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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): June 27, 1997
BANC ONE CORPORATION
(Exact Name of Registrant as Specified in Charter)
Ohio
(State or Other Jurisdiction of Incorporation)
1-8552 31-0738296
(Commission File Number) (IRS Employer Identification No.)
100 East Broad Street, Columbus, Ohio 43271
(Address of Principal Executive Offices)(Zip Code)
Registrant's telephone number, including area code: (614) 248-5944
N/A
(Former Name or Former Address, If Changed Since Last Report)
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ITEM 5. OTHER EVENTS.
As previously reported by BANC ONE CORPORATION ("BANC ONE") on its
Current Report on Form 8-K filed July 14, 1997, on June 27, 1997, subject to the
terms and conditions of the Agreement and Plan of Merger (the "Merger
Agreement") dated as of January 19, 1997 and amended as of April 23, 1997,
between First USA, Inc., a Delaware corporation ("FUSA"), and BANC ONE,
First USA was merged with and into BANC ONE, with BANC ONE as the surviving
corporation (the "Merger"). In accordance with the Merger Agreement, each share
of the common stock, par value $0.01 per share, of FUSA outstanding immediately
prior to the effective time of the Merger (the "Effective Time") was at the
Effective Time converted into the right to receive 1.1659 shares of the common
stock, no par value, of BANC ONE. The Merger was accounted for as a "pooling of
interests" under generally accepted accounting principles.
In accordance with Item 7 of Form 8-K, BANC ONE has submitted herewith
the historical and pro forma financial information required pursuant to Article
3 and Article 11 of Regulation S-X.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
(a) Financial Statements of Businesses Acquired.
The following consolidated financial statements of FUSA are
incorporated herein by reference to Exhibit 99.2 filed herewith:
1. Consolidated Balance Sheet as of June 30, 1996.
2. Consolidated Statement of Income for the year ended June
30, 1996.
3. Consolidated Statement of Changes in Stockholders'
Equity for the year ended June 30, 1996.
4. Consolidated Statement of Cash Flows for the year ended
June 30, 1996.
5. Notes to the Consolidated Financial Statements.
The information presented in Exhibit 99.2 with respect to the
years ended June 30, 1995 and 1994 is not incorporated herein by
reference.
The report of Ernst & Young LLP, independent accountants, on the
consolidated financial statements of FUSA as of June 30, 1996 and
1995 and for the years ended June 30, 1996, 1995 and 1994 is
filed herewith as part of Exhibit 99.2 and the related consent is
filed herewith as Exhibit 99.3. Both the opinion and the consent
are incorporated herein by reference.
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The following unaudited interim consolidated financial statements
of FUSA are incorporated herein by reference to Exhibit 99.4
filed herewith:
1. Condensed Consolidated Balance Sheet as of March 31,
1997.
2. Condensed Consolidated Statements of Income for the
three and nine months ended March 31, 1997.
3. Condensed Consolidated Statement of Cash Flow for the
nine months ended March 31, 1997.
4. Notes to Interim Condensed Consolidated Financial
Statements.
The information presented in Exhibit 99.4 with respect to the
three and nine months ended March 31, 1996 is not incorporated
herein by reference.
(b) Pro Forma Financial Information.
The following pro forma financial statements are incorporated
herein by reference to Exhibit 99.5 filed herewith:
1. Pro Forma Condensed Combined Balance Sheet at March 31,
1997 and December 31, 1996 (unaudited).
2. Pro Forma Condensed Combined Statement of Income for the
three months ended March 31, 1997 (unaudited).
3. Pro Forma Condensed Combined Statement of Income for the
year ended December 31, 1996 for BANC ONE and the
twelve-month period ended December 31, 1996 for FUSA
(unaudited).
4. Pro Forma Condensed Combined Statement of Income for the
year ended December 31, 1995 for BANC ONE and the
twelve-month period ended December 31, 1995 for FUSA
(unaudited).
5. Pro Forma Condensed Combined Statement of Income for the
year ended December 31, 1994 for BANC ONE and the
twelve-month period ended December 31, 1994 for FUSA
(unaudited).
6. Notes to the Unaudited Pro Forma Condensed Combined
Financial Information.
(c) Exhibits.
Exhibit 2.1 Agreement and Plan of Merger dated as of January
19, 1997 between BANC ONE CORPORATION and First
USA, Inc. (incorporated by reference from Exhibit
2 to the First USA, Inc. Current Report on Form
8-K dated January 28, 1997 (File No. 1-11-3030)).
Exhibit 2.2 Amendment, dated as of April 23, 1997, to
Agreement and Plan of Merger dated as of January
19, 1997 between BANC ONE
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CORPORATION and First USA, Inc. (incorporated by
reference from Exhibit 2.2 to the BANC ONE
CORPORATION Current Report on Form 8-K filed
April 24, 1997).
Exhibit 3.1 Amended and Restated Articles of Incorporation
of BANC ONE CORPORATION.*
Exhibit 99.1 BANC ONE CORPORATION Press Release dated June
27, 1997 titled "BANC ONE Completes Acquisition
of First USA."*
Exhibit 99.2 Consolidated Financial Statements of First USA,
Inc. and Report of Ernst & Young LLP.
Exhibit 99.3 Consent of Ernst & Young LLP.
Exhibit 99.4 Unaudited Financial Statements of First USA,
Inc.
Exhibit 99.5 Unaudited Pro Forma Condensed Combined Financial
Information.
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* Previously filed.
4
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BANC ONE CORPORATION
(Registrant)
Date: August 13, 1997 By: /s/ Bobby L. Doxey
--------------------------
Bobby L. Doxey
Senior Vice President
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Exhibit 99.2
First USA, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
June 30,
---------------------------
(Dollars in thousands, except per share data) 1996 1995
ASSETS
<S> <C> <C>
Cash and due from banks $ 254,553 $ 69,594
Short-term investments 40,701 8,009
Federal funds sold 97,450 159,175
---------- ----------
Cash and cash equivalents 392,704 236,778
Investments 2,903,091 2,205,523
Credit card loans 3,564,434 3,187,568
Allowance for possible credit losses (74,163) (66,000)
---------- ----------
Net loans 3,490,271 3,121,568
Premises and equipment 116,666 60,050
Accrued interest receivable 51,558 42,719
Due from securitizations 182,462 287,671
Customer base intangible, net 70,008 123,289
Purchased merchant portfolios and goodwill, net 88,894 40,024
Other assets 412,847 261,494
---------- ----------
$7,708,501 $6,379,116
========== ==========
- ----------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank notes and other borrowings $3,356,506 $2,183,299
Interest-bearing deposits 1,460,321 2,120,648
Federal funds purchased 1,308,460 871,390
Accrued interest payable 60,246 54,550
Accrued expenses and other liabilities 355,943 384,414
Minority interest 53,145 --
---------- ----------
6,594,621 5,614,301
Stockholders' Equity
6 1/4% mandatory convertible preferred stock,
$.01 par value, 5,750,000 shares authorized,
issued and outstanding at June 30, 1996
and 1995 58 58
Common stock, $.01 par value, 200,000,000
shares authorized, 120,959,334 and 117,431,756
issued and outstanding at June 30, 1996 and
1995, respectively 1,210 1,174
Additional paid-in capital 568,840 440,929
Retained earnings 543,772 322,654
---------- ----------
1,113,880 764,815
---------- ----------
$7,708,501 $6,379,116
========== ==========
- ----------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
1
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First USA, Inc. and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Fiscal Year Ended June 30,
----------------------------------
(Dollars in thousands, except per share data) 1996 1995 1994
As Restated
INTEREST INCOME
<S> <C> <C> <C>
Credit card loans $ 326,928 $312,843 $323,544
Investments 181,466 106,396 57,698
Federal funds sold 6,699 8,486 7,649
---------- ---------- ----------
Total Interest Income 515,093 427,725 388,891
INTEREST EXPENSE
Bank notes and other borrowings 201,986 125,651 30,349
Deposits 113,435 149,869 145,555
Federal funds purchased 76,518 30,028 16,850
Senior and Acquisition debt -- -- 8,517
---------- ---------- ----------
Total Interest Expense 391,939 305,548 201,271
---------- ---------- ----------
NET INTEREST INCOME 123,154 122,177 187,620
PROVISION FOR POSSIBLE CREDIT LOSSES 90,153 54,659 53,469
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE CREDIT LOSSES 33,001 67,518 134,151
- ------------------------------------------------------------------------------------------------------
OTHER OPERATING INCOME
Securitization income 950,008 640,607 310,260
Interchange income 29,066 31,988 47,455
Credit card fee income 27,586 18,286 22,143
Other 111,989 73,453 47,011
---------- ---------- ----------
Total Other Operating Income 1,118,649 764,334 426,869
- ------------------------------------------------------------------------------------------------------
OTHER OPERATING EXPENSE
Postage, shipping, stationery and supplies 193,863 153,297 58,382
Salaries and employee benefits 149,196 98,642 64,695
Data processing and communications 110,030 85,596 54,821
Occupancy and equipment 48,056 28,244 18,068
Amortization of intangibles 55,906 54,748 54,958
Other 204,315 129,726 71,946
---------- ---------- ----------
Total Other Operating Expense 761,366 550,253 322,870
- ------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 390,284 281,599 238,150
PROVISION FOR INCOME TAXES 143,548 103,177 87,216
---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM 246,736 178,422 150,934
EXTRAORDINARY ITEM, NET OF INCOME TAX BENEFIT -- -- (10,637)
---------- ---------- ----------
NET INCOME $ 246,736 $178,422 $140,297
========== ========== ==========
- -------------------------------------------------------------------------------------------------------
Income before extraordinary item per share $ 1.84 $ 1.36 $ 1.23
Extraordinary item per share -- -- (0.09)
---------- ---------- ----------
Net income per share $ 1.84 $ 1.36 $ 1.14
========== ========== ===========
Weighted average common and common equivalent shares
outstanding 133,840,204 131,597,760 119,764,444
========== ========== ===========
- ------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
2
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First USA, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
For the Three Fiscal Years Ended June 30, 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Mandatory
Convertible
Preferred Common Stock
Stock Common Nonvoting Additional
(Dollars in thousands, ------------------------------------------------------- Paid-In Deferred Retained
except per share data) Shares Amount Shares Amount Shares Amount Capital Compensation Earnings Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1993 108,699,944 $1,088 2,105,264 $22 $183,276 $ 28,512 $ 212,898
Net income 140,297 140,297
Issuance of common stock, net 4,059,350 40 47,287 47,327
Issuance of 6 1/4% mandatory
convertible preferred
stock, net 5,750,000 $58 177,344 177,402
Exercise of stock options 376,944 2 931 933
Tax benefit from exercise of
stock options 2,026 2,026
Conversion of nonvoting stock
to common stock 2,105,264 22 (2,105,264) (22) --
Common cash dividends --
$0.04 per share (4,204) (4,204)
Preferred cash dividends --
$0.37 per share (2,132) (2,132)
--------- ---- ----------- ------ --------- ---- -------- -------- -------- --------
Balance at June 30, 1994 5,750,000 58 115,241,502 1,152 -- -- 410,864 162,473 574,547
Net income 178,422 178,422
Issuance of common stock, net 1,548,246 16 28,215 $(3,990) 24,241
Exercise of stock options 642,008 6 1,927 1,933
Tax benefit from exercise of
stock options 3,913 3,913
Common cash dividends --
$0.06 per share (6,787) (6,787)
Preferred cash dividends --
$1.99 per share (11,454) (11,454)
--------- ---- ----------- ------ ---------- ---- -------- -------- -------- ----------
Balance at June 30, 1995 5,750,000 58 117,431,756 1,174 -- -- 444,919 (3,990) 322,654 764,815
Net income 246,736 246,736
Issuance of common stock, net 1,880,322 20 39,163 (7,822) 31,361
Issuance of subsidiary common stock 77,344 77,344
Exercise of stock options 1,647,256 16 6,986 7,002
Tax benefit from exercise of
stock options 12,240 12,240
Common cash dividends --
$0.12 per share (14,164) (14,164)
Preferred cash dividends --
$1.99 per share (11,454) (11,454)
--------- ---- ----------- ------ --------- ---- -------- -------- -------- ---------
Balance at June 30, 1996 5,750,000 $58 120,959,334 $1,210 -- $ -- $580,652 $(11,812) $543,772 $1,113,880
========= ==== =========== ====== ========= ==== ======== ======== ======== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
