US Bank 2002 Annual Report Download - page 73

acquisitions completed prior to July 1, 2001, increased transition adjustments related to adoption were not material
after-tax income for the year ending December 31, 2002, by to the Company’s financial statements, and as such, were not
$205.6 million, or $.11 per diluted share. During the first separately reported in the consolidated statement of income.
quarter of 2002, the Company completed its initial
Subsequent Event
impairment test as required by SFAS 142. As a result of this
initial impairment test, the Company recognized an after-tax On February 19, 2003, the Company announced that its
goodwill impairment charge of $37.2 million as a Board of Directors approved a plan to effect a spin-off of
‘‘cumulative effect of change in accounting principles’’ in its capital markets business unit, including investment
the income statement in the first quarter of 2002. The banking and brokerage activities primarily conducted by its
impairment was primarily related to the purchase of a wholly-owned subsidiary, U.S. Bancorp Piper Jaffray Inc. In
transportation leasing company in 1998 by the equipment 2002, the capital markets business unit had average assets
leasing business. Banking regulations exclude 100 percent of of $3.0 billion, generated revenues of $737.3 million
goodwill from the determination of capital adequacy; (5.8 percent of total revenues) and contributed $1.1 million
therefore, the impact of this impairment on the Company’s of net income, representing less than 1 percent of the
capital adequacy was not significant. Company’s consolidated net income. This distribution does
not include brokerage, financial advisory or asset
Acquisitions of Certain Financial Institutions In October
management services offered to customers through the retail
2002, the Financial Accounting Standards Board issued
brokerage platform of U.S. Bank National Association, U.S.
Statement of Financial Accounting Standards No. 147
Bancorp Investments, Inc. or U.S. Bancorp Asset
(‘‘SFAS 147’’), ‘‘Acquisitions of Certain Financial
Management, Inc. The spin-off would be effected through a
Institutions,’’ an amendment of Statements of Financial
dividend of 100% of the Company’s ownership interest in
Accounting Standards Nos. 72 and No. 144 and Financial
the capital markets business, and the Company plans to
Accounting Standards Board Interpretation No. 9. In
retain $215 million of subordinated debt of the new
accordance with SFAS 147, the acquisition of all or a part
company. The distribution is subject to certain conditions
of a financial institution that meets the definition of a
including SEC registration, regulatory review and approval
business is to be accounted for utilizing the purchase
and a determination that the distribution will be tax-free to
method in accordance with SFAS 141. In addition,
the Company and its shareholders. While expected to be
SFAS 147 provides that long-term customer-relationship
completed in the third quarter of 2003, the Company has
intangible assets, except for servicing assets, recognized in
no obligation to consummate the distribution, whether or
the acquisition of a financial institution, should be evaluated
not these conditions are satisfied.
for impairment under the provisions of Statement of
Financial Accounting Standards No. 144, ‘‘Accounting for Business Combinations
the Impairment or Disposal of Long-Lived Assets.’’
SFAS 147 applies to acquisitions completed on or after On February 27, 2001, Firstar and USBM merged in a
October 1, 2002. Adopting the standard is not expected to pooling-of-interests transaction and accordingly all financial
have a material impact on the Company. information has been restated to include the historical
information of both companies. Each share of Firstar stock
Derivative Instruments and Hedging Activities Statement of
was exchanged for one share of the Company’s common
Financial Accounting Standards No. 133 (‘‘SFAS 133’’),
stock while each share of USBM stock was exchanged for
‘‘Accounting for Derivative Instruments and Hedging
1.265 shares of the Company’s common stock. The new
Activities,’’ as amended, establishes accounting and reporting
Company retained the U.S. Bancorp name.
standards for all derivative instruments and criteria for
On July 24, 2001, the Company acquired NOVA
designation and effectiveness of hedging activities. SFAS 133
Corporation (‘‘NOVA’’), a merchant processor, in a stock
requires that an entity recognize all derivatives as either
and cash transaction valued at approximately $2.1 billion.
assets or liabilities on the balance sheet and measure those
The transaction represented total assets acquired of $2.9
instruments at fair value. The changes in the fair value of the
billion and total liabilities assumed of $773 million.
derivatives are recognized currently in earnings unless specific
Included in total assets were merchant contracts and other
hedge accounting criteria are met. If the derivative qualifies
intangibles of $650 million and the excess of purchase price
as a hedge, the accounting treatment varies based on the type
over the fair value of identifiable net assets (‘‘goodwill’’) of
of risk being hedged. On January 1, 2001, the Company
$1.6 billion. The goodwill reflected NOVA’s leadership
adopted SFAS 133. Transition adjustments related to
position in the merchant processing market and its ability to
adoption resulted in an after-tax loss of approximately
provide a technologically superior product that is enhanced
$4.1 million recorded in net income and an after-tax increase
by a high level of customer service. The Company believes
of $5.2 million to other comprehensive income. The
U.S. Bancorp 71
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