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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ________To ________
Commission File No. 1-7657
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
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Common Shares (par value $.60 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 1, 2000 were
442,737,610. The aggregate market value, as of March 1, 2000, of voting
shares held by non-affiliates of the registrant was approximately $59.9
billion.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Parts I, II and IV: Portions of Registrant's 1999 Annual Report to Shareholders
Part III: Portions of Registrant's Proxy Statement dated March 13, 2000.
TABLE OF CONTENTS
FORM 10-K
ITEM NUMBER
PART I PAGE
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1. Business
Travel Related Services . . . . . . . . . . . . . . . . . . . 1
American Express Financial Advisors . . . . . . . . . . . . . 14
American Express Bank/Travelers Cheque . . . . . . . . . . . . 22
Corporate and Other . . . . . . . . . . . . . . . . . . . . . . 32
Foreign Operations . . . . . . . . . . . . . . . . . . . . . . 33
Important Factors Regarding Forward-Looking Statements . . . 34
Segment Information and Classes of Similar Services . . . . . 37
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
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5. Market for Company's Common Equity and Related Stockholder Matters 44
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . 44
7. Management's Discussion and Analysis of Financial Condition and
Results of Operation . . . . . . . . . . . . . . . . . . 44
7A. Quantitative and Qualitative Disclosures About Market Risk . . . 44
8. Financial Statements and Supplementary Data . . . . . . . . . . . . 44
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . 45
PART III
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10. Directors and Executive Officers of the Company . . . . . . . . . . 45
11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . 45
12. Security Ownership of Certain Beneficial Owners and Management . . . 45
13. Certain Relationships and Related Transactions . . . . . . . . . . 45
PART IV
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14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . 45
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Index to Financial Statements . . . . . . . . . . . . . . . . . . . F-1
Consent of Independent Auditors . . . . . . . . . . . . . . . . . . F-2
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . E-1
PART I
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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.*
In 1999, as one of its major initiatives, the Company further
defined and focused its enterprise-wide Internet strategy on four key
objectives: (i) becoming a leading payment provider for online
transactions; (ii) delivering exceptional online customer service; (iii)
becoming a preferred destination site for existing and new customers; and
(iv) using interactive capabilities to improve significantly the Company's
economic performance. Substantial progress was made on these objectives
throughout the Company. Internet developments related to the Company's
specific businesses are provided in the respective business descriptions
below.
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 and other consumer and corporate lending and banking
products, 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 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.
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*Various forward-looking statements are made in this 10-K Annual Report,
which generally include the words "believe," "expect," "anticipate,"
"optimistic," "intend," "aim," "will," and similar expressions. Certain
factors that may cause actual results to differ materially from these
forward-looking statements, including the Company's goals referred to
herein, are discussed on pages 34-37.
1
GLOBAL NETWORK SERVICES
-----------------------
TRS operates a global general-purpose card network, which performs
functions essential to the issuance of cards by network issuers and the
acceptance by merchants of those cards. These functions include the
operational, service delivery, systems, authorization, clearing and
settlement, and marketing infrastructure that supports the network,
development of new and innovative products, and the American Express brand.
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.
TRS is the largest issuer of Cards on the American Express global
network. In addition, there are currently 58 arrangements in place with
banks and other qualified institutions around the world providing for Card
issuance by those entities. Some of these 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 a separate internal
organization, Global Network Services, to manage its network business,
bringing increased focus and resources to this area. Global Network
Services showed strong growth in billed business in 1999.
To date, the only United States issuers on the American Express
network are TRS and National Westminster Bank, Plc (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. This lawsuit is currently scheduled for trial on June 5,
2000.
As a network, TRS encounters intense worldwide competition from
card systems 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 and promotional campaigns; (iv) reputation
and brand recognition; (v) the ability to develop and implement innovative
systems and technologies; (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.
2
CONSUMER CARD 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, the Delta
SkyMiles(R) Card, 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
them, and to access cash through automated teller machines at approximately
300,000 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 Special Purchase Account(SM)), 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, subject to cancellation.
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. Many of
these revolving cards carry the Optima Card brand, but an increasing
number, including Blue from American Express and many cards issued outside
the United States have different branding. TRS intends to issue more of
these non-Optima branded revolving credit products, which will carry the
American Express brand.
American Express Centurion Bank ("Centurion Bank"), a wholly-owned
subsidiary of TRS, issues the Optima Card and Blue from American Express 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 their Sign & Travel Account and Special
Purchase Account. 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 Special
Purchase Account offers qualified United States Cardmembers the option of
extending payment for certain charges on the Charge Card in excess of a
specified amount. Centurion Bank is also the issuer for certain Charge
Cards. In July 1999, American Express Centurion Bank launched Membership
B@nking(SM) - an online bank that provides consumers with high-value
products, such as free ATM access with rebates on surcharges from other
banks, high rates on deposits and the convenience of banking by the
Internet, telephone, ATM or mail.
3
In several markets outside the United States, other subsidiaries of TRS
engage in consumer lending activities, subject to local regulations.
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.
Throughout its Card operations, fraud continues to be a concern of
TRS. Losses from counterfeit cards have increased in recent years across
the credit card industry. The Company continues to take measures to address
fraud issues, including investing in new technologies and educating
Cardmembers through fraud protection initiatives.
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; and Return Protection, Fraud
Protection, and Best Value and Online Shopping Guarantees. Gold Card members
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(SM) Card, offered in the
United States during 1999 following a launch earlier in the year of its
predecessor in the United Kingdom, is an ultra-premium charge card providing
highly personalized customer service, and an array of travel, lifestyle and
financial benefits (and a smart chip enabling additional functionality in the
future in the United Kingdom product). Under the Express Cash program, enrolled
Cardmembers can obtain cash or American Express(R) 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
4
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 at ATMs). Recently, certain federal privacy-related laws were
enacted governing the collection and use of customer information by
financial institutions (see page 33). 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. The laws and regulations discussed above have not had, and
are not expected to have, a material adverse effect on the Company's Charge
Card, ATM and consumer lending businesses either in the United States or on
a worldwide basis. 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 1999, TRS continued to deepen its relationships with core
Cardmembers and gained a greater share of the plastic spending of its
customers. TRS also renewed its focus on acquiring new Cardmembers. Billed
business in the United States grew at double-digit rates in 1999, as
Cardmembers increased their use of Cards for everyday spending at
supermarkets, drug stores, gas stations and for paying utility bills, road
tolls and federal taxes. In addition, new card acquisitions more than
doubled, and the number of consumer Charge Cards in the United States
increased for the first time in nearly a decade. TRS also selectively
expanded the size of credit lines and encouraged Cardmembers to transfer
outstanding balances from other card issuers. As a result, TRS
significantly increased its lending balances and continued to capture a
greater share of industry credit card lending balances.
In 1999, TRS issued a variety of new card products in the United
States. Blue from American Express is the first widely marketed credit card
in the United States with an embedded smart chip, designed to provide added
security and rewards and to help facilitate purchases using the Internet.
Demand for Blue greatly exceeded expectations and caused a backlog of
applications. Additional new card products include a credit card
exclusively for Costco
5
members, which offers rebates on spending; the Fidelity American Express(R)
Gold Card and the Fidelity American Express(R) PLATINUM CARD(R),
tied to customers' Fidelity Ultra Service Accounts(R); Platinum Delta
SkyMiles Card, a premium extension of the Delta SkyMiles Card; and the
ultra-premium Centurion Card.
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. MEMBERSHIP REWARDS is an important part of TRS' strategy
to increase Cardmember spending and loyalty. MEMBERSHIP REWARDS is one of
the industry's most popular rewards programs with over seven-and-one-half
million enrollees worldwide. 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 1999, TRS changed the MEMBERSHIP REWARDS program
in a number of ways, including implementing a new fee structure, adding
cash rewards and an option for enrollees to buy points, and offering two
new program tiers designed for frequent travelers and those more interested
in retail-oriented awards. TRS will continue to seek ways to contain the
overall cost of the program and make changes to enhance its value to
Cardmembers.
TRS is continuing to make a significant investment in its card
processing system and infrastructure to allow faster introduction and
greater customization of products. TRS also is utilizing technology to
develop its service capabilities. During 1999, TRS introduced Express
Approval(SM), which provides instant decision capability for new account
applications on selected products through the American Express Website and
by telephone. TRS also continued to deepen customer relationships through
successful use of inbound telephone calls to offer additional products and
services. Through this channel, Cardmembers have purchased more than one
million new products and services.
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
One, MBNA, Chase Manhattan, Bank of America and Barclays Bank) 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.
6
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 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.
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 1999, TRS strengthened its merchant coverage in the United
States in various industries, including warehouse clubs, supermarkets,
utilities, health care, and business-to-business. Key signings included
Costco, Publix and Winn Dixie supermarkets. The merchant network in the
United States can now accommodate more than 95 percent 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
Internet merchants also continued to grow in 1999, with our cards now
accepted at 95% of the top 500 E-commerce websites.
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
7
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 1999, TRS implemented a new flat fee rate structure which
improved satisfaction among merchants that generate less than $5,000 in
annual American Express charge volume. During the year, TRS also
implemented programs to drive spending in everyday spend categories, which
led to increased usage and awareness by Cardmembers. Retail purchases in
the United States comprise nearly 50% of consumer Cardmembers' spending on
Cards and nearly 40% of overall Cardmember spending.