3
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First USA, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Fiscal Year Ended June 30,
------------------------------------------
(Dollars in thousands) 1996 1995 1994
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 246,736 $ 178,422 $ 140,297
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible credit losses 90,153 54,659 53,469
Provision for depreciation and amortization 110,991 85,362 73,674
Gains on securitization transactions, net of amortization (71,825) (77,672) (73,000)
Extraordinary item related to prepayment of
Acquisition debt -- -- 16,365
Changes in operating assets and liabilities:
Accrued interest receivable (8,839) (8,546) (7,833)
Accrued interest payable 5,696 9,484 22,874
Accrued expenses and other liabilities (28,471) 205,205 96,706
Other operating activities 30,241 (56,785) 14,036
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 374,682 390,129 336,588
- ---------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from maturities of investments 680,215 270,219 229,821
Purchases of investments (1,386,059) (1,234,669) (990,636)
Net increase in credit card loans, excluding
acquisitions and sales (5,714,706) (6,040,908) (4,380,097)
Proceeds from sale of credit card loans 5,257,484 6,478,092 2,741,905
Purchases of premises and equipment (77,076) (40,372) (21,159)
Purchases of merchant portfolios, processing
services and other acquisitions (41,401) (14,665) (1,750)
Other investing activities (28,840) (11,617) (2,453)
----------- ----------- -----------
NET CASH USED FOR INVESTING ACTIVITIES (1,310,383) (593,920) (2,424,369)
- ---------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Dividends paid to common stockholders (14,164) (6,787) (4,204)
Dividends paid to preferred stockholders (11,454) (11,454) (2,132)
Issuance of subsidiary common stock, net 141,432 -- --
Issuance of common stock, net 29,543 2,450 48,400
Issuance of 6 1/4% mandatory convertible preferred stock, net -- -- 177,402
Net payments to trustees relating to securitizations (3,680) (147,443) (42,421)
Net increase in bank notes and other borrowings 1,173,207 871,773 1,142,214
Net (decrease) increase in interest-bearing deposits (660,327) (958,432) 877,910
Net increase (decrease) in federal funds purchased 437,070 487,010 (4,115)
Repayment of credit card backed notes -- -- (104,167)
Repayment of senior debt -- -- (227,000)
Proceeds from senior debt -- -- 227,000
Net repayment of Acquisition debt and prepayment premium -- -- (217,200)
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,091,627 237,117 1,871,687
- ---------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 155,926 33,326 (216,094)
Cash and cash equivalents at beginning of year 236,778 203,452 419,546
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 392,704 $ 236,778 $ 203,452
=========== =========== =========
- ---------------------------------------------------------------------------------------------------------------
NON-CASH INVESTING AND FINANCING ACTIVITY
Common stock issued for acquisitions $ 12,002 $ 22,571 $ --
=========== =========== ===========
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
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Notes to Consolidated Financial Statements
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS The consolidated financial statements include the
accounts of First USA, Inc. and its majority-owned subsidiaries (the "Company").
All significant intercompany balances and transactions have been eliminated. The
Company is one of the nation's largest providers of Visa and MasterCard services
through its principal operating subsidiaries, First USA Bank and First USA
Paymentech, Inc. ("Paymentech"). First USA Bank is an issuer of Visa and
MasterCard credit cards with 14.3 million credit cards issued and $18.7 billion
in managed credit card loans outstanding at June 30, 1996. First USA Bank's
profitability is affected by loan growth, interest rate spread, Cardmember
usage, credit quality and marketing expenses. Paymentech conducts its business
through its wholly owned subsidiaries, First USA Merchant Services, Inc.
("Merchant Services") and First USA Financial Services, Inc. ("Financial
Services"). Merchant Services, a processor of merchant bankcard transactions,
processed approximately $30.9 billion in sales volume and approximately 574.2
million transactions for the fiscal year ended June 30, 1996. Financial Services
during the past fiscal year has begun to market and issue to businesses and
other entities commercial cards that facilitate business-to-business payment
solutions.
On January 19, 1997, the Company and Banc One Corporation ("Banc One")
entered into an agreement and plan of merger pursuant to which the Company would
merge with and into Banc One and Banc One would be the surviving corporation.
The merger is subject to approvals by the shareholders of the Company and Banc
One, the receipt of all required regulatory approvals and the making of all
necessary filings. The Merger is expected to close in the second quarter of
calendar 1997.
The Company has restated its financial statements to properly reflect the
two items described below. The changes did not affect the Company's net cash
flows, liquidity or regulatory capital compliance, nor did the restatement have
an effect on the Company's fiscal year 1996 and 1995 net income. The restatement
did however have an effect on previously reported quarterly results of the 1996
and 1995 fiscal years (see Unaudited quarterly information, as restated) and
increased 1994 earnings.
The Company had previously not recorded gains on securitization
transactions consistent with the Company's belief and common industry assumption
that such gains would not be significant due to the relatively short life of the
outstanding balances and the narrow spread between the account yield and the sum
of the cost of servicing these accounts and investor yield on the
securitizations. As a result of a more detailed analysis of gains on all
securitizations of credit card receivable balances in connection with the
preparation for the adoption of Statement of Financial Accounting Standards No.
125, which is effective January 1, 1997, the Company has restated its financial
statements to recognize gains in those periods where the gains were significant.
In addition, the Company has been deferring the costs to solicit new
accounts. These costs were deferred and matched with the future revenues from
these new accounts over a twelve-month period. The average life of these new
accounts, including all annual renewals, is expected to be seven years. During
the course of a review of the Company's accounting policies in connection with
its pending merger with Banc One, the Company learned that, while its deferred
costs were paid to independent third parties, these costs were not eligible for
deferral and that its accounting policy regarding such solicitations did not
conform with the accounting policy of Banc One. As a result, the Company has
restated its financial statements to expense these costs in the period such
costs were incurred.
As previously noted, the changes had no effect on fiscal 1996 or 1995 net
income. The Company has restated its fiscal year 1994 consolidated statement of
income resulting in an increase in net income and retained earnings of $47.4
million and an increase in net income per share of $0.40.
On October 16, 1996, the Company's Board of Directors approved a two-for-
one common stock split and increased the quarterly cash dividend to $0.06 per
share on a post-split basis. The two-for-one common stock split was effected in
the form of a 100% stock dividend paid on November 12, 1996, to stockholders of
record on October 28, 1996. The consolidated financial statements and notes to
consolidated financial statements presented herein reflect the retroactive
treatment of this stock split.
CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments,
with maturities of three months or less when purchased, to be cash equivalents.
Federal funds sold are considered to be cash equivalents and are invested with
banks which are considered to be in compliance with their regulatory capital
requirements.
INVESTMENTS Investments are carried at cost, adjusted for amortization of
premiums and accretion of discounts. The Company has both the ability and intent
to hold these investments to maturity.
CREDIT CARD LOANS Credit card loans represent primarily revolving Visa and
MasterCard credit card loans. Interest on credit card loans is recognized based
on the balances outstanding according to the terms of the related Cardmember
agreements.
PROVISION AND ALLOWANCE FOR POSSIBLE CREDIT LOSSES The provision for possible
credit losses includes current period credit losses and an amount which, in the
judgment of management, is necessary to maintain the allowance for possible
credit losses at a level that reflects known and inherent risks in the credit
card loan portfolio.
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PREMISES AND EQUIPMENT Premises and equipment are carried at cost, net of
accumulated depreciation and amortization of $49.9 million and $32.2 million at
June 30, 1996 and 1995, respectively. Depreciation of furniture and equipment is
provided on a straight-line basis over periods ranging from two to 10 years.
Leasehold improvements are amortized over the lesser of the economic useful life
of the improvement or the term of the lease.
CUSTOMER BASE INTANGIBLE The customer base intangible represents the excess of
amounts paid over the stated amount of the credit card loans acquired, net of
accumulated amortization of $376.3 million and $322.8 million at June 30, 1996
and 1995, respectively. The intangible assets are amortized over the estimated
periods to be benefited, generally seven to 11 years, on a straight-line basis.
As of June 30, 1996, the customer base intangible consisted of $54.1 million of
customer base intangible resulting from the management-led leveraged acquisition
of certain of the Company's operating subsidiaries in 1989 (the "Acquisition")
and $15.9 million of customer base intangible resulting from credit card
portfolio purchases subsequent to the date of the Acquisition.
PURCHASED MERCHANT PORTFOLIOS AND GOODWILL
Purchased merchant portfolios are amortized over the estimated period to be
benefited, primarily 25 years, on a straight-line basis. Purchased merchant
portfolios are evaluated by management for impairment at each balance sheet date
through review of actual cash flows generated by each merchant portfolio in
relation to the expected cash flows and the recorded amortization expense. If,
upon review, actual cash flows indicate an impairment of the value of the
purchased merchant portfolio, amortization will be accelerated.
Goodwill represents the excess of purchase price over the fair value of
identifiable assets acquired less liabilities assumed from business combinations
and is amortized over 40 years, on a straight-line basis. Goodwill is reviewed
for impairment whenever events indicate that the carrying amount may not be
recoverable. If estimates of future operating results would be insufficient to
recover future charges to goodwill amortization, then the recorded value of
goodwill balances would be reduced by the estimated deficiencies in operating
results.
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company will adopt SFAS No. 121
in the first quarter of fiscal 1997 and, based on current circumstances, does
not believe the effect of adoption will be material. Accumulated amortization
for purchased merchant portfolios and goodwill was $3.9 million and $1.5 million
at June 30, 1996 and 1995, respectively.
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SECURITIZATION INCOME
Securitization income reflects gains on the securitization of credit card loans
based upon the present value of net interest income and credit card fees less
estimated credit losses and servicing fees over the lives of the securitized
loans.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities," ("SFAS No.
125") which provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishment of liabilities based on an
approach that focuses on control of the assets and extinguishment of the
liabilities. In addition, the statement provides standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings and provides implementation guidance for securitization transactions
and repurchase agreements. The statement is effective for transactions occurring
subsequent to December 31, 1996. The Company is currently evaluating the impact
of this statement and expects no material effect on its consolidated financial
statements as a result of adopting SFAS No. 125.
