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JPMORGAN CHASE & CO Annual Report (Amendment), Year Ended Dec 31, 2005

Filing Date
Filed August 3, 2006
Period End
December 31, 2005
In the record · 2016–202610-K1110-Q328-K336

JPM filed 11 annual reports (10-K), 32 quarterly reports (10-Q) and 336 current reports (8-K) between 2016 and 2026.

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01—Abstract

Summary

Summary of the 10-K/A filed August 3, 2006. Cited figures are marked; the original filing is the authoritative source.

JPMorgan Chase's Amendment No. 2 to its 2005 Form 10-K, filed August 3, 2006, does not change reported results.

It restates only the Consolidated Statements of Cash Flows for 2003 through 2005 to reclassify cash flows from certain residential mortgages and other loans originated or purchased for sale. Under SFAS 102, those flows belong in operating activities rather than investing activities. Net income of $8,483 milliona, total assets of $1,198,942 million, stockholders' equity of $107,211 million, earnings per share, and regulatory capital (Tier 1 ratio 8.5%, total capital ratio 12.0%) are all unchanged.

The net change in cash and due from banks is also unchanged. The restatement moves the 2005 operating cash flow from negative $24,227 millionb to negative $30,236 million. Investing cash flow moves from negative $18,953 million to negative $12,944 million.

For 2004 and 2003, operating cash flow moves from negative $21,805 millionc to negative $15,147 million and from $14,601 million to $14,275 million, respectively. Investors should read the reclassification as a presentation change that makes operating cash flow look more negative, which mainly reflects the Firm's continued growth in held-for-sale mortgage activity, rather than as a change in earnings or balance sheet strength. The auditor, PricewaterhouseCoopers, dated its opinion on the cash flow restatement August 3, 2006, and management concluded that disclosure controls remained effective.

The amendment is narrow in scope. Only Items 8 and 9A of Part II are amended, and the filing continues to speak as of the original February 24, 2006 filing date.

Investors who rely on cash flow metrics, such as operating cash flow as a quality-of-earnings check, should use the restated figures. Those who focus on income, balance sheet, or capital should see no change from the original 10-K.

02—Key points

Key Highlights

  1. Restatement affects only the cash flow statement classification: certain residential mortgage and other held-for-sale loan flows moved from investing to operating activities under SFAS 102.
  2. 2005 net cash used in operating activities restated to $(30,236) million from $(24,227) million as previously reported; investing activities restated to $(12,944) million from $(18,953) million.
  3. No change to net income ($8,483 million), diluted EPS ($2.38), total assets ($1,198.9 billion), stockholders' equity ($107.2 billion), or regulatory capital ratios.
  4. Net increase in cash and due from banks is unchanged at $1,502 million for 2005, and the same holds for 2004 and 2003.
  5. Restated 2004 operating cash flow is $(15,147) million versus $(21,805) million previously reported; 2003 is $14,275 million versus $14,601 million.
  6. Management and PwC concluded that internal control over financial reporting was effective as of December 31, 2005, and that disclosure controls remained effective despite the misclassification.
  7. Same-period 10-Q for Q1 2006 and quarterly 2005 cash flows were also restated, per the Form 8-K filed August 3, 2006.

03—Questions

Frequently Asked Questions

  1. Did JPMorgan Chase's earnings or balance sheet change as a result of this amendment?

    No. The amendment restates only the consolidated statements of cash flows. Net income, earnings per share, total assets, stockholders' equity, and regulatory capital are all unchanged, as is the net change in cash and due from banks.

  2. Why were the cash flows reclassified?

    Cash flows from residential mortgages and other loans originated or purchased with intent to sell had been classified as investing activities. Under SFAS 102, these flows should be classified as operating activities, so the Firm restated the affected periods.

  3. How much did operating cash flow change for 2005?

    Net cash used in operating activities for 2005 was restated to $(30,236) million, compared with $(24,227) million originally reported. The offsetting change appears in investing activities, which moved from $(18,953) million to $(12,944) million.

  4. Does this restatement signal a control weakness?

    Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2005, and that there were no material weaknesses. The misclassification was treated as a presentation error, not a control failure.

04—Continue

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