-Force (millions) 0.6 0.3 0.2
Billed Business $ 3.2 $ 0.7 $ 0.2
Travel Sales $ 22.6 $ 22.5 $ 19.9
Travel Commissions and Fees/Sales 8.1% 8.0% 8.3%
Travelers Cheque:
Sales $ 24.6 $ 23.3 $ 23.6
Average Outstandings $ 6.4 $ 6.2 $ 6.0
Average Investments $ 6.2 $ 5.9 $ 5.8
Tax Equivalent Yield 8.9% 8.8% 9.0%
Managed Charge Card
Receivables:***
Total Receivables $ 29.0 $ 27.0 $ 24.0
90 Days Past Due as a % of Total 2.3% 2.5% 2.7%
Loss Reserves (millions) $ 964 $ 857 $ 897
% of Receivables 3.3% 3.2% 3.7%
% of 90 Days Past Due 142% 126% 138%
Net Loss Ratio 0.36% 0.41% 0.46%
Managed U.S. Cardmember
Lending:***
Total Loans $ 28.7 $ 23.4 $ 16.7
Past Due Loans as a % of Total:
30-89 Days 1.9% 1.8% 2.2%
90+ Days 0.9% 0.8% 0.9%
Loss Reserves (millions):
Beginning Balance $ 672 $ 619 $ 589
Provision 1,258 994 961
Net Charge-Offs/Other (1,110) (941) (931)
- ---------------------------------------------------------------------------------------------------------------------
Ending Balance $ 820 $ 672 $ 619
=====================================================================================================================
% of Loans 2.9% 2.9% 3.7%
% of Past Due 104% 110% 120%
Average Loans $ 25.8 $ 18.9 $ 15.0
Net Write-Off Rate 4.4% 5.0% 6.4%
Net Interest Yield 7.6% 8.6% 9.5%
=====================================================================================================================
</TABLE>
* Computed from proprietary card activities only.
** This data relates to Visa and Eurocards issued in connection with joint
venture activities.
*** Managed Cardmember receivables and loans include securitized assets not
reflected on the Consolidated Balance Sheets.
4 (2000 Annual Report p. 29)
<PAGE>
EFFECT OF SECURITIZATIONS
TRS securitizes loans and receivables in the normal course of its business. The
above statements of income and related discussion present TRS results on a
managed basis, as if there had been no securitization transactions. See Note 4
to the Consolidated Financial Statements for further information regarding
the company's securitizations.
On a GAAP reporting basis, TRS results included securitization gains of $142
million ($92 million after-tax) in 2000, $154 million ($100 million after-tax)
in 1999, and $36 million ($23 million after-tax) in 1998. These gains were
offset by higher expenses related to card acquisition initiatives and,
therefore, had no material impact on net income or total expenses in any year.
The following tables reconcile the TRS income statement from a managed basis to
a GAAP basis. These tables are not complete statements of income, as they
include only those income statement items that are affected by securitizations.
<TABLE>
<CAPTION>
Year Ended December 31, (Millions) 2000
- -------------------------------------------------------------------------------------------------------------------------------
Managed Basis Securitization Effect GAAP Basis
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Revenues:
Net Card Fees $ 1,653 $ (2) $ 1,651
Lending Net
Finance Charge Revenue 2,383 (1,396) 987
Other Revenues 3,418 1,077 4,495
Total Net Revenues 17,441 (321) 17,120
Expenses:
Marketing and Promotion 1,348 86 1,434
Provision for Losses and Claims:
Charge Card 1,157 (151) 1,006
Lending 1,486 (595) 891
Charge Card Interest Expense 1,408 (206) 1,202
Net Discount Expense -- 489 489
Other Operating Expenses 5,098 56 5,154
Total Expenses 14,728 (321) 14,407
Pretax Income $ 2,713 $ -- $ 2,713
===============================================================================================================================
<CAPTION>
Year Ended December 31, (Millions) 1999
- -------------------------------------------------------------------------------------------------------------------------------
Managed Basis Securitization Effect GAAP Basis
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Revenues:
Net Card Fees $ 1,604 $ (5) $ 1,599
Lending Net
Finance Charge Revenue 1,929 (596) 1,333
Other Revenues 2,813 497 3,310
Total Net Revenues 15,234 (104) 15,130
Expenses:
Marketing and Promotion 1,247 91 1,338
Provision for Losses and Claims:
Charge Card 995 (130) 865
Lending 1,186 (387) 799
Charge Card Interest Expense 1,055 (220) 835
Net Discount Expense -- 479 479
Other Operating Expenses 4,352 63 4,415
Total Expenses 12,851 (104) 12,747
Pretax Income $ 2,383 $ -- $ 2,383
===============================================================================================================================
</TABLE>
5 (2000 Annual Report p. 30)
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, (Millions) 1998
- -------------------------------------------------------------------------------------------------------------------------------
Managed Basis Securitization Effect GAAP Basis
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Revenues:
Net Card Fees $ 1,584 $ 3 $ 1,587
Lending Net
Finance Charge Revenue 1,660 (306) 1,354
Other Revenues 2,188 309 2,497
Total Net Revenues 13,524 6 13,530
Expenses:
Marketing and Promotion 1,130 36 1,166
Provision for Losses and Claims:
Charge Card 994 (293) 701
Lending 1,093 (171) 922
Charge Card Interest Expense 1,040 (231) 809
Net Discount Expense -- 665 665
Total Expenses 11,454 6 11,460
Pretax Income $ 2,070 $ -- $ 2,070
===============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
LIQUIDITY AND CAPITAL RESOURCES
SELECTED BALANCE SHEET INFORMATION
December 31, (Billions, except percentages) 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accounts Receivable, net $29.6 $25.6
Travelers Cheque Investments $ 6.5 $ 6.0
U.S. Cardmember Loans $17.4 $16.1
Total Assets $71.4 $63.2
Travelers Cheques Outstanding $ 6.1 $ 6.2
Short-term Debt $36.7 $31.3
Long-term Debt $ 3.3 $ 4.4
Total Liabilities $64.8 $57.7
Total Shareholder's Equity $ 6.6 $ 5.5
Return on Average Equity* 33.0% 31.2%
Return on Average Assets* 3.0% 3.1%
===============================================================================================================================
*Excluding the effect of SFAS No. 115.
</TABLE>
The American Express Credit Account Master Trust (the Trust) securitized $4
billion of loans in both 2000 and 1999, through the public issuance of investor
certificates. The securitized assets consist of loans arising in a portfolio of
designated consumer American Express credit card, Optima Line of Credit and Sign
& Travel/Special Purchase Account revolving credit accounts or features owned by
American Express Centurion Bank (Centurion Bank), a wholly-owned subsidiary of
TRS, and, in the future, may include other charge or credit accounts or features
or products. At December 31, 2000 and 1999, TRS had a total of $11 billion and
$7 billion, respectively, of Trust-related securitized loans, which are not on
the Consolidated Balance Sheets. In February 2001, the Trust securitized an
additional $750 million of loans.
In addition, the American Express Master Trust (the Master Trust) securitizes
Charge Card receivables generated under designated American Express Card, Gold
Card and Platinum Card consumer accounts through the issuance of trust
certificates. In 2000 and 1999, $600 million and $500 million Class A Fixed Rate
Accounts Receivable Trust Certificates, respectively, matured from the Charge
Card securitization portfolio. At December 31, 2000 and 1999, TRS had
securitized receivables of $2.85 billion and $3.45 billion, respectively, which
are not on the Consolidated Balance Sheets.
6 (2000 Annual Report p. 31)
<PAGE>
In 1999, TRS issued and sold, exclusively outside the United States and to
non-U.S. persons, $500 million 5.625% Fixed Rate Notes. These notes are listed
on the Luxembourg Stock Exchange, and will mature in 2004.
In 2000, American Express Credit Corporation (Credco), a wholly-owned subsidiary
of TRS, called $150 million 1.125% Cash Exchangeable Notes due 2003. The notes
were exchangeable for an amount in cash which was linked to the price of the
common shares of the company. Credco had entered into agreements to fully hedge
its obligations. Accordingly, the related hedging agreements were called at the
same time.
TRS, primarily through Credco, maintained commercial paper outstanding of
approximately $20.4 billion at an average interest rate of 6.4% and
approximately $18.5 billion at an average interest rate of 5.6% at December 31,
2000 and 1999, respectively. Unused lines of credit of approximately $9.7
billion, which expire in increments from 2001 through 2002, were available at
December 31, 2000 to support a portion of TRS' commercial paper borrowings.
Borrowings under bank lines of credit totaled $1.4 billion and $1.5 billion at
December 31, 2000 and 1999, respectively.
<TABLE>
<CAPTION>
AMERICAN EXPRESS FINANCIAL ADVISORS
RESULTS OF OPERATIONS
STATEMENTS OF INCOME
Years Ended December 31, (Millions) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Investment Income $2,292 $2,443 $2,437
Management and
Distribution Fees 2,812 2,270 1,851
Other Revenues 1,026 923 807
- -------------------------------------------------------------------------------------------------------------------------------
Total Revenues 6,130 5,636 5,095
===============================================================================================================================
Provision for Losses and Benefits:
Annuities 1,018 1,071 1,150
Insurance 556 522 489
Investment Certificates 337 306 275
- -------------------------------------------------------------------------------------------------------------------------------
Total 1,911 1,899 1,914
===============================================================================================================================
Net Revenues 4,219 3,737 3,181
- -------------------------------------------------------------------------------------------------------------------------------
Expenses:
Human Resources 2,093 1,744 1,530
Other Operating Expenses 643 630 459
- -------------------------------------------------------------------------------------------------------------------------------
Total Expenses 2,736 2,374 1,989
===============================================================================================================================
Pretax Income 1,483 1,363 1,192
Income Tax Provision 451 428 374
- -------------------------------------------------------------------------------------------------------------------------------
Net Income $1,032 $ 935 $ 818
===============================================================================================================================
</TABLE>
American Express Financial Advisors (AEFA) reported increases in net revenues of
13 percent and 17 percent and earnings of 10 percent and 14 percent for 2000 and
1999, respectively. Revenues and earnings in both years benefited primarily from
higher fees due to growth in average managed assets and product sales; in 2000
this was partially offset by the effect of narrower spreads on the investment
portfolio.
Management and distribution fees rose 24 percent and 23 percent in 2000 and
1999, respectively; in both years, the increase was due to greater management
fee revenue from higher average managed and separate account assets. These
assets increased due to positive net sales in both years and strong market
appreciation in 1999. In 2000, management
7 (2000 Annual Report p. 32)
<PAGE>
fees also rose from $105 million of net year-over-year benefits from equity fee
hedges, reflecting hedge value appreciation during 2000 compared with
depreciation in 1999. Distribution fees also grew, reflecting greater mutual
fund sales and asset levels. Investment income decreased in 2000, but increased
in 1999. Both years benefited from growth in average investments, while in 2000
this was more than offset by the negative impact of deterioration in the
high-yield bond sector, as well as a generally lower average yield. Losses on
directly owned high-yield bonds and low grades in other structured investments
reduced investment income by approximately $123 million in 2000. Other revenues
rose in both years from increased life and property-casualty insurance premiums
and higher financial planning fees as well as the addition in 2000 of franchise
fees from Platform 2 advisors (those that operate as independent contractors
under the American Express brand) and certain revenues related to
non-proprietary funds. The provision for losses and benefits for annuities
declined due to lower fixed annuities in force in both years; this was partially
offset by higher accrual rates in 2000, while 1999 benefited from lower accrual
rates compared with prior year. The provisions for insurance and investment
certificates rose in 2000 and 1999, reflecting higher in-force levels in both
years and greater accrual rates in 2000. In 1999, the increase in certificate
provisions also reflects growth in the stock market certificates, which are
hedged by indexed options and resulted in a corresponding increase in investment
income, with minimal effect on net income.
Human resources expense rose in both years due to higher financial advisors'
compensation from growth in sales and asset levels and a greater number of
advisors and employees to support business expansion; additionally, the increase
in 2000 reflects costs related to the new advisor platforms. The increase in
other operating expenses in both years includes higher data processing,
technology and advertising expenditures and, in 1999, a $74 million (pretax)
fourth quarter charge (above reserves already established in prior periods) in
connection with an agreement in principle to settle three class-action lawsuits
related to the sales of insurance and annuity products. The growth in human
resources and other operating expenses also reflected higher amortization of
deferred acquisition costs (DAC) for variable insurance and annuity products in
2000. In 1999, these costs were mitigated by reduced amortization of DAC due to
strong equity market performance during the year.
While AEFA's earnings in 2000 rose 10 percent for the full year, AEFA reported
2000 fourth quarter net income of $242 million, a 2 percent increase over $238
million a year ago. The modest growth in earnings and net revenues for the
quarter reflected narrower spreads on the investment portfolio and the effect of
a decline in equity markets during the quarter. The narrower spreads resulted
from losses of $49 million on high-yield securities and the continued impact of
higher interest rates. Management fees for the quarter included a net
year-over-year benefit of $58 million from a fee hedge that minimized the effect
of the equity market decline on management fees. The company expects that these
challenges will continue into 2001 and be most pronounced early in the year as:
- - Equity market levels at the outset of 2001 are lower versus last year and
lower than expected later in 2001.
- - The equity fee hedges that provided protection against the fourth quarter's
substantial market decline expired at the end of 2000. The company's view
is that hedging the market similarly in 2001 would not be economical.
- - The current interest rate environment will continue to pressure spreads
early in 2001, although comparisons are expected to improve as the year
progresses.
- - Default rates within the high-yield sector of the market enter 2001 at
higher levels than a year ago.
- - The higher relative platform-related compensation levels for advisors early
in 2001 will not become comparable until the second quarter.
As a result, we expect AEFA's net income to be significantly adversely affected
for the full year 2001.
8 (2000 Annual Report p. 33)
<PAGE>
<TABLE>
<CAPTION>
SELECTED STATISTICAL INFORMATION
(Millions, except percentages and where indicated)
Years Ended December 31, 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Life Insurance in Force (billions) $ 98.1 $ 89.2 $ 81.1
Deferred Annuities in Force (billions) $ 45.3 $ 47.4 $ 42.8
Assets Owned, Managed or Administered (billions):
Assets Managed for Institutions $ 55.0 $ 55.5 $ 45.7
Assets Owned, Managed or Administered for Individuals:
Owned Assets:
Separate Account Assets 32.3 35.9 27.3
Other Owned Assets 41.3 38.7 37.3
- -------------------------------------------------------------------------------------------------------------------------------
Total Owned Assets 73.6 74.6 64.6
===============================================================================================================================
Managed Assets 112.0 115.1 92.0
Administered Assets 34.4 24.8 16.6
- -------------------------------------------------------------------------------------------------------------------------------
Total $ 275.0 $ 270.0 $ 218.9
===============================================================================================================================
Market Appreciation (Depreciation) During the Period:
Owned Assets:
Separate Account Assets $ (5,109) $ 8,172 $ 3,547
Other Owned Assets $ 106 $(1,126) $ (109)
Managed Assets $(14,467) $23,774 $13,954
Cash Sales:
Mutual Funds $ 44,068 $34,269 $27,567
Annuities 5,886 3,902 3,298
Investment Certificates 3,297 3,591 2,342
Life and Other Insurance Products 900 746 605
Institutional 6,601 5,012 5,113
Other 3,557 3,514 3,167
- -------------------------------------------------------------------------------------------------------------------------------
Total Cash Sales $ 64,309 $51,034 $42,092
===============================================================================================================================
Number of Financial Advisors 12,663 11,366 10,350
Fees from Financial Plans and Advice Services (thousands) $ 97,680 $88,509 $72,366
Percentage of Total Sales from
Financial Plans and Advice Services 68.1% 66.7% 65.4%
===============================================================================================================================
</TABLE>
Note: In 2000, reporting of data related to cash sales and assets owned, managed
and administered was revised to better reflect AEFA's multiple sales channel
strategy and broadening of its product portfolio through additional
non-proprietary offerings. All prior period amounts have been restated to
conform to this presentation.