INTEREST RATE SWAPS The Company enters into interest rate swap transactions
for managing its interest rate risk by converting fixed rate liabilities to
floating rate liabilities. The Company does not hold or issue interest rate swap
agreements for trading purposes. Net receipts or payments under these agreements
are recognized as an adjustment to interest expense. The Company classifies cash
flows from interest rate swaps in the same category in the consolidated
statements of cash flows as the cash flows from the items being hedged.
STOCK-BASED COMPENSATION The Company accounts for stock option and stock
purchase plans in accordance with Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" ("APB 25"). In accordance with APB
25, no compensation expense is recognized for stock options issued to employees
since the options have an exercise price equal to the market value of the common
stock on the day of the grant. In addition, the Company does not recognize
compensation expense for its employee stock purchase plan since it qualifies as
a non-compensatory plan under APB 25. In October 1995, the FASB issued SFAS No.
123, "Accounting for Stock-Based Compensation," which is effective for fiscal
years beginning after December 15, 1995. Under SFAS No. 123, the Company may
elect to recognize stock-based compensation expense based on the fair value of
the awards or continue to account for stock-based compensation under APB 25 and
disclose in the financial statements the effects of SFAS No. 123 as if the
recognition provisions were adopted. The Company has evaluated its alternatives
available under the provisions of SFAS No. 123 and has determined it will not
adopt the recognition provisions of the statement. Therefore, the adoption of
SFAS No. 123 will have no impact on the Company's consolidated financial
statements.
FEDERAL INCOME TAXES Federal income taxes are accounted for utilizing the
liability method. Deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
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USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
RECLASSIFICATIONS Certain amounts for fiscal 1995 and fiscal 1994 have been
reclassified to conform to the fiscal 1996 presentation.
NOTE B - INITIAL PUBLIC OFFERING OF FIRST USA PAYMENTECH, INC. COMMON STOCK
On March 27, 1996, Paymentech completed an initial public underwritten offering
of 5.9 million shares of its common stock at $21.00 per share. In addition,
Paymentech sold 635,000 shares in a direct placement and 790,000 shares pur-
suant to a stock loan program funded by the Company primarily at $19.53 per
share. At June 30, 1996, Paymentech had 31.7 million shares outstanding of which
the Company owned 24.4 million shares, or approximately 77%.
As a result of the offerings, the Company's additional paid-in capital increased
approximately $78 million which represents an increase in the Company's
proportionate share in the stockholders' equity of Paymentech. In addition, as
of June 30, 1996, the Company had recorded minority interest of $53.1 million.
Beginning on March 27, 1996, the Company's net income has been reduced by the
minority interest in Paymentech's net income.
NOTE C - INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Income per common and common equivalent share is calculated as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
- - --------------------------------------------------------------------------------
-------------------------------------------------
(Dollars in thousands,
except per share data) 1996 1995 1994
(As Restated)
<S> <C> <C> <C>
Income before extraordinary
item $ 246,736 $ 178,422 $ 150,934
Less accrual of preferred
stock dividends -- -- (3,436)
----------- ----------- -----------
Income before extraordinary
item applicable to
common stock 246,736 178,422 147,498
Extraordinary item, net of
tax benefit -- -- (10,637)
----------- ----------- -----------
Net income applicable to
common stock for primary
net income per share $ 246,736 $ 178,422 $ 136,861
=========== =========== ===========
Average common shares
outstanding 119,088,870 116,819,438 114,520,384
Common stock equivalents:
Stock options 5,168,384 5,195,372 5,244,060
Mandatory convertible
preferred stock 9,582,950 9,582,950 --
----------- ----------- -----------
Weighted average common
and common equivalent
shares outstanding 133,840,204 131,597,760 119,764,444
=========== =========== ===========
Income before extraordinary
item $ 1.84 $ 1.36 $ 1.23
Extraordinary item, net of
tax benefit -- -- (0.09)
----------- ----------- -----------
Net income per share $ 1.84 $ 1.36 $ 1.14
=========== =========== ===========
</TABLE>
8
<PAGE> 9
NOTE D - BUSINESS COMBINATIONS AND MERCHANT PORTFOLIO PURCHASES
The Company issued 1.9 million shares of its common stock for all of the
outstanding common stock of Litle & Company, Inc. ("Litle") on September 12,
1995, and subsequently merged Litle's operations with Paymentech. The Litle
transaction has been accounted for as a pooling of interests, and accordingly,
the Company's consolidated financial statements have been restated to include
Litle's operations for all prior periods. In addition, Paymentech acquired
merchant contracts and certain other assets of DMGT Corporation ("DMGT") on
August 31, 1995, for $34.0 million. The acquisition of DMGT was accounted for as
a purchase, and accordingly, DMGT's operations have been included in the
Company's results of operations from August 31, 1995. The Litle, DMGT and other
acquisitions occurring in fiscal 1996 were not material to the Company's
consolidated financial statements.
On August 19, 1996, Paymentech purchased for approximately $170 million all of
the outstanding stock of GENSAR Holdings Inc. ("GENSAR"). GENSAR is one of the
nation's largest providers of electronic draft capture and authorization
services, processing approximately 300 million transactions and servicing
120,000 merchant locations annually. The acquisition also includes a merchant
processing portfolio which has approximately $1 billion in annual sales volume.
The acquisition will be accounted for as a purchase, and accordingly, its
results will be included in Paymentech's results of operations from the
effective date of the acquisition.
NOTE E - INVESTMENTS
The Company's investments, which totaled $2.9 billion and $2.2 billion at
June 30, 1996 and 1995, respectively, consist primarily of variable U.S.
government agency mortgage-backed securities which enhance yield and provide a
source of secondary liquidity through repurchase agreements. The Company's
policy is primarily to hold securities until maturity. The average maturity
based on historical payment rates of the investment portfolio at June 30, 1996,
is approximately 6.4 years.
Investments consist of the following (in thousands):
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------
At June 30,
------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Amortized cost $2,903,091 $2,205,523 $1,245,993
Gross unrealized gains 4,865 10,059 3,721
Gross unrealized losses (32,647) (7,083) (24,054)
---------- ---------- ----------
Market value $2,875,309 $2,208,499 $1,225,660
========== ========== ==========
- - -------------------------------------------------------------------------------
</TABLE>
The amortized cost and market value at June 30, 1996, by estimated maturity are
as follows (in thousands):
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------
Amortized Market
Cost Value
<S> <C> <C>
Due within one year $ 385,177 $ 381,491
Due after one but within five years 1,162,528 1,151,403
Due after five but within ten years 694,459 687,813
Due after ten years 660,927 654,602
---------- ----------
$2,903,091 $2,875,309
========== ==========
- - -------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
NOTE F - ALLOWANCE FOR POSSIBLE CREDIT LOSSES
The activity in the allowance for possible credit losses is as follows (in
thousands):
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------
Fiscal Year Ended June 30,
----------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Balance at July 1 $66,000 $66,000 $55,500
Provision for possible credit losses 90,153 54,659 53,469
Recoveries of loans previously
charged off 9,889 4,900 13,889
Loans charged off (91,879) (59,559) (56,858)
------- ------- -------
Balance at June 30 $74,163 $66,000 $66,000
======= ======= =======
- - -------------------------------------------------------------------------------
</TABLE>
NOTE G - DEBT
Bank notes and other borrowings at June 30, 1996, included bank notes of $1.9
billion which had average maturities of 1.5 years with an average cost of
approximately 5.89%, term federal funds purchased of $952.0 million which had
average maturities of five months with an average cost of approximately 5.59%
and securities sold under agreements to repurchase which were recorded at cost
of $349.5 million and matured in July 1996. Bank notes and other borrowings at
June 30, 1995, included bank notes of $1.5 billion which had average maturities
of 1.6 years with an average cost of approximately 6.42% and term federal
funds purchased of $487.0 million which had average maturities of three months
with an average cost of approximately 6.26%. At June 30, 1996 and 1995, bank
notes and other borrowings also included subordinated notes issued by First USA
Bank of $150.0 million which had a cost of approximately 7.08% and 7.68%,
respectively. The notes are due August 1, 2003, with interest paid semiannually
on February 1 and August 1.
Interest-bearing deposits of $1.5 billion and $2.1 billion at June
30, 1996 and 1995, respectively, represent certificates of deposit and deposit
notes with an average cost of approximately 5.62% and 6.23%, respectively.
At June 30, 1996, federal funds purchased of $1.3 billion had overnight
maturities and an interest rate of approximately 0.125% over the effective
federal funds rate. At June 30, 1995, federal funds purchased of $871.4 million
had overnight maturities and an interest rate of approximately 0.15% over the
effective federal funds rate.
In December 1995, First USA Financial, Inc. ("Financial") entered into a $300
million, five-year, unsecured revolving credit facility with a bank syndicate.
The credit facility bears interest based on LIBOR plus 0.25% to 0.65% and
commitment fees ranging from 0.125% to 0.25% on the unused portion based on
Financial's debt to capitalization ratio. The revolving credit facility provides
a source of additional liquidity to manage cash flow, provide capital to
subsidiaries for expansion and for other corporate uses. At June 30, 1996,
borrowings under the credit facility, included in bank notes and other
borrowings, were $18.0 million and the applicable rates and commitment fees were
5.74% and 0.125%, respectively. The credit facility replaced the $150 million
unsecured credit facility of Financial and Merchant Services, which was
terminated in December 1995. The ability to pay dividends is conditioned upon
the observance of certain financial covenants in the credit facility. At June
30, 1996, none of the covenants had the effect of restricting the ability to pay
dividends.
10
<PAGE> 11
In February 1996, Paymentech entered into a $100 million revolving credit
facility payable to a bank syndicate. The Paymentech credit facility bears
interest based on LIBOR plus 0.35% to 0.90% and commitment fees ranging from
0.15% to 0.30% on the unused portion based on Paymentech's debt to
capitalization ratio, payable quarterly. The Paymentech credit facility expires
in February 1999, with the option of two one-year extensions. Financial is a
guarantor to the Paymentech credit facility. The Paymentech credit facility
provides Paymentech and the Company a source of additional liquidity to manage
cash flow, provide capital to subsidiaries for expansion and for other corporate
uses. Paymentech loans to the Company cannot exceed $25 million. The ability of
Paymentech to pay dividends is conditioned upon the observance of certain
financial covenants in the agreement. At June 30, 1996, there were no borrowings
under the Paymentech credit facility, and none of the covenants would have had
the effect of restricting Paymentech's ability to pay dividends. The Company
paid $386.2 million, $296.1 million and $178.4 million during fiscal 1996, 1995
and 1994, respectively, in interest on interest-bearing liabilities.
Annual fiscal year maturities are as follows (in thousands):
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
Bank Notes Interest-
and Other Bearing
Borrowings Deposits Total
<S> <C> <C> <C>
1997 $2,107,869 $ 984,267 $3,092,136
1998 571,777 144,181 715,958
1999 359,169 167,878 527,047
2000 -- 800 800
2001 167,691 155,035 322,726
Thereafter 150,000 8,160 158,160
---------- ---------- ----------
$3,356,506 $1,460,321 $4,816,827
========== ========== ==========
- - --------------------------------------------------------------------------------
</TABLE>
The Company incurred an extraordinary item in the first quarter of fiscal 1994
which reduced net income by $10.6 million and $0.09 per share after taxes for
the premium associated with the prepayment of the debt incurred in connection
with the Acquisition.
