American Express 2002 Annual Report Download - page 74

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I72 AXP INOTES TO CONSOLIDATED FINANCIAL STATEMENTS
See Note 6 for further information regarding the company’s use of interest rate products related to short- and long-term debt
obligations.
Note 10 OFF-BALANCE SHEET ITEMS
The company’s off-balance sheet financial instruments principally relate to extending credit to satisfy the needs of its clients.
The contractual amount of these instruments represents the maximum potential credit risk, assuming the contract amount is
fully utilized, the counterparty defaults and collateral held is worthless. Management does not expect any material adverse
consequence to the company’s financial position to result from these contracts.
December 31, (Millions) 2002 2001
Loan commitments and other lines of credit $ 1,036 $ 1,128
Bank standby letters of credit and bank guarantees $ 1,029 $ 845
Bank commercial and other bank letters of credit $ 371 $ 260
The company issues commercial and other letters of credit to facilitate the short-term trade-related needs of its banking clients,
which typically mature within six months. At December 31, 2002 and 2001, the company held $684 million and $583 million,
respectively, of collateral supporting bank standby letters of credit and bank guarantees and $148 million and $159 million,
respectively, of collateral supporting commercial and other letters of credit.
The company has commitments aggregating $126 billion and $112 billion related to its card business in 2002 and 2001, respec-
tively, primarily related to commitments to extend credit to certain cardmembers as part of established lending product agree-
ments. Many of these are not expected to be drawn; therefore, total unused credit available to cardmembers does not represent
future cash requirements. The company’s charge card products have no preset spending limit and are not reflected in unused
credit available to cardmembers.
The company also has committed payments for worldwide business arrangements, principally related to TRS, with maximum
related future payments which would not exceed $3.8 billion.
Other financial institutions have committed to extend lines of credit to the company of $12.1 billion and $13.8 billion at
December 31, 2002 and 2001, respectively.
The company leases certain office facilities and operating equipment under noncancellable and cancellable agreements. Total
rental expense amounted to $461 million, $491 million and $477 million in 2002, 2001 and 2000, respectively. At December
31, 2002, the minimum aggregate rental commitment under all noncancellable operating leases (net of subleases) was
(millions): 2003, $273; 2004, $229; 2005, $192; 2006, $157; 2007, $132; and thereafter, $1,418.
In addition to the contingencies and commitments listed above, the company has entered into many other contracts in the normal
course of business that involve future cash payments that are either required or contingent upon the occurrence of certain events.
The company and its subsidiaries are involved in a number of legal and arbitration proceedings, including class actions,
concerning matters arising in connection with the conduct of their respective business activities. The company believes it has
meritorious defenses to each of these actions and intends to defend them vigorously. The company believes it is not a party to,
nor are any of its properties the subject of, any pending legal or arbitration proceedings which would have a material adverse
effect on the company’s consolidated financial condition, results of operations or liquidity. However, it is possible that the
outcome of any such proceedings could have a material impact on results of operations in any particular reporting period as
the proceedings are resolved.
Note 11 GUARANTEES
The company, through its TRS operating segment, provides cardmember protection plans that cover losses associated with
purchased products, as well as certain other guarantees in the ordinary course of business. In the hypothetical scenario that
all claims occur within one year, the aggregate maximum amount of potential future losses associated with such guarantees
would not exceed $86 billion. The total amount of related liability accrued at December 31, 2002 for such programs was