American Express 2005 Annual Report Download - page 37

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2004. In addition, net cash was provided by fluctuations
in the Company’s operating assets and liabilities.
Management believes cash flows from operations,
available cash balances and short-term borrowings
will be sufficient to fund the Company’s operating
liquidity needs.
Cash Flows from Investing Activities
The Company’s investing activities primarily include
funding cardmember loans and receivables and the
Company’s available-for-sale investment portfolio.
For the year ended December 31, 2005, net cash of
$17.3 billion was used in investing activities primarily
due to net increases in cardmember receivables and
loans and cash spun-off to Ameriprise.
For the year ended December 31, 2004, net cash used
in investing activities decreased from 2003. The
decrease reflects a decrease in net cash used in investing
activities attributable to discontinued operations, par-
tially offset by an increase in purchases of investments.
Cash Flows from Financing Activities
The Company’s financing activities primarily include the
issuance of debt and taking customer deposits in addition
to the sale of investment certificates. The Company also
regularly repurchases its common shares.
In 2005, net cash provided by financing activities
was $6.4 billion primarily due to a net increase in
customers’ deposits.
In 2004, financing activities provided net cash greater
than in 2003, primarily due to a larger net increase in
total debt compared to 2003 offset by a net decrease in
customer deposits in 2004 versus a net increase in 2003
and higher share repurchase activity in 2004.
Financing Activities
The Company is committed to maintaining cost-
effective, well-diversified funding programs to support
current and future asset growth in its global businesses.
Its funding plan is structured to meet expected and
changing business needs to fund asset balances effi-
ciently and cost-effectively through diversified sources
of financing, to help ensure the availability of financing
in unexpected periods of stress, and to be integrated into
the asset-liability management of interest rate expo-
sures. In addition to its funding plan described below,
the Company’s contingent funding strategy is designed
to allow for the continued funding of business opera-
tions through difficult economic, financial market and
business conditions when access to its regular funding
sources could become diminished or interrupted.
The Company’s card businesses are the primary asset
generating businesses with significant assets in both
domestic and international cardmember receivable
and lending activities. As such, the Company’s most
significant borrowing and liquidity needs are associ-
ated with these card businesses. The Company pays
merchants for card transactions and bills cardmembers
accordingly. The Company funds merchant payments
during the period cardmember loans and receivables
are outstanding.
The following discussion includes information on both
a GAAP and managed basis. The managed basis presen-
tation includes debt issued in connection with the Com-
pany’s lending securitization activities, which are off-
balance sheet. The Company’s management views and
executes funding requirements on a managed basis
because asset securitization is just one of several ways
for the Company to fund cardmember loans.
Funding Strategy
The Company’s funding needs are met primarily
through the following sources:
®Commercial paper,
®Bank notes, institutional CDs and Fed Funds,
®Medium-term notes and senior unsecured debentures,
®Asset securitizations, and
®Long-term committed bank borrowing facilities in
selected non-U.S. markets.
The Company funds its cardmember receivables and
loans primarily through five entities. American Express
Credit Corporation (Credco) finances the vast majority
of worldwide cardmember receivables, while American
Express Centurion Bank (Centurion Bank) and Ameri-
can Express Bank, FSB (FSB) principally fund cardmem-
ber loans originated from the Company’s U.S. lending
activities. Two trusts are used by the Company in
connection with the securitization and sale of U.S.
receivables and loans generated in the ordinary course
of the Company’s card businesses. In 2005 and 2004,
the Company had uninterrupted access to the money
and capital markets to fund its business operations.
Financial Review
AXP / AR.2005
[35 ]