TRS also expanded its range of services in 1999 to include
Internet initiatives to help merchants that accept Cards more effectively
manage their businesses. For example, an E-commerce Resource Center
provides merchants with guidance about developing, implementing and
establishing a web presence to help grow their businesses. TRS also
activated online self-servicing through which merchants may automatically
update their account information.
TRS has also expanded its ATM business in the United States to
nearly 9,000 terminals, establishing TRS as the largest off-premise
deployer of ATMs in the United States. TRS plans to use these ATMs to
deliver a range of services to Cardmembers and merchants.
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.
CORPORATE SERVICES, SMALL BUSINESS SERVICES AND TRAVEL
------------------------------------------------------
TRS, through its Corporate Services Group ("CSG") and Small Business
Services Group, is a leading provider to large, mid-sized and small
businesses of expense management systems and travel services.
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 Corporate
Card, which is a charge card issued to individuals through a corporate account
established by their employer for business purposes.
8
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.
In 1999, the Corporate Services 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 TRS travel business. TRS continues to modify its business model to
address these ongoing industry challenges. TRS is moving away from reliance
on commission revenues from suppliers and towards an emphasis on fees from
customers by unbundling its array of travel services and pricing them
individually. Competitors also continue to increase their focus on the
Corporate Card business. For a discussion of competition relating to the
Card issuing business, see pages 6 and 7.
In 1999, the Corporate Services business enhanced its presence in
business-to-business E-commerce by launching several new initiatives and
strengthening certain existing services. CSG launched American Express @
Work(SM), a corporate desktop portal that provides for online management of
Corporate Card and Corporate Purchasing Card programs. TRS also enhanced
AXI(R) TRAVEL, an interactive online corporate travel booking system, which
now has more than 500,000 registered users and which has expanded into
eight countries outside the United States. In addition, CSG further
enhanced its interactive business travel booking system through a strategic
alliance with GetThere.com to provide a choice of online travel reservation
systems to customers.
TRS 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. TRS pays the suppliers and
submits a single monthly billing statement to the company.
To expand its capabilities relating to online purchasing, TRS is
developing a business-to-business digital marketplace. TRS has also
partnered with 10 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.
TRS, through its Small Business Services Group, is also a leading
provider of financial and travel services to small businesses (i.e., less
than 100 employees and/or sales of $10 million
9
or less). TRS continued to achieve substantial growth in the Small Business
Services Group in 1999, with double-digit increases in billed business and
cards-in-force, and strong increases in average Cardmember spending. TRS
serves the needs of small businesses with a portfolio of charge and credit
card products. In addition, TRS offers its customers an Everyday Savings
program which includes specifically negotiated rates on services such as
car rental, gasoline, hotel and office services. TRS also 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.
A key strategy for TRS is the creation of products to meet better
the credit needs of small business owners. Equipment financing is a key
lending category for small business owners. In February 1999, TRS purchased
Rockford Industries (now American Express Business Finance Corporation), a
firm that provides point-of-purchase equipment financing and lending. TRS'
small business lending portfolio more than doubled during the year. TRS
also entered into Internet-based services through a marketing arrangement
with Doublebill to help create BigVine.com, an Internet barter site for
small businesses, and a sponsorship agreement with Netscape that will bring
American Express financial services to small businesses through Netscape's
Small Business Channel.
American Express Tax and Business Services Inc. ("TBS"), a part of
the Small Business Services Group, is an accounting 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 and business technology consulting as well as
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 70 offices in 18 states
with approximately 2,800 employees. It continued to acquire accounting
firms in 1999.
TRS provides a wide variety of travel services to customers
traveling for business and personal purposes and is one of the leading
business travel providers worldwide. Travel services include trip planning,
reservations, ticketing and other incidental services. In addition, for
business travel accounts, TRS provides corporate travel policy consultation
and management information systems, and group and incentive travel
services. TRS 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.
TRS' retail travel network of more than 1,700 owned and
representative offices 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. In March 1999, TRS acquired Golden Bear Travel Agency,
a travel agency specializing in cruises.
TRS faces vigorous competition from more than 30,000 travel agents
as well as direct sales by airlines and travel suppliers in the United
States and abroad. This competition is mainly
10
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.
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. This has
caused some independent agencies to go out of business and forced others to
seek consolidation opportunities. TRS has accelerated its efforts to rely
less on commissions by establishing more service fee-based client
relationships. 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 with respect to
computer reservation systems and compensation and pricing arrangements. It
is also expected that travel agencies will continue to look for expense
reduction opportunities. Customers may increasingly seek alternative
channels to make travel arrangements, such as online vendors or airline
services that require booking directly with the airlines.
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, leveraging
opportunities for growth in Corporate Card, Corporate Travel and in other
areas of Corporate Services and re-engineering its business to improve key
processes and reduce costs. This business was strengthened in 1999 through
new product introductions, increased global network agreements and expanded
merchant coverage.
In 1999, TRS International had strong increases in total
cards-in-force, billed business and lending balances. At the same time,
economic uncertainty in certain major markets around the world dampened
results. Short- and long-term reengineering initiatives remain underway to
better align the TRS International operations for growth. TRS also
increased its international merchant coverage in 1999, which network now
accommodates 86 percent of Cardmembers' general purpose plastic spending,
up from 83 percent a year ago. However, suppression continues to be a
problem, particularly in Europe and Asia.
In 1999, TRS continued to bolster its proprietary business through
the launch of numerous new proprietary, cobranded charge and revolving
credit cards and new affinity cards in a number of markets outside the
United States. These included the Centurion Card in the United Kingdom;
the Platinum Card in Puerto Rico, Thailand, Argentina, Brazil, Taiwan,
Singapore, Malaysia and Spain (more than doubling the international
Platinum Card customer base over the past two years); revolving Gold cards
in Hong Kong, Singapore and Australia; a Blue Card in the Netherlands; the
cobranded Manulife One American Express Gold Card in Canada; the cobranded
Suncorp Metway American Express Card in Australia; a cobranded card
agreement with Alitalia in Italy; an agreement to issue a cobranded credit
card with Costco in Canada; new affinity cards, including Certified Practising
Accountants (CPAs) in Australia and A.S. Roma,
11
Rome's soccer team; and new distribution agreements, including
Dresdner Bank in Germany and BankBoston in Argentina.
TRS International continued to pursue alliances through joint
ventures or other agreements with qualified institutions that issue cards
with an American Express logo. These cards are accepted worldwide on the
American Express merchant network. In 1999, TRS established new network
arrangements and launched a wide variety of payment products with new and
existing alliances - DnB Bedriftskort in Norway; Development Bank of
Singapore in Singapore; Hong Kong Shanghai Bank in Brazil; Bank Hapoalim in
Israel; Credit Saison in Japan; Banco Comercial Portugues in Portugal; and
Saudi Arabian Investment Bank in Saudi Arabia, among others. As of December
31, 1999, TRS had established 58 arrangements in over 60 countries and
launched 38 new products through these alliances. TRS expects to continue
establishing similar types of arrangements outside the United States, while
at the same time deepening its existing relationships. For a discussion of
competition relating to TRS International, see page 6.
TRS International also strengthened its corporate travel business
in 1999, although this sector remains highly competitive. International
travel sales were up during the year, aided by the 1998 acquisition of
Havas Voyages SA, the largest travel agency in France. In 1998, TRS also
established a joint venture with BBL Travel in Belgium and Luxembourg.
These acquisitions bolster TRS' position in the global travel business,
provide a platform for Corporate Card sales and further increase the
importance of TRS' customer base with key travel suppliers. This is
important in the current travel agency business, both internationally and
domestically, with ongoing pressure to reduce commissions by major airlines
and other suppliers.
TRS International also provides currency exchange and foreign
payment services to consumers in American Express Travel Offices, dedicated
bureaus, airports and other locations. In 1999, the Foreign Exchange
Services Group expanded its International Payments business, which offers
to small businesses and banking customers an Internet-based service for
making payments to foreign suppliers. Foreign Exchange Services also
enlarged its global retail brand presence in partnership with local
institutions by establishing joint ventures in India and Singapore and
license arrangements in South Africa, Thailand, Turkey and the United States.
OTHER PRODUCTS AND SERVICES
---------------------------
American Express Relationship Services ("AERS") sells products and
services which address some of the information, access, security, financial
and telecommunications needs of American Express customers. Services
offered for a fee to Cardmembers include travel, health and credit
insurance products, credit card registry, credit bureau monitoring and
telecommunication services. Additional services included VIP Subscriptions
for magazines; CreditAware(R), offering a credit bureau profile service;
and Family Shield, providing accidental death insurance coverage. AERS
also markets education loans to students and parents through more than 450
colleges and universities. AERS has discontinued its Merchandise Services
business.
12
AERS is also developing new stored-value products. In 1999, AERS
expanded its Electronic Gift Card business, adding new customers such as
Barnes & Noble and Eddie Bauer. It also relaunched the "Be My Guest(R)"
restaurant gift program offering a magnetic stripe card used to give the
gift of dining at restaurants.
AERS is also responsible for three enterprise-wide utilities,
including interactive, smart cards and customer information management. The
group is developing 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 increasingly
important part of the Company's business in the future (see page 1 above).
Over the last several years, TRS has made numerous minority investments in
Internet firms, which typically also include a marketing arrangement with
such companies. In 1999, AERS made 12 new investments in Web-based ventures
including, among others, Netcentives, a provider of online marketing
technology that helps drive customer loyalty and Qpass, which facilitates
online purchases of digital content and services such as news articles and
music.