NOTE H - PREFERRED STOCK
The Company has issued 5.75 million shares of 6 1/4% mandatory convertible
preferred stock, $.01 par value. Dividends at an annual rate of $1.99 per share
on the preferred stock are cumulative and payable quarterly in arrears. The
liquidation value is $31.875 per share plus accrued and unpaid dividends. The
preferred stock is convertible at any time at the option of the holder into 1.67
shares of common stock, subject to adjustment in certain events. Shares are not
redeemable by the Company prior to May 20, 1997. Beginning May 20, 1997, the
Company may redeem each share of the preferred stock with the number of shares
of common stock equal to the sum of (i) $32.373, declining to $31.875 until May
19, 1998, and (ii) all accrued and unpaid dividends divided by the current
market price, but in no event less than 1.67 of a share of common stock. The
Company has reserved 11.5 million shares of common stock for conversion of the
preferred stock. Each share of preferred stock is entitled to 1.67 votes.
The Board of Directors of the Company has the authority to determine the
principal rights, preferences and privileges of the remaining 1.65 million
shares of authorized preferred stock, which will increase to 7.4 million shares
after redemption of the preferred stock into common stock. Provisions could be
included in the shares of preferred stock, such as extraordinary voting,
dividend,
11
<PAGE> 12
redemption or conversion rights, which could discourage an unsolicited tender
offer or takeover proposal. However, the Company has no plans to include such
provisions.
NOTE I - INCOME TAXES
The components of the provision for income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
--------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Federal income taxes - current $110,831 $ 69,038 $61,375
Federal income taxes - deferred 22,652 26,691 20,563
State income taxes - current 10,065 7,448 5,278
-------- -------- -------
$143,548 $103,177 $87,216
======== ======== =======
</TABLE>
The provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate to income before income taxes and
extraordinary item due to the following (in thousands):
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------
Fiscal Year Ended June 30,
-----------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Statutory rate applied to
income before income taxes
and extraordinary item $136,599 $ 98,560 $83,353
State income taxes, net of federal
tax benefit 6,542 4,841 3,431
Amortization of intangibles and
other 407 (224) 432
-------- -------- -------
$143,548 $103,177 $87,216
======== ======== =======
- - -----------------------------------------------------------------------------
</TABLE>
The tax rate for the 1996, 1995 and 1994 fiscal years reflect Litle as a
Subchapter S corporation, which included no federal income taxes in its
financial statements since its income was taxed at the shareholder level.
Temporary differences, which result in deferred income taxes, relate primarily
to the differences which arise from recording certain transactions in different
years for financial statement and federal income tax purposes. These
transactions primarily include provision for possible credit losses, gains on
securitization transactions, origination costs and incentive payments from data
processors.
The Company made federal income tax payments of $91.5 million, $70.1 million and
$53.1 million during fiscal 1996, 1995 and 1994, respectively. Subsequent to the
initial public offering of its common stock, Paymentech will file a separate
consolidated federal income tax return.
NOTE J - RETIREMENT BENEFITS
The Company has a noncontributory defined benefit retirement plan that provides
retirement benefits for substantially all employees who meet certain service
requirements. The Company's funding policy is to annually contribute the minimum
amount required under the Employee Retirement Income Security Act of 1974.
Contributions are intended to provide not only for benefits attributed to
compensation to date, but also for compensation increases to be earned in the
future. Each participant's cash balance account is credited with an amount equal
to 4% of the participant's compensation plus interest. Each participant becomes
fully vested in benefits under the plan after five years of employment. Prior to
that time, no portion of a participant's benefits is vested. The plan's assets
consist mainly of investments in mutual funds.
12
<PAGE> 13
A summary of the components of the periodic pension expense follows
(in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
--------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Service cost - benefits earned
during the period $1,060 $674 $479
Interest cost on projected
benefit obligation 322 239 200
Actual return on plan assets (551) (414) 27
Net amortization 369 282 (159)
------ ---- ----
Net periodic pension expense $1,200 $781 $547
====== ==== ====
</TABLE>
Assumptions used in the accounting for the plan were:
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
--------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Discount rate 8.0% 7.5% 8.5%
Expected rate of increase in
compensation levels 5.0 5.0 6.0
Expected long-term rate of
return on assets 8.5 8.5 8.5
</TABLE>
The Company increased the discount rate assumption at June 30, 1996. This change
in assumption will not have a material effect on the Company's consolidated
financial statements for fiscal 1997.
The following sets forth the funded status and the amount recognized in the
consolidated balance sheets for the Company's defined benefit retirement plan
(in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
--------------------------------------------
1996 1995
<S> <C> <C>
Accumulated Benefits
Actuarial present value of accumulated
plan benefits:
Vested $ 2,987 $ 2,454
Nonvested 775 750
------- -------
Total $ 3,762 $ 3,204
======= =======
Pension Liability
Projected benefit obligation for service
rendered to date $(4,907) $(4,185)
Fair value of net assets available for benefits 4,158 2,768
------- -------
Projected benefit obligation in excess
of plan assets (749) (1,417)
Unrecognized prior service cost (249) (249)
Unrecognized net loss 774 1,230
------- -------
Total $(224) $ (436)
======= =======
</TABLE>
The Company's First USA Retirement Savings Plan (the "Savings Plan") provides
savings and investment opportunities. The Savings Plan stipulates that eligible
employees with at least one year and 1,000 hours of service may elect to
contribute to the Savings Plan. Pre-tax contributions up to 3% of an eligible
employee's defined compensation are matched 50% by the Company. The consolidated
statements of income include $576,000, $377,000 and $273,000 for contributions
to the Savings Plan for fiscal 1996, 1995 and 1994, respectively.
13
<PAGE> 14
NOTE K - STOCK OPTION, STOCK PURCHASE AND RESTRICTED STOCK PLANS At June 30,
1996, the Company had four stock option plans that provide for grants of
nonqualified stock options to officers and key employees. All stock options have
an exercise price equal to the market value of the Company's common stock on the
date the option was granted and may not be exercised more than 10 years from the
date of grant. In November 1991, the Company accelerated the vesting of the
options granted pursuant to three of the plans to make each such option
immediately exercisable and to grant no further options under the plans. As of
June 30, 1996, 1995 and 1994, the amount of common shares available for future
grants under the remaining plan is 9,216,760, 2,742,200 and 3,925,400 shares,
respectively. The common shares available for future grant at June 30, 1996,
reflect an increase of 9 million shares reserved for future issuance approved
by the Company's stockholders in November 1995. In addition, the Company has an
outside directors option plan (the "Director Plan"). Under the Director Plan,
members of the Board of Directors of the Company who are not employees of the
Company or its subsidiaries or affiliates, receive an option to purchase 20,000
shares of common stock at an option price equal to the fair market value of the
common stock on the date of grant. The option is granted on the date the
Director joins the Board. In November 1994, the Director Plan was amended to
also provide for an annual grant of 5,000 shares after each annual stockholders'
meeting. The options terminate 10 years from the date of grant. In addition,
options terminate if not exercised within 90 days after the Director ceases to
be a member of the Board. As of June 30, 1996 and 1995, 200,000 and 230,000
shares of common stock were available for future grant under the Director Plan,
respectively.
Activity under the Company's stock option plans was as follows:
<TABLE>
<CAPTION>
Number
Number of Option Price of Shares
Shares Per Share Exercisable
<S> <C> <C> <C>
Outstanding
June 30, 1994 7,114,024 $ 1.25 - 21.125
Granted 1,382,000 15.75 - 20.00
Exercised (642,008) 1.25 - 17.69
Forfeitures (128,800) 2.375- 17.69
--------- ----------------
Outstanding
June 30, 1995 7,725,216 1.25 - 21.125
Granted 2,736,000 21.125- 27.875
Exercised (1,647,256) 1.25 - 21.125
Forfeitures (180,560) 2.375- 21.125
--------- ----------------
Outstanding
June 30, 1996 8,633,400 $ 1.25 - 27.875 5,073,400
========= ================ =========
</TABLE>
The Company has also adopted the First USA, Inc. Stock Purchase Plan (the
"Purchase Plan"). The Purchase Plan provides a means for employees to purchase
shares of the Company's common stock at 85% of the fair market value thereof. An
aggregate of 400,000 shares of common stock have been authorized for issuance
under the Purchase Plan. In June 30, 1996, 388,354 shares had been purchased
under the Purchase Plan. The Company's Board of Directors intends to recommend
to the Company's stockholders an increase in the number of shares authorized for
issuance under the Purchase Plan to meet future demand.
14
<PAGE> 15
In addition, the Company has adopted the First USA, Inc. 1994 Restricted Stock
Plan (the "Restricted Stock Plan"). The Restricted Stock Plan authorizes the
granting of awards in the form of restricted shares of the Company's common
stock to key officers and employees subject to risks of forfeiture which may be
eliminated over time based on performance criteria. A maximum of 2,000,000
shares of common stock has been reserved for issuance under the Restricted Stock
Plan, subject to adjustment. At June 30, 1996, 695,000 shares had been awarded
under the Restricted Stock Plan. The market value of restricted shares at the
time of grant of approximately $15.5 million was recorded as deferred
compensation and was netted against additional paid-in capital. Deferred
compensation is being amortized over the five-year vesting period resulting in
amortization expense of approximately $2.8 million and $1.0 million during
fiscal 1996 and 1995, respectively.
NOTE L - COMMITMENTS AND CONTINGENCIES
The Company has an agreement with a third party to receive data processing and
credit card transaction services. The agreement requires annual base charges and
also provides for additional payments in future years based upon volume levels
and cost savings realized by the Company.
The Company leases its office space and certain equipment under leases with
remaining terms ranging up to 10 years. The office space leases contain renewal
options and generally require the Company to pay certain operating expenses.
Future minimum lease commitments under noncancelable operating leases as of
June 30, 1996, are as follows (in thousands):
<TABLE>
<S> <C>
1997 $ 16,373
1998 16,430
1999 15,119
2000 14,056
2001 13,892
Thereafter 84,480
--------
$160,350
========
</TABLE>
The consolidated statements of income include rental expense for operating
leases of $12.9 million, $8.0 million and $6.4 million for fiscal 1996, 1995 and
1994, respectively.
In the course of business, the Company is a defendant in various lawsuits.
Management believes that the resolution of these lawsuits will not have a
material adverse effect on the Company's financial condition.
NOTE M - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
At June 30, 1996 and 1995, the Company had interest rate swap agreements with
notional amounts totaling $2.1 billion and $2.0 billion, respectively. The
Company enters into interest rate swap agreements to convert fixed rate
liabilities to floating rate liabilities as an efficient alternative to issuing
floating rate funding sources. The Company does not hold or issue interest rate
swap agreements for
15
<PAGE> 16
trading purposes. The Company is exposed to potential credit risk with interest
rate swap agreements if the counterparty fails to perform. Credit risk is
reduced in these instruments by entering into agreements with highly rated
counterparties and by diversifying the exposure with any one counterparty. At
June 30, 1996, there were no defaults under the counterparty agreements.
Under the terms of a certain interest rate swap agreement, each party may be
required to pledge certain assets if the market value of the interest rate swap
agreement exceeds an amount set forth in the agreement or in the event of a
change in credit rating.
