American Express 2007 Annual Report Download - page 74

NOTES TO CONSOLIDATED FINANCIAL 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, and travel company. The Company’s principal products
and services are charge and credit payment card products and
travel-related services offered to consumers and businesses
around the world. The Company’s businesses are organized into
two customer-focused groups, the Global Consumer Group and
the Global Business-to-Business Group. The Global Consumer
Group offers a range of products and services including charge
and lending (i.e., credit) card products; consumer travel services;
stored value products such as Travelers Cheques and prepaid
products. The Business-to-Business Group offers business
travel, corporate cards and other expense management products
and services; network services and merchant acquisition and
merchant processing for the Company’s network partners and
proprietary payments businesses; and point-of-sale, back-
office, and marketing products and services for merchants. The
Company’s various products and services are sold globally to
diverse customer groups, including consumers, small businesses,
middle-market companies, and large corporations. These
products and services are sold through various channels including
direct mail, on-line applications, targeted sales forces, and direct
response advertising.
REPORTABLE OPERATING SEGMENTS
During 2007, the Company’s segments were realigned within
the two major customer groups. Accordingly U. S. Card Services
(USCS) and International Card Services (ICS) are aligned
within the Global Consumer Group and Global Commercial
Services (GCS) and Global Network & Merchant Services
(GNMS) are aligned within the Global Business-to-Business
Group. The Company has reclassified the prior period amounts
to be consistent with the new reportable operating segments.
DIVESTITURES AND ACQUISITIONS
The Company announced or completed the following
divestitures during 2007, 2006, and 2005.
AEB and AEIDC
On September 18, 2007, the Company entered into an
agreement to sell its international banking subsidiary, American
Express Bank Ltd. (AEB) and American Express International
Deposit Company (AEIDC), a subsidiary that issues investment
certificates to AEB’s customers, to Standard Chartered PLC
(Standard Chartered) for the approximate value of $1.1 billion,
subject to certain regulatory approvals. Standard Chartered
will pay the Company an amount equal to the net asset value
of the AEB businesses that are being sold at the closing date
plus $300 million. At December 31, 2007, this would have
amounted to approximately $819 million. The Company also
expects to realize an additional amount representing the net
asset value of AEIDC, which was also contracted to be sold
to Standard Chartered 18 months after the close of the AEB
sale, through a put/call agreement. As of December 31, 2007,
the net asset value of that business was $232 million. This
value is expected to be realized through (1) dividends from the
subsidiary to the Company and (2) a subsequent payment from
Standard Chartered based on the net asset value of AEIDC on
the date the business is transferred to them.
For 2007 and all prior periods presented, the operating
results, assets and liabilities, and cash flows of AEB (except for
certain components of AEB that are not being sold) have been
removed from the Corporate & Other segment and reported
within the discontinued operations captions in the Company’s
Consolidated Financial Statements. AEIDC will continue to
be included in continuing operations within the Corporate
& Other segment until such time as AEIDC qualifies for
classification as a discontinued operation, which will occur
approximately one year prior to its transfer to Standard
Chartered.
The operating results, assets and liabilities, and cash flows of
AEB are presented separately in the Company’s Consolidated
Financial Statements. The Notes to the Consolidated Financial
Statements have been adjusted to exclude discontinued
operations unless otherwise noted. Refer to Note 2 for further
discussion of AEB as a discontinued operation.
Divestitures with GNS Network Arrangements
On May 31, 2007, the Company completed the sale of its
merchant-related activities in Russia to Russian Standard Bank
(RSB), for approximately $27 million ($18 million after-tax)
net gain in the Global Network & Merchant Services segment.
$23 million ($15 million after-tax) of the gain relates to the
merchant-related activities sold and is reported as a reduction to
other, net expenses in the Company’s continuing operations. $4
million ($3 million after-tax) of the gain relates to the issuance
of the Global Network Services (GNS) license and is reported
as other revenue in the Company’s continuing operations.
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, net
expenses in the Company’s continuing operations ($23 million
in the International Card Services segment and $10 million in
the 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
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