Nearly 1.6 million Cardmembers are registered with American
Express Online Services; this figure has recently grown at an average rate
of nearly 70,000 users monthly. 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. In addition, during 1999, the Company redesigned its
Website and launched "My American Express," enabling customers to tailor
the site to their needs; established online hubs to provide integrated
financial, travel and entertainment services to customers; and made
progress in developing additional interactive utilities, such as a common
framework for Website design, to facilitate implementation of new Internet
initiatives across its businesses in a more timely and cost effective
manner.
AERS is also developing global strategies for smart cards and
customer information management. Smart cards are cards with computer chips
that can store and process data. During the year, AERS announced the
licensing of its patent-pending smart card multiple application framework
to more than a dozen industry leaders. The framework promotes interoperability
among a wide range of smart card applications and supports many smart card
platforms. AERS also announced the formation of the Interoperability
Consortium, an independent and open body that will govern the multiple
application framework standard. AERS will continue to focus on the
fast-changing electronic commerce, smart card and information management
arenas and seek to craft solid strategies for the Company.
TRS also publishes lifestyle magazines such as Travel &
Leisure(R), T&L Golf, Food & Wine(R), Departures(TM) and B. Smith Style;
travel resources such as SkyGuide(R); and business resources such as the
American Express Appointment Book and Fortune Small Business magazine.
13
AMERICAN EXPRESS FINANCIAL ADVISORS
-----------------------------------
American Express Financial Corporation ("AEFC") provides a variety
of financial products and services to help individuals, businesses and
institutions establish and achieve their financial goals. AEFC'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, 1999 American Express Financial Advisors Inc. ("AXP
Advisors"), AEFC's principal marketing subsidiary, maintained a nationwide
financial planning field force of over 11,000 persons.
In November 1999, AXP Advisors began using the shortened name
"American Express" in its marketing material to establish a stronger brand
identity for the Company in financial services. See page 32 for a more
general discussion of the American Express brand.
DISTRIBUTION OF PRODUCTS AND SERVICES
-------------------------------------
AXP Advisors has three primary financial service distribution
channels: retail, consisting of financial advisors and direct access
(online, telephone and mail), institutional and third party.
AXP Advisors' primary distribution channel is its corps of
financial advisors. Through this channel, AXP Advisors offers financial
planning and investment advisory services (for which it charges a fee) to
individuals and business owners which address six basic areas of financial
planning: financial position, protection, investment, income tax,
retirement and estate planning, as well as asset allocation. AXP Advisors'
financial advisors provide clients with recommendations from the more than
100 products distributed by subsidiaries and affiliates of AEFC as well as
products of approved third parties.
First-year financial advisors are compensated primarily by salary;
veteran financial advisors receive compensation based largely on sales and
assets maintained from sales. The compensation system is structured to
encourage advisor retention and product persistency, while adding stability
to the financial advisor's income. In attracting and retaining members of
the field force, AXP Advisors competes with financial planning firms,
insurance companies, securities broker-dealers and other financial institutions.
During 1999, AXP Advisors began to implement plans to provide
advisors choices in how they fit into the organization, with various levels
of service, compensation and branding. This includes providing options to
the current American Express-branded advisor network, which differ in the
level of service and payout rate offered. Advisors are able to choose a
salaried employee advisor network with a high level of service and a lower
payout rate; a branded advisor network, 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 network with a yet
higher payout. The unbranded network is Securities America, Inc., a
broker-dealer owned by AEFC servicing approximately 1,100 financial advisors
and a distributor of
14
mutual funds, annuities and insurance products. National roll-out of this
plan commenced in March 2000. Approximately 35 percent of AXP Advisors'
financial advisors have chosen to be American Express employees and about
65 percent have chosen to be American Express-branded franchisees. Later in
2000 advisors will also be able to choose the unbranded network.
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, AXP Advisors believes that its ability to
provide broad-based integrated services on a relationship basis is a
competitive advantage. At the same time, AXP Advisors recognizes that it
needs to continue its efforts to increase the size of its dedicated field
force due to its main competitors' larger sales forces and more developed
alternative distribution channels.
Consistent with the Company's goal of promoting cross selling
across all of its units, AXP Advisors has increased its sales to customers
from other American Express businesses. In 1999, American Express
Cardmembers accounted for nearly one-third of all new clients of AXP
Advisors' financial advisors, and substantial investment certificate sales
were made to American Express Bank Ltd.'s foreign customers. Further cross
selling will be sought through AXP Advisors' office in Japan, which
currently offers financial products and services to TRS' Cardmembers in
Japan, and which plans to offer financial products to non-Cardmembers later
in 2000.
AXP Advisors recently has taken further steps to integrate its
direct retail distribution channel with the advisor channel. In late 1999,
AXP Advisors relaunched its online brokerage business (American Express
Brokerage), which, among other services, allows clients to purchase and
sell securities online, in some cases with no trading commissions, 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. In addition, AXP Advisors, in an arrangement with Microsoft,
provides extensive content for the MSN MoneyCentral personal finance
Website. The site provides varied financial planning information and links
to AXP Advisors' homepage and online brokerage site as part of
AmericanExpress.com. AXP Advisors' strategy is for clients to have the
choice of when, where and how they work with AXP Advisors.
During the year, American Express Asset Management Group Inc.
("AEAMG"), an affiliate of AXP Advisors, continued to expand its
institutional business, which includes separate account asset management
services for corporate, public and union retirement funds. AXP Advisors
also continued to add clients to its Investing at Work program. This is a
program for employees who want to save after-tax funds for financial goals
beyond their company retirement savings plan. This program currently serves
employees at approximately 16 companies.
In addition to the retail and institutional distribution channels,
AXP Advisors has a third-party channel that distributes proprietary
investment, insurance and annuities products through insurance agencies
and broker-dealers who may also be associated with financial institutions,
such as banks. Although AXP Advisors has expanded its network of third-party
distributors and
15
the range of products offered through them, third-party sales efforts
have lagged behind expectations.
The move to multiple distribution channels has implications for
how AXP Advisors 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 AXP Advisors,
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. In addition, the distribution of proprietary
products outside of the traditional advisor channel will require, among
other things, that the organization continues to modify its product systems
so they can interface according to industry standards with distributors
outside of AXP Advisors.
AXP Advisors does business as a broker-dealer and investment
advisor in all 50 states, the District of Columbia and Puerto Rico. AEFC
and AXP Advisors are registered as broker-dealers and investment advisors
regulated by the Securities and Exchange Commission ("SEC") and are members
of the National Association of Securities Dealers, Inc. ("NASD"). AXP
Advisors' financial advisors must obtain all required state and NASD
licenses.
AXP Advisors 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 AXP Advisors. AXP
Advisors also believes it is one of the first financial institutions to
structure itself as a franchise system. As such, AXP Advisors 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, distribution systems, reputation and brand recognition. Competition
in this industry is very intense. AEFC 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 AEFC,
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 AEFC'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 AXP Advisors' financial advisors. AEFC anticipates that
competition in this industry will increase as a result of the enactment in
1999 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
16
broad range of permissible financial services. See page 33 for a discussion
of privacy-related issues under this law.
AEFC's business does not, as a whole, experience significant
seasonal fluctuations.
INSURANCE AND ANNUITIES
-----------------------
AEFC'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 is the
fourteenth largest life insurance company in the United States, with
consolidated assets at December 31, 1999 of $64 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 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 is one of the nation's largest issuers
of single premium and flexible premium deferred annuities on both a fixed and
variable dollar basis. Immediate annuities are offered as well. IDS Life
markets variable annuity contracts designed for retirement plans.
IDS Life's 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(SM), in which the
purchaser may choose between mutual funds with portfolios of common stocks,
bonds, managed assets and/or short-term securities, and IDS Life's "general
account" as the underlying investment vehicle. Over the past five years,
IDS Life's variable annuity sales have had an increasing impact on total
annuity sales.
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
17
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 sex, with respect to terms,
conditions, rates or benefits of an insurance contract. New federal
regulation in any of these areas could potentially have an adverse effect
upon 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 the 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
-----------------------
IDS Certificate Company ("IDSC"), a wholly-owned subsidiary of
AEFC, issues face-amount investment certificates. IDSC is registered as an
investment company under the Investment Company Act of 1940. IDSC currently
offers nine types of face-amount certificates. Owners of IDSC certificates
are entitled to receive, at maturity, a stated amount of money equal to the
aggregate investments in the certificate plus interest at rates declared
from time to time by IDSC. In addition, persons owning two types of
certificates may have their interest calculated in
18
whole or in part based on any upward movement in a broad-based stock
market index. The certificates issued by IDSC are not insured by any
government agency. AEFC acts as investment manager for IDSC. IDSC's
certificates are sold primarily by AXP Advisors' field force. Certificates
are also marketed by American Express Bank Ltd. to its foreign customers.
IDSC is the largest issuer of face-amount certificates in the
United States. At December 31, 1999, it had approximately $3.8 billion in
assets. IDSC'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
------------
AXP Advisors offers a variety of mutual funds, for which it acts
as principal underwriter (distributor of shares). AEFC acts as investment
manager and performs various administrative services. The American
Express(R) Funds consist of 44 retail mutual funds, with varied investment
objectives and includes, for example, money market, tax-exempt, bond and
stock funds. The American Express Funds, with combined net assets at
December 31, 1999 of $101 billion, was the 17th largest mutual fund
family in the United States and, excluding money market funds, was
the 10th largest. The uneven performance in the global financial markets in
1999 affected the results of many of the American Express Funds, and
investment results for the year were mixed. However, their overall mutual
fund performance improved from the prior year. Approximately three-quarters of
American Express Funds finished in the first or second quartile of their
peer groups for 1999, and all United States taxable fixed income funds
outperformed their peer group benchmarks.
