US Bank 2003 Annual Report Download - page 97

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Stock-based compensation expense was $158.1 million of stock-based compensation expense was $123.4 million in
in 2003, compared with $185.0 million and $168.7 million 2003, compared with $113.3 million and $106.9 million in
in 2002 and 2001, respectively. In 2001, the Company also 2002 and 2001, respectively.
recognized $190.5 million of stock-based compensation Stock-based compensation expense is based on the fair
expense as part of its merger and restructuring-related value of the award at the date of grant or modification. The
charges as a result of accelerated vesting of certain stock fair value of options was estimated using the Black-Scholes
options and restricted stock due to change-in-control option-pricing model requiring the use of subjective
provisions triggered by the Firstar/USBM merger. At the valuation assumptions. Because employee stock options
time employee stock options expire or are exercised or have characteristics that differ from those of traded options,
cancelled, the Company determines the tax benefit including vesting provisions and trading limitations that
associated with the stock award and under certain impact their liquidity, the determined value used to measure
circumstances may be required to recognize an adjustment compensation expense may vary from their actual fair
to tax expense. On an after-tax basis, the financial impact value.
The following table provides a summary of the valuation assumptions utilized by the Company to determine the estimated
value of stock option grants:
Weighted-average assumptions in stock option valuation 2003 2002 2001
Risk-free interest rates *********************************************************************************** 2.8% 3.3% 4.6%
Dividend yields ****************************************************************************************** 3.0% 3.0% 3.0%
Stock volatility factor ************************************************************************************* .40 .41 .42
Expected life of options (in years) ************************************************************************* 5.3 6.0 4.5
Income Taxes
The components of income tax expense were:
(Dollars in Millions) 2003 2002 2001
Federal
Current ******************************************************************************* $1,528.8 $1,268.9 $ 982.2
Deferred ****************************************************************************** 222.9 256.9 (275.9)
Federal income tax ****************************************************************** 1,751.7 1,525.8 706.3
State
Current ******************************************************************************* 139.8 146.9 132.2
Deferred ****************************************************************************** 49.8 34.8 (20.2)
State income tax******************************************************************** 189.6 181.7 112.0
Total income tax provision************************************************************ $1,941.3 $1,707.5 $ 818.3
A reconciliation of expected income tax expense at the federal statutory rate of 35% to the Company’s applicable income
tax expense follows:
(Dollars in Millions) 2003 2002 2001
Tax at statutory rate (35%) ************************************************************** $1,978.0 $1,727.4 $ 819.8
State income tax, at statutory rates, net of federal tax benefit ******************************* 123.2 116.5 68.9
Tax effect of
Tax-exempt interest, net ************************************************************* (21.7) (24.9) (37.4)
Amortization of nondeductible goodwill ************************************************ — — 83.0
Tax credits ************************************************************************* (109.6) (85.5) (69.4)
Nondeductible merger charges ******************************************************* — 5.0 52.5
Other items ************************************************************************ (28.6) (31.0) (99.1)
Applicable income taxes **************************************************************** $1,941.3 $1,707.5 $ 818.3
The tax effects of fair value adjustments on securities In preparing its tax returns, the Company is required to
available-for-sale, derivative instruments in cash flow hedges interpret complex tax laws and regulations and utilize
and certain tax benefits related to stock options are income and cost allocation methods to determine its taxable
recorded directly to shareholders’ equity as part of other income. On an ongoing basis, the Company is subject to
comprehensive income. examinations by federal and state taxing authorities that
U.S. Bancorp 95
Note 20