| Basis of Presentation | 1 . Basis of Presentation The Company Americ an Express Company is a globally integrated payments company that provides customers with access to products, insights and experiences that enrich lives and build business success. Our principal products and services are charge and credit payment card products and travel-related services offered to consumers and businesses around the world. Business travel-related services are offered through the non-consolidated joint venture, American Express Global Business Tr avel (the GBT JV). Our various products and services are sold globally to diverse customer groups, including consumers, small businesses, mid-sized companies and large corporations. These products and services are sold through var ious c hannels, including mobile and online applications, direct mail, in-ho use sales teams, third-party vendors and direct response advertising . Effective for the second quarter of 2018, we realigned our reportable operating segments to reflect the organi zational changes announced during the first quarter of 2018. Prior periods have been revised to conform to the new reportable segments, which are as follows : Global Consumer Services Group (GCSG), which primarily issues a wide range of proprietary consumer cards globally. GCSG also provides services to consumers, including travel services and non-card financing products, and manages certain international joint ventures and our partnership agreements in China. Global Commercial Services (GCS), which primari ly issues a wide range of proprietary corporate and small business cards and provides payment and expense management services globally. In addition, GCS provides commercial financing products. Global Merchant and Network Services (GMNS), which operates a global payments network that processes and settles card transactions, acquires merchants and provides multi-channel marketing programs and capabilities, services and data analytics, leveraging our global integrated network. GMNS enters into partnership agr eements with third-party card issuers and acquirers, licensing the American Express brand and extending the reach of the global network. GMNS also manages loyalty coalition businesses in certain countries around the world and our reloadable prepaid and gif t card businesses. Corporate functions and certain other businesses and operations are included in Corporate & Other. The accompanying Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Stat ements included in our Annual Report on Form 10-K for the year ended December 31, 2017 (the Annual Report). If not materially different, certain footnote disclosures included therein have been omitted from this Quarterly Report on Form 10-Q. The interim consolidated fina ncial information in this report has not been audited. In the opinion of management, all adjustments, which consist of normal recurring adjustments necessary for a fair statement of the interim period consolidated financial information, have been made. Res ults of operations reported for interim periods are not necessarily indicative of results for the entire year. The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosures of contingent assets and liabilities. These accounting estimates reflect the best judgment of management, but actual results could differ. Discount Revenue Discount revenue primarily represents the amount we earn on transactions occurring at merchants that have entered into a card acceptance agreement with us, or a Global Network Services (GNS) partner or other third-party merchant acquirer, for facilitating transactions between the merchants and Card Members. The amount of fees charged, or merchant discount, varies with, among other factors, the indus try in which the merchant conducts business, the merchant’s overall transaction volume, the timing and method of payment to the merchant, the method of submission of transactions and, in certain instances, the geographic scope of the card acceptance agreem ent signed with us (e.g., local or global) and the transaction amount. The merchant discount is generally deducted from the payment to the merchant and recorded a s discount revenue at the time the Card Member transaction occurs . The card acceptance agre eme nts, which outline the agreed- upon terms for charging the merchant discount fee, vary in duration. Our contracts with small- and medium-sized merchants generally have no fixed contractual duration, while those with large merchants are generally for fixed p eriods, which typically range from three to seven years in duration. Our fixed-period agreements may include auto-renewal features , which may allow the existing terms to continue beyond the stated expiration date until a new agreement is reached. We satis fy our obligations under these agreements over the contract term, often on a daily basis, through the processing of Card Member transactions and the availability of our payment network. In cases where the merchant acquirer is a third party (which is the ca se , for example, under our OptBlue program, or with certain of our GNS partners ), we receive a network rate fee in our settlement with the merchant acquirer, which is individually negotiated between us and that merchant acquirer and is recorded as discount revenue at the time the Card Member transaction occurs. In our role as the operator of the American Express network, we also settle with merchants on behalf of our GNS card issuing partners, who in turn receive an issuer rate that is individually negotiat ed between that issuer and us and is recorded as expense in Marketing and business development (see below) or as contra-revenue in Other revenue. In contrast with networks such as those o perated by Visa Inc. and Masterc ard Incorporated, there are no collec tively set interchange rates or network rates on the American Express network, and no fees are agreed or due between the GNS partners on the network. Net Card Fees Net card fees represent revenue earned from annual card membership fees, which vary based on the type of card and the number of cards for each account. These fees, net of acquisition costs and a reserve for projected refunds for Card Member cancellations, are deferred a nd recognized on a straight-line basis over the twelve-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. Other F ees and Commissions