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AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2
ACQUISITIONS AND DIVESTITURES
Loyalty Partner Acquisition
On March 1, 2011, the Company completed the acquisition of a
controlling interest in Loyalty Partner, a leading marketing services
company that operates loyalty programs in Germany, Poland, India
and Mexico. Loyalty Partner also provides market analysis, operating
platforms and consulting services that help merchants grow their
businesses. Total consideration was $616 million. Upon acquisition,
the Company had an option to acquire the remaining non-controlling
equity interest (NCI) over a three-year period beginning at the end of
2013 at a price based on business performance, which had an
estimated fair value of $148 million at the acquisition date.
This acquisition did not have a significant impact on either the
Company’s consolidated results of operations or the International
Card Services segment (ICS) for the years ended December 31, 2013,
2012 and 2011.
The following table summarizes the assets acquired and liabilities
assumed for this acquisition as of the acquisition date:
(Millions)
Loyalty
Partner(a)
Goodwill $ 539
Definite-lived intangible assets 295
Other assets 208
Total assets 1,042
Total liabilities (including NCI) 426
Net assets acquired $ 616
(a) The final purchase price allocation was completed in 2012. The above
amounts do not differ significantly from the estimates at the acquisition date.
In November 2013, the Company entered into an agreement to
extinguish a portion of the NCI in exchange for a cash payment of
$132 million and to convert the remaining NCI to an option that is
accounted for as a long-term liability with an initial value of $121
million. The Company reduced equity by $107 million in connection
with this agreement.
GLOBAL BUSINESS TRAVEL DIVESTITURE
As announced during the third quarter of 2013, the Company plans to
create a new joint venture for its Global Business Travel (GBT)
operations. It is expected that GBT’s operations, business relationships
and other assets would be held and operated by the joint venture
entity. As presently contemplated, at the closing of the transaction the
Company would maintain an approximate 50 percent ownership stake
in the joint venture, while an investor group would own the remaining
interest. The transaction remains subject to the execution of definitive
agreements and receipt of regulatory and other approvals. Assuming
these conditions are met, the Company would plan to close the
transaction in the second quarter of 2014.
NOTE 3
FAIR VALUES
Fair value is defined as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market
participants at the measurement date, based on the Company’s
principal or, in the absence of a principal, most advantageous market
for the specific asset or liability.
GAAP provides for a three-level hierarchy of inputs to valuation
techniques used to measure fair value, defined as follows:
폷Level 1 — Inputs that are quoted prices (unadjusted) for identical
assets or liabilities in active markets that the entity can access.
폷Level 2 — Inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly or
indirectly, for substantially the full term of the asset or liability,
including:
–Quoted prices for similar assets or liabilities in active markets;
–Quoted prices for identical or similar assets or liabilities in
markets that are not active;
–Inputs other than quoted prices that are observable for the asset
or liability; and
–Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
폷Level 3 — Inputs that are unobservable and reflect the Company’s
own estimates about the estimates market participants would use in
pricing the asset or liability based on the best information available
in the circumstances (e.g., internally derived assumptions
surrounding the timing and amount of expected cash flows). The
Company did not measure any financial instruments presented on
the Consolidated Balance Sheets at fair value on a recurring basis
using significant unobservable inputs (Level 3) during the years
ended December 31, 2013 and 2012, although the disclosed fair
value of certain assets that are not carried at fair value, as presented
later in this Note, are classified within Level 3.
The Company monitors the market conditions and evaluates the fair
value hierarchy levels at least quarterly. For any transfers in and out of
the levels of the fair value hierarchy, the Company discloses the fair
value measurement at the beginning of the reporting period during
which the transfer occurred.
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