US Bank 2005 Annual Report Download - page 72

market investments, defined as interest-bearing amounts due statement are effective for the Company on January 1,
from banks, federal funds sold and securities purchased 2006. Because the Company retroactively adopted the fair
under agreements to resell. value method in 2003, the impact of expensing stock-based
awards is already recorded in the Company’s Consolidated
Stock-Based Compensation The Company grants stock- Statement of Income. In conjunction with the adoption of
based awards including restricted stock and options to SFAS 123R, the Company plans to change from an
purchase common stock of the Company. Stock option accelerated to a straight-line method of expense attribution
grants are for a fixed number of shares to employees and effective January 1, 2006, for new stock-based awards. The
directors with an exercise price equal to the fair value of impact of changing from accelerated to straight-line
the shares at the date of grant. The Company recognizes amortization for new awards will reduce expenses by
stock-based compensation in its results of operations approximately $33 million ($20 million after tax) in 2006.
utilizing the fair value method under Statement of Financial
Accounting Standard No. 123, ‘‘Accounting for Stock-based Loan Commitments On March 9, 2004, the Securities and
Compensation’’ (‘‘SFAS 123’’). Stock-based compensation is Exchange Commission staff issued Staff Accounting
recognized using an accelerated method of amortization for Bulletin No. 105 (‘‘SAB 105’’), ‘‘Application of Accounting
awards with graded vesting features and on a straight-line Principles to Loan Commitments,’’ which provides guidance
basis for awards with cliff vesting. The Company recognizes regarding loan commitments accounted for as derivative
compensation cost over the normal vesting period for instruments and is effective for commitments entered into
awards subject to continued vesting upon the employee’s after March 31, 2004. The guidance clarifies that expected
retirement. The amortization of stock-based compensation future cash flows related to the servicing of the loan may be
reflects estimated forfeitures adjusted for actual forfeiture recognized only when the servicing asset has been
experience. As compensation expense is recognized, a contractually separated from the underlying loan by sale
deferred tax asset is recorded that represents an estimate of with servicing retained. The adoption of SAB 105 did not
the future tax deduction from exercise or release of have a material impact on the Company’s financial
restrictions. At the time stock-based awards are exercised, statements.
cancelled, expire, or restrictions are released, the Company
may be required to recognize an adjustment to tax expense. BUSINESS COMBINATIONS
Per Share Calculations Earnings per share is calculated by On December 30, 2005, the Company acquired the
dividing net income by the weighted average number of corporate trust and institutional custody businesses of
common shares outstanding during the year. Diluted Wachovia Corporation in a cash transaction valued at
earnings per share is calculated by adjusting income and $720 million initially with an additional $80 million
outstanding shares, assuming conversion of all potentially payable in one year based on business retention levels. As a
dilutive securities, using the treasury stock method. All per result of this transaction, the Company acquired
share amounts have been restated for stock splits. approximately 14,100 new Corporate Trust client issuances
with $410 billion in assets under administration and
ACCOUNTING CHANGES approximately 1,700 new Institutional Trust and Custody
clients with $570 billion in assets under administration. The
Stock-Based Compensation In December 2004, the transaction represented total assets acquired of $730 million
Financial Accounting Standards Board issued Statement of and liabilities assumed of $10 million at the closing date.
Financial Accounting Standards No. 123 (revised 2004) Included in total assets were contract and other intangibles
(‘‘SFAS 123R’’), ‘‘Share-Based Payment’’, a revision of with an estimated fair value of $227 million and goodwill
Statement of Financial Accounting Standards No. 123 of $500 million. The goodwill reflected the strategic value
(‘‘SFAS 123’’), ‘‘Accounting for Stock-Based of the combined organization’s leadership position in the
Compensation.’’ SFAS 123R requires companies to measure corporate trust and institutional custody businesses and
the cost of employee services in exchange for an award of economies of scale resulting from the transaction.
equity instruments based on the grant-date fair value of the
In addition to this acquisition the Company completed
award. This statement eliminates the use of the alternative
other smaller acquisitions to enhance its presence in certain
intrinsic value method of accounting that was allowed when
markets and businesses.
SFAS 123 was originally issued. The provisions of this
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