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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN EXPRESS COMPANY
A 2004 sale-leaseback transaction has been accounted for
as a financing because of certain terms contained in the lease
agreement. The $95 million in proceeds from this transaction
has been classified as long-term debt, and the balance was $90
million and $92 million as of December 31, 2007 and 2006,
respectively. At December 31, 2007, the Company’s minimum
aggregate rental commitment under this transaction is
approximately $6 million per annum from 2007 through 2012
and $13 million thereafter.
There were no sale-leaseback transactions in 2007 or 2006.
NOTE 15 FAIR VALUES OF FINANCIAL
INSTRUMENTS
SFAS No. 107, “Disclosures About Fair Value of Financial
Instruments”, requires the disclosure of the estimated fair value
of financial instruments. A financial instrument is defined
as cash, evidence of an ownership in an entity, or a contract
between two entities to deliver cash or another financial
instrument or to exchange other financial instruments. The
disclosure requirements of SFAS No. 107 exclude leases,
affiliate investments, pension and benefit obligations, insurance
contracts, and all non-financial instruments.
The following table discloses fair value information for the
Company’s financial instrument assets and liabilities, included
in the scope of SFAS No. 107, as of December 31:
(Billions) 2007 2006
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
Financial Instrument
Assets:
Assets for which
carrying values equal
or approximate fair
value $71 $71 $63 $64
Loans $53 $54 $43 $43
Financial Instrument
Liabilities:
Liabilities for which
carrying values equal
or approximate fair
value $59 $58 $53 $53
Long-term debt $55 $54 $43 $43
The fair values of these financial instruments are estimates
based upon market conditions and perceived risks as of
December 31, 2007 and 2006 and require management
judgment. These figures may not be indicative of their future
fair values. The fair value of the Company cannot be estimated
by aggregating the amounts presented.
The following methods were used to determine estimated
fair values.
FINANCIAL INSTRUMENT LIABILITIES FOR WHICH
CARRYING VALUES EQUAL OR APPROXIMATE FAIR VALUE
Financial assets for which carrying values equal or approximate
fair values include cash and cash equivalents, cardmember
receivables, accrued interest, and certain other assets. For these
assets, the carrying values approximate fair value because these
are short-term in duration or variable rate in nature.
Investments
Investments are recorded at fair value on the Consolidated
Balance Sheets with unrealized gains and losses recorded in
accumulative other comprehensive income (loss) or earnings
depending upon the classification of securities as Available-for-
Sale or Trading. The recognized gains and losses are recognized
in the Consolidated Statements of Income upon disposition of
the securities or when management determines that a decline
in value is other-than-temporary. See Note 4 for carrying and
fair value information regarding investments.
Derivative Financial Instruments
Derivative financial instruments are recorded at fair value on the
Consolidated Balance Sheets, with gains and losses recognized
in the Consolidated Statements of Income or Consolidated
Balance Sheets based upon the nature of the derivative. See
Note 12 for fair value information regarding derivative financial
instruments.
Interest - Only Strip
The Interest-only strip is also recorded at fair value on the
Consolidated Balance Sheets, with gains and losses recognized
in the Consolidated Statements of Income. See Note 6 for
additional information regarding the Interest-only strip.
LOANS
For variable-rate loans that reprice within one year and for
which there has been no significant change in counterparties’
creditworthiness, fair values approximate carrying values. The
fair values of all other loans are estimated using a discounted
cash flow analysis, based on current interest rates for loans
with similar terms to borrowers of similar credit quality. For
collateral-dependent loans with significant credit deterioration,
fair values are based on estimates of collateral values.
FINANCIAL INSTRUMENT LIABILITIES FOR WHICH
CARRYING VALUES EQUAL OR APPROXIMATE FAIR VALUE
Financial liabilities for which carrying values equal or
approximate fair values include accrued interest, customers’
deposits, Travelers Cheques outstanding, investment certificate
reserves, short-term debt, and certain other liabilities. For these
liabilities, the carrying values approximate fair value because
these are short-term in duration, variable rate in nature, or have
no defined maturity.
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