Bank of America 2005 Annual Report Download - page 141

BANK OF AMERICA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
In addition, the Corporation has established unfunded supplemental benefit plans and supplemental executive
retirement plans for selected officers of the Corporation and its subsidiaries that provide benefits that cannot be paid from
a qualified retirement plan due to Internal Revenue Code restrictions. These plans are nonqualified under the Internal
Revenue Code and assets used to fund benefit payments are not segregated from other assets of the Corporation;
therefore, in general, a participant’s or beneficiary’s claim to benefits under these plans is as a general creditor.
In addition, the Corporation has established several postretirement healthcare and life insurance benefit plans.
Other Comprehensive Income
The Corporation records unrealized gains and losses on AFS Securities, foreign currency translation adjustments,
related hedges of net investments in foreign operations and gains and losses on cash flow hedges in Accumulated OCI.
Gains and losses on AFS Securities are reclassified to Net Income as the gains or losses are realized upon sale of the
securities. Other-than-temporary impairment charges are reclassified to Net Income at the time of the charge.
Translation gains or losses on foreign currency translation adjustments are reclassified to Net Income upon the sale or
liquidation of investments in foreign operations. Gains or losses on derivatives accounted for as hedges are reclassified to
Net Income when the hedged transaction affects earnings.
Earnings Per Common Share
Earnings per Common Share is computed by dividing Net Income Available to Common Shareholders by the
weighted average common shares issued and outstanding. For Diluted Earnings per Common Share, Net Income
Available to Common Shareholders can be affected by the conversion of the registrant’s convertible preferred stock.
Where the effect of this conversion would have been dilutive, Net Income Available to Common Shareholders is adjusted
by the associated preferred dividends. This adjusted Net Income is divided by the weighted average number of common
shares issued and outstanding for each period plus amounts representing the dilutive effect of stock options outstanding,
restricted stock units and the dilution resulting from the conversion of the registrant’s convertible preferred stock, if
applicable. The effects of convertible preferred stock, restricted stock units and stock options are excluded from the
computation of diluted earnings per common share in periods in which the effect would be antidilutive. Dilutive
potential common shares are calculated using the treasury stock method.
Foreign Currency Translation
Assets, liabilities and operations of foreign branches and subsidiaries are recorded based on the functional currency
of each entity. For certain of the foreign operations, the functional currency is the local currency, in which case the
assets, liabilities and operations are translated, for consolidation purposes, at current exchange rates from the local
currency to the reporting currency, the U.S. dollar. The resulting unrealized gains or losses are reported as a component
of Accumulated OCI on an after-tax basis. When the foreign entity is not a free-standing operation or is in a
hyperinflationary economy, the functional currency used to measure the financial statements of a foreign entity is the
U.S. dollar. In these instances, the resulting realized gains or losses are included in Net Income.
Co-Branding Credit Card Arrangements
The Corporation has co-brand arrangements that entitle a cardholder to receive benefits based on purchases made
with the card. These arrangements have remaining terms generally not exceeding five years. The Corporation may pay
one-time fees which would be deferred ratably over the term of the arrangement. The Corporation makes monthly
payments to the co-brand partners based on the volume of cardholders’ purchases and on the number of points awarded
to cardholders. Such payments are expensed as incurred and are recorded as contra-revenue.
Note 2—FleetBoston Merger and Restructuring Activity
Pursuant to the Agreement and Plan of Merger, dated October 27, 2003, by and between the Corporation and
FleetBoston (the FleetBoston Merger Agreement), the Corporation acquired 100 percent of the outstanding stock of
FleetBoston on April 1, 2004, in a tax-free merger to the Corporation, in order to expand the Corporation’s presence in
the Northeast. FleetBoston’s results of operations were included in the Corporation’s results beginning April 1, 2004.
As provided by the FleetBoston Merger Agreement, approximately 1.069 billion shares of FleetBoston common stock
were exchanged for approximately 1.187 billion shares of the Corporation’s common stock. At the date of the FleetBoston
Merger, this represented approximately 29 percent of the Corporation’s outstanding common stock. FleetBoston
shareholders also received cash of $4 million in lieu of any fractional shares of the Corporation’s common stock that
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