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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File No. 1-6908
AMERICAN EXPRESS CREDIT CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 11-1988350
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Christina Centre, 301 North Walnut Street 19801-2919
Suite 1002, Wilmington, Delaware (Zip Code)
(Address of principal executive offices)
Registrant's telephone number including area code: (302) 594-3350.
Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange
Title of each class on which registered
- ---------------------------------------- -----------------------
Step-Up Senior Notes due August 10, 2005 New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: None.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I(1)(a) AND
(b) OF FORM 10-K AND HAS THEREFORE OMITTED CERTAIN ITEMS FROM THIS REPORT IN
ACCORDANCE WITH THE REDUCED DISCLOSURE FORMAT PERMITTED UNDER INSTRUCTION I.
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. _X_
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes ___ No _X_
American Express Company, through a wholly-owned subsidiary, owns all of the
outstanding common stock of the Registrant. Accordingly, there is no market for
the Registrant's common stock. At March 31, 2003, 1,504,938 shares were
outstanding.
Documents incorporated by reference: None
PART I
Item 1. BUSINESS
Introduction
American Express Credit Corporation ("Credco") was incorporated in Delaware in
1962 and was acquired by American Express Company ("American Express") in
December 1965. On January 1, 1983, Credco became a wholly-owned subsidiary of
American Express Travel Related Services Company, Inc. ("TRS"), a wholly-owned
subsidiary of American Express.
Credco is primarily engaged in the business of financing most
non-interest-bearing charge cardmember receivables arising from the use of the
American Express'r' card, including the American Express'r' Gold card, Platinum
card'r' and Corporate card issued in the United States, and in designated
currencies outside the United States. Credco also purchases certain
interest-bearing and discounted revolving credit and extended payment plan
receivables comprised principally of Optima'r' card and other American Express
credit cards, Sign & Travel'r' and Extended Payment Option receivables, lines of
credit and loans to American Express Bank Ltd. customers and interest-bearing
equipment financing installment loans and leases. The American Express card and
American Express credit cards are collectively referred to herein as the "card."
American Express Card Business
TRS currently issues the charge card in 45 currencies (including cards issued by
banks and other qualified institutions). The card, which is issued to individual
consumers for their personal account or through a corporate account established
by their employer for its business purposes, permits cardmembers to charge
purchases of goods or services in the United States and in most countries around
the world at service establishments that have agreed to accept the card. As a
merchant processor, TRS accepts and processes from each participating
establishment the charges arising from cardmember purchases at a discount that
is principally determined by the value that is delivered to the service
establishment and generally includes a premium to other payment products. Value
is delivered to the service establishment through higher spending cardmembers,
the volume of foreign spending by all cardmembers and the insistence of
cardmembers to use their cards when enrolled in loyalty or other card usage
programs. When establishing the discount rate, consideration is also given to a
number of other factors, such as industry specific requirements, estimated
charge volume and payment terms.
The charge card is primarily designed as a method of payment and not as a means
of financing purchases of goods or services and carries no pre-set spending
limit. Charges are approved based on a variety of factors including a
cardmember's account history, credit record and personal resources. Charge cards
generally require payment by the cardmember of the full amount billed each
month, and no finance charges are assessed. Charge card accounts that are past
due are subject, in most cases, to a delinquency assessment and, if not brought
to current status, subject to cancellation. The American Express credit card
comprises a family of revolving credit cards marketed in the United States and
other countries. These cards have a range of different payment terms, grace
periods and rate and fee structures.
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 use by creditors of consumer
credit reports and credit prescreening practices and requires certain
disclosures when an application for credit is rejected; the Truth in Lending
Act, which, among other things, requires extensive disclosure of the terms upon
which credit is granted; the Fair Credit Billing Act, which, among other things,
regulates the manner in which billing inquiries are handled and specifies
certain billing requirements; and the Fair Credit and Charge Card Disclosure
Act, which mandates certain disclosures on credit and charge card applications.
In addition, certain federal privacy-related laws and regulations govern the
collection and use of customer information by financial institutions.
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Federal legislation also regulates abusive debt collection practices. In
addition, a number of states and foreign countries have similar consumer credit
protection, disclosure and privacy-related laws. The application of federal and
state bankruptcy and debtor relief laws affect Credco to the extent that such
laws result in amounts owed by cardmembers being classified as delinquent
and/or charged off as uncollectible. Card issuers and card networks are subject
to anti-money laundering and anti-terrorism legislation, including the U.S.A.
Patriot Act.
General Nature of Credco's Business
Credco purchases certain cardmember receivables arising from the use of the card
throughout the world pursuant to agreements (the "Receivables Agreements") with
TRS and certain of its subsidiaries that issue the card ("Card Issuers"). Net
income primarily depends on the volume of receivables arising from the use of
the card purchased by Credco, the discount rates applicable thereto, the
relationship of total discount to Credco's interest expense and the
collectibility of the receivables purchased. The average life and collectibility
of accounts receivable generated by the use of the card are affected by factors
such as general economic conditions, overall levels of consumer debt and the
number of new cards issued.
Credco purchases cardmember receivables without recourse. Amounts resulting from
unauthorized charges (for example, those made with a lost or stolen card) are
excluded from the definition of "receivables" under the Receivables Agreements
and are not eligible for purchase by Credco. If the unauthorized nature of the
charge is discovered after purchase by Credco, the Card Issuer repurchases the
charge from Credco.
Credco generally purchases non-interest-bearing charge cardmember receivables at
face amount less a specified discount agreed upon from time to time, and
interest-bearing revolving credit cardmember receivables at face amount. The
Receivables Agreements generally require that non-interest-bearing receivables
be purchased at a discount rate which yields to Credco earnings of at least 1.25
times its fixed charges on an annual basis. The Receivables Agreements also
provide that consideration will be given from time to time to revising the
discount rate applicable to purchases of new receivables to reflect changes in
money market interest rates or significant changes in the collectibility of the
receivables. New groups of cardmember receivables are generally purchased net of
reserve balances applicable thereto.
Extended payment plan receivables and loans ("lending receivables") are
primarily funded by subsidiaries of TRS other than Credco, although certain
lending receivables are purchased by Credco. At December 31, 2002 and 2001,
lending receivables owned by Credco totaled $4.9 billion and $3.9 billion,
representing approximately 22 percent and 17 percent, respectively, of all
interests in receivables owned by Credco. These receivables consist of certain
interest-bearing and discounted extended payment plan receivables comprised
principally of American Express credit card, Sign & Travel and Extended Payment
Option receivables, lines of credit and loans to American Express Bank customers
and interest-bearing equipment financing installment loans and leases.
Credco, through a wholly-owned subsidiary, Credco Receivables Corp. ("CRC"),
purchases gross participation interests in the seller's interest in both
non-interest-bearing and interest-bearing cardmember receivables owned by two
master trusts formed by TRS as part of its asset securitization programs. The
gross participation interests represent undivided interests in the receivables
originated by TRS and by American Express Centurion Bank ("Centurion Bank"), a
wholly-owned subsidiary of TRS. See Note 4 in Notes to Consolidated Financial
Statements appearing herein.
The Card Issuers, at their expense and as agents for Credco, perform accounting,
clerical and other services necessary to bill and collect all cardmember
receivables owned by Credco. The Receivables Agreements provide that, without
the prior written consent of Credco, the credit standards used to determine
whether a card is to be issued to an applicant may not be materially reduced and
that the policy as to the cancellation of cards for credit reasons may not be
materially liberalized.
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American Express, as the parent of TRS, has agreed with Credco that it will take
all necessary steps to assure performance of certain TRS obligations under the
Receivables Agreement between TRS and Credco. The Receivables Agreements may be
terminated at any time by the parties thereto, generally upon little or no
notice. Alternatively, such parties may agree to reduce the required 1.25 fixed
charge coverage ratio, which could result in lower discount rates and,
consequently, lower revenues and net income for Credco. The obligations of
Credco are not guaranteed under the Receivables Agreements or otherwise by
American Express or the Card Issuers.
Volume of Business
The following table shows the volume of all charge cardmember and lending
receivables purchased by Credco, excluding cardmember receivables sold to
affiliates, during each of the years indicated, together with receivables owned
by Credco at the end of such years (billions):
Volume of Gross Receivables Owned
Receivables Purchased at December 31,
Year Domestic Foreign Total Domestic Foreign Total
- ---- ---------------------------------------------------------
2002 $ 137.2 $ 46.9 $184.1 $ 15.2 $ 6.8 $ 22.0
2001 159.0 45.1 204.1 17.4 5.6 23.0
2000 161.3 44.8 206.1 19.5 5.2 24.7
1999 131.9 41.8 173.7 18.3 5.0 23.3
1998 117.0 38.1 155.1 15.1 4.0 19.1
The card business does not experience significant seasonal fluctuation, although
card billed business tends to be moderately higher in the fourth quarter than in
other quarters.
TRS' asset securitization programs disclosed above have reduced the volume of
domestic cardmember receivables purchased and the amount owned by Credco.
