American Express 2009 Annual Report Download - page 78

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN EXPRESS COMPANY
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) recently
issued the following accounting standards, which are effective
beginning January 1, 2010.
폷Accounting Standards Update (ASU) No. 2009-16,
Transfers and Servicing (Topic 860): Accounting for
Transfers of Financial Assets: An amendment for
accounting for transfers of financial assets will eliminate
the concept of a qualifying special purpose entity (QSPE),
therefore requiring these entities to be evaluated under the
accounting guidance for consolidation of VIEs. Other
changes include additional considerations when
determining if sale accounting is appropriate, as well as
enhanced disclosure requirements. The new standard is to
be applied prospectively to transactions completed after the
effective date.
폷ASU No. 2009-17, Consolidations (Topic 810):
Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities: An amendment for
accounting by enterprises involved with VIEs eliminates
the scope exception for QSPEs and requires an entity to
reconsider its previous consolidation conclusions reached
under the VIE consolidation model, including (i) whether
an entity is a VIE, (ii) whether the enterprise is the VIE’s
primary beneficiary, and (iii) the required financial
statement disclosures. The new standard can be applied as
of the effective date, with a cumulative-effect adjustment to
retained earnings recognized on that date, or
retrospectively, with a cumulative-effect adjustment to
retained earnings recognized as of the beginning of the first
year adjusted.
The Company has determined that it will be required to
consolidate the American Express Credit Account Master
Trust (the Lending Trust) as a result of implementing these
standards. This will result in approximately $29.0 billion of
additional cardmember loans being recognized on the balance
sheet of the Company effective January 1, 2010, along with
$25.0 billion of long-term debt. This will also result in the
reduction of the Company’s investment securities by $3.6
billion and other assets by $0.7 billion. The $29.0 billion of
cardmember loans will require associated loan loss reserves of
approximately $2.5 billion, which will be charged directly
against retained earnings. The adjustments described above
will reduce shareholders’ equity by approximately $1.8 billion
on an after-tax basis. Refer to Note 7 for further discussion of
the Lending Trust.
NOTE 2
ACQUISITIONS AND
DISCONTINUED OPERATIONS
ACQUISITIONS
Revolution Money
On January 15, 2010, the Company purchased Revolution
Money, a provider of secure person-to-person payment
services through an internet based platform, for
approximately $300 million. The majority of the
consideration paid is expected to be recorded as goodwill,
with the remainder to be allocated to finite-lived intangible
assets and other miscellaneous assets and liabilities.
Corporate Payment Services
On March 28, 2008, the Company purchased Corporate
Payment Services (CPS), General Electric Company’s
commercial card and corporate purchasing business unit. The
Company acquired $2.2 billion in assets and assumed $63
million in liabilities. The total cash consideration of $2.3
billion paid by the Company consisted of the contractual
purchase price of approximately $1.1 billion plus the
repayment of CPS’ $1.2 billion in outstanding debt as of the
acquisition date.
DISCONTINUED OPERATIONS
On September 18, 2007, the Company entered into an
agreement to sell its international banking subsidiary,
American Express Bank Ltd. (AEB) to Standard Chartered
PLC (Standard Chartered) and to sell American Express
International Deposit Company (AEIDC) through a put/call
agreement to Standard Chartered 18 months after the close of
the AEB sale. The sale of AEB was completed on February 29,
2008. In the third quarter of 2008, AEIDC qualified to be
reported as a discontinued operation. The sale of AEIDC was
completed on September 10, 2009.
For all periods presented, all of the operating results, assets
and liabilities, and cash flows of AEB (except for certain
components of AEB that were not sold) and AEIDC have been
removed from the Corporate & Other segment and are
presented separately in discontinued operations in the
Company’s Consolidated Financial Statements. The Notes to
the Consolidated Financial Statements have been adjusted to
exclude discontinued operations unless otherwise noted.
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