<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-11030
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First USA, Inc.
- -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 75-2291060
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1601 Elm Street, 47th Floor, Dallas, Texas 75201
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(address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code 214-849-2110
------------
N/A
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Former Name, Former Address and former Fiscal Year, If Changed Since Last Report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at September 30, 1996
- -------------------------------------- ---------------------------------
Common Stock, $.01 par value 60,908,795 shares
6 1/4% Mandatory Convertible Preferred
Stock, $.01 par value 5,750,000 shares
<PAGE>
FIRST USA, INC.
FORM 10-Q QUARTERLY REPORT
Table of Contents
-----------------
PART I. F I N A N C I A L I N F O R M A T I O N Page
----
ITEM 1. FINANCIAL STATEMENTS.
Condensed Consolidated Balance Sheets -
September 30, 1996 (Unaudited) and June 30, 1996............. 3
Condensed Consolidated Statements of Income (Unaudited) -
Three Months Ended September 30, 1996 and 1995............... 4
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Three Months Ended September 30, 1996 and 1995............... 5
Notes to Interim Condensed Consolidated Financial
Statements (Unaudited)....................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
Financial Condition and Results of Operations................ 9
PART II. O T H E R I N F O R M A T I O N
ITEM 1. LEGAL PROCEEDINGS............................................ 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Index of Exhibits............................................ 19
Reports on Form 8-K.......................................... 20
SIGNATURES............................................................ 21
<PAGE>
P A R T I. F I N A N C I A L I N F O R M A T I O N
FIRST USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 127,463 $ 254,553
Short-term investments 105,097 40,701
Federal funds sold 159,000 97,450
----------- -----------
Cash and cash equivalents 391,560 392,704
Investments, at cost (market value of $3,174,032 and $2,875,309
at September 30, 1996 and June 30, 1996, respectively) 3,197,142 2,903,091
Loans 3,903,464 3,564,434
Allowance for possible credit losses (76,617) (74,163)
----------- -----------
Net loans 3,826,847 3,490,271
Premises and equipment, net 136,015 116,666
Accrued interest receivable 55,702 51,558
Due from securitizations 233,923 182,462
Customer base intangible, net 56,691 70,008
Purchased merchant portfolios and goodwill, net 298,743 88,894
Other assets 399,103 339,847
----------- -----------
$ 8,595,726 $ 7,635,501
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank notes and other borrowings $ 3,978,696 $ 3,356,506
Interest-bearing deposits 1,429,566 1,460,321
Federal funds purchased 1,359,685 1,308,460
Accrued interest payable 50,328 60,246
Accrued expenses and other liabilities 592,135 330,363
Minority interest 52,401 53,145
----------- -----------
7,462,811 6,569,041
----------- -----------
Stockholders' equity
6 1/4% mandatory convertible preferred stock, $.01 par value 58 58
Common stock, $.01 par value 609 605
Additional paid-in capital 580,173 569,445
Retained earnings 552,075 496,352
----------- -----------
1,132,915 1,066,460
----------- -----------
$ 8,595,726 $ 7,635,501
=========== ===========
</TABLE>
See Notes to Interim Condensed Consolidated Financial Statements.
3
<PAGE>
FIRST USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
INTEREST INCOME
Loans $ 87,829 $ 72,008
Investments 50,370 40,406
Federal funds sold 1,959 2,293
----------- -----------
Total Interest Income 140,158 114,707
INTEREST EXPENSE
Bank notes and other borrowings 55,052 43,234
Deposits 20,763 32,692
Federal funds purchased 20,113 15,115
----------- -----------
Total Interest Expense 95,928 91,041
----------- -----------
NET INTEREST INCOME 44,230 23,666
PROVISION FOR POSSIBLE CREDIT LOSSES 29,627 21,231
----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE CREDIT LOSSES 14,603 2,435
OTHER OPERATING INCOME
Securitization income 251,427 195,721
Interchange income 11,532 3,318
Fee income 6,448 6,481
Other 44,157 20,220
----------- -----------
Total Other Operating Income 313,564 225,740
OTHER OPERATING EXPENSE
Postage, shipping, stationery and supplies 47,324 31,804
Salaries and employee benefits 50,516 31,244
Data processing and communications 34,497 23,581
Occupancy and equipment 15,775 9,986
Amortization of intangibles 15,151 13,773
Other 64,406 30,852
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Total Other Operating Expense 227,669 141,240
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INCOME BEFORE INCOME TAXES 100,498 86,935
PROVISION FOR INCOME TAXES 36,442 32,040
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NET INCOME $ 64,056 $ 54,895
=========== ===========
Net income per share $ 0.95 $ 0.83
=========== ===========
Weighted average common and common
equivalent shares outstanding 67,761,817 66,374,643
=========== ===========
Cash dividends paid per common share $ 0.09 $ 0.06
=========== ===========
Cash dividends paid per preferred share $ 0.498 $ 0.498
=========== ===========
</TABLE>
See Notes to Interim Condensed Consolidated Financial Statements
4
<PAGE>
FIRST USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 64,056 $ 54,895
