U.S. Bancorp said Thursday it will adopt the "fair value" accounting method for stock options and, as a result, will restate earnings dating back to 1994.
In a press release, the Minneapolis company said it would cut 6 cents from its 2003 and 2002 earnings, but it did not provide details for the other years.
U.S. Bancorp earned $1.84 a share in 2002 and is expected to report 2003 earnings of $1.99 a share this month. Expensing stock options would lower each of those figures by approximately 3%. The "fair value" method requires companies to treat the estimated value of all employee stock options as a compensation expense on its income statement.
Analysts said even though they were not expecting U.S. Bancorp to make the announcement yet regarding the expensing of options, but it had already disclosed in its annual filing with Securities and Exchange Commission last year how such a move could affect earnings.
Jason Goldberg, an analyst with Lehman Brothers, said the move likely will not hurt the bank's stock price.
However, Gerard Cassidy, an analyst with Royal Bank of Canada's RBC Capital Markets, said that the stock could take a hit, since the price will not look as cheap on an earnings basis. "There will be some impact, but I don't think the stock will drop materially on the news."
And Peter Winters, an analyst with Mony Group Inc.'s Advest Inc., said he is likely to lower his 2004 estimates, though he said the impact on stock price should be minimal.
Steven Wharton, an analyst with Loomis Sayles & Co., pointed out that while their earnings per share would go down as a result of the decision to expense stock options retroactively, their capital levels would go up.
This will lead the company to buy back more stocks, he added. Doing so could help blunt the impact of the expensing decision on earnings per share a little bit this year, he said.
Companies are not required to expense their stock-based compensation, though several have voluntarily started including the expense in their income statements as transparency has become an issue in the last couple years. FleetBoston Financial Corp., Bank of New York Co., and Mellon Financial Corp. were among the first banks to expense stock-based compensation. Other banks, including Wells Fargo & Co. and Fifth Third Bancorp, have yet to make the move.
On Thursday, U.S. Bancorp's stock lost 0.6%, to $28.22.
