American Express 2012 Annual Report Download - page 83

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8
OTHER ASSETS
The following is a summary of other assets as of December 31:
(Millions) 2012 2011
Goodwill $ 3,181 $ 3,172
Deferred tax assets, net(a) 2,458 2,875
Prepaid expenses(b) 1,960 2,378
Other intangible assets, at amortized cost 993 1,149
Derivative assets(a) 593 915
Restricted cash(c) 568 584
Other 1,665 1,582
Total $ 11,418 $ 12,655
(a) Refer to Notes 17 and 12 for a discussion of deferred tax assets, net, and
derivative assets, respectively, as of December 31, 2012 and 2011. Derivative
assets reflect the impact of master netting agreements.
(b) Includes prepaid miles and reward points acquired primarily from airline
partners of approximately $1.4 billion and $1.8 billion, as of December 31,
2012 and 2011, respectively, including approximately $1.1 billion and $1.5
billion, respectively, from Delta.
(c) Includes restricted cash of approximately $76 million and $207 million,
respectively, as of December 31, 2012 and 2011, which is primarily held for
coupon and certain asset-backed securitization maturities.
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 that is one level
below an operating segment for which discrete financial
information is regularly reviewed by the operating segment
manager. The Company evaluates goodwill for impairment
annually as of June 30 and between annual tests if events occur
or circumstances change that would more likely than not reduce
the fair value of the reporting unit below its carrying value. The
goodwill impairment test utilizes a two-step approach. The first
step in the impairment test 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. As of December 31, 2012 and 2011, goodwill
was not impaired and there were no accumulated impairment
losses.
Goodwill impairment testing involves management judgment,
requiring an assessment of whether the carrying value of the
reporting unit can be supported by its fair value using widely
accepted valuation techniques. The Company uses a
combination of the income approach (discounted cash flow
method) and market approach (market multiples).
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 calculates discount rates based on 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 and Corporate & Other were
as follows:
(Millions) USCS ICS GCS GNMS
Corporate &
Other Total
Balance as of January 1, 2011 $ 175 $ 511 $ 1,544 $ 159 $ 250 $ 2,639
Acquisitions(a) — 538 — 1 20 559
Dispositions — — (1) — — (1)
Other, including foreign currency translation — (26) — — 1 (25)
Balance as of December 31, 2011 $ 175 $ 1,023 $ 1,543 $ 160 $ 271 $ 3,172
Acquisitions — 1——— 1
Dispositions — (2) (1) — — (3)
Other, including foreign currency translation —92——11
Balance as of December 31, 2012 $ 175 $ 1,031 $ 1,544 $ 160 $ 271 $ 3,181
(a) Primarily comprised of the acquisition of Loyalty Partner in 2011. Refer to Note 2 for further discussion.
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