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[ 89 ]
notes to consolidated fi nancial statements
american express company
The table below summarizes cash flows received from
the Lending Trust for the years ended December 31:
(Millions) 2006 2005
Proceeds from new securitizations
during the period $ 3,491 $ 5,386
Proceeds from collections reinvested in
revolving cardmember securitizations $62,411 $ 63,011
Servicing fees received $ 407 $ 412
Other cash flows received on retained
interests from interest-only strips $ 2,517 $ 2,194
NOTE 6 VARIABLE INTEREST ENTITIES
During the third quarter of 2005 and in conjunction
with the spin-off of Ameriprise, the Company and
Ameriprise executed a reinsurance agreement providing
that the Company would retain the risks and rewards
of the travel and other card insurance businesses of
AMEX Assurance Company (AAC), a subsidiary of
Ameriprise. The Company also entered into a share
purchase agreement with Ameriprise under which the
Company will acquire all of the ownership interests
in and the rights and obligations of AAC within a
period not to exceed two years from the spin-off date of
September 30, 2005. The purchase price equals AAC’s
net book value as of September 30, 2005, which was $115
million. As a result of these agreements, the Company
consolidates AAC as a variable interest entity for which
the Company is considered the primary beneficiary.
The Company recorded a $115 million liability related
to the purchase of AAC, which is included in other
liabilities on the Consolidated Balance Sheets as of
December 31, 2006 and 2005.
The following table presents a summary of the
consolidated assets and liabilities of AAC at December
31, for which the assets are restricted from use by the
Company and not available to the Company’s creditors:
(Millions) 2006 2005
Assets:
Cash and cash equivalents $21 $29
Investments 90 83
Other assets 408 56
Tota l assets 519 168
Total liabilities 399 51
Net assets $120 $117
The Company’s securitizations of cardmember
receivables are accounted for as secured borrowings,
rather than as qualifying sales, because the receivables
are transferred to a non-qualifying special purpose
entity, the American Express Issuance Trust (the Charge
Trust). The cardmember receivables securitized through
this entity are not accounted for as sold and the securities
issued by this entity to third-party investors are reported
as long-term debt on the Company’s Consolidated
Balance Sheets.
The following table summarizes the total assets
and liabilities held by the Charge Trust at
December 31:
(Billions) 2006 2005
Assets $9.6 $9.9
Liabilities $1.2 $1.2
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. For these variable
interests the Company is a limited partner in affordable
housing partnerships in which the Company typically
has a less than 50 percent interest and receives the
benefits and accepts the risks consistent with its limited
partners. In the limited cases in which the Company has
a greater than 50 percent interest in affordable housing
partnerships, it was determined that the general partner
acts as the Company’s agent and the general partner is
most closely related to the partnership as it is the key
decision maker and controls the operations. These
partnership interests are accounted for under EITF
No. 94-01, “Accounting for Tax Benefits Resulting
from Investments in Affordable Housing Projects,”
and the related accounting guidance of Statement of
Position No. 78-9, “Accounting for Investments in Real
Estate Ventures” and EITF Topic D-46, “Accounting for
Limited Partnership Investments.” Affordable housing
partnerships interest are represented by a carrying value of
$120 million and $134 million at December 31, 2006 and
2005, respectively. The Company’s maximum exposure to
loss as a result of its investment in these partnerships is
represented by the carrying value.