<TABLE>
<CAPTION>
LIQUIDITY AND CAPITAL RESOURCES
SELECTED BALANCE SHEET INFORMATION
December 31, (Billions, except percentages) 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments $30.5 $30.3
Separate Account Assets $32.3 $35.9
Total Assets $73.6 $74.6
Client Contract Reserves $31.4 $31.0
Total Liabilities $69.2 $70.7
Total Shareholder's Equity $ 4.4 $ 3.9
Return on Average Equity* 22.6% 22.9%
===============================================================================================================================
*Excluding the effect of SFAS No. 115.
</TABLE>
9 (2000 Annual Report p. 34)
<PAGE>
AEFA's total assets and liabilities decreased in 2000 due
to a decline in separate account assets as a result of market depreciation,
partly offset by positive net sales. Investments comprised primarily corporate
bonds and mortgage-backed securities, including $3.7 billion and $3.6 billion in
below investment grade debt securities, and $4.1 billion and $4.0 billion in
mortgage loans at December 31, 2000 and 1999, respectively. Non-performing
assets relative to invested assets were 0.9% (36% covered by reserves) and 0.3%
(68% covered by reserves) at December 31, 2000 and 1999, respectively.
Investments are principally funded by sales of insurance, annuities and
certificates and by reinvested income. Maturities of these investments are
largely matched with the expected future payments of insurance and annuity
obligations.
Separate account assets, primarily investments carried at market value, are for
the exclusive benefit of variable annuity and variable life insurance contract
holders. AEFA earns investment management and administration fees from the
related accounts.
<TABLE>
<CAPTION>
AMERICAN EXPRESS BANK
RESULTS OF OPERATIONS
STATEMENTS OF INCOME
Years Ended December 31, (Millions) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Revenues:
Interest Income $735 $737 $ 854
Interest Expense 484 446 564
- -------------------------------------------------------------------------------------------------------------------------------
Net Interest Income 251 291 290
Commissions and Fees 214 179 167
Foreign Exchange Income and Other Revenues 126 151 163
- -------------------------------------------------------------------------------------------------------------------------------
Total Net Revenues 591 621 620
===============================================================================================================================
Expenses:
Human Resources 257 271 256
Other Operating Expenses 273 294 261
Provision for Losses 28 29 238
- -------------------------------------------------------------------------------------------------------------------------------
Total Expenses 558 594 755
===============================================================================================================================
Pretax Income/(Loss) 33 27 (135)
Income Tax Provision/(Benefit) 4 5 (51)
- -------------------------------------------------------------------------------------------------------------------------------
Net Income/(Loss) $ 29 $ 22 $ (84)
===============================================================================================================================
</TABLE>
American Express Bank (AEB) reported net income of $29 million in 2000, compared
with $22 million in 1999 and a net loss of $84 million in 1998. The 1998 results
included a $138 million ($213 million pretax) credit loss provision related to
AEB's business in the Asia/Pacific region, particularly Indonesia.
Net interest income in 2000 declined from a year ago, primarily due to the
effects of higher funding costs. In 1999, net interest income was essentially
unchanged versus the prior year as the effect of a lower loan portfolio was
offset by the previous year's reversals of accrued interest on loans transferred
to non-performing status in Indonesia. The increase in commissions and fees for
both years reflects growth in the private banking and personal financial
services (PFS) businesses; the current year increase also reflects growth in the
financial institution (formerly correspondent banking) business. Foreign
exchange income and other revenue declined in both years. The decline in 2000 is
a result of lower securities gains and joint venture income. In 1999, the
decline reflects lower foreign exchange revenues, primarily in Asia/Pacific, due
to stabilization of currencies compared with 1998, when AEB posted strong
trading results due to currency volatility.
10 (2000 Annual Report p. 35)
<PAGE>
Human resources and other operating expenses declined in 2000 from a year ago,
reflecting reengineering savings and the benefits of lower employee levels, as
AEB rationalizes certain country activities. The growth in other operating
expenses in 1999 was primarily a result of costs related to business building
initiatives in private banking and PFS, as well as reengineering costs incurred
as AEB realigned business activities in certain countries.
<TABLE>
<CAPTION>
SELECTED STATISTICAL INFORMATION
Years Ended December 31, (Billions, except percentages) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets Managed*/Administered $10.6 $ 8.6 $ 6.2
Assets of Non-consolidated Joint Ventures $ 2.1 $ 2.2 $ 2.6
====================================================================================================================================
</TABLE>
* Includes assets managed by American Express Financial Advisors.
<TABLE>
<CAPTION>
LIQUIDITY AND CAPITAL RESOURCES
SELECTED BALANCE SHEET INFORMATION
December 31, (Billions, except percentages and where indicated) 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total Loans $ 5.3 $ 5.1
Total Non-performing Loans (millions) $ 137 $ 168
Other Non-performing Assets (millions) $ 24 $ 37
Reserve for Credit Losses (millions)* $ 153 $ 189
Loan Loss Reserve as a % of Total Loans 2.6% 3.3%
Total Assets $11.4 $11.4
Deposits $ 8.0 $ 8.3
Total Liabilities $10.7 $10.7
Total Shareholder's Equity (millions) $ 754 $ 691
Return on Average Assets** 0.26% 0.20%
Return on Average Common Equity** 4.4% 3.5%
Risk-Based Capital Ratios:
Tier I 10.1% 9.9%
Total 11.4% 12.0%
Leverage Ratio 5.9% 5.6%
- ------------------------------------------------------------------------------------------------------------------------------------
*Allocation (millions)
Loans $ 137 $ 169
Other Assets, primarily derivatives 14 16
Other Liabilities 2 4
- ------------------------------------------------------------------------------------------------------------------------------------
Total Credit Loss Reserves $ 153 $ 189
====================================================================================================================================
</TABLE>
** Excluding the effect of SFAS No. 115.
AEB had approximately $5.3 billion outstanding in worldwide loans at December
31, 2000, up from $5.1 billion at December 31, 1999. Current year activities
included a $140 million decrease in corporate banking loans, as AEB continued to
focus on reducing exposure in this activity and emphasizing consumer and private
banking loans, which rose by $410 million ($340 million excluding the effect of
asset sales and securitizations in the consumer loan portfolio). In addition,
financial institution loans rose by $40 million. Other banking activities, such
as securities, unrealized gains on foreign exchange and derivatives contracts,
various contingencies and market placements added approximately $7.4 billion and
$7.6 billion to AEB's credit exposures at December 31, 2000 and December 31,
1999, respectively.
11 (2000 Annual Report p. 36)
<PAGE>
CORPORATE AND OTHER
Corporate and Other reported net expenses of $180 million, $174 million and $84
million in 2000, 1999 and 1998, respectively. 1998 results include income of $78
million after-tax ($106 million pretax) comprising a $39 million after-tax ($60
million pretax) gain from sales of common stock of First Data Corporation and a
$39 million after-tax ($46 million pretax) preferred stock dividend based on
earnings from Lehman Brothers. Excluding these items, Corporate and Other had
net expenses of $162 million in 1998.
Results for both 2000 and 1999 include a $39 million after-tax ($46 million
pretax) preferred stock dividend based on earnings from Lehman Brothers. 1998
includes a benefit due to an earnings payout from Travelers Inc., related to the
1993 sale of the Shearson Lehman Brothers Division, and benefits from the sale
of securities and adjustment of valuation allowances related to certain
corporate assets. The above items were offset by business building initiatives
in each year, and costs related to the Y2K issue in 1999 and 1998.
OTHER REPORTING MATTERS
ACCOUNTING DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued, and
subsequently amended, Statement of Financial Accounting Standards (SFAS) No.
133, "Accounting for Derivative Instruments and Hedging Activities," which the
company adopted on 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
those instruments 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. A one-time opportunity to reclassify held-to-maturity
investments to available-for-sale is allowed without tainting the remaining
securities in the held-to-maturity portfolio. The company has elected to take
this opportunity to reclass its held-to-maturity investments to
available-for-sale. As of January 1, 2001, the cumulative impact of applying the
Statement's requirements to the company's results of operations and equity is
not significant.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," a replacement
of FASB Statement No. 125. SFAS No. 140 is effective for transfers and servicing
of financial assets and extinguishments of liabilities occurring after March 31,
2001. The Statement is effective for recognition and reclassification of
collateral and for disclosures relating to securitization transactions and
collateral for fiscal years ending after December 15, 2000 (See Note 4 to
Consolidated Financial Statements). The company does not expect SFAS No. 140 to
have a material impact on the company's financial position or results of
operations.
In July 2000, the FASB's Emerging Issues Task Force (EITF) issued a consensus on
Issue 99-20, "Recognition of Interest Income and Impairment on Purchased and
Retained Beneficial Interests in Securitized Financial Assets." The consensus
must be adopted for fiscal quarters beginning after March 15, 2001, with earlier
adoption permitted. Issue 99-20 prescribes new procedures for recording interest
income and measuring impairment on retained and purchased beneficial interests.
The rule primarily affects certain AEFA high-yield investments contained in
off-balance sheet trusts whose cash flows have been negatively affected by
credit experience. As of January 1, 2001, the rule would require AEFA to adjust
the carrying amount of these investments downward by approximately $30 million.
12 (2000 Annual Report p. 37)
<PAGE>
CONSOLIDATED LIQUIDITY AND CAPITAL RESOURCES
The company believes allocating capital to businesses with a return on
risk-adjusted equity in excess of its cost of capital and sustained earnings
growth in its core business will continue to build shareholder value.
The company's philosophy is to retain enough earnings to provide capital such
that the company can meet its growth objectives. To the extent capital available
exceeds investment opportunities, the company has returned excess capital to
shareholders. As further described in Note 7 to the Consolidated Financial
Statements, the company has undertaken share repurchase programs to offset new
share issuances.
FINANCING ACTIVITIES
The company has procedures to immediately transfer short-term funds within the
company to meet liquidity needs. These internal transfer mechanisms are subject
to and comply with various contractual and regulatory constraints.
The parent company generally meets its short-term funding needs through an
intercompany dividend policy and also has the ability to issue commercial paper.
The Board of Directors has authorized a parent company commercial paper program
that is supported by a $1.2 billion multi-purpose credit facility that expires
in increments from 2001 through 2002. No borrowings have been made under this
credit facility. There was no parent company commercial paper outstanding during
2000 or 1999.
Total parent company long-term debt outstanding was $1.4 billion and $1.1
billion at December 31, 2000 and 1999, respectively. At December 31, 2000 and
1999, the parent company had $4.6 billion and $2.1 billion, respectively, of
debt or equity securities available for issuance under shelf registrations filed
with the Securities and Exchange Commission. In addition, TRS, Centurion Bank,
Credco, American Express Overseas Credit Corporation Limited, a wholly-owned
subsidiary of Credco, and AEB have established programs for the issuance,
outside the United States, of debt instruments to be listed on the Luxembourg
Stock Exchange. The maximum aggregate principal amount of debt instruments
outstanding at any one time under the program will not exceed $6.0 billion. At
both December 31, 2000 and 1999, $1.6 billion of debt has been issued under this
program.
RISK MANAGEMENT
Management establishes and oversees implementation of Board-approved policies
covering the company's funding, investments and use of derivative financial
instruments and monitors aggregate risk exposures on an ongoing basis. The
company's objective is to realize returns commensurate with the level of risk
assumed while achieving consistent earnings growth. The company's treasury
department is responsible for overseeing the individual business segments'
management of their respective exposures within the context of Board-approved
policies. See Note 8 to the Consolidated Financial Statements for a discussion
of the company's use of derivatives.
The following sections include sensitivity analyses of three different types 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, a 10%
strengthening of the U.S. dollar versus all other currencies, and a 10% decline
in the value of equity securities under management at AEFA. Computations of the
prospective effects of hypothetical interest rate, foreign exchange rate and
equity market changes are based on numerous assumptions, including relative
levels of market interest rates, foreign exchange rates and equity prices, 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.
TRS' hedging policies are established, maintained and monitored by the company's
treasury department. TRS 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.
13 (2000 Annual Report p. 38)
<PAGE>
TRS funds its Charge Card receivables and Cardmember loans using both on-balance
sheet funding sources, such as long- and short-term debt, medium-term notes and
commercial paper, as well as asset securitizations. Cardmember receivables are
predominantly funded by Credco and its subsidiaries; funding for Cardmember
loans is primarily through Centurion Bank. For its 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 and, to a lesser
extent, caps. During 2000, TRS continued its strategy by augmenting its
portfolio of interest rate swaps that convert a majority of its domestic funding
from floating rate to fixed rate. TRS regularly reviews its strategy and may
modify it. For the majority of its Cardmember loans, which are linked to a
floating rate base and generally reprice each month, TRS uses floating rate
funding.
The detrimental effect on TRS pretax earnings of a hypothetical 100 basis point
increase in interest rates would be approximately $80 million ($61 million
related to the U.S. dollar) and $124 million ($109 million related to the U.S.
dollar), based on 2000 and 1999 year-end positions, respectively. This effect is
primarily a function of the extent of variable rate funding of Charge Card and
fixed rate lending products. The above detrimental effect that was calculated
based on year-end 1999 positions was substantially reduced by additional swaps
that were put in place in early 2000. In early 2001, TRS initiated additional
interest rate swap transactions designed to offset interest rate exposure
related to actual and anticipated growth in Cardmember receivables.
TRS' 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. In the latter parts of 2000 and 1999,
foreign currency forward contracts were both sold (with notional amounts of $386
million and $611 million, respectively) and purchased (with notional amounts of
$92 million and $25 million, respectively) to manage a majority of anticipated
cash flows in major overseas markets for the subsequent year.
Based on the year-end 2000 and 1999 foreign exchange positions, but excluding
the forward contracts managing the anticipated overseas cash flows for the
subsequent year, the effect on TRS' earnings of the hypothetical 10 percent
strengthening of the U.S. dollar would be immaterial. With respect to the
forward contracts related to anticipated cash flows for the subsequent year, the
10 percent strengthening would create hypothetical pretax gains of $27 million
and $53 million related to the 2000 and 1999 year-end positions, respectively.
Such gains, if any, would mitigate the negative effect of a stronger U.S. dollar
on overseas earnings for the subsequent year.
AEFA's owned investment securities are, for the most part, held by its life
insurance and investment certificate subsidiaries, which primarily invest in
long-term and intermediate-term fixed income securities to provide their clients
with a competitive rate of return on their investments while controlling risk.
Investment in fixed income securities provides AEFA with a dependable and
targeted margin between the interest rate earned on investments and the interest
rate credited to clients' accounts. AEFA does not invest in securities to
generate trading profits for its own account.
AEFA's life insurance and investment certificate subsidiaries' investment
committees regularly review models projecting different interest rate scenarios
and their effect on the profitability of each subsidiary. The committees'
objectives are to structure their investment security portfolios based upon the
type and behavior of the products in the liability portfolios to achieve
targeted levels of profitability and to meet contractual obligations.
Rates credited to customers' accounts are generally reset at shorter intervals
than the maturity of underlying investments. Therefore, AEFA's margins may be
affected by changes in the general level of interest rates. Part of the
committees' strategies includes the use of derivatives, such as interest rate
caps, swaps and floors, for risk-management purposes.
AEFA's fees earned on the management of fixed income securities in variable
annuities, variable insurance and mutual funds are generally based on the value
of the portfolios.
