American Express 1998 Annual Report Download - page 28

The growth in marketing and promotion expense in both
1998 and 1997 reflected higher media and merchant-
related advertising costs. In 1998, the worldwide Charge
Card provision declined due to improved loss rates; this
provision rose in 1997, primarily as a result of volume
growth. The worldwide lending provision increased in both
years as a result of portfolio growth; the increase also
included greater bankruptcy losses in 1998 and higher
delinquencies in 1997. The growth in the lending provi-
sion was partly offset by the securitizations of U.S.
Cardmember loans in both years. Charge Card interest
expense rose in 1998 and 1997 as a result of higher vol-
umes, partly offset by lower borrowing rates. The growth
in human resources expense primarily reflected increased
business volumes and higher systems programmers’ costs
for technology projects and merit increases in both years;
additionally, the growth in 1998 reflects higher employee
levels, in part due to acquisitions during the year. Other
operating expenses rose in 1998 and 1997 due to
Cardmember loyalty programs, business growth and invest-
ment spending.
TRS’ asset securitization programs increased fee rev-
enue by $293 million, $195 million and $157 million in
1998, 1997 and 1996, respectively. The Charge Card
securitization program resulted in net discount expense
of $665 million, $597 million and $554 million in
1998, 1997 and 1996, respectively. The program also
reduced the Charge Card provision by $293 million,
$247 million and $246 million in 1998, 1997 and 1996,
respectively, and Charge Card interest expense by $231 mil-
lion, $230 million and $183 million in 1998, 1997 and
1996, respectively. The revolving credit securitization
program also reduced lending net finance charge revenue
by $306 million, $167 million and $75 million and the
lending provision by $171 million, $120 million and
$43 million, in 1998, 1997 and 1996, respectively. These
securitizations had no material effect on net income for
any year presented.
LIQUIDITY AND CAPITAL RESOURCES
SELECTED BALANCE SHEET INFORMATION
(Amounts in billions, except percentages)
December 31, 1998 1997
Accounts Receivable, net $ 21.3 $ 20.5
U.S. Cardmember Loans $ 13.7 $ 12.6
Total Assets $ 44.7 $ 40.7
Short-term Debt $ 22.9 $ 20.9
Long-term Debt $ 5.1 $ 6.0
Total Liabilities $ 39.8 $ 36.1
Total Shareholder’s Equity $ 4.9 $ 4.6
Return on Average Equity* 27.8% 25.1%
Return on Average Assets* 3.3% 3.0%
* Excluding the effect of SFAS No. 115.
The American Express Credit Account Master Trust
(the Trust) securitized $1 billion of loans in June 1998
and $1 billion in August 1997, through the public
issuance of two classes of investor certificates and a pri-
vately placed collateral interest in the assets of the Trust.
The securitized assets consist of loans arising in a port-
folio of designated Optima Card, Optima Line of Credit
and Sign & Travel revolving credit accounts owned by
American Express Centurion Bank (Centurion Bank), a
wholly-owned subsidiary of TRS. At December 31,
1998 and 1997, TRS had securitized a total of $3 billion
and $2 billion of loans, respectively, which are not on the
Consolidated Balance Sheets.
In addition, the American Express Master Trust
(the Master Trust) securitizes charge card receivables gen-
erated under designated American Express Card, Gold
Card and Platinum Card consumer accounts through the
issuance of trust certificates. In May 1998, the Master
Trust issued an additional $1 billion of Class A Fixed
Rate Accounts Receivable Trust Certificates. In September
1998, $300 million Class A Fixed Rate Accounts Receivable
Trust Certificates matured from the Charge Card securiti-
zation portfolio. At December 31, 1998 and 1997, TRS
had securitized $3.95 billion and $3.25 billion, respec-
tively, of receivables, which are not on the Consolidated
Balance Sheets.
In February 1998, American Express Credit Cor-
poration (Credco), a wholly-owned subsidiary of TRS,
issued $150 million 1.125% Cash Exchangeable Notes
due February 2003. These notes are exchangeable for an
amount in cash which is linked to the price of the com-
mon stock of the Company. Credco has entered into
hedging agreements designed to fully hedge its obligations
under these Notes.
In 1997, Credco issued and sold, exclusively outside
the United States and to non-U.S. persons, $400 million
Floating Rate Notes and an additional $400 million of
6.5% Fixed Rate Notes. These notes are listed on the
Luxembourg Stock Exchange, and will mature in 2002.
At December 31, 1998, Credco had approximately
$2.4 billion of medium and long-term debt and warrants
available for issuance under shelf registrations filed with
the Securities and Exchange Commission.
TRS, primarily through Credco, maintained com-
mercial paper outstanding of approximately $16.1 billion
at an average interest rate of 5.3% and approximately
$14.5 billion at an average interest rate of 6.0% at
December 31, 1998 and 1997, respectively. Unused lines
of credit of approximately $8.2 billion, which expire in
increments from 1999 through 2002, were available at
December 31, 1998 to support a portion of TRS’ com-
mercial paper borrowings.
Borrowings under bank lines of credit totaled
$1.6 billion and $1.7 billion at December 31, 1998 and
1997, respectively.
In January 1999, TRS issued and sold, exclusively
outside the United States and to non-U.S. persons,
$500 million 5.625% Fixed Rate Notes. These notes are
listed on the Luxembourg Stock Exchange, and will
mature in 2004.
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