Under these agreements, the Company pays or receives the difference between the
floating rate, generally three-month LIBOR, and the fixed rates as stated in the
agreements. At June 30, 1996, the variable rate to be paid by the Company was
5.52% and the fixed rate to be received by the Company was 6.12%. Amounts due to
the Company under these swap agreements were $12.5 million and $10.5 million at
June 30, 1996 and 1995, respectively. As a result of the swap agreements,
interest expense was reduced by $5.9 million, $4.7 million and $38.7 million for
fiscal 1996, 1995 and 1994, respectively.
The following summarizes activity of interest rate swap agreements (in
thousands):
<TABLE>
<CAPTION>
Receive Pay Estimated
Fixed Rate Fixed Rate Total Fair Value
<S> <C> <C> <C> <C>
Balance at
June 30, 1993 $1,361,000 $100,000 $1,461,000
Additions 625,000 -- 625,000
Maturities (290,000) (100,000) (390,000)
---------- -------- ----------
Balance at
June 30, 1994 1,696,000 -- 1,696,000
Additions 535,500 -- 535,500
Maturities (253,000) -- (253,000)
---------- -------- ----------
Balance at
June 30, 1995 1,978,500 -- 1,978,500
Additions 720,000 -- 720,000
Maturities (598,000) -- (598,000)
---------- -------- ----------
Balance at
June 30, 1996 $2,100,500 $ -- $2,100,500 $(8,372)
========== ======== ========== =======
</TABLE>
The notional amounts at June 30, 1996, by estimated maturity are as
follows (in thousands):
<TABLE>
<S> <C>
1997 $665,500
1998 535,000
1999 450,000
2000 --
2001 300,000
Thereafter 150,000
----------
$2,100,500
==========
</TABLE>
NOTE N - ASSET SECURITIZATION
The Company had outstanding securitizations of credit card loans of $15.2
billion and $10.1 billion at June 30, 1996 and 1995, respectively. During fiscal
1996, 1995 and 1994, the Company securitized credit card loans of $5.3 billion,
$6.5 billion and $2.8 billion, respectively, which were offset
16
<PAGE> 17
by the scheduled amortization of previous credit card securitizations. Fiscal
1996 includes a $500 million securitization that represents funded credit
enhancement for future securitization issues. These transactions have been
recorded as sales and the Company recognized gains based upon the present value
of the net interest income and credit card fees less estimated credit losses and
servicing fees over the lives of the securitized loans.
Certain pools of credit card loans have been sold to a master trust, of which
the master trust has sold participation interests in public and private
offerings. The participations have remaining maturities averaging approximately
3.4 years, with respective fixed or floating coupon rates and ratings as a
result of specific credit enhancement features. The providers of the credit
enhancements have no recourse to the Company. The Company does not receive
collateral from any party to the securitizations, nor does the Company have any
risk of counterparty nonperformance.
In addition, First USA Bank maintains facilities which provide for the
securitization of receivables on a revolving basis totaling $2.5 billion through
the issuance of commercial paper ($1.0 billion) and a committed bank facility
for introductory rate cards ($1.5 billion). The Company had securitized $193.3
million and $493.2 million of credit card loans through these facilities at June
30, 1996 and 1995, respectively.
NOTE O - FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as follows
(in thousands):
<TABLE>
<CAPTION>
--------------------------------------------------------
At June 30, 1996 At June 30, 1995
--------------------------------------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 392,704 $ 392,704 $ 236,778 $ 236,778
Investments 2,903,091 2,875,309 2,205,523 2,208,499
Credit card loans, net of allowance for possible credit losses 3,490,271 3,490,271 3,121,568 3,121,568
---------- ---------- ---------- ----------
Total $6,786,066 $6,758,284 $5,563,869 $5,566,845
========== ========== ========== ==========
Financial liabilities:
Bank notes and other borrowings $3,356,506 $3,339,167 $2,183,299 $2,174,975
Interest-bearing deposits 1,460,321 1,453,830 2,120,648 2,120,711
Federal funds purchased 1,308,460 1,308,460 871,390 871,390
---------- ---------- ---------- ----------
Total 6,125,287 6,101,457 5,175,337 5,167,076
Off-balance-sheet financial instruments:
Interest rate swaps, net (a) -- 8,372 -- (4,511)
---------- ---------- ---------- ----------
Total including off-balance-sheet financial instruments $6,125,287 $6,109,829 $5,175,337 $5,162,565
========== ========== ========== ==========
</TABLE>
(a) Notional amounts of $2.1 billion and $2.0 billion at June 30, 1996 and
1995, respectively.
17
<PAGE> 18
The above values, in many cases, could not be realized in an immediate
settlement of the financial instrument. In addition, certain financial
instruments and all non-financial instruments are excluded. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value of
the Company.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments.
Cash and cash equivalents
- - -------------------------
Cash and cash equivalents are carried at an amount that approximates fair value.
Investments
- - -----------
Fair value is based on quoted market prices, dealer quotes or estimates using
quoted market prices for similar securities.
Credit card loans
- - -----------------
Credit card loans are carried at an amount that approximates fair value since
the Company's credit card loans are either variable rate or at fixed rates that
are repriceable within 30 days notice to Cardmembers.
Bank notes and other borrowings
- - -------------------------------
The fair value of fixed-rate bank notes and subordinated debt is estimated using
the rates currently offered for instruments of similar remaining maturities. The
carrying amount for variable-rate instruments approximates their fair value. The
carrying amount of other borrowings approximates fair value.
Interest-bearing deposits
- - -------------------------
The fair value of fixed-rate deposits is estimated using the rates currently
offered for deposits of similar remaining maturities. The carrying amount for
variable-rate deposits approximates their fair value.
Federal funds purchased
- - -----------------------
The carrying amount approximates fair value.
Interest rate swaps
- - -------------------
The fair value of interest rate swaps is the estimated amount that the Company
would receive or pay to terminate the agreement at the reporting date, taking
into account current interest rates and the current creditworthiness of the
counterparty.
NOTE P - CONCENTRATION OF CREDIT RISK
The Company is active in originating credit card loans to customers throughout
the United States. All loans are primarily made on an unsecured basis after
reviewing each potential Cardmember's credit application and evaluating their
financial history and ability to repay.
The geographic concentration of owned and serviced credit card loans was as
follows (dollars in thousands):
<TABLE>
<CAPTION>
At June 30, 1996
---------------------------
Credit Card
State Loans Percent
<S> <C> <C>
California $ 2,698,497 14.4%
Texas 1,992,631 10.6
New York 1,506,811 8.0
Florida 1,296,225 6.9
Illinois 806,092 4.3
New Jersey 743,756 4.0
All Others 9,683,813 51.8
----------- -----
$18,727,825 100.0%
=========== =====
</TABLE>
<TABLE>
<CAPTION>
At June 30, 1995
---------------------------
Credit Card
State Loans Percent
<S> <C> <C>
California $ 1,687,065 12.7%
Texas 1,640,196 12.3
New York 1,101,119 8.3
Florida 867,633 6.5
Illinois 630,012 4.7
New Jersey 602,493 4.5
All Others 6,758,934 51.0
----------- -----
$13,287,452 100.0%
=========== =====
</TABLE>
18
<PAGE> 19
NOTE Q - OTHER OPERATING EXPENSE
The other expense component of other operating expense consists of the following
(in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
-----------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Professional services and other $140,998 $ 75,131 $22,854
Credit card fraud losses 33,565 24,070 13,409
Other 29,752 30,525 35,683
-------- -------- --------
$204,315 $129,726 $ 71,946
======== ======== ========
</TABLE>
NOTE R - PARENT COMPANY ONLY INFORMATION
The condensed financial statements of First USA, Inc., prepared on a parent
company unconsolidated basis, are as follows (in thousands):
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
- - -------------------------------------------------------------------------------
June 30,
----------------------------------
1996 1995
<S> <C> <C>
Assets
Cash and cash equivalents $ 1,664 $ 7,746
Investment in subsidiary 1,069,765 749,120
Receivable from subsidiary 18,999 482
Other assets 23,536 7,625
---------- --------
$1,113,964 $764,973
========== ========
Liabilities and Stockholders' Equity
Accrued expenses and other liabilities $ 84 $ 158
Stockholder's Equity
6 1/4% mandatory convertible
preferred stock 58 58
Common stock 1,210 1,174
Additional paid-in capital 568,840 440,929
Retained earnings 543,772 322,654
---------- --------
1,113,880 764,815
---------- --------
$1,113,964 $764,973
========== ========
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
- - --------------------------------------------------------------------------------
Fiscal Year Ended June 30,
---------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Equity in earnings of subsidiary $250,514 $180,317 $140,549
Interest income 114 221 462
Other expense 3,742 1,966 564
-------- -------- --------
Income before Income Taxes 246,886 178,572 140,447
Provision for income taxes 150 150 150
-------- -------- --------
Net Income $246,736 $178,422 $140,297
======== ======== ========
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
- - -------------------------------------------------------------------------------
Fiscal Year Ended June 30,
-----------------------------------
1996 1995 1994
<S> <C> <C> <C>
Operating Activities
Net income $246,736 $178,422 $140,297
Adjustments to reconcile net
income to net cash used
for operating activities:
Equity in earnings of
subsidiary (250,514) (180,317) (140,549)
Other operating activities (19,588) 718 88
-------- -------- -------
Net Cash Used for
Operating Activities (23,366) (1,177) (164)
Investing Activities
Capital contributions to
First USA Financial, Inc. -- -- (219,000)
Dividends received from
subsidiary 25,618 18,241 6,142
Other investing activities (12,259) -- --
-------- -------- -------
Net Cash Provided by
(Used for) Investing Activities 13,359 18,241 (212,858)
Financing Activities
Issuance of common stock, net 29,543 2,450 48,400
Dividends paid to common
stockholders (14,164) (6,787) (4,204)
Dividends paid to preferred
stockholders (11,454) (11,454) (2,132)
Issuance of 6 1/4% mandatory
convertible preferred stock -- -- 177,402
-------- -------- -------
Net Cash Provided by
(Used for) Financing Activities 3,925 (15,791) 219,466
-------- -------- -------
(Decrease) Increase in Cash and
Cash Equivalents (6,082) 1,273 6,444
Cash and cash equivalents at
beginning of year 7,746 6,473 29
-------- -------- -------
Cash and Cash Equivalents
at End of Year $ 1,664 $ 7,746 $ 6,473
======== ======== =======
</TABLE>
20
<PAGE> 21
Report of Independent Auditors
Stockholders and Board of Directors
First USA, Inc.
We have audited the accompanying consolidated balance sheets of First USA, Inc.
and subsidiaries as of June 30, 1996 and 1995, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for each
of the two years in the period ended June 30, 1996 and the year ended June 30,
1994, as restated. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of First USA, Inc.
and subsidiaries at June 30, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the two years in the period
ended June 30, 1996, and the year ended June 30, 1994, as restated, in
conformity with generally accepted accounting principles.
As discussed in Note A, the Company has restated its financial statements to
recognize gains on securitization transactions and expense certain costs to
solicit new accounts.
/s/ Ernst & Young LLP
Dallas, Texas
July 17, 1996, except for Notes D and A
as to which the dates are August 19, 1996 and April 22, 1997, respectively.