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for possible credit losses 29,627 21,231
Provision for depreciation and amortization 32,392 25,602
Changes in operating assets and liabilities:
Accrued interest receivable (4,144) 3,450
Accrued interest payable (9,918) (15,828)
Accrued expenses and other liabilities 149,495 6,090
Other operating activities (92,237) 60,255
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 169,271 155,695
INVESTING ACTIVITIES
Proceeds from maturities of investments 219,625 132,310
Purchases of investments (516,728) (315,328)
Net increase in loans, excluding acquisitions and sales (1,431,113) (1,753,621)
Proceeds from sales of loans 1,062,434 1,627,288
Purchases of merchant portfolios, processing services and other acquisitions (188,118) (36,274)
Purchases of premises and equipment (28,000) (15,495)
Other investing activities 52 (10,688)
----------- -----------
NET CASH USED FOR INVESTING ACTIVITIES (881,848) (371,808)
FINANCING ACTIVITIES
Dividends paid to common stockholders (5,469) (3,424)
Dividends paid to preferred stockholders (2,864) (2,864)
Issuance of common stock, net 5,234 1,806
Net payments to trustees relating to securitizations (4,016) (131,290)
Net increase in bank notes and other borrowings 698,078 534,021
Net decrease in interest-bearing deposits (30,755) (238,677)
Net increase in federal funds purchased 51,225 190,370
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 711,433 349,942
----------- -----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,144) 133,829
Cash and cash equivalents at beginning of period 392,704 236,778
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 391,560 $ 370,607
=========== ===========
</TABLE>
See Notes to Interim Condensed Consolidated Financial Statements
5
<PAGE>
FIRST USA, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unuadited)
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
September 30, 1996 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
the Company's Annual Report on Form 10-K for the fiscal year ended June 30,
1996.
NOTE B - ALLOWANCE FOR POSSIBLE CREDIT LOSSES
The activity in the allowance for possible credit losses is as follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------
1996 1995
-------- --------
(Dollars in thousands)
<S> <C> <C>
Beginning allowance for possible credit losses $ 74,163 $ 66,000
Provision for possible credit losses 29,627 21,231
Recoveries of loans previously charged off 16,804 1,602
Loans charged off (43,977) (20,833)
======== ========
Ending allowance for possible credit losses $ 76,617 $ 68,000
======== ========
Ending allowance as a % of total loans 2.0% 2.1%
======== ========
</TABLE>
NOTE C - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
At September 30, 1996 and June 30, 1996, the Company had interest rate swap
agreements with notional amounts totaling $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 issuing floating rate funding sources.
NOTE D - ASSET SECURITIZATION
The Company had outstanding securitizations of credit card loans of $16.0
billion and $15.2 billion at September 30, 1996 and June 30, 1996, respectively.
These transactions have been recorded as sales and the Company records no gain
at the time of sale. The associated net servicing fees are recognized monthly
over the lives of the transactions on an accrual basis and are included in
securitization income in the statements of income.
In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities,"
which provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishment of liabilities based on an approach that
focuses on
6
<PAGE>
FIRST USA, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unuadited)
NOTE D - ASSET SECURITIZATION -- CONTINUED
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.
NOTE E - BUSINESS COMBINATIONS AND MERCHANT PORTFOLIO PURCHASES
On August 19, 1996, First USA Paymentech, Inc. ("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 third party
credit and debit authorization services, processing approximately 300 million
transactions during the twelve months ended June 30, 1996. The acquisition also
includes a merchant processing portfolio which has approximately $1 billion in
annual sales volume. The acquisition was accounted for as a purchase, and
accordingly, its results were included in Paymentech's results of operations
from the date of acquisition. The pro forma effects of this acquisition, as if
it had occurred at the beginning of the periods presented, were not material and
therefore have not been included.
NOTE F - NET INCOME PER SHARE
Net income per share is calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------
1996 1995
----------- -----------
(Dollars in thousands, except per share data)
<S> <C> <C>
Net income $ 64,056 $ 54,895
=========== ===========
Average common shares outstanding 60,739,156 58,947,192
Common stock equivalents:
Stock options 2,231,186 2,635,976
Mandatory convertible preferred stock 4,791,475 4,791,475
----------- -----------
Weighted average common and common
equivalent shares outstanding 67,761,817 66,374,643
=========== ===========
Net income per share $ 0.95 $ 0.83
=========== ===========
</TABLE>
NOTE G - SUBSEQUENT EVENTS
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 $0.12 per share
on a present (pre-split) basis. The two-for-one common stock split will be
effected in the form of a 100% stock dividend payable November 12, 1996, to
stockholders of record on October 28, 1996. The financial statements as of
September 30, 1996 do not reflect the retroactive treatment of this stock split.
