American Express 1998 Annual Report Download - page 43

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NOTE 5 CUMULATIVE QUARTERLY INCOME PREFERRED SHARES
On July 16, 1998, American Express Company Capital
Trust I, a wholly-owned subsidiary of the Company,
established as a Delaware statutory business trust (the
Trust), completed a public offering of 20 million shares
(carrying value of $500 million) of 7.0% Cumulative
Quarterly Income Preferred Shares Series I (QUIPS) (liq-
uidation preference of $25 per share). Proceeds of the
issue were invested in Junior Subordinated Debentures
(the Debentures) issued by the Company due 2028 which
represent the sole assets of the Trust. The QUIPS are sub-
ject to mandatory redemption upon repayment of the
Debentures at maturity or their earlier redemption. The
Company has the option to redeem the Debentures, in
whole or in part, at any time on or after July 16, 2003,
which will result in the redemption of a corresponding
amount of QUIPS.
The Company has unconditionally guaranteed all
distributions required to be made by the Trust, but only
to the extent the Trust has funds legally available for such
distributions. The only source of funds for the Trust is
the Company’s interest payments on the Debentures. The
Company has the right to defer such interest payments
up to 20 consecutive quarters; as a consequence, quarterly
dividend payments on the QUIPS can be deferred by the
Trust during any such interest payment period. If the
Company defers any interest payments, the Company may
not, among other things, pay any dividends on its capi-
tal stock until all interest in arrears is paid to the Trust.
Distributions on the QUIPS are reported as Interest
Expense in the Consolidated Statements of Income.
NOTE 6 COMMON AND PREFERRED SHARES
COMMON SHARES
In September 1998, the Company’s Board of Directors
authorized the Company to repurchase up to 40 million
common shares over the next two to three years, subject
to market conditions. In 1998, all repurchases were made
under previous authorizations. The Company has repur-
chased approximately 97 million shares since 1994. These
plans are designed to allow the Company to purchase
shares systematically, both to offset the issuance of new
shares as part of employee compensation plans and to
reduce shares outstanding.
Of the common shares authorized but unissued at
December 31, 1998, 67 million shares were reserved for
issuance for employee stock, employee benefit and divi-
dend reinvestment plans, as well as debentures.
In 1987, Nippon Life purchased 13 million shares of
Lehman 5% Series A Preferred Stock for $508 million.
In 1990, the Company gave Nippon Life the right to
exchange these shares (subsequently exchanged by Lehman
for Series B shares) into 6.24 million common shares of
the Company at any time through December 1999 at an
exchange price of $81.46. In 1996, Nippon Life
informed the Company that it had reduced its holding of
such preferred shares by approximately 30 percent but
maintained the exchange rights related to the shares sold.
In 1997, Nippon Life exchanged all of its remaining
holdings of these preferred shares for approximately
4.4 million common shares of the Company. In January
1998, the Company purchased all of Nippon Life’s
remaining exchange rights.
Common shares activity for each of the last three years
ended December 31 was:
(thousands) 1998 1997 1996
Shares outstanding at beginning of year 466,417 472,859 483,108
Repurchases of common shares (19,400) (17,010) (22,200)
Conversion of Convertible Exchangeable
Preferred shares —— 4,706
Exchange of Lehman preferred shares for
American Express common shares —4,399 —
Other, primarily employee plans 3,451 6,169 7,245
Shares outstanding at end of year 450,468 466,417 472,859