BB&T 2008 Annual Report Download - page 63

The liabilities for severance and personnel-related costs relate to severance liabilities that will be paid out
based on such factors as expected termination dates, the provisions of employment contracts and the terms of
BB&T’s severance plans. The remaining occupancy and equipment accruals relate to costs to exit certain leases
and to dispose of excess facilities and equipment. Such liabilities will be utilized upon termination of the various
leases and sale of duplicate property.
In general, a major portion of accrued costs are utilized in conjunction with or immediately following the
systems conversion, when most of the duplicate positions are eliminated and the terminated employees begin to
receive severance. Other accruals are utilized over time based on the sale, closing or disposal of duplicate facilities
or equipment or the expiration of lease contracts. Merger accruals are re-evaluated periodically and adjusted as
necessary. The remaining accruals at December 31, 2008 are expected to be utilized during 2009, unless they
relate to specific contracts that expire in later years.
Provision for Income Taxes
BB&T’s provision for income taxes totaled $550 million for 2008, a decrease of $286 million, or 34.2%,
compared to 2007. The decline in the provision for income taxes during 2008 was largely due to lower pretax
income, offset by a credit of $60 million related to leveraged leases as discussed below. The provisions for income
taxes totaled $836 million in 2007 and $945 million in 2006. BB&T’s effective tax rates for the years ended 2008,
2007 and 2006 were 26.6%, 32.5%, and 38.2%, respectively. In 2006, the higher provision for income taxes and the
higher effective tax rate were primarily the result of an adjustment of $139 million to BB&T’s tax reserves for
leveraged lease transactions as discussed below. A reconciliation of the effective tax rate to the statutory tax rate
is included in Note 13 “Income Taxes” in the “Notes to Consolidated Financial Statements” herein.
BB&T has extended credit to, and invested in, the obligations of states and municipalities and their agencies,
and has made other investments and loans that produce tax-exempt income. The income generated from these
investments together with certain other transactions that have favorable tax treatment have reduced BB&T’s
overall effective tax rate from the statutory rate in 2008, 2007 and 2006.
BB&T continually monitors and evaluates the potential impact of current events and circumstances on the
estimates and assumptions used in the analysis of its income tax positions and, accordingly, BB&T’s effective tax
rate may fluctuate in the future. On a periodic basis, BB&T evaluates its income tax positions based on tax laws
and regulations and financial reporting considerations, and records adjustments as appropriate. This evaluation
takes into consideration the status of current taxing authorities’ examinations of BB&T’s tax returns, recent
positions taken by the taxing authorities on similar transactions, if any, and the overall tax environment in
relation to tax-advantaged transactions. Accordingly, the results of these examinations may alter the timing or
amount of taxable income or deductions or the allocation of income among tax jurisdictions. In addition, BB&T
may make payments or deposits to the IRS in connection with tax disputes to stop the accrual of additional
interest and penalties, while it pursues resolution of these matters. Please refer to Note 13 “Income Taxes” in the
“Notes to Consolidated Financial Statements” herein for additional disclosures related to BB&T’s unresolved tax
issues related to tax examinations by the IRS and other taxing authorities.
The IRS disallowed certain deductions taken by BB&T on leveraged lease transactions during 1997-2002. In
2004, BB&T filed a lawsuit against the IRS to pursue a refund of amounts assessed by the IRS related to a
leveraged lease transaction entered into during 1997. On January 4, 2007, the United States Middle District Court
of North Carolina issued a summary judgment in favor of the IRS related to BB&T’s lawsuit. Based on a review
of the summary judgment by BB&T’s counsel, BB&T filed a notice of appeal with the United States Appeals
Court for the Fourth Circuit, based in Richmond, Virginia. On April 29, 2008, the United States Appeals Court
for the Fourth Circuit affirmed the lower court’s decision.
Due to the timing of the District Court’s ruling and its potential impact on BB&T’s other leveraged lease
transactions, BB&T recorded $139 million in additional reserves in the fourth quarter of 2006 and paid $1.2 billion
to the IRS during the first quarter of 2007. This payment represented the total tax and interest due on these
transactions for all open years. The tax paid relates to differences in the timing of income recognition and
deductions for income tax purposes for which deferred taxes had been previously provided. During the fourth
quarter of 2008, BB&T agreed to treat its leveraged leases in accordance with the IRS’s proposal that, among
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