Charge Cardmember Receivables
Years ended December 31, (Millions, except
percentages and where indicated) 2002 2001 2000 1999 1998
- -----------------------------------------------------------------------------------------------
Total charge cardmember receivables $17,169 $19,121 $22,565 $20,618 $16,993
90 days past due as a % of total 2.6% 3.6% 2.7% 2.9% 3.0%
Loss reserves $ 498 $ 683 $ 640 $ 587 $ 508
as a % of receivables 2.9% 3.5% 2.8% 2.8% 3.0%
Write-offs, net of recoveries $ 568 $ 703 $ 543 $ 496 $ 536
Net loss ratio (1) 0.32% 0.35% 0.27% 0.29% 0.35%
Average life of charge cardmember
receivables (in days) (2) 34 36 37 38 39
(1) Credco's write-offs, net of recoveries, expressed as a percentage of the
volume of charge cardmember receivables purchased by Credco in each of the
years indicated.
(2) Represents the average life of charge cardmember receivables owned by
Credco, based upon the ratio of the average amount of both billed and
unbilled receivables owned by Credco at the end of each month, during the
years indicated, to the volume of charge cardmember receivables purchased
by Credco.
For charge cardmember receivables Credco generally writes off against its
reserve for losses the total balance in an account for which any portion remains
unpaid twelve months from the date of original billing. Accounts are written off
earlier if deemed uncollectible.
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Lending Receivables
Years ended December 31, (Millions, except
percentages and where indicated) 2002 2001 2000 1999 1998
-------------------------------------------------
Total lending receivables $4,858 $3,927 $2,145 $2,707 $2,133
Loss reserves $ 243 $ 164 $ 99 $ 97 $ 89
as a % of lending receivables 5.0% 4.2% 4.6% 3.7% 4.4%
Write-offs, net of recoveries $ 330 $ 165 $ 111 $ 120 $ 111
Net write-off rate (1) 7.37%(2) 5.31% 4.66% 5.17% 5.94%
(1) Credco's write-offs, net of recoveries, expressed as a percentage of the
average amount of lending receivables owned by Credco at the beginning of
the year and at the end of each month in each of the years indicated.
(2) Excluding the impact of the American Express Bank Hong Kong lines of credit
and loans, the net write-off rate for 2002 was 6.27%.
For lending receivables, Credco generally writes off against its reserve for
losses the total balance in an account for which any portion remains unpaid
after six contractual payments are past due. Accounts are written off earlier if
deemed uncollectible.
Sources of Funds
Credco's business is financed by short-term borrowings consisting principally of
commercial paper, borrowings under bank lines of credit and issuances of medium-
and long-term debt, as well as through operations. The weighted average interest
cost on an annual basis of all borrowings, after giving effect to commitment
fees under lines of credit and the impact of interest rate swaps, during the
following years were:
Weighted Average
Year Interest Cost
-------------------------------
2002 3.96%
2001 5.98
2000 6.04
1999 5.16
1998 5.66
From time to time, American Express and certain of its subsidiaries purchase
Credco's commercial paper at prevailing rates, enter into variable rate note
agreements at interest rates generally above the 13-week treasury bill rate or
at interest rates based on LIBOR, and provide lines of credit. The largest
amount of borrowings from American Express or its subsidiaries at any month end
during the five years ended December 31, 2002 was $6.4 billion. At December 31,
2002, the amount borrowed was $4.7 billion. See Notes 5 and 6 in Notes to
Consolidated Financial Statements appearing herein for information about
Credco's debt, including Credco's lines of credit and long-term debt.
Foreign Operations
See Notes 2, 8 and 11 in Notes to Consolidated Financial Statements appearing
herein for information about Credco's foreign exchange risks and operations in
different geographic regions.
Employees
At December 31, 2002, Credco had 26 employees.
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Item 2. PROPERTIES.
Credco neither owns nor leases any material physical properties.
Item 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings to which Credco or its
subsidiaries is a party or of which any of their property is the subject. Credco
knows of no such proceedings being contemplated by government authorities or
other parties.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Omitted pursuant to General Instruction I(2)(c) to Form 10-K.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
American Express, through a wholly-owned subsidiary, TRS, owns all of the
outstanding common stock of Credco. Therefore, there is no market for Credco's
common stock.
Credco did not pay dividends to TRS in 2002 or 2001.
For information about limitations on Credco's ability to pay dividends, see Note
7 in Notes to Consolidated Financial Statements appearing herein.
5
Item 6. SELECTED FINANCIAL DATA.
The following summary of certain consolidated financial information of Credco
was derived from audited financial statements for the five years ended December
31:
($ in millions) 2002 2001 2000 1999 1998
--------------------------------------------------
Income Statement Data
Revenues 2,153 2,842 2,601 2,168 2,214
Interest expense 916 1,458 1,459 1,130 1,190
Provision for losses, net of recoveries 846 937 689 672 632
Income tax provision 118 140 150 120 128
Net income 228 277 286 223 237
Balance Sheet Data
Charge cardmember receivables 17,169 19,121 22,565 20,618 16,993
Reserve for credit losses, charge
cardmember receivables (498) (683) (640) (587) (508)
Lending receivables 4,858 3,927 2,145 2,707 2,133
Reserve for losses, lending receivables (243) (164) (99) (97) (89)
Total assets 27,665 26,542 28,326 26,726 23,535
Short-term debt 15,145 20,584 22,972 20,231 17,528
Current portion of
long-term debt 5,751 800 550 550 353
Long-term debt 2,117 1,030 1,811 2,575 3,053
Shareholder's equity 2,315 2,200 2,152 2,061 1,994
Cash dividends -- -- 200 150 150
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
Certain Critical Accounting Policies
The following provides information about certain critical accounting policies
that are important to the Consolidated Financial Statements and that entail, to
a significant extent, the use of estimates, assumptions and the application of
management's judgment. These policies relate to reserves for credit losses and
investment securities valuation.
o Provisions for credit losses related to charge cardmember receivables and
lending receivables is one of the largest operating expenses of Credco.
Reserves for credit losses represent management's estimate of the amount
necessary to absorb future credit losses inherent in Credco's outstanding
portfolio of charge cardmember and lending receivables. Management's
evaluation process requires numerous estimates and judgments. Reserves for
these credit losses are primarily based upon models which analyze portfolio
statistics and management's judgment. The analytic models take into account
numerous factors, including average write-off rates for various stages of
receivable aging (i.e., current, 30 days, 60 days, 90 days) over a 24-month
period, average bankruptcy rates and average recovery rates. In exercising
its judgment in setting reserve levels, management considers levels derived
from these models and external indicators, such as leading economic
indicators, unemployment rate, consumer confidence index, purchasing
manager's index, bankruptcy filings and the regulatory environment.
Receivables are charged-off when management deems amounts to be
uncollectible, which is generally determined by the number of days the
amount is past due. To the extent historical credit experience is not
indicative of future performance or other assumptions used by management do
not prevail, loss experience could differ significantly, resulting in
either higher or lower future provisions for credit losses, as applicable.
o Generally, investment securities are carried at fair value on the balance
sheet with unrealized gains (losses) recorded in equity, net of income tax
provisions (benefits). Gains and losses are recognized in the results of
operations upon disposition of the securities. In addition, losses are also
recognized when management determines that a decline in value is
other-than-temporary, which requires judgment regarding the amount and
timing of recovery. Indicators of other-than-temporary impairment for debt
securities include issuer downgrade, default or bankruptcy. Credco also
considers the extent to which cost exceeds fair value, the duration of time
of that decline, and management's judgment about the issuer's current and
prospective financial condition. Fair value is generally based on quoted
market prices.
Liquidity and Capital Resources
Credco's portfolio consists principally of charge cardmember receivables and
lending receivables purchased without recourse from Card Issuers throughout the
world and participation interests purchased without recourse in the seller's
interest in both non-interest-bearing and interest-bearing cardmember
receivables. These participation interests are owned by two master trusts formed
by TRS as part of its asset securitization programs. At December 31, 2002 and
2001, respectively, Credco owned $17.2 billion and $19.1 billion of charge
cardmember receivables and participation in charge cardmember receivables,
representing approximately 78 percent and 83 percent, respectively, of the total
receivables owned. Lending receivables, representing approximately 22 percent
and 17 percent of the total receivables owned, were $4.9 billion and $3.9
billion at December 31, 2002 and 2001, respectively.
Credco's assets are financed through a combination of short-term debt, long-term
senior notes, equity capital and retained earnings. Daily funding requirements
are met primarily by the sale of commercial paper. Credco has readily sold the
volume of commercial paper necessary to meet its funding needs as well as to
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cover the daily maturities of commercial paper issued.
The average amount of commercial paper outstanding was $12.2 billion for 2002
and $18.6 billion for 2001. Credco issued an aggregate of $6.8 billion of
medium-term notes at fixed and floating rates with maturities of one to three
years during 2002. This reflects a shift in funding strategy as Credco is
placing less reliance on short-term debt. In early 2003, Credco issued an
additional $2.0 billion of floating rate medium-term notes, with maturities of
one year that can be extended by the holders up to an additional four years, and
$750 million of floating rate medium-term notes with maturities of two years.
