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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, 1993
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.)
American Express Tower
World Financial Center
New York, New York 10285
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (212) 640-2000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Shares (par value $.60 per Share) New York Stock Exchange
Boston Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
6 1/4% Exchangeable Notes Due October 15, 1996 New York Stock Exchange
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 the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K / /.
Common shares of the registrant outstanding at March 7, 1994 were 491,387,952.
The aggregate market value, as of March 7, 1994, of such common shares held by
non-affiliates of the registrant was approximately $14.1 billion. (Aggregate
market value estimated solely for the purposes of this report. This shall not
be construed as an admission for the purposes of determining affiliate
status.)
DOCUMENTS INCORPORATED BY REFERENCE
Parts I, II and IV: Portions of Registrant's 1993 Annual Report to
Shareholders.
Part III: Portions of Registrant's Proxy Statement dated March 14, 1994.
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PAGE
TABLE OF CONTENTS
Form 10-K
Item Number
Part I Page
1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Travel Related Services . . . . . . . . . . . . . . . . . . . . .1
IDS Financial Services. . . . . . . . . . . . . . . . . . . . . .6
American Express Bank . . . . . . . . . . . . . . . . . . . . . 10
Discontinued Operations . . . . . . . . . . . . . . . . . . . . 17
Corporate and Other . . . . . . . . . . . . . . . . . . . . . . 18
Foreign Operations. . . . . . . . . . . . . . . . . . . . . . . 19
Industry Segment Information and
Classes of Similar Services . . . . . . . . . . . . . . . . . 19
Executive Officers of the Registrant. . . . . . . . . . . . . . 20
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 22
4. Submission of Matters to a Vote of Security Holders . . . . . . . . 27
Part II
5. Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . . . . 27
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . 27
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . 27
8. Financial Statements and Supplementary Data . . . . . . . . . . . . 27
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . . 27
Part III
10. Directors and Executive Officers of the Registran . . . . . . . . . 27
11. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . 27
12. Security Ownership of Certain Beneficial Owners
and Management. . . . . . . . . . . . . . . . . . . . . . . . . . 27
13. Certain Relationships and Related Transactions. . . . . . . . . . . 27
Part IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Index to Financial Statements . . . . . . . . . . . . . . . . . . .F-1
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . .E-1
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PART I
ITEM 1. BUSINESS
American Express Company (the "registrant") was founded in 1850 as a joint
stock association and was incorporated under the laws of the State of New York
in 1965. The registrant and its subsidiaries are principally in the business
of providing travel related services, investors diversified financial services
and international banking services throughout the world.
In January 1994, the registrant's Board of Directors approved a plan to
complete a tax-free spin-off of the common stock of the registrant's
subsidiary, Lehman Brothers Holdings Inc. ("Lehman"), through a special
dividend to the registrant's common shareholders. Lehman is in the business
of providing investment services. The final transaction, which is subject to
a number of conditions, is expected to close in the second quarter of 1994.
In anticipation of this transaction, Lehman's results are reported as a
discontinued operation in the registrant's Consolidated Financial Statements.
During 1993, Lehman sold the Shearson Lehman Brothers retail
brokerage and asset management businesses, The Boston Company, Inc. and
Shearson Lehman Hutton Mortgage Corporation.
In March 1993, the registrant reduced its ownership interest in First Data
Corporation ("FDC") to approximately 22 percent through a public offering. As
a result, effective January 1, 1993, FDC is reported under the equity method
of accounting.
These transactions are described in more detail on pages 23 and 35-37 of
the registrant's Annual Report to Shareholders, which descriptions are
incorporated herein by reference.
TRAVEL RELATED SERVICES
American Express Travel Related Services Company, Inc. (including its
subsidiaries, where appropriate, "TRS") provides a variety of products and
services, including the American Express(R) Card (the "Card"), consumer
lending, the American Express(R) Travelers Cheque (the "Travelers Cheque" or
the "Cheque"), corporate and consumer travel products and services, magazine
publishing, database marketing and management and insurance. TRS offers
products and services in over 160 countries.
TRS's business as a whole has not experienced significant seasonal
fluctuation, although Travelers Cheque sales and Travelers Cheques outstanding
tend to be greatest each year in the summer months, peaking in the third
quarter, and Card billed business tends to be moderately higher in the fourth
quarter than in other calendar quarters.
TRS places significant importance on its trademarks and service marks.
TRS diligently protects its intellectual property rights around the world.
CARD AND CONSUMER LENDING
TRS issues the American Express Card, including the American Express(R)
Gold Card, the Platinum Card(R), the Corporate Card, the Optima(SM) Card and,
commencing in January 1994, the Purchasing Card. Cards are currently issued
in 32 currencies. The Card, which is issued to individuals for their personal
account or through a corporate account established by their employer, permits
Cardmembers to charge purchases of goods and services in the United States and
in most countries around the world at establishments that have agreed to
accept the Card.
The Card issuer accepts from each participating establishment the charges
arising from Cardmember purchases at a discount that varies with the type of
participating establishment, the volume of charges, the timing and method of
payment to the establishment and the method of submission.
Except in the case of the Optima Card, the Card is primarily designed for
use as a method of payment and not as a means of financing purchases of goods
and services and carries no pre-set spending limit. Charges are approved
based on a Cardmember's past spending and payment patterns, credit history and
personal resources. Except in the case of the Optima Card and extended
payment plans, payment of the full amount billed each month is due from the
Cardmember upon receipt of the bill, and no finance charges are assessed.
Card accounts that are past due by a given number of days are subject, in most
cases, to a delinquency assessment.
The Card issuer charges Cardmembers 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. The
Optima Card is generally offered to pre-approved prospects on a first-year-
free basis.
Cardmembers generally have access to a variety of special services,
including: the Membership Miles(R) Program, Global Assist(R) Hotline, Buyer's
Assurance(SM) Protection Plan, Car Rental Loss and Damage Insurance Plan,
Travel Accident Insurance Plan and Purchase Protection(SM) Plan. A Cardmember
participating in the Gold Card program in the United States has access to
certain additional services, including a Year End Summary of Charges Report
and, in many instances, the ability to draw on a line of credit. The Platinum
Card, offered to certain Cardmembers in the United States and certain other
countries, provides access to additional and enhanced travel, financial,
insurance, personal assistance and other services. Under the Express Cash
program, enrolled Cardmembers can obtain cash or American Express Travelers
Cheques 24 hours a day from automated teller machines of participating
financial institutions worldwide. TRS also offers merchandise directly to
Cardmembers, who may elect to pay for the products they purchase in
installments with no finance charges. TRS is planning to offer additional
rewards programs in conjunction with other businesses, possibly on a co-
branded basis.
The Corporate Card program offers travel and expense management systems
and services for all business entities and such services as the Business
Travel Accident Insurance Plan for large businesses and the Accident
Disability Plan and the FleetPlan(SM) auto leasing program for small
businesses. TRS is continuing to enhance its business travel and expense
management systems through various on-line access technologies and business
travel management information reports, as described below under "Travel
Services", which are integrated with the Corporate Card. Effective on
November 30, 1993, the U.S. General Services Administration awarded TRS a
contract to provide American Express(R) Government Card charge card services
to federal employees who travel on official government business. The contract
is for one year with four one-year renewal options.
TRS launched the Corporate Purchasing Card in January 1994. The Corporate
Purchasing Card is intended to provide an efficient, low-cost system for
managing purchases of supplies, equipment and services by companies.
Employees of the company to whom Corporate Purchasing Cards are issued can use
the Cards to order directly from suppliers, rather than using the traditional
system of requisitions, purchase orders and invoices. TRS pays the suppliers
and submits a single monthly billing statement to the company.
The Optima Card is a revolving credit card marketed to individuals in the
United States and several other countries. In the United States, interest is
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computed according to one of three tiers, all tied to the prime rate,
depending on the spending and payment patterns and tenure of the Cardmember.
American Express Centurion Bank ("Centurion Bank") issues the Optima Card in
the United States and owns substantially all receivables arising from the use
of Optima Cards issued in the United States. In addition, Centurion Bank
issues lines of credit in association with many American Express Cards and
offers unsecured loans to Cardmembers in connection with their Sign &
Travel(R) accounts and other unsecured lines of credit and installment loans.
The Sign & Travel account allows qualified U.S. Cardmembers the option of
extended payments for airline, cruise and certain prepaid travel charges that
are purchased with the Card. Centurion Bank combined its line of credit
products with the Optima portfolio, effective in the fourth quarter of 1993.
Outside the United States, consumer lending activities are engaged in by other
subsidiaries of the registrant where local regulations permit. The Optima
Card is currently offered primarily to individuals who already have an
American Express Card. TRS is also planning to offer revolving credit cards
to individuals who are not Cardmembers.
American Express Credit Corporation ("Credco") purchases most Cardmember
receivables arising from the use of Cards (other than Optima Cards) issued in
the United States and Cardmember receivables in designated currencies arising
from the use of Cards 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. (In addition, TRS also funds Cardmember
receivables through an asset securitization program.) The cost of funding
Cardmember receivables is a major expense of Card operations.
The American Express Card and consumer lending businesses are subject to
extensive regulation in the United States under a number of federal laws and
regulations, including the Equal Credit Opportunity Act, which generally
prohibits discrimination in the granting and handling of credit; the Fair
Credit Reporting Act, which, among other things, regulates 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; and
the Fair Credit and Charge Card Disclosure Act, which mandates certain
disclosures on credit and charge card applications. Federal legislation also
regulates abusive debt collection practices. In addition, a number of states
and foreign countries have similar consumer credit protection and disclosure
laws. These laws and regulations have not had, and are not expected to have,
a material adverse effect on the Card and consumer lending businesses, either
in the United States or on a worldwide basis.
Centurion Bank is subject to restrictions on its activities under the
Competitive Equality Banking Act of 1987 ("CEBA"). See page 18 for a
description of these restrictions. Centurion Bank is a member of the Federal
Deposit Insurance Corporation ("FDIC") and is regulated, supervised and
regularly examined by the Delaware State Banking Commissioner and the FDIC.
TRS encounters substantial and increasingly intense competition worldwide
with respect to the Card and consumer lending businesses from general purpose
cards issued under revolving credit plans, particularly VISA cards issued by
members of VISA International Service Association, Inc. or VISA USA, Inc.
(collectively, "VISA"), and MasterCard cards issued by members of MasterCard
International, Incorporated ("MasterCard"), including cards sponsored by AT&T,
General Electric Company, General Motors Corporation and Ford Motor Company;
the Discover Card, a revolving credit card; and, to a lesser extent, charge
cards such as Diners Club and JCB. TRS also encounters competition from
businesses that issue their own cards or otherwise extend credit to their
customers. Most U.S. banks issuing credit cards under revolving credit plans
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charge annual fees in addition to interest charges where permitted by state
law. The issuer of the Discover Card, as well as some issuers of VISA cards
and MasterCard cards, charge no annual fees. Certain issuers offer mileage
credit to card holders under airline frequent flyer programs or other types of
reward programs or rebates. Certain competing issuers offer premium cards
with enhanced services or lines of credit.
TRS generally charges higher discount rates to service establishments than
its competitors. As a result, TRS has encountered complaints from some
establishments, as well as suppression of the Card's use. TRS has adjusted
its discount structure in certain industries and locations. In addition, TRS
has undertaken a reengineering program designed to reduce costs and enhance
TRS's ability to address competitive pricing pressures. (For a discussion of
this program, see page 26 of the registrant's Annual Report to Shareholders,
which is incorporated herein by reference.) TRS has also increased its joint
marketing and other services offered to service establishments and has
expanded its efforts in handling and resolving suppression problems. TRS's
strategy is to focus on achieving Card acceptance at merchants where
Cardmembers want to use the Card.
The principal competitive factors that affect the Card business are (i)
the quality of the service and services, including rewards programs, provided
to Cardmembers and participating establishments; (ii) the number and
characteristics of Cardmembers; (iii) the quantity and quality of the
establishments that will accept a Card; (iv) the cost of Cards to Cardmembers
and of Card acceptance to participating establishments; (v) the terms of
payment available to Cardmembers and participating establishments; (vi) the
number and quality of other payment instruments available to Cardmembers and
participating establishments; and (vii) the success of marketing and promotion
campaigns.
TRAVEL SERVICES
A wide variety of travel services is offered to customers for business and
personal purposes by a network of offices in more than 120 countries. Travel
services include trip planning, reservations, ticketing, management
information systems and other incidental services. TRS receives commissions
and fees for travel bookings and arrangements from airlines, hotels, car
rental companies and other travel suppliers.