For most funds, shares are sold in three classes. Class A shares
are sold at net asset value plus any applicable sales charge. The maximum
sales charge is 5.75 percent of the offering price 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 Y shares are
sold to institutional clients with no load. In 1999, American Express Funds
introduced five index funds, which are sold in two no-load classes. Class D
shares are sold for a 0.25% cost for distribution services but without a
sales charge through an investment product sponsored by AXP Advisors 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.
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. A second family of 15 funds, the no-load Strategist
Funds, also invests in the Preferred Master Trust Group. These funds are no
longer available for sale except to existing investors. This feeder structure
provides for potential development of additional channels of distribution.
19
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.
AXP Advisors, through a subsidiary that has been registered as a
broker-dealer in Japan, began offering mutual funds to individual Japanese
investors in March 1999 through American Express Financial Advisors Japan
Inc. ("AEFAJ"). AEFAJ is also planning to introduce financial planning
services in this market.
OTHER PRODUCTS AND SERVICES
---------------------------
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 (an operating division of AXP
Advisors), also offers discretionary investment management services to wealthy
individuals and small institutions with account sizes between $1 million
and $10 million. AEAMG also owns a majority interest in Kenwood Capital
Management LLC, which provides investment management services to investment
companies, corporations, trusts, estates, charitable organizations and tax
qualified pension and profit sharing plans. It 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.
Advisory Capital Partners LLC ("ACP"), a majority owned subsidiary
of Advisory Capital Strategies Group Inc., which, in turn, is a
wholly-owned subsidiary of AEAMG, is registered with the Commodity Futures
Trading Commission ("CFTC") as a Commodity Pool Operator. ACP acts as the
general partner to two partnerships seeking superior capital appreciation,
which are offered privately to qualified, eligible participants and which
employ various investment strategies, including among other things, the use
of leverage, short selling of securities and investment in options, futures
and other derivative instruments. For these partnerships, AEAMG acts as the
investment manager. AEAMG and Advisory Alpha Partners L.P., a registered
Commodity Pool Operator with the CFTC, jointly provide investment
management and advisory services to certain private investment vehicles
organized offshore.
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
20
American Express 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 bond obligations.
At December 31, 1999, AEAMG managed securities portfolios totaling
$20.6 billion for 443 accounts.
International or global investment management is offered to United
States-based institutional clients by American Express Asset Management
International Inc. ("AEAMI"), a United States company with offices in Hong
Kong, London and Singapore, and to non-United States based institutional
clients by American Express Asset Management Ltd. ("AEAML"), a United
Kingdom company with offices in Hong Kong, London and Singapore.
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. AEAMIJ also plans to offer
investment management services to Japanese institutional investors in 2000.
At December 31, 1999, AEAMI managed securities portfolios totaling $12.3
billion for 24 accounts; and AEAML managed securities portfolios totaling
$3.3 billion for 26 accounts. AEAMI and AEAML are wholly-owned subsidiaries
of AEFC. AEAMIJ managed $83 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 four wrap programs marketed through
financial advisors, marketing employees and third-party referrals. American
Express Wealth Management Service is a professionally managed discretionary
wrap account of individual securities. American Express Strategic Portfolio
Service and American Express Strategic Portfolio Service Advantage are
non-discretionary mutual fund wrap programs built around asset allocation
strategies. American Express Diversified Portfolio Service is a
non-discretionary multi-product wrap program offering mutual funds, stocks
and bonds. At December 31, 1999, assets in wrap programs offered by AXP
Advisors totaled $13.5 billion for approximately 85,300 accounts. American
Express Wealth Management Service, American Express Strategic Portfolio
Service, American Express Strategic Portfolio Service Advantage and
American Express Diversified Portfolio Service are operating divisions of
AXP Advisors.
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. Enhancements to the 401(k) services now allow clients to check
balances and initiate transfers online. AETC is trustee of over 416 benefit
plans which represent approximately $28.7 billion in assets and 1,020,000
participants. AETC has assets
21
under custody in excess of $144.4 billion and provides non-trusteed
investment management of assets in excess of $1.9 billion. AETC is
regulated by the Minnesota Department of Commerce (Banking Division). AETC,
through its personal trust division, also offers trust services to
individuals and organizations. To facilitate expansion of the personal
trust business, AEFC filed an application with the Office of Thrift
Supervision ("OTS") to establish a federal savings bank. If its application
is approved, the new federal savings bank will become subject to regulation
by the OTS.
AXP Advisors distributes real estate investment trusts sponsored
by other companies. AXP Advisors 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 AXP Advisors and its affiliated co-general
partner to regulation by the Commodity Futures Trading Commission.
In 1999, AEFC 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 401,000 retail and institutional
clients of AXP Advisors. AEIS holds over $16.8 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.
AEFC 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.
AEFC and its subsidiaries continue to develop new products and
modify existing products for distribution through various distribution
channels.
AMERICAN EXPRESS BANK/TRAVELERS CHEQUE
--------------------------------------
Management of the Company's Travelers Cheque unit reports to the
Chief Executive Officer of American Express Bank Ltd., the head of the
Company's international banking business. Accordingly, the Company's
Travelers Cheque operations is reported in the same operating segment as
American Express Bank Ltd. The financial and other information reported in
the following section under American Express Bank relates only to such
bank's business, and the information under the caption Travelers Cheque
includes only information related to the Travelers Cheque business.
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: corporations, financial institutions, wealthy individuals and
22
retail customers. 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 five primary business lines are corporate banking,
correspondent banking, private banking, personal financial services and
global trading. Corporate banking is provided to corporations principally
in emerging markets and includes trade finance and working capital loans.
Correspondent banking serves leading local banks primarily in emerging
markets and includes transaction payments and a wide range of trade finance
products such as letters of credit and payment guarantees, collections,
check clearing and bankers' acceptances. Private banking focuses on wealthy
individuals by providing such customers with investment management, trust
and estate planning, deposit instruments and secured lending. 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, and mutual fund and life insurance products. Through global
trading, AEB provides treasury and capital market products and services,
including foreign exchange, foreign exchange options, derivatives and
trading, with a focus on emerging markets.
In 1999, AEB continued to shift its business focus from
corporations to individuals, further developing private banking and
personal financial services. These businesses are expected to be the
long-term focus for AEB, due in part to the fact that marketing to their
individual client bases is consistent with the overall cross-selling
strategy of the Company. In 1999, private banking realized significant
growth, with client holdings increasing 26 percent to a total of $9
billion, and client volumes in PFS increased 15 percent. Due in part to
this change in emphasis, AEB reduced its commercial loan portfolio and
geographic concentration of credit risk. At year-end, loans outstanding
worldwide were approximately $5.1 billion, down from $5.6 billion at
December 31, 1998.
During the year, AEB launched a number of new products. AEB's
World Express Fund, a globally diversified mutual fund family, was
introduced in France, Germany, Italy and the United Kingdom. Direct sales
of this product, however, have been below expectations, and AEB intends to
put greater emphasis on sales through third parties such as banks and
financial advisors. AEB also launched mobile phone banking in Hong Kong and
Indonesia, and added an online mortgage service in Hong Kong.
AEB also continued to work more closely with other parts of the
Company to cross-sell products and build deeper relationships with
customers. The number of Cardmembers who have PFS relationships increased
during the year, and the Bank marketed its Private Banking services
to a highly targeted group of Cardmembers outside the United States. In
addition, AXP Advisors has contracted with AEB to manage most of AEB's
Worldfolio and Epic mutual funds. AEB has contracted with IDSC to market
IDSC's investment certificates, and operates a joint venture with AEFC in
the Cayman Islands to accept deposits. In 1999, AEB increased client
holdings in these deposits. TRS makes Platinum Cards available to AEB's
private banking clients. In addition,
23
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, Singapore, Taiwan, India 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 1994, AEB entered into a 10-year contract with Electronic Data
Systems Corporation ("EDS") for the outsourcing of AEB's global systems
support and development and data processing functions. In 1999, AEB entered
into an Amended and Restated Agreement with EDS, for a term of ten years,
for data center processing and related activities. The responsibility for
global systems support and development was insourced to the Company.
AEB has a global network with offices in 40 countries. Its
worldwide headquarters is located in New York City. It maintains
international banking agencies in New York City and Miami, Florida and a
facility office in San Francisco, 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 1999 total assets of $11.4 billion decreased from $11.6
billion in 1998. Liquid assets consisting of cash and deposits with banks,
trading account assets and investments, were $5.2 billion at December 31,
1999 and $4.9 billion at December 31, 1998.
