American Express 2009 Annual Report Download - page 103

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN EXPRESS COMPANY
The following table summarizes the impact on the Consolidated Financial Statements of cash flow hedges and net investment
hedges for the years ended December 31:
Derivative impact on statement of
income (loss) gain
Derivative ineffectiveness
(loss) gain
(Millions)
Location
Reclassified from
OCI into Income
Amount
Reclassified from
OCI into Income
Location
Reclassified from
OCI into Income Amount
Derivative relationship 2009 2008 2009 2008
Cash flow hedges(a)(b):
Interest rate contracts Interest expense $(115) $(247) Other, net expenses $— $—
Net investment hedges(b):
Foreign exchange contracts Other, net expenses $— $ — Other, net expenses $ (1) $3
(a) As of December 31, 2009 and 2008, there was no impact on the Consolidated Statements of Income due to forecasted transactions no longer
probable to occur.
(b) The effective portion of the gain or loss on the derivatives is recorded in accumulated other comprehensive (loss) income (OCI) and is
presented in Note 15.
DERIVATIVES NOT DESIGNATED AS HEDGES
The Company has derivative financial instruments that act as
economic hedges and are not designated for hedge accounting
purposes. Foreign currency transactions and non-U.S. dollar
cash flow exposures from time to time may be partially or
fully economically hedged through foreign currency
contracts, primarily foreign exchange forwards, options, and
cross-currency swaps. These hedges generally mature within
one year. Foreign currency contracts involve the purchase and
sale of a designated currency at an agreed upon rate for
settlement on a specified date. The changes in the fair value of
the derivatives effectively offset the related foreign exchange
gains or losses on the underlying balance sheet exposures.
From time to time, the Company may enter into interest rate
swaps to specifically manage funding costs related to its
proprietary card business.
The Company has certain operating agreements whose
payments may be linked to a market rate or price, primarily
foreign currency rates. The payment components of these
agreements may meet the definition of an embedded
derivative, which is assessed to determine if it requires
separate accounting and reporting. If so, the embedded
derivative is accounted for separately and is classified as a
foreign exchange contract based on its primary risk exposure.
In addition, the Company also holds an investment security
containing an embedded equity-linked derivative.
For derivative financial instruments that are not
designated as hedges, changes in fair value are reported in
current period earnings.
The following table summarizes the impact on the Consolidated Financial Statements of derivative financial instruments not
designated as hedges for the years ended December 31:
(Millions) Income Statement classification of gain (loss) on
derivatives not designated as hedges
Amount recognized
Derivative relationship 2009 2008
Derivatives not designated as hedges
Interest rate contracts Other, net expenses $17 $(33)
Foreign exchange contracts(a) Other non-interest revenues (1) —
Interest and dividends on investment securities 413
Interest expense on short-term borrowings 5(7)
Interest expense on long-term debt and other 35 22
Other, net expenses (5) (38)
Equity-linked contract Other non-interest revenues 1—
Total $56 $(43)
(a) For the period ended December 31, 2009, foreign exchange contracts include embedded foreign currency derivatives. Gains (Losses) on
embedded derivatives are included in other, net expenses.
101