American Express 2010 Annual Report Download - page 97

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The following table summarizes the impact of cash flow hedges and net investment hedges on the Consolidated Statements of Income:
Location 2010 2009 2008 Location 2010 2009 2008
Amount reclassified
from AOCI into
income
Net hedge
ineffectiveness
Gains (losses) recognized in income
(Millions)
For the Years Ended December 31:
Cash flow hedges:
(a)
Interest rate contracts Interest expense $ (36) $ (115) $ (247) Other, net expenses $— $— $—
Net investment hedges:
Foreign exchange contracts Other, net expenses $—$ — $ — Other, net expenses $ (3) $ (1) $ 3
(a) During the years ended December 31, 2010, 2009 and 2008, there were no forecasted transactions that were considered no longer probable to occur.
DERIVATIVES NOT DESIGNATED AS HEDGES
The Company has derivatives that act as economic hedges but
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 derivatives that are not designated as hedges, changes in
fair value are reported in current period earnings.
The following table summarizes the impact of derivatives not designated as hedges on the Consolidated Statements of Income:
Location 2010 2009 2008
Amount
(Millions) Gains (losses) recognized in income
For the Years Ended December 31:
Interest rate contracts Other, net expenses $ (8) $ 17 $ (33)
Foreign exchange contracts
(a)
Other non-interest revenues —(1) —
Interest and dividends on investment securities 4413
Interest expense on short-term borrowings 75 (7)
Interest expense on long-term debt and other 93 35 22
Other, net expenses (3) (8) (38)
Equity-linked contract Other non-interest revenues (6) 1—
Total $87$ 53 $ (43)
(a) For the years ended December 31, 2010 and 2009, foreign exchange contracts include embedded foreign currency derivatives. Gains (losses) on these embedded
derivatives are included in other, net expenses.
95
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS