Share Repurchases The company has in place a share repurchase program both to offset in whole or in part the issuance of new shares as part of employee compensation plans and to reduce shares outstanding. In June 2002, the company announced that it had resumed its share repurchase program after suspending it at the end of the second quarter of 2001 due to the negative effect on book equity of the 2001 high-yield portfolio losses at AEFA. The company repurchases its common shares primarily by open market purchases using several brokers at competitive com- mission and fee rates. In addition, common shares may also be purchased from the company-sponsored Incentive Savings Program (ISP) to facilitate the ISP’s required disposal of shares when employee-directed activity results in an excess common share position. Such purchases are made at market price without commissions or other fees. Repurchases may also be accom- plished by prepayments for cash under the company’s agreements with third parties, which are described below. During 2002, the company repurchased 33 million common shares at an average price of $35. Since the inception of the share repurchase program in September 1994, 390 million shares have been acquired under authorizations to repurchase up to 570 million shares, including purchases made under the agreements with third parties. Included in the 2002 repurchase amount are  17 million shares delivered to the company as part of the prepayments discussed below. In August 1999 and March 2000, the company entered into agreements under which a financial institution purchased an aggre- gate 29.5 million of the company’s common shares at an average purchase price of $50.41 per share. These agreements were entered into to partially offset the company’s exposure to the effect on diluted earnings per share of outstanding in-the-money stock options issued under the company’s stock option program. Each of the agreements terminates after five years, at which time the company is required to deliver an amount equal to the original purchase price for the shares. The company may elect to settle this amount at any time (i) physically, by paying cash against delivery of the shares held by the financial institution or (ii) on a net cash or net share basis. During the term of these agreements, the company, on a monthly basis, will either receive from or issue to the financial institution a quantity of shares so that the value of the remaining shares held by the financial institution is equal to the original aggregate purchase price. The contracts were initially recorded at their fair value within equity on the company’s balance sheet in accordance with Emerging Issues Task Force (EITF) Issue 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.” Subsequent activity is recorded in equity as long as the contracts continue to meet the requirements of EITF Issue 00-19. Net settlements under the agreements resulted in the company issuing 0.4 million shares and 12.3 million shares in 2002 and 2001, respectively. The company has the right to terminate these agreements at any time upon full settlement. The company may prepay outstanding amounts at any time prior to the end of the five-year term, and from time to time, may make such prepayments in lieu of, or in addition to, its share repurchase program, which either separately or together would be expected to have the same effect on outstanding shares as a purchase under the share repurchase program. In 2002 and 2001, the company elected to prepay $600 million and $350 million, respectively, of the aggregate outstanding amount. At December 31, 2002, 15.3 million shares of the company’s common stock continued to be held by the financial institution in support of the remaining balance of approximately $535 million. To the extent that the price of the company’s common stock declines to levels substantially lower than current levels for a sustained period of time, there could be an adverse impact on basic and diluted earnings per share. The maximum number of company common shares that could potentially be distributed pursuant to these agreements would not exceed 62 million shares as adjusted for shares delivered by the company and shares delivered to the company. I 31 AXP I FINANCIAL REVIEW