American Express 2013 Annual Report Download - page 73

Download and view the complete annual report

Please find page 73 of the 2013 American Express annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 114

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair values of these financial instruments are estimates based upon
the market conditions and perceived risks as of December 31, 2013,
and require management judgment. These figures may not be
indicative of future fair values. The fair value of the Company cannot
be reliably estimated by aggregating the amounts presented.
VALUATION TECHNIQUES USED IN THE FAIR VALUE
MEASUREMENT OF FINANCIAL ASSETS AND FINANCIAL
LIABILITIES CARRIED AT OTHER THAN FAIR VALUE
For the financial assets and liabilities that are not required to be
carried at fair value on a recurring basis (categorized in the valuation
hierarchy table above) the Company applies the following valuation
techniques to measure fair value:
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, Card Member receivables,
accrued interest and certain other assets. For these assets, the carrying
values approximate fair value because they are short term in duration,
have no defined maturity or have a market-based interest rate.
Financial Assets Carried At Other Than Fair Value
Loans
Loans are recorded at historical cost, less reserves, on the
Consolidated Balance Sheets. In estimating the fair value for the
Company’s loans the Company uses a discounted cash flow model.
Due to the lack of a comparable whole loan sales market for similar
credit card receivables and the lack of observable pricing inputs
thereof, the Company uses various inputs derived from an equivalent
securitization market to estimate fair value. Such inputs include
projected income (inclusive of future interest payments and late fee
revenue), estimated pay-down rates, discount rates and relevant credit
costs.
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 and other prepaid products outstanding, accounts payable,
short-term borrowings and certain other liabilities for which the
carrying values approximate fair value because they are short term in
duration, have no defined maturity or have a market-based interest
rate.
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 future cash flows
and the discount rate that reflects the Company’s current rates for
similar types of CDs within similar markets.
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 and current translation
rates for foreign-denominated debt. The fair value of the Company’s
long-term debt is measured using quoted offer prices when quoted
market prices are available. If quoted market prices are not available,
the fair value is determined by discounting the future cash flows of
each instrument at rates currently observed in publicly-traded debt
markets for debt of similar terms and credit risk. For long-term debt,
where there are no rates currently observable in publicly traded debt
markets of similar terms and comparable credit risk, the Company
uses market interest rates and adjusts those rates for necessary risks,
including its own credit risk. In determining an appropriate spread to
reflect its credit standing, the Company considers credit default swap
spreads, bond yields of other long-term debt offered by the Company,
and interest rates currently offered to the Company for similar debt
instruments of comparable maturities.
NONRECURRING FAIR VALUE MEASUREMENTS
The Company has certain assets that are subject to measurement at
fair value on a nonrecurring basis. For these assets, measurement at
fair value in periods subsequent to their initial recognition is
applicable if determined to be impaired. During the twelve months
ended December 31, 2013 and 2012, the Company did not have any
material assets that were measured at fair value due to impairment.
71