To meet the competition for the business traveler and to provide client
companies with a customized approach to managing their travel and
entertainment needs, the Travel Management Services unit ("TMS") integrates
the Corporate Card and business travel services in the United States and
certain foreign countries. TMS offers to its client companies services to
manage their travel and entertainment budgets. American Express Business
Travel Centers handle reservations, provide necessary ticketing and deliver
ticket/itinerary information in the United States. In addition, this service
provides clients with an information package to plan, account for and control
travel and entertainment expenses. TMS provides a state-of-the-art Expense
Management System, which captures and reconciles expense report data with
Corporate Card charge data. TMS also developed On-Line Access, a
user-friendly information service that can help organizations obtain necessary
travel management information through their office computers.
Vigorous competition is encountered in the travel business from more than
30,000 travel agents in the United States and abroad. This competition is
mainly based on service, convenience and proximity to the customer and has
increased due to several factors in recent years. The number of travel
agencies in the United States has increased, and a number of independent
agencies have been acquired by larger travel companies. Travel agency groups
also have increased in size, enabling independent agencies to be more
4
competitive in providing travel services to regional and national business
travel clients and in other activities. In addition, many companies have
established in-house business travel departments.
TRAVELERS CHEQUES
American Express Travelers Cheques are sold as a safe and convenient
alternative to currency. The 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. The
success of the Travelers Cheque operation is in large part related to the
worldwide acceptability of the Cheque as a means of payment for goods and
services and the worldwide refundability of Cheques that are lost or stolen.
American Express Travelers Cheques are issued directly by TRS in United States
dollars, Canadian dollars, Swiss francs, German marks and Japanese yen.
French franc and British pound Cheques are primarily issued by joint venture
companies in which TRS holds an equity interest and for which TRS provides
sales, operations, marketing and refund servicing arrangements.
American Express Travelers Cheques are sold through a broad network of
outlets worldwide, including offices of TRS, its affiliates and
representatives, travel agents, commercial banks, savings banks, savings and
loan associations, credit unions and other financial, travel and commercial
businesses. TRS generally pays compensation to selling agents for their sale
of Travelers Cheques.
The proceeds from sales of Cheques issued by TRS are remitted to TRS and
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.
TRS also issues the Corporate Travelers Cheque, a cash access product for
business travelers, Cheques for Two(SM), a Cheque product with two signature
lines designed for people who are traveling together, and the American
Express(R) Gift Cheque. All of these Cheque products operate with the same
signature-countersignature negotiation procedure as Travelers Cheques and are
refundable to the purchaser in the event of loss or theft.
Although the registrant believes that TRS is the leading issuer of
travelers checks, TRS encounters significant competition from many other forms
of payment instruments, from other brands of travelers checks and from
national and international automated teller machine networks. The principal
competitive factors affecting the travelers check industry are (i) the
acceptability of the checks throughout the world as an alternative to
currency; (ii) the ability to service satisfactorily the check purchaser if
the checks are lost or stolen; (iii) the compensation paid to, and frequency
of settlement by, selling agents; (iv) the availability to the consumer of
other forms of payment; (v) the accessibility of travelers check sales and
refunds; (vi) the success of marketing and promotion campaigns; and (vii) the
amount of the fee charged to the consumer.
PUBLISHING AND DIRECT MARKETING
TRS publishes Travel & Leisure(R), Food & Wine(R), Departures(TM) and Your
Company(TM) magazines. Under a March 1993 agreement between TRS and a
subsidiary of Time Inc. ("Time"), Time provides management services in
connection with these magazines. The magazine publishing business operates in
a highly competitive market. The editorial quality of the magazines and the
size and quality of their readerships are the most critical competitive
factors.
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TRS also provides direct mail merchandise services and, through its
subsidiary Epsilon Data Management, Inc., proprietary database marketing and
management.
INSURANCE
AMEX Life Assurance Company ("AMEX Life"), its subsidiaries and its
affiliated property-casualty insurer, AMEX Assurance Company (collectively,
the "Life Group"), provide a variety of insurance products to individuals,
employers and associations. The Life Group's primary products are individual
long-term care insurance and products for American Express Cardmembers such as
Automatic Air Flight insurance and a deferred annuity marketed under the name
Privileged Assets(R).
The Life Group's long-term care products are marketed through a network
of 20,000 independent agents and brokers and American Express affiliates.
Other products are marketed through direct response methods to Cardmembers.
The Life Group competes with companies in the financial services industry
that respond to consumer needs for money management, risk management and
investments. The principal factors that affect the Life Group's competitive
position are (i) premium rates; (ii) providing coverage to meet customers'
needs; (iii) the quality of service given its customers; (iv) establishing and
maintaining distribution networks to sell policies and administrative
capabilities to service policyholders; (v) marketing; and (vi) investment
performance.
In the first quarter of 1993, the Life Group sold by reinsurance certain
closed blocks of business including policies of life, accident and health
insurance held by American Express Cardmembers, representing earned premiums
in 1992 of approximately $155 million.
The Life Group is qualified to transact business in all states of the
United States and in Puerto Rico and Canada, and is subject to comprehensive
state and federal regulations. (See page 8 for a general discussion of the
extent of state insurance regulations.)
IDS FINANCIAL SERVICES
IDS Financial Corporation (including its subsidiaries, where appropriate,
"IDS") is engaged in providing a variety of financial products and services to
help individuals, businesses and institutions establish and achieve their
financial goals. IDS's products and services include financial planning,
insurance and annuities, a variety of investment products, including
investment certificates, mutual funds and limited partnerships, investment
advisory services, trust services, tax preparation and bookkeeping services,
personal auto and homeowner's insurance and retail securities brokerage
services. At December 31, 1993, IDS maintained a nationwide financial
planning field force of 7,655 persons. IDS's marketing system consists
primarily of its field force operating in 50 states and the District of
Columbia, organized in 13 regions and 177 divisional offices.
FINANCIAL PLANNING
IDS Financial Services Inc., IDS's principal marketing subsidiary, offers
financial planning and investment advisory services to individuals for which
it charges a fee. IDS financial planning services provide financial analyses
addressing six basic areas of financial planning: financial position,
protection, investment, income tax, retirement and estate planning. To
complete their financial plans, IDS planners provide clients with
recommendations of products from the more than 100 products distributed by
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subsidiaries and affiliates of IDS, as well as products of approved third
parties.
IDS Financial Services Inc. has entered into a marketing arrangement with
a subsidiary of TRS, American Express Service Corporation ("AESC"), in which
financial planners representing both AESC and IDS offer Cardmembers and others
financial analyses through AESC and other financial products and services
through IDS in select locations. IDS is planning to rebrand its financial
planning business to identify itself more closely with the American Express
brand name, and to enable IDS to expand services to Cardmembers.
IDS Financial Services Inc. is marketing its financial products and
services to customers of banks and credit unions, by establishing offices with
dedicated financial planners within the bank's or credit union's retail
locations. Such arrangements enable these financial institutions to retain
and enhance their relationships with customers who would have gone elsewhere
to buy non-insured, non-deposit financial products.
First-year financial planners are compensated primarily by salary, while
veteran financial planners receive compensation based on sales. The IDS field
force compensation is structured to encourage planner retention and product
persistency, while adding stability to the financial planner's income. In
attracting and retaining members of the field force, IDS competes with
financial planning firms, insurance companies, securities broker-dealers and
other financial institutions. IDS has undertaken a major initiative called
"IDS 1994" to make changes in its business processes and field organization to
improve planner retention and client satisfaction. IDS has two pilot division
offices implementing the IDS 1994 recommendations and plans additional pilots
this year.
Although the use of an exclusive field force may entail higher initial
costs than other forms of marketing, such as direct-response marketing or
independent agency distribution, IDS believes that its ability to provide
broad-based integrated services on a relationship basis is a competitive
advantage.
IDS Financial Services Inc. does business as a broker-dealer and
investment adviser in 51 jurisdictions. IDS Financial Corporation, IDS
Financial Services Inc. and AESC are registered as broker-dealers and
investment advisers regulated by the Securities and Exchange Commission
("SEC"), and are members of the National Association of Securities Dealers,
Inc. ("NASD"). IDS financial planners must obtain state and NASD licenses
required for the businesses.
IDS anticipates regulation of the securities and commodities industries
to increase at all levels. Monetary penalties and restrictions on business
activities by regulators resulting from compliance deficiencies are also
expected to increase. 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 adviser, its officers or
employees.
The financial services industry responds to consumer needs for money
management, risk management and investments. Industry competition focuses
primarily on cost, investment performance, yield, convenience, service,
reliability, safety and distribution system. Competition in the financial
services market is very intense and IDS competes with a variety of financial
institutions such as banks, securities brokers, mutual funds and insurance
companies, whose products and services increasingly cross over the traditional
lines that previously differentiated one type of institution from another.
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IDS's business does not as a whole experience significant seasonal
fluctuations.
INSURANCE AND ANNUITIES
IDS'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 IDS
Financial Corporation and serves all states except New York. 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"), whose business is currently
limited to issuing fixed dollar annuity contracts to banks, thrift
institutions and stock brokerages. In Fortune magazine's May 1993 listing of
the 50 largest life insurance companies as ranked by assets, IDS Life ranked
fourteenth.
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). IDS Life also markets disability income and
long-term care insurance. In addition, it offers 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 principal annuity products are fixed deferred annuities. These
annuities guarantee a relatively low annual interest rate during the
accumulation period (the time before annuity payments begin) although the
company may pay a higher rate reflective of current market rates. IDS Life
also offers a fixed/variable annuity, or "Flexible Annuity," 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. Additionally, IDS Life offers
a variable annuity contract that invests in real estate, real estate mortgages
and sale-leaseback transactions.
IDS Life, IDS Life Insurance Company of New York and American Enterprise
Life are subject to comprehensive regulation by the Minnesota Department of
Commerce (Insurance Division), the New York Department of Insurance and the
Indiana Department of Insurance, respectively, although 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 contents of insurance
policies. The purpose of such regulation and supervision is primarily to
protect the interests of policyholders. Virtually all states also 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 with respect to various aspects of the insurance industry
including taxation and 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 IDS's insurance
subsidiaries.
As a distributor of variable 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.
In addition to selling its products through IDS financial planners, IDS
Life also distributes its products through financial consultants of Smith
Barney Shearson Inc., an independent firm.
8
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 its 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 issues face-amount investment certificates through its wholly-owned
subsidiary, IDS Certificate Company ("IDSC"), which is registered as an
investment company under the Investment Company Act of 1940. 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 holding one type of
certificate may have their interest calculated in 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. IDS acts as
investment manager for IDSC. IDSC's certificates are sold primarily by IDS
Financial Services Inc.'s field force.
IDSC currently offers eight types of face-amount certificates. The
specified maturities of the certificates range from four to twenty years.
Within their specified maturity, most certificates have interest rate periods
ranging from one to thirty-six months. Certificate holders can surrender
their certificates at the end of an interest rate period. Some certificates
are marketed by American Express Bank Ltd. to its foreign customers. American
Express Bank International has also sold a significant amount of certificates.
IDSC is the largest issuer of face-amount certificates in the United
States. Such certificates compete, however, 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
IDS Financial Services Inc. offers a variety of mutual funds, for which
it acts as principal underwriter (distributor of shares). IDS acts as
investment manager and performs various administrative services. These 36
publicly-offered mutual funds, the "IDS MUTUAL FUND GROUP", have varied
investment objectives, and include, for example, money market, tax-exempt,
bond and stock funds. IDS believes that the IDS MUTUAL FUND GROUP, with
combined net assets at December 31, 1993 of $36.5 billion, was the thirteenth
largest mutual fund organization and, excluding money market funds, was the
eighth largest. IDS Financial Services Inc., as principal underwriter,
maintains a continuous public offering of shares of each fund at net asset
value plus any applicable sales charge. The maximum sales charge is five
percent of the offering price with reduced sales charges for larger purchases.
The competitive factors affecting the sale of mutual funds include sales
charges ("loads") paid, services received and investment performance. The
funds compete with other investment products, including funds that have no
sales charge (known as "no load" funds), and with funds distributed through
independent brokerage firms as well as with those distributed by other
"exclusive" sales forces.
OTHER SERVICES
IDS provides investment management services for pension, profit-sharing,
employee savings and endowment funds of large- and medium-sized businesses and
9
other institutions through the IDS Advisory Group. IDS also offers investment
services for wealthy individuals and small institutions. These services are
marketed through IDS financial planners and marketing employees and third-
party referrals. International or global investment management is offered by
IDS International, Inc., a U.S. company with offices in London, England, and
IDS Fund Management Ltd., an English company. At December 31, 1993, the IDS
Advisory Group managed securities portfolios totaling $12.3 billion for 236
accounts, up from $8.6 billion at December 31, 1992 for 172 accounts. The
market for the IDS Advisory Group's services is highly competitive, with
investment performance the most critical competitive factor.