24
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, 1999
(dollars in millions):
1999 1998 1997
---- ---- ----
Net financial revenues $621 $620 $637
Non-interest expenses 594 756 487
Net income (loss) 22 (84) 82
- ------------------------------------------------------------------------------ -------------- -------------- -----------
Cash and deposits with banks 2,533 2,303 2,150
Investments 2,469 2,553 2,265
Loans, net 4,928 5,404 6,062
Total assets 11,390 11,576 12,868
- ------------------------------------------------------------------------------ -------------- -------------- -----------
Customers' deposits 8,343 8,288 8,547
Shareholder's equity 691 743 830
- ------------------------------------------------------------------------------ -------------- -------------- -----------
Return on average assets (a) .19% (0.70)% 0.64%
Return on average common equity (a) 3.52% (13.31)% 10.83%
- ------------------------------------------------------------------------------ -------------- -------------- -----------
Reserve for loan losses/total loans 3.30% 3.83% 2.11%
Total loans/deposits from customers 61.10% 67.80% 72.45%
Average common equity/average assets (a) 5.39% 5.16% 5.61%
Risk-based capital ratios:
Tier 1 9.9% 9.8% 8.8%
Total 12.0% 12.6% 12.3%
Leverage ratio 5.6% 5.5% 5.3%
- ------------------------------------------------------------------------------ -------------- -------------- -----------
Average interest rates earned: (b)
Loans (c) 7.94% 8.56% 8.59%
Investments (d) 7.60% 7.62% 8.22%
Deposits with banks 5.68% 6.21% 7.07%
- ------------------------------------------------------------------------------ -------------- -------------- -----------
Total interest-earning assets (d) 7.40% 7.90% 8.18%
- ------------------------------------------------------------------------------ -------------- -------------- -----------
Average interest rates paid: (b)
Deposits from customers 5.30% 5.79% 6.04%
Borrowed funds, including long-term debt 6.11% 6.17% 6.98%
- ------------------------------------------------------------------------------ -------------- -------------- -----------
Total interest-bearing liabilities 5.30% 5.84% 6.16%
- ------------------------------------------------------------------------------ -------------- -------------- -----------
Net interest income/total average interest-earning assets (d) 2.92% 2.72% 2.91%
- ------------------------------------------------------------------------------ -------------- -------------- -----------
(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.
25
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, 1999 (millions):
BY GEOGRAPHICAL REGION (a) 1999 1998 1997 1996 1995
- -------------------------- ---- ---- ---- ---- -----
Asia/Pacific $1,698 $2,143 $2,789 $2,543 $2,151
Europe 1,414 1,021 1,055 821 876
Indian Subcontinent 449 517 629 833 970
Latin America 824 1,107 1,082 916 617
North America 255 210 51 67 76
Middle East 346 544 482 580 614
Africa 111 77 105 117 124
------ ------ ------ ------ -------
TOTAL $5,097 $5,619 $6,193 $5,877 $5,428
====== ====== ====== ====== =======
1999
------------------------------------
DUE AFTER DUE
DUE 1 YEAR AFTER 5
WITHIN 1 THROUGH 5 YEARS
BY TYPE AND MATURITY YEAR YEARS (b) (b) 1999 1998 1997 1996 1995
- -------------------- -------- --------- ------- ---- ---- ---- ---- ----
Consumer and private
banking loans:
Loans secured by
real estate $ 7 $ - $248 $ 255 $ 213 $ 146 $ 37 $ 40
Installment, revolving
credit and other 1,522 114 1 1,637 1,429 1,231 1,090 1,167
------ ----- ---- ------ ------ ------ ------ ------
1,529 114 249 1,892 1,642 1,377 1,127 1,207
====== ===== ==== ====== ====== ====== ====== ======
Commercial loans:
Loans secured by
real estate 132 9 - 141 302 347 386 461
Loans to businesses (c) 1,247 231 30 1,508 1,997 2,479 2,415 2,364
Loans to banks and other
financial institutions 1,347 128 - 1,475 1,595 1,926 1,860 1,240
Loans to governments and
official institutions 31 2 4 37 46 41 64 60
Equipment Financing - - - - - - 1 43
All other loans 41 2 1 44 37 23 24 53
------ ----- ---- ------ ------ ------ ------ ------
2,798 372 35 3,205 3,977 4,816 4,750 4,221
------ ----- ---- ------ ------ ------ ------ ------
TOTAL $4,327 $486 $284 $5,097 $5,619 $6,193 $5,877 $5,428
====== ===== ==== ====== ====== ====== ====== =======
(a) Based primarily on the domicile of the borrower.
(b) Loans due after one year at fixed (predetermined) interest rates totaled
$131 million, while those at floating (adjustable) interest rates
totaled $639 million.
(c) Business loans, which accounted for approximately 30 percent of the
portfolio as of December 31, 1999, were distributed over 26 commercial
and industrial categories.
26
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).
(in millions: December 31,) 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Consumer loans $ - $ 1 $ 1 $ 1 $ 3
Real estate loans--commercial 7 9 9 5 1
Loans to businesses 149 151 34 29 20
Loans to banks and other financial institutions 12 19 3 - 8
Loans to governments and official institutions - - - - 1
Equipment financing - - - - 1
---- ---- --- --- ----
TOTAL $168 $180 $47 $35 $34
==== ==== === === ====
December 31,
------------
(in millions) 1999 1998
---- ----
Recorded investment in impaired loans
not requiring an allowance (a) $ 11 $ 3
Recorded investment in impaired loans
requiring an allowance $157 $177
---- ----
Total recorded investment in impaired loans $168 $180
==== ====
Credit reserves for impaired loans $ 62 $ 95
==== ====
December 31,
-------------------------------------
(in millions) 1999 1998 1997
---- ---- ----
Average recorded investment in impaired loans $ 200 $ 176 $ 58
Interest income recognized on a cash basis 5 2 3
(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 $37 million at December 31, 1999, $63 million at December 31, 1998
and $11 million at December 31, 1997. The 1999 and 1998 balances primarily
represent matured foreign exchange and derivative contracts, while the 1997
amount represents balances transferred from non-performing loans as a
result of foreclosures. The decrease from 1998 to 1999 primarily reflects
previously reserved write-offs.
27
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, 1999 (dollars in millions):
1999 1998 1997 1996 1995
--------- ---------- ------------ ---------- -----------
Reserve for credit losses -
January 1, $259 $137 $117 $111 $109
Provision for credit losses (a) 29 238 20 23 7
Translation and other 1 (4) (2) (1) -
--------- ---------- ------------ ---------- -----------
Subtotal 289 371 135 133 116
--------- ---------- ------------ ---------- -----------
Writeoffs:
Consumer loans 25 19 13 13 9
Real estate loans-commercial 1 3 - 2 -
Loans to businesses (b) 50 72 17 7 3
Loans to banks and other
financial institutions 14 2 - 1 1
Loans to governments and
official institutions - - - - 1
Foreign exchange and
derivative contracts (c) 20 28 - - -
Equipment financing - - - - 1
Recoveries:
Consumer loans (7) - (11) (3) (1)
Loans to businesses (3) (5) (3) (2) (5)
Loans to banks and other
financial institutions - - - (1) (3)
Loans to governments and
official institutions (d) - - (18) (1) -
Equipment financing - - - - (1)
All other loans - (7) - - -
--------- ---------- ------------ ---------- -----------
Net write-offs (recoveries) 100 112 (2) 16 5
--------- ---------- ------------ ---------- -----------
Reserve for credit losses
December 31, (e) $189 $259 $137 $117 $111
========= ========== ============ ========== ===========
(a) The increase in 1998 was mainly due to first quarter credit loss
provision related to business in the Asia/Pacific region, particularly
Indonesia. The increase in 1996 was primarily due to loan growth,
slightly higher consumer and commercial write-offs and lower
commercial banking recoveries.
(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:
Loans $169 $214 $131 $117 $111
Other assets, primarily derivatives 16 43 6 - -
Other liabilities 4 2 - - -
---- ---- ---- ---- ----
Total reserve for credit losses $189 $259 $137 $117 $111
==== ==== ==== ==== ====
28
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 and Charge 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, 1999, 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.
29
At December 31, 1999, AEB had exposures throughout the
Asia/Pacific region, including in Hong Kong, Singapore, Taiwan, Indonesia
and Korea, among other countries. AEB had approximately $1.7 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 $1.2 billion to the credit exposures in the region at
year end. In the first quarter of 1998, AEB established a $213 million
($138 million after-tax) credit loss provision related to AEB's business in
the Asia/Pacific region, particularly Indonesia.
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 1999,
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 33 through 35 under the caption "Risk Management,"
and Note 7 on pages 46 through 49, of the Company's 1999 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.
30
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 System (the "Federal Reserve Board") regulates, supervises
and examines AEBI and the California Department of Financial Institutions
supervises and examines AEB's San Francisco facility office. 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.
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 25, AEB
is considered to be well capitalized at December 31, 1999.
TRAVELERS CHEQUE
----------------
The Company, through its Travelers Cheque Group, is a leading
issuer of travelers checks. The Company is also expanding the scope of its
Money Order and Official Check products in the United States, and renewing
its focus on the TravelFunds Direct(SM) product, which provides direct
delivery of foreign bank notes and Travelers Cheques in selected markets.
The American Express(R) Travelers Cheque ("Travelers Cheque" or
"Cheque") is sold as a safe and convenient alternative to currency. The
Travelers Cheque, a negotiable instrument, has no expiration date and is
payable by the issuer in the currency of issuance when presented for the
purchase of goods and services or for redemption. Travelers Cheques are issued
in eleven currencies both directly by the Company and through joint venture
companies in which the Company generally holds an equity interest.
The Company also issues Gift Cheques, a type of Travelers Cheque used for
gift-giving purposes. Due to a renewed marketing focus in 1999,
31
consumer Gift Cheque sales increase by 27 percent. In 1999, the Travelers Cheque
Group also commenced the issuance of a euro-denominated Travelers Cheque,
and piloted the sale of Travelers Cheques over the Internet.
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 generally compensates selling
agents for their sale of Travelers Cheques.
