PNC Bank 2007 Annual Report Download - page 75

N OTES T O C ONSOLIDATED F INANCIAL S TATEMENTS
T HE PNC F INANCIAL S ERVICES G ROUP ,I NC .
B USINESS
We are one of the largest diversified financial services
companies in the United States based on assets, with
businesses engaged in:
• Retail banking,
• Corporate and institutional banking,
• Asset management, and
• Global fund processing services.
We provide many of our products and services nationally and
others in our primary geographic markets located in
Pennsylvania, New Jersey, Washington, DC, Maryland,
Virginia, Ohio, Kentucky, and Delaware. We also provide
certain global fund processing services internationally. We are
subject to intense competition from other financial services
companies and are subject to regulation by various domestic
and international authorities.
N
OTE 1A CCOUNTING P OLICIES
B ASIS O F F INANCIAL S TATEMENT P RESENTATION
Our consolidated financial statements include the accounts of
the parent company and its subsidiaries, most of which are
wholly owned, and certain partnership interests and variable
interest entities. See Note 2 Acquisitions and Divestitures
regarding the deconsolidation of BlackRock, Inc.
(“BlackRock”) from PNC’s Consolidated Balance Sheet
effective September 29, 2006. Our investment in BlackRock
has been accounted for under the equity method of accounting
since that date.
We prepared these consolidated financial statements in
accordance with accounting principles generally accepted in
the United States of America (“generally accepted accounting
principles” or “GAAP”). We have eliminated intercompany
accounts and transactions. We have also reclassified certain
prior year amounts to conform with the 2007 presentation.
Other than the reclassification described below, these
reclassifications did not have a material impact on our
consolidated financial condition or results of operations.
Subsequent to the issuance of our Annual Report on Form
10-K for the year ended December 31, 2006, we determined
that the Consolidated Statement of Cash Flows for the year
ended December 31, 2006 should be restated. The restatement
resulted from the misclassification of cash flows related to our
2006 issuance of perpetual trust securities further described in
Note 3 Variable Interest Entities. The cash flows related to the
issuance of these securities totaling $489 million had
previously been classified within the “Operating Activities”
section of the Consolidated Statement of Cash Flows. We
concluded that such cash flows should have been classified
within the “Financing Activities” section of the Consolidated
Statement of Cash Flows and, accordingly, restated these
amounts in Amendment No. 1 thereto on Form 10-K/A dated
February 4, 2008. The Consolidated Statement of Cash Flows
included in these Consolidated Financial Statements reflects
this restatement.
U SE OF E STIMATES
We prepare the consolidated financial statements using
financial information available at the time, which requires us
to make estimates and assumptions that affect the amounts
reported. Actual results may differ from these estimates and
the differences may be material to the consolidated financial
statements.
B USINESS C OMBINATIONS
We record the net assets of companies that we acquire at their
estimated fair value at the date of acquisition and we include
the results of operations of the acquired companies in our
consolidated income statement from the date of acquisition.
We recognize as goodwill the excess of the acquisition price
over the estimated fair value of the net assets acquired.
S UBSIDIARY S TOCK T RANSACTIONS
We recognize as income, when appropriate, any gain from the
sale or issuance by subsidiaries of their stock to third parties.
The gain is the difference between our basis in the stock and
the increase in the book value per share of the subsidiaries’
equity and is recorded in noninterest income in the
Consolidated Income Statement. We provide applicable taxes
on the gain.
S PECIAL P URPOSES E NTITIES
Special purpose entities are defined as legal entities structured
for a particular purpose. We use special purpose entities in
various legal forms to conduct normal business activities. We
review the structure and activities of special purpose entities
for possible consolidation under the guidance contained in
Financial Accounting Standards Board (“FASB”)
Interpretation No. 46 (Revised 2003), “Consolidation of
Variable Interest Entities” (“FIN 46R”) and Accounting
Research Bulletin No. 51, “Consolidated Financial
Statements,” as appropriate.
A variable interest entity (“VIE”) is a special purpose entity
formed as a corporation, partnership, limited liability
company, or any other legal structure used to conduct
activities or hold assets that either:
• Does not have equity investors with voting rights that
can directly or indirectly make decisions about the
entity’s activities through those voting rights or
similar rights, or
• Has equity investors that do not provide sufficient
equity for the entity to finance its activities without
additional subordinated financial support.
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