IDS Trust Company, formerly IDS Bank & Trust, provides trustee, custodial,
record-keeping and investment management services for pension, profit sharing,
employee savings and endowment funds. Through its personal trust division,
IDS Trust Company offers trust services to individuals. IDS Trust Company is
regulated by the Minnesota Department of Commerce (Banking Division). On
March 1, 1994, IDS Trust Company and IDS Deposit Corp., a Utah industrial loan
corporation, assigned their deposits and sold their loans to a subsidiary of
TRS. Prior to that date, IDS Trust Company and IDS Deposit Corp. made
consumer loans and accepted certain kinds of deposits.
IDS Financial Services Inc. distributes a variety of real estate, cable
TV, equipment leasing, and venture capital limited partnership investments
issued by other companies. IDS Financial Services Inc. also distributes
limited partnerships in which various IDS subsidiaries are co-general partners
or are involved in providing services to such partnerships. These
partnerships include real estate, cable TV and managed futures partnerships.
IDS Property Casualty Insurance Company provides personal auto and
homeowner's coverage to clients in nineteen states. This insurance is
underwritten to some extent by AMEX Assurance Company in fourteen of these
states and reinsured by IDS Property Casualty. IDS Property Casualty is
regulated by the Commissioner of Insurance for Wisconsin. Tax and Business
Services, a division of IDS Financial Services Inc., offers tax planning, tax
preparation and small business consulting services to clients in 50 locations
in 26 states.
In 1993, IDS continued to expand its securities services activities, which
offer portfolio analysis and securities brokerage services. American
Enterprise Investment Services Inc. provides securities execution and
clearance services for IDS. American Enterprise Investment Services Inc. 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.
AMERICAN EXPRESS BANK
The registrant's wholly-owned subsidiary, American Express Bank Ltd.
(together with its subsidiaries, where appropriate, "AEB"), seeks to meet the
financial service needs of wealthy entrepreneurs and local financial service
institutions through four core businesses: private banking, correspondent
banking, commercial services and treasury. 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 U.S. and non-U.S. based
activities.
AEB's private banking business focuses on wealthy entrepreneurs by
providing such customers deposit products, investment and fiduciary services,
asset management, mutual funds, trust and estate planning and secured loans.
Correspondent banking services are offered primarily to medium-sized and small
financial institutions and include processing services (such as check
10
clearing, money transfers, collections and remittances), electronic banking
and trade finance, in addition to deposit and investment services. Commercial
services are provided to businesses, most of which are owned by wealthy
entrepreneurs, and include trade finance products such as letters of credit,
payment guaranties, working capital loans and equipment finance. Treasury
services are provided to all segments of AEB's customer base, and primarily
include trading foreign exchange, interest rate products and other derivative
instruments.
In certain countries outside the United States and Canada, in some cases
by arrangement with TRS, AEB provides travel related services consisting of
Card, travel and Travelers Cheque products and offers consumer lending and
certain other services. In the future, AEB expects to serve a greater role as
an international platform to support TRS's business globally.
AEB has a global network of 81 locations in 37 countries. Its
international headquarters is located in New York City. It maintains
international banking agencies in New York City and Miami, Florida. Its
wholly-owned Edge Act subsidiary, American Express Bank International
("AEBI"), is also headquartered in New York City and has branches in New York
City, Miami, Beverly Hills, Los Angeles and San Diego. The three offices in
California are expected to be sold or closed in 1994. In connection with
AEB's sale in 1990 of TDB American Express Bank, its former Swiss-based
private banking subsidiary, the registrant and certain of its affiliates,
including AEB, have agreed not to engage in Switzerland in the money or asset
management businesses prior to March 2, 1995. AEB continues to maintain a
banking presence in Switzerland through a wholly-owned subsidiary, American
Express Bank (Switzerland) S.A.
As part of AEB's strategy to focus its business on wealthy entrepreneurs
and local financial service institutions, and to manage its assets and
operations more prudently, AEB continued to exit certain off-strategy
activities in 1993, including a joint venture commercial bank in the
Philippines and leasing joint ventures in Indonesia, Taiwan and Germany.
SELECTED FINANCIAL INFORMATION
The travel-related and consumer lending services referred to above were
included in AEB's legal entity, but not AEB's reporting segment, in 1993 and
in certain prior years. The financial information set forth below is
generally presented on a segment basis and thus excludes such services, which
were presented in TRS' reporting segment, except where otherwise indicated.
Commencing in the first quarter of 1994, certain of such services are being
operated within, and reported as part of, the AEB segment.
AEB provides banking services to the registrant and its subsidiaries. AEB
is only one of many international and local banks used by the registrant and
its other subsidiaries, which constitute only a few of AEB's many customers.
AEB's total assets were $13.6 billion at December 31, 1993, compared with
$13.7 billion at December 31, 1992. Liquid assets, consisting of cash and
deposits with banks, trading account assets and investments, were $5.9 billion
at December 31, 1993, compared with $5.0 billion at December 31, 1992.
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, 1993 (dollars in
millions):
11
1993 1992 1991
---- ---- ----
Net financial revenues $557 $452 $445
Noninterest expenses 440 445 407
Income before cumulative effect of a
change in accounting principle 81 26 60
Cumulative effect of a change in
accounting for post-retirement
benefits other than pensions, net
of related income taxes - (7) -
Net income 81 19 60
- - -----------------------------------------------------------------------------
Cash and deposits with banks 2,641 2,065 2,844
Investments 2,820 2,780 2,942
Loans, net 5,031 4,654 4,538
Total assets 13,559 13,658 14,367
- - ----------------------------------------------------------------------------
Customers' deposits and credit
balances 8,760 8,622 9,612
Shareholder's equity 605 565 572
- - -----------------------------------------------------------------------------
Return on average assets (a) 0.65% 0.19% 0.42%
Return on average shareholder's equity (a) 13.74% 4.57% 10.52%
- - -----------------------------------------------------------------------------
Total loans/deposits and credit
balances from customers 58.70% 55.53% 48.13%
Average shareholder's equity/average
assets (a) 4.70% 4.22% 3.99%
Risk-based capital ratios: (b)
Tier 1 6.3% 5.7% 4.8%
Total 10.2% 9.1% 8.8%
Leverage ratio (b) 4.4% 4.3% 3.8%
- - -----------------------------------------------------------------------------
Average interest rates earned: (c)
Loans (d) 7.01% 8.14% 9.64%
Investments (e) 9.21% 9.13% 9.38%
Deposits with banks 5.67% 6.68% 8.61%
- - -----------------------------------------------------------------------------
Total interest-earning assets (e) 7.15% 7.87% 9.22%
- - -----------------------------------------------------------------------------
Average interest rates paid: (c) 5.49% 6.49% 7.73%
Deposits and credit balances from
customers 4.19% 5.38% 6.67%
Borrowed funds, including long-term debt
- - -----------------------------------------------------------------------------
Total interest-bearing liabilities 5.28% 6.34% 7.60%
- - -----------------------------------------------------------------------------
Net interest income/total average
interest-earning assets (e) 2.48% 2.27% 1.90%
- - -----------------------------------------------------------------------------
(a) Computed before the accounting change.
(b) Reported on a legal entity basis.
(c) Based upon average balances and related interest income and expense,
including transactions with related parties.
(d) Interest rates have been calculated based upon average total loans,
including those on nonperforming status.
(e) On a tax equivalent basis.
12
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, 1993
(millions):
By Geographical Region (a) 1993 1992 1991 1990 1989
- - -------------------------------------------------------------------------------
Asia/Pacific $1,924 $1,558 $1,653 $1,472 $1,229
Europe 882 844 910 1,526 1,519
Indian Subcontinent 849 907 623 632 485
Latin America 749 675 546 653 979
North America 283 382 468 537 533
Middle East 368 357 365 340 413
Africa 87 65 61 38 147
Other - - - - 11
- - -------------------------------------------------------------------------------
Total $5,142 $4,788 $4,626 $5,198 $5,316
===============================================================================
1993
---------------------------------
Due After
1 Year
Due Through Due
By Type Within 5 After 5
and Maturity 1 Year Years(b) Years(b) 1993 1992 1991 1990 1989
- - ------------------------------------------------------------------------------------------
Loans to $2,384 $235 $20 $2,639 $2,628 $2,355 $2,431 $2,262
businesses(c)
Real estate loans 460 228 16 704 665 751 815 423
Loans to banks and
other financial
institutions 961 107 7 1,075 666 731 778 938
Equipment
financing(d) 10 68 27 105 386 501 509 519
Consumer loans 462 3 - 465 282 118 213 567
Loans to governments
and official 83 3 3 89 96 96 324 492
institutions
All other loans 65 - - 65 65 74 128 115
- - ------------------------------------------------------------------------------------------
Total $4,425 $644 $73 $5,142 $4,788 $4,626 $5,198 $5,316
==========================================================================================
(a) Based primarily on the domicile of the borrower.
(b) Loans due after 1 year at fixed (predetermined) interest rates totaled
$199 million, while those at floating (adjustable) interest rates totaled
$519 million.
(c) Business loans, which accounted for approximately 51 percent of the
portfolio as of December 31, 1993, were distributed over 26 commercial
and industrial categories.
(d) The decrease from December 31, 1992 to December 31, 1993 reflects $163
million of equipment finance (aircraft) loans transferred to other
performing assets upon foreclosure, resulting in a total value of
aircraft assets leased to others of $424 million at December 31, 1993.
13
The following tables set forth AEB's nonperforming loans at year end for
each of the five years in the period ended December 31, 1993 (millions):
1993 1992 1991 1990 1989
-------------------------------------------------------------------------
Credit $ 43 $102 $ 38 $189 $ 16
Lesser Developed Countries - - - 238 311
-------------------------------------------------------------------------
Total (a) $ 43 $102 $ 38 $427 $327
=========================================================================
1993 1992 1991 1990 1989
------------------------------------------------------------------------
Loans to businesses $ 24 $ 22 $ 21 $174 $ 16
Real estate loans 19 69 5 15 -
Equipment financing - 6 5 - -
Loans to banks and other
financial institutions - 4 4 - 12
Loans to governments
and official institutions - 1 3 238 299
------------------------------------------------------------------------
Total (a) (b) $ 43 $102 $ 38 $427 $327
========================================================================
(a) AEB's other nonperforming assets totaled $89 million at December 31,
1993, $83 million at December 31, 1992 and $43 million at December 31,
1991, and represent balances transferred from nonperforming loans as a
result of foreclosures and in-substance foreclosures. The increases were
primarily related to real estate exposures.
(b) Reduced rate loans were immaterial in amount.
14
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, 1993
(dollars in millions):
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
Total loans at year end $5,142 $4,788 $4,626 $5,198 $5,316
====== ====== ====== ====== ======
Reserve for credit losses-
January 1, $ 134 $ 88 $ 318 $ 452 $ 509
Provision for credit losses 34 94 25 54 127
Transfer to TRS (a) - - - (12) -
Translation and other (b) (21) - (1) 2 -
------- ------- ------- ------- ------
Subtotal 147 182 342 496 636
------- ------- ------- ------- ------
Write-offs:
Real estate loans 16 30 7 - -
Loans to businesses 19 21 88 24 17
Loans to banks and other
financial institutions - 4 18 3 52
Loans to governments and
official institutions - 2 149 163 128
All other loans 6 1 - 1 1
Recoveries:
Loans to businesses (4) (8) (6) (9) (8)
Loans to banks and other
financial institutions (1) (1) (1) (1) (3)
Real estate loans - - (1) - -
Equipment financing - - - - (2)
Loans to governments and
official institutions - - - (2) -
All other loans - (1) - (1) (1)
------ ------ ------- ------ ------
Net write-offs 36 48 254 178 184
------ ------ ------ ------ ------
Reserve for credit losses-
December 31, $ 111 $ 134 $ 88 $ 318 $ 452
====== ======= ====== ====== ======
Reserve for credit losses/
total loans 2.16% 2.80% 1.90% 6.12% 8.50%
====== ====== ====== ====== ======
(a) During 1990, AEB transferred loans totaling $236 million and related
reserves of $12 million to TRS on a segment reporting basis.
(b) The decline in 1993 was primarily due to the transfer of reserves
relating to loans reclassified to other performing assets upon
foreclosure.
- - --------------------------
Interest income is recognized on the accrual basis. Loans are placed on
nonperforming status when payments of principal or interest are 90 days past
due, or if in the opinion of management the borrower is unlikely to meet its
contractual commitments. When loans are placed on nonperforming status, all
previously accrued interest not yet received is reversed against current
interest income. Cash receipts of interest on nonperforming loans are
recognized either as income or as a reduction of principal, based upon
management's judgment as to the collectibility of principal.