14 (2000 Annual Report p. 39)
<PAGE>
The negative effect on AEFA's pretax earnings of a 100 basis point increase in
interest rates, which assumes repricings and customer behavior based on the
application of proprietary models, to the book of business at December 31, 2000
and 1999, would be approximately $44 million and $40 million for 2000 and 1999,
respectively.
AEFA's fees earned on the management of equity securities in variable annuities,
variable insurance, mutual funds and other managed assets are generally based on
the value of the portfolios. To manage the level of fee income in 2000, AEFA
entered into a series of stock index option transactions in early 2000, to
mitigate, for a substantial portion of the portfolios, the negative effect on
fees that would result from a decline in the equity markets. In addition, AEFA
writes and purchases index options to manage the margin related to certain
investment certificate and annuity products that pay interest based upon the
relative change in a major stock market index between the beginning and end of
the product's term. The negative effect on AEFA's pretax earnings of a 10
percent decline in equity markets would be approximately $99 million and $103
million based on assets under management, certificate and annuity business in
force, and index options as of December 31, 2000 and 1999, respectively. Had the
series of stock index option transactions entered into in early 2000 been in
effect at December 31, 1999, the 1999 effect would have been substantially
lower.
AEB employs a variety of on- and off-balance sheet financial instruments in
managing its exposure to fluctuations in interest and currency rates. Derivative
instruments consist principally of foreign exchange spot and forward contracts,
foreign currency options, interest rate swaps, futures, and forward rate
agreements. Generally, they are used to manage specific on-balance sheet
interest rate and foreign exchange exposures related to deposits, long-term
debt, equity, loans and securities holdings.
The negative effect of the 100 basis point increase in interest rates on AEB's
pretax earnings would be $16 million and $8 million as of December 31, 2000 and
1999, respectively. The effect on earnings of the 10 percent strengthening of
the U.S. dollar would be negligible and, with respect to translation exposure of
foreign operations, would result in a $10 million and $8 million pretax charge
against equity as of December 31, 2000 and 1999, respectively.
AEB utilizes foreign exchange and interest rate products to meet the needs of
its customers. Customer positions are usually, but not always, offset. They are
evaluated in terms of AEB's overall interest rate or foreign exchange exposure.
AEB also takes limited proprietary positions. Potential daily exposure from
trading activities is calculated using a Value at Risk methodology. This model
employs a parametric technique using a correlation matrix based on historical
data. The Value at Risk measure uses a 99 percent confidence interval to
estimate potential trading losses over a one-day period. During 2000 and 1999,
the Value at Risk for AEB was less than $3 million.
Asset/liability and market risk management at AEB are supervised by the Asset
and Liability Committee, which comprises senior business managers of AEB. It
meets monthly and monitors: (i) liquidity, (ii) capital exposure, (iii) capital
adequacy, (iv) market risk and (v) investment portfolios. The committee
evaluates current market conditions and determines AEB's tactics within risk
limits approved by AEB's Board of Directors. AEB's treasury, risk management and
global trading management issue policies and control procedures and delegate
risk limits throughout AEB's regional trading centers.
AEB's overall credit policies are approved by the Finance and Credit Policy
Committee of AEB's Board of Directors. Credit lines are based on a tiered
approval ladder, with levels of authority delegated to each country, geographic
area, AEB's senior management and AEB's Board of Directors. Approval authorities
are based on factors such as type of borrower, nature of transaction,
collateral, and overall risk rating. AEB controls the credit risk arising from
derivative transactions through the same procedures. The Credit Audit department
reviews all significant exposures periodically. Risk of all foreign exchange and
derivative transactions is reviewed by AEB on a regular basis.
15 (2000 Annual Report p. 40)
<PAGE>
FORWARD-LOOKING STATEMENTS
This Annual Report includes forward-looking statements about the company's
financial performance and business prospects. These are subject to certain risks
and uncertainties which could cause actual results to differ materially from
such statements. These statements are contained in the sections "Letter to
Shareholders" and "Financial Review -- Results of Operations," among others. The
words "believe," "expect," "anticipate," "optimistic," "intend," "aim,"
"will," "should," "could," and similar expressions are intended to identify
forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date on
which they are made. The company undertakes no obligation to update publicly or
revise any forward-looking statements. In addition to those described elsewhere
in this report, factors that could cause actual results to differ materially
from the forward-looking statements, including the company's goals referred to
herein, include but are not limited to: fluctuation in the equity markets in
2001, 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, which could result in further losses in AEFA's investment portfolio;
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 mutual fund business; the
success and financial impact of reengineering initiatives being implemented at
the company, including cost management, structural and strategic measures such
as vendor and process consolidation, outsourcing and using lower cost internal
distribution channels; the ability to control and manage operating,
infrastructure, marketing and promotion and other expenses as business expands
or changes, including balancing the need for longer-term investment spending;
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 U.S. 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; 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 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. Other
risks and uncertainties can be found in the company's most recent 10-K, 10-Q and
8-K reports filed with the SEC.
16 (2000 Annual Report p. 41)
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
AMERICAN EXPRESS COMPANY
Years Ended December 31, (Millions, except per share amounts) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Discount revenue $ 7,779 $ 6,741 $ 6,115
Interest and dividends, net 3,290 3,346 3,277
Management and distribution fees 2,812 2,269 1,851
Net card fees 1,651 1,599 1,587
Travel commissions and fees 1,821 1,802 1,647
Other commissions and fees 2,344 1,824 1,657
Cardmember lending net finance charge revenue 987 1,333 1,354
Life and other insurance premiums 575 517 469
Other 2,416 1,847 1,175
- ------------------------------------------------------------------------------------------------------------------------------------
Total 23,675 21,278 19,132
====================================================================================================================================
EXPENSES
Human resources 6,633 6,038 5,470
Provisions for losses and benefits:
Annuities and investment certificates 1,355 1,377 1,425
Life insurance, international banking and other 694 639 822
Charge card 1,006 865 701
Cardmember lending 891 799 922
Interest 1,354 1,051 999
Marketing and promotion 1,515 1,424 1,228
Occupancy and equipment 1,528 1,328 1,250
Professional services 1,530 1,322 1,191
Communications 514 518 474
Other 2,747 2,479 1,725
- ------------------------------------------------------------------------------------------------------------------------------------
Total 19,767 17,840 16,207
====================================================================================================================================
Pretax income 3,908 3,438 2,925
Income tax provision 1,098 963 784
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 2,810 $ 2,475 $ 2,141
====================================================================================================================================
EARNINGS PER COMMON SHARE
Basic $ 2.12 $ 1.85 $ 1.57
Diluted $ 2.07 $ 1.81 $ 1.54
- ------------------------------------------------------------------------------------------------------------------------------------
Average common shares outstanding for earnings per common share:
Basic 1,327 1,340 1,363
Diluted 1,360 1,369 1,388
====================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
17 (2000 Annual Report p. 42)
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
AMERICAN EXPRESS COMPANY
December 31, (Millions, except share data) 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 8,487 $ 7,471
Accounts receivable and accrued interest:
Cardmember receivables, less reserves: 2000, $809; 1999, $728 25,067 22,541
Other receivables, less reserves: 2000, $123; 1999, $78 5,476 3,926
Investments 43,747 43,052
Loans:
Cardmember lending, less reserves: 2000, $650; 1999, $581 19,855 17,666
International banking, less reserves: 2000, $137; 1999, $169 5,207 4,928
Other, net 1,026 988
Separate account assets 32,349 35,895
Deferred acquisition costs 3,574 3,235
Land, buildings and equipment--at cost, less accumulated depreciation:
2000, $2,219; 1999, $2,109 2,506 1,996
Other assets 7,129 6,819
- -------------------------------------------------------------------------------------------------------------------------------
Total assets $154,423 $148,517
===============================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Customers' deposits $ 13,870 $ 13,139
Travelers Cheques outstanding 6,127 6,213
Accounts payable 7,495 6,367
Insurance and annuity reserves:
Fixed annuities 19,417 20,552
Life and disability policies 4,681 4,459
Investment certificate reserves 7,348 5,951
Short-term debt 36,030 30,627
Long-term debt 4,711 5,995
Separate account liabilities 32,349 35,895
Other liabilities 10,211 8,724
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities 142,239 137,922
===============================================================================================================================
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN THE COMPANY'S
JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES 500 500
SHAREHOLDERS' EQUITY
Common shares, $.20 par value, authorized 3.6 billion shares; issued and
outstanding 1,326 million shares in 2000 and 1,341 million shares in 1999 265 268
Capital surplus 5,439 5,196
Retained earnings 6,198 5,033
Other comprehensive loss, net of tax:
Net unrealized securities losses (145) (296)
Foreign currency translation adjustments (73) (106)
- -------------------------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive loss (218) (402)
- -------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 11,684 10,095
===============================================================================================================================
Total liabilities and shareholders' equity $154,423 $148,517
===============================================================================================================================
</TABLE>
See notes to consolidated financial statements.
18 (2000 Annual Report p. 43)
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
AMERICAN EXPRESS COMPANY
Years Ended December 31, (Millions) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,810 $ 2,475 $ 2,141
Adjustments to reconcile net income
to net cash provided by operating activities:
Provisions for losses and benefits 2,697 2,392 2,491
Depreciation, amortization, deferred taxes and other 393 13 (212)
Changes in operating assets and liabilities, net of
effects of acquisitions and dispositions:
Accounts receivable and accrued interest (1,623) (1,079) (665)
Other assets (426) (294) 92
Accounts payable and other liabilities 2,377 2,371 131
(Decrease) increase in Travelers Cheques outstanding (82) 392 253
Increase in insurance reserves 207 173 182
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 6,353 6,443 4,413
===============================================================================================================================
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of investments 3,117 3,031 1,656
Maturity and redemption of investments 5,295 5,279 7,331
Purchase of investments (9,121) (11,287) (10,176)
Net increase in Cardmember loans/receivables (10,661) (11,787) (5,000)
Cardmember loans/receivables sold to trust, net 3,338 3,586 1,683
Proceeds from repayment of loans 24,288 21,002 24,560
Issuance of loans (24,587) (20,762) (23,866)
Purchase of land, buildings and equipment (919) (737) (391)
Sale of land, buildings and equipment 35 11 26
Dispositions (acquisitions), net of cash sold/acquired 212 (82) (471)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (9,003) (11,746) (4,648)
===============================================================================================================================
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in customers' deposits 954 2,853 1,039
Sale of annuities and investment certificates 5,588 5,719 5,337
Redemption of annuities and investment certificates (5,641) (5,504) (5,690)
Net increase in debt with maturities of 3 months or less 7,117 305 1,239
Issuance of debt 12,559 18,623 7,373
Principal payments on debt (15,362) (12,049) (7,426)
Issuance of Trust preferred securities -- -- 500
Issuance of American Express common shares 226 233 137
Repurchase of American Express common shares (1,377) (1,120) (1,890)
Dividends paid (421) (404) (414)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 3,643 8,656 205
Effect of exchange rate changes on cash 23 26 (57)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,016 3,379 (87)
Cash and cash equivalents at beginning of year 7,471 4,092 4,179
- -------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 8,487 $ 7,471 $ 4,092
===============================================================================================================================
</TABLE>
See notes to consolidated financial statements.
19 (2000 Annual Report p. 44)
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AMERICAN EXPRESS COMPANY
Accumulated
Other
Common Capital Comprehensive Retained
Three Years Ended December 31, 2000 (Millions) Total Shares Surplus (Loss)/Income Earnings
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1997 $ 9,574 $ 280 $ 4,624 $ 482 $ 4,188
====================================================================================================================================
Comprehensive income:
Net income 2,141 2,141
Change in net unrealized securities gains 4 4
Foreign currency translation adjustments (15) (15)
--------
Total comprehensive income 2,130
Repurchase of common shares (1,890) (12) (196) (1,682)
Other changes, primarily employee plans 294 2 381 (89)
Cash dividends declared:
Common, $.30 per share (410) (410)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1998 9,698 270 4,809 471 4,148
====================================================================================================================================
Comprehensive income:
Net income 2,475 2,475
Change in net unrealized securities gains (879) (879)
Foreign currency translation adjustments 6 6
--------
Total comprehensive income 1,602
Repurchase of common shares (1,170) (5) (98) (1,067)
Other changes, primarily employee plans 369 3 485 (119)
Cash dividends declared:
Common, $.30 per share (404) (404)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1999 10,095 268 5,196 (402) 5,033
====================================================================================================================================
Comprehensive income:
Net income 2,810 2,810
Change in net unrealized securities gains 151 151
Foreign currency translation adjustments 33 33
--------
Total comprehensive income 2,994
Repurchase of common shares (1,327) (5) (228) (1,094)
Other changes, primarily employee plans 348 2 471 (125)
Cash dividends declared:
Common, $.32 per share (426) (426)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 2000 $ 11,684 $ 265 $ 5,439 $ (218) $ 6,198
====================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
20 (2000 Annual Report p. 45)
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying Consolidated Financial Statements include the accounts of
American Express Company and its subsidiaries (the company). All significant
intercompany transactions are eliminated. Some amounts are based on estimates
and assumptions, e.g., reserves for Cardmember Receivables and Loans, Deferred
Acquisition Costs, and Insurance and Annuity Reserves. These reflect the best
judgment of management and actual results could differ.
Certain amounts from prior years have been reclassified to conform to the
current presentation.
REVENUES
Cardmember Lending Net Finance Charge Revenue is presented net of interest
expense of $1,039 million, $674 million and $653 million for the years ended
December 31, 2000, 1999 and 1998, respectively. Interest and Dividends is
presented net of interest expense related primarily to the company's
international banking activities of $559 million, $453 million and $572 million
for the years ended December 31, 2000, 1999 and 1998, respectively.
MARKETING AND PROMOTION
The company expenses advertising costs in the year in which the advertising
first takes place.
CASH AND CASH EQUIVALENTS
At December 31, 2000 and 1999, cash and cash equivalents included $1.2 billion
and $0.8 billion, respectively, segregated in special bank accounts for the
benefit of customers. The company has defined cash equivalents to include time
deposits with original maturities of 90 days or less.
SEPARATE ACCOUNT ASSETS AND LIABILITIES
Separate account assets and liabilities are funds held for the exclusive benefit
of variable annuity and variable life insurance contract holders. The company
receives investment management fees, mortality and expense assurance fees,
minimum death benefit guarantee fees and cost of insurance charges from the
related accounts.