During 2002, 2001 and 2000, Credco's average long-term debt outstanding was
$5.8 billion, $2.2 billion and $2.7 billion, respectively. At December 31, 2002,
Credco had approximately $3.2 billion of medium- and long-term debt and warrants
available for issuance under shelf registrations filed with the Securities and
Exchange Commission ("SEC"). At March 31, 2003, Credco had $15.4 billion of debt
securities and warrants available for issuance under such shelf registrations.
At December 31, 2002, Credco had the ability to issue $5.5 billion of debt under
a Euro Medium-Term Note program for the issuance of debt outside the United
States to non-U.S. persons. This program was established by Credco, TRS, AEOCC,
Centurion Bank and American Express Bank Ltd. (a wholly-owned indirect
subsidiary of American Express). The maximum aggregate principal amount of debt
instruments outstanding at any one time under the program will not exceed $6.0
billion.
An alternate source of borrowing consists of committed credit line facilities.
Committed credit line facilities at December 31, 2002 and 2001 totaled $10.0
billion and $10.4 billion, respectively. In April 2002, Credco, American Express
and Centurion Bank renegotiated their committed credit line facilities. As of
December 31, 2002 total available credit lines were $11.5 billion. As a result
of an internal change in allocations during the third quarter, credit lines were
reallocated to include $1.6 billion allocated to American Express and $9.4
billion allocated to Credco. In addition, Credco and American Express agreed to
increase Credco's available committed credit lines by $600 million with a
corresponding reduction in the committed credit lines available to American
Express. This agreement will be in effect until April 2003.
Credco has the right to borrow up to a maximum amount of $11.0 billion, with a
commensurate reduction in the amount available to American Express. Based on
this maximum amount of available borrowing, Credco's committed bank line
coverage of its net short-term debt would have been 117% as of December 31,
2002. These facilities expire in increments from 2003 through 2007.
In addition, Credco, through its wholly-owned subsidiary, American Express
Overseas Credit Corporation Limited ("AEOCC"), had short-term borrowings under
uncommitted lines of credit totaling $58 million and $68 million at December 31,
2002 and 2001, respectively.
The availability of credit lines is subject to Credco's maintenance of a 1.25
ratio of combined earnings and fixed charges to fixed charges. For the year
ended December 31, 2002, this ratio was 1.38. Additionally, Credco's credit
ratings are critical to maintaining its short-term funding sources and
determining related interest costs. Rating agencies review factors such as
capital adequacy with a view towards maintaining certain levels of capital,
liquidity, business volumes, asset quality and economic market trends, among
others, in assessing American Express' and its subsidiaries' appropriate
ratings. See "Qualitative and Quantitative Disclosures About Market Risk" below
for a discussion of the potential effects of a ratings downgrade.
Credco did not pay dividends to TRS in 2002 or 2001.
In 2002, the American Express Credit Account Master Trust (the "Master Trust")
securitized $4.6 billion of lending receivables through the public issuances
of two classes of investor certificates and privately placed collateral
interests in the assets of the Master Trust. At the time of these issuances, CRC
sold $10 million of gross seller's interest in lending receivables ($9 million,
net of reserves) to American Express Receivables Financing Corporation II
("RFCII"), a wholly-owned subsidiary of TRS. In addition, at the time of these
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issuances, CRC purchased from the Master Trust, as an investment, $437 million
of Class C Certificates issued by the Master Trust, collateralized by the
revolving credit receivables held by the Master Trust.
In February 2003, the Master Trust securitized an additional $920 million of
lending receivables through the public issuance of two classes of investor
certificates and privately placed collateral interests in the assets of the
Master Trust. At the time of this issuance, CRC sold $33 million of gross
seller's interest in lending receivables ($32 million, net of reserves) to
RFCII. In addition, at the time of this issuance, CRC purchased from the Master
Trust, as an investment, $87 million of Class C Certificates issued by the
Master Trust, collateralized by the revolving credit receivables held by the
Master Trust.
Additionally, in 2002, $95 million of Class C Certificates owned by CRC matured.
Throughout 2002, the American Express Master Trust (the "Trust") securitized
$1.8 billion of charge cardmember receivables through the public issuance of one
class of investor certificates and privately placed collateral interests in the
assets of the Trust. At the time of these issuances, CRC sold $1.9 billion of
gross seller's interest in charge cardmember receivables ($1.9 billion, net of
reserves) to American Express Receivables Financing Corporation ("RFC"), a
wholly-owned subsidiary of TRS, which is a wholly-owned subsidiary of American
Express. In addition, at the time of these issuances, CRC purchased from the
Trust, as an investment, $142 million of Class B Certificates collateralized by
the charge cardmember receivables held by the Trust.
In 2002, Credco recorded $8 million pretax ($5 million after-tax) of foreign
exchange losses related to its exposure to receivables denominated in Argentine
pesos, which devalued by 117% during 2002. This exposure, totaling approximately
$17 million U.S. dollars at December 31, 2002, was a result of the action taken
by the Argentine government at year end 2001 at which time the conversion of
dollar denominated assets into pesos was mandated and the peso simultaneously
devalued. Credco continues to evaluate economical ways to manage its Argentine
exposure.
Results of Operations
Credco purchases cardmember receivables without recourse from TRS.
Non-interest-bearing charge cardmember receivables are purchased at face amount
less a specified discount agreed upon from time to time, and interest-bearing
lending receivables are generally purchased at face amount. Non-interest-bearing
receivables are purchased under Receivables Agreements that generally provide
that the discount rate shall not be lower than a rate that yields earnings of at
least 1.25 times fixed charges on an annual basis. The ratio of earnings to
fixed charges was 1.38, 1.29 and 1.30 in 2002, 2001 and 2000, respectively. The
ratio of earnings to fixed charges for American Express, the parent of TRS, for
the years ended December 31, 2002, 2001 and 2000 was 2.88, 1.52 and 2.25,
respectively. The Receivables Agreements also provide that consideration will be
given from time to time to revising the discount rate applicable to purchases of
new receivables to reflect changes in money market interest rates or significant
changes in the collectibility of the receivables. Pretax income depends
primarily on the volume of charge cardmember and lending receivables purchased,
the discount rates applicable thereto, the relationship of total discount to
Credco's interest expense and the collectibility of receivables purchased.
Credco's decrease in revenues during 2002 is attributable to lower discount
rates and a decrease in the volume of receivables purchased. Interest income in
2002 decreased as a result of lower interest rates. Interest expense decreased
in 2002 as a result of lower interest rates combined with a decrease in the
volume of average debt outstanding. Provision for losses decreased in 2002
reflecting a decrease in the volume of receivables purchased, partially offset
by an increase in provision rates.
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The following is a further analysis of the increase (decrease) in key revenue
and expense accounts (millions):
2002 2001 2000
- ------------------------------------------------------------------------
Revenue earned from purchased accounts
receivable-changes attributable to:
Volume of receivables purchased $(276) $ (39) $ 364
Discount and interest rates (321) 340 50
- ------------------------------------------------------------------------
Total $(597) $ 301 $ 414
- ------------------------------------------------------------------------
Interest income from investments-changes
attributable to:
Volume of average investments outstanding $ 27 $ 15 $ 2
Interest rates (79) (58) 33
- ------------------------------------------------------------------------
Total $ (52) $ (43) $ 35
- ------------------------------------------------------------------------
Interest income from affiliates-changes
attributable to:
Volume of average investments outstanding $ 9 $ 21 $ (43)
Interest rates (46) (42) 26
- ------------------------------------------------------------------------
Total $ (37) $ (21) $ (17)
- ------------------------------------------------------------------------
Interest expense other-changes
attributable to:
Volume of average debt outstanding $(178) $ (20) $ 84
Interest rates (302) 78 171
- ------------------------------------------------------------------------
Total $(480) $ 58 $ 255
- ------------------------------------------------------------------------
Provision for losses-changes
attributable to:
Volume of receivables purchased $(110) $ (8) $ 157
Provision rates and volume of recoveries 19 256 (140)
- ------------------------------------------------------------------------
Total $ (91) $ 248 $ 17
- ------------------------------------------------------------------------
Interest expense affiliates-changes
attributable to:
Volume of average debt outstanding $ 62 $ 36 $ 32
Interest rates (124) (95) 42
- ------------------------------------------------------------------------
Total $ (62) $ (59) $ 74
- ------------------------------------------------------------------------
10
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Credco's objective is to monitor and control risk exposures to earn returns
commensurate with the appropriate level of risk assumed. American Express
management establishes and oversees implementation of Board-approved policies
covering its funding, investments and use of derivative financial instruments.
American Express' Treasury department, along with various asset and liability
committees in its business segments, is responsible for managing financial
market risk exposures within the context of Board-approved policies. See Note 8
in Notes to Consolidated Financial Statements appearing herein for a discussion
of Credco's use of derivatives.
The American Express Corporate Risk Management Committee ("CRMC") supplements
the risk management capabilities resident within the business segments by
routinely reviewing key financial market, credit, operational and other risk
concentrations across American Express and recommending action where
appropriate. The CRMC promotes a rigorous understanding of risks across American
Express and supports senior management in making risk-return decisions.
