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notes to consolidated financial statements
american express company
109
Assumptions
The weighted-average assumptions used to determine
benefit obligations were (as of December 31 and September 30,
respectively):
2008 2007
Discount rates 6.0% 6.1%
Health care cost increase rate:
Following year 8.5% 9.0%
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) 2008 2007 2008 2007
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 $15 $16 $(13) $(14)
Benefit Payments
The Company’s other postretirement benefit plans expect to
make benefit payments as follows:
(Millions) 2009 2010 2011 2012 2013 2014
–2018
Expected
payments $23 $23 $23 $23 $24 $132
In addition, the Company expects to contribute $23 million to
its other postretirement benefit plans in 2009.
note 21
income taxes
The components of income tax expense included in the
Consolidated Statements of Income on income from continuing
operations were as follows:
(Millions) 2008 2007 2006
Current income tax expense:
U.S. federal $ 735 $1,631 $1,081
U.S. state and local (28) 246 153
Non-U.S. 352 408 302
Total current income tax expense 1,059 2,285 1,536
Deferred income tax (benefit) expense:
U.S. federal (150) (496) 16
U.S. state and local (84) (22) (36)
Non-U.S. (115) (199) 11
Total deferred income tax benefit (349) (717) (9)
Total income tax expense on
continuing operations $ 710 $1,568 $1,527
A reconciliation of the U.S. federal statutory rate of 35 percent
to the Company’s actual income tax rate for 2008, 2007, and
2006 on continuing operations was as follows:
2008 2007 2006
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 (3.9) (2.8) (3.0)
State and local income taxes, net
of federal benefit 1.6 2.6 1.5
Non-U.S. subsidiaries earnings (8.4) (5.0) (3.9)
Tax settlements(a) (5.5) (2.2) (0.3)
All other 1.0 (0.1) 0.3
Actual tax rates 19.8% 27.5% 29.6%
(a) Relates to the resolution of tax matters in various jurisdictions.