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[ 74 ]
notes to consolidated fi nancial statements
american express company
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
Company offers a broad range of products and services
including charge and credit cards; stored value products
such as Travelers Cheques and gift cards; travel agency
services; travel and business expense management
products and services; network services and merchant
acquisition and merchant processing for the Company’s
network partners and proprietary payments businesses;
lending products; point-of-sale and back-office products
and services for merchants; magazine publishing;
and international banking products. The Company’s
various products and services are sold globally to diverse
customer groups, including consumers, small businesses,
mid-market companies, large corporations, and banking
institutions. These products and services are sold
through various channels including direct mail, on-line
applications, targeted sales-forces, and direct response
advertising.
ACQUISITIONS AND DIVESTITURES
Effective December 31, 2006, the Company acquired
Harbor Payments, Inc. (Harbor Payments) for
approximately $150 million which was paid primarily in
the Company’s common stock. Harbor Payments is a
technology provider that specializes in electronic invoice
and payment capabilities. The acquisition is reflected
in the International Card & Global Commercial
Services segment.
During the third quarter of 2006, the Company
completed the sale of its card and merchant-related
activities in Malaysia to Maybank, and its card and
merchant-related activities in Indonesia to Bank
Danamon for combined proceeds of $94 million. The
transactions generated a gain of $33 million ($24
million after-tax), and are reported as a reduction to
other expenses in the Company’s continuing operations.
The gain is reported within the International Card &
Global Commercial Services segment.
On June 30, 2006, the Company completed the
sale of its card and merchant-related activities and
international banking activities in Brazil to Banco
Bradesco S.A. (Bradesco), for approximately $470
million. The transaction generated a net after-tax
gain of $109 million. $144 million ($131 million
after-tax) of the gain relates to the card and merchant-
related activities sold and is reported as a reduction to
other operating expenses in the Company’s continuing
operations ($119 million in the International Card &
Global Commercial Services segment and $25 million
in the Global Network & Merchant Services segment).
A $22 million after-tax loss related to the sale of the
Company’s international banking activities to Bradesco
is reported in discontinued operations for banking
activities the Company exited in Brazil.
The Company will continue to maintain its presence
in the card and merchant-related businesses within
Malaysia, Indonesia, and Brazil through its Global
Network Services arrangements with acquirers.
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 its tax, accounting, and
consulting business, American Express Tax and Business
Services, Inc. (TBS). The operating results and cash
flows related to Ameriprise and certain dispositions
(including TBS) have been reflected as discontinued
operations in the Consolidated Financial Statements
and the Notes to the Consolidated Financial Statements
have been adjusted to exclude discontinued operations
unless otherwise noted.
PRINCIPLES OF CONSOLIDATION
The Consolidated Financial Statements of the Company
are prepared in conformity with U.S. generally accepted
accounting principles (GAAP). All significant
intercompany transactions are eliminated.
The Company consolidates all non-variable interest
entities in which the Company holds a greater than 50
percent voting interest. Entities in which the Company’s
voting interest exceeds 20 percent but is less than 50
percent 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 an entity by means other than
voting rights, in which case the entity is accounted for
under the equity method.
The Company also consolidates all Variable Interest
Entities (VIEs) for which it is considered to be the
primary beneficiary pursuant to Financial Accounting
Standards Board (FASB) Interpretation No. 46 (revised
December 2003), “Consolidation of Variable Interest
Entities” (FIN 46(R)). The determination of whether an