15
A reserve for credit losses is established by charging a provision for
credit losses against income. The amount charged to income is based upon
several factors, which include the historical credit loss experience in
relation to outstanding credits, a continuous determination as to the
collectibility of each credit, and management's evaluation of exposures in
each applicable country as related to current and anticipated economic and
political conditions.
RISKS
The global nature of AEB's business activities are such that
concentrations of credit to particular industries and geographic regions are
not unusual. At December 31, 1993, AEB had significant investments in certain
on- and off-balance sheet financial instruments, which were primarily
represented by deposits with banks, investments, loans, commitments to
purchase and sell foreign currencies and U.S. dollars, interest rate swaps and
forward rate agreements. 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 and North
America. AEB continuously monitors its credit concentrations and actively
manages to reduce the associated risk. AEB does not anticipate any material
losses as a result of these concentrations.
In 1991, AEB completed the liquidation of its long-term lesser developed
country ("LDC") cross border loan portfolio. At December 31, 1993, AEB had
$64 million of equity investments in LDC based enterprises (net of reserves)
resulting from certain debt for equity conversions. These remaining
conversions included 7 equity investments, the value of which were primarily
represented by a minority interest in a Brazilian petrochemical holding
company and two Mexican hotel projects.
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. Strict limits have been established, however, 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. Fixed interest rate loans with
maturities in excess of one year totaled $199 million at December 31, 1993.
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 registrant) 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, has AEB been a major factor.
REGULATION
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. AEB's New York Agency is
supervised and regularly examined by the Superintendent of Banks of the State
of New York. At the request of management, the New York State Banking
Department has extended its supervision and examination of the New York Agency
to cover AEB's global network of branches and subsidiaries. The Florida
Department of Banking and Finance supervises and examines the Miami Agency.
16
In addition, the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") regulates, supervises and examines AEBI.
Following a recent examination of AEBI's California branches, in September
1993 AEBI agreed to pay a fine of $950,000 to, and entered into an agreement
(a Consent Cease and Desist Order) with, the Federal Reserve Board. Under the
agreement, AEBI agreed to correct two alleged violations of regulations of the
Federal Reserve Board and amend certain internal policies and procedures. The
fine was not material to, and did not involve a significant part of the
business of, AEB.
Since AEB does not do business in the United States except as an incident
to its activities outside the United States, the registrant's affiliation with
AEB neither causes the registrant to be subject to the provisions of the Bank
Holding Company Act of 1956, 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 on grandfathered nonbank
banks by CEBA, other than anti-tie-in rules with respect to transactions
involving products and services of certain of its affiliates and restrictions
on loans to certain executive officers and directors.
As a matter of policy, AEB actively monitors compliance with regulatory
capital requirements. These requirements are essentially represented by the
Federal Reserve Board's risk-based capital guidelines and complementary
leverage constraint. Pursuant to the Federal Deposit Insurance Corporation
Improvement Act of 1991, the relevant provisions of which became effective for
year-end 1992, 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 adequately capitalized if it
maintains a Tier 1 risk-based capital ratio of at least 4.0 percent, a total
risk-based capital ratio of at least 8.0 percent and a leverage ratio of at
least 4.0 percent. Based on AEB's total risk-based capital and leverage
ratios, which are set forth on page 12, AEB is considered to be adequately
capitalized at December 31, 1993. The Federal Reserve Board has proposed
revisions to its regulations which would establish a limitation on the amount
of deferred tax assets that may be considered regulatory capital for risk-
based and leverage capital purposes. In anticipation that these proposed
revisions will be adopted, deferred tax assets are being excluded from AEB's
regulatory capital ratably over a two year period commencing in January 1993,
which could reduce AEB's capital ratios in 1994.
DISCONTINUED OPERATIONS
Lehman, through its wholly-owned subsidiary Lehman Brothers ("Lehman
Brothers") and other subsidiaries, is a global investment bank serving
institutional, corporate, government and high net-worth individual clients in
major financial centers worldwide. Lehman's businesses include capital
raising for clients through securities underwriting and direct placements;
corporate finance and strategic advisory services; merchant banking;
securities sales and trading; institutional asset management; research; and
the trading of foreign exchange, derivative products and certain commodities.
Lehman acts as a market marker in all major fixed income and equity products
in both the domestic and international markets. Lehman Brothers, which is a
member of all principal securities and commodities exchanges in the United
States, as well as the NASD, also holds memberships or associate memberships
on several principal international securities and commodities exchanges,
including the London, Tokyo, Hong Kong, Frankfurt and Milan exchanges.
17
During 1993, Lehman sold the Shearson Lehman Brothers retail
brokerage and asset management businesses, The Boston Company private banking,
trust and mutual fund administration businesses and Shearson Lehman Hutton
Mortgage Corporation, which engaged in mortgage banking.
In January 1994, the registrant's Board of Directors approved a plan to
complete a tax-free spin-off of the common stock of Lehman through a special
dividend to the registrant's common shareholders. The final transaction is
subject to a number of conditions, including receipt of a favorable tax
opinion, regulatory clearances, market conditions and final approval by the
registrant's Board. In addition, certain related matters are subject to
approval by the Lehman Board. The transaction is expected to close in the
second quarter of 1994. In anticipation of this transaction, Lehman's results
are reported as a discontinued operation in the registrant's Consolidated
Financial Statements. This transaction is described in more detail on pages
23 and 35-37 of the registrant's Annual Report to Shareholders, which
descriptions are incorporated herein by reference.
CORPORATE AND OTHER
BALCOR
The Balcor Company, formerly operating 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 is expected to be completed in 1996. The
Balcor Company Holdings, Inc. was formed in 1992 as a holding company for The
Balcor Company and its former subsidiaries (collectively, "Balcor"). At
December 31, 1993, Balcor's assets, excluding cash and cash equivalents,
totaled $1.1 billion with related reserves of $333 million. Balcor's assets
at December 31, 1993 included real estate loans amounting to $225 million,
advances to limited partnerships originated by Balcor of $90 million,
interests in non-syndicated partnerships of $191 million and investments in
real estate of $526 million, inclusive of real estate transferred from
borrowers as a result of foreclosure of $402 million.
CEBA AND FDICIA
The Competitive Equality Banking Act of 1987 ("CEBA"), among other things,
prevents the formation of new nonbank banks after March 5, 1987 and restricts
the activities of such banks that existed on that date. The registrant owns
two nonbank banks -- Centurion Bank and IDS Trust Company -- which are subject
to these "grandfather" restrictions. The restrictions include a prohibition
on new activities and affiliate overdrafts, and limitations on asset growth
and the ability to market the products and services of the bank by an
affiliate and vice versa. CEBA has had an impact on the manner in which the
registrant's nonbank banks conduct business to assure their continued
grandfathered status, but has not had a material adverse effect on the
registrant.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") applies generally to the registrant's insured depository
institutions, including Centurion Bank. Among other things, FDICIA has
enabled the FDIC to raise the amount of assessments for federal deposit
insurance paid by the registrant's insured depository institutions and
authorizes further increases. In addition, FDICIA significantly restricts the
ability of broker-dealers such as IDS Financial Services to broker deposits
for insured depository institutions, including affiliates. FDICIA has not had
and is not expected to have a material adverse effect on the registrant.
18
FOREIGN OPERATIONS
TRS 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 is in the process of broadening 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 TRS'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.
IDS does not have substantial business outside the United States.
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.
In 1993, the registrant sold its Acuma subsidiary, which distributed life
insurance, pension products and mutual funds in the United Kingdom through a
sales force of financial planners.
As a result of its foreign operations, the registrant is exposed to the
possibility that, because of foreign exchange rate fluctuations, assets and
liabilities denominated in currencies other than the U.S. dollar may be
realized in amounts greater or lesser than the U.S. dollar amounts at which
they are currently recorded in the registrant'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 registrant's operations.
The registrant'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 U.S. dollars for their spending outside their
local country. The registrant's investments in foreign operations are hedged
by forward exchange contracts or by identifiable transactions, where
appropriate.
INDUSTRY SEGMENT INFORMATION AND CLASSES OF SIMILAR SERVICES
Information with respect to the registrant's industry segments,
geographical operations and classes of similar services is set forth in Note
15 to the Consolidated Financial Statements of the registrant, which appears
on pages 48 and 49 of the registrant's 1993 Annual Report to Shareholders,
which note is incorporated herein by reference.
19
EXECUTIVE OFFICERS OF THE REGISTRANT
All of the executive officers of the registrant as of March 29, 1994, 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
and Chief Executive Officer, TRS
Mr. Golub (55) has been Chief Executive Officer of the registrant since
February 1993, Chairman of the registrant since August 1993 and Chairman and
Chief Executive Officer of TRS since November 1991. Prior to August 1993, he
had been President of the registrant since July 1991. Prior to January 1992,
he was also Chairman of IDS Financial Corporation. Prior to July 1991, he had
been Vice Chairman of the registrant and Chairman and Chief Executive Officer
of IDS since September 1990. Prior thereto, he had been President and Chief
Executive Officer of IDS since January 1984.
JEFFREY E. STIEFLER - President
Mr. Stiefler (47) has been President of the registrant since August 1993.
Prior thereto, he had been President and Chief Executive Officer of IDS
Financial Corporation since July 1991, and President of IDS since September
1990. Prior thereto, he had been Executive Vice President for Sales and
Marketing of IDS since 1987.
JONATHAN S. LINEN - Vice Chairman
Mr. Linen (50) has been Vice Chairman of the registrant since August 1993.
Prior thereto, he had been President and Chief Operating Officer of TRS since
March 1992. Prior thereto, he had been President and Chief Executive Officer
of the Shearson Lehman Brothers Division of Shearson Lehman Brothers Inc.
since June 1990. Before June 1990, he had been President and Chief Executive
Officer of TRS's Direct Marketing and Travelers Cheque Group since May 1989.
Before May 1989, he had been President of TRS's Direct Marketing Group since
1986.
ROGER H. BALLOU - President, Travel Services Group, TRS
Mr. Ballou (42) has been President of TRS's Travel Services Group since
May 1989. Prior thereto, he was Executive Vice President-Strategic Business
Systems since May 1987.
KENNETH I. CHENAULT - President, U.S.A, TRS
Mr. Chenault (42) has been President, U.S.A. of TRS since August 1993.
Prior thereto, he had been President, Consumer Card Group, TRS since 1989.
STEVEN D. GOLDSTEIN - President and Chief Executive Officer, American
Express Bank Ltd.
Mr. Goldstein (42) has been President and Chief Executive Officer of AEB
since March 1991. Prior thereto, he had been President of Consumer Financial
Services, American Express International, since September 1989 and President
of TRS International-United Kingdom and Ireland since December 1987.
20
R. CRAIG HOENSHELL - President, International, TRS
Mr. Hoenshell (49) has been President, International of TRS since August
1993. Prior thereto, he had been President of TRS's Travelers Cheque Group
since 1990. Prior thereto, he was President of American Express Centurion
Bank.
DAVID R. HUBERS - President and Chief Executive Officer, IDS
Financial Corporation
Mr. Hubers (51) has been President and Chief Executive Officer of IDS
since August 1993. Prior thereto, he had been a Senior Vice President of IDS
since 1982.
JOSEPH W. KEILTY - Executive Vice President
Mr. Keilty (56) has been Executive Vice President since November 1991.
Prior thereto, he had been Managing Director of Keilty, Goldsmith & Company,
a consulting company, since 1981.
MICHAEL P. MONACO - Executive Vice President, Chief Financial Officer
and Treasurer
Mr. Monaco (46) has been Executive Vice President and Chief Financial
Officer since September 1990 and Treasurer since April 1992. Prior thereto,
he had been Senior Vice President since September 1989 and Comptroller since
1985.
LOUISE M. PARENT - Executive Vice President and General Counsel
Ms. Parent (43) has been Executive Vice President and General Counsel of
the registrant since May 1993. Prior thereto, she had been Deputy General
Counsel of the registrant since January 1992. Prior thereto, she had been
General Counsel of First Data Corporation since April 1989. Prior thereto,
she had been Assistant General Counsel of the registrant since April 1988.
THOMAS SCHICK - Executive Vice President
Mr. Schick (47) has been Executive Vice President since March 1993. Prior
thereto, he had been Executive Vice President of TRS since October 1992 and
Senior Executive Vice President of Shearson Lehman Brothers Inc. since 1986.
EMPLOYEES
The registrant, excluding Lehman and its subsidiaries, had 64,493
employees on December 31, 1993.
ITEM 2. PROPERTIES
The registrant's headquarters are in a 51-story, 2.2 million square foot
building located in lower Manhattan, known as American Express Tower, 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 is also headquartered at the building and is a co-owner.
