US Bank 2004 Annual Report Download - page 29
Download and view the complete annual report
Please find page 29 of the 2004 US Bank annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.plan assets. This accounting guidance has the effect of In 2004, the Company recognized a pension cost of
reducing earnings volatility related to short-term changes in $9.0 million compared with pension credits of $23.9 million
interest rates and market valuations. Actuarial gains and in 2003 and $63.8 million in 2002. The $32.9 million
losses include the impact of plan amendments and various increase in pension costs in 2004 was driven by a
unrecognized gains and losses which are deferred and recognition of deferred actuarial (gains) losses and the
amortized over the future service periods of active impact of a lower discount rate, partially offset by the
employees. The market-related value utilized to determine benefit of higher investment income related to the pension
the expected return on plan assets is based on fair value contributions made in 2003. In 2003, pension costs
adjusted for the difference between expected returns and increased by $39.9 million, compared with 2002, driven by
actual performance of plan assets. The unrealized difference a $46.4 million reduction in the expected return on assets
between actual experience and expected returns is included and a lower discount rate utilized to determine the
in the market-related value ratably over a five-year period. projected benefit obligation given the declining rate
At September 30, 2004, the accumulated unrecognized loss environment. Also, contributing to the increase in pension
approximated $139 million and will ratably impact the costs was a one-time curtailment gain in 2002 of
actuarially derived market-related value of plan assets $9.0 million related to a nonqualified pension plan
through 2009. The impact to pension expense of the compared with a settlement loss of $3.5 million related to
unrecognized asset gains or losses will incrementally nonqualified pension payments in 2003. Somewhat
increase (decrease) pension costs in each year from 2005 to offsetting the increase in pension costs was an expected
2009, by approximately $28.9 million, $39.4 million, benefit of approximately $19.0 million associated with
$6.3 million, $(11.4) million and $(4.1) million, lower interest costs related to cash balance accounts and
respectively. This assumes that the performance of plan actual changes in employment demographics, such as
assets equals the assumed LTROR. Actual results will vary retirement age.
depending on the performance of plan assets and changes to In 2005, the Company anticipates that pension costs
assumptions required in the future. Refer to Note 1 of the will increase by approximately $23.5 million. The increase
Notes to Consolidated Financial Statements for further will be driven by the lower discount rate and amortization
discussion of the Company’s accounting policies for pension of unrecognized actuarial losses from prior years.
plans.
Note 19 of the Notes to Consolidated Financial Statements provides a summary of the significant pension plan assumptions.
Because of the subjective nature of plan assumptions, a sensitivity analysis to hypothetical changes in the LTROR and the
discount rate is provided below:
Base
LTROR 6.9% 7.9% 8.9% 9.9% 10.9%
Incremental benefit (cost)******************************************************** $(43.8) $(21.9) $— $21.9 $43.7
Percent of 2004 net income ***************************************************** (.65)% (.33)% —% .33% .65%
Base
Discount rate 4.0% 5.0% 6.0% 7.0% 8.0%
Incremental benefit (cost)******************************************************** $(57.0) $(30.9) $— $35.4 $73.5
Percent of 2004 net income ***************************************************** (.85)% (.46)% —% .53% 1.09%
Due to the complexity of forecasting pension plan actual changes in periodic pension costs could be
activities, the accounting method utilized for pension plans, significantly different than the information provided in the
management’s ability to respond to factors impacting the sensitivity analysis.
plans and the hypothetical nature of this information, the
Income Tax Expense The provision for income taxes was $16.3 million related to the resolution of a state tax
$2,009.6 million (an effective rate of 32.5 percent) in 2004, examination for tax years through 2000. The improvement
compared with $1,941.3 million (an effective rate of in the effective tax rate in 2003, compared with 2002, was
34.4 percent) in 2003 and $1,707.5 million (an effective primarily driven by a change in unitary state tax
rate of 34.6 percent) in 2002. The improvement in the apportionment factors driven by a shift in business mix as a
effective tax rate in 2004, compared with 2003, was result of the impact of acquisitions, market demographics,
primarily due to changes in estimated tax liabilities of the mix of product revenue and an increase in federal and
$90.0 million related to the resolution of federal tax state tax credits.
examinations covering substantially all of the Company’s For further information on income taxes, refer to
legal entities for the years 1995 through 1999 and Note 21 of the Notes to Consolidated Financial Statements.
U.S. BANCORP 27