Other fees and commissions includes certain fees charged to Card Members, including delinquency fees and foreign currency conversion fees, which are primarily recognized in the period in which they are charged to the Card Member. Other fees and commissions also includes Membership Rewards program fees, which are deferred and recognized over the period covered by the fee, typically one year, the unamortized portion of which is included in Other Liabilities on the Consolidated Balance She ets. In addition, Other fees and commissions includes loy alty coalition-related fees, travel commissions and fees and service fees earned from merchants , that are recognized when the service is performed, which is generally in the period the fee is charged . Refer to Note 13 for additional information. Contra-revenue P ayments made through contractual arrangements with our merchants, GNS partners, and other customers are classified as expense where we receive goods , services or other benefits , for which the fair va lue is determinable and measurable. If these conditions are not met, the p ayment is classified as c ontra-revenue with the related revenue transaction (e.g., Di scount revenue or Other revenue ) and recorded when incurred . 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 our performing fixed-income securities. Interest income is recognized as earned using the effective interest method, which adjusts the yie ld 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 becomes 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 s weep accounts, and other interest-bearing demand and call accounts. Interest Expense Interest expense includes interest incurred primarily to fund Card Member loans and receivables, general corporate purposes and liquidity needs, and is recognized as in curred. 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) debt, which primarily relates to interest expense on our long-term de bt and short-term borrowings, as well as the realized impact of derivatives used to hedge interest rate risk on our long-term debt. Marketing and Business Development As further described below under “Recently Adopted Accounting Standards,” e ffective Janu ary 1, 2018, in conjunction with the adoption of the new revenue recognition standard, the previously disclosed “Marketing and Promotion” line on the Consolidated Statements of Income was changed to “Marketing an d Business Development” to reflect the inclu sion of certain reclassified costs from Contra-discount revenue and O ther expenses. Marketing and business development provides a more comprehensive view of costs related to building and growing our business, i ncluding the reclassified costs . Marketing and business development expense includes costs incurred in the development and initial placement of advertising, which are expensed in the year in which the advertising first takes place. Also included in Marketing and business development expense are Car d Member statement credits for qualifying charges on eligible card accounts, corporate incentive payments earned on achievement of preset targets , and certain payments to GNS card issuing partners. These costs are generally expensed as incurred . Card Memb er Rewards We issue charge and credit cards that allow Card Members to participate in various rewards programs (e.g. , Membership Rewards, cobrand and cash back). Rewards expense is recognized in the period Card Members earn rewards, generally by spending on their enrolled card products . We record a Card Member rewards liability that represents the estimated cost of points earned that are expected to be redeemed. Card Member rewards liabilities are impacted over time by enrollment levels, attrition, the vo lume of points earned and redeemed, and the associated redemption costs. Changes in the Card Member rewards liabilities during the period are taken as a charge or release to the Card Member rewards line. Effective January 1, 2018, in conjunction with the n ew revenue recognition standard, Card Member rewards also includes cash-back rewards , which were reclassified from contra discount revenue. Classification of various items Certain reclassifications of prior period amounts have been made to conform to the current period presentation, including the reclassification of certain business development expenses from Other expenses to Marketing and business development , that we re not directly attributable to the adoption of the new revenue recognition guidance. Recently Issued Accounting Standards In February 2016, the Financial Accounting Standards Board (FASB) issued new accounting guidance on leases. The guidance, effective January 1, 2019, with early adoption permitted, requires virtually all leases to be re cognized on the Consolidated Balance Sheets. We will adopt the standard effective January 1, 2019. The new guidance currently requires a modified retrospective transition approach , which would cause us to record existing operating leases on the Consolidat ed Balance Sheets upon adoption and in the comparative period. In January 2018, the FASB released an exposure draft that, if issued in its current form, would provide us with the option to adopt the provisions of the new guidance prospectively, without adj usting the comparative periods presented. We are in the process of upgrading our lease administration software and changing business processes and internal controls in preparation for the adoption. Specifically, we are currently reviewing our lease portfolio and are evaluating and interpreting the requirements under the guidance, including the available accounting policy elect ions, in order to determine the impacts on our financial position, results of operations, cash flows and regulatory risk-based capital, upon adoption . In June 2016, the FASB issued new accounting guidance for recognition of credit losses on financial inst ruments, effective January 1, 2020, with early adoption permitted on January 1, 2019. The guidance introduces a new credit reserving model known as the Current Expected Credit Loss (CECL) model, which is based on expected losses, and differs significantly from the incurred loss approach used today. The CECL model requires measurement of expected credit losses not only based on historical experience and current conditions, but also by including reasonable and supportable forecasts