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.
The investment of these proceeds is regulated by various state laws.
Although the Company believes it is the leading issuer of
travelers checks, its growth in sales of this product has been declining
over the past few years. 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.
Travelers Cheque sales and Travelers Cheques outstanding tend to
be greatest each year in the third quarter.
Although the Travelers Cheque Group is reported in the same
operating segment as American Express Bank, all Travelers Cheque products,
including Travelers Cheques, Gift Cheques, Money Orders and Official Checks,
continue to be issued by TRS and TRS affiliates and subsidiaries.
CORPORATE AND OTHER
-------------------
The American Express brand and its attributes - trust, security,
integrity, quality and customer service - are key assets of the Company. In
1999, 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.
In 1999, the Company also commenced a more aggressive strategy in
seeking to patent technologies throughout its businesses.
32
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 are scheduled to be
final by May 2000. 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 still serve as general
partners in numerous public limited partnerships that have not yet been
liquidated.
For a discussion of the Company's status relating to the Year 2000
issue, see page 32 of the Company's 1999 Annual Report to Shareholders,
which discussion is incorporated herein by reference.
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.
33
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 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" or 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, including the Company's financial and other
goals, 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. This could
depend in part on the Company's ability
34
to manage the potential conflicts inherent in its growing multi-channel
delivery systems;
o succeed in its ongoing reengineering efforts and in achieving
best-in-class economics, while also maintaining high service levels;
o create successfully, and increase distribution channels and cross
selling for, financial, travel, card and other products and services;
o participate in payment and other systems material to its businesses on a
fair and competitive basis;
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 address adequately its Y2K issues, successfully identify its systems
containing two digit codes, the nature and amount of programming
required to fix the affected systems and the costs of labor and
consultants related to such effort, continue to have access to such
resources and ensure that third parties that interface with the Company
successfully address their Y2K issues;
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;
o adapt its businesses according to economic models not yet fully
developed relating to investment costs, revenue streams, customer
acquisition costs and
35
other financial considerations and to effectively
manage the Company's online strategy in accordance with such models to
generate profitable results;
o use effectively its resources to balance available investment spending
with the earnings and revenue goals of the Company and properly trade
off time-to-market considerations with the desire to provide full
service online capabilities;
o attract and retain qualified personnel necessary to develop and execute
the Company's Internet strategy; and
o adjust to unforeseeable events that require changes in the Company's
Internet strategy or development plan.
TRS' inability to:
o expand its overall revenues, which depends in part on its ability to
increase consumer and/or business spending and borrowing on its credit
and charge Cards, gain market share and develop 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 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.
AXP Advisors' inability to:
o attract and retain the personnel to improve its mutual fund performance;
o create the appropriate incentives and value proposition to successfully
sell proprietary and non-proprietary products to its clients;
o manage the potential conflicts inherent in its growing multi-channel
delivery systems;
36
o continue to grow its retail channel, attract and grow a field force
for its client segments and generate anticipated economics from its
financial advisor platforms;
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 a short-term financial market crash or a
long-term financial market decline or stagnation, which could affect the
sale of investment products at AXP Advisors and the market value of AXP
Advisors' managed assets, resulting in lower management and distribution
fees.
In general:
o the inability of TRS and AEB to 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, all of which could be affected by general political and
economic conditions, including interest rates and consumer credit
trends, the rate of bankruptcies and movements in currency valuations;
o the effect of changing interest rates, which could affect AXP Advisors'
spreads between revenues from owned investments and benefits credited to
clients' fixed income accounts, TRS' borrowing costs and TRS' and AEB's
return on lending products;
o changes in laws or government regulations that either restrict the
businesses of the Company or allow a wider range of institutions to
compete in such businesses, changes in tax laws affecting the Company's
businesses, regulatory activity in the areas of customer privacy and
data protection, and other possible legal or regulatory developments;
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 or restrictions on convertibility of certain
currencies;
o competitive pressures in all of the Company's major businesses;
o unforeseen 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 14 to the Consolidated Financial Statements of
37
the Company, which appears on pages 56 through 58 of the Company's 1999
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 27, 2000,
none of whom has any family relationship with any other and none of whom
became an officer pursuant to any arrangement or understanding with any
other person, are listed below. Each of such officers was elected to serve
until the next annual election of officers or until his or her successor is
elected and qualified. Each officer's age is indicated by the number in
parentheses next to his or her name.
HARVEY GOLUB - Chairman and Chief Executive Officer; Chairman, TRS
Mr. Golub (61) has been Chief Executive Officer of the Company
since February 1993, Chairman of the Company since August 1993 and
Chairman, TRS since November 1991. Prior to February 1997 he had been Chief
Executive Officer of TRS.
KENNETH I. CHENAULT - President and Chief Operating Officer;
President and Chief Executive Officer, TRS
Mr. Chenault (48) has been President and Chief Operating Officer of the
Company and President and Chief Executive Officer of TRS since February 1997.
Prior to February 1997 he had been Vice Chairman of the Company since
January 1995. Prior to May 1995, he had also been President, U.S.A. of TRS.
RICHARD KARL GOELTZ - Vice Chairman and Chief Financial Officer
Mr. Goeltz (57) has been Vice Chairman and Chief Financial Officer
of the Company since September 1996. Prior thereto, he had been Group Chief
Financial Officer and a member of the Board of Directors of NatWest Group.
JONATHAN S. LINEN - Vice Chairman
Mr. Linen (56) has been Vice Chairman of the Company since August 1993.
38
STEVEN W. ALESIO - President, Small Business Services and Consumer
Travel, TRS
Mr. Alesio (45) has been President, Small Business Services and
Consumer Travel, TRS since February 1996. Prior thereto, he had been Executive
Vice President, Corporate Card, TRS.
ANNE M. BUSQUET - President, American Express Relationship Services, TRS
Mrs. Busquet (50) has been President, American Express Relationship
Services, TRS since October 1995. Prior thereto, she had been Executive
Vice President, Consumer Card Group.
JAMES M. CRACCHIOLO - President, International, TRS
Mr. Cracchiolo (41) has been President, International, TRS since
May 1998. Prior thereto he had been President, Global Network Services, TRS
since February 1996. Prior thereto he had been Senior Vice President,
Quality, Reengineering and Business Strategy, TRS.
URSULA F. FAIRBAIRN - Executive Vice President, Human Resources and Quality
Mrs. Fairbairn (57) 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 - President, Corporate Services, TRS
Mr. Gilligan (40) has been President, Corporate Services, TRS
since February 1996. Prior thereto, he had been Executive Vice President,
Travel Management Services, TRS since June 1995. Prior thereto, he had been
Senior Vice President and General Manager, Eastern Region of Travel
Management Services, TRS.
JOHN D. HAYES - Executive Vice President, Global Advertising
and Brand Management
Mr. Hayes (45) has been Executive Vice President, Global Advertising
and Brand Management since May 1995. Prior thereto, he had been President
of Lowe & Partners/SMS.
39
DAVID C. HOUSE - President, Establishment Services Worldwide, TRS
Mr. House (50) has been President, Establishment Services Worldwide,
TRS since October 1995. Prior thereto, he had been Senior Vice President of
Sales and Field Marketing for the United States Establishment Services Group.
DAVID R. HUBERS - President and Chief Executive Officer,
American Express Financial Corporation
Mr. Hubers (57) has been President and Chief Executive Officer of
American Express Financial Corporation since August 1993.
ALFRED F. KELLY, JR. - President, Consumer Card Services Group, TRS
Mr. Kelly (41) has 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. Prior thereto he had been Senior Vice President, Customer
Information Services, TRS.
LOUISE M. PARENT - Executive Vice President and General Counsel
Ms. Parent (49) 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 (44) has been Executive Vice President and Chief
Information Officer since March 2000. Prior thereto he had been Senior Vice
President, E-Commerce, United States Card and Travel Services since
December 1999. Prior thereto he had been Senior Vice President, Information
Technology Strategy and Global Platform Development since April 1999.
Prior thereto he had been Senior Vice President, Operations 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 (53) has been Executive Vice President, Corporate Affairs
and Communications of the Company since March 1993
40
JOHN A. WARD, III - Chairman and Chief Executive Officer,
American Express Bank Ltd.;
Head, Travelers Cheque Group
Mr. Ward (53) has been Chairman and Chief Executive Officer, American
Express Bank Ltd. since January 1996. Since August 1997 he has also been Head
of Travelers Cheque Group. Prior thereto, he had been Executive Vice President
of Chase Manhattan Bank and Chief Executive Officer of Chase BankCard Services.
EMPLOYEES
---------
The Company had approximately 88,400 employees on December 31, 1999.
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 and Salt Lake City, Utah; the American Express Canada, Inc.
headquarters in Markham, Ontario, Canada, all of which are owned by the
Company or its subsidiaries. AEFC's principal locations are its
headquarters, the IDS Tower, a portion of which the company leases until
2002, and its Operations Center, which the company owns; both are in
Minneapolis, Minnesota. AXP Advisors also owns Oak Ridge Conference Center,
a training facility and conference center in Chaska, Minnesota.
In December 1999, the Company increased its business presence in
the Phoenix area by acquiring three office buildings aggregating 120,000
square feet. The Company previously had been the sole tenant in the
buildings which serve as a financial resource center for the Company. In
March 2000, the Company also entered into a new lease for 140,000 square
feet in Phoenix for its travel related services group.
AEFC entered into a contract with a developer to construct a
30-story office tower in Minneapolis which should be ready for initial
occupancy in April 2000. The new tower will become AEFC's headquarters.
