Summary
American Express Company (AXP) has filed an 8-K to disclose its adoption of new revenue recognition guidance from the FASB, effective January 1, 2018. The company elected to apply this standard retrospectively to January 1, 2016. The most significant impact is a reclassification of certain credit and charge card related costs. Previously netted against discount revenue, these costs, including Card Member cash-back rewards, corporate incentives, and payments to third-party GNS card issuing partners, will now be recognized as expenses. This change is expected to increase reported revenues and expenses, with a notable shift in how these costs are presented in financial statements. Furthermore, American Express is consolidating several expense categories under a broader "Marketing and business development" line item, replacing the former "Marketing and promotion" account. This change aims to provide a more comprehensive view of costs associated with business growth. The company also notes a change in its methodology for allocating corporate overhead expenses and interest income/expense to reportable segments, with prior periods conformed to the new presentation. While these changes alter reporting classifications, AXP states they did not have a material impact on retained earnings at the adoption date, net income, or consolidated balance sheets and cash flows.
Key Highlights
- 1Effective January 1, 2018, AXP adopted new FASB revenue recognition guidance (ASC 606).
- 2The company elected the full retrospective adoption method, applying the standard back to January 1, 2016.
- 3Key reclassifications involve Card Member rewards, corporate incentives, and payments to third-party GNS card issuing partners, which will now be expensed rather than netted against discount revenue.
- 4This reclassification leads to an increase in reported discount revenue and a corresponding increase in expenses.
- 5A new "Marketing and business development" expense line item will encompass previously reported "Marketing and promotion" costs and the newly reclassified card-related expenses.
- 6Changes in the allocation methodology for corporate overhead and interest income/expense across operating segments are also effective January 1, 2018, with prior periods conformed.
- 7The adoption of the new revenue standard did not materially impact retained earnings, net income, or the balance sheets/cash flows as of the adoption date.