Note 2 INVESTMENTS
The following is a summary of investments included on the Consolidated Balance
Sheets at December 31:
<TABLE>
<CAPTION>
(Millions) 2000 1999
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Held-to-Maturity, at amortized cost $ 8,404 $ 9,221
Available-for-Sale, at fair value 31,052 29,570
Investment mortgage loans (fair value: 2000, $4,178; 1999, $3,901) 4,097 3,984
Trading 194 277
- ----------------------------------------------------------------------------------------------------
Total $43,747 $43,052
====================================================================================================
</TABLE>
21 (2000 Annual Report p. 46)
<PAGE>
<TABLE>
Investments classified as Held-to-Maturity and Available-for-Sale at December 31
are distributed by type and maturity as presented below:
<CAPTION>
Held-to-Maturity
- -----------------------------------------------------------------------------------------------------------------------------------
2000 1999
- -----------------------------------------------------------------------------------------------------------------------------------
Gross Gross Gross Gross
Unrealized Unrealized Fair Unrealized Unrealized Fair
(Millions) Cost Gains (Losses) Value Cost Gains (Losses) Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Corporate debt securities $5,304 $138 $(130) $5,312 $6,400 $111 $(114) $6,397
Mortgage-backed securities 1,785 12 -- 1,797 1,393 5 (33) 1,365
State and municipal obligations 986 47 -- 1,033 1,036 27 (3) 1,060
Foreign government bonds
and obligations 83 10 -- 93 98 9 -- 107
U.S. Government and
agencies obligations 50 4 -- 54 64 1 (2) 63
Other 196 2 (1) 197 230 -- (4) 226
- -----------------------------------------------------------------------------------------------------------------------------------
Total $8,404 $213 $(131) $8,486 $9,221 $153 $(156) $9,218
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Available-for-Sale
- -----------------------------------------------------------------------------------------------------------------------------------
2000 1999
- -----------------------------------------------------------------------------------------------------------------------------------
Gross Gross Gross Gross
Unrealized Unrealized Fair Unrealized Unrealized Fair
(Millions) Cost Gains (Losses) Value Cost Gains (Losses) Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Corporate debt securities $12,714 $124 $(908) $11,930 $12,238 $ 53 $ (742) $11,549
Mortgage-backed securities 9,259 126 (25) 9,360 8,898 14 (241) 8,671
State and municipal obligations 5,886 267 (15) 6,138 5,430 81 (160) 5,351
Foreign government bonds
and obligations 993 13 (4) 1,002 985 9 (15) 979
U.S. Government and
agencies obligations 48 3 -- 51 47 -- -- 47
Equity securities 510 197 (27) 680 611 525 (6) 1,130
Other 1,891 -- -- 1,891 1,844 -- (1) 1,843
- -----------------------------------------------------------------------------------------------------------------------------------
Total $31,301 $730 $(979) $31,052 $30,053 $682 $(1,165) $29,570
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-Sale
- ----------------------------------------------------------------------------------------------------------------------------------
December 31, 2000 (Millions) Cost Fair Value Cost Fair Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due within 1 year $ 962 $ 971 $ 2,120 $ 2,120
Due after 1 year through 5 years 3,365 3,353 5,606 5,502
Due after 5 years through 10 years 1,602 1,664 7,960 7,419
Due after 10 years 690 701 5,846 5,971
- ----------------------------------------------------------------------------------------------------------------------------------
6,619 6,689 21,532 21,012
Mortgage-backed securities 1,785 1,797 9,259 9,360
Equity securities -- -- 510 680
- ----------------------------------------------------------------------------------------------------------------------------------
Total $8,404 $8,486 $31,301 $31,052
==================================================================================================================================
</TABLE>
Mortgage-backed securities primarily include GNMA, FNMA and FHLMC securities at
December 31, 2000 and 1999.
22 (2000 Annual Report p. 47)
<PAGE>
The table below includes purchases, sales and maturities of investments
classified as Held-to-Maturity and Available-for-Sale for the years ended
December 31:
<TABLE>
<CAPTION>
2000 1999
- --------------------------------------------------------------------------------
Held-to- Available- Held-to- Available-
(Millions) Maturity for-Sale Maturity for-Sale
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchases $110 $8,465 $ 93 $11,557
Sales $ 61 $2,998 $ 90 $ 2,941
Maturities $848 $3,647 $1,313 $ 4,441
================================================================================
</TABLE>
Investments classified as Held-to-Maturity were sold during 2000 and 1999 due to
credit deterioration. Gross realized gains and losses on sales were negligible.
Gross realized gains and (losses) on sales of securities classified as
Available-for-Sale, using the specific identification method, were $170 million
and ($47 million), $64 million and ($23 million) and $130 million and ($42
million) for the years ended December 31, 2000, 1999 and 1998, respectively.
The increase in net unrealized gains on Trading securities, which is included in
income, was $16 million, $30 million and $3 million for the years ended December
31, 2000, 1999 and 1998, respectively.
In connection with the spin-off of Lehman Brothers Holdings Inc. (Lehman) in
1994, the company acquired 928 shares and Nippon Life Insurance company (Nippon
Life) acquired 72 shares of Lehman's redeemable voting preferred stock for a
nominal dollar amount. This security entitles its holders to receive an
aggregate annual dividend of 50 percent of Lehman's net income in excess of $400
million for each of eight years ending in May 2002, with a maximum dividend of
$50 million in any one year. In each of the three years ended December 31, 2000,
the company received a dividend of $46 million on these shares. In addition, the
company and Nippon Life were entitled to receive 92.8 percent and 7.2 percent,
respectively, of an earnings-related payout from Travelers Inc. (Travelers) that
was assigned by Lehman to the company and Nippon Life in connection with the
spin-off transaction. The earnings-related payout, which was 10 percent of
after-tax profits of Smith Barney, a subsidiary of Travelers, in excess of $250
million per year, was for five years and ended in 1998. The amount recognized in
relation to this payout was approximately $70 million in 1998.
The change in net unrealized securities gains recognized in Other Comprehensive
(Loss)/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 (losses) that were
previously unrealized, but have been recognized in 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
Shareholders' Equity.
<TABLE>
The following table presents these components of other comprehensive
(loss)/income, net of tax:
<CAPTION>
(Millions, net of tax) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Holding gains (losses) $ 231 $(852) $ 61
Reclassification for realized gains (80) (27) (57)
- ------------------------------------------------------------------------------------------------------
Increase (decrease) in net unrealized securities gains
recognized in other comprehensive (loss)/income $ 151 $(879) $ 4
======================================================================================================
</TABLE>
23 (2000 Annual Report p. 48)
<PAGE>
Note 3 LOANS
<TABLE>
Loans at December 31 consisted of:
<CAPTION>
(Millions) 2000 1999
- ---------------------------------------------------------------------------
<S> <C> <C>
Cardmember and Consumer Loans $22,486 $19,955
Commercial Loans:
Commercial and industrial 1,879 1,898
Loans to banks and other institutions 1,591 1,612
Mortgage and real estate 159 142
Other, principally policyholders' loans 769 728
- ----------------------------------------------------------------------------
26,884 24,335
Less: Reserves for credit losses 796 753
- ----------------------------------------------------------------------------
Total $26,088 $23,582
===========================================================================
</TABLE>
Note: American Express Financial Advisors (AEFA) mortgage loans of $4.1 billion
and $4.0 billion in 2000 and 1999, respectively, are included in Investment
Mortgage Loans and are presented in Note 2.
The following table presents changes in Reserves for Credit Losses related to
loans:
<TABLE>
<CAPTION>
(Millions) 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
Balance, January 1 $ 753 $ 812
Provision for credit losses 924 832
Write-offs (1,031) (1,062)
Recoveries of amounts previously written-off 150 171
- --------------------------------------------------------------------------------
Balance, December 31 $ 796 $ 753
================================================================================
</TABLE>
Note 4 SECURITIZED LOANS AND RECEIVABLES
The company securitizes loans and receivables and, in large part, subsequently
sells the interests in those assets' cash flows to third party investors. The
company continues to service the accounts and receives a fee for doing so; the
fair value and carrying amount of these future servicing fees, net of related
costs, are nil. Each new sale of securitized assets results in the removal of
the sold assets from the balance sheet, a reduction in a previously established
reserve for credit losses and the recognition of the present value of the future
net cash flows (i.e., finance charge income less interest paid to investors,
credit losses and servicing fees) related to the sold assets. This present value
amount represents a retained interest known as an interest-only strip. In some
instances, the company invests in subordinated interests issued by the
securitization trust; these are recorded as Investments classified as
Available-for-Sale.
The gain or loss recorded when assets are securitized is the difference between
the proceeds of sale and the book basis of the assets sold. That book basis is
determined by allocating the carrying amount of the assets, net of applicable
reserve for losses, between the assets sold and the retained interests based on
their relative fair values. Fair values are based on market prices at date of
transfer for assets sold and on the estimated present value of future cash flows
for retained interests.
The securitized loans and receivables sold as of December 31, 2000 are as
follows:
<TABLE>
<CAPTION>
Investments in
(Billions) Sold subordinated interests Net
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Cardmember Loans $11.3 $ 0.8 $10.5
Cardmember Receivables 3.1 0.2 2.9
- ---------------------------------------------------------------------------------
Total $14.4 $ 1.0 $13.4
=================================================================================
</TABLE>
24 (2000 Annual Report p. 49)
<PAGE>
U.S. CARDMEMBER LOANS
During 2000, 1999 and 1998, the company sold $4.0 billion, $4.0 billion and $1.0
billion, respectively, of U.S. Cardmember Loans, or $3.6 billion, $3.7 billion
and $0.9 billion net of investments in subordinated interests. The pretax gains
on these securitizations were $142 million, $154 million and $36 million,
respectively. Cash flows from interest-only strips as well as servicing revenue,
which is 2 percent of principal, are recorded in other revenues.
The value of retained interests is primarily subject to changes in credit risk,
average loan life, and interest rates on the transferred financial assets. Key
economic assumptions used in measuring the retained interests resulting from
securitizations during 2000 were as follows (rates are per annum):
<TABLE>
<CAPTION>
Cash flows from Returns to Investors
Average loan life Expected credit retained interests ----------------------------------------------
(months) losses discounted at Variable Fixed
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
8-12 4.46%-5.12% 6.0%-12.0% Contractual spread 5.6%-7.4%
over LIBOR ranging
from .09% to .9%
===================================================================================================================
</TABLE>
<TABLE>
The following table presents quantitative information about delinquencies, net
credit losses, and components of securitized U.S. Cardmember Loans at December
31, 2000:
<CAPTION>
Total Principal Principal Amount of Loans Net Credit Losses
(Billions) Amount of Loans 30 Days or More Past due During the Year 2000
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cardmember Loans managed $28.7 $0.8 $1.1
- -------------------------------------------------------------------------------------------------------------------
Less: Securitized Loans sold 11.3
- -------------------------------------------------------------------------------------------------------------------
Cardmember Loans on balance sheet $17.4
===================================================================================================================
</TABLE>
At December 31, 2000, retained interests, excluding subordinated interests, were
$272 million compared with $236 million a year earlier. The key economic
assumptions and the sensitivity of the current year's fair value to immediate 10
percent and 20 percent adverse changes in assumed economics are as follows:
<TABLE>
<CAPTION>
Cash flows from
Average loan life Expected credit retained interests
(Millions, except rates per annum) (months) losses discounted at Interest Rates
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assumption 8.5 4.48% 12% 6.74%
- -------------------------------------------------------------------------------------------------------------------
Impact on fair value of 10% adverse change $17.4 $17.7 $1.7 $ 9.6
- -------------------------------------------------------------------------------------------------------------------
Impact on fair value of 20% adverse change $33.5 $35.3 $3.3 $19.1
===================================================================================================================
</TABLE>
These sensitivities are hypothetical and will be different from what actually
occurs in the future. As the figures indicate, any change in fair value based on
a 10 percent variation in assumptions cannot be extrapolated because the
relationship of the change in assumption on the fair value of the retained
interest is calculated independent from any change in another assumption; in
reality, changes in one factor may result in changes in another, which magnify
or counteract the sensitivities.
<TABLE>
The table below summarizes cash flows received from securitization trusts in
2000:
<CAPTION>
(Millions)
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Proceeds from new securitizations during the period $ 3,630
Proceeds from reinvestment of payments in Cardmember securitizations $12,480
Servicing fees received $ 191
Other cash flows received on retained interests $ 667
===================================================================================================================
</TABLE>
25 (2000 Annual Report p. 50)
<PAGE>
CARDMEMBER RECEIVABLES
Sales of securitized Charge Card receivables result in a reduction of interest
expense and provisions for losses, and recognition of servicing revenues, which
is offset by discount expense on the securitized receivables. An obligation to
the securitization trust equal to the reserve for losses previously carried
against the receivables is recorded in Other Liabilities. Charge Card
receivables are collected generally within 30 days of billing and, as such, the
book value approximates fair value; therefore, recorded amounts are not
sensitive to the same factors as Cardmember Loans. At December 31, 2000, $2.9
billion in securitized Charge Card receivables had been sold.
Note 5 SHORT- AND LONG-TERM DEBT AND BORROWING AGREEMENTS
SHORT-TERM DEBT
At December 31, 2000 and 1999, the company's total short-term debt outstanding
was $36.0 billion and $30.6 billion, respectively, with weighted average
interest rates of 6.5% and 5.6%, respectively. At December 31, 2000 and 1999,
$9.7 billion and $8.2 billion, respectively, of short-term debt outstanding was
covered by interest rate swaps. The year-end weighted average effective interest
rates were 6.4% and 5.5% for 2000 and 1999, respectively. The company generally
paid fixed rates of interest under the terms of interest rate swaps. Unused
lines of credit to support commercial paper borrowings were approximately $9.7
billion at December 31, 2000.
<TABLE>
<CAPTION>
LONG-TERM DEBT
December 31, (Dollars in millions) 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Year-End Year-End
Year-End Effective Year-End Effective
Notional Stated Interest Notional Stated Interest Maturity
Outstanding Amount Rate on Rate with Maturity Outstanding Amount Rate on Rate with of
Balance of Swaps Debt(a,b) Swaps(a,b) of Swaps Balance of Swaps Debt(a,b) Swaps(a,b) Swaps
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Notes due November 1, 2005 $ 496 -- 6.875% -- -- -- -- -- -- --
Notes due June 23, 2004 500 -- 6.75% -- -- $ 499 -- 6.75% -- --
Notes due January 22, 2004 498 -- 5.625% -- -- 497 -- 5.625% -- --
Notes due August 12, 2002 400 $ 400 6.50% 6.83% 2002 400 $ 400 6.50% 6.06% 2002
Notes due June 15, 2000 -- -- -- -- -- 300 300 6.125% 6.29% 2000
Notes due November 15, 2001 300 -- 6.125% -- -- 300 300 6.125% 6.46% 2001
Notes due August 15, 2001 300 -- 8.50% -- -- 300 -- 8.50% -- --
Floating Rate Notes due
May 1, 2002 400 400 6.81% 6.90% 2002 400 400 6.26% 6.00% 2002
Floating Rate Notes due
December 31, 2001 300 -- 6.66% -- -- 300 -- 6.265% -- --
Other Fixed Senior Notes due 2001- 2000-
2000-2022 538 410 7.35% 7.68% 2012 1,271 865 6.66% 6.87% 2012
Other Floating Senior Notes
due 2000-2002 505 -- 6.57% -- -- 1,243 50 5.16% 5.19% 2000
Other Floating Rate Notes due 2001-
2000-2004 267 165 7.56% 7.55% 2004 251 150 6.97% 7.33% 2004
Other Fixed Rate Notes due 2003- 2001-
2000-2006 207 36 5.42% 5.53% 2004 234 54 5.62% 5.32% 2006
- ------------------------------------------------------------------------------------------------------------------------------------
Total $4,711 $1,411 6.73% $5,995 $2,519 6.23%
====================================================================================================================================
</TABLE>
(a) For floating rate debt issuances, the stated and effective interest rates
were based on the respective rates at December 31, 2000 and 1999; these
rates are not an indication of future interest rates.
(b) Weighted average rates were determined where appropriate.
26 (2000 Annual Report p. 51)
<PAGE>
The above interest rate swaps generally require the company to pay a floating
rate, with a predominant index of LIBOR (London Interbank Offered Rate).
The company paid interest (net of amounts capitalized) of $3.6 billion, $2.6
billion and $2.6 billion in 2000, 1999 and 1998, respectively.
Aggregate annual maturities of long-term debt for the five years ending December
31, 2005 are as follows (millions): 2001, $1,703; 2002, $932; 2003, $14; 2004,
$1,220; and 2005, $615.
