US Bank 2002 Annual Report Download - page 71

included in the gain or loss from the disposition of the Income Taxes Deferred taxes are recorded to reflect the tax
hedged item or, in the case of a forecasted transaction that consequences on future years of differences between the tax
is no longer probable, included in earnings immediately. bases of assets and liabilities and the financial reporting
amounts at each year-end.
OTHER SIGNIFICANT POLICIES
Statement of Cash Flows For purposes of reporting cash
Premises and Equipment Premises and equipment are flows, cash and cash equivalents include cash and money
stated at cost less accumulated depreciation and depreciated market investments, defined as interest-bearing amounts due
primarily on a straight-line basis over the estimated life of from banks, federal funds sold and securities purchased
the assets. Estimated useful lives range up to 40 years under agreements to resell.
for buildings and from 3 to 20 years for furniture
Stock-Based Compensation The Company grants stock
and equipment. options for a fixed number of shares to employees and
Capital leases, less accumulated amortization, are directors with an exercise price equal to the fair value of the
included in premises and equipment. The lease obligations shares at the date of grant. The Company accounts for stock
are included in long-term debt. Capitalized leases are option grants under the intrinsic value method in accordance
amortized on a straight-line basis over the lease term and with Accounting Principles Board Opinion No. 25,
the amortization is included in depreciation expense. ‘‘Accounting for Stock Issued to Employees,’’ (‘‘APB 25’’)
Mortgage Servicing Rights Mortgage servicing rights and accordingly recognizes no compensation expense for the
(‘‘MSRs’’) are capitalized as separate assets when loans are stock option grants. Refer to Note 19 of the Notes to
sold and servicing is retained. The total cost of loans sold is Consolidated Financial Statements for information regarding
allocated between the loans sold and the servicing assets the proforma impact to the Company’s earnings if the fair
retained based on their relative fair values. MSRs that are value accounting method was utilized.
purchased from others are initially recorded at cost. The
Per Share Calculations Earnings per share is calculated by
carrying value of the MSRs is amortized in proportion to, dividing net income (less preferred stock dividends) by the
and over the period of, estimated net servicing revenue and weighted average number of common shares outstanding
recorded in noninterest expense as amortization of during the year. Diluted earnings per share is calculated by
intangible assets. The carrying value of these assets is adjusting income and outstanding shares, assuming
periodically reviewed for impairment using a lower of conversion of all potentially dilutive securities, using the
carrying value or fair value methodology. For purposes of treasury stock method. All per share amounts have been
measuring impairment, the servicing rights are stratified restated for stock splits.
based on the underlying loan type and note rate and the
carrying value of each stratum is compared to fair value Accounting Changes
based on a discounted cash flow analysis, utilizing current
Consolidation of Variable Interest Entities In January 2003,
prepayment speeds and discount rates. Events that may
the Financial Accounting Standards Board issued
significantly affect the estimates used are changes in interest
Interpretation No. 46 (‘‘FIN 46’’), ‘‘Consolidation of
rates and the related impact on mortgage loan prepayment
Variable Interest Entities’’ (‘‘VIEs’’), an interpretation of
speeds and the payment performance of the underlying
Accounting Research Bulletin No. 51, ‘‘Consolidated
loans. If the carrying value is less than fair value,
Financial Statements,’’ to improve financial reporting of
impairment is recognized through a valuation allowance for
special purpose and other entities. In accordance with the
each impaired stratum and recorded as amortization of
interpretation, business enterprises that represent the
intangible assets.
primary beneficiary of another entity by retaining a
Intangible Assets The price paid over the net fair value of controlling financial interest in that entity’s assets, liabilities,
the acquired businesses (‘‘goodwill’’) is not amortized. and results of operating activities must consolidate the
Other intangible assets are amortized over their estimated entity in their financial statements. Prior to the issuance of
useful lives, using straight-line and accelerated methods. The FIN 46, consolidation generally occurred when an
recoverability of goodwill and other intangible assets is enterprise controlled another entity through voting interests.
evaluated annually, at a minimum, or on an interim basis if Certain VIEs that are qualifying special purpose entities
events or circumstances indicate a possible inability to (‘‘QSPEs’’) subject to the reporting requirements of
realize the carrying amount. The evaluation includes SFAS 140, ‘‘Accounting for Transfers and Servicing of
assessing the estimated fair value of the intangible asset Financial Assets and Extinguishment of Liabilities,’’ will not
based on market prices for similar assets, where available, be required to be consolidated under the provisions of
and the present value of the estimated future cash flows FIN 46. The consolidation provisions of FIN 46 apply to
associated with the intangible asset.
U.S. Bancorp 69
Note 2