American Express 2001 Annual Report Download - page 55

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARKETING AND PROMOTION
The company expenses advertising costs in the year in which the advertising first takes place.
SEPARATE ACCOUNT ASSETS AND LIABILITIES
Separate account assets and liabilities are funds held for the exclusive benefit of variable annuity and variable life insurance con-
tract holders. The company receives investment management fees, mortality and expense assurance fees, minimum death benefit
guarantee fees and cost of insurance charges from the related accounts.
CASH AND CASH EQUIVALENTS
At December 31, 2001 and 2000, cash and cash equivalents included $1.0 billion and $1.2 billion, respectively, segregated in spe-
cial bank accounts for the benefit of customers. The company has defined cash equivalents to include time deposits with original
maturities of 90 days or less.
RECENTLY ADOPTED ACCOUNTING STANDARDS
Effective January 1, 2001, the company adopted Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for
Derivative Instruments and Hedging Activities,” which requires that an entity recognize all derivatives as either assets or liabilities
on the balance sheet and measure those instruments at fair value. Changes in the fair value of a derivative are recorded in earnings
or directly to equity, depending on the instrument’s designated use. The adoption of SFAS No. 133 resulted in a cumulative after-
tax reduction to other comprehensive income of $120 million. See Note 10 for further discussion of the company’s derivatives and
hedging activities.
Effective April 1, 2001, the company adopted SFAS No. 140,“Accounting for Transfers and Servicing of Financial Assets and Extin-
guishments of Liabilities,” which clarified accounting and reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities, as well as the recognition and reclassification of collateral. SFAS No. 140 did not materially impact
the company’s securitized U.S. Cardmember loans and equipment lease receivables. The company’s Charge Card receivables secu-
ritization structure did not meet certain sale criteria of SFAS 140. As a result, approximately $3.1 billion of Charge Card receivables
(which had also been securitized as of December 31, 2000) and a related amount of long-term debt were reinstated to the balance
sheet. While the Charge Card receivables and associated long-term debt reappeared on the Consolidated Financial Statements,these
securitized assets are not available to creditors of the company and are not the assets of the company, and the company has no lia-
bility for securities issued by securitization trusts. The impact of this adoption on results of operations was immaterial. In addi-
tion, there was no impact on capital requirements. See Note 6 for further discussion of the company’s securitized loans and
receivables.
In July 2000, the Financial Accounting Standards Board’s Emerging Issues Task Force (EITF) issued a consensus on Issue 99-20,
“Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets”
(Issue 99-20), which prescribed new procedures for recording interest income and measuring impairment on retained and pur-
chased beneficial interests. The rule, which the company adopted on January 1, 2001, primarily affected certain AEFA structured
investments. See Note 4 for further discussion of the company’s investments.
Note 2 ❚RESTRUCTURING CHARGES
In the third and fourth quarters of 2001, as a result of accelerating certain reengineering initiatives, the company incurred re-
structuring charges of $352 million ($232 million after-tax) and $279 million ($179 million after-tax), respectively, resulting in
total charges of $631 million ($411 million after-tax) for the full year. The fourth quarter pretax charge includes $185 million for
severance relating to the elimination of approximately 6,800 jobs, and $94 million of other charges primarily relating to the con-
solidation of real estate facilities. The third quarter pretax charge includes $184 million for severance relating to the elimination
of approximately 6,100 jobs. It also includes $26 million recorded in “Provisions for losses and benefits
—
Life insurance, interna-
tional banking and other” on the Consolidated Statements of Income, and relates to plans to further scale back American Express