SunTrust 2003 Annual Report Download - page 64

62 SunTrust Banks, Inc. Annual Report 2003
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
effective, and that has been designated and qualifies as a fair
value hedge, along with the loss or gain on the hedged asset or
liability that is attributable to the hedged risk (including losses or
gains on firm commitments), are recorded in current period
earnings. Changes in the fair value of a derivative that is highly
effective, and that is designated and qualifies as a cash flow
hedge, are recorded in other comprehensive income, with any
ineffective portion recorded in current period earnings. Changes
in the fair value of derivative trading instruments are reported in
current period earnings.
STOCK-BASED COMPENSATION
The Company sponsors a stock-based employee compensation
plan, which is further described in Note 16. Prior to 2002, the
Company accounted for the plan under the recognition and
measurement provisions of Accounting Principles Board (APB)
Opinion No. 25, “Accounting for Stock Issued to Employees,”
and related Interpretations. No stock-based employee compen-
sation cost is reflected in 2001’s net income since all options
granted had an exercise price equal to market value on the date
of grant. Effective January 1, 2002, the Company adopted the
fair-value recognition provisions of SFAS No. 123, “Accounting
for Stock-Based Compensation,” prospectively, to all awards
granted after January 1, 2002. Awards under the Company’s
plan typically vest over three years. The cost related to stock-
based employee compensation included in the determination of
net income for 2003 and 2002 was less than that which would
have been recognized if the fair-value based method had been
applied to all awards since the original effective date of SFAS
No.123. The effect on net income and earnings per share if the
fair-value based method had been applied to all awards in each
period is included in Note 16.
OFF-BALANCE SHEET ENTITIES
The Company has a multi-seller commercial paper conduit relation-
ship with a variable interest entity (VIE), Three Pillars. See Note 17
for further discussion of Three Pillars. As of December 31, 2002,
the Company was not required to consolidate Three Pillars based
on the requirements of SFAS No.140, “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities;”
Accounting Research Bulletin (ARB) 51, “Consolidated Financial
Statements;” SFAS No. 94, “Consolidation of All Majority-Owned
Subsidiaries;” EITF D-14, “Transactions involving Special-Purpose
Entities,” and other accounting principles generally accepted in the
United States.
In January 2003, the FASB issued FIN 46, “Consolidation of
Variable Interest Entities,” which addressed the criteria for the
consolidation of off-balance sheet entities similar to Three Pillars.
FIN 46 nullified the consensus reached in various accounting
pronouncements and interpretations and required consolidation
of Three Pillars. SunTrust adopted the provisions of FIN 46 for
certain of the Company’s VIEs and consolidated Three Pillars as
of July 1, 2003.
In December 2003, the FASB issued a revision to FIN 46
(FIN 46(R)), which replaced the Interpretation issued in January
2003. FIN 46(R) is effective for reporting periods ending after
March 15, 2004. SunTrust will adopt FIN 46(R) for the quarter
ended March 31, 2004 and will continue to apply FIN 46 in the
interim. The adoption of FIN 46(R) is not expected to have a sig-
nificant impact on the financial statements of SunTrust.
ACCOUNTING POLICIES ADOPTED
In May of 2002, the FASB issued SFAS No. 145, “Rescission
of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections as of April 2002.”
This Statement rescinded SFAS No. 4 and 64, “Reporting Gains
and Losses from Extinguishment of Debt” and “Extinguishments of
Debt Made to Satisfy Sinking-Fund Requirements,” respectively,
and restricted the classification of early extinguishment of debt as
an extraordinary item to the provisions of APB Opinion No. 30,
“Reporting the Results of Operations – Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions.” The
Statement also rescinded SFAS No. 44, “Accounting for Intangible
Assets of Motor Carriers,” which was no longer necessary because
the transition to the provisions of the Motor Carrier Act of 1980
was complete. The Statement also amended SFAS No. 13,
“Accounting for Leases,” to eliminate an inconsistency between
the required accounting for sale-leaseback transactions and the
required accounting for certain lease modifications that have
economic effects that are similar to sale-leaseback transactions.
Finally, the Statement made various technical corrections to exist-
ing pronouncements which were not considered substantive.
The provisions of this Statement relating to the rescission of
SFAS No. 4 and 64 were effective for fiscal years beginning after
May 15, 2002. The provisions relating to amendments of SFAS
No. 13 were effective for transactions initiated after May 15, 2002,
and all other provisions were effective for financial statements
issued after May 15, 2002. Additionally, there was retroactive
application for any gain or loss on extinguishment of debt that was
classified as extraordinary in a prior period that does not meet the
criteria in APB Opinion No. 30, requiring reclassification of this gain
or loss. As of January 1, 2003, the Company adopted all provisions
of this Statement, and the adoption did not have a material impact
on the Company’s financial position or results of operations.
In June 2002, the FASB issued SFAS No. 146, “Accounting
for Costs Associated with Exit or Disposal Activities.” SFAS No. 146
provides guidance on the recognition and measurement of liabilities
for costs associated with exit or disposal activities. SFAS No. 146
was effective for exit or disposal activities that are initiated after
December 31, 2002. The Company adopted this Statement as of
January 1, 2003, and it did not have a material impact on the
Company’s financial position or results of operations.