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Summary of Significant Accounting Policies | 12 Months Ended
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Dec. 31, 2014
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Basis of Presentation | NOTE 1 Summary of Significant Accounting Policies The Company American Express Company (the Company) is a global service s company that provides customers with access to products, insights and experiences that enrich lives and build business success. The Company’s principal products and services are charge and credit payment card products and travel-related services offered t o consumers and businesses around the world. After June 30, 2014, business travel-related services are offered through the non-consolidated joint venture, American Express Global Business Travel (GBT JV). Until June 30, 2014, the business travel opera tions were wholly owned. The Company also focuses on generating alternative sources of revenue on a global basis in areas such as online and mobile payments and fee-based services. The Company’s 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 various chan nels, including direct mail, on line applications, targeted direct and third-party sales fo rces a nd direct response advertising. Principles of Consolidation The Consolidated Financial Statements of the Company are prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Significant intercompany transactions are eliminated. The Company consolidates entities in which it holds a “controlling financial interest.” For voting interest entities, the Company is considered to hold a controlling financial interest when it is abl e to exercise control over the investees’ operating and f inancial decisions. For variable interest entities (VIEs), it is considered to hold a controlling financial interest when it is determined to be the primary beneficiary. A primary beneficiary is the party that has both: (1) the power to direct the activiti es that most significantly impact that entity’s economic performance, and (2) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. The determination of whether an entity is a V IE is based on the amount and characteristics of the entity’s equity. Entities in which the Company’s voting interest in common equity does not provide it with control, but allows the Company to exert significant influence over the operating and financial decisions, are accounted for under the equity method. All other investments in equity securities, to the extent that they are not considered marketable securities, are accounted for under the cost method. Foreign Currency Assets and liabilities denomin ated in foreign currencies are translated into U.S. dollars based upon exchange rates prevailing at the end of each year. The resulting translation adjustments, along with any related qualifying hedge and tax effects, are included in accumulated other comp rehensive income (loss) (AOCI), a component of shareholders’ equity. Translation adjustments, including qualifying hedge and tax effects, are reclassified to earnings upon the sale or substantial liquidation of investments in foreign operations. Revenues a nd expenses are tra nslated at the average month-end exchange rates during the year. Gains and losses related to transactions in a currency other than the functional currency, including operations outside the U.S. where the functional currency is the U.S. d ollar, are reported net in the Company’s Consolidated Statements of Income, in other non-interest revenue, interest inc ome, interest expense, or other expense s, depending on the nature of the activity. Net foreign currency transaction gains amounted to app roximately $44 million, $108 million and $120 million in 2014, 2013 and 2012, respectively. Amounts Based on Estimates and Assumptions Accounting estimates are an integral part of the Consolidated Financial Statements. These estimates are based, in part, on management’s assumptions concerning future events. Among the more significant assumptions are those that relate to reserves for C ard M ember losses on loans and receivables, the proprietary point liability for Membership Rewards cost s, fair value measurement, goodwill and income taxes. These accounting estimates reflect the best judgment of management, but actual results could differ. 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 Member s. The discount fee generally is deducted from the payment to the merchant and recorded as discount revenue at the time t he 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 F ees in the Conso lidated Statements of Income. T he unamortized net card fee balance is reported net in Other L iabilities 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 Comp any’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 tra vel 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 F ees Other commissions and fees include foreign currency conversion fees, Card Member delinquency fe es, 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 Not e 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. A lso 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 L iabilities on the Consolidated Bal ance Sheets (refer to Note 10). Contra-reven ue The Company regularly makes payments through contractual arrangements with merchants, corporate payments c lients, Card Members and certain other customers. Payments to such customers, including cash rebates paid to Card Members, are generally classifie d 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 transaction s are recorded (e.g., discount revenue, travel commissions and fees and othe r 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 t he 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 s ecurities 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 const ant 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 deposit s 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 primari ly 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 deri vatives 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 depr eciated 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 improvement s. 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 operatin g leases worldwide for facilities and equipment. Rent expense for facility leases is recognized ratably over the lease term, and include s 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 amortiz es the restor ation 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 es timated useful life, generally 5 years. O ther Significant Accounting P olicies The following table identifies the Company’s other significant accounting policies, the Note and page where the N ote can be found.
|  | Note |  |  |  |
Significant Accounting Policy | Number | Note Title | Page
Accounts Receivable |  | Note 3 |  | Accounts Receivable and Loans |  | Page 79
Loans |  | Note 3 |  | Accounts Receivable and Loans |  | Page 79
Reserves for Losses |  | Note 4 |  | Reserves for Losses |  | Page 84
Investment Securities |  | Note 5 |  | Investment Securities |  | Page 86
Asset Securitizations |  | Note 6 |  | Asset Securitizations |  | Page 88
Goodwill and Other Intangible Assets |  | Note 7 |  | Other Assets |  | Page 89
Membership Rewards |  | Note 10 |  | Other Liabilities |  | Page 95
Stock-based Compensation |  | Note 11 |  | Stock Plans |  | Page 95
Retirement Plans |  | Note 12 |  | Retirement Plans |  | Page 98
Legal Contingencies |  | Note 13 |  | Commitments and Contingencies |  | Page 98
Derivative Financial Instruments and Hedging Activities |  | Note 14 |  | Derivatives and Hedging Activities |  | Page 100
Fair Value Measurements |  | Note 15 |  | Fair Values |  | Page 104
Income Taxes |  | Note 21 |  | Income Taxes |  | Page 113
Regulatory Matters and Capital Adequacy |  | Note 23 |  | Regulatory Matters and Capital Adequacy |  | Page 116
Reportable Operating Segments |  | Note 25 |  | Reportable Operating Segments and Geographic Operations |  | Page 118
Recently Issued Accounting Standards Accounting Standards Update (ASU) No. 2014-09, Revenue Recognition (Topic 606): Revenue from Contracts with Custome rs was issued on May 28, 2014. The guidance establishes the principles to apply to determine the amount and timing of revenue recognition, specifying the accounting for certain costs related to revenue, and requiring additional disclosures about the nature, amount, timing and uncertainty of re venues and related cash flows. The guidance supersedes most of th e current revenue recognition requirements, and will be effective January 1, 2017. The Company is currently evaluating the impact this guidance, including the method of implementation, will have on its financial position, results of operations and cash flo ws, among other items. ASU No. 2014-01, Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects was issued on January 15, 2014. Provided certain conditions are met, this standa rd permits entities to account for investments in qualified affordable housing projects using the proportional amortization method, which results in amortizing the initial cost of the investment in proportion to the tax credits and other tax benefits recei ved, and recognizing the net investment performance in the income statement as a component of income tax expense. Additionally, the standard requires new disclosures about all investments in qualified affordable housing projects irrespective of the method used to account for the investments. The standard, which is to be retrospectively applied, is effective January 1, 2015, and if adopted is not expected to have a material impact on the Company’s financial position or results of operations upon adoption. Classificatio n of Various Items Certain reclassifications of prior period amounts have been made to conform to the current period presentation. T hese reclassifications did not have a material impact on the Company’s financial position, results of operations or cash flo ws.

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