AEFC's lease term is for 20 years with several options to extend the term.
AEFC is also building a new Client Service Center in downtown
Minneapolis. Construction started in June 1999 and the building should be
ready for occupancy in June 2002.
41
In 1999, IDS Property Casualty commenced construction of a new
corporate headquarters in Green Bay, Wisconsin. The building is expected to
be ready for occupancy in November 2000 at an aggregate cost of
$22,700,000.
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 initially
will cover North and South America, and may be expanded to cover other
regions.
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.
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. IDS Life and AEFC filed an answer
to the complaint on February 18, 1997, denying the allegations. 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,
42
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. It is subject to a number of
contingencies, including a definitive agreement and court approval.
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 October 14, 1999, the Company
filed a Motion for Summary Judgment; oral arguments are scheduled for April
12, 2000.
On March 29, 1999 an action entitled LAMBERT V. AMERICAN EXPRESS
FINANCIAL CORPORATION, AMERICAN EXPRESS FINANCIAL ADVISORS INC., IDS LIFE
INSURANCE AGENCIES, INC., IDS LIFE INSURANCE COMPANY, AMERICAN EXPRESS
BENEFIT PLAN COMMITTEE, CAREER DISTRIBUTORS PLAN COMMITTEE AND JOHN/JANE
DOES 1-20 was commenced in U.S. District Court, District of Minnesota,
Fourth Division. The sole name plaintiff purports to represent a class
consisting of financial advisors who were independent contractors from
January 1, 1993 to the present. The complaint alleges class members were
misclassified as independent contractors and seeks retroactive coverage in
all employee health, welfare, retirement and compensation plans, and
payment of FICA and FUTA taxes. The complaint also alleges violation of
ERISA, breach of contract, breach of duty of good faith and fair dealing
and unjust enrichment. The complaint was amended on July 26, 1999, adding
three plaintiffs, adding new claims for conversion, rescission of the
financial advisors agreement and declaratory judgment and adding the Company's
Employee Benefits Administration Committee as a defendant. The parties are
actively engaged in discovery. The Company believes it has meritorious
defenses to such action and intends to pursue them vigorously.
Since October 1, 1999, five 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. Four of the charges were filed with the EEOC in
43
Minnesota and one in New Jersey. 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.
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, 1999.
PART II
-------
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 on the Chicago, Pacific, London and Paris Stock Exchanges. The
Company had 56,020 common shareholders of record at December 31, 1999. For
price and dividend information with respect to such Common Shares, see Note
17 to the Consolidated Financial Statements on page 59 of the Company's
1999 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 61 of the Company's 1999 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 35 of the Company's 1999 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 33 through 35 of the Company's 1999 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
44
36 through 60 of the Company's 1999 Annual Report to Shareholders are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
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 13, 2000
pursuant to Regulation 14A, which involves the election of directors. The
following portions of such proxy statement are incorporated herein by
reference: pages 7 through 9 - material included under the heading
"Compensation of Directors," pages 10 through 13 - material included under
the heading "Ownership of Our Common Shares" (excluding the paragraph under
the heading "Share Ownership Guidelines for Directors" on page 13), pages
13 through 16 - material included under the heading "Item 1 - Election of
Directors," pages 32 "Summary Compensation Table" through 48 including
material included under the heading "Section 16(a) Beneficial Ownership
Reporting Compliance" (excluding the portions titled "Performance Graph" on
page 39 and "Directors and Officers Liability Insurance" on page 48). In
addition, the Company has provided, under the caption "Executive Officers
of the Company" at pages 38 through 41 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.
45
3. Exhibits:
---------
See Exhibit Index on pages E-1 through E-5 hereof.
(b) Reports on Form 8-K:
Form 8-K, dated October 26, 1999, Item 5, reporting the Company's
earnings for the quarter ended September 30, 1999 and including a
Third Quarter Earnings Supplement.
Form 8-K, dated January 26, 2000, Item 5, reporting the Company's
earnings for the quarter and year ended December 31, 1999 and
including a Fourth Quarter/Full Year Earnings Supplement.
Form 8-K, dated February 3, 2000, Item 5, reporting certain
information from speeches presented by Harvey Golub, the
Company's Chairman and Chief Executive Officer and David Hubers,
President, AXP Advisors, to the financial community on February
2, 2000.
46
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 27, 2000 By /s/ Richard Karl Goeltz
---------------------------
Richard Karl Goeltz
Vice Chairman 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/ Robert L. Crandall
- ------------------------------ ---------------------------
Harvey Golub Robert L. Crandall
Chairman, Chief Executive Director
Officer and Director
/s/ Kenneth I. Chenault /s/ Beverly Sills Greenough
- ------------------------------ ---------------------------
Kenneth I. Chenault Beverly Sills Greenough
President, Chief Operating Director
Officer and Director
/s/ Richard Karl Goeltz /s/ F. Ross Johnson
- ------------------------------ ---------------------------
Richard Karl Goeltz F. Ross Johnson
Vice Chairman and Director
Chief Financial Officer
/s/ Daniel T. Henry /s/ Vernon E. Jordan, Jr.
- ------------------------------ ---------------------------
Daniel T. Henry Vernon E. Jordan, Jr.
Senior Vice President Director
and Comptroller
/s/ Daniel F. Akerson /s/ Jan Leschly
- ------------------------------ ---------------------------
Daniel F. Akerson Jan Leschly
Director Director
/s/ Anne L. Armstrong /s/ Drew Lewis
- ------------------------------ ---------------------------
Anne L. Armstrong Drew Lewis
Director Director
/s/ Edwin L. Artzt /s/ Richard A. McGinn
- ------------------------------ ---------------------------
Edwin L. Artzt Richard A. McGinn
Director Director
/s/ William G. Bowen /s/ Frank P. Popoff
- ------------------------------ ---------------------------
William G. Bowen Frank P. Popoff
Director Director
March 27, 2000
47
AMERICAN EXPRESS COMPANY
INDEX TO FINANCIAL STATEMENTS
COVERED BY REPORT OF INDEPENDENT AUDITORS
(ITEM 14(A))
ANNUAL
REPORT TO
SHAREHOLDERS
FORM 10-K (PAGE)
----------- -------------
American Express Company and Subsidiaries:
Data incorporated by reference from attached
1999 Annual Report to Shareholders:
Report of independent auditors . . . . . . . . . . . . . . . . 60
Consolidated statements of income for the three
years ended December 31, 1999 . . . . . . . . . . . . . . 36
Consolidated balance sheets at December 31, 1999
and 1998. . . . . . . . . . . . . . . . . . . . . . . . . 37
Consolidated statements of cash flows for the
three years ended December 31, 1999 . . . . . . . . . . . 38
Consolidated statements of shareholders' equity for the
three years ended December 31, 1999 . . . . . . . . . . . 39
Notes to consolidated financial statements . . . . . . . . . . 40-59
Consent of independent auditors . . . . . . . . . . . . . . . . . F-2
Schedules:
I - Condensed financial information of the Company . . . . . . . F-3-6
II - Valuation and qualifying accounts for the three years
ended December 31, 1999 . . . . . . . . . . . . . . . . . . F-7
All other schedules for American Express Company and subsidiaries
have been omitted since the required information is not present or not
present in amounts sufficient to require submission of the schedule, or
because the information required is included in the respective financial
statements or notes thereto.
The consolidated financial statements of American Express Company
(including the report of independent auditors) listed in the above index,
which are included in the Annual Report to Shareholders for the year ended
December 31, 1999, 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 1999 Annual
Report to Shareholders is not to be deemed filed as part of this report.
F-1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report
on Form 10-K of American Express Company of our report dated February 3,
2000 (hereinafter referred to as our Report), included in the 1999 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 and No. 333-55761) 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, 1999.
/s/ Ernst & Young LLP
New York, New York
March 27, 2000
F-2
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF THE COMPANY
CONDENSED STATEMENTS OF INCOME
(PARENT COMPANY ONLY)
(MILLIONS)
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1999 1998 1997
--------------- ---------------- ------------------
Revenues $ 235 $ 260 $ 236
--------------- ---------------- ------------------
Expenses:
Interest 316 293 224
Human resources 85 80 68
Other (A) 129 - 314
--------------- ---------------- ------------------
Total 530 373 606
--------------- ---------------- ------------------
Pretax (loss) income (295) (113) (370)
Income tax (benefit) provision (158) (107) (193)
--------------- ---------------- ------------------
Net (loss) income before equity in net income
of subsidiaries and affiliates (137) (6) (177)
Equity in net income of subsidiaries
and affiliates 2,612 2,147 2,168
--------------- ---------------- ------------------
Net income $2,475 $2,141 $1,991
=============== ================ ==================
(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
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF THE COMPANY
CONDENSED BALANCE SHEETS
(PARENT COMPANY ONLY)
(MILLIONS, EXCEPT SHARE AMOUNTS)
ASSETS
DECEMBER 31,
-------------------------------------------
1999 1998
------------------ -------------------
Cash and cash equivalents $ 18 $ 6
Equity in net assets of subsidiaries and affiliates 9,987 10,127
Accounts receivable and accrued interest, less reserves 18 13
Land, buildings and equipment--at cost, less
accumulated depreciation: 1999, $70; 1998, $65 80 69
Due from subsidiaries (net) 1,968 1,060
Other assets 588 779
------------------ -------------------
Total assets $12,659 $12,054
================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and other liabilities $ 966 $ 756
Long-term debt 1,083 1,085
Intercompany debentures 515 515
------------------ -------------------
Total liabilities 2,564 2,356
Shareholders' equity:
Common shares, $.60 par value, authorized
1.2 billion shares; issued and outstanding
446.9 million shares in 1999 and 450.5 million shares in 1998
Capital surplus 268 270
Retained earnings 5,196 4,809
Other comprehensive income, net of tax: 5,033 4,148
Net unrealized securities gains
Foreign currency translation adjustments (296) 583
(106) (112)
------------------ -------------------
Accumulated other comprehensive income (402) 471
------------------ -------------------
Total shareholders' equity 10,095 9,698
------------------ -------------------
Total liabilities and shareholders' equity $12,659 $12,054
================== ===================
See Notes to Condensed Financial Information of the Company on page F-6.
