American Express 1998 Annual Report Download - page 29

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RESULTS OF OPERATIONS
STATEMENTS OF INCOME
(Amounts in millions)
Years Ended December 31, 1998 1997 1996
Revenues:
Investment Income $ 2,437 $ 2,339 $ 2,267
Management and
Distribution Fees 1,851 1,486 1,205
Other Revenues 807 774 638
Total Revenues 5,095 4,599 4,110
Expenses:
Provision for Losses and Benefits:
Annuities 1,150 1,214 1,208
Insurance 489 452 420
Investment Certificates 275 200 197
Total 1,914 1,866 1,825
Human Resources 1,441 1,229 1,034
Other Operating Expenses 548 482 366
Total Expenses 3,903 3,577 3,225
Pretax Income 1,192 1,022 885
Income Tax Provision 374 315 291
Net Income $818 $707 $594
American Express Financial Advisors (AEFA) reported
increases in revenues of 11 percent and 12 percent, and
earnings of 16 percent and 19 percent for 1998 and 1997,
respectively. Revenues and earnings in both years benefited
primarily from higher fees due to growth in managed
assets and record mutual fund sales. Revenues net of
related provisions for fixed annuities, insurance and invest-
ment certificate products, which are essentially spread
businesses, rose 16 percent and 20 percent for 1998 and
1997, respectively.
The improvement in investment income reflected
higher average investments of 3 percent and 4 percent in
1998 and 1997, respectively. Management and distribution
fees rose 25 percent and 23 percent in 1998 and 1997,
respectively; the growth in both years was due to greater
management fee revenue from higher managed and separate
account assets. These assets increased due to strong market
appreciation and positive net sales in both years. Distri-
bution fees also improved in both years reflecting strong
mutual fund sales. Other revenues rose in both years from
increased life insurance contract charges and premiums and
higher financial planning fees.
In 1998, the provision for losses and benefits for fixed
annuities declined due to lower business in force and
accrual rates and the provision for insurance increased from
higher accrual rates and in force levels. Provisions for annu-
ities and insurance grew in 1997 due to greater business in
force, partially offset by lower accrual rates. In 1998, the
provision for investment certificates rose reflecting higher
in force levels. This increase also reflects growth in the pro-
vision for the stock market certificate product, which is
hedged by index options and resulted in a corresponding
increase in investment income, with minimal impact on net
income. Human resources expense rose in both years,
reflecting rising financial advisors’ compensation from
growth in sales and asset levels and a greater number of
employees to support business expansion. The increase in
other operating expenses in both years primarily resulted
from higher data processing, technology and advertising
expenditures. 1997 also included increased occupancy and
equipment costs. The effective tax rate in 1998 and 1997
includes tax credits from affordable housing investments.
SELECTED STATISTICAL INFORMATION
(Amounts in millions, except percentages and where indicated)
Years Ended December 31, 1998 1997 1996
Revenues, Net of Provisions $ 3,181 $ 2,732 $ 2,285
Life Insurance
in Force (billions) $ 81.1 $ 74.5 $ 67.3
Deferred Annuities
in Force (billions) $ 42.8 $ 41.7 $ 37.5
Assets Owned, Managed or
Administered (billions):
Assets managed
for institutions $ 45.9 $ 40.8 $ 37.3
Assets owned, managed or
administered for individuals:
Owned Assets:
Separate Account Assets 27.3 23.2 18.5
Other Owned Assets 37.3 36.6 34.2
Total Owned Assets 64.6 59.8 52.7
Managed Assets 87.9 72.8 59.4
Administered Assets 14.0 8.4 4.2
Total $ 212.4 $ 181.8 $ 153.6
Market Appreciation (Depreciation)
During the Period:
Owned Assets:
Separate Account Assets $ 3,547 $ 3,170 $ 1,937
Other Owned Assets $ (110) $ 262 $ (232)
Managed Assets $ 13,787 $11,735 $ 9,063
Sales of Selected Products:
Mutual Funds $ 20,766 $ 17,179 $ 14,331
Annuities $ 2,559 $ 3,473 $ 4,311
Investment Certificates $ 1,976 $ 1,194 $ 736
Life and Other
Insurance Products $389$ 421 $ 449
Number of Financial Advisors 10,350* 8,776 8,340
Fees from Financial
Plans (thousands) $ 72,366 $ 60,809 $ 48,072
Product Sales Generated
from Financial Plans as a
Percentage of Total Sales 65.4% 65.7% 64.0%
* Includes advisors from the acquisition of Securities America in the first
quarter of 1998.
AMERICAN EXPRESS FINANCIAL ADVISORS