Note 6 CUMULATIVE QUARTERLY INCOME PREFERRED SHARES
In 1998, American Express Company Capital Trust I, a wholly-owned subsidiary of
the company, established as a Delaware statutory business trust (the Trust),
completed a public offering of 20 million shares (carrying value of $500
million) of 7.0% Cumulative Quarterly Income Preferred Shares Series I
(QUIPS)(liquidation preference of $25 per share). Proceeds of the issue were
invested in Junior Subordinated Debentures (the Debentures) issued by the
company due 2028, which represent the sole assets of the Trust. The QUIPS are
subject to mandatory redemption upon repayment of the Debentures at maturity or
their earlier redemption. The company has the option to redeem the Debentures,
in whole or in part, at any time on or after July 16, 2003, which will result in
the redemption of a corresponding amount of QUIPS.
The company has unconditionally guaranteed all distributions required to be made
by the Trust, but only to the extent the Trust has funds legally available for
such distributions. The only source of funds for the Trust is the company's
interest payments on the Debentures. The company has the right to defer such
interest payments up to 20 consecutive quarters; as a consequence, quarterly
dividend payments on the QUIPS can be deferred by the Trust during any such
interest payment period. If the company defers any interest payments, the
company may not, among other things, pay any dividends on its capital stock
until all interest in arrears is paid to the Trust. Distributions on the QUIPS
are reported as Interest Expense in the Consolidated Statements of Income.
Note 7 COMMON AND PREFERRED SHARES
In September 1998, the company's Board of Directors authorized the company to
repurchase up to 120 million additional common shares over the subsequent two to
three years, subject to market conditions. The company has repurchased
approximately 343 million shares since 1994 pursuant to several authorizations,
including 43 million under the current authorization. These plans are designed
to allow the company to purchase shares, both to offset the issuance of new
shares as part of employee compensation plans and to reduce shares outstanding.
Of the common shares authorized but unissued at December 31, 2000, 180 million
shares were reserved for issuance for employee stock, employee benefit and
dividend reinvestment plans, as well as stock purchase agreements.
During 2000, the company entered into an agreement under which a third party
purchased 8 million company common shares at an average purchase price of
approximately $55 per share. During the term of the agreement, the company will
periodically issue shares to or receive shares from the third party so that the
value of the shares held by the third party equals the original purchase price
for the shares. At maturity in five years, the company is required to deliver to
the third party an amount equal to such original purchase price. The company may
elect to settle this amount (i) physically, by paying cash against delivery of
the shares held by the third party or (ii) on a net cash or net share basis. The
company may also prepay outstanding amounts at any time prior to the end of the
five-year term. The foregoing is in addition to a similar agreement entered into
during 1999, under which a third party purchased 21 million of the
27 (2000 Annual Report p. 52)
<PAGE>
company's common shares at an average purchase price of approximately $49 per
share. During 2000, net settlements under these agreements resulted in the
company receiving 2.4 million shares. These agreements, which partially offset
the company's exposure from its stock option program, are separate from the
company's previously authorized share repurchase program.
During 2000, the company's shareholders approved an increase in authorized
shares to effectuate a three-for-one stock split for shareholders of record as
of April 25, 2000. All of the information in this financial report reflects the
effect of the stock split.
<TABLE>
Common shares activity for each of the last three years ended December 31 was:
<CAPTION>
(Millions) 2000 1999 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares outstanding at beginning of year 1,341 1,351 1,399
Repurchases of common shares (25) (27) (58)
Other, primarily employee plans 10 17 10
- --------------------------------------------------------------------------------------------------
Shares outstanding at end of year 1,326 1,341 1,351
==================================================================================================
</TABLE>
The Board of Directors is authorized to permit the company to issue up to 20
million preferred shares without further shareholder approval.
Note 8 DERIVATIVE AND OTHER OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The company uses derivative financial instruments for nontrading purposes to
manage its exposure to interest and foreign exchange rates, financial indices
and its funding costs. In addition, American Express Bank (AEB) enters into
derivative contracts both to meet the needs of its clients and, to a limited
extent, for proprietary trading purposes.
There are a number of risks associated with derivatives. Market risk is the
possibility that the value of the derivative financial instrument will change.
The company is not exposed to market risk related to derivatives held for
nontrading purposes beyond that inherent in cash market transactions. AEB is
generally not subject to market risk when it enters into a contract with a
client, as it usually enters into an offsetting contract or uses the position to
offset an existing exposure. AEB takes proprietary positions within approved
limits. These positions are monitored daily at the local and headquarters levels
against Value at Risk (VAR) limits. The company 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. For its trading
activities with clients, AEB requires collateral when it is not willing to
assume credit exposure to counterparties for either contract mark-to-market or
delivery risk. A significant portion of the company's transactions are with
counterparties rated A or better by nationally recognized credit rating
agencies. The company also uses master netting agreements which allow the
company to settle multiple contracts with a single counterparty in one net
receipt or payment in the event of counterparty default. Credit risk
approximates the fair value of contracts in a gain position (asset) and totaled
$0.8 billion and $0.7 billion at December 31, 2000 and 1999, respectively. The
fair value represents the replacement cost and is determined by market values,
dealer quotes or pricing models.
28 (2000 Annual Report p. 53)
<PAGE>
<TABLE>
The following tables detail information regarding the company's derivatives at
December 31:
<CAPTION>
NONTRADING 2000
- ----------------------------------------------------------------------------------------------------------
Carrying Value Fair Value
(Millions) Notional Amount Asset Liability Asset Liability
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Rate Products:
Interest rate swaps $32,161 $105 $ 48 $152 $ 296
Interest rate caps and floors purchased 3,575 7 -- 2 1
Forward rate agreements 1,399 -- -- -- --
Other 64 -- -- -- 62
- ----------------------------------------------------------------------------------------------------------
Total Interest Rate Products 37,199 112 48 154 359
Foreign currency forward and spot contracts 8,471 57 121 80 182
Other Products 2,532 97 31 189 14
- ----------------------------------------------------------------------------------------------------------
Total $48,202 $266 $200 $423 $ 555
==========================================================================================================
<CAPTION>
NONTRADING 1999
- ----------------------------------------------------------------------------------------------------------
Carrying Value Fair Value
(Millions) Notional Amount Asset Liability Asset Liability
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Rate Products:
Interest rate swaps $20,971 $ 63 $ 64 $137 $ 225
Interest rate caps and floors purchased 3,625 10 -- 15 2
Forward rate agreements 567 8 9 -- --
Other 63 -- -- -- 63
- ----------------------------------------------------------------------------------------------------------
Total Interest Rate Products 25,226 81 73 152 290
Foreign currency forward and spot contracts 6,910 62 53 76 114
Other Products 1,705 174 50 175 68
- ----------------------------------------------------------------------------------------------------------
Total $33,841 $317 $176 $403 $472
==========================================================================================================
<CAPTION>
TRADING 2000
- ----------------------------------------------------------------------------------------------------------
Carrying/Fair Value Average Fair Value
(Millions) Notional Amount Asset Liability Asset Liability
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Rate Products:
Interest rate swaps $ 2,115 $ 41 $ 32 $ 45 $ 39
Futures options written 800 -- -- -- --
Futures options purchased 800 -- -- -- --
Other 1,612 1 2 1 2
- ----------------------------------------------------------------------------------------------------------
Total Interest Rate Products 5,327 42 34 46 41
- ----------------------------------------------------------------------------------------------------------
Foreign Currency Products:*
Forward and spot contracts 16,112 315 288 260 209
Foreign currency options written 1,550 -- 38 -- 36
Foreign currency options purchased 1,642 42 -- 38 --
- ----------------------------------------------------------------------------------------------------------
Total Foreign Currency Products 19,304 357 326 298 245
- ----------------------------------------------------------------------------------------------------------
Other Products 128 1 1 -- --
- ----------------------------------------------------------------------------------------------------------
Total $24,759 $400 $361 $344 $286
==========================================================================================================
</TABLE>
29 (2000 Annual Report p. 54)
<PAGE>
<TABLE>
<CAPTION>
TRADING 1999
- ---------------------------------------------------------------------------------------------------
Carrying/Fair Value Average Fair Value
(Millions) Notional Amount Asset Liability Asset Liability
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Rate Products:
Interest rate swaps $ 2,184 $ 54 $ 45 $ 54 $ 46
Other 446 1 2 1 4
- ---------------------------------------------------------------------------------------------------
Total Interest Rate Products 2,630 55 47 55 50
- ---------------------------------------------------------------------------------------------------
Foreign Currency Products:*
Forward and spot contracts 13,183 204 142 211 169
Foreign currency options written 1,263 -- 39 -- 37
Foreign currency options purchased 1,272 45 -- 37 --
- ---------------------------------------------------------------------------------------------------
Total Foreign Currency Products 15,718 249 181 248 206
- ---------------------------------------------------------------------------------------------------
Total $18,348 $304 $228 $303 $256
===================================================================================================
</TABLE>
*These are predominantly contracts with clients and the related hedges of those
client contracts. The company's net trading foreign currency exposure was
approximately $72 million and $93 million at December 31, 2000 and 1999,
respectively.
The average aggregate fair values of derivative financial instruments held for
trading purposes were computed based on monthly information. Net derivative
trading gains of $96 million and $83 million for 2000 and 1999, respectively,
were primarily due to trading in foreign currency forward contracts and are
included in Other Commissions and Fees.
INTEREST RATE PRODUCTS
The company uses interest rate products, principally swaps, primarily to manage
funding costs related to Travel Related Services' (TRS) Charge Card and
Cardmember lending businesses. For its Charge Card and fixed rate lending
products, TRS uses interest rate swaps and, to a lesser extent, caps to achieve
a mix of fixed and floating rate funding. For the majority of its Cardmember
loans, which are linked to a floating rate base and generally reprice each
month, TRS uses floating rate funding.
AEB uses interest rate products to manage its portfolio of loans, deposits,
long-term debt and securities holdings. The termination dates of nontrading
interest rate swaps are generally matched with the maturity dates of the
underlying assets and liabilities.
For interest rate swaps that are used for nontrading purposes and meet the
criteria for hedge accounting, interest is accrued and reported in Other
Receivables and Interest and Dividends or Accounts Payable and Interest Expense,
as appropriate. Products used for trading purposes are reported at fair value in
Other Assets or Other Liabilities, as appropriate, with unrealized gains and
losses recognized currently in Other Revenues.
AEFA uses interest rate caps, swaps and floors to protect the margin between the
interest rates earned on investments and the interest rates credited to holders
of investment certificates and fixed annuities. Interest rate caps, swaps and
floors generally mature within five years. The costs of interest rate caps and
floors are reported in Other Assets and amortized into Interest and Dividends on
a straight-line basis over the term of the contract; benefits are recognized in
income when earned.
See Note 5 for further information regarding the company's use of interest rate
products related to short- and long-term debt obligations.
FOREIGN CURRENCY PRODUCTS
The company uses foreign currency products primarily to hedge net investments in
foreign operations and to manage transactions denominated in foreign currencies.
In addition, AEB enters into derivative contracts both to meet the needs of its
clients and, to a limited extent, for trading purposes, including taking
proprietary positions.
30 (2000 Annual Report p. 55)
<PAGE>
Foreign currency exposures are hedged, where practical and economical, through
foreign currency contracts. Foreign currency contracts involve the purchase and
sale of a designated currency at an agreed-upon rate for settlement on a
specified date. Foreign currency forward contracts generally mature within one
year, whereas foreign currency spot contracts generally settle within two days.
For foreign currency products used to hedge net investments in foreign
operations, unrealized gains and losses as well as related premiums and
discounts are reported in Shareholders' Equity. For foreign currency contracts
related to transactions denominated in foreign currencies, unrealized gains and
losses are reported in Other Assets and Other Commissions and Fees or Other
Liabilities and Other Expenses, as appropriate. Related premiums and discounts
are reported in Other Assets or Other Liabilities, as appropriate, and amortized
into Interest Expense and Other Expenses over the term of the contract. Foreign
currency products used for trading purposes are reported at fair value in Other
Assets or Other Liabilities, as appropriate, with unrealized gains and losses
recognized currently in Other Commissions and Fees.
The company also uses foreign currency forward contracts to hedge its firm
commitments. In addition, for selected major overseas markets, the company uses
foreign currency forward contracts to hedge future income, generally for periods
not exceeding one year; unrealized gains and losses are recognized currently in
income. In the latter part of 2000 and 1999, foreign currency forward contracts
were both sold (with notional amounts of $386 million and $611 million,
respectively) and purchased (with notional amounts of $92 million and $25
million, respectively) to manage a majority of anticipated future cash flows in
major overseas markets. The impact of these activities was not material.
OTHER PRODUCTS
Other Products also include written and purchased index options used by AEFA to
manage the margin related to certain investment certificate and annuity products
that pay interest based upon the relative change in a major stock market index
between the beginning and end of the product's term. Purchased and written
options used in conjunction with these products are reported in Other Assets and
Other Liabilities, respectively. The amortization of the cost of purchased
options and the proceeds of written options, along with changes in intrinsic
value of the contracts, are included in Interest and Dividends. At December 31,
2000 and 1999, the notional value of these options was $2.1 billion and $1.6
billion, respectively.
OTHER OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The company's other off-balance sheet financial instruments principally relate
to extending credit to satisfy the needs of its clients. The contractual amount
of these instruments represents the maximum potential credit risk, assuming the
contract amount is fully utilized, the counterparty defaults and collateral held
is worthless. Management does not expect any material adverse consequence to the
company's financial position to result from these contracts.
<TABLE>
<CAPTION>
December 31, (Millions) 2000 1999
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Unused credit available to Cardmembers $91,667 $67,565
Loan commitments and other lines of credit $ 1,312 $ 1,254
Standby letters of credit and guarantees $ 1,100 $ 1,407
Commercial and other letters of credit $ 500 $ 411
====================================================================================================
</TABLE>
The company is committed to extend credit to certain Cardmembers as part of
established lending product agreements. Many of these are not expected to be
drawn; therefore, total unused credit available to Cardmembers does not
represent future cash requirements. The company's Charge Card products have no
preset spending limit and are not reflected in unused credit available to
Cardmembers.
The company may require collateral to support its loan commitments based on the
creditworthiness of the borrower.
31 (2000 Annual Report p. 56)
<PAGE>
Standby letters of credit and guarantees primarily represent conditional
commitments to insure the performance of the company's customers to third
parties. These commitments generally expire within one year.
The company issues commercial and other letters of credit to facilitate the
short-term trade-related needs of its clients, which typically mature within six
months. At December 31, 2000 and 1999, the company held $687 million and $1,023
million, respectively, of collateral supporting standby letters of credit and
guarantees and $242 million and $220 million, respectively, of collateral
supporting commercial and other letters of credit.
Other financial institutions have committed to extend lines of credit to the
company of $12.4 billion and $11.5 billion at December 31, 2000 and 1999,
respectively.
Note 9 FAIR VALUES OF FINANCIAL INSTRUMENTS
<TABLE>
The following table discloses fair value information for on- and off-balance
sheet financial instruments. Certain items, such as life insurance obligations,
employee benefit obligations and investments accounted for under the equity
method are excluded. The fair values of financial instruments are estimates
based upon market conditions and perceived risks at December 31, 2000 and 1999
and require management judgment. These figures may not be indicative of their
future fair values.
<CAPTION>
December 31, (Millions) 2000 1999
- ---------------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Assets for which carrying values approximate fair values $73,940 $73,940 $71,735 $71,735
Investments $43,747 $43,910 $43,052 $42,963
Loans $26,213 $26,118 $23,680 $23,594
Derivative financial instruments, net $ 105 $ (93) $ 217 $ 7
=====================================================================================================================
FINANCIAL LIABILITIES
Liabilities for which carrying values approximate fair values $68,975 $68,975 $60,932 $60,932
Fixed annuity reserves $18,021 $17,479 $19,189 $18,592
Investment certificate reserves $ 7,322 $ 7,289 $ 5,922 $ 5,905
Long-term debt $ 4,711 $ 4,743 $ 5,995 $ 5,949
Separate account liabilities $28,792 $27,823 $31,870 $31,015
=====================================================================================================================
</TABLE>
The carrying and fair values of other off-balance sheet financial instruments
are not material as of December 31, 2000 and 1999. See Notes 2 and 8 for
carrying and fair value information regarding investments and derivative
financial instruments, respectively. The following methods were used to estimate
the fair values of financial assets and financial liabilities:
FINANCIAL ASSETS
Assets for which carrying values approximate fair values include cash and cash
equivalents, accounts receivable and accrued interest, separate account assets
and certain other assets.
