Business Context and Reporting Period
This Form 8-K, dated July 22, 2003, is a current report filed by American Express Company. The filing addresses "Other Events" regarding the presentation of financial ratios. It provides a reconciliation between GAAP-compliant metrics and adjusted metrics that exclude the effects of unrealized gains or losses under SFAS No. 115 and SFAS No. 133. The data covers trailing 12-month periods ending March 31, 2003, and the four preceding quarters of 2002.
Key Financial Metrics
The filing focuses on Return on Average Equity (ROE) and Return on Average Assets (ROA) for the consolidated company and specific segments: Travel Related Services (TRS), American Express Financial Advisors (AEFA), and American Express Bank (AEB). The filing does not provide absolute revenue, profit, cash flow, debt, or liquidity figures.
| Segment | Metric | Q1 2003 (GAAP) | Q1 2003 (Adjusted) |
|---|---|---|---|
| Consolidated | ROE | 20.0% | 20.7% |
| Travel Related Services | ROE | 31.3% | 30.8% |
| Travel Related Services | ROA | 3.3% | 3.3% |
| Financial Advisors | ROE | 9.8% | 10.6% |
| American Express Bank | ROE | 10.9% | 12.1% |
| American Express Bank | ROA | 0.7% | 0.7% |
Material Changes Versus Prior Period
Comparing the trailing 12-month period ended March 31, 2003, to the period ended December 31, 2002:
- Consolidated ROE: Increased slightly from 20.2% (GAAP) to 20.0% (GAAP) and from 20.6% (Adjusted) to 20.7% (Adjusted).
- Travel Related Services ROE: Increased from 30.3% (GAAP) to 31.3% (GAAP).
- Financial Advisors ROE: Decreased from 10.9% (GAAP) to 9.8% (GAAP).
- American Express Bank ROE: Increased from 10.6% (GAAP) to 10.9% (GAAP).
The filing notes that the adjusted ratios generally show higher returns than GAAP ratios for the consolidated entity and most segments due to the exclusion of unrealized losses or gains that inflate equity or asset bases without corresponding net income recognition.
Management Commentary and Risks
Management asserts that adjusted ROE and ROA ratios provide a better correlation of realized return on equity or assets invested. They argue that unrealized gains or losses under SFAS No. 115 and 133 are not certain to be recognized in net income and therefore should be excluded from the denominators of these ratios. Similarly, the company reports book value per common share both with and without the effects of these accounting standards to present a view based on underlying realized earnings. The filing does not disclose new risks, contingencies, or unusual items beyond the accounting methodology discussion.
Investor Verification Checklist
- Verify the specific unrealized gains or losses under SFAS No. 115 and 133 impacting the equity and asset bases in the full 10-Q or 10-K filings.
- Confirm the absolute dollar values of net income and average equity/assets to contextualize the percentage returns provided.
- Review the April 24, 2003, and May 14, 2003, filings referenced in the text for historical context on these adjusted metrics.
- Assess the impact of the $75 million average preferred stock exclusion on the American Express Bank ROE calculations.