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AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the impact on pretax earnings of derivatives not designated as hedges, as reported on the Consolidated
Statements of Income for the years ended December 31:
Pretax gains (losses)
Amount
Description (Millions) Income Statement Line Item 2012 2011 2010
Interest rate contracts Other, net expenses $ (1) $3$(8)
Foreign exchange contracts(a) Interest and dividends on investment securities —94
Interest expense on short-term borrowings —37
Interest expense on long-term debt and other (1) 130 93
Other, net expenses (56) 51 (3)
Equity-linked contract Other non-interest revenues 2—(6)
Total $ (56) $ 196 $ 87
(a) Foreign exchange contracts include embedded foreign currency derivatives. Gains (losses) on these embedded derivatives are included in other expenses.
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 potential undiscounted future
payments as shown 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 a loss is probable and the amount can
be reasonably estimated.
The following table provides information related to such
guarantees as of December 31:
Maximum potential
undiscounted future
payments(a)
(Billions)
Related liability(b)
(Millions)
Type of Guarantee 2012 2011 2012 2011
Card and travel operations(c) $44$51$93$96
Other(d) 1193 98
Total $45$52$ 186 $ 194
(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. 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 undiscounted future payments.
(b) Included as part of other liabilities on the Company’s Consolidated Balance
Sheets.
(c) Includes Return Protection, Account Protection and Merchant Protection.
(d) Primarily includes guarantees related to the Company’s business
dispositions and real estate.
Refer to Note 26 for a discussion of additional guarantees of the
Company as of December 31, 2012 and 2011.
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