For variable rate loans that reprice within a year where there has been no
significant change in counterparties' creditworthiness, fair values are based on
carrying values.
The fair values of all other loans, except those with significant credit
deterioration, are estimated using discounted cash flow analysis, based on
current interest rates for loans with similar terms to borrowers of similar
credit quality. For loans with significant credit deterioration, fair values are
based on estimates of future cash flows discounted at rates commensurate with
the risk inherent in the revised cash flow projections, or for collateral
dependent loans, on collateral values.
32 (2000 Annual Report p. 57)
<PAGE>
FINANCIAL LIABILITIES
Liabilities for which carrying values approximate fair values include customers'
deposits, travelers cheques outstanding, accounts payable, short-term debt and
certain other liabilities.
Fair values of fixed annuities in deferral status are estimated as the
accumulated value less applicable surrender charges and loans. For annuities in
payout status, fair value is estimated using discounted cash flows, based on
current interest rates. The fair value of these reserves excludes life
insurance-related elements of $1.3 billion and $1.4 billion in 2000 and 1999,
respectively.
For variable rate investment certificates that reprice within a year, fair
values approximate carrying values. For other investment certificates, fair
value is estimated using discounted cash flows based on current interest rates.
The valuations are reduced by the amount of applicable surrender charges and
related loans.
For variable rate long-term debt that reprices within a year, fair values
approximate carrying values. For other long-term debt, fair value is estimated
using either quoted market prices or discounted cash flows based on the
company's current borrowing rates for similar types of borrowing.
Fair values of separate account liabilities, after excluding life
insurance-related elements of $3.6 billion and $4.0 billion in 2000 and 1999,
respectively, are estimated as the accumulated value less applicable surrender
charges.
Note 10 SIGNIFICANT CREDIT CONCENTRATIONS
A credit concentration may exist if customers are involved in similar
industries. The company's customers operate in diverse economic sectors.
Therefore, management does not expect any material adverse consequences to the
company's financial position to result from credit concentrations. Certain
distinctions between categories require management judgment.
<TABLE>
<CAPTION>
December 31, (Dollars in millions) 2000 1999
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Financial institutions(a) $ 19,221 $17,489
Individuals(b) 143,926 112,616
U.S. Government and agencies(c) 17,015 16,498
All other 25,398 26,127
- -------------------------------------------------------------------------------------------------
Total $205,560 $172,730
=================================================================================================
Composition:
On-balance sheet 54% 59%
Off-balance sheet 46 41
- -------------------------------------------------------------------------------------------------
Total 100% 100%
=================================================================================================
</TABLE>
(a) Financial institutions primarily include banks, broker-dealers, insurance
companies and savings and loan associations.
(b) Charge Card products have no preset spending limit; therefore, the
quantified credit amount includes only Cardmember receivables recorded on
the Consolidated Balance Sheets.
(c) U.S. Government and agencies represent the U.S. Government and its agencies,
states and municipalities, and quasi-government agencies.
Note 11 STOCK PLANS
Under the 1998 Incentive Compensation Plan and previously under the 1989
Long-Term Incentive Plan (the Plans), awards may be granted to officers, other
key employees and other key individuals who perform services for the company and
its participating subsidiaries. These awards may be in the form of stock
options, stock appreciation rights, restricted stock, performance grants and
similar awards designed to meet the requirements of non-U.S. jurisdictions. The
company also has options outstanding pursuant to a Directors' Stock Option Plan.
Under these plans, there were a total of 87.9 million, 122.9 million and 159.2
million common shares available for grant at December 31, 2000, 1999
33 (2000 Annual Report p. 58)
<PAGE>
and 1998, respectively. Each option has an exercise price at least equal to the
market price of the company's common stock on the date of grant and a maximum
term of 10 years. Options granted prior to 1999 generally vest at 33 1/3 percent
per year beginning with the first anniversary of the grant date. Starting in
1999, options granted generally vest at 33 1/3 percent per year beginning with
the second anniversary of the grant date. The company also sponsors the American
Express Incentive Savings Plan, under which purchases of the company's common
shares are made by or on behalf of participating employees.
In 1998, the Compensation and Benefits Committee adopted a restoration stock
option program applicable to existing and future stock option awards. This
program provides that employees who exercise options that have been outstanding
at least five years by surrendering previously owned shares as payment will
automatically receive a new (restoration) stock option with an exercise price
equal to the market price on the date of exercise. The size of the restoration
option is equal to the number of shares surrendered plus any shares surrendered
or withheld to satisfy the employees' income tax requirements. The term of the
restoration option, which is exercisable six months after grant, is equal to the
remaining life of the original option. Senior officers must be in compliance
with their stock ownership guidelines to exercise restoration options.
The company granted 1.5 million, 1.3 million and 0.4 million restricted stock
awards with a weighted average grant date value of $43.46, $36.25 and $29.66 per
share for 2000, 1999 and 1998, respectively. Restrictions generally expire four
years from date of grant. The compensation cost that has been charged against
income for the company's restricted stock awards was $41 million, $38 million
and $36 million for 2000, 1999 and 1998, respectively.
The company has elected to follow APB Opinion No. 25, "Accounting for Stock
Issued to Employees," and related Interpretations in accounting for its employee
stock options. Therefore, no compensation cost has been recognized related to
stock options. If the company had elected to account for its stock options under
the fair value method of SFAS No. 123, "Accounting for Stock-Based
Compensation," the company's net income and earnings per common share would have
been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
(Millions, except per share amounts) 2000 1999 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income:
As reported $2,810 $2,475 $2,141
Pro forma $2,616 $2,348 $2,060
Basic EPS:
As reported $ 2.12 $ 1.85 $ 1.57
Pro forma $ 1.97 $ 1.75 $ 1.51
Diluted EPS:
As reported $ 2.07 $ 1.81 $ 1.54
Pro forma $ 1.92 $ 1.71 $ 1.48
==================================================================================================
</TABLE>
<TABLE>
<CAPTION>
The fair value of each option is estimated on the date of grant using a
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 2000, 1999 and 1998, respectively:
2000 1999 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividend yield 1.1% 1.5% 2.0%
Expected volatility 29% 30% 24%
Risk-free interest rate 6.7% 5.1% 5.5%
Expected life of stock option 5 years 5 years 5 years
==================================================================================================
</TABLE>
34 (2000 Annual Report p. 59)
<PAGE>
The dividend yield reflects the assumption that the current dividend payout will
continue with no anticipated increases. The expected life of the options is
based on historical data and is not necessarily indicative of exercise patterns
that may occur. The weighted average fair value per option was $14.92, $11.09
and $7.23 for options granted during 2000, 1999 and 1998, respectively.
A summary of the status of the company's stock option plans as of December 31
and changes during each of the years then ended is presented below:
<TABLE>
<CAPTION>
(Shares in thousands) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 94,512 $27.96 76,658 $21.49 60,123 $14.77
Granted 39,273 $44.38 36,529 $36.53 34,483 $29.51
Exercised (14,114) $19.45 (16,033) $16.20 (13,230) $11.72
Forfeited/Expired (5,211) $36.87 (2,642) $29.82 (4,718) $21.96
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 114,460 $34.23 94,512 $27.96 76,658 $21.49
- ------------------------------------------------------------------------------------------------------------------------------------
Options exercisable at end of year 33,966 $23.61 32,476 $18.70 29,153 $13.37
====================================================================================================================================
</TABLE>
<TABLE>
The following table summarizes information about the stock options outstanding
at December 31, 2000:
<CAPTION>
(Shares in thousands) Options Outstanding Options Exercisable
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 6.25-$28.99 22,903 5.4 $18.25 20,021 $16.97
$29.00-$34.99 20,682 7.2 $29.45 10,880 $29.55
$35.00-$41.99 31,277 8.2 $36.01 726 $37.36
$42.00-$61.44 39,598 8.8 $44.55 2,339 $48.47
- ------------------------------------------------------------------------------------------------------------------------------------
$ 6.25-$61.44 114,460 7.7 $34.23 33,966 $23.61
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 12 RETIREMENT PLANS
PENSION PLANS
The company sponsors the American Express Retirement Plan (the Plan), a
noncontributory defined benefit plan which is a qualified plan under the
Employee Retirement Income Security Act of 1974, as amended (ERISA), under which
the cost of retirement benefits for eligible employees in the United States is
measured by length of service, compensation and other factors and is currently
being funded through a trust. Funding of retirement costs for the Plan complies
with the applicable minimum funding requirements specified by ERISA. Employees'
accrued benefits are based on recordkeeping account balances which are
maintained for each individual and are credited with additions equal to a
percentage, based on age plus service, of base pay, certain commissions and
bonuses, overtime and shift differential, each pay period. Employees' balances
are also credited daily with a fixed rate of interest that is updated each
January 1 and is based on the average of the daily five-year U.S. Treasury Note
yields for the previous October 1 through November 30. Employees have the option
to receive annuity payments or a lump sum payout at vested termination or
retirement.
In addition, the company sponsors an unfunded non-qualified Supplemental
Retirement Plan (the SRP) for certain highly compensated employees to replace
the benefit that cannot be provided by the Plan. The SRP generally parallels the
Plan but offers different payment options.
35 (2000 Annual Report p. 60)
<PAGE>
Most employees outside the United States are covered by local retirement plans,
some of which are funded, or receive payments at the time of retirement or
termination under applicable labor laws or agreements.
Plan assets consist principally of equities and fixed income securities.
The components of the net pension cost for all defined benefit plans accounted
for under SFAS No. 87, "Employers' Accounting for Pensions," are as follows:
<TABLE>
<CAPTION>
(Millions) 2000 1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 95 $ 89 $ 79
Interest cost 98 88 80
Expected return on plan assets (102) (93) (85)
Amortization of:
Prior service cost (9) (9) (9)
Transition obligation 3 1 1
Reversion gain (4) (4) (4)
Recognized net actuarial loss 5 7 --
Settlement/Curtailment gain (22) (16) (13)
- ------------------------------------------------------------------------------------------------------
Net periodic pension benefit cost $ 64 $ 63 $ 49
======================================================================================================
</TABLE>
The funded status of the company's pension plans is based on valuations as of
September 30. The following tables provide a reconciliation of the changes in
the plans' benefit obligation and fair value of assets for all plans accounted
for under SFAS No. 87:
<TABLE>
RECONCILIATION OF CHANGE IN BENEFIT OBLIGATION
<CAPTION>
(Millions) 2000 1999
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Benefit obligation, October 1 prior year $1,330 $1,322
Service cost 95 89
Interest cost 98 88
Benefits paid (40) (40)
Actuarial loss (gain) 39 (56)
Settlements/Curtailments (84) (53)
Foreign currency exchange rate changes (35) (20)
- -------------------------------------------------------------------------------------------------------
Benefit obligation at September 30, $1,403 $1,330
=======================================================================================================
RECONCILIATION OF CHANGE IN FAIR VALUE OF PLAN ASSETS
(Millions) 2000 1999
- -------------------------------------------------------------------------------------------------------
Fair value of plan assets, October 1 prior year $1,347 $1,178
Actual return on plan assets 244 220
Employer contributions 41 56
Benefits paid (40) (40)
Settlements/Curtailments (80) (52)
Foreign currency exchange rate changes (32) (15)
- -------------------------------------------------------------------------------------------------------
Fair value of plan assets at September 30, $1,480 $1,347
=======================================================================================================
</TABLE>
36 (2000 Annual Report p. 61)
<PAGE>
<TABLE>
The following table reconciles the plans' funded status to the amounts
recognized on the Consolidated Balance Sheets:
<CAPTION>
FUNDED STATUS
(Millions) 2000 1999
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Funded status at September 30, $ 77 $ 17
Unrecognized net actuarial gain (237) (141)
Unrecognized prior service cost (51) (60)
Unrecognized net transition obligation (3) (1)
Fourth quarter contributions (net of benefit payments) 3 4
- -----------------------------------------------------------------------------------------------------
Net amount recognized at December 31, $(211) $(181)
=====================================================================================================
</TABLE>
<TABLE>
The following table provides the amounts recognized on the Consolidated Balance
Sheets as of December 31:
<CAPTION>
(Millions) 2000 1999
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Accrued benefit liability $(314) $(275)
Prepaid benefit cost 89 80
Intangible asset 14 14
- -----------------------------------------------------------------------------------------------------
Net amount recognized at December 31, $(211) $(181)
=====================================================================================================
</TABLE>
The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for the pension plans with accumulated benefit obligations in
excess of plan assets were $191 million, $171 million and $16 million,
respectively, as of December 31, 2000, and $175 million, $156 million and $16
million, respectively, as of December 31, 1999.
The prior service costs are amortized on a straight-line basis over the average
remaining service period of active participants. Gains and losses in excess of
10 percent of the greater of the benefit obligation and the market-related value
of assets are amortized over the average remaining service period of active
participants.
The weighted average assumptions used in the company's defined benefit plans
were:
<TABLE>
<CAPTION>
2000 1999
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Discount rates 7.4% 7.3%
Rates of increase in compensation levels 4.4% 4.3%
Expected long-term rates of return on assets 9.5% 9.4%
=====================================================================================================
</TABLE>
The company also has a defined contribution retirement plan (a 401(k) savings
plan with a profit sharing feature) covering most employees in the United
States. The defined contribution plan expense was $137 million, $126 million and
$106 million in 2000, 1999 and 1998, respectively.
OTHER POSTRETIREMENT BENEFITS
The company sponsors postretirement benefit plans that provide health
care, life insurance and other postretirement benefits to retired U.S.
employees. Net periodic postretirement benefit expenses were $26 million, $20
million and $17 million in 2000, 1999 and 1998, respectively. The liabilities
recognized on the Consolidated Balance Sheets for the company's defined
postretirement benefit plans (other than pension plans) at December 31, 2000 and
1999 were $211 million and $205 million, respectively.
37 (2000 Annual Report p. 62)
<PAGE>
Note 13 INCOME TAXES
<TABLE>
The provisions for income taxes were as follows:
<CAPTION>
(Millions) 2000 1999 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal $ 748 $ 645 $ 465
State and local 76 76 35
Foreign 274 242 284
- --------------------------------------------------------------------------------------------
Total $1,098 $ 963 $784
============================================================================================
</TABLE>
Accumulated net earnings of certain foreign subsidiaries, which totaled $1.9
billion at December 31, 2000, are intended to be permanently reinvested outside
the United States. Accordingly, federal taxes, which would have aggregated $287
million, have not been provided on those earnings.
The current and deferred components of the provision for income taxes were as
follows:
<TABLE>
<CAPTION>
(Millions) 2000 1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current $1,209 $ 716 $ 883
Deferred (111) 247 (99)
- ---------------------------------------------------------------------------------------------
Total $1,098 $ 963 $ 784
=============================================================================================
</TABLE>
<TABLE>
The company's net deferred tax assets at December 31 were as follows:
<CAPTION>
(Millions) 2000 1999
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets $3,500 $3,126
Deferred tax liabilities 2,023 1,691
- ---------------------------------------------------------------------------------------------
Net deferred tax assets $1,477 $1,435
=============================================================================================
</TABLE>
Deferred tax assets for 2000 and 1999 primarily reflect reserves not yet
deducted for tax purposes of $1.9 billion and $1.7 billion, respectively;
deferred Cardmember fees of $254 million and $230 million, respectively;
deferred compensation of $370 million and $358 million, respectively; and
deferred taxes related to SFAS No. 115 of $71 million and $145 million,
respectively. Deferred tax liabilities for 2000 and 1999 are mainly comprised of
deferred acquisition costs of $987 million and $919 million, respectively; and
depreciation and amortization of $323 million and $200 million, respectively.
