American Express 2014 Annual Report Download - page 76

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AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TOTAL REVENUES NET OF INTEREST EXPENSE
Discount Revenue
Discount revenue represents the amount earned by the Company on transactions occurring at merchants with which the Company, or a
Global Network Services (GNS) partner, has entered into card acceptance agreements for facilitating transactions between the merchants and
the Company’s Card Members. The discount fee generally is deducted from the payment to the merchant and recorded as discount revenue
at the time the charge is captured.
Net Card Fees
Card fees, net of direct card acquisition costs and a reserve for projected membership cancellations, are deferred and recognized on a
straight-line basis over the 12-month card membership period as Net Card Fees in the Consolidated Statements of Income. The unamortized
net card fee balance is reported net in Other Liabilities on the Consolidated Balance Sheets (refer to Note 10).
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 (e.g., 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 (e.g., hotel stays and car rentals) are recognized based on usage.
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 10).
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.
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