SunTrust 2004 Annual Report Download - page 93

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
SUNTRUST 2004 ANNUAL REPORT 91
Effective January 1,2002, the Company adopted the fair-value recognition provision of SFAS No. 123 prospectively to all awards granted after
January 1, 2002.The effect on net income and earnings per share if the fair value based method had been applied to all outstanding awards in
each period is as follows:
(Dollars in thousands except per share data) 2004 2003 2002
Net income, as reported $1,572,901 $1,332,297 $1,331,809
Stock-based employee compensation expense included in
reported net income, net of related tax effects 10,962 5,285 484
Total stock-based employee compensation expense
determined under fair-value-based method for all awards,
net of related tax effects (15,846) (14,474) (19,278)
Net income, pro forma $1,568,017 $1,323,108 $1,313,015
Earning per share:
Diluted – as reported $ 5.19 $ 4.73 $ 4.66
Diluted – pro forma 5.17 4.70 4.59
Basic – as reported 5.25 4.79 4.71
Basic – pro forma 5.24 4.75 4.64
The weighted average fair values of options granted during 2004, 2003, and 2002 were $8.40, $5.80, and $9.52 per share,respectively.The fair
value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:
2004 2003 2002
Expected dividend yield 2.54% 3.20% 2.66%
Expected stock price volatility 12.98 14.51 14.28
Risk-free interest rate (weighted avg) 3.10 2.96 4.05
Expected life of options 5 years 5 years 6 years
SunTrust maintains a defined contribution plan that offers a dollar
for dollar match on the first 3% and $.50 cents on each dollar for
the 4th and 5th percents.There is a maximum match of 4% of eligi-
ble wages for contributions of 5% or more in the SunTrust Banks,
Inc. 401(k) Plan.
SunTrust maintains a funded, noncontributory qualified retirement
plan (“Retirement Benefits” in the tables that follow) covering all
employees meeting certain service requirements.The plan provides
benefits based on salary and years of service. SunTrust performs a
benefits study periodically to determine the long-term costs and
competitive position of this plan. The study performed in 2002
resulted in the decision by SunTrust to reduce future benefits effec-
tive January 31, 2003. In addition to managing costs, SunTrust con-
tributed $30 million to this plan in 2004 and $300 million in 2003
to maintain a well-funded position. SunTrust was not able to make
tax deductible contributions for the 2004 plan year due to the
funded position of the plan. SunTrust will continue to review the
funded status of the plan and make additional contributions as
permitted by law.
SunTrust also maintains unfunded, noncontributory non-qualified
supplemental defined benefit pension plans that cover key execu-
tives of the Company.The plans provide defined benefits based on
years of service and final average salary. SunTrust’s obligations for
these plans are shown separately under the “Supplemental
Retirement Benefits” sections below.
Although not under contractual obligation, SunTrust provides cer-
tain health care and life insurance benefits to retired employees
(“Other Post Retirement Benefits” in the tables that follow).At the
option of SunTrust, retirees may continue certain health and life
insurance benefits if they meet age and service requirements for
postretirement welfare benefits while working for the Company.
The health care plans are contributory with participant contribu-
tions adjusted annually; the life insurance plans are noncontribu-
tory.As part of the benefit study performed in 2002, SunTrust also
realigned the cost sharing of the post retirement welfare plans with
retirees and eliminated post retirement life insurance benefits for
employees who retired after December 31, 2003. Additionally,
SunTrust no longer subsidizes post-65 medical benefits for employ-
ees who retired after December 31, 2003. Certain retiree health
benefits are funded in a Retiree Health Trust. In addition, certain
retiree life insurance benefits are funded in a Voluntary Employees’
Beneficiary Association (VEBA).
On October 1, 2004, SunTrust acquired National Commerce
Financial Corporation (NCF). Prior to the acquisition, NCF spon-
sored a funded qualified retirement plan, an unfunded nonqualified
retirement plan for some of its participants, and certain post retire-
ment health benefits for its employees. Effective December 31,
2004, participants will earn no future service in the NCF Retirement
plan (qualified plan) and participants’ benefits will be frozen, with
the exception of adjustments for pay increases after 2004.All for-
mer NCF employees who meet certain service requirements will