8-KOther Events

AMERICAN EXPRESS CO 8-K Report (Jul 22, 2003)

Filed July 22, 2003For Securities:AXP

Summary

This 8-K filing from American Express Company, filed on July 22, 2003, provides a crucial update on the company's financial performance metrics, specifically focusing on Return on Average Equity (ROE) and Return on Average Assets (ROA). The report details how American Express calculates these key ratios, both on a Generally Accepted Accounting Principles (GAAP) basis and an adjusted basis that excludes the impact of unrealized gains and losses from SFAS No. 115 (Accounting for Certain Investments in Debt and Equity Securities) and SFAS No. 133 (Accounting for Derivative Instruments and Hedging Activities). Management presents these adjusted figures, stating they offer a more meaningful correlation of realized returns for investors by removing the volatility associated with these accounting standards from the equity and asset bases used in the calculations.

Key Highlights

  • 1American Express is providing updated ROE and ROA figures, both on a GAAP basis and an adjusted basis excluding SFAS No. 115 and 133 impacts.
  • 2Management believes the adjusted ratios provide a better measure of realized returns for investors by removing unrealized gains/losses on investments and derivatives.
  • 3Consolidated ROE (adjusted) shows a positive trend, increasing from 11.5% in June 2002 to 20.7% in March 2003.
  • 4The Travel Related Services (TRS) segment demonstrates strong performance, with adjusted ROE consistently above 20% and reaching 30.8% as of March 31, 2003.
  • 5American Express Financial Advisors (AEFA) segment shows an improving adjusted ROE, rising from 3.6% in March 2002 to 10.6% in March 2003.
  • 6American Express Bank (AEB) segment's adjusted ROE has recovered from negative figures in mid-2002 to 12.1% by March 2003.
  • 7The company also reports book value per common share on both GAAP and adjusted bases, aiming to provide investors with a comprehensive view.

Frequently Asked Questions

American Express is providing adjusted ROE and ROA figures to offer investors a clearer view of the company's 'realized' performance. By excluding the impact of unrealized gains and losses related to SFAS No. 115 and SFAS No. 133, management believes these adjusted metrics better reflect the actual returns generated from invested equity and assets during the reporting period, as they remove the volatility from these accounting standards that haven't yet been realized in net income.

The adjusted metrics differ from the GAAP metrics by excluding from the calculation's denominator (shareholders' equity or assets) the unrealized gains or losses that stem from SFAS No. 115 (investments) and SFAS No. 133 (derivatives). Since these gains or losses have not been recognized in net income (the numerator), management argues that excluding their impact on the balance sheet provides a more accurate picture of the return on realized capital.

The filing shows a generally positive upward trend in American Express's consolidated adjusted ROE. It increased from 11.5% for the quarter ending March 31, 2002, to 20.7% for the quarter ending March 31, 2003. This indicates improving profitability relative to the company's realized equity base over the trailing twelve months.

The Travel Related Services (TRS) segment continues to be a strong performer, with its adjusted ROE consistently high and reaching 30.8% as of March 31, 2003. American Express Financial Advisors (AEFA) has shown significant improvement, with adjusted ROE growing from 3.6% to 10.6% over the year. American Express Bank (AEB) has also recovered from negative adjusted ROE in the prior year to 12.1% as of March 31, 2003.