American Express 2006 Annual Report Download - page 45

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[ 43 ]
2006 fi nancial review
american express company
Cash Flows from Financing Activities
The Company’s financing activities primarily include
issuing debt and taking customer deposits in addition
to the sale of investment certificates. The Company also
regularly repurchases its common shares.
In 2006, net cash provided by financing activities
of $6.8 billion was primarily due to a net increase
in debt partially offset by an increase in share
repurchase activity.
In 2005, financing activities provided net cash
greater than in 2004 primarily due to a net increase in
customers’ deposits.
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.
The Company’s funding plan is structured to meet
expected and changing business needs to fund asset
balances efficiently and cost-effectively. The Company
relies on diverse sources, to help ensure the availability of
financing in unexpected periods of stress and to manage
interest rate exposures. In addition to the funding plan
described below, the Company has a contingent funding
strategy to allow for the continued funding of business
operations through difficult economic, financial market
and business conditions when access to 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. Accordingly, the Company’s most
significant borrowing and liquidity needs are associated
with the card businesses. The Company generally pays
merchants for card transactions prior to reimbursement by
cardmembers. The Company funds merchant payments
during the period cardmember loans and receivables are
outstanding. The Company also has borrowing needs
associated with general corporate purposes.
The following discussion includes information on
both a GAAP and managed basis. The managed basis
presentation includes debt issued in connection with the
Company’s lending securitization activities, which are
off-balance sheet. For a discussion of managed basis and
management’s rationale for such presentation, refer to
the U.S. Card Services discussion below.
FUNDING STRATEGY
The Company’s funding needs are met primarily through
the following sources:
• Commercial paper,
• Bank notes, customers’ deposits, 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.
General corporate purpose funding is primarily
through the Parent Company and American Express
Travel Related Services Company, Inc. (TRS). 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
American Express Bank, FSB (FSB) principally fund
cardmember 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 2006 and 2005, the
Company had uninterrupted access to the money and
capital markets to fund its business operations.
The Company’s debt offerings are placed either
directly to investors, as in the case of its commercial
paper program through Credco, or through securities
brokers or underwriters. In certain international markets,
bank borrowings are used to partially fund cardmember
receivables and loans.
Diversity of funding sources by type of debt
instrument, by maturity and by investor base provides
additional insulation from unforeseen events in the
short-term debt market. The Company had the following
consolidated debt, on both a GAAP and managed basis,
and customer deposits outstanding at December 31:
(Billions) 2006 2005
Short-term debt $ 15.2 $ 15.6
Long-term debt 42.7 30.8
Total debt (GAAP basis) 57.9 46.4
Off-balance sheet securitizations 20.2 21.2
Total debt (managed basis) 78.1 67.6
Customers’ deposits 24.7 24.6
Total debt (managed) and
customers’ deposits $102.8 $ 92.2