Other principal locations of TRS include: the Southern Regional
Operations Center, Fort Lauderdale, Florida; the Western Regional Operations
Center and the Travel Group Service Center, Phoenix, Arizona; the Northern
Regional Operations Center, Greensboro, North Carolina; the Optima Regional
21
Operating Center, Jacksonville, Florida; the Travelers Cheque Group Operating
Center, Salt Lake City, Utah; and American Express Canada, Inc. headquarters,
Markham, Ontario, Canada, all of which are owned by the registrant or its
subsidiaries.
IDS's principal locations are its headquarters, which IDS leases until
2002, and its Operations Center, which IDS owns; both are in Minneapolis,
Minnesota.
Generally, the registrant and its subsidiaries lease the premises they
occupy in other locations. Facilities owned or occupied by the registrant and
its subsidiaries are believed to be adequate for the purposes for which they
are used and are well maintained.
ITEM 3. LEGAL PROCEEDINGS
The registrant 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 registrant believes it
has meritorious defenses to each of these actions and intends to defend them
vigorously. The registrant believes that it is not a party to, nor are any of
its properties the subject of, any pending legal proceedings which would have
a material adverse effect on the registrant's consolidated financial
condition.
SAFRA-RELATED ACTIONS
Two purported shareholder derivative actions, now consolidated, were
brought in October 1990 in New York State Supreme Court and three purported
derivative actions, also now consolidated, were brought in early 1991 in
United States District Court for the Southern District of New York against all
of the then current directors, certain former directors and certain former
officers and employees of the registrant. The consolidated state court
complaint alleges that defendants breached their duty of care in managing the
registrant, purportedly resulting in losses and in the registrant's payment of
$8 million in July 1989 to certain charities agreed to by the registrant and
Edmond J. Safra. The federal complaints also allege breach of duty in
connection with a severance arrangement of a former executive officer of the
registrant and that certain proxy statements of the registrant were misleading
in failing to disclose such alleged breaches. Plaintiffs seek a declaratory
judgment, unspecified money damages and an accounting. The federal actions
also seek to declare void certain charter and by-law amendments relating to
exculpation and indemnification of directors and officers. The federal
actions were dismissed in December 1993. The plaintiffs have appealed the
dismissal.
COMPUTERVISION LITIGATION
Federal Court Actions. In connection with public offerings of notes and
common stock of Computervision Corporation ("Computervision"), actions were
commenced in the federal District Court for the District of Massachusetts
against Computervision, its directors, certain of its executive officers,
Lehman, Lehman Brothers, Donaldson, Lufkin & Jenrette Securities Corporation,
The First Boston Corporation, Hambrecht & Quist Incorporated and J. H. Whitney
& Co. (collectively, the "Massachusetts Case"). These actions have been
consolidated in a consolidated amended class action complaint, which alleges
in substance that the registration statement and prospectus used in connection
with the offerings contained materially false and misleading statements and
material omissions related to Computervision's anticipated operating results
for 1992 and 1993. The plaintiffs purport to represent a class of individuals
who purchased in the public offering or in the aftermarket. The complaint
22
seeks damages for negligent misrepresentation and under Sections 11, 12 and 15
of the Securities Act of 1933.
In addition, three suits were filed in the United States District Court
for the Southern District of New York. The suits raise claims similar to
those in the Massachusetts Case against the same defendants. The Judicial
Panel on Multidistrict Litigation has ordered these cases consolidated with
the Massachusetts Case.
State Court Action. Lehman Brothers is named as the sole defendant in a
putative class action, Greenwald v. Lehman Brothers Inc., brought in New York
State Supreme Court. The complaint, which alleges in substance that Lehman
Brothers breached a fiduciary duty owed to its customers in selling them the
common stock, senior notes and senior subordinated notes of Computervision
during the class period, as defined in the complaint, was dismissed.
FCH-RELATED ACTIONS
FCH Derivative Actions. On or about March 29, 1991, two identical
purported shareholder derivative actions were filed, entitled Mentch v.
Weingarten, et al. and Isaacs v. Weingarten, et al. The complaints in these
two actions, pending in the Superior Court of the State of California, County
of Los Angeles, were filed allegedly on behalf of and naming as a nominal
defendant First Capital Holdings Corp. ("FCH"). Other defendants include
Lehman, two former officers and directors of FCH, Robert Weingarten and Gerry
Ginsberg, the four outside directors of FCH, Peter Cohen, Richard DeScherer,
William L. Mack and Jerome H. Miller (collectively, the "Outside Directors"),
and Michael Milken. The complaints allege generally breaches of fiduciary
duty, gross corporate mismanagement and waste of assets in connection with
FCH's purchase of non-rated bonds underwritten by Drexel Burnham Lambert Inc.
and seek damages for losses suffered by FCH, punitive damages and attorneys'
fees. The actions have been stayed pursuant to the bankruptcy of FCH.
Concurrent with the bankruptcy filing of FCH and the conservatorship and
receivership of its two life insurance subsidiaries, First Capital Life
Insurance Company ("FCL") and Fidelity Bankers Life Insurance Company ("FBL")
(collectively, the "Insurance Subsidiaries"), a number of additional actions
were instituted naming one or more of the registrant, Lehman and Lehman
Brothers as defendants.
FCH Shareholder and Agent Actions. Three actions were commenced in the
United States District Courts for the Southern District of New York and the
Central District of California allegedly as class actions on behalf of the
purchasers of FCH securities during certain specified periods, commencing no
earlier than May 4, 1988 and ending no later than May 31, 1991 (the
"Shareholder Class"). The complaints are captioned Larkin, et al. v. First
Capital Holdings Corp., et al., amended on May 15, 1991 to add the registrant
as a defendant, Zachary v. American Express Company, et al., filed on May 20,
1991, and Morse v. Weingarten, et al., filed on June 13, 1991 (the
"Shareholder Class Actions"). The complaints raise claims under the federal
securities laws and allege that the defendants concealed adverse material
information regarding the finances, financial condition and future prospects
of FCH and made material misstatements regarding these matters.
On July 1, 1991, an action was filed in the United States District Court
for the Southern District of Ohio entitled Benndorf v. American Express
Company, et al. The action is brought purportedly on behalf of three classes.
The first class is similar to the Shareholder Class; the second consists of
managing general agents and general agents who marketed various FCL products
from April 2, 1990 to the filing of the suit and to whom it is alleged
misrepresentations were made concerning FCH (the "Agent Class"); and the third
class consists of Agents who purchased common stock of FCH through the First
23
Capital Life Non Qualified Stock Purchase Plan ("FSPP") and who have an
interest in the stock purchase account under the FSPP (the "FSPP Class"). The
complaint raises claims similar to those asserted in the other Shareholder
Class Actions, along with additional claims relating to the FSPP Class and the
Agent Class alleging damages in marketing the products. In addition, on
August 15, 1991, Kruthoffer v. American Express Company, et al. was filed in
the United States District Court for the Eastern District of Kentucky, which
complaint is nearly identical to the Benndorf complaint (collectively, the
"Agent Class Actions").
On November 14, 1991, the Judicial Panel on Multidistrict Litigation
issued an order transferring and coordinating for all pretrial purposes all
related actions concerning the sale of FCH securities, including the
Shareholder Class Action and Agent Class Actions, and any future filed
"tag-along" actions, to Judge John G. Davies of the United States District
Court for the Central District of California (the "California District
Court"). The cases are captioned In Re: First Capital Holdings Corp.
Financial Products Securities Litigation, MDL Docket No. 901 (the "MDL
Action").
On January 18, 1993, an amended consolidated complaint (the "Third
Complaint") was filed on behalf of the Shareholder Class and the Agent Class.
The Third Complaint names as defendants the registrant, Lehman, Lehman
Brothers, Weingarten and his wife Palomba Weingarten, Ginsberg, Philip A.
Fitzpatrick (Chief Financial Officer of FCH), the Outside Directors, former
outside FCH directors, Jeffrey B. Lane and Robert Druskin (the "Former Outside
Directors"), Fred Buck (President of FCL) and Peat Marwick. The Third
Complaint raises claims under the federal securities laws and the common law
of fraud and negligence. On March 10, 1993, the defendants answered the Third
Complaint, denying its material allegations.
On March 11, 1993, the California District Court entered an order granting
class certification to the Shareholder Class. The class consists of all
persons, except defendants, who purchased FCH common stock, preferred stock or
debentures during the period May 4, 1988 to and including May 10, 1991. It
also issued an order denying class certification to the Agent Class. The FSPP
Class action had been previously dropped by the plaintiffs.
American Express Shareholder Action. On or about May 20, 1991, a
purported class action was filed on behalf of all shareholders of the
registrant who purchased the registrant's common shares during the period
beginning August 16, 1990 to and including May 10, 1991. The case is
captioned Steiner v. American Express Company, et al. and was commenced in the
United States District Court for the Eastern District of New York. The
defendants are the registrant, Lehman, James D. Robinson III, Howard L. Clark
Jr., Harvey Golub and Aldo Papone. The complaint alleges generally that the
defendants failed to disclose material information in their possession with
respect to FCH which artificially inflated the price of the common shares of
the registrant from August 16, 1990 to and including May 10, 1991 and that
such non-disclosure allegedly caused damages to the purported shareholder
class. The action has been transferred to California and is now part of the
MDL Action. The defendants have answered the complaint, denying its material
allegations.
The Bankruptcy Court Action. In the FCH bankruptcy, pending in the United
States Bankruptcy Court for the Central District of California (the
"Bankruptcy Court"), on February 11, 1992, the Official Committee of Creditors
Holding Unsecured Claims (the "Creditors' Committee") obtained permission from
the Bankruptcy Court to file an action for and on behalf of FCH and the parent
companies of the Insurance Subsidiaries. On March 3, 1992, the Creditors'
Committee initiated an adversary proceeding in the Bankruptcy Court, in which
they assert claims for breach of fiduciary duty and waste of corporate assets
24
against Lehman; fraudulent transfer against both Lehman and Lehman Brothers;
and breach of contract against Lehman Brothers. Also named as defendants are
the Outside Directors, the Former Outside Directors, Weingarten and Ginsberg.
Lehman and Lehman Brothers have answered the complaint, denying its material
allegations. Fact discovery has been completed, and the contract claim has
been dropped by plaintiffs. No trial date has been set.
American Express Derivative Action. On June 6, 1991, a purported
shareholder derivative action was filed in the United States District Court
for the Eastern District of New York, entitled Rosenberg v. Robinson, et al.,
against all of the then-current directors of the registrant. In January 1992,
this action was transferred by stipulation to the United States District Court
for the Central District of California for coordinated or consolidated
proceedings with all other federal actions related to FCH. The complaint
alleges that the Board of Directors of the registrant should have required
Lehman to divest its investment in FCH and to write down such investment
sooner. In addition, the complaint alleges that the failure to act
constituted a waste of corporate assets and caused damage to the registrant's
reputation. The complaint seeks a judgment declaring that the directors named
as defendants breached their fiduciary duties and duties of loyalty and
requiring the defendants to pay money damages to the registrant and remit
their compensation for the periods in which the duties were breached,
attorneys' fees and costs and other relief. The defendants have answered the
complaint, denying its material allegations.
The Virginia Commissioner of Insurance Action. On December 9, 1992, a
complaint was filed in federal court in the Eastern District of Virginia by
Steven Foster, the Virginia Commissioner of Insurance as Deputy Receiver of
FBL. The Complaint names Lehman and Weingarten, Ginsberg and Leonard Gubar (a
former director of FCH and FBL) as defendants. The action was subsequently
transferred to California to be part of the MDL Action. The complaint alleges
that Lehman acquiesced in and approved the continued mismanagement of FBL and
that it participated in directing the investment of FBL assets. The complaint
asserts claims under the federal securities laws and asserts common law claims
including fraud, negligence and breach of fiduciary duty and alleges
violations of the Virginia Securities laws by Lehman. It seeks no less than
$220 million in damages to FBL and its present and former policyholders and
creditors and punitive damages. Lehman has answered the complaint, denying
its material allegations.
MAXWELL-RELATED LITIGATION
Certain of Lehman's subsidiaries are defendants in several lawsuits
arising out of transactions entered into with the late Robert Maxwell or
entities controlled by Maxwell interests. These actions are described below.
Berlitz International Inc. v. Macmillan Inc. et al. This interpleader
action was commenced in Supreme Court, New York County on or about January 2,
1992, by Berlitz International Inc. ("Berlitz") against Macmillan Inc.
