American Express 2005 Annual Report Download - page 81

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The table below summarizes cash flows received from
all securitization trusts for 2005 and 2004:
(Millions) 2005 2004
Proceeds from new securitizations
during the period $ 5,386 $ 3,888
Proceeds from collections
reinvested in revolving
cardmember securitizations $ 63,011 $ 54,933
Servicing fees received $ 412 $ 388
Other cash flows received
on retained interests from
interest-only strips $ 2,194 $ 1,845
During the fourth quarter of 2004, the Company sold
the equipment leasing product line in its small business
financing unit. Prior to the sale, the Company securi-
tized certain of the equipment lease receivables within
that product line.
NOTE 6 Variable Interest Entities
During the third quarter of 2005, the Company and
Ameriprise executed a reinsurance agreement for the
Company to retain the risks and rewards of the travel
and other card insurance businesses of AMEX Assurance
Company (AAC), a subsidiary of Ameriprise. The Com-
pany also entered into a share purchase agreement with
Ameriprise under which all of the ownership interests
in and the rights and obligations of AAC will transfer to
the Company within a period not to exceed two years
from the spin-off date in consideration of a fixed pur-
chase price equal to AAC’s net book value as of
September 30, 2005, which was $115 million. As a
result of these agreements and in accordance with FIN
46(R), the Company consolidates AAC as a variable
interest entity for which the Company is considered the
primary beneficiary. The Company recorded a $115 mil-
lion liability related to the purchase of AAC, which is
included in other liabilities on the Consolidated Balance
Sheet as of December 31, 2005.
The following table presents the consolidated assets,
which are restricted from use by the Company, and other
balances related to AAC at December 31:
(Millions) 2005
Assets:
Investments $83
Other assets 85
Total assets $ 168
Total liabilities $51
Net assets $ 117
The Company’s securitizations of cardmember receiv-
ables are accounted for as secured borrowings, rather
than as qualifying sales, in accordance with SFAS
No. 140, because the receivables are transferred to non-
qualifying special purpose entities. These entities are the
American Express Issuance Trust (the Charge Trust), for
periods beginning in 2005, and American Express Master
Trust (AEMT), for periods prior to July 2005, when the
AEMT was dissolved. The cardmember receivables secu-
ritized through these entities are not accounted for as sold
and the securities issued to third-party investors are
reported as long-term debt on the Company’s
Consolidated Balance Sheets. In September 2005, the
Company securitized $1.2 billion of floating-rate asset-
backed notes through the Charge Trust. During 2005 and
2004, $1.9 billion and $1.1 billion of interests issued by
AEMT matured. As of December 31, 2005 and 2004, the
Charge Trust and AEMT held total assets of $9.9 billion
and $7.4 billion, respectively, and total liabilities of $1.2
billion and $1.9 billion, respectively. The Charge Trust is
consolidated by American Express Receivables Financing
Corporation V LLC, a variable interest entity, which is in
turn consolidated by the Company.
The Company has other variable interests for which it
is not considered the primary beneficiary and, therefore,
does not consolidate. These interests are represented by
a carrying value of $134 million and $136 million of
affordable housing partnerships within continuing
operations at December 31, 2005 and 2004, respec-
tively. The Company is a limited partner in affordable
housing partnerships in which the Company has a less
than 50 percent interest and receives the benefits and
accepts the risks consistent with other limited partners.
In the limited cases in which the Company has a greater
than 50 percent interest in affordable housing partner-
ships, it was determined that the relationship with the
general partner is an agent relationship and the general
partner was most closely related to the partnership as it
is the key decision maker and controls the operations.
The Company’s maximum exposure to loss as a result of
its investment in these partnerships is represented by
the carrying value.
Notes to Consolidated
Financial Statements
AXP / AR.2005
[79 ]