Comerica 2012 Annual Report Download - page 96

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
F-62
Defined Benefit Pension and Other Postretirement Costs
Defined benefit pension costs are charged to "employee benefits" expense on the consolidated statements of income and
are funded consistent with the requirements of federal laws and regulations. Inherent in the determination of defined benefit pension
costs are assumptions concerning future events that will affect the amount and timing of required benefit payments under the plans.
These assumptions include demographic assumptions such as retirement age and mortality, a compensation rate increase, a discount
rate used to determine the current benefit obligation and a long-term expected rate of return on plan assets. Net periodic defined
benefit pension expense includes service cost, interest cost based on the assumed discount rate, an expected return on plan assets
based on an actuarially derived market-related value of assets, amortization of prior service cost and amortization of net actuarial
gains or losses. The market-related value of plan assets is determined by amortizing the current year’s investment gains and losses
(the actual investment return net of the expected investment return) over 5 years. The amortization adjustment cannot exceed 10
percent of the fair value of assets. Prior service costs include the impact of plan amendments on the liabilities and are amortized
over the future service periods of active employees expected to receive benefits under the plan. Actuarial gains and losses result
from experience different from that assumed and from changes in assumptions (excluding asset gains and losses not yet reflected
in market-related value). Amortization of actuarial gains and losses is included as a component of net periodic defined benefit
pension cost for a year if the actuarial net gain or loss exceeds 10 percent of the greater of the projected benefit obligation or the
market-related value of plan assets. If amortization is required, the excess is amortized over the average remaining service period
of participating employees expected to receive benefits under the plan.
Postretirement benefits are recognized in "employee benefits" expense on the consolidated statements of income during
the average remaining service period of participating employees expected to receive benefits under the plan or the average remaining
future lifetime of retired participants currently receiving benefits under the plan.
For further information regarding the Corporation’s defined benefit pension and other postretirement plans, refer to Note
17.
Income Taxes
The provision for income taxes is the sum of income taxes due for the current year and deferred taxes. Deferred taxes
arise from temporary differences between the income tax basis and financial accounting basis of assets and liabilities. Deferred
tax assets are evaluated for realization based on available evidence of loss carry-back capacity, future reversals of existing taxable
temporary differences, and assumptions made regarding future events. A valuation allowance is provided when it is more likely
than not that some portion of the deferred tax asset will not be realized. The provision for income taxes assigned to discontinued
operations is based on statutory rates, adjusted for permanent differences generated by those operations.
The Corporation classifies interest and penalties on income tax liabilities in the "provision for income taxes" on the
consolidated statements of income.
Discontinued Operations
Components of the Corporation that have been or will be disposed of by sale, where the Corporation does not have a
significant continuing involvement in the operations after the disposal, are accounted for as discontinued operations in all periods
presented if significant to the consolidated financial statements. For further information on discontinued operations, refer to Note
25.
Earnings Per Share
Basic income from continuing operations per common share and net income per common share are calculated using the
two-class method. The two-class method is an earnings allocation formula that determines earnings per share for each share of
common stock and participating securities according to dividends declared (distributed earnings) and participation rights in
undistributed earnings. Distributed and undistributed earnings are allocated between common and participating security
shareholders based on their respective rights to receive dividends. Unvested share-based payment awards that contain nonforfeitable
rights to dividends or dividend equivalents are considered participating securities (i.e., nonvested restricted stock). Undistributed
net losses are not allocated to nonvested restricted shareholders, as these shareholders do not have a contractual obligation to fund
the losses incurred by the Corporation. Income from continuing operations attributable to common shares and net income attributable
to common shares are then divided by the weighted-average number of common shares outstanding during the period.
Diluted income from continuing operations per common share and net income per common share consider common stock
issuable under the assumed exercise of stock options granted under the Corporation’s stock plans and warrants. Diluted income
from continuing operations attributable to common shares and net income attributable to common shares are then divided by the
total of weighted-average number of common shares and common stock equivalents outstanding during the period.