US Bank 2002 Annual Report Download - page 21

Reconciliation of Operating Earnings to Net Income in Accordance with GAAP
Year Ended December 31 (Dollars in Millions, Except Per Share Data) 2002 2001 2000 1999 1998
Operating earnings (a) ************************************* $3,537.7 $ 2,550.8 $3,106.9 $2,799.0 $2,519.3
Merger and restructuring-related items
Gains on the sale of branches *************************** — 62.2 — — 48.1
Integration, conversion and other charges***************** (324.1) (946.4) (348.7) (355.1) (593.8)
Securities losses to restructure portfolio ****************** — — — (177.7) —
Provision for credit losses (b) **************************** — (382.2) — (7.5) (37.9)
Pre-tax impact ***************************************** (324.1) (1,266.4) (348.7) (540.3) (583.6)
Applicable tax benefit *********************************** 112.8 422.1 117.4 123.1 197.2
Total merger and restructuring-related items (after-tax) ** (211.3) (844.3) (231.3) (417.2) (386.4)
Cumulative effect of change in accounting principles (after-tax)*** (37.2) ————
Net income in accordance with GAAP *********************** $3,289.2 $ 1,706.5 $2,875.6 $2,381.8 $2,132.9
Diluted earnings per share
Operating earnings (a) ********************************** $ 1.84 $ 1.32 $ 1.62 $ 1.45 $ 1.30
Net income in accordance with GAAP ******************** 1.71 .88 1.50 1.23 1.10
(a) The Company analyzes its performance on a net income basis in accordance with accounting principles generally accepted in the United States, as well as on an operating basis
before merger and restructuring-related items and cumulative effect of change in accounting principles referred to in this Annual Report and Form 10-K as ‘‘operating earnings.’’
Operating earnings are presented as supplemental information to enhance the reader’s understanding of, and highlight trends in, the Company’s financial results excluding the
impact of merger and restructuring-related items of specific business acquisitions and restructuring activities and cumulative effect of change in accounting principles. Operating
earnings should not be viewed as a substitute for net income and earnings per share as determined in accordance with accounting principles generally accepted in the United
States. Merger and restructuring-related items excluded from net income to derive operating earnings may be significant and may not be comparable to other companies.
(b) Provision for credit losses in 2001 includes losses of $201.3 million on the disposition of an unsecured small business product, losses of $76.6 million on the sales of high
loan-to-value home equity loans and the indirect automobile loan portfolio of USBM, a $90.0 million charge to align risk management practices, align charge-off policies and
expedite the transition out of a specific segment of the health care industry not meeting the lower risk appetite of the Company, and a $14.3 million charge related to the
restructuring of a co-branding credit card relationship.
Acquisition and Divestiture Activity In addition to restating Corporate Trust assets under administration will be
all prior periods to reflect the Firstar/USBM merger, transferred to the Company or its affiliated mutual funds.
operating results for 2002 reflected the following On November 1, 2002, the Company acquired 57
transactions accounted for as purchases from the date branches and a related operations facility in California from
of completion. Bay View Bank, a wholly owned subsidiary of Bay View
On December 31, 2002, the Company acquired the Capital Corporation, in a cash transaction. The transaction
corporate trust business of State Street Bank and Trust represented total assets acquired of $853 million and total
Company (‘‘State Street Corporate Trust’’) in a cash liabilities (primarily retail and small business deposits) of
transaction valued at $725 million. State Street Corporate $3.3 billion. Included in total assets were approximately
Trust was a leading provider, particularly in the Northeast, $336 million of select loans primarily with depository
of corporate trust and agency services to a variety of relationships, core deposit intangibles of $56 million and
municipalities, corporations, government agencies and other goodwill of $427 million. The goodwill reflected the
financial institutions serving approximately 20,000 client strategic value of expanding the Company’s market within
issuances representing over $689 billion of assets under the San Francisco Bay area.
administration. With this acquisition, the Company is On April 1, 2002, the Company acquired Cleveland-
among the nation’s leading providers of a full range of based The Leader Mortgage Company, LLC, a wholly
corporate trust products and services. The transaction owned subsidiary of First Defiance Financial Corp., in a
represented total assets acquired of $681 million and total cash transaction valued at $85 million. The transaction
liabilities of $39 million at the closing date. Included in represented total assets acquired of $527 million and total
total assets were contract and other intangibles with a fair liabilities assumed of $446 million. Included in total assets
value of $225 million and the excess of purchase price over were mortgage servicing rights (‘‘MSRs’’) and other
the fair value of identifiable net assets (‘‘goodwill’’) of intangibles of $173 million and goodwill of $17 million.
$444 million. The goodwill reflected the strategic value of Leader specializes in acquiring servicing of loans originated
the combined organization’s leadership position in the for state and local housing authorities. The purchase
corporate trust business and processing economies of scale agreement allows for an additional payment of up to
resulting from the transaction. As part of the purchase $1.2 million if certain performance criteria are met.
price, $75 million was placed in escrow for up to eighteen On September 7, 2001, the Company acquired Pacific
months with payment contingent on the successful Century Bank in a cash transaction. The acquisition
transition of business relationships. Concurrent with the included 20 branches located in Southern California with
system conversion expected in 2003, certain State Street
U.S. Bancorp 19
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