US Bank 2006 Annual Report Download - page 96

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The total fair value of shares vested was $15 million, to tax expense. On an after-tax basis, stock-based
$15 million, and $9 million for 2006, 2005 and 2004, compensation was $64 million, $83 million and
respectively. $139 million for 2006, 2005 and 2004, respectively. As of
Stock-based compensation expense was $101 million, December 31, 2006, there was $98 million of total
$132 million and $176 million for 2006, 2005 and 2004, unrecognized compensation cost related to nonvested share-
respectively. At the time employee stock options expire, are based arrangements granted under the plans. That cost is
exercised or cancelled, the Company determines the tax expected to be recognized over a weighted-average period of
benefit associated with the stock award and under certain 3 years as compensation.
circumstances may be required to recognize an adjustment
INCOME TAXES
The components of income tax expense were:
(Dollars in Millions) 2006 2005 2004
FEDERAL
Current ********************************************************************************* $1,817 $2,107 $1,531
Deferred ******************************************************************************** 1 (281) 260
Federal income tax ******************************************************************** 1,818 1,826 1,791
STATE
Current ********************************************************************************* 298 276 197
Deferred ******************************************************************************** (4) (20) 21
State income tax ********************************************************************** 294 256 218
Total income tax provision ************************************************************** $2,112 $2,082 $2,009
A reconciliation of expected income tax expense at the federal statutory rate of 35 percent to the Company’s applicable
income tax expense follows:
(Dollars in Millions) 2006 2005 2004
Tax at statutory rate (35 percent) ************************************************************ $2,402 $2,300 $2,162
State income tax, at statutory rates, net of federal tax benefit ************************************* 191 166 142
Tax effect of
Tax credits *************************************************************************** (274) (221) (146)
Tax-exempt income ******************************************************************** (91) (70) (59)
Resolution of federal and state income tax examinations ************************************** (83) (94) (106)
Other items ************************************************************************** (33) 1 16
Applicable income taxes ******************************************************************* $2,112 $2,082 $2,009
The tax effects of fair value adjustments on securities examinations are completed and matters are resolved.
available-for-sale, derivative instruments in cash flow hedges Included in each of the last three years, were reductions in
and certain tax benefits related to stock options are income tax expense and associated liabilities related to the
recorded directly to shareholders’ equity as part of other resolution of various federal and state income tax
comprehensive income. examinations. The federal income tax examination
At December 31, 2006 and 2005, the Company held resolutions cover substantially all of the Company’s legal
an aggregate net tax liability of $1.5 billion and entities for the years through 2004. The Company also
$2.0 billion, respectively. This net tax liability represents an resolved several state income tax examinations which cover
estimate of taxes to be paid during the next twelve months varying years from 1998 through 2005 in different states.
or at some future date. The resolution of these cycles was the result of negotiations
In preparing its tax returns, the Company is required to held between the Company and representatives of various
interpret complex tax laws and regulations and utilize taxing authorities throughout the examinations.
income and cost allocation methods to determine its taxable Deferred income tax assets and liabilities reflect the tax
income. On an ongoing basis, the Company is subject to effect of estimated temporary differences between the
examinations by federal and state taxing authorities that carrying amounts of assets and liabilities for financial
may give rise to differing interpretations of these complex reporting purposes and the amounts used for the same items
laws, regulations and methods. Due to the nature of the for income tax reporting purposes.
examination process, it generally takes years before these
94 U.S. BANCORP
Note 18