American Express 2005 Annual Report Download - page 89

Download and view the complete annual report

Please find page 89 of the 2005 American Express annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 106

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106

NOTE 13 Fair Values of Financial
Instruments
The following table discloses fair value information for
financial instruments. The fair values of financial instru-
ments are estimates based upon market conditions and
perceived risks at December 31, 2005 and 2004 and
require management judgment. These figures may not
be indicative of their future fair values. The fair value of
the Company, therefore, cannot be estimated by aggre-
gating the amounts presented.
The following table discloses fair value information for
financial instruments:
December 31, (Billions) 2005 2004
Carrying
Value Fair Value
Carrying
Value Fair Value
Financial Assets
Assets for which carrying values equal or approximate
fair value $ 106 $ 106 $98 $98
Financial Liabilities
Liabilities for which carrying values equal or approximate
fair value $57 $57 $50 $50
Long-term debt $31 $31 $33 $33
See Note 3 for carrying and fair value information
regarding investments, Note 10 for fair value informa-
tion regarding derivative financial instruments and
Note 11 for carrying and fair value information regard-
ing guarantees and certain off-balance sheet items. The
following methods were used to estimate the fair values
of financial assets and financial liabilities.
Financial Assets
Assets for which carrying values equal or approximate
fair values include cash and cash equivalents, cardmem-
ber receivable and accrued interest, certain other assets
and derivative financial instruments. Generally these
assets are either short-term in duration, variable rate in
nature or are recorded at fair value on the Consolidated
Balance Sheets.
Generally, investments are carried at fair value on the
Consolidated Balance Sheets and gains and losses
are recognized in the Consolidated Statements of
Income upon disposition of the securities or when man-
agement determines that a decline in value is
other-than-temporary.
For variable-rate loans that reprice within one year and
for which there has been no significant change in coun-
terparties’ creditworthiness, fair values approximate car-
rying values.
The fair values of all other loans except those with
significant credit deterioration, are estimated using
discounted cash flow analysis, based on current interest
rates for loans with similar terms to borrowers of similar
credit quality. For loans with significant credit deterio-
ration, fair values are based on estimates of future cash
flows discounted at rates commensurate with the risk
inherent in the revised cash flow projections, or for
collateral dependent loans on collateral values.
Financial Liabilities
Liabilities for which carrying values equal or approximate
fair values include customers’ deposits, Travelers
Cheques outstanding, investment certificate reserves,
short-term debt, certain other liabilities and derivative
financial instruments. Generally these liabilities are either
short-term in duration, variable rate in nature or are
recorded at fair value on the Consolidated Balance Sheets.
For variable-rate long-term debt that reprices within one
year, fair value approximates carrying value. For other
long-term debt, fair value is estimated using either
quoted market prices or discounted cash flows based on
the Company’s current borrowing rates for similar types
of borrowing.
Notes to Consolidated
Financial Statements
AXP / AR.2005
[87 ]