PNC Bank 2006 Annual Report Download - page 90

The following table shows the effect on net income and
earnings per share if we had applied the fair value recognition
provisions of SFAS 123, as amended, to all outstanding and
unvested awards in each period.
Pro Forma Net Income And Earnings Per Share
Year ended December 31
In millions, except for per share data 2006 2005 2004
Net income $2,595 $1,325 $1,197
Add: Stock-based employee
compensation expense included in
reported net income, net of related
tax effects 63 54 33
Deduct: Total stock-based employee
compensation expense determined
under the fair value method for all
awards, net of related tax effects (63) (60) (50)
Pro forma net income $2,595 $1,319 $1,180
Earnings per share
Basic-as reported $8.89 $4.63 $4.25
Basic-pro forma 8.89 4.60 4.19
Diluted-as reported $8.73 $4.55 $4.21
Diluted-pro forma 8.73 4.52 4.15
See Note 18 Stock-Based Compensation Plans for additional
information.
R
ECENT A CCOUNTING P RONOUNCEMENTS
In February 2007, the FASB issued SFAS 159, “The Fair
Value Option for Financial Assets and Financial Liabilities –
Including an amendment of FASB Statement No. 115.” This
statement permits entities to choose to measure many financial
instruments and certain other items at fair value. The fair
value option may be applied on an instrument by instrument
basis with a few exceptions. The election is irrevocable and
must be applied to entire instruments and not to portions of
instruments. For PNC, the election to apply the standard and
measure certain financial instruments at fair value would be
effective prospectively beginning January 1, 2008.
During 2006, the FASB issued the following:
• SFAS 158, “Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans – an
amendment of FASB Statements No. 87, 88, 106, and
132(R).” This statement affects the accounting and
reporting for our qualified pension plan, our
nonqualified retirement plans, our postretirement
welfare benefit plans and our postemployment
benefit plan. SFAS 158 requires recognition on the
balance sheet of the over- or underfunded position of
these plans as the difference between the fair value of
plan assets and the related benefit obligations. To the
extent that a plan’s net funded status differs from the
amounts currently recognized on the balance sheet,
the difference, net of tax, will be recorded as part of
accumulated other comprehensive income or loss
(“AOCI”) within the shareholders’ equity section of
the balance sheet. This guidance also requires the
recognition of any unrecognized actuarial gains and
losses and unrecognized prior service costs to AOCI,
net of tax. Post-adoption changes in unrecognized
actuarial gains and losses as well as unrecognized
prior service costs will be recognized in other
comprehensive income, net of tax. SFAS 158 was
effective for PNC as of December 31, 2006, with no
restatements permitted for prior year-end reporting
periods. The year-end 2006 adjustment to our plans’
funded status for all unamortized net actuarial losses
and prior service costs was $132 million after tax.
The following table summarizes the effect of the
initial impact of adopting SFAS 158.
Incremental Effect of Applying SFAS 158 on Individual
Line Items in the Consolidated Balance Sheet
December 31, 2006
In millions
Before
Application of
SFAS 158 Adjustments
After
Application of
SFAS 158
Other assets $ 9,117 $(188) $ 8,929
Total assets 102,008 (188) 101,820
Other liabilities 4,784 (56) 4,728
Total liabilities 90,203 (56) 90,147
Accumulated other
comprehensive loss (103) (132) (235)
Total shareholders’
equity $ 10,920 $(132) $ 10,788
• SFAS 157, “Fair Value Measurements,” defines fair
value and establishes a framework for measuring fair
value which includes permissible valuation
techniques and a hierarchy of inputs utilized in the
measurement process. This statement applies
whenever other accounting standards require or
permit fair value measurement. We anticipate
applying SFAS 157 prospectively beginning
January 1, 2008, as required.
• FASB Interpretation No. 48 (“FIN 48”), “Accounting
for Uncertainty in Income Taxes – an interpretation
of FASB Statement No. 109.” FIN 48 clarifies the
accounting for uncertainty in income taxes
recognized in the financial statements and sets forth
recognition, derecognition and measurement criteria
for tax positions taken or expected to be taken in a
tax filing. For PNC, this guidance will apply to all tax
positions taken or expected to be taken beginning on
January 1, 2007. We do not expect the adoption of
FIN 48 to have a significant impact on our
consolidated financial statements.
80