American Express 2005 Annual Report Download - page 42

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At December 31, 2005 and 2004, $3.1 billion and
$3.4 billion of debt, respectively, were outstanding under
this program.
Contingent Liquidity Planning
The Company has developed a contingent funding plan
that enables it to meet its daily funding obligations when
access to unsecured funds in the debt capital markets is
impaired or unavailable. This plan is designed to ensure
that the Company and all of its main operating entities
could continuously maintain normal business operations
for a twelve-month period in which its access to unse-
cured funds is interrupted. In addition, the Company
maintains substantial flexibility to reduce its operating
cash uses, such as through its share repurchase program,
and the delay or deferment of certain operating expenses.
The funding sources that would be relied upon depend
on the exact nature of such a hypothetical liquidity cri-
sis; nonetheless, the Company’s liquidity sources are
designed with the goal of ensuring there is sufficient
cash on hand to fund business operations over a twelve-
month period regardless of whether the liquidity crisis
was caused by an external, industry or Company spe-
cific event. The contingent funding plan also addresses
operating flexibilities in quickly making these funding
sources available to meet all financial obligations. The
simulated liquidity crisis is defined as a sudden and
unexpected event that temporarily impairs access to or
makes unavailable funding in the unsecured debt mar-
kets. The contingent funding plan includes access to
diverse sources of alternative funding. Such sources
include but are not limited to its liquidity investment
portfolio, committed bank lines, intercompany borrow-
ings, sale of consumer and small business loans and
cardmember receivables through its existing securitiza-
tion programs and sale of other eligible receivables. The
Company estimates that, under a worst case liquidity
crisis scenario, it has in excess of $37.6 billion in alter-
nate funding sources available to cover cash needs over
the first 60 days after a liquidity crisis has occurred.
Contingent Securitization Capacity
A key source in the Company’s contingent funding
plan is asset securitization. Management expects that
$27.2 billion of additional consumer loans, small busi-
ness loans and cardmember receivables could be sold to
existing securitization trusts. The Company has added,
through the establishment of the Charge Trust, the
capabilities to sell a wider variety of cardmember
receivable portfolios to further enhance the Company’s
flexibility in accessing diverse funding sources on a
contingency basis.
The Company believes that the securitized financing
would be available even through adverse conditions due
to the structure, size and relative stability of the secu-
ritization market. Proceeds from secured financings
completed during a liquidity crisis could be used to
meet current obligations, to reduce or retire other con-
tingent funding sources such as bank credit lines, or a
combination of the two. However, other factors affect
the Company’s ability to securitize loans and receiv-
ables, such as credit quality of the assets and the legal,
accounting, regulatory and tax environment for securi-
tization transactions. Material changes in any of these
factors may potentially limit the Company’s ability to
securitize its loans and receivables and could introduce
certain risks to the Company’s ability to meet its finan-
cial obligations. In such a case, the use of investment
securities, asset dispositions, asset monetization strate-
gies and flexibility to reduce operating cash needs could
be utilized to meet its liquidity needs.
Off-Balance Sheet Arrangements and
Contractual Obligations
The Company has identified both on- and off-balance
sheet transactions, arrangements, obligations and
other relationships that may have a material current or
future effect on its financial condition, changes in
financial condition, results of operations or liquidity and
capital resources.
Contractual Obligations
The contractual obligations identified in the table below
include both on- and off-balance sheet transactions that
represent material expected or contractually committed
future obligations of the Company. Purchase obligations
include agreements to purchase goods and services that
are enforceable and legally binding on the Company and
that specify significant terms, including: fixed or mini-
mum quantities to be purchased; fixed, minimum or
variable price provisions; and the approximate timing of
the transaction.
Financial Review
AXP / AR.2005
[40 ]