Credco management believes a decline in its long-term credit rating by two
levels could result in its having to significantly reduce its commercial paper
and other short-term borrowings and replacing them, in part, by taking down
existing credit lines. Remaining borrowing requirements would be addressed
through other means such as additional securitizations and the sale of
investment securities. This would result in higher interest expense on Credco's
commercial paper and other debt, as well as higher fees related to unused lines
of credit. American Express believes a two level downgrade is unlikely due to
its capital position and growth prospects.
The following sections include sensitivity analyses of two different types of
market risk and estimate the effects of hypothetical sudden and sustained
changes in the applicable market conditions on the ensuing year's earnings,
based on year-end positions. The market changes, assumed to occur as of
year-end, are a 100 basis point increase in market interest rates and a 10
percent strengthening of the U.S. dollar versus all other currencies.
Computations of the prospective effects of hypothetical interest rate and
foreign exchange rate changes are based on numerous assumptions, including
relative levels of market interest rates and foreign exchange rates, as well as
the levels of assets and liabilities. The hypothetical changes and assumptions
will be different from what actually occurs in the future. Furthermore, the
computations do not incorporate actions that management could take if the
hypothetical market changes actually occur. As a result, actual earnings
consequences will differ from those quantified.
Credco's hedging strategies for financial market risk exposures are established,
maintained and monitored by the American Express Treasury department. Credco
generally manages its exposures along product lines. A variety of interest rate
and foreign exchange hedging strategies are employed to manage interest rate and
foreign currency risks. The extent of Credco's unhedged exposures varies over
time based on current interest and foreign exchange rates, the macro-economic
environment and the hedging impact on particular business objectives.
Credco funds its charge cardmember receivables and lending receivables using
on-balance sheet funding sources such as long- and short-term debt, medium-term
notes and commercial paper and other debt. For Credco's charge cardmember and
fixed rate lending receivables, interest rate exposure is managed through the
issuance of long- and short-term debt and the use of interest rate swaps and, to
a much lesser extent, other derivative interest rate instruments, that
effectively fix Credco's cost of debt for a specified time horizon. Credco
endeavors to lengthen the maturity of interest rate hedges in periods of falling
interest rates and to shorten their maturity in periods of rising interest
rates. During 2002, Credco continued its strategy by augmenting its portfolio
of interest rate swaps that convert a majority of its domestic funding from
floating rate to fixed rate. Credco regularly reviews its strategy and may
modify it. For the majority of Credco's lending receivables, which are linked
to a floating rate base and generally reprice each month, Credco uses floating
rate funding. Credco regularly reviews its strategy and may modify it.
11
The detrimental effect on Credco's pretax earnings of a hypothetical 100 basis
point increase in interest rates would be approximately $29 million and $40
million, based on 2002 and 2001 year-end positions, respectively. This effect is
primarily a function of the extent of variable rate funding of charge card and
fixed rate lending products, to the degree that interest rate exposure is not
managed by derivative financial instruments. With respect to the managed portion
of that interest rate exposure, a substantial amount of the $332 million of
Credco's net after-tax unrealized losses recorded in other comprehensive income
on the consolidated balance sheet at December 31, 2002 represents the fair value
of the related derivative financial instruments. These losses will be recognized
in earnings during the terms of those derivative contracts at the same time that
Credco realizes the benefits of lower market rates of interest on its funding of
charge card and fixed rate lending products.
Credco's foreign exchange risk arising from cross-currency charges and balance
sheet exposures is managed primarily by entering into agreements to buy and sell
currencies on a spot or forward basis.
Based on the year-end 2002 and 2001 foreign exchange positions, the effect on
Credco's earnings of the hypothetical 10 percent strengthening of the U.S.
dollar would be immaterial.
Forward-looking Statements
Various forward-looking statements have been made in this Form 10-K Annual
Report. Forward-looking statements may also be made in Credco's other reports
filed with the SEC and in other documents. In addition, from time to time,
Credco through its management may make oral forward-looking statements.
Forward-looking statements are subject to risks and uncertainties, including
those identified below, which could cause actual results to differ materially
from such statements. The words "believe", "expect", "anticipate", "optimistic",
"intend", "evaluate", "plan", "aim", "will", "should", "could", "likely" and
similar expressions are intended to identify forward-looking statements. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date on which they are made. Credco undertakes no
obligation to update publicly or revise any forward-looking statements. Factors
that could cause actual results to differ materially from Credco's
forward-looking statements include, but are not limited to:
o credit trends and the rate of bankruptcies, which can affect spending
on card products and debt payments by individual and corporate
customers;
o Credco's ability to accurately estimate the provision for credit
losses in Credco's outstanding portfolio of charge cardmember and
lending receivables;
o fluctuations in foreign currency exchange rates;
o negative changes in Credco's credit ratings, which could result in
decreased liquidity and higher borrowing costs;
o the effect of fluctuating interest rates, which could affect Credco's
borrowing cost; and
o the impact on American Express Company's business from the war in Iraq
and its aftermath and other geopolitical uncertainty.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
1. Financial Statements.
See Index to Financial Statements at page F-1 hereof.
2. Supplementary Financial Information.
Selected quarterly financial data. See Note 12 in Notes to
Consolidated Financial Statements appearing herein.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
12
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Omitted pursuant to General Instruction I(2) (c) to Form 10-K.
Item 11. EXECUTIVE COMPENSATION
Omitted pursuant to General Instruction I(2) (c) to Form 10-K.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Omitted pursuant to General Instruction I(2) (c) to Form 10-K.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Omitted pursuant to General Instruction I(2) (c) to Form 10-K.
Item 14. CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing of this report, Credco
carried out an evaluation under the supervision and with the participation
of Credco's management, including the Chief Executive Officer ("CEO") and
Chief Financial Officer ("CFO"), of the effectiveness of its disclosure
controls and procedures. Based on that evaluation, the CEO and CFO have
concluded that Credco's disclosure controls and procedures are effective to
ensure that information required to be disclosed by Credco in reports that
it files or submits under the Securities Exchange Act of 1934, as amended,
is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms. Subsequent
to the date of the CEO's and CFO's evaluation, there were no significant
changes in Credco's internal controls or in other factors that could
significantly affect the internal controls, including any corrective
actions with regard to significant deficiencies and material weaknesses.
13
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
See Index to Financial Statements at page F-1 hereof.
2. Financial Statement Schedule:
See Index to Financial Statements at page F-1 hereof.
3. Exhibits:
See Exhibit Index hereof.
(b) Reports on Form 8-K:
Form 8-K dated February 5, 2003, Item 5, reporting Credco's
expected net income for the year ended December 31, 2002 and
other financial data.
Form 8-K dated February 6, 2003, Item 5, reporting certain
filings with the SEC and Item 7, filing a form of floating rate
note and the consent of counsel.
14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMERICAN EXPRESS CREDIT CORPORATION
(Registrant)
DATE: March 31, 2003 By /s/Walker C. Tompkins, Jr.
------------------------------------------------
Walker C. Tompkins, Jr.
President and Chief Executive Officer
Pursuant to the requirement of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities on the dates indicated.
DATE: March 31, 2003 By /s/Walker C. Tompkins, Jr.
------------------------------------------------
Walker C. Tompkins, Jr.
President, Chief Executive Officer
and Director
DATE: March 31, 2003 /s/Erich Komdat
------------------------------------------------
Erich Komdat
Vice President and Chief Accounting Officer
DATE: March 31, 2003 /s/Walter S. Berman
------------------------------------------------
Walter S. Berman
Chief Financial Officer and Director
DATE: March 31, 2003 /s/Jay B. Stevelman
------------------------------------------------
Jay B. Stevelman
Vice President and Director
15
CERTIFICATION
I, Walker C. Tompkins, Jr., certify that:
1. I have reviewed this annual report on Form 10-K of American Express Credit
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 31, 2003 /s/Walker C. Tompkins, Jr.
------------------------------
Walker C. Tompkins, Jr.
President and Chief Executive Officer
CERTIFICATION
I, Walter S. Berman, certify that:
1. I have reviewed this annual report on Form 10-K of American Express Credit
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 31, 2003 /s/Walter S. Berman
-----------------------
Walter S. Berman
Chief Financial Officer
AMERICAN EXPRESS CREDIT CORPORATION
INDEX TO FINANCIAL STATEMENTS
COVERED BY REPORT OF INDEPENDENT AUDITORS
(Item 14 (a))
Page Number
---------------
FINANCIAL STATEMENTS:
Report of independent auditors F - 2
Consolidated statements of income for each of the
three years ended December 31, 2002, 2001 and 2000 F - 3
Consolidated balance sheets at December 31,
2002 and 2001 F - 4
Consolidated statements of cash flows for each of
the three years ended December 31, 2002, 2001 and 2000 F - 5
Consolidated statements of shareholder's equity for each
of the three years ended December 31, 2002, 2001 and 2000 F - 6
Notes to consolidated financial statements F - 7 to F - 14
SCHEDULE:
II - Valuation and qualifying accounts for each of
the three years ended December 31, 2002, 2001 and 2000 F - 15
All other schedules are omitted since the required information is not present
or not present in amounts sufficient to require submission of the schedule,
or because the information required is included in the consolidated financial
statements or notes thereto.
