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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN EXPRESS COMPANY
LONG-TERM DEBT
For long-term debt, fair value is estimated using either quoted
market prices or discounted cash flows based on the Company’s
current borrowing rates for similar types of borrowing. For
variable-rate long-term debt that reprices within one year, fair
value approximates carrying value.
See Note 13 for discussion of carrying and fair value
information regarding guarantees.
NOTE 16 SIGNIFICANT CREDIT
CONCENTRATIONS
Concentrations of credit risk exist when changes in economic,
industry or geographic factors similarly affect groups of
counterparties whose aggregate credit exposure is material
in relation to American Express’ total credit exposure. The
Company’s customers operate in diverse industries, economic
sectors and geographic regions.
The following table details the Company’s maximum credit
exposure by category, including the credit exposure associated
with derivative financial instruments, at December 31:
(Billions, except percentages) 2007 2006
On-balance sheet:
Individuals(a) $ 86 $ 74
Financial institutions(b) 16 10
U.S. Government and agencies(c) 12 12
All other(d) 13 13
Total on-balance sheet(e) $ 127 $ 109
Unused lines-of-credit-individuals(f) $ 265 $ 220
(a) Individuals primarily include cardmember loans and receivables.
(b) Financial institutions primarily include debt obligations of banks, broker-
dealers, insurance companies and savings and loan associations.
(c) U.S. Government and agencies represent debt obligations of the U.S.
Government and its agencies, states and municipalities, and government
sponsored entities.
(d) All other primarily includes cardmember receivables from other corporate
institutions.
(e) Certain distinctions between categories require management judgment.
(f) Because charge card products have no preset spending limit, the associated
credit limit on cardmember receivables is not quantifiable. Therefore, the
quantified unused line-of-credit amounts only includes the approximate
credit line available on cardmember loans (including both on-balance sheet
loans and loans previously securitized).
At December 31, 2007, the Company’s most significant
concentration of credit risk was with individuals, including
cardmember receivables and loans. These amounts are generally
advanced on an unsecured basis. However, the Company reviews
each potential customer’s credit application and evaluates
the applicant’s financial history and ability and willingness
to repay. The Company also considers credit performance by
customer tenure, industry, and geographic location in managing
credit exposure. The following table details the Company’s
cardmember lending and receivables exposure (including
unused lines-of-credit on cardmember lending) in the United
States and International, at December 31:
(Billions, except percentages) 2007 2006
On-balance sheet:
United States $ 71 $ 60
International 24 21
On-balance sheet(a) $ 95 $ 81
Unused lines-of-credit-individuals:
United States $215 $180
International 50 40
Total $265 $220
(a) Represents cardmember loans to individuals as well as receivables from
individuals and corporate institutions as discussed in footnotes (a) and (d)
from the previous table.
EXPOSURE TO AIRLINE INDUSTRY
Many industry analysts and some carriers have indicated that
there could be significant consolidation in the airline industry
in 2008, particularly in the United States. The Company would
not expect consolidation to have any significant effect on its
merchant relationships with the airlines. However, airlines are
also some of the most important and valuable partners in the
Company’s Membership Rewards program. If a participating
airline merged with an airline that did not participate in
Membership Rewards, the combined airline would have to
determine whether or not to continue participation. Similarly, if
one of the Company’s co-brand airline partners merged with an
airline that had a competing co-brand card, the combined airline
would have to determine which co-brand cards it would offer. If
a surviving airline determined to withdraw from Membership
Rewards or to cease offering an American Express co-brand
card, the Company’s business could be adversely affected. The
Company has multiple co-brand relationships and rewards
partners. The Company’s largest airline co-brand partner is
Delta Air Lines (Delta). American Express’ Delta SkyMiles
Credit Card co-brand portfolio accounts for approximately 5
percent of the Company’s worldwide billed business and less
than 15 percent of worldwide cardmember lending receivables.
Historically, the Company has not experienced significant
revenue declines when a particular airline scales back or ceases
operations due to a bankruptcy or other financial challenges. This
is because volumes generated by that airline are typically shifted
to other participants in the industry that accept the Company’s
card products. Nonetheless, the Company is exposed to business
and credit risk in the airline industry primarily through business
arrangements where the Company has remitted payment to the
airline for a cardmember purchase of tickets that have not yet
been used or “flown.” In the event that the cardmember is not
able to use the ticket and the Company, based on the facts and
circumstances, credits the cardmember for the unused ticket, a
potential credit exposure is created for the Company. This credit
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