American Express 2004 Annual Report Download - page 94

variable universal life and single pay universal life insur-
ance contracts under which contractual cost of insur-
ance charges are expected to be less than future death
benefits ($92 million) and from considering these liabili-
ties in valuing DAC associated with those contracts ($26
million offset). Prior to the adoption of SOP 03-1,
amounts paid in excess of contract value were expensed
when payable. Amounts expensed in 2004 to establish
and maintain additional liabilities for certain variable
annuity guaranteed benefits amounted to $53 million (of
which $33 million was part of the adoption charges dis-
cussed earlier) as compared to amounts expensed in
2003 and 2002 of $32 million and $37 million, respec-
tively. The Company’s accounting for separate accounts
was already consistent with the provisions of SOP 03-1
and, therefore, there was no impact related to this
requirement. See Note 11 for further discussion regard-
ing SOP 03-1.
In December 2003, the FASB issued SFAS No. 132
(Revised 2003), “Employers’ Disclosures about Pensions
and Other Postretirement Benefits.” This Statement
amends the disclosure requirements of SFAS No. 87,
“Employers’ Accounting for Pensions,” No. 88, “Employ-
ers’ Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Ben-
efits,” and No. 106, “Employers’ Accounting for Postre-
tirement Benefits Other Than Pensions.” The Statement
does not change the recognition and measurement
requirements of those Statements. See Note 16 for dis-
closures regarding the Company’s Retirement Plans.
In November 2003, the FASB ratified a consensus on
the disclosure provisions of EITF 03-1, “The Meaning
of Other-Than-Temporary Impairment and Its Applica-
tion to Certain Investments” (EITF 03-1). The Company
complied with the disclosure provisions of this rule in
its Annual Report on Form 10-K for the year ended
December 31, 2003. In March 2004, the FASB reached
a consensus regarding the application of a three-step
impairment model to determine whether investments
accounted for in accordance with SFAS No. 115,
“Accounting for Certain Investments in Debt and
Equity Securities,” and other cost method investments
are other-than-temporarily impaired. However, with
the issuance of FSP EITF 03-1-1, “Effective Date of Para-
graphs 10-20 of EITF 03-1,” on September 30, 2004, the
provisions of the consensus relating to the measure-
ment and recognition of other-than-temporary impair-
ments will be deferred pending further clarification
from the FASB. The remaining provisions of this rule,
which primarily relate to disclosure requirements, are
required to be applied prospectively to all current and
future investments accounted for in accordance with
SFAS No. 115 and other cost method investments. The
Company will evaluate the potential impact of EITF
03-1 after the FASB completes its reassessment.
In April 2003, the FASB issued SFAS No. 149, “Amend-
ment of Statement 133 on Derivative Instruments and
Hedging Activities.” The Statement amends and clarifies
accounting for derivative instruments embedded in
other contracts and for hedging activities under SFAS
No. 133. The adoption of this Statement did not have a
material impact on the Company’s financial statements.
In January 2003, the FASB issued FIN 46 which
addresses consolidation by business enterprises of
variable interest entities and was subsequently revised
in December 2003. The variable interest entities primar-
ily impacted by FIN 46, which the Company consoli-
dated as of December 31, 2003, relate to structured
investments, including a CDO and three secured loan
trusts (SLTs), which were both managed and partially
owned by AEFA. The consolidation of FIN 46-related
entities resulted in a cumulative effect of accounting
change that reduced 2003 net income through a non-
cash charge of $13 million ($20 million pretax). The net
charge was comprised of a $57 million ($88 million pre-
tax) non-cash charge related to the consolidated CDO
offset by a $44 million ($68 million pretax) non-cash
gain related to the consolidated SLTs. See Note 5 for fur-
ther discussion of variable interest entities.
In July 2002, the FASB issued SFAS No. 146, “Account-
ing for Costs Associated with Exit or Disposal Activi-
ties.” The Statement is effective for exit or disposal
activities initiated after December 31, 2002. The Com-
pany has complied with the Statement’s requirements
for applicable transactions.
Note 2 INVESTMENTS
The following is a summary of investments at
December 31:
(Millions) 2004 2003
Available-for-Sale, at fair value $ 56,188 $ 51,848
Investment loans
(a)
(fair value:
2004, $3,776; 2003, $4,116) 3,523 3,794
Trading, at fair value 1,098 995
Total $ 60,809 $ 56,637
(a) The carrying value of these assets is at amortized cost, net of reserves, which
totaled $56 million and $60 million as of December 31, 2004 and 2003,
respectively.
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Notes to Consolidated Financial Statements