incorporating forward-looki ng information. In addition, for available-for-sale debt securities, the new guidance replaces the other-than-temporary impairment model, and requires the recognition of an allowance for reductions in a security’s fair value attributable to declines in cre dit quality, instead of a direct write-down of the security when a valuation decline is determined to be other-than-temporary. The guidance also requires a cumulative-effect adjustment to retained earnings as of the beginning of the reporting period of ado ption. We do not intend to adopt the new standard early and are currently evaluating the impact the new guidance will have on our financial position, results of operations, cash flows and regulatory risk-based capital ; however, it is expected that the CECL model will alter the assumptio ns used in estimating credit losses on Card Member loans and receivables, and may result in material increases to our credit reserves as the new guidance involves earlier recognition of expected losses for the life of the assets. We have established an en terprise-wide, cross-discipline governance structure to implement the new standard, and continue to identify and conclude on key interpretive issues along with evaluating our existing credit loss forecasting models and processes in relation to the new guid ance to determine what modifications may be required. In February 2018, as a result of the enactment of the Tax Cuts and Jobs Act (the Tax Act), the FASB issued new accounting guidance on the reclassification of certain tax effects from accumulated other c omprehensive income (loss) (AOCI) to retained earnings. The optional guidance is effective January 1, 2019, with early adoption permitted. We are evaluating whether we will adopt the new guidance along with any impacts on our financial position, results of operations and cash flows, none of which are expected to be material. Recently Adopted Accounting Standards Effective January 1, 2018, we adopted new revenue recognition guidance issued by the FASB related to contracts with customers. The scope of the new guidance excludes financial instruments such as credit and charge card arrangements. We elected to adopt the standard using the full retrospective method, which we believe is most useful to our investors. Under the full retrospective method, we are applyi ng the standard back to January 1, 2016. As shown below, the most significant impacts of adoption are changes to the classification of certain revenues and expenses, including certain credit and charge card related costs previously netted against discount revenue, such as Card Member cash-back reward costs and statement credits, corporate incentive payments, as well as payments to third-party GNS card issuing partners. Under the new revenue standard, these costs are not considered components of the transact ion price of our card acceptance agreements with merchants and thus are not netted against discount revenue, but instead are recognized as expenses. Our payments to third-party GNS card issuing partners are presented net of related revenues earned from the partners. The impact to the 2017 fiscal quarters and years ended December 31, 2017 and 2016 were as follows: Increase (Decrease) Three months ended Year Ended December (Millions) December 31, 2017 September 30, 2017 June 30, 2017 March 31, 2017 2017 2016 Revenues Discount revenue $ 981 $ 930 $ 928 $ 868 $ 3,707 $ 3,699 Other (78) (71) (64) (65) (278) (253) Expenses Marketing and business development 617 591 593 549 2,350 2,420 Card Member rewards $ 286 $ 268 $ 271 $ 254 $ 1,079 $ 1,026 In addition, the cumulative impact to our retained earnings on January 1, 2016 was an increase of $55.2 million. The adoption of the new guidance also resulted in changes to the recognition timing of certain revenues, the impact of which is not material to net income. Similarly, the adoption did not have a material impact on our Consolidated Balance Sheets or Statements of Cash F lows. We had no material c ontract assets, contract liabilities or deferred contract costs recorded on the Consolidated Balance Sheet as of June 30 , 2018 and December 31, 2017. Contracts assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. In ad opting the guidance, we implemented changes to our accounting polici es, business processes, systems and internal controls to support the recognition, measurement and disclosure requirements under the new standard. Such changes were not material. In January 2016, the FASB issued new accounting guidance on the recognition a nd measurement of financial assets and financial liabilities, which was effe ctive and adopted by us as of January 1, 2018. The guidance makes targeted changes to GAAP; specifically to the classification and measurement of equity securities, and to certain disclosure requirements associated with the fair value of fin ancial assets and liabilities. This applies to investments we make in non-public companies i n the ordinary course of business , which historically were recognized under the cost method of accounti ng. These investments will be prospectively adjusted through earnings for observable price changes upon the identification of identical or similar transactions of the same company. The adoption of the guidance did not have a material impact on our financia l position, results of operat ions and cash flows. We implemented changes to our accounting policies, business processes and internal controls in support of the new guidance . Such changes were not material. In August 2017, the FASB issued new accounting gu idance providing targeted improvements to the accounting for hedging activities, effective January 1, 2019, with early adoption permitted in any interim period or fiscal year before the effective date. The guidance introduces a number of amendments, severa l of which are optional, that are designed to simplify the application of hedge accounting, improve financial statement transparency and more closely align hedge accounting with an entity’s risk management strategies. Effective January 1, 2018, we adopted the guidance, with no material impact on our financial position, results of operations and cash flows, along with associated changes to our accounting policies, business processes and internal controls in support of the new guidance. Such changes were not material. |