21
<PAGE> 1
EXHIBIT 99.3
Consent of Independent Accountants
We consent to the use of our report dated July 17, 1996, except for Notes D and
A as to which the dates are August 19, 1996 and April 22, 1997, respectively,
with respect to the consolidated financial statements of First USA, Inc.
included in Form 8-K/A of BANC ONE CORPORATION filed with the Securities and
Exchange Commission on or about August 13, 1997 and incorporation by reference
in the registration statements listed below of BANC ONE CORPORATION.
Registration Statements on Form S-8
Registration Numbers:
33-10822 33-55315
33-14475 33-58923
33-18277 33-60424
33-20890 33-61758
33-20990 33-61760
33-27849 333-00445
33-34294 333-21981
33-37400 333-26929
33-40041 333-27631
33-45473 333-28281
33-46189 333-29395
33-50117 333-30419
33-53752 333-30421
33-54100 333-30425
33-55149 333-30429
33-55172 333-32053
33-55174
Registration Statements on Form S-3
Registration Numbers:
33-64195 333-22413
/s/ ERNST & YOUNG LLP
Dallas, Texas
August 11, 1997
<PAGE> 1
Exhibit 99.4
FIRST USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
----------- ------------
(Unaudited) (See Note A)
<S> <C> <C>
ASSETS
Cash and due from banks $ 193,301 $ 254,553
Short-term investments 6,801 40,701
Federal funds sold 245,732 97,450
----------- ----------
Cash and cash equivalents 445,834 392,704
Investments, at cost (market value of
$3,689,816 and $2,875,309 at March 31,
1997 and June 30, 1996, respectively) 3,685,815 2,903,091
Loans 4,994,421 3,564,434
Allowance for possible credit losses (124,435) (74,163)
----------- ----------
Net loans 4,869,986 3,490,271
Premises and equipment, net 116,969 116,666
Accrued interest receivable 72,963 51,558
Due from securitizations 287,300 182,462
Customer base intangible, net 29,799 70,008
Other assets 716,988 501,741
----------- ----------
$10,225,654 $7,708,501
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank notes and other borrowings $ 5,152,630 $3,356,506
Interest-bearing deposits 1,618,899 1,460,321
Federal funds purchased 1,516,522 1,308,460
Accrued interest payable 73,046 60,246
Accrued expenses and other liabilities 357,650 409,088
----------- ----------
8,718,747 6,594,621
----------- ----------
Company-obligated mandatorily redeemable
preferred securities of subsidiary trust
holding solely subordinated debentures
of the Company 200,000 --
Stockholders' equity
6-1/4% mandatory convertible preferred
stock, $.01 par value 58 58
Common stock, $.01 par value 1,235 1,210
Additional paid-in capital 623,321 568,840
Retained earnings 682,293 543,772
----------- ----------
1,306,907 1,113,880
----------- ----------
$10,225,654 $7,708,501
=========== ==========
</TABLE>
See Notes to Interim Condensed Consolidated Financial Statements.
1
<PAGE> 2
FIRST USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------------- ----------------------------
1996 1996
1997 As Restated 1997 As Restated
------------ ------------ ------------ ------------
(See Note A) (See Note A)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 91,063 $ 97,596 $ 277,163 $ 255,757
Investments 57,099 46,007 161,621 131,333
Federal funds sold 5,537 1,399 11,716 5,180
------------ ------------ ------------ ------------
Total Interest Income 153,699 145,002 450,500 392,270
INTEREST EXPENSE
Bank notes and other borrowings 75,154 56,466 198,950 151,417
Deposits 25,630 26,298 69,734 90,926
Federal funds purchased 21,267 20,883 64,022 56,312
------------ ------------ ------------ ------------
Total Interest Expense 122,051 103,647 332,706 298,655
------------ ------------ ------------ ------------
NET INTEREST INCOME 31,648 41,355 117,794 93,615
PROVISION FOR POSSIBLE CREDIT LOSSES 36,928 25,704 142,305 66,607
------------ ------------ ------------ ------------
NET INTEREST INCOME (EXPENSE)
AFTER PROVISION FOR POSSIBLE
CREDIT LOSSES (5,280) 15,651 (24,511) 27,008
OTHER OPERATING INCOME
Securitization income 250,030 243,176 760,300 723,950
Gain on sale of subsidiary
common stock 3,435 -- 110,313 --
Interchange income 9,686 12,023 35,061 19,676
Fee income 8,249 7,379 24,635 20,967
Other 17,193 29,940 98,855 77,209
------------ ------------ ------------ ------------
Total Other Operating Income 288,593 292,518 1,029,164 841,802
OTHER OPERATING EXPENSE
Postage, shipping, stationery
and supplies 61,409 39,123 162,870 143,444
Salaries and employee benefits 44,421 39,988 144,675 105,946
Data processing and communications 37,986 26,474 109,589 78,658
Occupancy and equipment 15,343 12,588 48,893 34,079
Amortization of intangibles 13,345 14,080 43,880 41,778
Other 68,322 42,457 228,432 150,862
------------ ------------ ------------ ------------
Total Other Operating Expense 240,826 174,710 738,339 554,767
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES AND
SUBSIDIARY TRUST DISTRIBUTIONS 42,487 133,459 266,314 314,043
Provision for income taxes 15,330 48,460 95,599 115,082
Distributions on preferred
securities of subsidiary trust,
net of taxes 3,033 -- 3,403 --
------------ ------------ ------------ ------------
NET INCOME $ 24,124 $ 84,999 $ 167,312 $ 198,961
============ ============ ============ ============
Net income per share $ 0.17 $ 0.63 $ 1.22 $ 1.49
============ ============ ============ ============
Weighted average common and common
equivalent shares outstanding 139,103,428 134,130,350 137,450,101 133,388,746
============ ============ ============ ============
Cash dividends paid per common share $ 0.06 $ 0.03 $ 0.165 $ 0.09
============ ============ ============ ============
Cash dividends paid per
preferred share $ 0.498 $ 0.498 $ 1.494 $ 1.494
============ ============ ============ ============
</TABLE>
See Notes to Interim Condensed Consolidated Financial Statements.
2
<PAGE> 3
FIRST USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
--------------------------
1997 1996
----------- ------------
(See Note A)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 167,312 $ 198,961
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of subsidiary common stock (110,313) --
Gains on securitization transactions, net
of amortization 14,911 (92,907)
Provision for possible credit losses 142,305 66,607
Provision for depreciation and amortization 93,036 81,035
Equity in earnings of subsidiary (7,558) --
Net changes in operating assets and liabilities:
Accrued interest receivable (21,474) (14,439)
Accrued interest payable 13,359 (4,347)
Accrued expenses and other liabilities (19,164) 3,694
Other operating activities (224,936) 54,636
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 47,478 293,240
INVESTING ACTIVITIES
Proceeds from maturities of investments 590,308 492,754
Purchases of investments (1,398,727) (1,120,966)
Net increase in loans, excluding acquisitions
and sales (5,286,865) (5,224,239)
Proceeds from sales of loans 3,740,522 4,914,292
Proceeds from sale of subsidiary common stock 144,307 --
Purchases of merchant portfolios, processing
services and other acquisitions (192,871) (39,806)
Purchases of premises and equipment (59,965) (58,237)
Other investing activities 2,401 (21,700)
----------- -----------
NET CASH USED FOR INVESTING ACTIVITIES (2,460,890) (1,057,902)
FINANCING ACTIVITIES
Dividends paid to common stockholders (20,200) (10,555)
Dividends paid to preferred stockholders (8,591) (8,591)
Issuance of common stock, net 33,556 11,739
Issuance of First USA Paymentech, Inc. common
stock, net -- 134,298
Net payments to trustees relating to securitizations (7,336) (3,931)
Net increase in bank notes and other borrowings 1,896,839 801,574
Net increase (decrease) in interest-bearing deposits 166,212 (499,858)
Net increase in federal funds purchased 208,062 687,285
Issuance of subsidiary trust mandatorily redeemable
preferred securities 198,000 --
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,466,542 1,111,961
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 53,130 347,299
Cash and cash equivalents at beginning of period 392,704 236,778
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 445,834 $ 584,077
=========== ===========
</TABLE>
See Notes to Interim Condensed Consolidated Financial Statements.
3
<PAGE> 4
FIRST USA, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
First USA, Inc. and its subsidiaries (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. For purposes of comparability, certain prior period
amounts have been reclassified. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three months ended
March 31, 1997 are not necessarily indicative of the results that may be
expected for the fiscal year ending June 30, 1997. For further information,
refer to the consolidated financial statements and footnotes thereto included in
Amendment No. 1 on Form 10-K/A to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1996.
The Company has restated its prior period financial statements to properly
reflect the two items described below. This restatement did not effect the
Company's net cash flows, liquidity or regulatory capital compliance, nor did
the restatement have an effect on the Company's fiscal 1996 net income. The
restatement did however affect previously reported quarterly results for the
1996 fiscal year.
The Company has previously not recorded gains on securitization
transactions consistent with the Company's belief and common industry assumption
that such gains would not be significant due to the relatively short life of the
outstanding balances and the narrow spread between the account yield and the sum
of the cost of servicing these accounts and investor yield on the
securitizations. As a result of a more detailed analysis of gains on all
securitizations of credit card receivable balances performed in the preparation
for the adoption of Statement of Financial Accounting Standards ("SFAS") No.
125, which is effective January 1, 1997, the Company restated its financial
statements to recognize gains in prior periods.
In addition, the Company has been deferring the costs to solicit new
accounts. These costs were deferred and matched with the future revenues from
these new accounts over a twelve-month period. The average life of these new
accounts, including all annual renewals, is expected to be seven years. During
the course of a review of the Company's accounting policies in connection with
the Company's pending merger with BANC ONE CORPORATION ("Banc One"), the Company
learned that, while its deferred costs were paid to independent third parties,
these costs were not eligible for deferral and that its accounting policy
regarding such solicitation costs did not conform with the accounting policy of
Banc One. As a result, the Company has restated its financial statements to
expense these costs in the period such costs were incurred.
The effect of these changes for the three and nine months ended March 31,
1996 was an increase to net income of $20.9 million, or $0.15 per share, and
$21.0 million, or $0.16 per share, respectively.
On October 16, 1996, the Company's Board of Directors approved a
two-for-one common stock split and increased the quarterly cash dividend to
$0.06 per share on a post-split basis. The two-for-one common stock split was
effected in the form of a 100% stock dividend payable November 12, 1996, to
stockholders of record on October 28, 1996. The financial statements presented
reflect the retroactive treatment of this stock split.
4
<PAGE> 5
FIRST USA, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE B - MERGER WITH BANC ONE CORPORATION
On January 19, 1997, the Company and Banc One entered into an Agreement and
Plan of Merger, amended as of April 23, 1997, (as amended, the "Merger
Agreement") pursuant to which the Company would merge with and into Banc One and
Banc One would be the surviving corporation (the "Merger"). Pursuant to the
Merger Agreement, each share of the Company's common stock will be converted
into 1.1659 shares of Banc One common stock (the "Common Exchange Ratio"). The
Merger will qualify as a tax-free reorganization under the Internal Revenue
Code. Banc One intends to account for the Merger under the pooling of interests
method of accounting.
Pursuant to the Merger Agreement, certain benefits of the Company's
employees vest upon approval of the Merger by the stockholders of the Company.