F-1
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS
AMERICAN EXPRESS CREDIT CORPORATION
We have audited the accompanying consolidated balance sheets of American Express
Credit Corporation as of December 31, 2002 and 2001, and the related
consolidated statements of income, shareholder's equity and cash flows for each
of the three years in the period ended December 31, 2002. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the management
of American Express Credit Corporation. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of American Express
Credit Corporation at December 31, 2002 and 2001, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 2002, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
/s/Ernst & Young LLP
New York, New York
January 27, 2003
F-2
AMERICAN EXPRESS CREDIT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, (Millions) 2002 2001 2000
- -----------------------------------------------------------------
REVENUES
Revenue earned from purchased
accounts receivable $2,019 $2,616 $2,315
Interest income from investments 83 135 178
Interest income from affiliates 45 82 103
Other 6 9 5
- -----------------------------------------------------------------
Total 2,153 2,842 2,601
- -----------------------------------------------------------------
EXPENSES
Interest expense - other 818 1,298 1,240
Provision for losses, net
of recoveries of $221, $193 and $178 846 937 689
Interest expense - affiliates 98 160 219
Other 45 30 17
- -----------------------------------------------------------------
Total 1,807 2,425 2,165
- -----------------------------------------------------------------
Pretax income 346 417 436
Income tax provision 118 140 150
- -----------------------------------------------------------------
Net income $ 228 $ 277 $ 286
- -----------------------------------------------------------------
See notes to consolidated financial statements.
F-3
AMERICAN EXPRESS CREDIT CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, (Millions, except share data) 2002 2001
- --------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 1,924 $ 408
Investments 1,901 1,428
Charge cardmember receivables, less credit reserves:
2002, $498; 2001, $683 16,671 18,438
Lending receivables, less credit reserves:
2002, $243; 2001, $164 4,615 3,763
Loans and deposits with affiliates 2,047 1,907
Deferred charges and other assets 507 598
- --------------------------------------------------------------------------------
Total assets $ 27,665 $ 26,542
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Short-term debt - other $ 11,366 $ 18,370
Short-term debt with affiliates 3,779 2,214
Current portion of long-term debt 5,751 800
Long-term debt with affiliates 943 910
Long-term debt - other 1,174 120
-------- --------
Total debt 23,013 22,414
Due to affiliates 1,418 1,425
Accrued interest and other liabilities 919 503
- --------------------------------------------------------------------------------
Total liabilities 25,350 24,342
- --------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock-authorized 3 million
shares of $.10 par value; issued
and outstanding 1.5 million shares 1 1
Capital surplus 161 161
Retained earnings 2,496 2,268
Other comprehensive loss, net of tax:
Net unrealized securities losses (11) (4)
Net unrealized derivatives losses (332) (226)
- --------------------------------------------------------------------------------
Accumulated other comprehensive loss (343) (230)
- --------------------------------------------------------------------------------
Total shareholder's equity 2,315 2,200
- --------------------------------------------------------------------------------
Total liabilities and shareholder's equity $ 27,665 $ 26,542
- --------------------------------------------------------------------------------
See notes to consolidated financial statements.
F-4
AMERICAN EXPRESS CREDIT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, (Millions) 2002 2001 2000
- --------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 228 $ 277 $ 286
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for losses and benefits 846 937 689
Amortization and other -- (4) 1
Changes in operating assets and liabilities:
Deferred tax assets 54 (183) (27)
Interest receivable and other operating assets 97 61 385
Due (from) to affiliates (143) 316 (29)
Other 291 112 (169)
- --------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,373 1,516 1,136
- --------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Accounts receivable (1,329) 832 (1,971)
Recoveries of accounts receivable previously written off 221 193 178
Purchase of participation interest in seller's interest in
accounts receivable from affiliate (1,518) (1,062) (778)
Sale of participation interest in seller's interest in accounts
receivable to affiliate 1,866 825 181
Sale of net accounts receivable to affiliate 1,543 700 153
Purchase of net accounts receivable from affiliate (713) (655) --
Purchase of investments (579) (467) (370)
Maturity of investments 95 54 55
Sale of investments -- 249 4
Loans and deposits due from affiliates (140) (165) (281)
Due from (to) affiliates 136 383 (283)
- --------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (418) 887 (3,112)
- --------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in short-term debt with affiliates
with maturities of ninety days or less 1,565 (71) 791
Net (decrease) increase in short-term debt - other with
maturities of ninety days or less (5,050) (3,515) 4,137
Issuance of debt 11,209 7,629 4,296
Redemption of debt (7,163) (7,046) (7,142)
Dividend paid to TRS -- -- (200)
- --------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 561 (3,003) 1,882
- --------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,516 (600) (94)
- --------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 408 1,008 1,102
- --------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,924 $ 408 $ 1,008
- --------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
F-5
AMERICAN EXPRESS CREDIT CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
Accumulated
Other
Common Capital Comprehensive Retained
Three Years Ended December 31, (Millions) Total Stock Surplus (Loss)/Income Earnings
- --------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1999 $ 2,061 $ 1 $ 161 $ (6) $ 1,905
- --------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income 286 286
Change in net unrealized securities losses 5 5
-----
Total comprehensive income 291
Dividend to TRS (200) (200)
- --------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 2000 2,152 1 161 (1) 1,991
- --------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income 277 277
Change in net unrealized securities losses (3) (3)
Cumulative effect of adopting SFAS No. 133 (59) (59)
Change in net unrealized derivatives losses (456) (456)
Derivatives losses reclassified to earnings 289 289
-----
Total comprehensive income 48
- --------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 2001 2,200 1 161 (230) 2,268
- --------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income 228 228
Change in net unrealized securities losses (7) (7)
Change in net unrealized derivatives losses (156) (156)
Derivatives losses reclassified to earnings 50 50
-----
Total comprehensive income 115
- --------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 2002 $ 2,315 $ 1 $ 161 $ (343) $ 2,496
- --------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
F-6
AMERICAN EXPRESS CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
American Express Credit Corporation together with its subsidiaries ("Credco") is
a wholly-owned subsidiary of American Express Travel Related Services Company,
Inc. ("TRS"), which is a wholly-owned subsidiary of American Express Company
("American Express"). American Express Overseas Credit Corporation Limited
together with its subsidiaries ("AEOCC"), Credco Receivables Corp. ("CRC") and
Credco Finance, Inc. together with its subsidiaries ("CFI"), are wholly-owned
subsidiaries of Credco.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Credco and its subsidiaries. All significant intercompany transactions are
eliminated. Certain prior year amounts have been reclassified to conform to the
current year presentation.
AMOUNTS BASED ON ESTIMATES AND ASSUMPTIONS
Accounting estimates are an integral part of the consolidated financial
statements. In part they are based upon assumptions concerning future events.
Among the more significant are those that relate to reserves for cardmember
credit losses and the recognition of other than temporary impairment within the
investment portfolio (see Note 3). These accounting estimates reflect the best
judgment of management and actual results could differ.
REVENUE EARNED FROM PURCHASED ACCOUNTS RECEIVABLE
A portion of discount revenue earned on purchases of non-interest-bearing
cardmember receivables equal to the provision for losses is recognized as
revenue at the time of purchase; the remaining portion is deferred and recorded
as revenue ratably over the period that the receivables are outstanding.
Finance charge income on interest-bearing lending receivables is recognized as
it is earned. Credco ceases accruing this income after six contractual payments
are past due, or earlier, if deemed uncollectible. Accruals that cease generally
are not resumed.
RESERVES FOR CREDIT LOSSES
Reserves for credit losses related to charge cardmember and lending receivables
is one of the largest operating expenses of Credco. Reserves for credit losses
represent management's estimate of the amount necessary to absorb future credit
losses inherent in Credco's outstanding portfolio of charge cardmember and
lending receivables. Management's evaluation process requires numerous estimates
and judgments. Reserves for these credit losses are primarily based upon models
which analyze portfolio statistics and management's judgment. The analytic
models take into account numerous factors, including average write-off rates for
various stages of receivable aging (i.e., current, 30 days, 60 days, 90 days)
over a 24-month period, average bankruptcy rates and average recovery rates. In
exercising its judgment in setting reserve levels, management considers levels
derived from these models and external indicators, such as leading economic
indicators, unemployment rate, consumer confidence index, purchasing manager's
index, bankruptcy filings and the regulatory environment. Receivables are
charged-off when management deems amounts to be uncollectible, which is
generally determined by the number of days the amount is past due. To the extent
historical credit experience is not
F-7
indicative of future performance or other assumptions used by management do not
prevail, loss experience could differ significantly, resulting in either higher
or lower future provisions for credit losses, as applicable.
Credco generally writes off against its reserve for credit losses the total
balance in an account for which any portion remains unpaid twelve months from
the date of original billing for charge cardmember receivables and after six
contractual payments are past due for lending receivables. Accounts are written
off earlier if deemed uncollectible.
