American Express 2010 Annual Report Download - page 75

fee balance for lending products is reported net in cardmember
loans on the Consolidated Balance Sheets (refer to Note 4).
Travel Commissions and Fees
The Company earns travel commissions and fees by charging
clients transaction or management fees for selling and arranging
travel and for 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 and 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 services
rendered (for example, hotel stays and car rentals) are
recognized based on usage.
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 received as scheduled.
Interest on deposits with banks and other is recognized as
earned, and primarily relates to the placement of cash 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 expense for facility
leases is recognized ratably over the lease term, and is calculated
to include adjustments for rent concessions, rent escalations and
leasehold improvement allowances. The Company accounts for
lease restoration obligations in accordance with applicable
GAAP, which requires recognition of the fair value of
restoration liabilities when incurred, and amortization of
capitalized restoration costs over the lease term.
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AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS