American Express 2009 Annual Report Download - page 93

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN EXPRESS COMPANY
NOTE 8
OTHER ASSETS
The following is a summary of other assets as of December 31:
(Millions) 2009 2008
Deferred tax assets, net(a) $ 2,979 $ 3,470
Goodwill 2,328 2,301
Restricted cash(b) 2,192 238
Prepaid expenses(c) 2,114 1,712
Derivative assets(a) 800 1,743
Subordinated accrued interest receivable 719 807
Other intangible assets, at amortized cost 717 717
Other 1,364 1,619
Total $13,213 $12,607
(a) Refer to Notes 17 and 12 for a discussion of deferred tax assets,
net, and derivative assets, respectively, as of December 31, 2009
and 2008.
(b) Includes restricted cash of $1.8 billion as of December 31, 2009,
which is held for certain asset-backed securitization maturities
that will occur in the first quarter of 2010.
(c) Includes prepaid miles and reward points acquired from airline
and other partners of approximately $1.3 billion and $950
million, respectively, as of December 31, 2009 and 2008. Of these
amounts, approximately $889 million and $900 million as of
December 31, 2009 and 2008, respectively, represented miles
purchased from Delta that are generally subject to certain
restrictions and will be expensed as used in the future.
GOODWILL
Goodwill represents the excess of acquisition cost of an
acquired company over the fair value of assets acquired and
liabilities assumed. The Company assigns goodwill to its
reporting units for the purpose of impairment testing. A
reporting unit is defined as an operating segment, or a
business one level below an operating segment for which
complete, discrete financial information is available that
management regularly reviews. The Company evaluates
goodwill for impairment annually as of June 30 and between
annual tests if events occur or circumstances change that
more likely than not reduce the fair value of reporting units
below their carrying amounts. The goodwill impairment test
utilizes a two-step approach. The first step identifies whether
there is potential impairment by comparing the fair value of a
reporting unit to the carrying amount, including goodwill. If
the fair value of a reporting unit is less than its carrying
amount, the second step of the impairment test is required to
measure the amount of any impairment loss. Goodwill was
not impaired as of December 31, 2009 and 2008.
Goodwill impairment testing involves management
judgment, requiring an assessment of whether the carrying
value of the reporting unit can be supported by the fair value
of the individual reporting unit using widely accepted
valuation techniques, such as the market approach (earnings
multiples or transaction multiples) or income approach
(discounted cash flow methods). The fair values of the
reporting units were determined using a combination of
valuation techniques consistent with the income approach
and the market approach.
When preparing discounted cash flow models under the
income approach, the Company uses internal forecasts to
estimate future cash flows expected to be generated by the
reporting units. Actual results may differ from forecasted
results. The Company uses the expected cost of equity
financing, estimated using a capital asset pricing model, to
discount future cash flows for each reporting unit. The
Company believes the discount rates used appropriately
reflect the risks and uncertainties in the financial markets
generally and specifically in the Company’s internally
developed forecasts. Further, to assess the reasonableness of
the valuations derived from the discounted cash flow models,
the Company also analyzes market based multiples for similar
industries of the reporting unit, where available.
The changes in the carrying amount of goodwill reported in the Company’s reportable operating segments were as follows.
During 2009 and 2008, there were no accumulated goodwill impairment losses.
(Millions) USCS ICS GCS GNMS
Corporate
& Other Total
Balance as of January 1, 2008 $175 $519 $ 771 $27 $16 $1,508
Acquisitions(a) — — 828 — — 828
Dispositions — — (1) — — (1)
Other, including foreign currency translation — (10) (25) 1 — (34)
Balance as of December 31, 2008 $175 $509 $1,573 $28 $16 $2,301
Other, including foreign currency translation — 3 24 — — 27
Balance as of December 31, 2009 $175 $512 $1,597 $28 $16 $2,328
(a) Includes approximately $818 million related to the acquisition of General Electric Company’s commercial card and corporate purchasing
business.
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