US Bank 2006 Annual Report Download - page 74

Pensions For purposes of its retirement plans, the Company purchase common stock of the Company. Stock option
utilizes a measurement date of September 30. At the grants are for a fixed number of shares to employees and
measurement date, plan assets are determined based on fair directors with an exercise price equal to the fair value of
value, generally representing observable market prices. The the shares at the date of grant. Stock-based compensation
actuarial cost method used to compute the pension for awards is recognized in the Company’s results of
liabilities and related expense is the projected unit credit operations on a straight-line basis over the vesting period.
method. The projected benefit obligation is principally The Company immediately recognizes compensation cost of
determined based on the present value of projected benefit awards to employees that meet retirement status, despite
distributions at an assumed discount rate. The discount rate their continued active employment. The amortization of
utilized is based on match-funding maturities and interest stock-based compensation reflects estimated forfeitures
payments of high quality corporate bonds available in the adjusted for actual forfeiture experience. As compensation
market place to projected cash flows as of the measurement expense is recognized, a deferred tax asset is recorded that
date for future benefit payments. Periodic pension expense represents an estimate of the future tax deduction from
(or income) includes service costs, interest costs based on exercise or release of restrictions. At the time stock-based
the assumed discount rate, the expected return on plan awards are exercised, cancelled, expire, or restrictions are
assets based on an actuarially derived market-related value released, the Company may be required to recognize an
and amortization of actuarial gains and losses. Pension adjustment to tax expense.
accounting reflects the long-term nature of benefit Per Share Calculations Earnings per share is calculated by
obligations and the investment horizon of plan assets and dividing net income by the weighted average number of
can have the effect of reducing earnings volatility related to common shares outstanding during the year. Diluted
short-term changes in interest rates and market valuations. earnings per share is calculated by adjusting income and
Actuarial gains and losses include the impact of plan outstanding shares, assuming conversion of all potentially
amendments and various unrecognized gains and losses dilutive securities, using the treasury stock method.
which are deferred and amortized over the future service
periods of active employees. The market-related value ACCOUNTING CHANGES
utilized to determine the expected return on plan assets is
Employers’ Accounting for Defined Benefit Pension and
based on fair value adjusted for the difference between
Other Postretirement Plans In September 2006, the
expected returns and actual performance of plan assets. The
Financial Accounting Standards Board (‘‘FASB’’) issued
unrealized difference between actual experience and
Statement of Financial Accounting Standards No. 158
expected returns is included in the market-related value
(‘‘SFAS 158’’), ‘‘Employers’ Accounting for Defined Benefit
ratably over a five-year period. Beginning in 2006, the
Pension and Other Postretirement Plans — an amendment of
overfunded or underfunded status of the plans is recorded
FASB Statements No. 87, 88, 106, and 132(R)’’, effective
as an asset or liability on the balance sheet, with changes in
for the Company for the year ending December 31, 2006.
that status recognized through other comprehensive income.
This statement requires the recognition of the overfunded or
Premises and Equipment Premises and equipment are stated underfunded status of a defined benefit postretirement plan
at cost less accumulated depreciation and depreciated as an asset or liability on the balance sheet, and the
primarily on a straight-line basis over the estimated life of recognition of changes in that funded status through other
the assets. Estimated useful lives range up to 40 years for comprehensive income. The adoption of SFAS 158 did not
newly constructed buildings and from 3 to 20 years for have a material impact on the Company’s financial
furniture and equipment. statements.
Capitalized leases, less accumulated amortization, are
Fair Value Measurements In September 2006, the FASB
included in premises and equipment. The lease obligations
issued Statement of Financial Accounting Standards
are included in long-term debt. Capitalized leases are
No. 157 (‘‘SFAS 157’’), ‘‘Fair Value Measurements’’,
amortized on a straight-line basis over the lease term and
effective for the Company beginning on January 1, 2008.
the amortization is included in depreciation expense.
This Statement defines fair value, establishes a framework
Statement of Cash Flows For purposes of reporting cash for measuring fair value, and expands disclosures about fair
flows, cash and cash equivalents include cash and money value measurements. This statement establishes a fair value
market investments, defined as interest-bearing amounts due hierarchy that distinguishes between valuations obtained
from banks, federal funds sold and securities purchased from sources independent of the entity and those from the
under agreements to resell. entity’s own unobservable inputs that are not corroborated
by observable market data. SFAS 157 expands disclosures
Stock-Based Compensation The Company grants stock-
about the use of fair value to measure assets and liabilities
based awards, including restricted stock and options to
72 U.S. BANCORP
Note 2