American Express 2007 Annual Report Download - page 75

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN EXPRESS COMPANY
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, net
expenses in the Company’s continuing operations ($91 million
in the International Card Services segment, $28 million in the
Global Commercial Services segment, and $25 million in the
Global Network & Merchant Services segment). A $48 million
($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
merchant-related businesses within Russia and in the card and
merchant-related businesses within Malaysia, Indonesia, and
Brazil through its Global Network Services arrangements with
the acquirers and its retention of agreements with multinational
merchants.
Ameriprise, TBS and Other Divestitures
On September 30, 2005, the Company completed the spin-off
of Ameriprise Financial, Inc. (Ameriprise), previously known
as American Express Financial Corporation, the Company’s
former financial planning and financial services business.
In addition, 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, assets and liabilities, and cash flows related
to Ameriprise and certain dispositions (including TBS) have
been reflected as discontinued operations in the Consolidated
Financial Statements.
Acquisitions and Other Transactions
On September 30, 2007, the Company purchased all the
outstanding common shares of AMEX Assurance Company
(AAC), a subsidiary of Ameriprise, for $115 million. During
the third quarter of 2005, the Company recorded a $115 million
liability related to the share purchase agreement with Ameriprise
to purchase all of the shares of AAC, within a period not to
exceed two years from the spin-off date of September 30, 2005.
The Company had previously consolidated AAC as a variable
interest entity within the U.S. Card Services segment since the
spin-off of Ameriprise and therefore there is no impact on the
Company’s Consolidated Financial Statements from this 2007
acquisition.
On 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 Global Commercial Services segment.
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 voting interest entities in
which the Company holds a greater than 50 percent voting
interest. Entities in which the Company’s voting interest is
20 percent or more but 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 any Variable Interest
Entities (VIEs) for which it is considered to be the primary
beneficiary. The determination of whether an entity is a VIE
is based on the amount and characteristics of the entity’s
equity. In general, an enterprise is required to consolidate a
VIE when it has a variable interest and it is deemed to be the
primary beneficiary (meaning that it will absorb a majority of
the VIE’s expected losses or receive a majority of the VIE’s
expected residual returns). The Company’s involvement with
VIEs is limited, and primarily comprises investments in
affordable housing partnerships and its cardmember receivables
securitization trust.
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” (SFAS No. 140), are not
consolidated. The Company utilizes QSPEs in connection
with cardmember lending securitizations within the U.S. Card
Services segment.
Certain reclassifications of prior period amounts have
been made to conform to the current presentation. These
reclassifications did not have an impact on the Company’s
financial position or results of operations, and primarily
includes those described in the Company’s previously filed
current reports on Form 8-K dated November 1, 2007, and
March 30, 2007.
In addition, beginning prospectively as of July 1, 2006,
certain card acquisition related costs were reclassified from
other expenses to a reduction in net card fees.
FOREIGN CURRENCY
Assets and liabilities denominated in foreign currencies
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 qualifying hedge and tax
effects, are included in accumulated other comprehensive
(loss) income, a component of shareholders’ equity. Translation
adjustments, including qualifying hedge and tax effects, are
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