In particular, all of the Company's outstanding stock options will vest,
restrictions previously placed upon certain stock grants will lapse and the
loans pursuant to the First USA Paymentech, Inc. ("Paymentech") stock loan
program will be forgiven. The Company expects to incur additional costs related
to the Merger, all of which will be expensed upon consummation of the Merger.
The Merger is subject to approvals by the shareholders of the Company and
Banc One and the receipt of all required regulatory approvals. Banc One has
received all required regulatory approvals. The Board of Governors of the
Federal Reserve System, the Federal Deposit Insurance Corporation and the
appropriate state banking regulators have approved the Merger or have notified
Banc One that they do not disapprove of the Merger, as the case may be. The
Merger is expected to close in the second quarter of calendar 1997.
NOTE C - ALLOWANCE FOR POSSIBLE CREDIT LOSSES
The activity in the allowance for possible credit losses is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------- ---------------------
1997 1996 1997 1996
-------- -------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Beginning allowance for possible
credit losses $122,587 $ 70,015 $ 74,163 $ 66,000
Provision for possible credit losses 36,928 25,704 142,305 66,607
Recoveries of loans previously
charged off 7,548 1,935 11,411 5,595
Loans charged off (42,628) (25,581) (103,444) (66,129)
-------- -------- --------- --------
Ending allowance for possible
credit losses $124,435 $ 72,073 $ 124,435 $ 72,073
======== ======== ========= ========
Ending allowance as a % of total loans 2.5 % 2.1 % 2.5 % 2.1 %
======== ======== ========= ========
</TABLE>
The provision for possible credit losses for the nine months ended March
31, 1997 includes an increase in the allowance for possible credit losses of
$50.3 million due primarily to an increase in on-balance-sheet loans.
5
<PAGE> 6
FIRST USA, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE D - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
At March 31, 1997 and June 30, 1996, the Company had interest rate swap
agreements with notional amounts totaling approximately $2.2 billion and $2.1
billion, respectively. The Company enters into interest rate swap agreements to
convert fixed rate liabilities to floating rate liabilities as an efficient
alternative to floating rate funding sources.
NOTE E - ASSET SECURITIZATION
The Company had outstanding securitizations of credit card loans of $18.2
billion and $15.2 billion at March 31, 1997 and June 30, 1996, respectively.
These transactions have been recorded as sales and the Company recognized gains
based upon the present value of net interest income and credit card fees less
estimated credit losses and servicing fees over the lives of the securitized
loans.
The Company adopted SFAS No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities," for all securitization
transactions occurring subsequent to December 31, 1996, including transfers of
receivables pursuant to existing securitization structures that occurred after
December 31, 1996. SFAS No. 125 provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities.
In addition, the statement provides standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings and
provides implementation guidance for securitization transactions and repurchase
agreements. Because the Company restated its financial statements, and therefore
has recorded gains on securitization transactions as a result of the
restatement, the adoption of SFAS No. 125 had no material effect on the
Company's consolidated financial statements as of and for the three months ended
March 31, 1997.
NOTE F - PAYMENTECH PUBLIC OFFERING
In December 1996, Paymentech completed a public offering pursuant to which
the Company and Paymentech sold 4.4 million and 3.1 million shares of Paymentech
common stock, respectively, for $34 per share. Net proceeds to the Company from
the sale of a portion of its investment in Paymentech were $144.3 million and
the Company recognized a pre-tax gain of $110.3 million for the nine months
ended March 31, 1997, which is included in other operating income. As a result
of the offerings, the Company's ownership in Paymentech was reduced from 77% to
57%.
The Company currently accounts for its investment in Paymentech under the
equity method due to the Company's and Banc One's plans to further reduce Banc
One's ownership in Paymentech subsequent to the Merger, but only in a manner
that will preserve the "pooling of interests" accounting treatment of the
Merger, and due to the insignificance of the Company's investment in Paymentech
to its consolidated financial statements. The Company previously consolidated
Paymentech in its financial statements.
NOTE G - COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
SUBSIDIARY TRUST HOLDING SOLELY SUBORDINATED DEBENTURES OF THE COMPANY
During the quarter ended December 31, 1996, First USA Capital Trust I (the
"Capital Trust"), a wholly owned Delaware business trust, completed a $200
million underwritten offering of 9.33% tax deductible mandatorily redeemable
preferred securities. The Capital Trust invested the proceeds from the
securities in junior subordinated debentures, due January 15, 2027, issued by
the Company. Proceeds from the sale of the junior subordinated debentures by the
Company were used for general corporate purposes, including capital
contributions to operating subsidiaries.
6
<PAGE> 7
FIRST USA, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE G - COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
SUBSIDIARY TRUST HOLDING SOLELY SUBORDINATED DEBENTURES OF THE COMPANY
- --CONTINUED
The Company and the Capital Trust agreed, pursuant to the registration
rights agreement, to register new capital securities that are identical in most
material respects with the Securities and Exchange Commission (the "SEC") and to
exchange the new capital securities for those that were offered in December
1996. The Company and the Capital Trust have accordingly filed a registration
statement on Form S-4 with the SEC to register the new capital securities and
expect to complete the exchange offer in the second quarter of 1997.
NOTE H - NET INCOME PER SHARE
Net income per share for the three and nine months ended March 31, 1997 and
1996 was calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------------- ---------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Net income $ 24,124 $ 84,999 $ 167,312 $ 198,961
============ ============ ============ ============
Average common shares outstanding 123,289,848 119,500,048 122,399,287 118,630,238
Common stock equivalents:
Stock options 6,227,279 5,047,352 5,464,513 5,175,558
Mandatory convertible preferred stock 9,586,301 9,582,950 9,586,301 9,582,950
------------ ------------ ------------ ------------
Weighted average common and common
equivalent shares outstanding 139,103,428 134,130,350 137,450,101 133,388,746
============ ============ ============ ============
Net income per share $ 0.17 $ 0.63 $ 1.22 $ 1.49
============ ============ ============ ============
</TABLE>
7
<PAGE> 1
Exhibit 99.5
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial
information and explanatory notes are presented to show the impact on the
historical financial position and results of operations of BANC ONE of the
Merger under the "pooling of interests" method of accounting. The unaudited pro
forma condensed combined financial information combines the historical financial
information of BANC ONE for the quarter ended March 31, 1997 and for the fiscal
years ended December 31, 1996, 1995 and 1994 with the historical financial
information of First USA for the quarter ended March 31, 1997 and for the
twelve-month periods ended December 31, 1996, 1995 and 1994, respectively, as
amended, in the case of First USA, by Amendment No. 1 on Form 10-K/A to First
USA's Annual Report on Form 10-K for the fiscal year ended June 30, 1996,
Amendment No. 1 on Form 10-Q/A to First USA's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996 and Amendment No. 1 on Form 10-Q/A to First
USA's Quarterly Report on Form 10-Q for the quarter ended December 31, 1996.
The pro forma condensed combined financial information is based on and
derived from, and should be read in conjunction with, (a) the historical
consolidated financial statements and the related notes thereto of BANC ONE,
and (b) the historical consolidated financial statements and the related notes
thereto of First USA, as amended, in the case of First USA, by Amendment No. 1
on Form 10-K/A to First USA's Annual Report on Form 10-K for the fiscal year
ended June 30, 1996 and First USA's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997. Certain pro forma adjustments have been made to
the condensed combined financial information to conform significant accounting
policy differences identified by BANC ONE and First USA.
(1)
<PAGE> 2
BANC ONE CORPORATION and Subsidiaries
Pro Forma Condensed Balance Sheet
at March 31,1997
(Unaudited)
<TABLE>
<CAPTION>
BANC ONE First USA Adjustments Pro Forma
---------- --------- ----------- ----------
(dollars in millions)
<S> <C> <C> <C> <C>
Assets:
Cash and short-term investments $ 5,609.6 $ 445.8 ($1.8)(b) $ 6,053.6
Loans held for sale 2,369.0 2,369.0
Securities 14,818.0 3,685.9 1.8 (b) 18,505.7
Loans & leases 74,056.6 4,994.4 79,051.0
Less allowance (1,097.9) (124.5) (1,222.4)
Other assets 5,832.6 1,224.0 23.5 (b) 7,080.1
---------- --------- ------ ----------
Total assets $101,587.9 $10,225.6 $ 23.5 $111,837.0
========== ========= ====== ==========
Liabilities:
Deposits $ 72,168.2 $ 1,618.9 $155.7 (b) $ 73,942.8
Short-term borrowings 13,790.9 4,203.8 17,994.7
Long-term borrowings 4,905.6 2,665.4 7,571.0
Other liabilities 2,325.7 430.7 (62.2)(b) 2,694.2
---------- --------- ------ ----------
Total Liabilities 93,190.4 8,918.8 93.5 102,202.7
Preferred stock 195.6 195.6
Common stock 2,168.3 1.2 718.5 (a) 2,888.0
Other stockholders' equity 6,033.6 1,305.6 (718.5)(a) 6,550.7
(70.0)(c)
---------- --------- ------ ----------
Total stockholders' equity 8,397.5 1,306.8 (70.0) 9,634.3
---------- --------- ------ ----------
Total liabilities and
stockholders' equity $101,587.9 $10,225.6 $ 23.5 $111,837.0
========== ========= ====== ==========
</TABLE>
(a) The pro forma amount (including the conversion of First USA Convertible
Preferred Stock which occurred prior to the Merger) assumes 155,120,633
shares of BANC ONE common stock are issued in the Merger, based on the
exchange ratio of 1.1659 shares of BANC ONE common stock for each share of
First USA common stock outstanding at March 31, 1997. The actual number of
shares of BANC ONE common stock issued was 155,193,799.
(b) To record the impact of certain reclassifications to conform BANC ONE and
First USA financial statement presentations.
(c) Represents current and prior year impacts for conforming BANC ONE and First
USA accounting policies relating to revenue recognition for loan servicing
income and deferral and amortization of loan origination costs.
See Notes to the unaudited Pro Forma Condensed Combined Financial Information.
(2)
<PAGE> 3
BANC ONE CORPORATION and Subsidiaries
Pro Forma Condensed Balance Sheet
at December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
BANC ONE First USA Adjustments Pro Forma
---------- --------- ----------- ----------
(dollars in millions)
<S> <C> <C> <C> <C>
Assets:
Cash and short-term investments $ 6,699.5 $ 506.3 ($0.7)(b) $ 7,205.1
Loans held for sale 1,473.8 1,473.8
Securities 15,522.6 3,608.4 0.7 (b) 19,131.7
Loans & leases 74,193.9 5,195.8 79,389.7
Less allowance (1,075.1) (122.6) (1,197.7)
Other assets 5,033.4 1,090.6 26.9 (b) 6,150.9
---------- --------- ------ ----------
Total assets $101,848.1 $10,278.5 $ 26.9 $112,153.5
========== ========= ====== ==========
Liabilities:
Deposits $ 72,373.1 $ 1,705.1 $144.8 (b) $ 74,223.0
Short-term borrowings 14,105.6 4,219.8 18,325.4
Long-term borrowings 4,189.5 2,638.3 6,827.8
Other liabilities 2,532.9 437.0 (60.6)(b) 2,909.3
---------- --------- ------ ----------
Total Liabilities 93,201.1 9,000.2 84.2 102,285.5
Preferred stock 207.0 0.1 207.1
Common stock 2,165.5 1.2 715.9 (a) 2,882.6
Other stockholders' equity 6,274.5 1,277.0 (715.9)(a) 6,778.3
(57.3)(c)
---------- --------- ------ ----------
Total stockholders' equity 8,647.0 1,278.3 (57.3) 9,868.0
---------- --------- ------ ----------
Total liabilities and
stockholders' equity $101,848.1 $10,278.5 $ 26.9 $112,153.5
========== ========= ====== ==========
</TABLE>
(a) The pro forma amount (including the conversion of First USA Convertible
Preferred Stock which occurred prior to the Merger) assumes 155,120,633
shares of BANC ONE common stock are issued in the Merger, based on the
exchange ratio of 1.1659 shares of BANC ONE common stock for each share of
First USA common stock outstanding at March 31,1997. The actual number of
shares of BANC ONE common stock issued was 155,193,799.
