American Express 2008 Annual Report Download - page 71

notes to consolidated financial statements
american express company
69
notes to consolidated
financial statements
note 1
summary of significant
accounting policies
the company
American Express Company (the Company), a bank holding
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’s range of products and
services include charge and credit card products for consumers
and small businesses worldwide primarily through its U.S.
bank subsidiaries and affiliates; consumer travel services;
and stored value products such as Travelers Cheques and
prepaid products. The Global Business-to-Business Group
offers business travel, corporate cards and other expense
management products and services; network services for the
Company’s network partners; and merchant acquisition and
merchant processing, point-of-sale, servicing and settlement
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
The Company is principally engaged in two customer focused
groups, the Global Consumer Group and the Global Business-
to-Business Group. The U.S. Card Services (USCS) and
International Card Services (ICS) segments are aligned within
the Global Consumer Group, and the Global Commercial
Services (GCS) and the Global Network & Merchant Services
(GNMS) segments are aligned within the Global Business-to-
Business Group. Refer to Note 24 for additional information.
bank holding company
During the fourth quarter of 2008, the Company became a
bank holding company under the Bank Holding Company
Act of 1956, and the Federal Reserve Board (Federal Reserve)
became the Company’s primary federal regulator. As such,
the Company is subject to the Federal Reserve’s regulations,
policies and minimum capital standards.
The primary reasons for the Company converting to a bank
holding company were to become a Federal Reserve member
and to have the same status and regulator as a majority of the
Company’s peers. Taking this action allowed the Company to
participate more fully in some government programs, which
provides greater flexibility during uncertain economic times.
The Company converting to a bank holding company will not
change its payments focused model, nor its core businesses.
As a result of converting to a bank holding company,
the Company has made certain changes to its Consolidated
Statements of Income and Consolidated Balance Sheets and
reclassified certain prior period amounts in order to conform to
the current presentation of its financials in accordance with the
Securities and Exchange Commission’s regulations applicable to
bank holding companies. These changes and reclassifications
within the Consolidated Statements of Income include (i) new
categories of interest income and interest expense, and changes
to the component classifications thereof, (ii) the reclassification
of card fees on lending products from net card fees to interest
and fees on loans, (iii) separate disclosure of certain financial
statement line items, which are presented in Note 23, and (iv)
certain other placement and line title changes. The changes
and reclassifications within the Consolidated Balance Sheets
include (i) the breakout of interest and non-interest bearing cash
accounts into separate lines, (ii) the reclassification of unearned
income on loans from other liabilities to a contra-asset, and (iii)
certain other line title changes. These reclassifications had no
impact on the Company’s consolidated net income.
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 50 percent or less 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.
Investments with Variable Interest Entities (VIEs) are
limited. The Company generally utilizes VIEs in connection
with its cardmember receivable securitizations within the USCS
segment. The Company consolidates any 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. An enterprise is required
to consolidate a VIE when it has a variable interest for which
it is deemed to be the primary beneficiary, that is, it will absorb
a majority of the VIE’s expected losses or receive a majority of
the VIE’s expected residual returns.