American Express 2002 Annual Report Download - page 43

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I41 AXP IFINANCIAL REVIEW
Liquidity and Capital Resources
SELECTED BALANCE SHEET INFORMATION (GAAP BASIS)
December 31, (Billions, except percentages) 2002 2001
Accounts receivable, net $ 28.1 $ 28.5
Travelers Cheque investments $ 7.4 $ 6.8
U.S. cardmember loans $ 17.1 $ 16.9
Total assets $ 72.2 $ 69.4
Travelers Cheques outstanding $ 6.6 $ 6.2
Short-term debt $ 21.7 $ 31.8
Long-term debt $ 14.8 $ 6.0
Total liabilities $ 64.9 $ 62.7
Total shareholder’s equity $ 7.3 $ 6.7
Return on average equity* 29.9% 21.9%
Return on average assets** 3.2% 2.1%
* Computed on a trailing 12-month basis excluding the effect on Shareholder’s Equity of unrealized gains or losses related to SFAS No. 115 and SFAS No. 133.
** Computed on a trailing 12-month basis excluding the effect on total assets of unrealized gains or losses related to SFAS No. 115 and SFAS No. 133 to the extent that they directly affect
Shareholder’s Equity.
Financing Activities
TRS funds its charge card receivables and cardmember loans using various funding sources, such as long- and short-term debt,
medium-term notes, commercial paper and asset securitizations. In 2002, the company shifted its funding strategy to reduce its
reliance on short-term debt; at December 31, 2002, short-term debt was 56% of total debt versus 80% a year ago. Charge card
receivables are predominantly funded by Credco and its subsidiaries while funding for cardmember loans is primarily through
Centurion Bank.
Securitizations
The American Express Credit Account Master Trust (the Trust) securitized $4.6 billion and $4.3 billion of loans in 2002 and
2001, respectively, through the public issuance of investor certificates. During 2002 and 2001, $2 billion and $1 billion, respec-
tively, of investor certificates that were previously issued by the Trust matured. The securitized assets consist of loans arising in
a portfolio of designated consumer American Express Credit Card, Optima Line of Credit and Sign & Travel/Extended
Payment Option revolving credit accounts or features owned by Centurion Bank, a wholly-owned subsidiary of TRS, and, in
the future, may include other charge or credit accounts, features or products. At December 31, 2002 and 2001, TRS had a total
of $16.9 billion and $14.3 billion, respectively, of Trust-related securitized loans which are not on the Consolidated Balance
Sheets. In early 2003, the company securitized an additional $920 million of loans.
Under the terms of the Trust pooling and servicing agreement, the occurrence of certain events could result in the Trust being
required to pay down the investor certificates before their expected payment dates over an early amortization period. Examples
of these events include: the failure or the decline of the securitized assets to generate specified yields over a defined period of
time, and the decline of the total of the securitized assets’ principal balances below a specified percentage of total investor
certificates outstanding after the failure to add additional securitized assets as required by the agreement. The company does
not expect an early amortization event to occur. In the event of a pay down, $15.4 billion of assets would revert to the balance
sheet and an alternate source of funding of a commensurate amount would have to be obtained. Had a total pay down hypo-
thetically occurred at a single point in time at December 31, 2002, the one-time negative effect on results of operations would
have been approximately $693 million pretax, to re-establish reserves and accelerate amortization of the interest-only strip
related to the $16.9 billion of cardmember loans that would revert to the balance sheet.
The American Express Master Trust (the Master Trust) securitizes charge card receivables generated under designated
American Express Card, Gold Card and Platinum Card consumer accounts through the issuance of trust certificates. In 2002
and 2001, the Master Trust securitized $1.8 billion and $750 million, respectively, which remain on the Consolidated Balance
Sheets. In 2001, $600 million of accounts receivable trust certificates that were previously issued by the Master Trust matured
from the charge card securitization portfolio. The Master Trust specifies events, the occurrence of which would result in a pay