American Express 2008 Annual Report Download - page 73

notes to consolidated financial statements
american express company
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in the securitization after deducting the interest paid on the
investor certificates, credit losses, contractual servicing fees and
other expenses.
Other Non-Interest Revenues
Other revenues includes insurance premiums earned from
cardmember travel and other insurance programs, publishing
revenues, revenues arising from contracts with GNS partners
including royalties and signing fees, and other miscellaneous
revenue and fees.
Contra-revenue
The Company regularly makes payments through contractual
arrangements with merchants, Corporate Card Clients and
certain other customers. Payments to customers are generally
classified as contra-revenue unless a specifically identifiable
benefit (e.g., goods or services) is received by the Company
in consideration for that payment and the fair value of such
benefit is determinable and measurable. If no such benefit
is identified, then the entire payment is classified as contra-
revenue, and included within total non-interest revenues in the
Consolidated Statements of Income in the line item where the
related transaction revenues are recorded (e.g., discount revenue,
travel commissions and fees, and other commissions and fees).
If such a benefit is identified, then the payment is classified as
expense up to the estimated fair value of the benefit.
Interest Income
Interest and fees on loans is assessed using the average daily
balance method for loans owned. These amounts are recognized
based upon the principal amount outstanding in accordance
with the terms of the applicable account agreement until the
outstanding balance is paid or written-off.
Interest and dividends on investment securities primarily
relates to the Company’s performing fixed-income securities.
Interest income is accrued as earned using the effective
interest method, which adjusts the yield for security premiums
and discounts, fees and other payments, so that the related
investment security recognizes a constant rate of return on the
outstanding balance throughout its term. These amounts are
recognized until these securities are in default or when it is likely
that future interest payments will not be made as scheduled.
Interest income on deposits with banks and other is
recognized as earned, and primarily relates to the placement of
cash in excess of near-term funding requirements in interest-
bearing time deposits, overnight sweep accounts, and other
interest bearing demand and call accounts.
Interest Expense
Interest expense includes interest incurred primarily to fund
cardmember lending, charge card product receivables, general
corporate purposes, and liquidity needs, and is recognized
as incurred. Interest expense is divided principally into three
categories (i) deposits, which primarily relates to interest
expense on deposits taken from customers and institutions,
(ii) short-term borrowings, which primarily relates to interest
expense on commercial paper, federal funds purchased, bank
overdrafts, and other short-term borrowings, and (iii) long-
term debt, which primarily relates to interest expense on the
Company’s long-term debt.
expenses
Marketing, Promotion, Rewards, and Cardmember Services
Marketing and promotion expense includes advertising costs,
which are expensed in the year in which the advertising first
takes place. Cardmember rewards expense includes the costs of
rewards programs (including Membership Rewards, discussed
in the Other Liabilities section below). Cardmember services
expense includes protection plans and complimentary services
provided to cardmembers.
Stock-based Compensation
The Company recognizes the cost of employee stock awards
granted in exchange for employee services based on the grant-
date fair value of the award, net of expected forfeitures. Those
costs are recognized ratably over the vesting period, which is
generally 25 percent per year beginning with the first anniversary
of the grant date.
Other, Net Expense
Other, net expense includes general operating expenses,
gains (losses) on sale of assets or businesses not classified as
discontinued operations, and litigation and insurance costs or
settlements.
balance sheet
Cash and cash equivalents
Cash and cash equivalents include cash and amounts due from
banks, interest-bearing bank balances including federal funds sold
and securities purchased under resale agreements, and other highly
liquid investments with original maturities of 90 days or less.
Accounts Receivable
Cardmember receivables
Cardmember receivables represent amounts due from charge
card customers. These receivables are recorded at the time
a cardmember enters into a point-of-sale transaction with a
merchant. Cardmember receivable balances are presented on the
Consolidated Balance Sheets net of reserves for losses, discussed
below, and includes principal and any related accrued fees.
Reserves for losses — cardmember receivables
Reserves for losses relating to cardmember receivables represent
management’s best estimate of the losses inherent in the
Company’s outstanding portfolio of receivables. Management’s