("Macmillan"), Lehman Brothers Holdings PLC ("PLC"), Lehman Brothers
International Ltd. (now known as Lehman Brothers International (Europe),
"LBIE") and seven other named defendants. The interpleader complaint seeks a
declaration of the rightful ownership of approximately 10.6 million shares of
Berlitz common stock, including 1.9 million shares then registered in PLC's
name, alleging that Macmillan claimed to be the beneficial owner of all 10.6
million shares, while the defendants did or might claim ownership to some or
all of the shares. As a result of its bankruptcy filing, Macmillan sought to
remove this case to the U.S. Bankruptcy Court for the Southern District of New
York. LBIE has moved to remand the case back to the State Supreme Court.
Macmillan, Inc. v. Bishopsgate Investment Trust, Shearson Lehman Brothers
Holdings PLC et al. This action was commenced by issuance of a writ in the
25
High Court of Justice in London, England on or about December 9, 1991. In
this action, Macmillan sought a declaration that it is the legal and
beneficial owner of the disputed 10.6 million shares of Berlitz common stock,
including 1.9 million shares registered in the name of PLC. After a trial on
December 10, 1993, the High Court of Justice handed down a judgment finding
for Lehman on all aspect of its defense and dismissing Macmillan's claims.
MGN Pension Trustees Limited v. Invesco MIM Management Limited, Capel-Cure
Myers Capital Management Limited and Lehman Brothers International Limited.
This action was commenced by issuance of a writ in the High Court of Justice,
London, England on or about June 5, 1992. The writ alleges that LBIE knew or
should have known that certain securities received by it as collateral on a
stock loan account held by Bishopsgate Investment Management were in fact
beneficially owned by the Mirror Group Pension Scheme ("MGPS") or by MGN
Pension Trustees Limited (the trustee of MGPS).
On this basis, the plaintiff sought a declaration that LBIE holds or held
a portfolio of securities in constructive trust for plaintiff. According to
the writ, LBIE sold certain of these securities for 32,024,918 pounds
sterling, and that LBIE still holds certain of these securities, allegedly
worth approximately 1,604,240 pounds sterling. The plaintiff sought return of
the securities still held and the value of the securities liquidated in
connection with the stock loan account. On January 31, 1994, Lehman, along
with the other defendants, settled the case.
Bishopsgate Investment Management Limited (in liquidation) v. Lehman
Brothers International (Europe) and Lehman Brothers Holdings PLC. In August
1993, Bishopsgate Investment Management Limited ("BIM") served a Writ and
Statement of Claim against LBIE and PLC. The Statement of Claim alleges that
LBIE and PLC knew or should have known that certain securities received by
them, either for sale or as collateral in connection with BIM's stock loan
activities, were in fact beneficially owned by various pension funds
associated with the Maxwell Group entities. BIM seeks recovery of any
securities still held by LBIE and PLC or recovery of any proceeds from
securities sold by them. The total value of the securities is alleged to be
100 million pounds sterling. BIM also commenced certain proceedings for
summary disposition of its claims relating to certain of the securities with
a value of approximately 30 million pounds sterling. On January 11, 1994, the
parties agreed to a settlement of that portion of the claim relating to BIM's
request for summary disposition with respect to certain securities. Under
this agreement, two securities holdings were delivered to BIM. Lehman
continues to defend the balance of BIM's claim for recovery of other assets
alleged to be worth approximately 70 million pounds sterling. The case is
scheduled for trial in April 1995.
MELLON BANK LITIGATION
In September 1993, Mellon Bank filed a complaint in the U.S. District
Court for the Western District of Pennsylvania against Lehman Brothers and the
registrant. The complaint alleges that Lehman Brothers, through the conduct
of Smith Barney Shearson Inc. ("Smith Barney") and The Travelers Inc.
(formerly Primerica Corporation) ("Travelers"), breached certain covenants
contained in the agreement with Mellon Bank relating to the sale of The Boston
Company. The covenants, which relate to the provision of custodial and
administrative services to certain mutual funds, were assumed by Smith Barney
in connection with the sale by Lehman to Smith Barney of certain Shearson
Lehman Brothers Inc. retail and asset management businesses. In a separate
action, Smith Barney and Travelers were also sued by Mellon Bank in connection
therewith. By order dated January 26, 1994, the action against Lehman and the
registrant was dismissed.
26
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the registrant's security holders
during the last quarter of its fiscal year ended December 31, 1993.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The principal market for the registrant's Common Shares is The New York
Stock Exchange. Its Common Shares are also listed on the Boston, Chicago,
Pacific, London, Zurich, Geneva, Basle, Dusseldorf, Frankfurt, Paris,
Amsterdam, Tokyo, and Brussels Stock Exchanges. The registrant had 58,179
common shareholders of record at December 31, 1993. For price and dividend
information with respect to such Common Shares, see Note 18 to the
Consolidated Financial Statements on page 50 of the registrant's 1993 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 52 of the registrant's 1993 Annual Report to Shareholders is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information set forth under the heading "Financial Review" appearing
on pages 22 through 29 of the registrant's 1993 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 Independent Auditors"
appearing on pages 30 through 51 of the registrant's 1993 Annual Report to
Shareholders are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEMS 10, 11, 12 and 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT; EXECUTIVE COMPENSATION; SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT; CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
The registrant filed with the SEC, within 120 days after the close of its
last fiscal year, a definitive proxy statement dated March 14, 1994 pursuant
to Regulation 14A, which involves the election of directors. The following
portions of such proxy statement are incorporated herein by reference: pages
2 and 3 under the heading "The Shares Voting," pages 3 through 6 under the
headings "Security Ownership of Directors and Executive Officers," and
"Security Ownership of Named Executives," pages 9 through 11 under the heading
"Directors' Fees and Other Compensation," pages 11, beginning at "Election of
Directors" through 36, ending at "Selection of Auditors" (excluding the
27
portions under the headings, "Board Compensation Committee Report on Executive
Compensation" appearing on pages 14 through 20 and "Performance Graph"
appearing on page 28), and page 42 under the heading "Certain Filings." In
addition, the registrant has provided, under the caption "Executive Officers
of the Registrant" at pages 20 and 21 above, the information regarding
executive officers called for by Item 401(b) of Regulation S-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
See Index to Financial Statements on page F-1 hereof.
2. Financial Statement Schedules:
See Index to Financial Statements on page F-1 hereof.
3. Exhibits:
See Exhibit Index on pages E-1 through E-3 hereof.
(b) Reports on Form 8-K:
1. Form 8-K, dated October 7, 1993, Item 5, reporting the
declaration of effectiveness of the registration statement
covering the sale of debt exchangeable for shares of First
Data Corporation common stock.
2. Form 8-K, dated October 25, 1993, Item 5, reporting
earnings for the quarter ended September 30, 1993.
3. Form 8-K, dated January 24, 1994, Item 5, announcing a plan
to issue a special dividend and reporting earnings for the
quarter and year ended December 31, 1993.
4. Form 8-K, dated January 24, 1994, Item 5, revising certain
pro forma financial information previously filed.
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
AMERICAN EXPRESS COMPANY
March 28, 1994 By /s/ Michael P. Monaco
---------------------------
Michael P. Monaco
Executive Vice President,
Chief Financial Officer
and Treasurer
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
registrant and in the capacities and on the dates indicated.
By /s/ Harvey Golub By /s/ Richard M. Furlaud
--------------------------- -------------------------
Harvey Golub Richard M. Furlaud
Chairman, Chief Executive Director
Officer and Director
By /s/ Jeffrey E. Stiefler By /s/ Beverly Sills Greenough
--------------------------- ---------------------------
Jeffrey E. Stiefler Beverly Sills Greenough
President and Director Director
By /s/ Michael P. Monaco By /s/ F. Ross Johnson
--------------------------- -------------------------
Michael P. Monaco F. Ross Johnson
Executive Vice President, Director
Chief Financial Officer
and Treasurer
By /s/ Daniel T. Henry By /s/ Vernon E. Jordan Jr.
--------------------------- -------------------------
Daniel T. Henry Vernon E. Jordan Jr.
Senior Vice President Director
and Comptroller
By /s/ Anne L. Armstrong By /s/ Henry A. Kissinger
--------------------------- -------------------------
Anne L. Armstrong Henry A. Kissinger
Director Director
By /s/ William G. Bowen By /s/ Drew Lewis
--------------------------- -------------------------
William G. Bowen Drew Lewis
Director Director
By /s/ David M. Culver By /s/ Aldo Papone
--------------------------- -------------------------
David M. Culver Aldo Papone
Director Director
By /s/ Charles W. Duncan Jr. By /s/ Roger S. Penske
--------------------------- -------------------------
Charles W. Duncan Jr. Roger S. Penske
Director Director
By By /s/ Frank P. Popoff
--------------------------- -------------------------
George M.C. Fisher Frank P. Popoff
Director Director
March 28, 1994
29
PAGE
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
1993 Annual Report to Shareholders:
Report of independent auditors ........... 51
Consolidated statement of income for the
three years ended December 31, 1993 ...... 30
Consolidated balance sheet at December 31,
1993 and 1992 ............................ 31
Consolidated statement of cash flows for
the three years ended December 31, 1993 .. 32
Consolidated statement of shareholders' equity
for the three years ended December 31, 1993 33
Notes to consolidated financial statements . 34-50
Consent of independent auditors .............. F-2
Schedules:
I-- Summary of investment securities
at December 31, 1993 F-3-7
II-- Amounts receivable from related
parties and underwriters, promoters,
and employees other than related parties F-8-9
III-- Condensed financial information of registrant F-10-13
VIII-- Valuation and qualifying accounts for the
three years ended December 31, 1993 F-14
IX-- Short-term borrowings at and for the years
ended December 31, 1993, 1992 and 1991 F-15
X-- Supplementary income statement information F-16
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 for the year ended December 31,
1993, 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 1993 Annual Report 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,
1994 (hereinafter referred to as our Report), included in the 1993 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 Registration
Statements (Form S-8 No. 2-46918, No. 2-59230, No. 2-64285, No. 2-73954, No.
2-74368, No. 2-89115, No. 2-89680, No. 2-93654, No. 2-97617, No. 33-01771, No.
33-02980, No. 33-05875, No. 33-06350, No. 33-17133, No. 33-19724, No. 33-24675,
No. 33-28721, No. 33-32876, No. 33-33552, No. 33-34005, No. 33-34625, No.
33-36422, No. 33-37882, No. 33-38777, No. 33-43671, No. 33-43695, No. 33-45584,
No. 33-48629, No. 33-55344, No. 33-62124 and 33-65008; Form S-3 No. 2-89469,
No. 2-95771, No. 33-06038, No. 33-07435, No. 33-17706, No. 33-40636, No. 33-
43268, No. 33-66654 and No. 33-50997) 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, 1993.
ERNST & YOUNG
/s/ Ernst & Young
New York, New York
March 30, 1994
F-2
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE I--SUMMARY OF INVESTMENT SECURITIES
DECEMBER 31, 1993
(millions)
Principal Amounts at Market
amounts of which carried value at
bonds and cost in balance December
of stocks sheet (a) 31, 1993
------------- ------------- ---------
U.S. Government and Agencies
Obligations $ 3,684 $ 3,640 $ 3,641
------ ------ ------
State and Municipal Obligations:
General Obligation bonds (b) $ 1,178 1,179 1,285
Revenue bonds (c) 3,768 3,764 4,082
------ ------ ------
Total State and Municipal
Obligations $ 4,946 4,943 5,367
------ ------ ------
Corporate Bonds and Obligations (d) $ 12,669 12,935 13,773
------ ------ ------
Foreign Government Obligations (e) $ 1,498 1,508 1,538
------ ------ ------
Preferred Stocks:
Non-Convertible $ 965 1,265 1,318
Convertible 150 153 193
------ ------ ------
Total Preferred stocks $ 1,115 1,418 1,511
------ ------ ------
Common Stocks:
Held by domestic offices $ 356 377 409
Held by overseas offices (e) 1 1 4
------ ------ ------
Total Common Stocks $ 357 378 413
------ ------ ------
Mortgage-Backed Securities $ 11,657 11,413 11,724
------ ------ ------
Investment Mortgage Loans (f) $ 2,269 2,231 2,302
------ ------ ------
Other $ 842 842 818
------ ------ ------
Total $ 39,308 $ 41,087
======= =======
(a) See summary of significant accounting policies in the notes to the
consolidated financial statements.
(b) See F-4 for detail listing of General Obligation bonds by state.
(c) See F-5 for detail listing of Revenue bonds by state.
(d) See F-6 for detail listing of Corporate Bonds and Obligations by type.
(e) Stated at U.S. dollar equivalents based on rates of exchange generally
prevailing at December 31, 1993.
(f) See F-7 for detail listing of Investment Mortgage Loans by type.
