Huntington National Bank 2005 Annual Report Download - page 110

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NOTES TOCONSOLIDATED FINANCIAL STATEMENTS HUNTINGTON BANCSHARES INCORPORATED
–T
REASURY
S
TOCK
— Acquisitions of treasury stock are recorded at cost. The reissuance of shares in treasury for acquisitions,
stock option exercises, or for other corporate purposes, is recorded at weighted-average cost.
–S
TOCK
-B
ASED
C
OMPENSATION
— Huntington’s stock-based compensation plans are accounted for based on the intrinsic value
method promulgated by Accounting Principles Board Opinion 25, Accounting for Stock Issued to Employees, and related
interpretations. Compensation expense for employee stock options is generally not recognized if the exercise price of the option
equals or exceeds the fair value of the stock on the date of grant.
The following pro forma disclosures for net income and earnings per diluted common share is presented as if Huntington had
applied the fair value method of accounting of Statement No. 123, Accounting for Stock-Based Compensation, in measuring
compensation costs for stock options. The fair values of the stock options granted are estimated using the Black-Scholes
option-pricing model. This model assumes that the estimated fair value of the options is amortized over the options’ vesting
periods and the compensation costs would be included in personnel costs in the consolidated income statement. The following
table also includes the weighted-average assumptions that were used in the option-pricing model for options granted in each of
the last three years:
Year Ended December 31,
(in millions of dollars, except per share amounts) 2005 2004 2003
Assumptions
Risk-free interest rate 4.07% 3.78% 4.45%
Expected dividend yield 3.34 3.20 3.11
Expected volatility of Huntington’s common stock 26.3 30.9 33.8
Expected option term (years) 6.0 6.0 6.0
Pro forma results
Net income, as reported $412.1 $398.9 $372.4
Less pro forma expense related to options granted (11.9) (14.4) (10.9)
Pro forma net income $400.2 $384.5 $361.5
Net income per common share:
Basic, as reported $ 1.79 $ 1.74 $ 1.62
Basic, pro forma 1.74 1.67 1.58
Diluted, as reported 1.77 1.71 1.61
Diluted, pro forma 1.71 1.64 1.56
–S
EGMENT
R
ESULTS
— Accounting policies for the lines of business are the same as those used in the preparation of the
consolidated financial statements with respect to activities specifically attributable to each business line. However, the
preparation of business line results requires management to establish methodologies to allocate funding costs and benefits,
expenses, and other financial elements to each line of business. Changes are made in these methodologies utilized for certain
balance sheet and income statement allocations performed by Huntington’s management reporting system, as appropriate. In
2005, the Capital Markets Group was removed from the Treasury/Other segment and combined with the Private Financial
Group to form the Private Financial and Capital Markets Group segment. Since the Capital Markets Group is now managed
through the Private Financial Group, combining these two segments better reflects the management accountability and decision
making structure. Prior periods reflect this change.
–S
TATEMENT OF
C
ASH
F
LOWS
— Cash and cash equivalents are defined as ‘‘Cash and due from banks’’ and ‘‘Federal funds sold
and securities purchased under resale agreements.’’
2. NEW ACCOUNTING STANDARDS
–FASB I
NTERPRETATION
N
O
. 47,
Accounting for Conditional Asset Retirement Obligations
(FIN 47) — In March 2005, the
FASB issued FIN 47, which clarifies the term ‘‘conditional asset retirement obligation’’ as used in Statement No. 143,
Accounting for Asset Retirement Obligations. FIN 47 refers to a legal obligation to perform an asset retirement activity in which
the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the
entity. An entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair
value of the liability can be reasonably estimated. The impact of adopting the provisions of FIN 47 in the fourth quarter of
2005 was not material.
108