American Express 2015 Annual Report Download - page 118

INCOME STATEMENT
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 a card acceptance agreement 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 deferred acquisition costs and a reserve for projected refunds for Card Member cancellation, 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 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. Client transaction fee revenue is recognized at the time the client books the travel arrangements. 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, if not transaction specific. 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, generally one year. 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. These payments, including cash rebates and statement credits
provided 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 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 relate to the Company’s performing fixed-income
securities. Interest income is recognized 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 securities are 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.
107