American Express 2002 Annual Report Download - page 34

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I32 AXP IFINANCIAL REVIEW
Off-Balance Sheet Arrangements and Certain Contractual Obligations
The company’s off-balance sheet arrangements and contractual obligations include:
Related to Structured Investments
❙$17.1 billion of securitized U.S. cardmember and equipment lease receivables described further in Note 4 of the Consolidated
Financial Statements.
❙$1.5 billion of book value relating to certain structured investments, including collateralized debt obligations and secured
loan trusts, which are both managed and partially owned by the company, described further in Note 2 to the Consolidated
Financial Statements. These structured investments may be considered variable interest entities under Financial Accounting
Standards Board (FASB) Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46), as discussed in Note 1
of the Consolidated Financial Statements. See also AEFA Results of Operations section.
Other Off-Balance Sheet Items and Guarantees
❙$126 billion of unused credit available to cardmembers, as part of established lending product agreements. Total unused credit
available to cardmembers does not represent potential future cash requirements as a significant portion of this unused credit
may not be drawn. The company’s charge card products have no pre-set spending limit and, therefore, are not reflected herein.
❙$3.8 billion of committed payments for worldwide business arrangements, principally related to TRS.
❙$2.4 billion of minimum aggregate rental commitments under all noncancellable operating leases (net of subleases); $0.3 bil-
lion in less than one year, $0.6 billion in one through three years, and the remainder thereafter.
❙$1.0 billion of loan commitments and other lines of credit, nearly all of which matures in less than one year.
❙$1.4 billion of bank standby letters of credit and bank guarantees and commercial and other letters of credit, $1.2 billion
maturing in less than one year, the remainder maturing in one to three years. $0.9 billion is within the scope of FASB Interpre-
tation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others” (FIN 45), and therefore is included in Note 11 to the Consolidated Financial Statements. At Decem-
ber 31, 2002, the company held $684 million and $148 million of collateral supporting standby letters of credit and guaran-
tees, and commercial and other letters of credit, respectively.
❙$86 billion related to TRS cardmember protection plans, as well as other guarantees in the ordinary course of business that
are within the scope of FIN 45, and therefore included in Note 11 to the Consolidated Financial Statements. Expenses relating
to claims under these guarantees did not exceed $60 million in 2002.
Long-term Debt
❙$16.3 billion of long-term debt, $8.4 billion maturing in less than one year, $7.1 billion maturing in one through three years,
and the remainder maturing thereafter.
In addition to the items that are listed above, the company has entered into other contracts in the normal course of business
that involve potential 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 card transactions and bills cardmembers accordingly. TRS funds merchant payments during the period cardmember loans
and receivables are outstanding. See TRS’ Liquidity and Capital Resources section for further discussion regarding TRS’
specific financing activities, including the owned receivable portfolio. AEFA’s borrowing needs are less significant as its funds
are generated through operations, primarily by the sale of insurance, annuity, or certificate products. AEB’s principal funding
source is customer deposits. It could experience a tightening 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.