American Express 2009 Annual Report Download - page 120

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN EXPRESS COMPANY
Net Periodic Benefit Cost
GAAP provides for the delayed recognition of the net
actuarial loss and the net prior service credit remaining in
accumulated other comprehensive income (loss).
The components of the net periodic benefit cost for all other
postretirement benefit plans as of December 31 are as follows:
(Millions) 2009 2008 2007
Service cost $5 $6 $6
Interest cost 18 19 19
Amortization of prior service cost (2) (2) (2)
Recognized net actuarial loss 248
Curtailment loss 6——
Net periodic benefit cost $29 $27 $31
ASSUMPTIONS
The weighted-average assumptions used to determine benefit
obligations were:
2009 2008
Discount rates 5.4% 6.0%
Health care cost increase rate:
Following year 8.0% 8.5%
Decreasing to the year 2016 5.0% 5.0%
The weighted-average discount rate used to determine net
periodic benefit cost was 6.0 percent, 6.1 percent and 5.7
percent in 2009, 2008 and 2007, respectively.
The discount rate assumption for the Company’s
unfunded other postretirement benefit plans 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) 2009 2008 2009 2008
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 $15 $(14) $(13)
Benefit Payments
The Company’s other postretirement benefit plans expect to
make benefit payments as follows:
(Millions) 2010 2011 2012 2013 2014
2015
–2019
Expected payments $24 $24 $24 $25 $26 $132
In addition, the Company expects to contribute $24 million
to its other postretirement benefit plans in 2010.
NOTE 22
SIGNIFICANT CREDIT
CONCENTRATIONS
Concentrations of credit risk exist when changes in economic,
industry or geographic factors similarly affect groups of
counterparties whose aggregate credit exposure is material in
relation to American Express’ total credit exposure. The
Company’s customers operate in diverse industries, economic
sectors and geographic regions.
The following table details the Company’s maximum credit
exposure by category, including the credit exposure associated
with derivative financial instruments, as of December 31:
(Billions, except percentages) 2009 2008
On-balance sheet:
Individuals(a) $60 $68
Financial institutions(b) 20 24
U.S. Government and agencies(c) 19 11
All other(d) 17 14
Total on-balance sheet(e) $116 $117
Unused lines-of-credit-individuals(f) $222 $253
(a) Individuals primarily include cardmember loans and receivables.
(b) Financial institutions primarily include debt obligations of banks,
broker-dealers, insurance companies and savings and loan
associations.
(c) U.S. Government and agencies represent debt obligations of the
U.S. Government and its agencies, states and municipalities, and
government sponsored entities.
(d) All other primarily includes cardmember receivables from other
corporate institutions.
(e) Certain distinctions between categories require management
judgment.
(f) Because charge card products have no preset spending limit, the
associated credit limit on cardmember receivables is not
quantifiable. Therefore, the quantified unused line-of-credit
amounts only include the approximate credit line available on
cardmember loans (including both for on-balance sheet loans and
loans previously securitized).
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