American Express 2007 Annual Report Download - page 108

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN EXPRESS COMPANY
The components of the net periodic benefit cost for all
defined postretirement benefit plans accounted for under SFAS
No. 106, are as follows:
(Millions) 2007 2006 2005
Service cost $ 6 $ 7 $ 6
Interest cost 19 20 19
Amortization of prior service costs (2) (2) (2)
Recognized net actuarial loss 814 12
Net periodic benefit cost $31 $39 $35
Assumptions
The weighted average assumptions used to determine benefit
obligations were:
2007 2006
Discount rates 6.1% 5.7%
Health care cost increase rate:
Following year 9.0% 9.5%
Decreasing to the year 2016 5% 5%
The discount rate assumption for the Company’s unfunded
defined postretirement benefit plan is determined by using a
model consisting of bond portfolios that match the cash flows of
the plan’s projected benefit payments. Use of the rate produced
by this model generates a projected benefit obligation that
equals the current market value of a portfolio of high-quality
zero coupon bonds whose maturity dates and amounts match
the timing and amount of expected future benefit payments.
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) 2007 2006 2007 2006
Increase (Decrease) on benefits
earned and interest cost
for U.S. plans $ 1 $ 1 $ (1) $ (1 )
Increase (Decrease) on
postretirement benefit
obligation for U.S. plans $16 $19 $(14) $(17)
Benefit Payments
The Company’s other postretirement benefit plans expect to
make benefit payments as follows:
(Millions) 2008 2009 2010 2011 2012 2013
–2017
Expected
payments $23 $24 $24 $25 $25 $134
In addition, the Company expects to contribute $23 million to
its other postretirement benefit plans in 2008.
NOTE 19 INCOME TAXES
The components of income tax expense included in the
Consolidated Statements of Income on income from continuing
operations were as follows:
(Millions) 2007 2006 2005
Current income tax expense:
U.S. federal $1,608 $1,082 $ 942
U.S. state and local 246 153 96
Non-U.S. 408 302 350
Total current income tax
expense 2,262 1,537 1,388
Deferred income tax (benefit)
expense:
U.S. federal (523) 16 (313)
U.S. state and local (22) (36) (46)
Non-U.S. (199) 11 (38)
Total deferred income tax
benefit (744) (9) (397)
Total income tax expense on
continuing operations $1,518 $1,528 $ 991
A reconciliation of the U.S. federal statutory rate of 35 percent
to the Company’s actual income tax rate for 2007, 2006, and
2005 on continuing operations was as follows:
2007 2006 2005
Combined tax at U.S. statutory
federal income tax rate 35.0% 35.0% 35.0%
Increase (decrease) in taxes resulting
from:
Tax-exempt income (2.9) (3.0) (3.8)
State and local income taxes, net of
federal benefit 2.6 1.5 0.8
Non-U.S. subsidiaries earnings (5.1) (3.9) (3.6)
IRS tax settlements (2.2) (0.3) (3.9)
All other (0.1) 0.4 —
Actual tax rates 27.3% 29.7% 24.5%
106