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NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 Summary of Significant
Accounting Policies
The Company
American Express Company (the Company) is a leading
global payments, network and travel company. The Com-
pany offers a broad range of products including charge
and credit cards; stored value products such as Travelers
Cheques and gift cards; travel agency services and travel,
entertainment and purchasing expense management ser-
vices; network services and merchant acquisition and
merchant processing for our network partners and pro-
prietary payments businesses. The Company’s various
products are sold globally to diverse customer groups,
including consumers, small businesses, mid-market
companies, large corporations and banking institutions.
These products are sold through various channels includ-
ing direct mail, on-line applications, targeted sales-forces
and direct response advertising.
Discontinued operations
On September 30, 2005, the Company completed
the spin-off of Ameriprise Financial, Inc. (Ameriprise),
formerly known as American Express Financial
Corporation, the Company’s financial planning and
financial services business. In addition, during the third
quarter of 2005, the Company completed certain
dispositions including the sale of American Express Tax
and Business Services, Inc. (TBS), its tax, accounting
and consulting business. The operating results and
assets and liabilities related to Ameriprise and certain
dispositions (including TBS) prior to disposal have been
reflected as discontinued operations in the Consolidated
Financial Statements (see Note 2). In addition, the cash
flows associated with discontinued operations are pre-
sented separately in the accompanying Consolidated
Statements of Cash Flows, which is a revision from the
cash flow presentation as of September 30, 2005. Unless
otherwise noted, amounts in these Notes to the Consoli-
dated Financial Statements exclude amounts attribut-
able to discontinued operations.
Segment reporting
Effective September 30, 2005, the Company realigned
its segment presentation to reflect the spin-off of
Ameriprise. The new segments are: U.S. Card Services,
International Card & Global Commercial Services,
Global Network & Merchant Services, and Corporate &
Other. See Note 19 for further discussion regarding the
Company’s segments.
Principles of Consolidation
The Company consolidates all non-variable interest
entities in which it holds a greater than 50 percent vot-
ing interest. Entities in which the Company holds a
greater than 20 percent but less than 50 percent voting
interest are accounted for under the equity method. All
other investments are accounted for under the cost
method unless the Company determines that it exercises
significant influence over the entity by means other than
voting rights, in which case these entities are accounted
for under the equity method.
The Company also consolidates all Variable Interest
Entities (VIEs) for which it is considered to be the pri-
mary beneficiary pursuant to Financial Accounting
Standards Board (FASB) Interpretation No. 46, “Con-
solidation of Variable Interest Entities,” as revised (FIN
46(R)). The determination as to whether an entity is a
VIE is based on the amount and characteristics of the
entity’s equity. In general, FIN 46(R) requires a VIE to
be consolidated when an enterprise has a variable inter-
est for which it is deemed to be the primary beneficiary,
which means that it will absorb a majority of the VIE’s
expected losses or receive a majority of the VIE’s
expected residual return.
Qualifying Special Purpose Entities (QSPEs) under
Statement of Financial Accounting Standards (SFAS)
No. 140, “Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities,” are
not consolidated. Such QSPEs include those that the
Company utilizes in connection with cardmember lend-
ing securitizations at U.S. Card Services. Other entities
where the Company has an interest or is the sponsor or
transferor are evaluated using the control, risk and
reward criteria as outlined under U.S. generally
accepted accounting principles (GAAP).
All significant intercompany transactions are elimi-
nated. Certain reclassifications of prior period amounts
have been made to conform to the current presentation.
Foreign Currency Translation
Assets and liabilities denominated in foreign curren-
cies are translated into U.S. dollars based upon
exchange rates prevailing at the end of each year.
The resulting translation adjustments, along with any
related hedge and tax effects, are included in accumu-
lated other comprehensive (loss) income, a component
of shareholders’ equity. Revenues and expenses are
translated at the average month end exchange rates dur-
ing the year. Gains and losses related to non-functional
currency transactions, including non-U.S. operations
Notes to Consolidated
Financial Statements
AXP / AR.2005
[66 ]