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Note 23 SUBSEQUENT EVENT
On February 1, 2005, the Company announced plans to
pursue a tax-free spin-off of the common stock of AEFC
through a special dividend to American Express common
shareholders. The final transaction, which is subject to
certain conditions including receipt of a favorable tax rul-
ing and/or opinion, necessary regulatory approvals and
approval by the Company’s Board of Directors, is
expected to close in the third quarter of 2005.
At the time of the spin-off, the Company intends to pro-
vide additional capital to AEFA that will provide addi-
tional liquidity and a senior debt rating that will allow
AEFA to have efficient access to the capital markets.
Furthermore, AEFA’s operating segment results in Note
19 may not be fully representative of the results AEFA
would have reported as an independent legal entity
due to certain intercompany allocations and agree-
ments. Additionally, the Company anticipates that it
will incur spin-off related expenses associated with
establishing an independent company that could be
significant on a cumulative basis. These expenses will
be recorded by the Company or AEFA, as appropriate,
as they are incurred each quarter and will be disclosed
in the quarterly financial results.
As a result of the proposed spin-off, the Debentures dis-
cussed in Note 7 will be convertible at the base conver-
sion price (currently $69.41 per share) for a period of at
least 20 days beginning on the day the Company provides
notice of the special dividend to the Debenture holders
and ending on the day immediately prior to the com-
mencement of “ex-dividend” trading of the distributed
shares. The Company will be obligated to pay at least
the accreted principal amount in cash for any Debentures
that are converted during the period. In addition, the
per-share prices and conversion ratios contained in
the Debentures will be adjusted under anti-dilution
provisions.
The availability of credit lines under one of the Com-
pany’s committed bank credit facilities is subject to
maintaining consolidated tangible net worth of at least
$8.75 billion. The Company expects that the proposed
spin-off would cause consolidated tangible net worth
to go below $8.75 billion. However, management
anticipates that the terms of the covenant will be rene-
gotiated prior to such event and no violation will occur.
Additionally, after the announcement of the proposed
spin-off of the AEFA business unit, Moody’s affirmed
the Company’s long-term and short-term debt ratings
of P-1 and A1, respectively. Standard & Poor’s and
FitchRatings both affirmed the Company’s short-term
debt ratings of A-1 and F-1, respectively, and placed the
Company on a negative credit watch for its A+ long-
term debt ratings pending an understanding of the final
details of the proposed spin-off. Moody’s downgraded
AEFC’s senior debt rating to A2 from A1 and placed it
on a review for a further downgrade. The insurance
financial strength ratings for IDS Life Insurance
Company (IDS Life) were downgraded to AA- by
FitchRatings and affirmed at Aa3 by Moody’s. AM Best
also placed the insurance financial strength ratings for
IDS Life, currently A+, under review with negative
implications.
AXP
AR.04
122
Notes to Consolidated Financial Statements