CASH AND CASH EQUIVALENTS
Credco has defined cash and cash equivalents as cash and short-term investments
with original maturities of ninety days or less.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair values of financial instruments are estimates based upon current market
conditions and perceived risks at December 31, 2002 and 2001 and require varying
degrees of management judgment. The fair values of the financial instruments
presented may not be indicative of their future fair values.
The fair values of investments and long-term debt are included in the related
footnotes. For all other financial instruments, the carrying amounts in the
consolidated balance sheets approximate the fair values.
INTEREST RATE TRANSACTIONS
Credco uses interest rate products, principally swaps, primarily to manage
funding costs related to its charge cardmember receivables and lending
receivables. For its charge card and fixed rate lending products, Credco uses
interest rate swaps and, to a lesser extent, caps to achieve a mix of fixed and
floating rate funding. For the majority of its lending receivables, which are
linked to a floating rate base and generally reprice each month, Credco uses
floating rate funding. These interest rate products which modify the terms of an
underlying debt obligation are accounted for by recording interest expense using
the revised interest rate with any fees or other payments amortized as yield
adjustments. It is Credco's normal practice not to terminate, sell or dispose of
interest rate products or the underlying debt to which the products are
designated prior to maturity. In the event Credco terminates, sells or disposes
of an interest rate product prior to maturity, the gain or loss would be
deferred and recognized as an adjustment of yield over the remaining life of the
underlying debt.
FOREIGN CURRENCY
Foreign currency assets and liabilities are translated into their U.S. dollar
equivalents based on rates of exchange prevailing at the end of each year.
Revenue and expense accounts are translated at exchange rates prevailing during
the year. Credco enters into various foreign exchange contracts as a means of
managing foreign exchange exposure.
3. INVESTMENTS
At December 31, 2002 and 2001, Credco held American Express Master Trust Class B
Certificates with a fair value of $357 million and $219 million, respectively,
and American Express Credit Account Master Trust Class C Certificates with a
fair value of $1,544 million and $1,209 million, respectively.
Available-for-Sale securities are stated at fair value, with the unrealized
gains and losses included in shareholder's equity. The Available-for-Sale
classification does not mean that Credco necessarily expects to sell these
securities. They are available to meet possible liquidity needs should there be
significant changes in market interest rates, customer demand or funding sources
and terms.
F-8
The change in net unrealized securities losses recognized in other comprehensive
loss includes two components: (1) unrealized gains (losses) that arose from
changes in market value of securities that were held during the period (holding
gains (losses)), and (2) gains (losses) that were previously unrealized, but
have been recognized in current period net income due to sales of Available-
for-Sale securities (reclassification to realized gains (losses)). This
reclassification has no effect on total comprehensive loss or shareholder's
equity. The components of other comprehensive loss net of tax were $7.1 million
and $4.2 million in holding losses for the years ended December 31, 2002 and
2001, respectively, and $0.8 million in realized gains for the year ended
December 31, 2001.
4. ACCOUNTS RECEIVABLE
At December 31, 2002 and 2001, respectively, Credco owned $17.2 billion and
$19.1 billion of charge cardmember receivables and participation in charge
cardmember receivables, representing approximately 78 percent and 83 percent,
respectively, of the total receivables owned. In connection with TRS'
securitization program for U.S. charge cardmember receivables, CRC purchases
from American Express Receivables Financing Corporation ("RFC"), a wholly-owned
subsidiary of TRS, a participation interest in RFC's seller's interest in the
receivables owned by the American Express Master Trust (the "Trust"), which was
formed in 1992 to securitize U.S. charge cardmember receivables. The gross
participation interests represent undivided interests in the receivables
conveyed to the Trust by RFC.
In 2002, the Trust securitized $1.8 billion of charge cardmember receivables
through the public issuance of one class of investor certificates and privately
placed collateral interests in the assets of the Trust. At the time of these
issuances, CRC sold $1.9 billion of gross seller's interest in charge cardmember
receivables ($1.9 billion, net of reserves) to RFC. In addition, at the time of
these issuances, CRC purchased from the Trust, as an investment, $142 million of
Class B Certificates collateralized by the charge cardmember receivables held by
the Trust. At December 31, 2002 and 2001, CRC owned approximately $3.1 billion
and $3.8 billion, respectively, of participation interests in receivables
conveyed to the Trust, representing approximately 14 percent and 17 percent,
respectively, of Credco's total accounts receivable.
At December 31, 2002 and 2001, Credco owned lending receivables totaling $4.9
billion and $3.9 billion, respectively, including certain interest-bearing
and discounted extended payment plan receivables comprised principally of
American Express credit card, Sign & Travel and Extended Payment Option
receivables, lines of credit and loans to American Express Bank customers and
interest-bearing equipment financing installment loans and leases representing
approximately 22 percent and 17 percent, respectively, of its total interests
in accounts receivable. The lending receivables owned at December 31, 2002 and
2001 include $189 million and $212 million, respectively, of participation
interest owned by CRC. This represents a participation interest in the seller's
interest in lending receivables that have been conveyed to the American Express
Credit Account Master Trust (the "Master Trust"), formed in 1996 to securitize
lending receivables. In 2002 the Master Trust securitized $4.6 billion of
lending receivables through the public issuances of two classes of investor
certificates and privately placed collateral interests in the assets of the
Master Trust. At the time of these issuances, CRC sold $10 million of gross
seller's interest in lending receivables ($9 million, net of reserves) to
American Express Receivables Financing Corporation II ("RFCII"), a wholly-owned
subsidiary of TRS. In addition, at the time of these issuances, CRC purchased
from the Master Trust, as an investment, $437 million of Class C Certificates
issued by the Master Trust, collateralized by the revolving credit receivables
held by the Master Trust.
In February 2003, the Master Trust securitized an additional $920 million of
lending receivables through the public issuance of two classes of investor
certificates and privately placed collateral interests in the assets of the
Master Trust. At the time of this issuance, CRC sold $33 million of gross
seller's interest in lending receivables ($32 million, net of reserves) to
RFCII. In addition, at the time of this issuance, CRC purchased from the Master
Trust, as an investment, $87 million of Class C Certificates issued by the
Master Trust, collateralized by the revolving credit receivables held by the
Master Trust.
F-9
5. SHORT-TERM DEBT
December 31, (Millions) 2002 2001
- --------------------------------------------------------------------------------
Commercial paper $11,221 $17,955
Borrowings from affiliates 3,779 2,214
Borrowings under lines of credit 58 68
Borrowing agreements with bank trust
departments and others 87 347
- --------------------------------------------------------------------------------
TOTAL SHORT-TERM DEBT $15,145 $20,584
- --------------------------------------------------------------------------------
Credco has various facilities available to obtain short-term credit, including
the issuance of commercial paper and agreements with banks.
Credco had committed credit line facilities totaling $10.0 billion and $10.4
billion at December 31, 2002 and 2001, respectively. Credco pays fees to the
financial institutions that provide these credit line facilities. The fair value
of the unused lines of credit is not significant at December 31, 2002 and 2001.
At December 31, 2002 and 2001, Credco, through AEOCC, had short-term borrowings
under uncommitted lines of credit totaling $58 million and $68 million,
respectively.
At December 31, 2002 and 2001, the weighted average interest rate of Credco's
short-term debt outstanding was 1.37 percent and 1.92 percent, respectively. At
December 31, 2002, $6.1 billion of short-term debt outstanding was modified by
interest rate swaps, resulting in a year-end weighted average effective interest
rate of 2.73 percent.
Credco paid $0.7 billion, $1.3 billion and $1.3 billion of interest on
short-term debt obligations in 2002, 2001 and 2000, respectively.
6. LONG-TERM DEBT
December 31, (Millions) 2002
- --------------------------------------------------------------------------------
Year- Year-End
End Effective
Notional Stated Interest
Amount Rate on Rate with Maturity
Outstanding of Debt Swaps of
Balance Swaps (a,b) (a,b) Swaps
- --------------------------------------------------------------------------------
Senior notes due 2005 $ 100 $ 100 7.45% 1.59% 2005
Variable rate debt with
American Express due 2004 910 -- 1.30% -- --
Fixed rate debt with
affiliate due 2004-2005 33 -- 4.32% -- --
Medium-term variable rate
notes due 2003 - 2004 6,550 6,550 1.45% 5.34% 2004
Medium-term fixed rate note
due 2002 -- -- -- -- --
Medium-term variable rate
note due 2002 -- -- -- -- --
Medium-term fixed rate note
due 2005 250 250 4.25% 1.54% 2005
Swiss franc notes due 2003 1 -- 5.25% -- --
Fair value adjustment 24 -- -- -- --
- --------------------------------------------------------------------------------
TOTAL $7,868 $6,900
- --------------------------------------------------------------------------------
December 31, (Millions) 2001
- --------------------------------------------------------------------------------
Year- Year-End
End Effective
Notional Stated Interest
Amount Rate on Rate with Maturity
Outstanding of Debt Swaps of
Balance Swaps (a,b) (a,b) Swaps
- --------------------------------------------------------------------------------
Senior notes due 2005 $ 100 $ 100 7.45% 2.21% 2005
Variable rate debt with
American Express due 2004 910 -- 1.83% -- --
Fixed rate debt with
affiliate due 2004-2005 -- -- -- -- --
Medium-term variable rate
notes due 2003 - 2004 -- -- -- -- --
Medium-term fixed rate
note due 2002 400 400 6.50% 2.08% 2002
Medium-term variable rate
note due 2002 400 400 2.28% 2.22% 2002
Medium-term fixed rate note
due 2005 -- -- -- -- --
Swiss franc notes due 2003 1 -- 5.13% -- --
Fair value adjustment 19 -- -- -- --
- --------------------------------------------------------------------------------
TOTAL $1,830 $ 900
- --------------------------------------------------------------------------------
(a) For floating rate debt issuances, the stated and effective interest rates
were based on the respective rates at December 31, 2002 and 2001; these
rates are not an indication of future interest rates.
