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AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13
GUARANTEES
The Company provides cardmember protection plans that cover
losses associated with purchased products, as well as certain
other guarantees in the ordinary course of business which are
within the scope of GAAP governing the accounting for
guarantees. For the Company, guarantees primarily consist of
card and travel protection programs, including:
폷Return Protection — refunds the price of eligible purchases
made with the card where the merchant will not accept the
return for up to 90 days from the date of purchase;
폷Account Protection — provides account protection in the
event that a cardmember is unable to make payments on the
account due to unforeseen hardship;
폷Merchant Protection — protects cardmembers primarily
against non-delivery of goods and services, usually in the event
of bankruptcy or liquidation of a merchant. In the event that a
dispute is resolved in the cardmember’s favor, the Company
will generally credit the cardmember account for the amount
of the purchase and will seek recovery from the merchant. If
the Company is unable to collect the amount from the
merchant, it will bear the loss for the amount credited to the
cardmember. The Company mitigates this risk by withholding
settlement from the merchant or obtaining deposits and other
guarantees from merchants considered higher risk due to
various factors. The amounts being held by the Company are
not significant when compared to the maximum potential
amount of undiscounted future payments; and,
폷Credit Card Registry — cancels and requests replacement of
lost or stolen cards, and provides for fraud liability coverage.
In relation to its maximum amount of undiscounted future
payments as seen in the table that follows, to date the Company
has not experienced any significant losses related to guarantees.
The Company’s initial recognition of guarantees is at fair value,
which has been determined in accordance with GAAP governing
fair value measurement. In addition, the Company establishes
reserves when an unfavorable outcome is probable and the
amount of the loss can be reasonably estimated.
The following table provides information related to such
guarantees as of December 31:
Maximum amount of
undiscounted future
payments(a)
(Billions)
Amount of related
liability(b)
(Millions)
Type of Guarantee 2011 2010 2011 2010
Card and travel operations(c) $51$67$96$ 114
Other(d) 1198 99
Total $52$68$ 194 $ 213
(a) Represents the notional amounts that could be lost under the guarantees and
indemnifications if there were a total default by the guaranteed parties. The
Merchant Protection guarantee is calculated using management’s best
estimate of maximum exposure based on all eligible claims as measured
against annual billed business volumes.
(b) Included as part of other liabilities on the Company’s Consolidated Balance
Sheets.
(c) Includes Return Protection, Account Protection, Merchant Protection and
Credit Card Registry as of December 31, 2010, all of which the Company
offers directly to cardmembers.
(d) Primarily includes guarantees related to the Company’s business
dispositions and real estate, each of which are individually smaller
indemnifications.
Refer to Note 26 for a discussion of additional guarantees of the
Company as of December 31, 2011 and 2010.
84