Fifth Third Bank 2003 Annual Report Download - page 26

Notes to Consolidated Financial Statements
FIFTH THIRD BANCORP AND SUBSIDIARIES
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this Statement amends SFAS No. 144 to include in its scope long-
term customer relationship intangible assets of financial institutions
such as depositor and borrower-relationship intangible assets and
credit cardholder intangible assets. Consequently, those intangible
assets are subject to the same undiscounted cash flow recoverability
test and impairment loss recognition and measurement provisions
that SFAS No. 144 requires for other long-lived assets that are held
and used. This Statement was effective October 1, 2002. Adoption
of this Standard did not have a material effect on the Bancorp’s
Consolidated Financial Statements.
In December 2002, the FASB issued SFAS No. 148, “Accounting
for Stock-Based Compensation-Transition and Disclosure—an
Amendment of FASB Statement No. 123.” This Statement amends
SFAS No. 123, “Accounting for Stock-Based Compensation,” to
provide alternative methods of transition for a voluntary change to
the fair value method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure
requirements of SFAS No. 123 to require more prominent
disclosures about the method of accounting for stock-based
employee compensation and the effect of the method used on
reported results in both annual and interim financial statements.
This Statement was effective for financial statements for fiscal years
ending after December 15, 2002. As permitted by SFAS No. 148,
during 2003 the Bancorp continued to apply the provisions of APB
Opinion No. 25, “Accounting for Stock-Based Compensation,” for
all employee stock option grants and has elected to disclose pro
forma net income and earnings per share amounts as if the fair-
value based method had been applied in measuring compensation
costs. In addition, the Bancorp anticipates adopting the fair value
method of expense recognition for employee stock-based
compensation on a retroactive basis during the first quarter of 2004.
The Bancorp’s as reported and pro forma information, including
stock-based compensation expense as if the fair-value based method
had been applied, for the years ended December 31:
($ in millions, except per share data) 2003 2002 2001
As reported net income available to
common shareholders . . . . . . . . . . $1,754 1,634 1,093
Less: stock-based compensation
expense determined under fair
value method, net of tax . . . . . . . . (90) (105) (94)
Pro forma net income . . . . . . . . . . . $1,664 1,529 999
As reported earnings per share . . . . . $ 3.07 2.82 1.90
Pro forma earnings per share . . . . . . $ 2.91 2.63 1.74
As reported earnings per diluted share $ 3.03 2.76 1.86
Pro forma earnings per diluted share. $ 2.87 2.58 1.70
Compensation expense in the pro forma disclosures is not
indicative of future amounts, as options vest over several years and
additional grants are generally made each year.
The weighted-average fair value of options granted was $18.27,
$26.14, and $18.79 in 2003, 2002 and 2001, 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 used for grants in 2003, 2002 and 2001: expected
option lives ranging from six to nine years for all three years;
expected dividend yield of 1.6% for 2003, 1.4% for 2002, and
1.8% for 2001; expected volatility of 28% for all three years and
risk-free interest rates of 4.4%, 5.0%, and 5.1%, respectively.
In April 2003, the FASB issued SFAS No. 149, “Amendment of
Statement 133 on Derivative Instruments and Hedging Activities.”
This Statement amends and clarifies financial accounting and
In August 2001, the FASB issued SFAS No. 144, “Accounting
for the Impairment or Disposal of Long-Lived Assets.” This
Statement eliminates the allocation of goodwill to long-lived assets
to be tested for impairment and details both a “probability-weighted”
and “primary-asset” approach to estimate cash flows in testing for
impairment of a long-lived asset. This Statement supersedes SFAS
No. 121, “Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of,” and the accounting and
reporting provisions of the Accounting Principles Board (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.”
This Statement also amends Accounting Research Bulletin (ARB)
No. 51, “Consolidated Financial Statements.” SFAS No. 144 was
effective for financial statements issued for fiscal years beginning
after December 15, 2001. Adoption of this Standard did not have a
material effect on the Bancorp’s Consolidated Financial Statements.
In April 2002, the FASB issued SFAS No. 145, “Rescission of
SFAS Statements No. 4, 44, and 64, Amendment of SFAS No. 13,
and Technical Corrections.” This Statement rescinds SFAS No. 4,
“Reporting Gains and Losses from Extinguishment of Debt,” and
amends SFAS No. 64, “Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements.” This Statement also rescinds SFAS
No. 44, “Accounting for Intangible Assets of Motor Carriers.” This
Statement amends 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. This Statement also amends other existing
authoritative pronouncements to make various technical corrections,
clarify meanings, or describe their applicability under changed
conditions. SFAS No. 145 was effective for transactions occurring
after May 15, 2002. Adoption of this Standard did not have a
material effect on the Bancorp’s Consolidated Financial Statements.
In June 2002, the FASB issued SFAS No. 146, “Accounting for
Costs Associated with Exit or Disposal Activities.” This Statement
addresses financial accounting and reporting for costs associated with
exit or disposal activities and nullifies Emerging Issues Task Force
(EITF) Issue No. 94-3, “Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring).” This Statement requires
recognition of a liability for a cost associated with an exit or disposal
activity when the liability is incurred, as opposed to being recognized
at the date an entity commits to an exit plan under EITF Issue No.
94-3. This Statement also establishes that fair value is the objective for
initial measurement of the liability. This Statement was effective for
exit or disposal activities that were initiated after December 31, 2002
and has not had a material effect on the Bancorp’s Consolidated
Financial Statements.
In October 2002, the FASB issued SFAS No. 147, “Acquisitions
of Certain Financial Institutions.” This Statement addresses the
financial accounting and reporting for the acquisition of all or part
of a financial institution, except for a transaction between two or
more mutual enterprises. This Statement removes acquisitions of
financial institutions from the scope of SFAS No. 72, “Accounting
for Certain Acquisitions of Banking or Thrift Institutions” and
FASB Interpretation No. 9, “Applying APB Opinions No. 16 and
17 when a Savings and Loan Association or a Similar Institution Is
Acquired in a Business Combination Accounted for by the Purchase
Method,” and requires that those transactions be accounted for in
accordance with SFAS No. 141 and SFAS No. 142. In addition,