Bank of America 2015 Annual Report Download - page 148

146 Bank of America 2015
Unvested share-based payment awards that contain
nonforfeitable rights to dividends are participating securities that
are included in computing EPS using the two-class method. The
two-class method is an earnings allocation formula under which
EPS is calculated for common stock and participating securities
according to dividends declared and participating rights in
undistributed earnings. Under this method, all earnings,
distributed and undistributed, are allocated to participating
securities and common shares based on their respective rights to
receive dividends.
In an exchange of non-convertible preferred stock, income
allocated to common shareholders is adjusted for the difference
between the carrying value of the preferred stock and the fair value
of the consideration exchanged. In an induced conversion of
convertible preferred stock, income allocated to common
shareholders is reduced by the excess of the fair value of the
consideration exchanged over the fair value of the common stock
that would have been issued under the original conversion terms.
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, from the
local currency to the U.S. Dollar reporting currency at period-end
rates for assets and liabilities and generally at average rates for
results of operations. The resulting unrealized gains or losses, as
well as gains and losses from certain hedges, are reported as a
component of accumulated OCI, net-of-tax. When the foreign
entity’s functional currency is determined to be the U.S. Dollar, the
resulting remeasurement gains or losses on foreign currency-
denominated assets or liabilities are included in earnings.
Credit Card and Deposit Arrangements
Endorsing Organization Agreements
The Corporation contracts with other organizations to obtain their
endorsement of the Corporation’s loan and deposit products. This
endorsement may provide to the Corporation exclusive rights to
market to the organization’s members or to customers on behalf
of the Corporation. These organizations endorse the Corporation’s
loan and deposit products and provide the Corporation with their
mailing lists and marketing activities. These agreements generally
have terms that range five or more years. The Corporation typically
pays royalties in exchange for the endorsement. Compensation
costs related to the credit card agreements are recorded as contra-
revenue in card income.
Cardholder Reward Agreements
The Corporation offers reward programs that allow its cardholders
to earn points that can be redeemed for a broad range of rewards
including cash, travel and gift cards. The Corporation establishes
a rewards liability based upon the points earned that are expected
to be redeemed and the average cost per point redeemed. The
points to be redeemed are estimated based on past redemption
behavior, card product type, account transaction activity and other
historical card performance. The liability is reduced as the points
are redeemed. The estimated cost of the rewards programs is
recorded as contra-revenue in card income.