F-3
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
DETAIL LISTING OF GENERAL OBLIGATION BONDS BY STATE
December 31, 1993
(millions)
State Par Value Book Value Market Value
----- --------- ---------- -------------
Arizona $ 83 $ 83 $ 88
California 62 63 71
Connecticut 28 28 32
District of Columbia 65 65 69
Florida 58 57 63
Hawaii 39 40 45
Illinois 110 110 120
Louisiana 78 78 83
Massachusetts 72 72 78
Minnesota 30 30 33
New Jersey 40 40 44
New York 58 58 65
Pennsylvania 68 67 74
Texas 170 170 183
Wisconsin 54 54 59
All other states 163 164 178
------ ------ ------
Totals $1,178 $1,179 $1,285
====== ====== ======
F-4
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
DETAIL LISTING OF REVENUE BONDS BY STATE
December 31, 1993
(millions)
State Par Value Book Value Market Value
----- --------- ---------- ------------
Alabama $ 38 $ 38 $ 40
Alaska 29 29 31
Arizona 150 150 161
Arkansas 36 36 38
California 309 311 332
Colorado 64 64 70
Connecticut 59 59 65
Florida 289 289 316
Georgia 55 55 59
Hawaii 30 30 34
Illinois 271 271 290
Indiana 61 61 65
Iowa 31 31 33
Kentucky 42 42 45
Louisiana 91 91 96
Maryland 75 75 84
Massachusetts 83 81 86
Michigan 72 72 80
Minnesota 67 68 73
Missouri 32 32 34
Nebraska 33 33 36
Nevada 33 33 34
New Jersey 90 90 99
New York 226 222 250
North Carolina 102 103 109
Ohio 145 145 159
Oklahoma 40 40 45
Pennsylvania 142 142 154
South Carolina 59 60 64
South Dakota 31 31 34
Tennessee 52 44 47
Texas 497 500 548
Utah 110 110 118
Virginia 46 46 49
Washington 69 69 74
Wisconsin 73 73 80
All other states 136 138 150
------ ------ ------
Totals $3,768 $3,764 $4,082
====== ====== ======
F-5
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
DETAIL LISTING OF CORPORATE BONDS AND
OBLIGATIONS BY TYPE
December 31, 1993
(millions)
Par Value Book Value Market Value
--------- ---------- ------------
Air Transport $ 313 $ 313 $ 336
Astronautics 193 193 211
Automotive 351 356 388
Banks:
Commercial Paper 1,120 1,122 1,132
Interest Rate Caps - 52 21
Other 1,060 1,260 1,334
Building Materials 468 468 501
Business Equipment 51 51 50
Chemicals 455 456 476
Electric Equipment and Appliance 119 119 124
Electronics 98 98 102
Finance Companies 1,222 1,223 1,315
Foods and Beverages 199 199 207
Industrial Machinery 249 244 265
Natural Gas 518 530 575
Oil and Gas 855 852 928
Paper 426 428 451
Power and Light 932 928 987
Publishing 401 404 450
Railroads 650 647 703
Retail Trade 550 552 601
Steel 459 459 495
Telephone 350 352 388
Tobacco 227 227 237
Other 1,403 1,402 1,496
------- ------- -------
Totals $12,669 $12,935 $13,773
======= ======= =======
F-6
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
DETAIL LISTING OF INVESTMENT MORTGAGE LOANS
BY PROPERTY TYPE
December 31, 1993
(millions)
Property Type Par Value Book Value Market Value
------------- --------- ---------- ------------
Apartments $ 858 $ 822
Shopping Centers/Retail 707 705
Office Buildings 263 262
Industrial Buildings 254 254
Retirement Homes 85 85
Hotels/Motels 37 37
Medical Buildings 30 30
Other 35 36
------ ------
Totals $2,269 $2,231 $2,302
====== ====== ======
F-7
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II-AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
Balance at Balance at
beginning Amounts end of
Name of officer of period Additions collected period
--------------- --------- --------- --------- ----------
Year ended December 31, 1993:
Stock Purchase Plans:
J. D. Robinson III $ 2,399,997 $ - $2,399,997 $ -
J. S. Linen 415,000 - - 415,000
H. L. Clark Jr. 399,998 - - 399,998
B. Hamilton 300,189 - 300,189 -
G. Cupp 228,209 - 228,209 -
S. Friedman 214,760 - 132,339 82,421
W. Westhoff - 220,000 - 220,000
Other officers of the
Company and its
subsidiaries 44,256,265 1,151,791 32,112,478 13,295,578
---------- --------- ---------- ----------
48,214,418 1,371,791 35,173,212 14,412,997
Other Loans Receivable:
G. R. Thoman 253,125 - 253,125 -
--------- ---------- ---------- ----------
$48,467,543 $1,371,791 $35,426,337 $14,412,997
========== ========= ========== ==========
Year ended December 31, 1992:
Stock Purchase Plans:
J. D. Robinson III $ 2,399,997 $ - $ - $2,399,997
G. R. Thoman 578,828 - 578,828 -
J. S. Linen 415,000 - - 415,000
H. L. Clark Jr. 399,998 - - 399,998
B. Hamilton 300,189 - - 300,189
G. Cupp 228,209 - - 228,209
S. Friedman 214,760 - - 214,760
Other officers of the
Company and its
subsidiaries 48,541,932 4,018,068 8,303,735 44,256,265
---------- --------- --------- ----------
53,078,913 4,018,068 8,882,563 48,214,418
Other Loans Receivable:
H. Golub 268,245 - 268,245 -
G. R. Thoman 500,000 - 246,875 253,125
---------- --------- --------- ----------
$53,847,158 $4,018,068 $9,397,683 $48,467,543
========== ========= ========= ==========
Year ended December 31, 1991:
Stock Purchase Plans:
J. D. Robinson III $ 2,399,997 $ - $ - $2,399,997
E. Cooperman 689,398 - 689,398 -
G. R. Thoman 578,828 - - 578,828
J. S. Linen 561,414 - 146,414 415,000
H. L. Clark Jr. 399,998 - - 399,998
B. Hamilton 300,189 - - 300,189
G. Cupp 228,209 - - 228,209
S. Friedman 214,760 - - 214,760
Other officers of the
Company and its
subsidiaries 50,512,813 4,556,681 6,527,562 48,541,932
---------- --------- --------- ----------
55,885,606 4,556,681 7,363,374 53,078,913
Other Loans Receivable:
H. Golub 349,295 - 81,050 268,245
G. R. Thoman 500,000 - - 500,000
---------- --------- --------- ----------
$56,734,901 $4,556,681 $7,444,424 $53,847,158
========== ========= ========= ==========
(See accompanying note)
F-8
Note to Schedule II:
The Stock Purchase Plans information relates to loans made to
members of senior management pursuant to the American Express
Company 1983 Stock Purchase Assistance Plan (the "Plan") and the
Lehman Brothers Holdings Inc. ("Lehman") Executive Stock Loan
Program (the "Program") established in 1988. Pursuant to the
Plan, full recourse loans are provided to certain key employees
for the purpose of exercising stock options and/or for paying
any taxes in respect thereof or for buying the Company's common
shares at fair market value from the Company or on the open
market. Eligible key employees may borrow a maximum of 300% of
their respective annual base salaries, provided that such
persons provide sufficient collateral, presently 100% of the
amount of the loan at the date of grant. Such loans currently
have five to seven year maturities and bear interest, payable
quarterly, at a variable rate of two percentage points below the
prime rate of a major New York City bank; at December 31, 1993,
this rate was 3.5% per annum. Such loans are payable in full
upon the occurrence of certain events, including termination of
employment.
The Program, terminated in August 1990 as to future loans,
provided low interest demand loans, on an unsecured basis, to
assist key employees in acquiring Lehman common stock through
open market purchases. Eligible employees could borrow up to
150% of their average total compensation for the last two years,
subject to credit approval and continuing credit review. These
loans are payable on demand, may not extend beyond five years
and bear interest at the lower of the prime lending rate minus
2% or 11%; at December 31, 1993, this rate was 3.5% per annum.
Such loans are payable in full upon the occurrence of certain
events, including termination of employment.
Other Loans Receivable relate to loans extended to Mr. Golub in
1984 for the purchase of a new residence in connection with
relocation upon assumption of duties as President and Chief
Executive Officer of IDS Financial Corporation and Mr. Thoman in
1989 for the purchase of a residence in France used in
connection with his duties as President and Chief Executive
Officer of American Express International. The loan to Mr.
Golub bore interest at an annual rate of 5%, payable quarterly,
and was secured by a mortgage on the residence. The loan was
fully repaid during 1992. The loan to Mr. Thoman bore interest
at an annual rate of 9.5%, payable quarterly, and was secured by
a second mortgage on the property. The loan was fully repaid
during 1993.
F-9
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENT OF INCOME (A)
(Parent Company Only)
(dollars in millions)
Years Ended
December 31,
-------------------------
1993 1992 1991
---- ---- ----
Revenues $ 123 $ 146 $ 113
---- ---- ----
Expenses:
Interest 181 174 160
Human resources 82 84 63
Other (B) (659) (592) 149
---- ---- ----
Total (396) (334) 372
---- ---- ----
Pretax income (loss) from continuing operations
before accounting changes 519 480 (259)
Income tax provision (benefit) 271 237 (75)
---- ---- ----
Net income (loss) before equity in net income
of subsidiaries and affiliates 248 243 (184)
Equity in net income of subsidiaries(C) 1,357 228 791
and affiliates ----- ---- ----
Income from continuing operations
before accounting changes 1,605 471 607
Equity in income (loss) of discontinued (127) (149) 182
operations
Cumulative effect of changes in accounting
principles, net of income taxes - 139 -
----- ---- ----
Net income $1,478 $ 461 $ 789
===== ===== =====
(A)Prior year amounts have been restated to reflect Lehman Brothers as a
discontinued operation.
(B)Includes pretax gains on the sale of First Data Corporation of $779
($433 million after-tax) million and $706 ($425 million after-tax)
million in 1993 and 1992, respectively.
(C)Equity in net income of subsidiaries for 1992 includes a $106 million
charge related to the adoption of SFAS 106.
See Notes to Condensed Financial Information of Registrant
F-10
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEET
(Parent Company Only)
(millions, except share amounts)
ASSETS
------
December 31,
-----------------
1993 1992
---- ----
Cash and cash equivalents $ 8 $ 27
Investment securities 1,304 625
Securities purchased under agreement to resell 746 317
Equity in net assets of subsidiaries and affiliates
- continuing operations 6,875 6,840
Investment in discontinued operations 1,540 1,849
Accounts receivable and accrued interest, less reserves 14 15
Land, buildings and equipment--at cost, less
accumulated depreciation: 1993, $65; 1992, $79 95 127
Due from subsidiaries (net) 1,363 899
Other assets 804 430
------ ------
Total assets $12,749 $11,129
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Accounts payable and other liabilities $ 762 $ 874
Long-term debt 3,153 2,409
Short-term debt 100 347
Total liabilities 4,015 3,630
Shareholders' equity:
Preferred shares, $1.66 2/3 par value, authorized
20,000,000 shares
Convertible Exchangeable Preferred shares, issued and
outstanding 4,000,000 shares in 1993 and 1992, stated
at liquidation value 200 200
$216.75 CAP Preferred Shares, issued and
outstanding 122,448.98 shares in 1993 and 1992,
stated at par value (liquidation value of $300) 1 1
Common shares, $.60 par value, authorized
1,200,000,000 shares; issued and outstanding
489,827,852 shares in 1993 and 479,976,358 shares
in 1992 294 288
Capital surplus 3,784 3,534
Net unrealized securities gains (losses) 7 (1)
Foreign currency translation adjustment (73) (83)
Deferred compensation (128) (137)
Retained earnings 4,649 3,697
------ ------
Total shareholders' equity 8,734 7,499
------ ------
Total liabilities and shareholders' equity $12,749 $11,129
====== ======
See Notes to Condensed Financial Information of Registrant
F-11
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOWS
(Parent Company Only)
(millions)
Years Ended December 31,
----------------------------
1993 1992 1991
---- ---- ----
Cash flows from operating activities:
Net income $1,478 $ 461 $ 789
Adjustments to reconcile net income to cash
provided by operating activities:
Equity in net income of subsidiaries
and affiliates (1,357) (228) (791)
Equity in (income) loss of discontinued
operations 127 149 (182)
Dividends received from subsidiaries
and affiliates 868 492 620
Gain on sale of First Data Corporation (779) (706) -
Changes in accounting - (139) -
Other (net) 42 (12) (185)
---- ---- ----
Net cash provided by operating activities 379 17 251
---- ---- ----
Net cash provided (used) by investing
activities (655) 309 (226)
---- ---- ----
Cash flows from financing activities:
Issuance of American Express common shares 259 159 162
Issuance of American Express preferred shares - - 300
Redemption of American Express Money Market
Preferred shares - (150) (150)
Dividends paid (526) (518) (477)
Other 524 128 101
---- ---- ----
Net cash provided (used) by financing
activities 257 (381) (64)
---- ---- ----
Net decrease in cash and cash equivalents (19) (55) (39)
---- ---- ----
Cash and cash equivalents at beginning
of year 27 82 121
---- ---- ----
Cash and cash equivalents at end of year $ 8 $ 27 $ 82
===== ===== =====
Note: The Other financing activities in 1993 reflects the issuance
of DECs, the proceeds of which were primarily used to fund the
increase in investments.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest (net of amounts capitalized) in 1993, 1992, and 1991
was $105 million, $129 million and $127 million, respectively. Net cash paid
for income taxes was $256 for 1993 and $113 for 1992. Net cash received for
income taxes was $23 for 1991.
