American Express 2003 Annual Report Download - page 42

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In 2003, medium- and long-term debt with maturities ranging from 2 to 10 years (excluding convertible debt securities
issued by the Parent Company, that have a final maturity of 30 years) was issued. The Company’s 2003 term offerings on a
managed basis, which include those made by the Parent Company, American Express Credit Corporation (Credco) and
American Express Centurion Bank (Centurion Bank), both wholly-owned subsidiaries of TRS, and the American Express
Credit Account Master Trust, are highlighted in the table below:
Description Amount (millions) Coupon/Rate Index Maturity Entity
Senior Global Notes $1,000 4.88% July 15, 2013 Parent Company
Convertible Senior Debentures $2,000 1.85% December 1, 2033 Parent Company
Floating Rate Medium-Term Notes $4,891 1.24% Various Credco
Floating Rate Medium-Term
Extendible Notes $2,000 1.20% February 14, 2005(1) Credco
Floating Rate Extendible Notes $1,000 1.17% January 21, 2005(2) Credco
Fixed Rate Senior Notes $1,000 3.00% May 16, 2008 Credco
Floating Rate Senior Notes $500 1.32% May 16, 2006 Credco
Floating Rate Senior Notes $100 1.15% September 9, 2005 Centurion Bank
Trust Investors Certificates (off-balance sheet) $3,450 Various Various Master Trust
Note: The above table excludes $325 million of debt consolidated upon adoption of FIN 46.
(1) These floating rate medium-term extendible notes had an initial maturity date of March 5, 2004 and are subject to extension by the holders through March 5, 2008.
(2) These floating rate extendible notes had an initial maturity date of July 19, 2004 and are subject to extension by the holders through June 20, 2008.
These long-term debt issues have longer average maturities and a wider distribution along the maturity spectrum as com-
pared to the 2002 long-term funding activity to reduce and spread out the refinancing requirement in future periods.
The Company also enhanced its contingent liquidity resources for alternative funding sources principally through the addi-
tion of an investment liquidity portfolio as discussed further in the TRS Liquidity and Capital Resources section. The Com-
pany believes that its funding strategy allows for the continued funding of business operations through difficult economic,
financial market and business conditions.
The Company actively manages the risk of liquidity and cost of funds resulting from the Company’s financing activities.
Management believes a decline in the Company’s long-term credit rating by two levels could result in the Company having
to significantly reduce its commercial paper and other short-term borrowings. Remaining borrowing requirements would
be addressed through other means such as the issuance of long-term debt, additional securitizations, increased deposit tak-
ing, the sale of investment securities or drawing on existing credit lines. This would result in higher interest expense on the
Company’s commercial paper and other debt, as well as higher fees related to unused lines of credit. The Company believes
a two level downgrade is highly unlikely due to its capital position and growth prospects.
Parent Company Funding
Total Parent Company long-term debt outstanding was $5.7 billion and $2.7 billion at December 31, 2003 and 2002, respec-
tively. During 2003, the Parent Company issued $1 billion of 4.875% Senior Global Notes due in 2013 and $2 billion of
1.85% convertible senior debt securities due in 2033. The convertible securities cannot be called or put prior to December
1, 2006. After December 1, 2006, the Company may call the convertible securities at any time. The convertible securities
were offered to qualified institutional investors pursuant to Rule 144A under the Securities Act of 1933, as amended. Pro-
ceeds from these debt offerings were for general corporate purposes.
The convertible securities are convertible into common shares of American Express Company if the per share price of Amer-
ican Express common stock exceeds a contingent conversion trigger price of $86.76 per share, or approximately 97.5% above
American Express’ closing stock price of $43.93 on the issuance date. Holders of the convertible securities will then have
the right to convert the convertible securities at an initial conversion price of $69.41 per share. After December 1, 2006, both
the contingent conversion trigger price and the conversion price, as adjusted, will increase at a rate equal to 1.85%, the
annual rate of accretion of the convertible debt securities. Holders may require the Company to purchase for cash a portion
(p.40_axp_ financial review)