American Express 2004 Annual Report Download - page 109

business, primarily with co-brand partners. The contin-
gent obligations under such arrangements were $3.7
billion as of December 31, 2004.
The Company leases certain office facilities and oper-
ating equipment under noncancelable and cancelable
agreements. Total rental expense amounted to $438
million, $420 million and $461 million in 2004, 2003
and 2002, respectively. At December 31, 2004, the
minimum aggregate rental commitment under all non-
cancelable operating leases (net of subleases of
$35 million) was:
(Millions)
2005 $ 305
2006 263
2007 228
2008 188
2009 145
Thereafter 1,585
Total $ 2,714
In December 2004, the Company completed sale-
leaseback transactions on six of its owned properties
which were sold at fair value. Four of these transactions
have been accounted for as sale-leasebacks and are
included in total operating lease obligations. Proceeds
from these transactions totaled $187 million and the
aggregate net book value of these four properties
removed from the Company’s Consolidated Balance
Sheet was $91 million. The pretax gain of approxi-
mately $94 million, net of $2 million in closing costs,
has been deferred and will be amortized over the ten
year term of the operating leasebacks as a reduction to
rental expense.
Two of the sale-leaseback transactions have been
accounted for as financings because of either the
Company’s ongoing continuing involvement with the
sold and leased-back property or because of certain
terms contained in the lease agreement. The $113 mil-
lion in proceeds from these transactions have been
classified as long-term debt. At December 31, 2004,
the Company’s minimum aggregate rental commit-
ment under these two transactions is approximately
$7 million per annum from 2005 through 2009 and
$39 million thereafter.
Note 11 VARIABLE ANNUITIES AND SALES
INDUCEMENT COSTS
The majority of the variable annuity contracts offered
by the Company contain guaranteed minimum death
benefits provisions. When market values of the cus-
tomer’s accounts decline, the death benefit payable on
a contract with a GMDB may exceed the contract accu-
mulation value. The Company also offers variable
annuities with death benefit provisions that gross-up
the amount payable by a certain percentage of contract
earnings; these are referred to as gain gross-up benefits
(GGU). In addition, the Company offers contracts
containing guaranteed minimum income benefits
(GMIB) provisions.
December 31, (Dollars in millions) 2004 2003
Contracts with GMDB and GGU
Total contract value $ 35,229 $ 30,812
Contract value in separate
accounts $ 27,991 $ 23,978
Net amount at risk
(a)
$ 1,464 $ 2,217
Weighted average attained age 60 60
Contracts with GMIB
Total contract value $ 603 $ 358
Contract value in separate
accounts $ 518 $ 268
Net amount at risk
(a)
$12$23
Weighted average attained age 59 59
(a) Represents current death benefit less total contract value for GMDB,
amount of gross-up for GGU and accumulated guaranteed minimum ben-
efit base less total contract value for GMIB and assumes the actuarially
remote scenario that all claims become payable on the same day.
The Company had variable annuity guarantee liabilities
of approximately $33 million as of December 31, 2004
pertaining to the net amount at risk as of such date.
The majority of the GMDB contracts provide for
six year reset contract values. In determining the
additional liabilities for variable annuity death benefit
and GMIB, the Company projects these benefits and
contract assessments using actuarial models to simulate
various equity market scenarios. Significant assump-
tions made in projecting future benefits and assess-
ments relate to customer asset value growth rates,
mortality, persistency and investment margins and are
consistent with those used for DAC asset valuation for
the same contracts.
AXP
AR.04
107
Notes to Consolidated Financial Statements