The principal reasons that the aggregate income tax provision is different from
that computed by using the U.S. statutory rate of 35 percent are as follows:
<TABLE>
<CAPTION>
(Millions) 2000 1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Combined tax at U.S. statutory rate $1,368 $1,203 $1,024
Changes in taxes resulting from:
Tax-preferred investments (211) (171) (157)
Tax-exempt element of dividend income (26) (43) (38)
Foreign income taxed at rates other than
U.S. statutory rate (38) (35) (44)
State and local income taxes 50 49 23
All other (45) (40) (24)
- ---------------------------------------------------------------------------------------------
Income tax provision $1,098 $ 963 $ 784
=============================================================================================
</TABLE>
38 (2000 Annual Report p. 63)
<PAGE>
Net income taxes paid by the company during 2000, 1999 and 1998 were $858
million, $392 million and $977 million, respectively, and include estimated tax
payments and cash settlements relating to prior tax years.
The items composing comprehensive income in the Consolidated Statements of
Shareholders' Equity are presented net of income tax provision (benefit). The
changes in net unrealized securities gains are presented net of tax provision
(benefit) of $81 million, $(473) million and $2 million for 2000, 1999 and 1998,
respectively. Foreign currency translation adjustments are presented net of tax
provision (benefit) of $18 million, $3 million and $(8) million for 2000, 1999
and 1998, respectively.
Note 14 EARNINGS PER COMMON SHARE
Basic earnings per share (EPS) is computed using the average actual shares
outstanding during the period. Diluted EPS is basic EPS adjusted for the
dilutive effect of stock options, restricted stock awards (RSAs) and other
financial instruments that may be converted into common shares. The basic and
diluted EPS computations are as follows:
<TABLE>
<CAPTION>
(Millions, except per share amounts) 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Net income $2,810 $2,475 $2,141
Denominator:
Denominator for basic EPS--weighted-average shares 1,327 1,340 1,363
Effect of dilutive securities:
Stock Options, RSAs and other 33 29 25
- ---------------------------------------------------------------------------------------------------------
Denominator for diluted EPS 1,360 1,369 1,388
- ---------------------------------------------------------------------------------------------------------
Basic EPS $ 2.12 $ 1.85 $ 1.57
- ---------------------------------------------------------------------------------------------------------
Diluted EPS $ 2.07 $ 1.81 $ 1.54
=========================================================================================================
</TABLE>
Note 15 OPERATING SEGMENTS AND GEOGRAPHIC OPERATIONS
OPERATING SEGMENTS
The company is principally engaged in providing travel related, financial
advisory and international banking services throughout the world. Travel Related
Services' (TRS) products and services include, among others, Charge Cards,
Cardmember lending products, Travelers Cheques, and corporate and consumer
travel services. American Express Financial Advisors' (AEFA) services and
products include financial planning and advice, investment advisory services and
a variety of products, including insurance and annuities, investment
certificates and mutual funds. American Express Bank (AEB) products and services
include providing financial institution, corporate and private banking, personal
financial services and global trading. The company operates on a global basis,
although the principal market for financial advisory services is the United
States.
The following table presents certain information regarding these operating
segments at December 31, 2000, 1999 and 1998 and for each of the years then
ended. The TRS segment now includes Travelers Cheque (TC) operations, which had
previously been included in the American Express Bank/TC segment. For certain
income statement items that are affected by asset securitizations at TRS, data
is provided on both a managed basis, which excludes the effect of
securitizations, as well as on a GAAP basis. See Note 4 to the Consolidated
Financial Statements and the TRS Results of Operations section of the Financial
Review for further information regarding the effect of securitizations on the
financial statements. In addition, net revenues (managed basis) are presented
net of provisions for losses and benefits for annuities, insurance and
investment certificate products of AEFA.
39 (2000 Annual Report p. 64)
<PAGE>
<TABLE>
<CAPTION>
American
Travel Express American Corporate Adjustments
Related Financial Express and and
(Millions) Services Advisors Bank Other Eliminations Consolidated
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
2000
Net revenues (managed basis) $17,441 $ 4,219 $ 591 $ 167 $ (333) $ 22,085
Revenues (GAAP basis) 17,120 6,130 591 167 (333) 23,675
Interest and dividends, net 803 2,292 251 165 (221) 3,290
Cardmember lending net finance
charge revenue:
Managed basis 2,383 -- -- -- -- 2,383
GAAP basis 987 -- -- -- -- 987
Interest expense:
Managed basis 1,571 22 -- 180 (214) 1,559
GAAP basis 1,366 22 -- 180 (214) 1,354
Pretax income (loss) 2,713 1,483 33 (321) -- 3,908
Income tax provision (benefit) 784 451 4 (141) -- 1,098
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) 1,929 1,032 29 (180) -- 2,810
- -------------------------------------------------------------------------------------------------------------------
Assets $71,419 $73,560 $11,413 $16,487 $(18,456) $154,423
===================================================================================================================
1999
Net revenues (managed basis) $15,234 $ 3,737 $ 621 $ 109 $ (218) $ 19,483
Revenues (GAAP basis) 15,130 5,636 621 109 (218) 21,278
Interest and dividends, net 643 2,443 291 105 (136) 3,346
Cardmember lending net finance
charge revenue:
Managed basis 1,929 -- -- -- -- 1,929
GAAP basis 1,333 -- -- -- -- 1,333
Interest expense:
Managed basis 1,204 32 -- 164 (129) 1,271
GAAP basis 984 32 -- 164 (129) 1,051
Pretax income (loss) 2,383 1,363 27 (335) -- 3,438
Income tax provision (benefit) 691 428 5 (161) -- 963
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) 1,692 935 22 (174) -- 2,475
- -------------------------------------------------------------------------------------------------------------------
Assets $63,233 $74,644 $11,354 $14,449 $(15,163) $148,517
===================================================================================================================
1998
Net revenues (managed basis) $13,524 $ 3,181 $ 620 $ 112 $ (225) $ 17,212
Revenues (GAAP basis) 13,530 5,095 620 112 (225) 19,132
Interest and dividends, net 581 2,437 290 103 (134) 3,277
Cardmember lending net finance
charge revenue:
Managed basis 1,660 -- -- -- -- 1,660
GAAP basis 1,354 -- -- -- -- 1,354
Interest expense:
Managed basis 1,191 21 -- 149 (131) 1,230
GAAP basis 960 21 -- 149 (131) 999
Pretax income (loss) 2,070 1,192 (135) (202) -- 2,925
Income tax provision (benefit) 579 374 (51) (118) -- 784
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) 1,491 818 (84) (84) -- 2,141
- -------------------------------------------------------------------------------------------------------------------
Assets $51,164 $64,637 $11,576 $ 3,606 $ (4,050) $126,933
===================================================================================================================
</TABLE>
40 (2000 Annual Report p. 65)
<PAGE>
Income tax provision (benefit) is calculated on a separate return basis;
however, benefits from operating losses, loss carrybacks and tax credits
(principally foreign tax credits) recognizable for the company's consolidated
reporting purposes are allocated based upon the tax sharing agreement among
members of the American Express Company consolidated U.S. tax group.
Assets are those that are used or generated exclusively by each industry
segment. The adjustments and eliminations required to determine the consolidated
amounts shown above consist principally of the elimination of intersegment
amounts.
GEOGRAPHIC OPERATIONS
<TABLE>
The following table presents the company's revenues and pretax income (loss) in
different geographic regions.
<CAPTION>
Adjustments
United and
(Millions) States Europe Asia/Pacific All Other Eliminations Consolidated
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
2000
Revenues $18,529 $2,731 $1,582 $1,629 $(796) $23,675
Pretax income $ 3,049 $ 411 $ 199 $ 249 -- $ 3,908
1999
Revenues $16,362 $2,729 $1,456 $1,466 $(735) $21,278
Pretax income $ 2,756 $ 316 $ 175 $ 191 -- $ 3,438
1998
Revenues $14,535 $2,476 $1,332 $1,444 $(655) $19,132
Pretax income (loss) $ 2,520 $ 340 $ (59) $ 124 -- $ 2,925
=======================================================================================================================
</TABLE>
Most services of the company are provided on an integrated worldwide basis.
Therefore, it is not practical to separate precisely the U.S. and international
services. Accordingly, the data in the above table are, in part, based upon
internal allocations, which necessarily involve management's judgment.
Note 16 LEASE COMMITMENTS AND OTHER CONTINGENT LIABILITIES
The company leases certain office facilities and operating equipment under
noncancellable and cancellable agreements. Total rental expense amounted to $477
million, $452 million and $388 million in 2000, 1999 and 1998, respectively.
At December 31, 2000, the minimum aggregate rental commitment under all
noncancellable leases (net of subleases) was (millions): 2001, $360; 2002, $276;
2003, $205; 2004, $159; 2005, $139; and thereafter, $1,661.
The company is not a party to any pending legal proceedings that, in the opinion
of management, would have a material adverse effect on the company's financial
position.
41 (2000 Annual Report p. 66)
<PAGE>
Note 17 TRANSFER OF FUNDS FROM SUBSIDIARIES
The Securities and Exchange Commission requires the disclosure of certain
restrictions on the flow of funds to a parent company from its subsidiaries in
the form of loans, advances or dividends.
Restrictions on the transfer of funds exist under debt agreements and regulatory
requirements of certain of the company's subsidiaries. These restrictions have
not had any effect on the company's shareholder dividend policy and management
does not anticipate any effect in the future.
At December 31, 2000, the aggregate amount of net assets of subsidiaries that
may be transferred to the parent company was approximately $8.0 billion. Should
specific additional needs arise, procedures exist to permit immediate transfer
of short-term funds between the company and its subsidiaries, while complying
with the various contractual and regulatory constraints on the internal transfer
of funds.
Note 18 QUARTERLY FINANCIAL DATA (Unaudited)
<TABLE>
<CAPTION>
(Millions, except per share amounts) 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Quarters Ended 12/31 9/30 6/30 3/31 12/31 9/30 6/30 3/31
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues (managed basis) $5,714 $5,554 $5,558 $5,259 $5,227 $4,920 $4,811 $4,524
Revenues (GAAP basis) 6,067 5,981 5,970 5,657 5,699 5,311 5,298 4,971
Pretax income 913 1,029 1,046 920 844 907 895 791
Net income 677 737 740 656 606 648 646 575
Earnings per common share:
Basic 0.51 0.56 0.56 0.49 0.45 0.48 0.48 0.43
Diluted 0.50 0.54 0.54 0.48 0.44 0.47 0.47 0.42
Cash dividends declared per
common share .08 .08 .08 .08 .075 .075 .075 .075
Common share prices:
High 63.00 62.25 57.19 56.50 56.29 50.21 47.54 43.21
Low 50.06 50.69 43.94 39.83 43.42 40.63 38.17 31.63
====================================================================================================================
</TABLE>
42 (2000 Annual Report p. 67)
<PAGE>
REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
THE SHAREHOLDERS AND BOARD OF DIRECTORS OF AMERICAN EXPRESS COMPANY
We have audited the accompanying consolidated balance sheets of American Express
Company as of December 31, 2000 and 1999, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 2000. These financial statements are the
responsibility of the management of American Express Company. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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
Company at December 31, 2000 and 1999, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
/s/ Ernst & Young LLP
New York, New York
February 8, 2001
43 (2000 Annual Report p. 69)
<PAGE>
<TABLE>
CONSOLIDATED FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
<CAPTION>
(Millions, except per share amounts and percentages) 2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net revenues (managed basis)(a) $ 22,085 $ 19,483 $ 17,212 $ 15,857 $ 14,473
Percent increase 13% 13% 9% 10% 3%
Revenues (GAAP basis) 23,675 21,278 19,132 17,760 16,380
Percent increase 11% 11% 8% 8% 3%
Expenses 19,767 17,840 16,207 15,010 13,716
Net income:
As reported 2,810 2,475 2,141 1,991 1,901
Adjusted(b) 2,810 2,475 2,201 1,991 1,739
Return on average shareholders' equity(c) 25.3% 25.3% 24.0% 23.5% 22.8%
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET
Cash and cash equivalents $ 8,487 $ 7,471 $ 4,092 $ 4,179 $ 2,677
Accounts receivable and accrued interest, net 30,543 26,467 22,224 21,774 20,491
Investments 43,747 43,052 41,299 39,648 38,339
Loans, net 26,088 23,582 21,054 20,109 18,518
Total assets 154,423 148,517 126,933 120,003 108,512
Customers' deposits 13,870 13,139 10,398 9,444 9,555
Travelers Cheques outstanding 6,127 6,213 5,823 5,634 5,838
Insurance and annuity reserves 24,098 25,011 25,433 26,165 25,674
Short-term debt 36,030 30,627 22,605 20,570 18,402
Long-term debt 4,711 5,995 7,019 7,873 6,552
Shareholders' equity 11,684 10,095 9,698 9,574 8,528
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON SHARE STATISTICS
Earnings per share:
Basic
Basic adjusted(b) $ 2.12 $ 1.85 $ 1.57 $ 1.43 $ 1.34
Diluted $ 2.12 $ 1.85 $ 1.61 $ 1.43 $ 1.22
Diluted adjusted(b) $ 2.07 $ 1.81 $ 1.54 $ 1.38 $ 1.30
Percent increase: $ 2.07 $ 1.81 $ 1.59 $ 1.38 $ 1.19
Basic
Basic adjusted(b) 15% 18% 10% 7% 26%
Diluted 15% 15% 13% 17% 15%
Diluted adjusted(b) 14% 18% 12% 6% 26%
Cash dividends declared per share 14% 14% 15% 16% 16%
Book value per share: $ .32 $ .30 $ .30 $ .30 $ .30
Actual
Pro forma(c) $ 8.81 $ 7.52 $ 7.18 $ 6.84 $ 6.01
Market price per share: $ 8.92 $ 7.74 $ 6.75 $ 6.43 $ 5.74
High
Low $ 63.00 $ 56.29 $ 39.54 $ 30.50 $ 20.13
Close $ 39.83 $ 31.63 $ 22.33 $ 17.88 $ 12.88
Average common shares outstanding for earnings per share: $ 54.94 $ 55.42 $ 34.17 $ 29.75 $ 18.83
Basic 1,327 1,340 1,363 1,393 1,417
Diluted 1,360 1,369 1,388 1,438 1,465
Shares outstanding at year end 1,326 1,341 1,351 1,399 1,419
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER STATISTICS
Number of employees at year end:
United States 53,352 52,858 50,266 44,691 43,688
Outside United States 35,498 35,520 34,466 28,929 28,611
Total 88,850 88,378 84,732 73,620 72,299
- -----------------------------------------------------------------------------------------------------------------------------------
Number of shareholders of record 53,884 56,020 51,597 53,576 55,803
===================================================================================================================================
</TABLE>
(a) Net revenues (managed basis) are total revenues as reported under U.S.
Generally Accepted Accounting Principles (GAAP), net of American Express
Financial Advisors' provision for losses and benefits, and exclude the
effect of TRS' asset securitization activities.
(b) 1998 is adjusted to exclude the following first quarter items: $138 million
credit loss provision at American Express Bank relating to its Asia/Pacific
portfolio, as well as income of $78 million representing gains on the sale
of First Data Corporation shares and a preferred dividend based on Lehman
Brothers' earnings. 1996 is adjusted to exclude a $300 million gain on the
exchange of the company's DECS and a $138 million restructuring charge.