(b) Weighted average rates were determined where appropriate.
The above table includes the current portion of long-term debt of $5,751 million
and $800 million at December 31, 2002 and 2001, respectively.
F-10
The book value of variable rate long-term debt that reprices within a year
approximates fair value. The fair value of other long-term debt is based on
quoted market price or discounted cash flow. The aggregate fair value of
long-term debt, including the current portion outstanding, was $7.9 billion and
$1.8 billion, at December 31, 2002 and 2001, respectively.
Credco paid interest on long-term debt obligations of $121 million, $119 million
and $186 million in 2002, 2001 and 2000, respectively.
Aggregate annual maturities of long-term debt are as follows (millions): 2003,
$5,751; 2004, $1,718; and 2005, $375.
7. RESTRICTIONS AS TO DIVIDENDS AND LIMITATIONS ON INDEBTEDNESS
The most restrictive limitation on dividends imposed by the debt instruments
issued by Credco is the requirement that Credco maintain a minimum consolidated
net worth of $50 million. There are no limitations on the amount of debt that
can be issued by Credco.
8. DERIVATIVES AND HEDGING ACTIVITIES
As prescribed by SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," derivative instruments that are designated and qualify as
hedging instruments are further classified as either a cash flow hedge, a fair
value hedge, or a hedge of a net investment in a foreign operation, based upon
the exposure being hedged.
For derivative instruments that are designated and qualify as a cash flow hedge,
the portion of the gain or loss on the derivative instrument effective at
offsetting changes in the hedged item is reported as a component of other
comprehensive income (loss) and reclassified into earnings when the hedged
transaction affects earnings. Any ineffective portion of the gain or loss on the
derivative instrument is recognized currently in earnings. For derivative
instruments that are designated and qualify as a fair value hedge, the gain or
loss on the derivative instrument as well as the offsetting loss or gain on the
hedged item attributable to the hedged risk are recognized in current earnings
during the period of the change in fair values. For derivative instruments that
are designated and qualify as a hedge of a net investment in a foreign
operation, the effective portion of the gain or loss on the derivative is
reported in other comprehensive income (loss) as part of the cumulative
translation adjustment. For derivative instruments not designated as hedging
instruments, the gain or loss is recognized currently in earnings.
CASH FLOW HEDGES
Credco uses interest rate products, primarily swaps, to manage funding costs
related to its purchase of charge cardmember receivables. For its charge
cardmember receivables, Credco uses interest rate swaps to achieve a targeted
mix of fixed and floating rate funding. These interest rate swaps are used to
protect Credco from the interest rate risk that arises from short-term funding.
At December 31, 2002, Credco expects to reclassify $412 million of net pretax
losses on derivative instruments from accumulated other comprehensive loss to
earnings during the next twelve months.
Currently, the longest period of time over which Credco is hedging exposure to
the variability in future cash flows for forecasted transactions, excluding
those forecasted transactions related to the payment of variable interest on
existing financial instruments, is 3.8 years and relates to funding of foreign
currency denominated receivables.
F-11
FAIR VALUE HEDGES
Credco uses interest rate swaps to hedge its fixed rate debt and firm
commitments to transfer, at a fixed rate, receivables to trusts established in
connection with TRS' asset securitizations.
DERIVATIVES NOT DESIGNATED AS HEDGES UNDER SFAS NO. 133
Credco has economic hedges that either do not qualify or are not designated for
hedge accounting treatment under SFAS No. 133. Accordingly, the derivatives are
marked to market and the gain or loss is included in net income.
o Foreign currency transaction exposures are economically hedged, where
practical, through foreign currency contracts. Foreign currency contracts
involve the purchase and sale of a designated currency at an agreed upon
rate for settlement on a specified date. Such foreign currency forward
contracts entered into by Credco generally mature within one year.
See Notes 5 and 6 for further information regarding Credco's use of interest
rate products related to short- and long-term debt obligations.
9. TRANSACTIONS WITH AFFILIATES
In 2002, 2001 and 2000, Credco purchased charge cardmember and lending
receivables without recourse from TRS and certain of its subsidiaries totaling
approximately $184 billion, $204 billion and $206 billion, respectively.
Agreements for the purchase of charge cardmember receivables generally require
that Credco purchase such receivables at discount rates which yield to Credco
earnings of not less than 1.25 times its fixed charges on an annual basis.
The agreements require TRS and other Card Issuers, at their expense, to perform
accounting, clerical and other services necessary to bill and collect all
cardmember receivables owned by Credco. Since settlements under the agreements
occur monthly, an amount due from, or payable to, such affiliates may arise at
the end of each month.
At December 31, 2002 and 2001, CRC held American Express Master Trust Class B
Certificates with a fair value of $357 million and $219 million, respectively,
and American Express Credit Account Master Trust Class C Certificates with a
fair value of $1,544 million and $1,209 million, respectively.
At December 31, 2002 and 2001, CRC owned approximately $3.1 billion and $3.8
billion, respectively, of participation interests in receivables conveyed to the
Trust, representing approximately 14 percent and 17 percent, respectively, of
Credco's total accounts receivable.
The lending receivables owned at December 31, 2002 and 2001 include $189 million
and $212 million, respectively, of participation interest owned by CRC. This
represents a participation interest in the seller's interest in lending
receivables that have been conveyed to the Master Trust.
F-12
Other transactions with American Express and its subsidiaries for the years
ended December 31 were as follows:
December 31, (Millions) 2002 2001 2000
- --------------------------------------------------------------------------------
Cash and cash equivalents at December 31 $ 2 $ 4 $ 3
Maximum month-end level of cash and cash
equivalents during the year 6 10 11
Other loans and deposits to affiliates at December 31 2,047 1,907 1,742
Maximum month-end level of loans and deposits to
affiliates during the year 2,047 1,907 1,742
Borrowings at December 31 4,722 3,124 3,195
Maximum month-end level of borrowings during the year 6,311 6,436 4,840
Interest income 45 82 103
Other income 6 9 5
Interest expense 98 160 219
- --------------------------------------------------------------------------------
At December 31, 2002, 2001 and 2000, Credco held variable rate loans to American
Express due in 2004 of $850 million. Additionally, Credco had $489 million, $468
million and $448 million of loans to American Express ATM Holdings, Inc., a
wholly-owned subsidiary of TRS, at December 31, 2002, 2001 and 2000,
respectively. Credco also had $369 million, $225 million and $100 million of
loans to American Express International Inc., a wholly-owned subsidiary of TRS,
at December 31, 2002, 2001 and 2000, respectively. At December 31, 2002, 2001
and 2000, CFI had $339 million, $330 million and $330 million, respectively, of
loans to Amex Bank of Canada, a wholly-owned subsidiary of TRS.
10. INCOME TAXES
The taxable income of Credco is included in the consolidated U.S. federal income
tax return of American Express. Under an agreement with TRS, taxes are
recognized on a stand-alone basis. If benefits for all future tax deductions,
foreign tax credits and net operating losses cannot be recognized on a
stand-alone basis, such benefits are then recognized based upon a share, derived
by formula, of those deductions and credits that are recognizable on a TRS
consolidated reporting basis.
The provisions for income taxes were as follows (millions):
2002 2001 2000
- --------------------------------------------------------------------------------
Federal $109 $128 $140
Foreign 9 12 10
- --------------------------------------------------------------------------------
Total $118 $140 $150
- --------------------------------------------------------------------------------
Deferred income tax assets and liabilities result from the recognition of
temporary differences. Temporary differences are differences between the tax
bases of assets and liabilities and their reported amounts in the financial
statements that will result in differences between income for tax purposes and
income for financial statement purposes in future years. The current and
deferred components of the provision (benefit) for income taxes were as follows
(millions):
2002 2001 2000
- --------------------------------------------------------------------------------
Current $ 64 $ 200 $ 179
Deferred 54 (60) (29)
- --------------------------------------------------------------------------------
Total income tax provision $ 118 $ 140 $ 150
- --------------------------------------------------------------------------------
Credco's deferred tax assets were $435 million and $428 million as of December
31, 2002 and 2001, respectively. These amounts were included in other assets.
Credco's deferred tax liabilities were not material as of December 31, 2002 and
2001.
