American Express 2013 Annual Report Download - page 68

AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other Commissions and Fees
Other commissions and fees include foreign currency conversion fees,
Card Member delinquency fees, service fees and other card related
assessments, which are recognized primarily in the period in which
they are charged to the Card Member (refer to Note 19). In addition,
service fees are also earned from other customers (e.g., merchants) for
a variety of services and are recognized when the service is performed,
which is generally in the period the fee is charged. 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, corporate payments clients, Card
Members and certain other customers. Payments to such customers,
including cash rebates paid to Card Members, are generally classified
as contra-revenue unless a specifically identifiable benefit (e.g., goods
or services) is received by the Company or its Card Members 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 in the
Consolidated Statements of Income in the revenue line item where the
related transactions 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 Card Member loans is assessed using the average daily
balance method. Unless the loan is classified as non-accrual, interest is
recognized based upon the outstanding balance, 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 Card
Member loans, charge card product receivables, general corporate
purposes, and liquidity needs, and is recognized as incurred. Interest
expense is divided principally into two categories: (i) deposits, which
primarily relates to interest expense on deposits taken from customers
and institutions, and (ii) long-term debt and other, which primarily
relates to interest expense on the Company’s long-term financing and
short-term borrowings, and the realized impact of derivatives hedging
interest rate risk.
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 10 years for equipment, furniture and building
improvements. Premises are depreciated based upon their estimated
useful life at the acquisition date, which generally ranges from 30 to 50
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 includes adjustments for rent
concessions, rent escalations and leasehold improvement allowances.
The Company recognizes lease restoration obligations at the fair value
of the restoration liabilities when incurred, and amortizes the
restoration assets over the lease term.
The Company capitalizes certain costs associated with the
acquisition or development of internal-use software. Once the
software is ready for its intended use, these costs are amortized on a
straight-line basis over the software’s estimated useful life, generally 5
years.
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