(c) Return on average shareholders' equity is based on adjusted income in 1996
and excludes the effect of SFAS No. 115. In addition, book value per share
excludes the effect of SFAS No. 115.
44 (2000 Annual Report p. 70)
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>4
<FILENAME>axp_ex21.txt
<TEXT>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Unless otherwise indicated, all of the voting securities of these
subsidiaries are directly or indirectly owned by the registrant. Where the
name of the subsidiary is indented, the voting securities of such subsidiary
are owned directly by the company under which its name is indented. Certain
subsidiaries have been omitted which, if considered in the aggregate as a
single subsidiary, would not constitute a significant subsidiary as defined
in Rule 1-02(w) of Regulation S-X.
<TABLE>
<CAPTION>
Jurisdiction
of
Name of Subsidiary Incorporation
<S> <C>
I. American Express Travel Related Services Company, Inc.
and its Subsidiaries
American Express Travel Related Services Company, Inc. New York
Amex Canada, Inc. Canada
1001675 Ontario Inc. Canada
1001674 Ontario Inc. Canada
Rexport, Inc. Canada
Amex Bank of Canada Canada
Sourcing Innovation, Inc. Canada
American Express Company (Mexico) S.A. de C.V. Mexico
American Express Centurion Bank Utah
American Express Centurion Services Corporation Delaware
American Express Credit Corporation Delaware
American Express Overseas Credit Corporation Limited Jersey,
Channel Islands
AEOCC Management Company, Ltd. Jersey,
Channel Islands
American Express Overseas Credit Corporation N.V. Netherlands Antilles
Credco Receivables Corp. Delaware
Credco Finance, Inc. Delaware
American Express Receivables Financing Corporation Delaware
American Express Receivables Financing Corporation II Delaware
American Express Tax and Business Services Inc. Minnesota
American Express TBS Investment Advisors, Inc. Delaware
American Express Tax and Business Services of New York, Inc. New York
American Express do Brasil Tempo & Cia, Inc. Delaware
Amex do Brazil Empreedimentos e Participacoes Ltda. Brazil
Amex Latin America Holdings S.L. Spain
Maximo Partners Delaware
Patrice Service Brasil Ltda. Brazil
American Express do Brasil Tempo & Cia Brazil
American Express Do Brasil S.A. Turismo e Corretagen
de Seguros (51% owned) Brazil
American Express Factoring Ltda. Brazil
Optimo Brazilco L.L.C. Delaware
Optimo Partners Delaware
Quickly Brasil Ltda. Brazil
Swiss Branch Switzerland
Virtual Solution Com Ltda. Brazil
American Express Limited Delaware
American Express Argentina, S.A. Argentina
American Express (Malaysia) Sdn. Bhd. Malaysia
American Express (Thai) Co. Ltd. (78% owned) Thailand
TRS Card International Inc. (75% owned) Delaware
American Express de Espana, S.A. Spain
American Express Viajes, S.A. Spain
1
<PAGE>
American Express International (B) SDN.BHD. (50% owned) Brunei
Amex Travel Advisors, Limited (50% owned) Hong Kong
South Pacific Credit Card Ltd. New Zealand
Centurion Finance, Ltd. New Zealand
American Express International, Inc. Delaware
American Express Hungary KFT Hungary
American Express Company A/S Norway
American Express Locazioni Finanziarie, S.r.l. Italy
Amex Broker Assicurativo S.r.l. Italy
American Express Int'l A.E.(Greece)(99% owned) Greece
American Express Int'l (Taiwan), Inc. Taiwan
American Express of Egypt, Ltd. Delaware
American Express Carte France, S.A. France
AllCard Service GmbH Germany
American Express Bureau de Change S.A. Greece
AE Exposure Management Limited Jersey,
Channel Islands
American Express Travel Poland Sp.Zo.O Poland
Sociedad Internacional de Servicios de Panama, S.A. Panama
American Express Services France
Havas Voyages American Express France
Amex Sumigin Service Company, Ltd. (40% owned) Japan
American Express International Services Limited Russia
American Express Card Services Limited (95% owned) Russia
Amex Marketing Japan Limited Delaware
American Express (India) Pvt. Ltd. India
P.T. American Express Travel Indonesia (80% owned) Indonesia
American Express spol. s.r.o. Czech Republic
Nippon Card Business Co., Ltd. (25% owned) Japan
Schenker Rhenus Reisen Germany
American Express Holdings AB Sweden
American Express Company A/B Sweden
American Express Reisebyra A/B Sweden
Nyman & Schultz Grupp och Konferens AB Sweden
Resespecialisterna Syd AB Sweden
BookHotel AB Sweden
Forsakringsaktiebolaget Viator Sweden
Nyman & Schultz AB Sweden
First Card AB Sweden
Profil Reiser A/S (50% owned) Denmark
Resespecialisterna Enkoping AB (26% owned) Sweden
Stockholm Central Hotel AB Sweden
Nyman & Schultz Forretningsreiser A/S Norway
Nyman & Schultz Erhvervsrejser ApS Denmark
Amex Insurance Marketing, Inc. Taiwan
American Express Publishing Corporation New York
Southwest Media Corporation Texas
Societe Francaise du Cheque de Voyage, S.A. (34% owned) France
Travellers Cheque Associates, Limited (54% owned) England & Wales
American Express Service Corporation Delaware
Bansamex S.A. (50% owned) Spain
Amex (Middle East) E.C. (50% owned) Bahrain
Amex (Saudi Arabia Ltd.) (50% owned) Bahrain
American Express Europe Limited Delaware
2
<PAGE>
American Express France Holdings I LLC Delaware
American Express France Holdings II LLC Delaware
American Express Group & Incentive Services, Inc. (90% owned) Michigan
American Express Services Europe Limited England & Wales
and Delaware
American Express Insurance Services, Ltd. England & Wales
American Express TRS, Inc. Florida
Cardmember Financial Services, Ltd. Jersey,
Channel Islands
Integrated Travel Systems, Inc. Texas
Amex General Insurance Agency Taiwan
American Express Bank (Mexico), S.A. Mexico
American Express Student Funding, Inc. Delaware
Educational Funding Company LLC (64% owned) California
American Express Educational Assurance Company Arizona
American Express Incentive Services, Inc. Delaware
American Express Incentive Services, LLC (50% owned) Missouri
American Express International (NZ), Inc. Delaware
American Express Realty Management Co. Delaware
Cavendish Holdings, Inc. Delaware
American Express Business Finance Corporation California
Business Equipment Capital Corporation Delaware
Business Equipment Financing Corporation Delaware
Servicing Solutions, Inc. Delaware
Golden Bear Travel, Inc. Delaware
Empress Travel, Ltd. Delaware
Travel Impressions, Ltd. Delaware
American Express ATM Holdings, Inc. Delaware
Americash, Inc. Delaware
ATM One, L.L.C. Delaware
Americash L.L.C. Delaware
Rosper, Inc. Delaware
AMTRS Corp. Delaware
SierraCities.com Inc. Delaware
First Sierra Receivables II, Inc. Delaware
First Sierra Receivables III, Inc. Delaware
First Sierra Receivables IV, Inc. Delaware
First Sierra Receivables, Inc. Delaware
Heritage Credit Services, Inc. Delaware
Independent Capital Corporation New Jersey
Nexsoft, Inc. Florida
SierraCities Delaware, Inc. Delaware
SierraCities Financial, Inc. Delaware
The Republic Group, Inc. California
American Express Global Financial Services, Inc. Delaware
Sharepeople Group Limited England
Sharepeople Limited England
Amex Newco, Inc. Delaware
American Express Voyages Tourisme France
Havas Communication Voyages France
Imex France
American Express Management France
American Express Tourisme France
American Express Travel Holdings (M) Company SDN Malaysia
Mayflower American Express Travel Services SDN BHD Malaysia
MarketMile, Inc. (47% owned) Delaware
II. American Express Financial Corporation and its Subsidiaries
American Express Financial Corporation Delaware
American Express Financial Advisors Inc. Delaware
American Express Financial Advisors Japan Inc. Delaware
IDS Real Estate Services, Inc. Delaware
American Express Trust Company Minnesota
IDS Life Insurance Company Minnesota
American Partners Life Insurance Company Arizona
IDS Life Insurance Company of New York New York
American Enterprise Life Insurance Company Indiana
American Centurion Life Assurance Company New York
American Express Corporation Delaware
American Express Certificate Company Delaware
Investors Syndicate Development Corp. Delaware
IDS Insurance Agency of Alabama Inc. Alabama
IDS Insurance Agency of Arkansas Inc. Arkansas
IDS Insurance Agency of Massachusetts Inc. Massachusetts
IDS Insurance Agency of Mississippi Limited Mississippi
IDS Insurance Agency of New Mexico Inc. New Mexico
IDS Insurance Agency of North Carolina Inc. North Carolina
IDS Insurance Agency of Ohio Inc. Ohio
3
<PAGE>
IDS Insurance Agency of Texas Inc. Texas
IDS Insurance Agency of Utah Inc. Utah
IDS Insurance Agency of Wyoming Inc. Wyoming
American Express Insurance Agency of Nevada Inc. Nevada
American Express Asset Management Group Inc. Minnesota
Advisory Capital Strategies Group Inc. Minnesota
American Express Asset Management International (Japan) Ltd. Japan
IDS Capital Holdings Inc. Minnesota
American Express Asset Management International Inc. Delaware
American Express Asset Management Ltd. England
IDS Management Corporation Minnesota
IDS Partnership Services Corporation Minnesota
IDS Cable Corporation Minnesota
IDS Futures Corporation Minnesota
IDS Realty Corporation Minnesota
IDS Cable II Corporation Minnesota
IDS Property Casualty Insurance Company Wisconsin
American Express Minnesota Foundation Minnesota
IDS Sales Support Inc. Minnesota
IDS Plan Services of California, Inc. Minnesota
American Enterprise Investment Services Inc. Minnesota
American Express Insurance Agency of Arizona Inc. Arizona
American Express Insurance Agency of Idaho Inc. Idaho
American Express Property Casualty Insurance
Agency of Kentucky Inc. Kentucky
American Express Client Service Corporation Minnesota
Public Employee Payment Company Minnesota
American Express Property Casualty Insurance
Agency of Maryland Inc. Maryland
American Express Property Casualty Insurance
Agency of Mississippi Inc. Mississippi
American Express Property Casualty Insurance
Agency of Pennsylvania Inc. Pennsylvania
American Express Insurance Agency of Oregon Inc. Oregon
Securities America Financial Corporation Nebraska
Financial Dynamics, Inc. Nebraska
Securities Advisors, Inc. Nebraska
Securities America Diversified, Inc. Nebraska
CPA Advisory Services, Inc. Nebraska
Realty Assets, Inc. Nebraska
Securities America Advisors, Inc. Nebraska
Securities America, Inc. Nebraska
Securities America Insurance Agency of Alabama Alabama
Securities America Insurance Agency of Massachusetts Massachusetts
Securities America Insurance Agency of New Mexico New Mexico
Securities America Insurance Agency of Ohio Ohio
Securities America Insurance Agency of Wyoming Wyoming
American Express Personal Trust Services, FSB Minnesota
III. American Express Banking Corp. and its Subsidiaries
American Express Banking Corp. New York
American Express Bank Ltd. Connecticut
Amex Holdings, Inc. Delaware
American Express Bank GmbH Germany
AEB - International Portfolios Management Company Luxembourg
Egyptian American Bank (41% owned) Egypt
Amtrade Holdings, Inc. Delaware
American Express Bank (Switzerland) S.A. Switzerland
International Trade Services Pte Ltd. Singapore
Amex International Trust (Guernsey) Limited Guernsey,
Channel Islands
4
<PAGE>
Etoral Finance, Inc. Panama
Sociedad Del Desarrollo Mercantil Ltda. (50% owned) Chile
Remor and Associates Inc. Panama
American Express Bank Asset Management (Cayman) Limited Cayman Islands
American Express Bank (Luxembourg) S.A. Luxembourg
AEB WorldFolio Capital Preservation Management Co. S.A. Luxembourg
American Express Bank (Uruguay) S.A. Uruguay
Amex International Trust (Cayman) Ltd. Cayman Islands
OLP Investments Ltd. Cayman Islands
Rilanex Participations N.V. Netherlands Antilles
American Express Bank (France) S.A. France
Amex Gestion S.A. France
American Express Bank International United States
Argentamex S.A. Argentina
Amex Nominees (S) Pte Ltd. Singapore
Amex Bank Nominee Hong Kong Limited Hong Kong
First International Investment Bank Ltd. (20% owned) Pakistan
American Express (Poland) Ltd. Delaware
Inveramex Chile Ltda. Chile
Amex Immobiliaria Ltda.(99% owned) Chile
American Express Bank, S.A. Argentina
AEB Global Asset Management Inc. New York
AEB/FFS Management Company (50% owned) Luxembourg and
Jersey,
Channel Islands
AEB Global Trading Investments, Ltd. British Virgin Islands
Amex NLG Holdings, LLC Delaware
American Express International Deposit Company Cayman Islands
Bankpar Participacoes Ltda. Brazil
Banco Inter American Express S.A. (50% owned) Brazil
Inter American Express Arrendamento
Mercantil, S.A. (95% owned) Brazil
Inter American Express Consultoria E Servicos Ltda. Brazil
MS Representacoes E Participacoes Ltda. Brazil
MS Trading S.A. Brazil
Inter American Express Overseas Ltd. Brazil
Inter American Express Bank Ltd. Brazil
Imagra Imobiliaria E Agricola S.A. Brazil
The American Express Nominees Limited (98% owned) England & Wales
Amexnet Limited England
Tata Finance Ltd. (3% owned) India
Tata Finance Amex Private Limited (35% owned) India
IV. Other Subsidiaries of the Registrant
Acuma Financial Services Ltd. Delaware
Acuma Ltd. Delaware
Ainwick Corporation Texas
American Express Asset Management Holdings, Inc. Delaware
Amexco Insurance Company Vermont
Amexco Risk Financing Holding Co. Delaware
Amex Assurance Company Illinois
checks-on-line, Inc. Delaware
5
<PAGE>
National Express Company, Inc. New York
The Balcor Company Holdings, Inc. Delaware
The Balcor Company Delaware
Balcor Securities Company Illinois
Balcor Management Services, Inc. Illinois
International Capital Corp. Delaware
Intercapital Comercio e Participacoes Ltda. Brazil
Conepar Compania Nordestina de Participacoes S.A. (37% owned) Brazil
Convertible Holding Ltd. Cayman Islands
CTH Common Holdings Ltd. Cayman Islands
CTH Preferred Holdings Ltd. Cayman Islands
Complejos Turisticos Huatulco,
S.A. de C.V. (84% of preferred stock) Mexico
Acamex Holdings, Inc. Cayman Islands
Etisa Holdings Ltd. Cayman Islands
Empresas Turisticas Integradas, S.A. de C.V. (98% owned) Mexico
Floriano Representacoes Ltda. Brazil
International Capital Corp. (Ltd.) Cayman Cayman Islands
Rexport, Inc. Delaware
Drillamex, Inc. Delaware
UMPAWAUG I Corporation Delaware
UMPAWAUG II Corporation Delaware
UMPAWAUG III Corporation Delaware
UMPAWAUG IV Corporation Delaware
Daedalus Leasing Corp. New York
Dash 200 + Ltd. (50% owned) Cayman Islands
Nora Leasing, Inc. New York
Gemini Leasing Ltd. Cayman Islands
Far East Leasing Ltd. Cayman Islands
56th Street AXP Campus LLC (AZ) Arizona
</TABLE>
6
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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