American Express 2010 Annual Report Download - page 115

NOTE 24
COMMITMENTS
AND CONTINGENCIES
LEGAL CONTINGENCIES
The Company and its subsidiaries are involved in a number of
legal proceedings concerning matters arising in connection with
the conduct of their respective business activities and are
periodically subject to governmental examinations (including
by regulatory authorities), information gathering requests,
subpoenas, inquiries and investigations (collectively,
“governmental examinations”). As of December 31, 2010, the
Company and various of its subsidiaries were named as a
defendant or were otherwise involved in numerous legal
proceedings and governmental examinations in various
jurisdictions, both in the United States and outside the
United States. The Company discloses certain of its more
significant legal proceedings and governmental examinations
under “Legal Proceedings” in its Annual Report on
Form 10-K for the year ended December 31, 2010
(“Legal Proceedings”).
The Company has recorded liabilities for certain of its
outstanding legal proceedings and governmental
examinations. A liability is accrued when it is both
(a) probable that a loss with respect to the legal proceeding
has occurred and (b) the amount of loss can be reasonably
estimated (although, as discussed below, there may be an
exposure to loss in excess of the accrued liability). The
Company evaluates, on a quarterly basis, developments in
legal proceedings and governmental examinations that could
cause an increase or decrease in the amount of the liability that
has been previously accrued.
The Company’s legal proceedings range from cases brought by
a single plaintiff to class actions with hundreds of thousands of
putative class members. These legal proceedings, as well as
governmental examinations, involve various lines of business
of the Company and a variety of claims (including, but not
limited to, common law tort, contract, antitrust and consumer
protection claims), some of which present novel factual
allegations and/or unique legal theories. While some matters
pending against the Company specify the damages claimed by
the plaintiff, many seek a not-yet-quantified amount of damages
or are at very early stages of the legal process. Even when the
amount of damages claimed against the Company are stated, the
claimed amount may be exaggerated and/or unsupported. As a
result, some matters have not yet progressed sufficiently
through discovery and/or development of important factual
information and legal issues to enable the Company to
estimate a range of possible loss.
Other matters have progressed sufficiently through discovery
and/or development of important factual information and legal
issues such that the Company is able to estimate a range of
possible loss. Accordingly, for those legal proceedings and
governmental examination disclosed in Legal Proceedings as to
which a loss is reasonably possible in future periods, whether in
excess of a related accrued liability or where there is no accrued
liability, and for which the Company is able to estimate a range of
possible loss, the current estimated range is zero to $500 million
in excess of the accrued liability (if any) related to those matters.
This aggregate range represents management’s estimate of
possible loss with respect to these matters and is based on
currently available information. This estimated range of
possible loss does not represent the Company’s maximum loss
exposure. The legal proceedings and governmental examinations
underlying the estimated range will change from time to time and
actual results may vary significantly from the current estimate.
Based on its current knowledge, and taking into consideration
its litigation-related liabilities, the Company believes it is not a
party to, nor are any of its properties the subject of, any pending
legal proceeding or governmental examination that would have a
material adverse effect on the Company’s consolidated financial
condition or liquidity. However, in light of the uncertainties
involved in such matters, the ultimate outcome of a particular
matter could be material to the Company’s operating results for
a particular period depending on, among other factors, the size
of the loss or liability imposed and the level of the Company’s
income for that period.
VISA AND MASTERCARD SETTLEMENTS
As previously disclosed, the Company reached settlement
agreements with Visa and MasterCard. Under the terms of
the settlement agreements, the Company will receive
aggregate maximum payments of $4.05 billion. The
settlement with Visa comprised an initial payment of
$1.13 billion ($700 million after-tax) that was recorded as a
gain in 2007. Having met quarterly performance criteria, the
Company recognized $280 million ($172 million after-tax) from
Visa in 2010, 2009 and 2008, and $600 million ($372 million
after-tax) from MasterCard in 2010 and 2009, respectively, and
$300 million ($186 million after-tax) in 2008. The remaining
Visa and MasterCard quarterly payments, subject to the
Company achieving certain quarterly performance criteria,
continue through the fourth and second quarters of 2011,
respectively. These payments are included in other, net
expenses within the Corporate & Other segment.
OTHER CONTINGENCIES
The Company also has contingent obligations to make payments
under contractual agreements entered into as part of the
ongoing operation of the Company’s business, primarily with
co-brand partners. The contingent obligations under such
arrangements were approximately $7.5 billion as of
December 31, 2010.
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AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS