American Express 2003 Annual Report Download - page 85

lying common stock on the date of grant. For the year ended December 31, 2003, the Company expensed $24 million after-
tax related to stock options granted in 2003.
In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclo-
sure,” which amended APB Opinion 28, “Interim Financial Reporting,” to require disclosure about the pro forma effects of
SFAS No. 123 on reported net income of stock-based compensation accounted for under APB Opinion No. 25. The follow-
ing table illustrates the effect on net income and earnings per common share (EPS) assuming the Company had followed
the fair value recognition provisions of SFAS No. 123 for all outstanding and unvested stock options and other stock-based
compensation for the years ended December 31, 2003, 2002 and 2001:
(Millions, except per share amounts) 2003 2002 2001
Net income as reported $2,987 $2,671 $ 1,311
Add: Stock-based employee compensation included in
reported net income, net of related tax effects 79 26 23
Deduct: Total stock-based employee compensation
expense determined under fair value based method,
net of related tax effects (349) (355) (260)
Pro forma net income $2,717 $2,342 $ 1,074
Basic EPS:
As reported $2.33 $2.02 $ 0.99
Pro forma $2.12 $1.77 $ 0.81
Diluted EPS:
As reported $2.30 $2.01 $ 0.98
Pro forma $2.09 $1.76 $ 0.80
Recently Issued Accounting Standards
In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 addresses finan-
cial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. The Company adopted the provisions of SFAS No. 143 on January 1, 2003; the impact on the Com-
pany’s financial statements was immaterial.
In July 2002, the FASB issued SFAS No. 146, “Obligations Associated with Disposal Activities.” The Statement is effective
for exit or disposal activities initiated after December 31, 2002. The Company will comply with the Statement’s require-
ments in any future restructuring activities.
In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities,” as revised (FIN 46),
which addresses consolidation by business enterprises of variable interest entities (VIEs) and was subsequently revised in
December 2003. An entity is subject to consolidation according to the provisions of FIN 46, if, by design, either (i) the total
equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated finan-
cial support from other parties, or, (ii) as a group, the holders of the equity investment at risk lack: (a) direct or indirect
ability to make decisions about an entity’s activities; (b) the obligation to absorb the expected losses of the entity if they
occur; or (c) the right to receive the expected residual returns of the entity if they occur. In general, FIN 46 requires a VIE
to be consolidated when an enterprise has a variable interest for which it is deemed to be the primary beneficiary which
means that it will absorb a majority of the VIE’s expected losses or receive a majority of the VIE’s expected residual return.
The variable interest entities primarily impacted by FIN 46, which the Company consolidated as of December 31, 2003,
relate to structured investments, including a CDO and three secured loan trusts (SLTs), which are both managed and par-
tially owned by AEFA. FIN 46 does not impact the accounting for QSPEs as defined by SFAS No. 140, such as the Com-
pany’s cardmember lending securitizations, as well as the CDO-related securitization trust established in 2001. That trust
contains a majority of the Company’s rated CDOs whose retained interest in the trust had a carrying value of $694 million
at December 31, 2003, of which $512 million is considered investment grade. In addition, FIN 46 did not impact the
(p.83_axp_ notes to consolidated financial statements)