American Express 2001 Annual Report Download - page 33

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FINANCIAL REVIEW
Further, the company’s transactions with its executive officers, such as use of American Express Cards and AEFA financial services,
are on terms and conditions available to its employees generally.
The following table presents certain contingencies and commitments of the company relating to long-term debt and off-balance
sheet financial instruments.
Less than One through Four years
(Millions) one year three years and thereafter
Long-term debt $ 1,194 $5,301 $1,293
Off-balance sheet financial instruments:
Noncancellable leases (net of subleases) $ 354 $ 669 $1,714
Unused credit available to Cardmembers $112,059
——
Loan commitments and other lines of credit $ 968 $ 160 —
Bank standby letters of credit and bank guarantees $ 731 $ 114 —
Bank commercial and other bank letters of credit $ 252 $ 8 —
Note: Years reflect maturities of debt and lease operating expenses and periods other obligations are outstanding.
The company is committed to extend credit to certain Cardmembers as part of established lending product agreements. Many
of these are not expected to be drawn; therefore, total unused credit available to Cardmembers does not represent future cash
requirements. The company’s Charge Card products have no preset spending limit and are not reflected in unused credit available
to Cardmembers.
The company issues commercial and other letters of credit to facilitate the short-term trade-related needs of its banking clients,
which typically mature within six months. At December 31, 2001 and 2000, the company held $583 million and $687 million,
respectively, of collateral supporting standby letters of credit and guarantees and $159 million and $242 million, respectively, of
collateral supporting commercial and other letters of credit.
In addition to the contingencies and commitments listed above, the company has entered into many other contracts in the normal
course of business that involve future cash payments,which are either required or contingent upon the occurrence of certain events.
Management believes payments under these contracts will not have a material adverse impact on liquidity.
FINANCING ACTIVITIES
The company’s most significant borrowing and liquidity needs are associated with TRS’ card businesses. TRS pays merchants for
point of sale card transactions and bills Cardmembers accordingly. TRS must fund merchant payments during the period Card-
member loans and receivables are outstanding. As of December 31, 2001, Cardmember loans and receivables managed were
approximately $62 billion.
AEFA’s borrowing needs are less significant as its funds are generated through operations, primarily by the sale of insurance or
certificate products. American Express Bank’s (AEB) principal funding source is customer deposits. It could experience a tighten-
ing of liquidity if customer deposits were withdrawn to the extent that loans, which are generally not readily marketable, would
have to be liquidated. Such a tightening, which is not expected to occur, could be funded, among other means, by the sale of
investment securities.
The company has procedures to immediately transfer short-term funds within the company to meet liquidity needs. These proce-
dures include Parent Company support of its subsidiaries’ funding. Internal transfer mechanisms are subject to and comply with
various contractual and regulatory constraints.
The company’s major borrowing sources (and amounts outstanding at December 31, 2001) include commercial paper issued by
American Express Credit Corporation (Credco), a wholly-owned subsidiary of TRS ($18 billion), bank notes issued and Fed Funds
purchased by American Express Centurion Bank (Centurion Bank), a wholly-owned subsidiary of TRS ($10 billion), Cardmember
lending securitizations ($13 billion off-balance sheet), and Charge Card receivable securitizations ($3 billion on-balance sheet). In