American Express 2003 Annual Report Download - page 81

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throughout its term. Gains and losses on securities are recognized on a trade date basis, and charges are recorded when
securities are determined to be other-than-temporarily impaired.
Investment income for the Company’s international banking loans is accrued on unpaid principal balances in accordance
with the terms of the loan. Loan fees and deferred loan acquisition costs are amortized over the life of the loan using the
effective interest method. Generally, the accrual of interest on these loans is discontinued at the time the loan is 90 to 180
days delinquent, depending on loan type, or when an impairment is determined. Net investment income is presented net of
interest expense of $229 million, $254 million and $434 million for the years ended December 31, 2003, 2002 and
2001, respectively.
Management and distribution fees
Management fees relate primarily to managed assets for proprietary mutual funds and proprietary account assets, and are
primarily based on the underlying asset values which are accrued daily and generally collected monthly. Many of the pro-
prietary mutual funds have a performance incentive adjustment (PIA). This PIA adjusts the level of management fees
received based on the specific fund’s relative performance as measured against a designated external index. Distribution
fees primarily include point-of-sale fees (i.e., front-load mutual fund fees) and asset-based fees (i.e., 12b-1 fees) that are gen-
erally based on a contractual fee as a percentage of assets and recognized when received.
Securitization income, net
Securitization income includes gains on securitizations, cash flows from interest-only strips and servicing revenue net of
related discounts. See Note 4 for further information regarding securitizations.
Net card fees
Card fees are recognized as revenue over the card membership period covered by the card fee, net of provision for projected
refunds of card fees for cancellation of card membership. Similarly, deferred card acquisition costs are amortized into oper-
ating expenses over the card membership period covered by the card fee.
Cardmember lending net finance charge revenue
Cardmember lending finance charges are assessed using the average daily balance method for receivables owned and are
recognized based upon the principal amount outstanding in accordance with the terms of the applicable account agree-
ment until the outstanding balance is paid or charged off. Cardmember lending net finance charge revenue is presented
net of interest expense of $483 million, $510 million and $939 million for the years ended December 31, 2003, 2002 and
2001, respectively.
Travel commissions and fees
Customer revenue is earned by charging a transaction or management fee for airline or other transactions based on con-
tractual agreements with travel clients. Customer-related fees and other revenues are recognized at the time a client books
travel arrangements. Travel suppliers pay commissions on airline tickets issued and on sales and transaction volumes, based
on contractual agreements. These revenues are recognized at the time a ticket is purchased. Other travel suppliers are
generally not under firm contractual agreements, and revenue is recognized when cash is received.
Other commissions and fees
Other commissions and fees include card-related assessments which are primarily recognized in the period charged to the
cardmember. Fees related to the Company’s Membership Rewards program are recognized over the period covered by the fee.
Insurance and annuity revenues
Insurance and annuity revenues include premiums on traditional life, disability income, long-term care and property/casu-
alty insurance and certain charges assessed on universal and variable universal life insurance and annuities. Premiums on
traditional life, disability income and long-term care insurance are recognized as revenue when due, whereas premiums on
property/casualty insurance are recognized ratably over the coverage period. Cost of insurance charges on universal and
(p.79_axp_ notes to consolidated financial statements)