American Express 2011 Annual Report Download - page 67

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following methods were used to determine estimated fair
values:
FINANCIAL ASSETS FOR WHICH CARRYING VALUES
EQUAL OR APPROXIMATE FAIR VALUE
Financial assets for which carrying values equal or approximate
fair value include cash and cash equivalents, cardmember
receivables, accrued interest and certain other assets. For these
assets, the carrying values approximate fair value because they
are short term in duration or variable rate in nature.
FINANCIAL ASSETS CARRIED AT OTHER THAN FAIR
VALUE
Loans, net
Loans are recorded at historical cost, less reserves, on the
Consolidated Balance Sheets. In estimating the fair value for the
Company’s loans the principal market is assumed to be the
securitization market and the Company uses the hypothetical
securitization price to determine the fair value of the portfolio.
The securitization price is estimated from the assumed proceeds
of the hypothetical securitization in the current market, adjusted
for securitization uncertainties such as market conditions and
liquidity.
FINANCIAL LIABILITIES FOR WHICH CARRYING
VALUES EQUAL OR APPROXIMATE FAIR VALUE
Financial liabilities for which carrying values equal or
approximate fair value include accrued interest, customer
deposits (excluding certificates of deposit, which are described
further below), Travelers Cheques outstanding, short-term
borrowings and certain other liabilities for which the carrying
values approximate fair value because they are either short term
in duration, have no defined maturity or have an underlying
interest rate that is variable.
FINANCIAL LIABILITIES CARRIED AT OTHER THAN
FAIR VALUE
Certificates of Deposit
Certificates of deposit (CDs) are recorded at their historical
issuance cost on the Consolidated Balance Sheets. Fair value is
estimated using a discounted cash flow methodology based on
the Company’s current borrowing rates for similar types of CDs.
Long-term Debt
Long-term debt is recorded at historical issuance cost on the
Consolidated Balance Sheets adjusted for the impact of fair value
hedge accounting on certain fixed-rate notes. Fair value is
estimated using either quoted market prices or discounted cash
flows based on the Company’s current borrowing rates for
similar types of borrowings.
NOTE 4
ACCOUNTS RECEIVABLE AND LOANS
The Company’s charge and lending payment card products result
in the generation of cardmember receivables (from charge
payment products) and cardmember loans (from lending
payment products) described below.
CARDMEMBER AND OTHER RECEIVABLES
Cardmember receivables, representing amounts due from charge
payment product customers, are recorded at the time a
cardmember enters into a point-of-sale transaction with a
merchant. Each charge card transaction is authorized based on
its likely economics reflecting a cardmember’s most recent credit
information and spend patterns. Global limits are established to
limit the maximum exposure for the Company from high risk
and some high spend charge cardmembers, and accounts of high
risk, out-of-pattern charge cardmembers can be monitored even
if they are current. Charge card customers generally must pay the
full amount billed each month.
Cardmember receivable balances are presented on the
Consolidated Balance Sheets net of reserves for losses (refer to
Note 5), and include principal and any related accrued fees.
Accounts receivable as of December 31, 2011 and 2010 were as
follows:
(Millions) 2011 2010
U.S. Card Services(a) $ 20,645 $ 19,155
International Card Services 7,222 6,673
Global Commercial Services(b) 12,829 11,259
Global Network & Merchant Services(c) 194 179
Cardmember receivables, gross(d) 40,890 37,266
Less: Cardmember receivables reserves for losses 438 386
Cardmember receivables, net $ 40,452 $ 36,880
Other receivables, net(e) $ 3,657 $ 3,554
(a) Includes $7.5 billion and $7.7 billion of gross cardmember receivables
available to settle obligations of a consolidated VIE as of December 31, 2011
and 2010, respectively.
(b) Includes $0.5 billion of gross cardmember receivables available to settle
obligations of a consolidated VIE as of December 31, 2011 and 2010.
Includes $563 million and $106 million due from airlines, of which Delta Air
Lines (Delta) comprises $340 million and $68 million, as of December 31,
2011 and 2010, respectively.
(c) Includes receivables primarily related to the Company’s International
Currency Card portfolios.
(d) Includes approximately $12.8 billion and $11.7 billion of cardmember
receivables outside the United States as of December 31, 2011 and 2010,
respectively.
(e) Other receivables primarily represent amounts related to purchased joint
venture receivables, amounts due from certain merchants for billed discount
revenue, amounts due from the Company’s travel customers and suppliers,
amounts due from third-party issuing partners, amounts for tax-related
receivables, accrued interest on investments and other receivables due to the
Company in the ordinary course of business. As of December 31, 2011, other
receivables also included investments that matured on December 31, 2011,
but which did not settle until January 3, 2012. Other receivables are
presented net of reserves for losses of $102 million and $175 million as of
December 31, 2011 and 2010, respectively.
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