American Express 2010 Annual Report Download - page 63

OTHER REPORTING MATTERS
ACCOUNTING DEVELOPMENTS
See the Recently Issued Accounting Standards section of Note 1
to the Consolidated Financial Statements.
GLOSSARY OF SELECTED TERMINOLOGY
Adjusted average loans — Represents average cardmember
loans on a GAAP or managed basis, as applicable, in each
case excluding the impact of deferred card fees, net of
deferred direct acquisition costs of cardmember loans.
Adjusted net interest income — Represents net interest income
allocated to the Company’s cardmember loans portfolio on a
GAAP or managed basis, as applicable, in each case excluding the
impact of card fees on loans and balance transfer fees
attributable to the Company’s cardmember loans.
Asset securitizations — Asset securitization involves the
transfer and sale of receivables or loans to a special purpose
entity created for the securitization activity, typically a trust. The
trust, in turn, issues securities, commonly referred to as asset-
backed securities, that are secured by the transferred receivables
or loans. The trust uses the proceeds from the sale of such
securities to pay the purchase price for the underlying
receivables or loans.
Average discount rate — This calculation is designed to reflect
pricing at merchants accepting general purpose American
Express cards. It represents the percentage of billed business
(both proprietary and Global Network Services) retained by the
Company from merchants it acquires, prior to payments to third
parties unrelated to merchant acceptance.
Basic cards-in-force — Proprietary basic consumer cards-
in-force includes basic cards issued to the primary account
owner and does not include additional supplemental cards
issued on that account. Proprietary basic small business and
corporate cards-in-force include basic and supplemental cards
issued to employee cardmembers. Non-proprietary basic
cards-in-force includes all cards that are issued and
outstanding under network partnership agreements, except
for retail co-brand cardmember accounts which have no out-
of-store spend activity during the prior 12-month period.
Billed business — Includes activities (including cash advances)
related to proprietary cards, cards issued under network
partnership agreements (non-proprietary billed business) and
certain insurance fees charged on proprietary cards. In-store
spend activity within retail co-brand portfolios in Global
Network Services, from which the Company earns no
revenue, is not included in non-proprietary billed business.
Card billed business is reflected in the United States or
outside the United States based on where the cardmember
is domiciled.
Capital asset pricing model — Generates an appropriate
discount rate using internal and external inputs to value
future cash flows based on the time value of money and the
price for bearing uncertainty inherent in an investment.
Capital ratios — Represents the minimum standards
established by the regulatory agencies as a measure to
determine whether the regulated entity has sufficient capital
to absorb on- and off-balance sheet losses beyond current loss
accrual estimates.
Card acquisition — Primarily represents the issuance of new
cards to either new or existing cardmembers through marketing
and promotion efforts.
Cardmember — The individual holder of an issued American
Express branded charge or credit card.
Cardmember loans — Represents the outstanding amount due
from cardmembers for charges made on their American Express
credit cards, as well as any interest charges and card-related fees.
Cardmember loans also include balances with extended
payment terms on certain charge card products and are net of
unearned revenue.
Cardmember receivables — Represents the outstanding
amount due from cardmembers for charges made on their
American Express charge cards as well as any card-related fees.
Charge cards — Represents cards that generally carry no pre-
set spending limits and are primarily designed as a method of
payment and not as a means of financing purchases. Charge
cardmembers generally must pay the full amount billed each
month. No finance charges are assessed on charge cards. Each
charge card transaction is authorized based on its likely
economics reflecting a customer’s most recent credit
information and spend patterns.
Credit cards — Represents cards that have a range of revolving
payment terms, grace periods, and rate and fee structures.
Discount revenue — Represents revenue earned from fees
charged to merchants with whom the Company has entered
into a card acceptance agreement for processing cardmember
transactions. The discount fee generally is deducted from the
Company’s payment reimbursing the merchant for cardmember
purchases. Such amounts are reduced by contra-revenue such as
payments to third-party card issuing partners, cash-back reward
costs and corporate incentive payments.
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 debt.
Interest income — Interest income includes (i) interest and
fees on loans, (ii) interest and dividends on investment securities
and (iii) interest income on deposits with banks and others.
Interest and fees on loans includes interest on loans which 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
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AMERICAN EXPRESS COMPANY
2010 FINANCIAL REVIEW