American Express 2006 Annual Report Download - page 84

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notes to consolidated fi nancial statements
american express company
of $199 million, related to its defined benefit and other
postretirement benefit plans. The Company currently
uses a September 30 measurement date. Effective for
years ending after December 15, 2008, the measurement
date for the benefit obligation and plan assets is required
to be the Company’s fiscal year end.
SFAS No. 156, “Accounting for Servicing of
Financial Assets – an amendment of FASB Statement
No. 140” (SFAS No. 156), requires all separately
recognized servicing assets and servicing liabilities
to be initially measured at fair value, if practicable.
Subsequent accounting may be elected under either the
amortization method, which systematically amortizes
the servicing asset or liability to income, or the fair value
measurement method, which remeasures the servicing
asset or liability at fair value with the changes recorded
in income. Election of the fair value method is made
on a class-by-class basis for each separately recognized
servicing asset and liability. SFAS No. 156 applies
to all financial instruments acquired or issued after
December 31, 2006. The Company does not expect any
impact to its Consolidated Financial Statements.
SFAS No. 155, “Accounting for Certain Hybrid
Financial Instruments – an amendment of FASB
Statements No. 133 and 140” (SFAS No. 155), ends
the temporary exemption of beneficial interests in
securitized assets from the bifurcation requirements of
SFAS No. 133. SFAS No. 155 permits fair value re-
measurement of any hybrid financial instrument that
contains an embedded derivative that otherwise would
require bifurcation. This will primarily affect the
Company’s accounting for its interest-only strips, where
the changes in fair value are currently recorded in other
comprehensive (loss) income in shareholders’ equity.
After adoption of SFAS No. 155 on January 1, 2007,
once the interest-only strip is subject to a re-measurement
event, the Company will elect fair value measurement
for the instrument, which will require changes in its fair
value to be recognized in earnings rather than in other
comprehensive (loss) income from the re-measurement
date forward. SFAS No. 155 applies to all financial
instruments acquired or issued after December 31,
2006. The adoption of this new standard will result in
an increase in first quarter net income by approximately
$50 million ($80 million pretax) for amounts previously
recognized in other comphensive (loss) income due to
a re-measurement of the interest-only strip asset. In
addition, any future changes in fair value of the interest-
only strip in the first quarter of 2007 subsequent to
the re-measurement date and all future periods will be
reflected in the Company’s net income.
Emerging Issues Task Force (EITF) No. 06-3,
“How Taxes Collected from Customers and Remitted
to Governmental Authorities Should be Presented
in the Income Statement (That is, Gross versus Net
Presentation)” allows for a policy decision to present
certain taxes collected from customers and remitted
to taxing authorities as either gross or net within the
income statement. For any such taxes that are reported
on a gross basis, the amounts should be disclosed if
significant. The guidance will not be effective until
January 1, 2007, and will not result in any impact to the
Company’s Consolidated Financial Statements.
The FASB has recently issued the following accounting
standards, which are effective after December 31, 2006.
The Company is currently evaluating the impact of these
recently issued accounting standards on the Company’s
Consolidated Financial Statements.
• FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes – an interpretation
of FASB Statement No. 109” (FIN 48), is an
interpretation that clarifies the accounting for tax
positions accounted for under FASB Statement
No. 109, “Accounting for Income Taxes.” FIN 48
prescribes a recognition threshold and measurement
attribute for the financial statement recognition and
measurement of benefits associated with tax positions
taken or expected to be taken in a tax return. For
any amount of those benefits to be recognized, a
tax position must be more-likely-than-not to be
sustained upon examination by taxing authorities
based on the technical merits of the position.
The amount of benefit recognized is based on the
Company’s assertion of the most likely outcome
resulting from an examination. FIN 48 is applicable
to all tax positions as of January 1, 2007. The initial
effect of adoption will be reflected in first quarter of
2007 as a cumulative effect adjustment to income
taxes payable (in other liabilities) and retained
earnings. Subsequent to the adoption of FIN 48, all
increases and decreases in the Company’s estimated
recognizable tax benefits will be recorded as a
benefit/provision for income taxes.
• SFAS No. 157, “Fair Value Measurements” (SFAS
No. 157), establishes a framework for measuring
fair value and applies broadly to financial and
non-financial assets and liabilities measured at
fair value under existing authoritative accounting
pronouncements. SFAS No. 157 establishes a fair
value hierarchy that prioritizes inputs to valuation
techniques used for financial instruments without
active markets and for non-financial assets and