American Express 2003 Annual Report Download - page 94

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not paid, at maturity the holder will receive the accreted principal amount, which will be equal to the original principal
amount increased daily at a rate of 1.85% per annum. Unless and until a remarketing reset event occurs, the Company will
pay contingent interest under certain circumstances. The contingent interest feature has been bifurcated because it is not
clearly and closely related to the host contract. If the average of the closing sale prices of the Company’s common stock over
the 10 trading-day period ending on the trading day immediately preceding December 1, 2006, 2008, 2013, 2018, 2023 or
2028 is less than the effective conversion price on such day, the Company will no longer pay contingent interest on the
Debentures; the Debentures will no longer be convertible into the Company’s common stock; and the holders of the Deben-
tures will not have the right to require the Company to repurchase the Debentures under certain circumstances. On this
remarketing reset event, the yield on the Debentures will be reset to a date at least six months thereafter. The Company may
also elect prior to any remarketing that following such remarketing the Debentures will bear cash interest.
A holder may convert debentures into a number of shares of the Company’s common stock equal to the conversion rate
under various circumstances, if at any time prior to maturity, the Company’s closing stock price for at least 20 trading days
in a period of 30 consecutive trading days ending on the last trading day of any calendar quarter is more than 125% of the
base conversion price. Holders may require the Company to purchase for cash a portion of their Debentures on December 1,
2006, 2008, 2013, 2018, 2023 or 2028 at 100% of the accreted principal amount, plus accrued and unpaid interest. While
the Company has the ability to settle the principal amount of the conversion rights granted in this convertible debt offering
in cash, common stock or a combination, the Company intends to settle the principal amount in cash and to settle the con-
version spread (the excess conversion value over the principal) in either cash or stock. The Company can also redeem all or
some of the convertible debt securities for cash at any time on or after December 1, 2006 at a price equal to 100% of the
accreted principal amount of the Debentures plus accrued interest, if any. If a conversion trigger is met, the Company will
reflect the additional shares in diluted EPS using the treasury stock method.
Certain of the above interest rate swaps require the Company to pay a floating rate, with a predominant index of LIBOR.
The Company paid interest (net of amounts capitalized) of $1.7 billion, $1.7 billion and $2.8 billion in 2003, 2002 and 2001,
respectively. Debt issuance costs are deferred and amortized over the term of the related instrument or, if the holder has a
put option, over the put term if shorter.
Aggregate annual maturities of long-term debt for the five years ending December 31, 2008 are as follows (millions): 2004,
$3,452; 2005, $8,509; 2006, $3,627; 2007, $749 and 2008, $998.
Other financial institutions have committed to extend lines of credit to the Company of $11.5 billion and $12.1 billion at
December 31, 2003 and 2002, respectively.
(Note 7) CUMULATIVE QUARTERLY INCOME PREFERRED SHARES
In 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 of 7.0% Cumulative Quarterly Income
Preferred Shares Series I (QUIPS) (liquidation preference of $25 per share). Proceeds of the issue were invested in Junior
Subordinated Debentures (the Subordinated Debentures) issued by the Company due 2028, which represent the sole assets
of the Trust. The QUIPS were subject to mandatory redemption upon repayment of the Subordinated Debentures at matu-
rity or their earlier redemption. The Company exercised its option to redeem the Subordinated Debentures, in whole, on
July 16, 2003. This resulted in the redemption of all QUIPS.
(Note 8) COMMON AND PREFERRED SHARES
Repurchase authorizations are designed to allow the Company to purchase shares, both to offset the issuance of new shares
as part of employee compensation plans and to reduce shares outstanding. In November 2002, the Company’s Board of
Directors authorized the Company to repurchase up to 120 million additional common shares from time to time as mar-
ket conditions allow. Since the inception of repurchase programs in September 1994, the Company has repurchased
(p.92_axp_ notes to consolidated financial statements)