American Express 2005 Annual Report Download - page 95

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The total defined contribution plan expense was $116
million, $117 million and $106 million in 2005, 2004
and 2003, respectively.
Other Postretirement Benefits
The Company sponsors defined postretirement benefit
plans that provide health care and life insurance to cer-
tain retired U.S. employees. Net periodic postretirement
benefit expenses were $36 million, $35 million and $36
million in 2005, 2004 and 2003, respectively. Effective
January 1, 2004, the Company decided to only provide
a subsidy for these benefits for employees who were at
least age 40 with at least 5 years of service as of
December 31, 2003.
The recognized liabilities for the Company’s defined
postretirement benefit plans are as follows:
Reconciliation of Accrued Benefit Cost and Total
Amount Recognized
(Millions) 2005 2004
Funded status of the plan $ (388) $ (354)
Unrecognized prior service cost (8) (10)
Unrecognized actuarial loss 172 158
Fourth quarter payments 66
Net amount recognized $ (218) $ (200)
Accumulated benefit obligation at
September 30, $ (388) $ (354)
Weighted average assumptions to determine benefit
obligations:
2005 2004
Discount rates 5.4% 5.75%
Health care cost increase rate:
Following year 10.0% 10.5%
Decreasing to the year 2016 5% 5%
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) 2005 2004 2005 2004
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 $20 $ (18) $ (17)
NOTE 17 Income Taxes
The components of income tax provision included in
the Consolidated Statements of Income on income from
continuing operations were as follows:
(Millions) 2005 2004 2003
Current income tax provision:
U.S. federal $ 864 $ 756 $ 343
U.S. state and local 97 12 96
Foreign 385 165 265
Total current provision $ 1,346 $ 933 $ 704
Deferred income tax provision
(benefit):
U.S. federal $ (236) $ 308 $ 402
U.S. state and local (46) 718
Foreign (37) (103) (44)
Total deferred provision
(benefit) $ (319) $ 212 $ 376
Total income tax
provision $ 1,027 $ 1,145 $ 1,080
A reconciliation of the U.S. federal statutory rate of 35
percent to the Company’s effective income tax rate for
2005, 2004 and 2003 on continuing operations was
as follows:
2005 2004 2003
Combined tax at U.S.
statutory rate 35.0% 35.0% 35.0%
Changes in taxes
resulting from:
Tax-preferred investments (3.7) (4.2) (4.7)
State and local income taxes 0.8 0.3 2.2
Foreign earnings (3.4) (2.4) (1.5)
IRS tax settlement (4.5) (0.5) —
All other —1.6 0.6
Effective tax rates 24.2% 29.8% 31.6%
Accumulated earnings of certain foreign subsidiaries,
which totaled $3.2 billion at December 31, 2005, are
intended to be permanently reinvested outside the
United States. Accordingly, federal taxes, which would
have aggregated approximately $675 million, have not
been provided on those earnings.
Deferred income tax provision (benefit) results from dif-
ferences between assets and liabilities measured for
financial reporting and for income tax return purposes.
The significant components of deferred tax assets
and liabilities related to continuing operations at
December 31, 2005 and 2004 are reflected in the
following table:
Notes to Consolidated
Financial Statements
AXP / AR.2005
[93 ]