American Express 2004 Annual Report Download - page 117

A one percentage-point change in assumed health care
cost trend rates would have the following effects:
One
percentage-
point increase
One
percentage-
point decrease
(Millions) 2004 2003 2004 2003
Increase (decrease) on
benefits earned and
interest cost for U.S.
plans $1 $1 $ (1) $ (1)
Increase (decrease)
on accumulated
postretirement
benefit obligation
for U.S. plans $20 $18 $ (18) $ (16)
Note 17 INCOME TAXES
The components of income tax provision included
in the Consolidated Statements of Income were
as follows:
(Millions) 2004 2003 2002
Current income tax provision:
U.S. federal $ 1,058 $ 469 $ 579
U.S. state and local 26 124 97
Foreign 185 267 227
Total current provision $ 1,269 $ 860 $ 903
Deferred income tax
provision (benefit):
U.S. federal $ 269 $ 414 $ 198
U.S. state and local 718 (16)
Foreign (110) (45) (29)
Total deferred provision $ 166 $ 387 $ 153
Total income tax
provision $ 1,435 $ 1,247 $ 1,056
A reconciliation of the U.S. federal statutory rate of 35%
to the Company’s effective income tax rate for 2004,
2003 and 2002 were as follows:
2004 2003 2002
Combined tax at U.S.
statutory rate 35.0% 35.0% 35.0%
Changes in taxes
resulting from:
Tax-preferred
investments (5.0) (6.8) (7.3)
State and local
income taxes 0.4 2.2 1.4
All other (1.4) (1.0) (0.8)
Effective tax rates 29.0% 29.4% 28.3%
Accumulated earnings of certain foreign subsidiaries,
which totaled $2.7 billion at December 31, 2004, are
intended to be permanently reinvested outside the
United States. Accordingly, federal taxes, which would
have aggregated approximately $550 million, have not
been provided on those earnings.
As discussed in Note 1, the American Jobs Creation
Act of 2004 (the Act) was enacted on October 22, 2004.
The Act contains a provision that permits an 85% divi-
dends received deduction for qualified repatriations of
earnings that would otherwise be permanently rein-
vested outside of the United States. The Company is
currently examining the specific requirements of the
legislation to determine whether a qualifying repatria-
tion is advisable and will make a decision in 2005.
The amount of a potential repatriation, if executed, will
be between zero and $2.4 billion, which is the statutory
limit for the Company. Depending upon the amount of
the repatriation, if any, the Company will incur an addi-
tional tax expense between zero and $126 million. The
final tax liability may be reduced by available foreign tax
credits offset in part by the disallowance, for tax purposes,
of expenses incurred to implement the repatriation.
Deferred income tax provision (benefit) results from
differences between assets and liabilities measured for
financial reporting and for income tax return purposes.
The significant components of deferred tax assets and
liabilities at December 31, 2004 and 2003 are reflected
in the following table:
(Millions) 2004 2003
Deferred tax assets:
Reserves not yet deducted for tax
purposes $ 3,407 $ 3,155
Deferred cardmember fees 30 342
Net unrealized derivatives losses 77 229
Other 408 795
Total $ 3,922 $ 4,521
Deferred tax liabilities:
Deferred acquisition costs $ 1,214 $ 1,122
Depreciation and amortization 507 718
Net unrealized securities gains 409 501
Asset securitizations 319 308
Deferred revenue 264 210
Other 334 584
Total $ 3,047 $ 3,443
Net deferred tax assets $ 875 $ 1,078
The gross deferred tax assets are shown net of a
valuation allowance of $28 million and $18 million at
December 31, 2004 and 2003, respectively.
Net income taxes paid by the Company during 2004,
2003 and 2002 were $1.1 billion, $1.2 billion and
$0.9 billion, respectively, and include estimated tax
payments and cash settlements relating to prior tax
AXP
AR.04
115
Notes to Consolidated Financial Statements