F-4
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF THE COMPANY
STATEMENTS OF CASH FLOWS
(PARENT COMPANY ONLY)
(MILLIONS)
YEARS ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 2,475 $ 2,141 $ 1,991
Adjustments to reconcile net income to cash provided by operating
activities:
Equity in net income of subsidiaries and
affiliates (2,612) (2,147) (2,168)
Dividends received from subsidiaries and
affiliates 1,955 1,666 1,489
----------- ----------- -----------
Net cash provided by operating activities 1,818 1,660 1,312
----------- ----------- -----------
Net cash (used) provided by investing activities (36) 91 51
----------- ----------- -----------
Cash flows from financing activities:
Issuance of American Express common shares 233 137 168
Repurchase of American Express common shares (1,120) (1,890) (1,259)
Dividends paid (404) (414) (423)
Net (decrease) increase in debt (6) 6 411
Issuance of intercompany debentures - 515 -
Other (473) (112) (278)
----------- ----------- -----------
Net cash used in financing activities (1,770) (1,758) (1,381)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 12 (7) (18)
----------- ----------- -----------
Cash and cash equivalents at beginning of year 6 13 31
----------- ----------- -----------
Cash and cash equivalents at end of year $ 18 $ 6 $ 13
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest (net of amounts capitalized) in 1999, 1998, and 1997
was $83 million, $81 million and $88 million, respectively. Net cash
received for income taxes in 1999 and 1998 was $431 million and $145
million, respectively; net cash paid for income taxes in 1997 was $98
million.
F-5
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. Certain
prior year's amounts have been reclassified to conform to the current
year's presentation.
2. Long-term debt consists of (millions):
DECEMBER 31,
----------------------------------
1999 1998
---------------- --------------
6 3/4% Senior Debentures due June 23, 2004 $ 499 $ 499
8 1/2% Notes due August 15, 2001 300 299
8 5/8% Senior Debentures due 2022 123 122
Floating Medium-Term Note due December 31, 2000 88 88
WFC Series Z Zero Coupon Notes due December 12, 2000 58 52
Other Fixed and Floating rate notes maturing 1999-2001 15 25
---------------- --------------
$1,083 $1,085
================ ==============
Aggregate annual maturities of long-term debt for the five years
ending December 31, 2004 are as follows (millions): 2000, $163; 2001,
$305; 2002, $0; 2003, $0; 2004, $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 5 to the
Consolidated Financial Statements on page 44 of the Company's
1999 Annual Report to Shareholders, which Note is incorporated
herein by reference.
F-6
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1999
(MILLIONS)
Reserve for credit losses, Reserve for doubtful
loans and discounts accounts receivable
----------------------------------------- ---------------------------------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
Balance at beginning
of period $ 812 $ 707 $ 601 $ 599 $ 712 $ 722
Additions:
Charges to income 832 1,165 837 1,209(a) 948(a) 1,153(a)
Recoveries of amounts
previously written-off 171 74 159 - - -
Deductions:
Charges for which
reserves were provided (1,062) (1,134) (890) (1,002) (1,061) (1,163)
------- ------- ------- ------- ------- -------
Balance at end of period $ 753 $ 812 $ 707 $ 806 $ 599 $ 712
======= ======= ====== ======= ======= =======
(a) Before recoveries on accounts previously written-off, which are credited to income
(millions): 1999--$225, 1998--$231 and 1997--$237.
F-7
EXHIBIT INDEX
-------------
The following exhibits are filed as part of this Annual Report or, where
indicated, were heretofore filed and are hereby incorporated by reference
(*indicates exhibits electronically filed herewith). Exhibits numbered 10.1
through 10.14, 10.22 through 10.31, 10.34 and 10.35 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 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 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)).
10.3 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).
10.4 Description of American Express Pay for Performance Deferral
Program (incorporated by reference to Exhibit 10.5 of the
Company's Annual Report on Form 10-K (Commission File
No. 1-7657) for the fiscal year ended December 31, 1994).
10.5 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).
E-1
10.6 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).
10.7 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).
10.8 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).
10.9 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).
10.10 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).
10.11 Description of separate pension arrangement and loan agreement
between the Company and Harvey Golub (incorporated by
reference to Exhibit 10.17 of Company's Annual Report on Form
10-K (Commission File No. 1-7657) for the fiscal year ended
December 31, 1988).
10.12 Shearson Lehman Brothers Capital Partners I Amended and
Restated Agreement of Limited Partnership (incorporated by
reference to Exhibit 10.18 of Company's Annual Report on Form
10-K (Commission File No. 1-7657) for the fiscal year ended
December 31, 1988).
10.13 Shearson Lehman Hutton Capital Partners II, L.P. Amended and
Restated Agreement of Limited Partnership (incorporated by
reference to Exhibit 10.19 of Company's Annual Report on Form
10-K (Commission File No. 1-7657) for the fiscal year ended
December 31, 1988).
10.14 American Express Company Salary/Bonus Deferral Plan (incorporated
by reference to Exhibit 10.20 of Company's Annual Report on
Form 10-K (Commission File No. 1-7657) for the fiscal year ended
December 31, 1988).
E-2
10.15 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).
10.16 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).
10.17 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).
10.18 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).
10.19 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).
10.20 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).
10.21 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).
E-3
10.22 American Express Company 1993 Directors' Stock Option Plan
(incorporated by reference to Exhibit 28.2 of the Company's
Quarterly Report on Form 10-Q (Commission File No. 1-7657)
for the quarter ended March 31, 1993).
10.23 American Express Senior Executive Severance Plan (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, 1994).
10.24 Amendment of American Express Senior Executive Severance Plan
(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, 1994).
10.25 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).
10.26 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).
10.27 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).
10.28 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).
10.29 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).
E-4
10.30 Amended and Restated American Express Company Supplemental
Retirement Plan (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).
10.31 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)).
10.32 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).
10.33 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).
10.34 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).
10.35 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 1999 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).
*27 Financial Data Schedule.
E-5
==========================================================================
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, 1999 Commission File No. 1-7657
------------------------
American Express Company
(Exact name of Company as specified in charter)
E X H I B I T S
==========================================================================
EXHIBIT INDEX
-------------
The following exhibits are filed as part of this Annual Report or, where
indicated, were heretofore filed and are hereby incorporated by reference
(*indicates exhibits electronically filed herewith). Exhibits numbered 10.1
through 10.14, 10.22 through 10.31, 10.34 and 10.35 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 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 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)).
10.3 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).
10.4 Description of American Express Pay for Performance Deferral
Program (incorporated by reference to Exhibit 10.5 of the
Company's Annual Report on Form 10-K (Commission File
No. 1-7657) for the fiscal year ended December 31, 1994).
10.5 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).
E-1
10.6 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).
10.7 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).
10.8 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).
10.9 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).
10.10 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).
10.11 Description of separate pension arrangement and loan agreement
between the Company and Harvey Golub (incorporated by
reference to Exhibit 10.17 of Company's Annual Report on Form
10-K (Commission File No. 1-7657) for the fiscal year ended
December 31, 1988).
10.12 Shearson Lehman Brothers Capital Partners I Amended and
Restated Agreement of Limited Partnership (incorporated by
reference to Exhibit 10.18 of Company's Annual Report on Form
10-K (Commission File No. 1-7657) for the fiscal year ended
December 31, 1988).
10.13 Shearson Lehman Hutton Capital Partners II, L.P. Amended and
Restated Agreement of Limited Partnership (incorporated by
reference to Exhibit 10.19 of Company's Annual Report on Form
10-K (Commission File No. 1-7657) for the fiscal year ended
December 31, 1988).
10.14 American Express Company Salary/Bonus Deferral Plan (incorporated
by reference to Exhibit 10.20 of Company's Annual Report on
Form 10-K (Commission File No. 1-7657) for the fiscal year ended
December 31, 1988).
E-2
10.15 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).
10.16 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).
10.17 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).
10.18 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).
10.19 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).
10.20 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).
10.21 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).
E-3
10.22 American Express Company 1993 Directors' Stock Option Plan
(incorporated by reference to Exhibit 28.2 of the Company's
Quarterly Report on Form 10-Q (Commission File No. 1-7657)
for the quarter ended March 31, 1993).
10.23 American Express Senior Executive Severance Plan (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, 1994).
10.24 Amendment of American Express Senior Executive Severance Plan
(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, 1994).
10.25 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).
10.26 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).
10.27 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).
10.28 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).
10.29 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).
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10.30 Amended and Restated American Express Company Supplemental
Retirement Plan (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).
10.31 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)).
10.32 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).
10.33 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).
10.34 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).
10.35 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 1999 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).
*27 Financial Data Schedule.
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