American Express 2011 Annual Report Download - page 102

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2011, 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, 2011 (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
issuessuchthattheCompanyisabletoestimatearangeof
possible loss. Accordingly, for those legal proceedings and
governmental examinations disclosed or referred to 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 $510 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 received 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 each of the years
2011, 2010 and 2009, and $300 million ($186 million after-tax)
from MasterCard in 2011, and $600 million ($372 million after-
tax) from MasterCard in 2010 and 2009. These payments are
included in other, net expenses within Corporate & Other.
During the second and fourth quarter of 2011, the Company
received the final payments on the MasterCard and Visa
litigation settlements, respectively.
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 $5.3 billion as of December 31, 2011.
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