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NOTE 11 Guarantees and Certain
Off-Balance Sheet Items
The Company provides cardmember protection plans
that cover losses associated with purchased products, as
well as certain other guarantees in the ordinary course
of business that are within the scope of FASB Interpre-
tation No. 45, “Guarantor’s Accounting and Disclosure
Requirement for Guarantees, Including Indirect Guaran-
tees of Indebtedness of Others” (FIN 45).
The following table provides information related to
guarantees that are within the scope of FIN 45 as of
December 31:
2005 2004
Type of Guarantee
Maximum amount
of undiscounted
future payments(a)
(Billions)
Amount of related
liability at
December 31, 2005
(Millions)
Maximum amount of
undiscounted future
payments(a)
(Billions)
Amount of related
liability at
December 31, 2004
(Millions)
Credit Card Registry
(b)
$22 $ — $24 $ —
Merchandise and Account Protection
(c)
53 48 51 45
Merchant Protection
(d)
10 43 746
Baggage Protection 10 17 819
Other
(e)
298 1 151
Total $ 97 $ 206 $ 91 $ 261
(a)Calculated based on the hypothetical scenario that all claims occur within the next 12 months.
(b)This benefit will cancel and request replacements of any lost or stolen cards, and provides for fraud liability coverage and passport replacement, among other benefits.
(c)These benefits (i) protect eligible purchases made with the card against accidental damage or theft for up to 90 days from the date of purchase; (ii) ensure
that a cardmember pays the lowest price available on covered items purchased entirely with an eligible American Express card; and (iii) provide account
protection in the event that a cardmember is unable to make payments on the account due to unforeseen hardship.
(d)Represents the Company’s contingent liability arising from billing disputes between the cardmembers and the merchant, primarily for non-delivery of
goods and services.
(e)Other primarily relates to contingent consideration obligations as well as guarantees the Company provides through its international banking business
that are within the scope of FIN 45, including financial letters of credit, performance guarantees and financial guarantees. Generally these guarantees
range in term from three months to one year. The Company receives a fee related to these guarantees, many of which help facilitate cross-border transactions.
The maximum potential exposure for the Company’s international banking guarantees at both December 31, 2005 and 2004 was approximately $1 billion.
The Company held collateral of $936 million and $788 million related to such guarantees at December 31, 2005 and 2004, respectively.
The above table reflects only those guarantees that are
within the scope of FIN 45. Expenses relating to actual
claims under these guarantees for 2005 and 2004 were
approximately $15 million and $20 million, respectively.
In addition, the Company had the following other
commitments as of December 31:
(Millions) 2005 2004
Loan commitments and other
lines of credit $ 493 $ 567
Bank letters of credit and other
bank guarantees outside the
scope of FIN 45 $ 529 $ 646
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, 2005 and 2004, the Company
held $337 million and $281 million, respectively, of col-
lateral supporting commercial and other letters and
lines of credit.
The Company also has commitments aggregating
$213 billion and $176 billion related to its card business
in 2005 and 2004, respectively, primarily related to
commitments to extend credit to certain cardmembers
as part of established lending product agreements. Many
of these are not expected to be drawn; therefore, total
unused credit available to cardmembers does not rep-
resent future cash requirements. The Company’s charge
card products have no preset spending limit and are not
reflected in unused credit available to cardmembers.
In addition, the Company has certain contingent
obligations for worldwide business arrangements that
relate to contractual agreements with partners, primarily
with co-brand partners. The contingent obligations
under such arrangements were $3.3 billion as of
December 31, 2005.
Notes to Consolidated
Financial Statements
AXP / AR.2005
[85 ]