(b) To record the impact of certain reclassifications to conform BANC ONE and
First USA financial statement presentations.
(c) Represents current and prior year impacts for conforming BANC ONE and First
USA accounting policies relating to revenue recognition for loan servicing
income and deferral and amortization of loan origination costs.
See Notes to the unaudited Pro Forma Condensed Combined Financial Information.
(3)
<PAGE> 4
BANC ONE CORPORATION and Subsidiaries
Pro Forma Condensed Combined Statement of Income
(unaudited)
Quarter ended March 31, 1997
<TABLE>
<CAPTION>
BANC ONE First USA Adjustments Pro Forma
-------- --------- ----------- ---------
(dollars in millions, except per share data)
<S> <C> <C> <C> <C>
Interest income $2,124.2 $153.7 $46.2 (b) $2,324.1
Interest expense (839.6) (122.1) (4.6)(b) (966.3)
-------- ------ ------ --------
Net interest income 1,284.6 31.6 41.6 1,357.8
Provision for loan and lease losses (235.0) (36.9) (271.9)
-------- ------ ------ --------
Net interest income after provision
for loan and lease losses 1,049.6 (5.3) 41.6 1,085.9
Other income 585.4 288.6 (50.3)(b) 807.2
(16.5)(c)
Other expenses (1,068.9) (243.8) 7.1 (b) (1,309.0)
(3.4)(c)
-------- ------ ------ --------
Income before income taxes 566.1 39.5 (21.5) 584.1
Income taxes (195.4) (15.3) 1.6 (b) (202.2)
6.9 (d)
-------- ------ ------ --------
Income from continuing operations $370.7 $24.2 ($13.0) $381.9
======== ====== ======= ========
Income from continuing operations per
share(a) $0.86 $0.65
======== ========
Average common shares outstanding (000) 426,146 588,326
======== ========
</TABLE>
(a) The calculation of income from continuing operations per share for the pro
forma financial statements uses the weighted average number of shares of
BANC ONE common stock and First USA common stock, adjusted to equivalent
shares of BANC ONE common stock.
(b) To record the impact of certain reclassifications to conform BANC ONE and
First USA financial statement presentations.
(c) To conform BANC ONE's and First USA's accounting policies relative to
revenue recognition for loan servicing income and deferral and amortization
of loan origination costs.
(d) To record income tax effect relating to accounting adjustments to conform
revenue recognition policies on loan servicing income.
See Notes to the unaudited Pro Forma Condensed Combined Financial Information.
(4)
<PAGE> 5
BANC ONE CORPORATION and Subsidiaries
Pro Forma Condensed Combined Statement of Income
(unaudited)
Year ended December 31, 1996 for BANC ONE and twelve month
period ended December 31, 1996 for First USA
<TABLE>
<CAPTION>
BANC ONE First USA Adjustments Pro Forma
-------- --------- ----------- ---------
(dollars in millions, except per share data)
<S> <C> <C> <C> <C>
Interest income $8,044.9 $564.6 $126.7 (b) $8,736.2
Interest expense (3,189.4) (407.6) (0.6)(b) (3,597.6)
-------- ------ ------ --------
Net interest income 4,855.5 157.0 126.1 5,138.6
Provision for loan and lease losses (788.1) (154.6) (942.7)
-------- ------ ------ --------
Net interest income after provision
for loan and lease losses 4,067.4 2.4 126.1 4,195.9
Other income 2,227.5 1,309.9 (139.5)(b) 3,362.9
(35.0)(c)
Other expenses (4,184.2) (879.2) 12.0 (b) (5,062.0)
(10.6)(c)
-------- ------ ------ --------
Income before income taxes 2,110.7 433.1 (47.0) 2,496.8
Income taxes (684.2) (157.2) 1.4 (b) (824.0)
16.0 (d)
-------- ------ ------ --------
Income from continuing operations $1,426.5 $275.9 ($29.6) $1,672.8
======== ====== ====== ========
Income from continuing operations per
share $3.23 $2.78
======== ========
Average common shares outstanding (000) 436,927 594,853
======== ========
</TABLE>
(a) The calculation of income from continuing operations per share for the pro
forma financial statements uses the weighted average number of shares of
BANC ONE common stock and First USA common stock, adjusted to equivalent
shares of BANC ONE common stock.
(b) To record the impact of certain reclassifications to conform BANC ONE and
First USA financial statement presentations.
(c) To conform BANC ONE's and First USA's revenue recognition policies on loan
servicing income and deferral and amortization of loan origination costs.
(d) To record income tax effect relating to accounting adjustments to conform
revenue recognition policies on loan servicing income and the deferral and
amortization of loan origination costs.
See Notes to the unaudited Pro Forma Condensed Combined Financial Information.
(5)
<PAGE> 6
BANC ONE CORPORATION and Subsidiaries
Pro Forma Condensed Combined Statement of Income
(unaudited)
Year ended December 31, 1995 for BANC ONE and twelve month
period ended December 31, 1995 for First USA
<TABLE>
<CAPTION>
BANC ONE First USA Adjustments Pro Forma
-------- --------- ----------- ---------
(dollars in millions, except per share data)
<S> <C> <C> <C> <C>
Interest income $7,100.9 $464.4 $22.6 (b) $7,587.9
Interest expense (2,971.5) (365.3) (3,336.8)
-------- ------ ----- --------
Net interest income 4,129.4 99.1 22.6 4,251.1
Provision for loan and lease losses (457.5) (68.6) (526.1)
-------- ------ ----- --------
Net interest income after provision
for loan and lease losses 3,671.9 30.5 22.6 3,725.0
Other income 1,870.0 963.9 (30.9)(b) 2,775.5
(27.5)(c)
Other expenses (3,631.6) (700.6) 5.2 (b) (4,327.0)
-------- ------ ----- --------
Income before income taxes 1,910.3 293.8 (30.6) 2,173.5
Income taxes (632.4) (108.6) 3.1 (b) (728.3)
9.6 (d)
-------- ------ ----- --------
Income from continuing operations $1,277.9 $185.2 ($17.9) $1,445.2
======== ====== ====== ========
Income from continuing operations per
share (a) $2.91 $2.43
======== ========
Average common shares outstanding (000) 433,323 587,789
======== ========
</TABLE>
(a) The calculation of income from continuing operations per share for the pro
forma financial statements uses the weighted average number of shares of
BANC ONE common stock and First USA common stock, adjusted to equivalent
shares of BANC ONE common stock.
(b) To record the impact of certain reclassifications to conform BANC ONE and
First USA financial statement presentations.
(c) To conform BANC ONE's and First USA's accounting policy relative to revenue
recognition for loan servicing income and deferral and amortization of loan
origination costs.
(d) To record income tax effect relating to accounting adjustments to conform
revenue recognition policies for loan servicing income and the deferral and
amortization of loan origination costs.
See Notes to the unaudited Pro Forma Condensed Combined Financial Information.
(6)
<PAGE> 7
BANC ONE CORPORATION and Subsidiaries
Pro Forma Condensed Combined Statement of Income
(unaudited)
Year ended December 31, 1994 for BANC ONE and twelve month
period ended December 31, 1994 for First USA
<TABLE>
<CAPTION>
BANC ONE First USA Adjustments Pro Forma
-------- --------- ----------- ---------
(dollars in millions, except per share data)
<S> <C> <C> <C> <C>
Interest income $6,448.4 $426.6 $34.6 (b) $6,909.6
Interest expense (2,248.8) (250.0) (2,498.8)
-------- ------ ----- --------
Net interest income 4,199.6 176.6 34.6 4,410.8
Provision for loan and lease losses (242.3) (49.9) (292.2)
-------- ------ ----- --------
Net interest income after provision
for loan and lease losses 3,957.3 126.7 34.6 4,118.6
Other income 1,329.5 573.1 (40.9)(b) 1,851.9
(9.8)(c)
Other expenses (3,768.0) (401.5) 5.2 (b) (4,164.3)
-------- ------ ----- --------
Income before income taxes 1,518.8 298.3 (10.9) 1,806.2
Income taxes (513.7) (108.9) 1.1 (b) (618.1)
3.4 (d)
-------- ------ ----- --------
Income from continuing operations $1,005.1 $189.4 ($6.4) $1,188.1
======== ====== ====== ========
Income from continuing operations per
share (a) $2.20 $1.99
======== ========
Average common shares outstanding (000) 448,118 589,316
======== ========
</TABLE>
(a) The calculation of income from continuing operations per share for the pro
forma financial statements uses the weighted average number of shares of
BANC ONE common stock and First USA common stock, adjusted to equivalent
shares of BANC ONE common stock.
(b) To record the impact of certain reclassifications to conform BANC ONE and
First USA financial statement presentations.
(c) To conform BANC ONE's and First USA's accounting policy relative to revenue
recognition for loan servicinq income and deferral and amortization of loan
origination costs.
(d) To record income tax effect relating to accounting adjustments to conform
revenue recognition policies for loan servicing income and the deferral and
amortization of loan origination costs.
See Notes to the unaudited Pro Forma Condensed Combined Financial Information.
(7)
<PAGE> 8
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION
NOTE 1. BASIS OF PRESENTATION
The unaudited pro forma condensed combined financial information
reflects the Merger using the "pooling of interests" method of accounting. The
unaudited Pro Forma Condensed Combined Balance Sheets assumes that the Merger
was consummated on March 31, 1997 and December 31, 1996, respectively.
BANC ONE has a fiscal year ending December 31 and First USA has a fiscal
year ending June 30. Accordingly, the unaudited Pro Forma Condensed Combined
Statements of Income combine BANC ONE's historical results for the fiscal years
ended December 31, 1996, 1995 and 1994 with First USA's historical results for
the twelve-month periods ended December 31, 1996, 1995 and 1994, respectively,
giving effect to the Merger as if it had occurred on January 1, 1994.
Certain pro forma adjustments have been made to these condensed
combined financial statements to conform significant accounting policy
differences identified by BANC ONE and First USA.
NOTE 2. MERGER-RELATED EFFECTS
The pro forma data does not, given the operational overlap of credit
card operations between BANC ONE and First USA, reflect the incurrence of
certain costs relating to or resulting from the Merger. Such costs resulted
in a charge to earnings of $371 million in the second quarter 1997.
NOTE 3. ADDITIONAL TRANSACTION
The pro forma financial data does not give effect to the June 1, 1997
acquisition of Liberty Bancorp, Inc., an Oklahoma corporation, as the
acquisition is not material to BANC ONE individually or in the aggregate since
it represents less than 3% of BANC ONE's consolidated assets as of December 31,
1996.
(8)