F-12
PAGE
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
1. Principles of Consolidation
The accompanying financial statements include the accounts of American
Express Company and on an equity basis its subsidiaries and affiliates.
Shearson Lehman Brothers is reported as a discontinued operation and,
accordingly, prior years' amounts have been restated. 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,
-------------
1993 1992
----- -----
Floating Medium-Term Note Due June 28, 1996 $ 945 $ 945
6 1/4% DECs Due October 15, 1996 868 -
8 5/8% Notes Payable due July 15, 1994 300 299
8 1/2% Notes due August 15, 2001 298 297
8 3/4% Notes Payable due June 15, 1996 199 199
8 5/8% 30 year Senior Note Due 2022 197 197
Employee Stock Ownership Plan 83 86
9% Convertible Notes due April 1, 1994 58 66
11.95% Private Placement Notes due 1995 102 102
WFC Series C 12 1/5% Guaranteed Notes due December 12, 1997 19 23
WFC Series D 11 5/8% Guaranteed Notes due December 12, 2020 22 22
WFC Series Z Zero Coupon Notes due December 12, 2000 30 27
WFC $60 million 8.15% Japanese Yen PPN due July 1996 9 9
WFC $80 million 7.86% Japanese Yen PPN due August 1996 11 11
7 1/2% Debentures due February 27, 1999 7 7
12 3/4% Industrial Revenue Bonds due October 31, 2001 5 5
Samurai Bonds due November 16, 1993 - 75
8% $40 million Promissory Notes due 1994 - 39
------ ------
$3,153 $2,409
====== ======
Aggregate annual maturities of long-term debt for the five years ending
December 31, 1998 are as follows (millions): 1994, $445; 1995, $106; 1996,
$2,038; 1997, $6, 1998, $6.
Other assets includes a $215 million receivable from Lehman Brothers
consisting of $71 million related to long-term financing for the Company's
Headquarters building, and $144 million related to certain notes issued for
the 1984 acquisition of Lehman Brothers Kuhn Loeb Holding Co., Inc.
F-13
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1993
(millions)
Reserve for credit losses, Reserve for doubtful
loans and discounts accounts receivable
------------------- -------------------
1993 1992 1991 1993 1992 1991
---- ---- ---- ---- ---- ----
Balance at beginning
of period $ 911 $ 847 $ 815 $1,124 $1,306 $1,334
Additions:
Charges to income 535 1,044 1,135 1,020(a) 1,143(a) 1,329(a)
Recoveries of amounts
previously written-off 26 14 9 - - -
Other credits (debits) (85) 3 (11) - - -
Deductions:
Charges for which reserves
were provided (732) (997) (1,101) (1,348) (1,325) (1,357)
--- --- ----- ----- ----- -----
Balance at end of period $ 655 $ 911 $ 847 $ 796 $1,124 $1,306
=== === ===== ===== ===== =====
(a) Before recoveries on accounts previously written-off, which are credited
to income: 1993--$333, 1992--$243, 1991--$200.
F-14
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE IX--SHORT-TERM BORROWINGS
AT AND FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(millions)
Year-end Weighted
weighted Maximum Average average
Balance average outstanding outstanding interest
Category of aggregate at end interest during during rate during
short-term borrowings of period rate the period the period the period
--------------------- --------- ----- ---------- ----------- ----------
1993
Commercial paper $8,914 3.15% $9,832 $8,923 (a) 3.26% (c)
Bank loans and other
short-term borrowings $3,575 2.93% $3,575 $2,398 (b) 4.39% (d)
Securities sold under
agreements
to repurchase $3,601 3.95% $4,016 $3,723 (b) 3.76% (d)
1992
Commercial paper $7,648 3.29% $9,230 $8,081 (a) 3.78% (c)
Bank loans and other
short-term borrowings $3,515 5.40% $4,531 $3,168 (b) 5.29% (d)
Securities sold under
agreements
to repurchase $3,254 4.54% $4,043 $3,286 (b) 4.55% (d)
1991
Commercial paper $8,023 4.78% $9,928 $8,666 (a) 6.03% (c)
Bank loans and other
short-term borrowings $4,373 6.55% $4,783 $3,743 (b) 7.54% (d)
Securities sold under
agreements
to repurchase $2,253 5.64% $2,562 $2,382 (b) 6.59% (d)
(a) The average borrowings were computed using the daily amounts
outstanding.
(b) The average borrowings were computed using the month-end balances.
(c) Interest rates were determined by dividing the actual interest
expense for the year by the average daily amounts outstanding.
(d) Interest rates were determined by dividing the actual interest
expense for the year by the average month-end borrowings
outstanding.
F-15
AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
Year Ended December 31,
1993 1992 1991
---- ---- ----
Taxes, other than payroll and
income taxes $168,408 $178,022 $156,899
F-16
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 10.25, 10.27, and 10.30 through 10.35 are management contracts or
compensatory plans or arrangements.
3.1 Registrant's Restated Certificate of Incorporation (incorporated by
reference to Exhibit 4.1 of the registrant's Registration Statement on
Form S-8, dated October 31, 1991 (File No. 33-43671)).
3.2 Registrant's By-Laws, as amended (incorporated by reference to Exhibit
1(b) of the registrant's registration statement on Form S-3, dated
December 3, 1993 (File No. 33-50997)).
4 The instruments defining the rights of holders of long-term debt
securities of the registrant and its subsidiaries are omitted pursuant
to Section (b)(4)(iii)(A) of Item 601 of Regulation S-K. The
registrant hereby agrees to furnish copies of these instruments to the
SEC upon request.
10.1 American Express Company 1979 Long-Term Incentive Plan, as amended
(incorporated by reference to Exhibit 10.2 of the registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987).
10.2 American Express Company 1989 Long-Term Incentive Plan, as amended
(incorporated by reference to Exhibit 28.1 of the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1993).
10.3 American Express Company Deferred Compensation Plan for Directors, as
amended (incorporated by reference to Exhibit 10.3 of the registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1992).
10.4 American Express Company Executives' Incentive Compensation Plan
(incorporated by reference to Exhibit 10.4 of the registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1988).
10.5 American Express Company Supplementary Incentive Savings Plan
(incorporated by reference to Exhibit 10.7 of the registrant's
Registration Statement on Form S-14, dated November 17, 1983 (File No.
2-87925)).
10.6 American Express Company Supplementary Pension Plan, as amended
(incorporated by reference to Exhibit 10.6 of the registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1988).
10.7 American Express Company 1983 Stock Purchase Assistance Plan, as
amended (incorporated by reference to Exhibit 10.6 of the registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1988).
10.8* Consulting Agreements dated May 25, 1993 and March 3, 1994 between the
registrant and Aldo Papone Consulting.
10.9 Written description of consulting agreement between American Express
Company and Kissinger Associates, Inc. (incorporated by reference to
Exhibit 10.20 of the registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1984).
10.10 American Express Company Retirement Plan for Non-Employee Directors, as
amended (incorporated by reference to Exhibit 10.12 of the registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1988).
E-1
10.11 American Express Company Directors' Stock Option Plan (incorporated by
reference to Exhibit 10.16 of the registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1987).
10.12 American Express Key Executive Life Insurance Plan, as amended
(incorporated by reference to Exhibit 10.12 of the registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1991).
10.13 American Express Key Employee Charitable Award Program for Education
(incorporated by reference to Exhibit 10.13 of the registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1990).
10.14 American Express Directors' Charitable Award Program (incorporated by
reference to Exhibit 10.14 of the registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1990).
10.15 Description of separate pension arrangement and loan agreement between
the registrant and Harvey Golub (incorporated by reference to Exhibit
10.17 of registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1988).
10.16 Shearson Lehman Brothers Capital Partners I Amended and Restated
Agreement of Limited Partnership (incorporated by reference to Exhibit
10.18 of registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1988).
10.17 Shearson Lehman Hutton Capital Partners II, L.P. Amended and Restated
Agreement of Limited Partnership (incorporated by reference to Exhibit
10.19 of registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1988).
10.18 American Express Company Salary Deferral Plan (incorporated by
reference to Exhibit 10.20 of registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1988).
10.19 Shearson Lehman Brothers Inc. Voluntary Deferred Compensation Plan
(incorporated by reference to Exhibit 10.9 of Shearson Lehman Brothers
Holdings Inc.'s Annual Report on Form 10-K for the fiscal year ended
December 31, 1987).
10.20 Shearson Lehman Brothers Holdings Inc. Retirement Plan for Outside
Directors (incorporated by reference to Exhibit 10.9 of Shearson Lehman
Brothers Holdings Inc.'s Registration Statement on Form S-1, dated
March 30, 1987 (File No. 33-12976)).
10.21 Shearson Lehman Brothers Holdings Inc. Deferred Compensation Plan for
Outside Directors (incorporated by reference to Exhibit 10.11 of
Shearson Lehman Brothers Holdings Inc.'s Registration Statement on Form
S-1, dated March 30, 1987 (File No. 33-12976)).
10.22 Written description of certain pension arrangements with Howard L.
Clark Jr. and Jonathan S. Linen (incorporated by reference to Exhibit
10.14 of the registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991).
10.23* Consulting Agreements dated May 25, 1993 and March 3, 1994 between
American Express Travel Related Services Company, Inc. and Aldo Papone
Consulting.
10.24 1992 Incentive Compensation Agreement between Shearson Lehman Brothers
Inc. and Howard L. Clark, Jr. (incorporated by reference to Exhibit
10.24 of the registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992.)
10.25 Written description of Shearson Lehman Brothers Inc. 1991/92 Special
Compensation Program (incorporated by reference to Exhibit 10.28 of
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the registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990).
10.26 1990 Agreement, dated as of June 12, 1990, by and between American
Express Company and Nippon Life Insurance Company (incorporated by
reference to Exhibit 10.25 of Shearson Lehman Brothers Holdings Inc.'s
Annual Report on Form 10-K for the fiscal year ended December 31,
1990).
10.27 Consulting Agreement dated February 25, 1991 between Shearson Lehman
Brothers Inc. and Kissinger Associates, Inc., as amended (incorporated
by reference to Exhibit 10.27 of the registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1992).
10.28 Stock Purchase Agreement dated as of September 14, 1992 between Mellon
Bank Corporation and Shearson Lehman Brothers Inc. (incorporated by
reference to Exhibit 10.15 of Shearson Lehman Brothers Holdings Inc.'s
Annual Report on Form 10-K for the fiscal year ended December 31,
1992).
10.29 Asset Purchase Agreement dated as of March 12, 1993 between Smith
Barney, Harris Upham & Co. Incorporated, Primerica Corporation and
Shearson Lehman Brothers Inc. (incorporated by reference to Exhibit
10.16 of Shearson Lehman Brothers Holdings Inc.'s Annual Report on Form
10-K for the fiscal year ended December 31, 1992).
10.30 Termination Agreement dated March 24, 1993 between the registrant and
James D. Robinson III (incorporated by reference to Exhibit 10.30 of
the registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992).
10.31* Employment Agreement dated May 27, 1993 between Shearson Lehman
Brothers Inc. and Howard L. Clark Jr.
10.32 American Express Company 1993 Directors' Stock Option Plan
(incorporated by reference to Exhibit 28.2 of the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1993).
10.33* Agreement dated July 15, 1993 between the registrant and Richard M.
Furlaud.
10.34* Lehman Brothers Inc. Employee Ownership Plan.
10.35* Lehman Brothers Inc. Participating Preferred Plan.
11* Computation of Earnings Per Share.
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 registrant's 1993 Annual Report to Shareholders that
are incorporated herein by reference.
21* Subsidiaries of the registrant.
23* Consent of Ernst & Young (contained on page F-2 hereof).
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