F-13
Deferred tax assets for 2002 and 2001 consist primarily of reserve for loan
losses of $251 million and $305 million, respectively, and deferred taxes
related to SFAS No. 133 of $179 million and $121 million for 2002 and 2001,
respectively. At December 31, 2002 and 2001, no valuation allowances were
required.
In 2002 and 2001, due to affiliates included current federal tax payable to TRS
of $78 million and $15 million, respectively.
In 2002, 2001 and 2000, total net income taxes paid, including taxes paid to
TRS, were $0.2 million, $166 million and $198 million, respectively. These
amounts include estimated tax payments and cash settlements relating to prior
tax years.
The principal reasons that the aggregate income tax provision is different from
that computed by using the U.S. statutory rate of 35 percent is as follows:
- --------------------------------------------------------------------------------
2002 2001
- --------------------------------------------------------------------------------
Statutory rate 35% 35%
Foreign operations (1) (1)
- --------------------------------------------------------------------------------
Total 34% 34%
- --------------------------------------------------------------------------------
The U.S statutory tax rate and effective tax rate for 2000 was approximately
35%.
The items comprising Comprehensive Income in the Consolidated Statements of
Shareholder's Equity are presented net of income tax (benefit) provision. The
changes in net unrealized securities are presented net of tax benefit of ($4)
million for 2002 and ($2) million for 2001. The changes related to cash flow
hedges are presented net of tax benefit of ($57) million for 2002 and ($121)
million for 2001.
11. GEOGRAPHIC SEGMENTS
Credco is principally engaged in the business of purchasing cardmember
receivables arising from the use of the American Express card in the United
States and foreign locations. The following presents information about
operations in different geographic areas (millions):
2002 2001 2000
- --------------------------------------------------------------------------------
Revenues
United States $1,550 $2,353 $2,165
International 603 489 436
- --------------------------------------------------------------------------------
Consolidated $2,153 $2,842 $2,601
- --------------------------------------------------------------------------------
Pretax income
United States $ 308 $ 357 $ 367
International 38 60 69
- --------------------------------------------------------------------------------
Consolidated $ 346 $ 417 $ 436
- --------------------------------------------------------------------------------
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
2002 2001
- --------------------------------------------------------------------------------
Quarters Ended, (Millions) 12/31 9/30 6/30 3/31 12/31 9/30 6/30 3/31
- --------------------------------------------------------------------------------
Revenues $566 $516 $554 $517 $696 $703 $730 $713
Pretax income 119 65 82 80 63 114 124 116
Net income 78 43 54 53 42 75 83 77
- --------------------------------------------------------------------------------
F-14
AMERICAN EXPRESS CREDIT CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, (Millions) 2002 2001 2000
- --------------------------------------------------------------------------------
Reserve for credit losses:
Balance at beginning of year $ 847 $ 739 $ 684
Additions:
Provision for credit losses
charged to income (1) 1,067 1,130 867
Other credits (2) 144 124 63
Deductions:
Accounts written off 1,119 1,061 832
Other charges (3) 198 85 43
------ ------ ------
Balance at end of year $ 741 $ 847 $ 739
====== ====== ======
Reserve for credit losses as a percentage
of gross cardmember receivables owned at
year-end 3.34% 3.65% 2.96%
====== ====== ======
(1) Before recoveries on accounts previously written off of $221 million, $193
million and $178 million in 2002, 2001 and 2000, respectively.
(2) Reserve balances applicable to new groups of charge cardmember and lending
receivables purchased from TRS and certain of its subsidiaries and
participation interests purchased from affiliates.
(3) Primarily relates to reserve balances applicable to certain groups of
charge cardmember and lending receivables and participation interests sold
to affiliates.
F-15
EXHIBIT INDEX
PURSUANT TO ITEM 601 OF REGULATION S-K
EXHIBIT NO. DESCRIPTION
3 (a) Registrant's Certificate of Incorporated by
Incorporation, as amended reference to Exhibit
3(a) to Registrant's
Registration Statement on
Form S-1 dated February
25, 1972 (File No.
2-43170).
3 (b) Registrant's By-Laws, amended and Incorporated by
restated as of November 24, 1980 reference to Exhibit 3
(b) to Registrant's
Annual Report on Form
10-K (Commission File
No. 1-6908) for the year
ended December 31, 1985.
4 (a) Registrant's Debt Securities Incorporated by
Indenture dated as of reference to Exhibit 4
September 1, 1987 (s) to Registrant's
Registration Statement
on Form S-3 dated
September 2, 1987 (File
No. 33-16874).
4 (b) Form of Note with optional redemption Incorporated by
provisions reference to Exhibit 4
(t) to Registrant's
Registration Statement
on Form S-3 dated
September 2, 1987 (File
No. 33-16874).
4 (c) Form of Debenture with optional Incorporated by
redemption and sinking fund provisions reference to Exhibit 4
(u) to Registrant's
Registration Statement
on Form S-3 dated
September 2, 1987 (File
No. 33-16874).
E-1
4 (d) Form of Original Issue Discount Note Incorporated by
with optional redemption provision reference to Exhibit 4
(v) to Registrant's
Registration Statement
on Form S-3 dated
September 2, 1987 (File
No. 33-16874).
4 (e) Form of Zero Coupon Note with optional Incorporated by
redemption provisions reference to Exhibit 4
(w) to Registrant's
Registration Statement
on Form S-3 dated
September 2, 1987 (File
No. 33-16874).
4 (f) Form of Variable Rate Note with optional Incorporated by
redemption and repayment provisions reference to Exhibit 4
(x) to Registrant's
Registration Statement
on Form S-3 dated
September 2, 1987 (File
No. 33-16874).
4 (g) Form of Extendible Note with optional Incorporated by
redemption and repayment provisions reference to Exhibit 4
(y) to Registrant's
Registration Statement
on Form S-3 dated
September 2, 1987 (File
No. 33-16874).
4 (h) Form of Fixed Rate Medium-Term Note Incorporated by
reference to Exhibit 4
(z) to Registrant's
Registration Statement
on Form S-3 dated
September 2, 1987 (File
No. 33-16874).
4 (i) Form of Floating Rate Medium-Term Note Incorporated by
reference to Exhibit 4
(aa) to Registrant's
Registration Statement
on Form S-3 dated
September 2, 1987 (File
No. 33-16874).
E-2
4 (j) Form of Warrant Agreement Incorporated by
reference to Exhibit 4
(bb) to Registrant's
Registration Statement
on Form S-3 dated
September 2, 1987 (File
No. 33-16874).
4 (k) Form of Supplemental Indenture Incorporated by
reference to Exhibit 4
(cc) to Registrant's
Registration Statement
on Form S-3 dated
September 2, 1987 (File
No. 33-16874).
4 (l) Terms and conditions of debt instruments Incorporated by
to be issued outside the U.S. reference to Exhibit 4(l)
to Registrant's Annual
Report on Form 10-K
(Commission File No.
1-6908) for the year
ended December 31, 1997.
4 (m) Form of Permanent Global Fixed Rate Incorporated by
Medium-Term Senior Note, Series B reference to Exhibit
4(s) to Registrant's
Current Report on Form
8-K (Commission File No.
1-6908) dated December
21, 2001.
4 (n) Form of Permanent Global Floating Rate Incorporated by
Medium-Term Senior Note, Series B reference to Exhibit
4(t) to Registrant's
Current Report on Form
8-K (Commission File No.
1-6908) dated December
21, 2001.
4 (o) Form of Senior Floating Rate Note Incorporated by
Extendible Liquidity Securities'r'(EXLs'r') reference to Exhibit
4(u) to Registrant's
Current Report on Form
8-K (Commission File No.
1-6908) dated February 6,
2003.
4 (p) The Registrant hereby agrees to furnish the
Commission, upon request, with copies of the
instruments defining the rights of holders of
each issue of long-term debt of the Registrant
for which the total amount of securities
authorized thereunder does not exceed 10% of
the total assets of the Registrant
E-3
10 (a) Receivables Agreement dated as of January Incorporated by
1, 1983 between the Registrant and reference to Exhibit 10
American Express Travel Related Services (b) to Registrant's
Company, Inc. Annual Report on Form
10-K (Commission File
No. 1-6908) for the year
ended December 31, 1987.
10 (b) Participation Agreement dated as of Incorporated by
August 3, 1992 between American Express reference to Exhibit
Receivables Financing Corporation 10(c) to Registrant's
and Credco Receivables Corp. Annual Report on Form
10-K (Commission File
No. 1-6908) for the year
ended December 31, 1992.
12.1 Computation in Support of Ratio of Electronically filed
Earnings to Fixed Charges of American herewith.
Express Credit Corporation
12.2 Computation in Support of Ratio of Electronically filed
Earnings to Fixed Charges of American herewith.
Express Company
23 Consent of Independent Auditors Electronically filed
herewith.
99.1 Certification of Walker C. Tompkins Jr., Electronically filed
Chief Executive Officer, pursuant to 18 herewith.
U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act
of 2002
99.2 Certification of Walter S. Berman, Chief Electronically filed
Financial Officer, pursuant to 18 U.S.C. herewith.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002
E-4
STATEMENT OF DIFFERENCES
------------------------
The registered trademark symbol shall be expressed as ..................... 'r'