American Express 2009 Annual Report Download - page 76

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN EXPRESS COMPANY
yield on the product, and are recognized in interest and fees
on loans in the Consolidated Statements of Income. The
unamortized net card fee balance for lending products is
reported net in cardmember loans on the Consolidated
Balance Sheets (refer to Note 5).
Travel Commissions and Fees
The Company earns travel commissions and fees by charging
clients transaction or management fees for selling and
arranging travel and travel management services. Client
transaction fee revenue is recognized at the time the client
books the travel arrangements. Travel management services
revenue is recognized over the contractual term of the
agreement. The Company’s travel suppliers (for example,
airlines, hotels, car rental companies) pay commissions and
fees on tickets issued, sales and other services based on
contractual agreements. Commissions and fees from travel
suppliers are generally recognized at the time a ticket is
purchased or over the term of the contract. Commissions and
fees that are based on actual usage that is unknown at time of
purchase (for example, hotel and car rentals) are recognized
when cash is received.
Other Commissions and Fees
Other commissions and fees include foreign currency
conversion fees, delinquency fees, service fees and other card
related assessments, which are recognized primarily in the
period in which they are charged to the cardmember. Also
included are fees related to the Company’s Membership
Rewards program, which are deferred and recognized over the
period covered by the fee. The unamortized Membership
Rewards fee balance is included in other liabilities on the
Consolidated Balance Sheets (refer to Note 11).
Contra-revenue
The Company regularly makes payments through contractual
arrangements with merchants, Commercial Card clients and
certain other customers, collectively the “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 on loans owned is assessed using the average daily
balance method. Interest is recognized based upon the loan
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 a
constant rate of return is recognized on the investment
security’s outstanding balance. Amounts are recognized until
such time as a security is in default or when it is likely that
future interest payments will not be made as scheduled.
Interest 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 loans, 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 financing.
BALANCE SHEET
Cash and Cash Equivalents
Cash and cash equivalents include cash and amounts due
from banks, interest-bearing bank balances, including
securities purchased under resale agreements and other highly
liquid investments with original maturities of 90 days or less.
Premises and Equipment
Premises and equipment, including leasehold improvements,
are carried at cost less accumulated depreciation. Costs
incurred during construction are capitalized and are
depreciated once an asset is placed in service. Depreciation is
generally computed using the straight-line method over the
estimated useful lives of assets, which range from 3 to 8 years
for equipment. Premises are depreciated based upon their
estimated useful life at the acquisition date, which generally
ranges from 40 to 60 years.
Leasehold improvements are depreciated using the
straight-line method over the lesser of the remaining term of
the leased facility or the economic life of the improvement,
which ranges from 5 to 10 years. The Company maintains
operating leases worldwide for facilities and equipment. Rent
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