American Express 2012 Annual Report Download - page 107

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Benefit Payments
The Company’s other postretirement benefit plans expect to
make benefit payments as follows:
(Millions) 2013 2014 2015 2016 2017
2018
– 2022
Expected payments $ 21 $ 22 $ 22 $ 22 $ 22 $ 108
In addition, the Company expects to contribute $21 million to its
other postretirement benefit plans in 2013.
NOTE 22
SIGNIFICANT CREDIT
CONCENTRATIONS
Concentrations of credit risk exist when changes in economic,
industry or geographic factors similarly affect groups of
counterparties whose aggregate credit exposure is material in
relation to American Express’ total credit exposure. The
Company’s customers operate in diverse industries, economic
sectors and geographic regions.
ThefollowingtabledetailstheCompany’smaximumcredit
exposure by category, including the credit exposure associated
with derivative financial instruments, as of December 31:
(Billions) 2012 2011
On-balance sheet:
Individuals(a) $95$92
Financial institutions(b) 25 28
U.S. Government and agencies(c) 56
All other(d) 16 16
Total on-balance sheet(e) $ 141 $ 142
Unused lines-of-credit — individuals(f) $ 253 $ 238
(a) Individuals primarily include cardmember loans and receivables.
(b) Financial institutions primarily include debt obligations of banks, broker-
dealers, insurance companies and savings and loan associations.
(c) U.S. Government and agencies represent debt obligations of the U.S.
Government and its agencies, states and municipalities and government
sponsored entities.
(d) All other primarily includes cardmember receivables from other corporate
institutions.
(e) Certain distinctions between categories require management judgment.
(f) Because charge card products generally have no preset spending limit, the
associated credit limit on cardmember receivables is not quantifiable.
Therefore, the quantified unused line-of-credit amounts only include the
approximate credit line available on cardmember loans.
As of December 31, 2012 and 2011, the Company’s most
significant concentration of credit risk was with individuals,
including cardmember receivables and loans. These amounts are
generally advanced on an unsecured basis. However, the
Company reviews each potential customer’s credit application
and evaluates the applicant’s financial history and ability and
willingness to repay. The Company also considers credit
performance by customer tenure, industry and geographic
location in managing credit exposure.
The following table details the Company’s cardmember loans
and receivables exposure (including unused lines-of-credit on
cardmember loans) in the United States and outside the United
States as of December 31:
(Billions) 2012 2011
On-balance sheet:
United States $85$82
Non-U.S. 23 22
On-balance sheet(a)(b) $ 108 $ 104
Unused lines-of-credit — individuals:
United States $ 208 $ 195
Non-U.S. 45 43
Total unused lines-of-credit — individuals $ 253 $ 238
(a) Represents cardmember loans to individuals as well as receivables from
individuals and corporate institutions as discussed in footnotes (a) and
(d) from the previous table.
(b) The remainder of the Company’s on-balance sheet exposure includes cash,
investments, other loans, other receivables and other assets including
derivative financial instruments. These balances are primarily within the
United States.
EXPOSURE TO AIRLINE INDUSTRY
The Company has multiple important co-brand, rewards and
corporate payment arrangements with airlines. The Company’s
largest airline partner is Delta and this relationship includes
exclusive co-brand credit card partnerships and other
arrangements including Membership Rewards, merchant
acceptance, travel and corporate payments programs. American
Express’ Delta SkyMiles Credit Card co-brand portfolio accounts
for approximately 5 percent of the Company’s worldwide billed
business and less than 15 percent of worldwide cardmember
loans. Refer to Notes 4 and 8 for further information on
receivables and other assets recorded by the Company relating to
these relationships.
In recent years, there have been a significant number of airline
bankruptcies and liquidations, driven in part by volatile fuel
costs and weakening economies around the world. Historically,
the Company has not experienced significant revenue declines
when a particular airline scales back or ceases operations due to a
bankruptcy or other financial challenges because volumes
generated by that airline are typically shifted to other
participants in the industry that accept the Company’s card
products. The Company’s exposure to business and credit risk in
the airline industry is primarily through business arrangements
where the Company has remitted payment to the airline for a
cardmember purchase of tickets that have not yet been used or
“flown”. The Company mitigates this risk by delaying payment
to the airlines with deteriorating financial situations, thereby
increasing cash withheld to protect the Company in the event the
airline is liquidated. To date, the Company has not experienced
significant losses from airlines that have ceased operations.
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