Fifth Third Bank 2008 Annual Report Download - page 67

NOTES TO CONSOLIDATED FINABCIAL STATEMENTS
Fifth Third Bancorp 65
appeals or litigation processes, based on the technical merits of
the position. The second step is a measurement process whereby
a tax position that meets the more-likely-than-not recognition
threshold is calculated to determine the amount of benefit to be
recognized in the financial statements. In May 2007, the FASB
issued FSP No. FIN 48-1, “Definition of Settlement in FASB FIN
No. 48.” FSP No. FIN 48-1 amends FIN No. 48 to provide
guidance on determining whether a tax position is “effectively
settled” for the purpose of recognizing previously unrecognized
tax benefits. The concept of “effectively settled” replaces the
concept of “ultimately settled” originally issued in FIN 48. The
tax position can be considered “effectively settled” upon
completion of an examination by the taxing authority if the entity
does not plan to appeal or litigate any aspect of the tax position
and it is remote that the taxing authority would examine any
aspect of the tax position. For effectively settled tax positions, the
full amount of the tax benefit can be recognized. The guidance in
FSP No. FIN 48-1 was effective upon initial adoption of FIN No.
48. FIN No. 48 was effective for fiscal years beginning after
December 15, 2006. Upon adoption of this Interpretation on
January 1, 2007, the Bancorp recognized an after-tax adjustment
to beginning retained earnings of $2 million representing the
cumulative effect of applying the provisions of this interpretation.
In July 2006, the FASB issued FASB Staff Position (FSP)
No. FAS 13-2, “Accounting for a Change or Projected Change in
the Timing of Cash Flows Relating to Income Taxes Generated
by a Leveraged Lease Transaction.” This FSP addresses the
accounting for a change or projected change in the timing of
lessor cash flows, but not the total net income, relating to income
taxes generated by a leveraged lease transaction. This FSP amends
SFAS No. 13, “Accounting for Leases,” and applies to all
transactions classified as leveraged leases. The timing of cash
flows relating to income taxes generated by a leveraged lease is an
important assumption that affects the periodic income recognized
by the lessor. Under this FSP, the projected timing of income tax
cash flows generated by a leveraged lease transaction are required
to be reviewed annually or more frequently if events or
circumstances indicate that a change in timing has occurred or is
projected to occur. The expected timing of the income tax cash
flows generated by a leveraged lease is revised if during the lease
term the rate of return and the allocation of income would be
recalculated from the inception of the lease. In the year of
adoption, the cumulative effect of the change in the net
investment balance resulting from the recalculation will be
recognized as an adjustment to the beginning balance of retained
earnings. On an ongoing basis following the adoption, a change
in the net investment balance resulting from a recalculation will be
recognized as a gain or a loss in the period in which the
assumption changed and included in income from continuing
operations in the same line item where leveraged lease income is
recognized. These amounts would then be recognized back into
income over the remaining terms of the affected leases.
Additionally, upon adoption, only tax positions that meet the
more-likely-than-not recognition threshold should be reflected in
the financial statements and all recognized tax positions in a
leveraged lease must be measured in accordance with FIN 48.
Upon adoption of this FSP on January 1, 2007, the Bancorp
recognized an after-tax adjustment to beginning retained earnings
of $96 million representing the cumulative effect of applying the
provisions of this FSP. Furthermore, due to recent court
decisions related to leveraged leases and uncertainty regarding the
outcome of outstanding litigation involving certain of the
Bancorp’s leveraged leases, the Bancorp recognized after-tax
charges relating to leveraged leases of $229 million and $3 million
in the second and third quarters of 2008, respectively. See Note
16 for additional information.
In September 2008, the FASB issued FSP No. FAS 133-1
and FIN 45-4, "Disclosures about Credit Derivatives and Certain
Guarantees - An Amendment of FASB Statement No. 133 and
FASB Interpretation No. 45; and Clarification of the Effective
Date of FASB Statement No. 161." This FSP applies to: (a) credit
derivatives within the scope of SFAS No. 133; (b) hybrid
instruments that have embedded credit derivatives; and (c)
guarantees within the scope of FIN No. 45, "Guarantor’s
Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." This
FSP amends Statement 133, to require disclosures by sellers of
credit derivatives, including credit derivatives embedded in a
hybrid instrument. This FSP also amends FIN 45, to require an
additional disclosure about the current status of the
payment/performance risk of a guarantee. In addition, this FSP
clarifies the FASB’s intent that the disclosures required by SFAS
No. 161, "Disclosures about Derivative Instruments and Hedging
Activities", should be provided for any reporting period (annual or
interim) beginning after November 15, 2008. The provisions of
this FSP that amend Statement 133 and FIN 45 are effective for
reporting periods (annual or interim) ending after November 15,
2008.
In December 2008, the FASB issued FSP No. FAS 140-4 and
FIN 46(R)-8, "Disclosures about Transfers of Financial Assets
and Interests in Variable Interest Entities". The purpose of this
FSP is to improve disclosures by public entities and enterprises
until the pending amendments to SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities", and FIN 46(R), "Consolidation of Variable Interest
Entities", are finalized and approved by the FASB. The FSP
amends Statement 140 to require public entities to provide
additional disclosures about transfers of financial assets and
variable interests in qualifying special-purpose entities. It also
amends Interpretation 46(R) to require public enterprises to
provide additional disclosures about their involvement with
variable interest entities. This FSP is effective for reporting
periods ending after December 15, 2008. The disclosure
requirements of this FSP have been incorporated in the Notes to
the Consolidated Financial Statements.
In June 2007, the Emerging Issues Task Force (EITF) issued
EITF Issue No. 06-11, "Accounting for Income Tax Benefits of
Dividends on Share-Based Payment Awards." The Issue states
that a realized income tax benefit from dividends or dividend
equivalents that are charged to retained earnings and are paid to
employees for equity classified nonvested equity shares, nonvested
equity share units, and outstanding equity share options should be
recognized as an increase to additional paid-in capital. The
amount recognized in additional paid-in capital for the realized
income tax benefit from dividends on those awards should be
included in the pool of excess tax benefits available to absorb tax
deficiencies on share-based payment awards. This Issue is
effective for fiscal years beginning after December 15, 2007, and
interim periods within those fiscal years. The Bancorp has
prospectively applied this Issue to applicable dividends declared
on or after January 1, 2008. The Bancorp's adoption of this Issue
did not have a material impact on the Bancorp’s Consolidated
Financial Statements.
In June 2008, the Emerging Issues Task Force issued EITF
Issue No. 07-5, "Determining Whether an Instrument (or
Embedded Feature) Is Indexed to an Entity’s Own Stock." This
Issue provides guidance an entity should use to evaluate whether
an equity-linked financial instrument (or embedded feature) is
indexed to its own stock. This Issue is effective for financial
statements issued for fiscal years beginning after December 15,
2008, and interim periods within that period. Early adoption is
not permitted. The Bancorp’s adoption of this Issue on January 1,
2009 will not have a material impact on the Bancorp’s
Consolidated Financial Statements.
In January 2009, the FASB issued FSP No. EITF 99-20-1,
"Amendments to the Impairment Guidance of EITF Issue No.