7
<PAGE>
FIRST USA, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unuadited)
NOTE G - SUBSEQUENT EVENTS - CONTINUED
On November 8, 1996, Paymentech filed a Registration Statement on Form S-1
with the Securities and Exchange Commission for a public offering of 6.8 million
shares of Paymentech common stock. The offering includes approximately 4
million shares to be sold by the Company and approximately 2.8 million shares to
be issued and sold by Paymentech.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
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 approximately 15.1 million credit cards issued and
$19.8 billion in managed credit card loans outstanding at September 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 is the third largest payment processor of
bankcard transactions in the United States, according to published industry
sources, with approximately $30.9 billion in sales volume processed and
approximately 574.2 million bankcard transactions for the fiscal year ended June
30, 1996. Financial Services markets and issues to businesses and other
entities commercial cards that facilitate business-to-business payment
procedures and reporting, replacing traditional direct payment methods.
The Company's newest operating subsidiary, First USA Federal Savings Bank
("FSB"), conducts its operations as a direct bank, offering customers banking
products via phone, mail and other electronic distribution channels. FSB's
current offerings of financial products include mortgages, limited testing of
auto and homeowners' insurance and unsecured installment loans and soon is
expected to include remote banking, retail certificates of deposit, auto loans
and other financial products.
RESULTS OF OPERATIONS
Net income for the quarter ended September 30, 1996, was $64.1 million, or
$0.95 per share. Included in net income for the quarter ended September 30,
1996 is a one-time merger, integration and impairment charge of $15.5 million,
recorded by Paymentech, related to the acquisition of GENSAR Holdings, Inc.
This one-time charge reduced net income by $7.4 million, or $0.11 per share.
Income, excluding the one-time charge, was $71.5 million, or $1.06 per share,
compared with net income of $54.9 million, or $0.83 per share, for the quarter
ended September 30, 1995. The increase in operating results is attributable to
the 35.8% growth of average managed loans from $14.1 billion to $19.1 billion,
increased credit card charge volume, an increase in managed loan yield, a
decrease in cost of funds and increased payment processing volume. These
increases were partially offset by increased net credit losses.
On-balance-sheet loans increased from $3.3 billion at September 30, 1995 to
$3.9 billion as of September 30, 1996, which reflects the results of the
Company's direct solicitations, partially offset by the Company's completion of
securitizations of $5.2 billion.
MANAGED PORTFOLIO REPORTING AND ANALYSIS
It is management's practice to analyze its financial performance on a
"managed" portfolio basis, in addition to analyzing information as reported
under generally accepted accounting principles. The effect of securitizing
loans is to remove these loans from the balance sheet and to record net interest
income and fees less net credit losses on the securitized loans as
securitization income. Managed loan statistics include loans sold in
securitization transactions and the Company's on-balance-sheet loan portfolio.
The Company's consolidated statements of income and balance sheets are adjusted
to eliminate the effect of securitizing loans to analyze the data on a "managed"
portfolio basis.
9
<PAGE>
The following table depicts the changes in the Company's key financial data as a
result of securitizing loans as of and for the three months ended September 30,
1996 and 1995. The As Reported information is derived from consolidated
financial statements which have been prepared in conformity with generally
accepted accounting principles. Managed loan data include loans sold in
securitization transactions and the Company's on-balance-sheet loan portfolio.
<TABLE>
<CAPTION>
Three Months Ended September 30,
-------------------------------------------------------
1996 1995
------------------------ --------------------------
As Reported Managed As Reported Managed
----------- ----------- ----------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Income Statement Statistics:
- ---------------------------
Net interest income $ 44,230 $ 391,153 $ 23,666 $ 229,109
Other operating income:
Securitization income 251,427 -- 195,721 --
Interchange income 11,532 56,848 3,318 43,448
Fee income 6,448 53,324 6,481 38,798
Other 44,157 44,157 20,220 20,220
----------- ----------- ----------- -----------
Total other operating income 313,564 154,329 225,740 102,466
Provision for possible credit losses 29,627 217,315 21,231 103,400
----------- ----------- ----------- -----------
Net revenue after provision for
possible credit losses $ 328,167 $ 328,167 $ 228,175 $ 228,175
=========== =========== =========== ===========
Balance Sheet and Other Statistics:
- ----------------------------------
Average loans $ 3,783,819 $19,141,915 $ 3,372,780 $14,099,158
End of period loans 3,903,464 19,929,764 3,303,924 15,034,832
Securitizations -- 16,026,300 -- 11,730,908
Loan yield 9.28% 13.87% 8.54% 12.69%
Cost of funds 5.84 5.89 6.38 6.31
Delinquency rate 3.35 5.03 2.55 3.29
Net credit loss rate 2.87 4.49 2.28 2.88
</TABLE>
NET INTEREST INCOME
For the three months ended September 30, 1996, net interest income was $44.2
million, an increase of 86.9% from net interest income of $23.7 million for the
three months ended September 30, 1995. This increase was due to an increase in
loan interest income of $15.8 million primarily due to growth in on-balance-
sheet loans and increased yield. Interest income from investments, excluding
interest income from cash equivalents, increased $9.6 million due to an increase
in average investments from $2.3 billion to $3.0 billion, partially offset by a
decrease in yield from 6.76% to 6.55% for the three months ended September 30,
1995 and 1996, respectively. Interest expense increased $4.9 million due to an
increase in average interest-bearing liabilities from $5.7 billion to $6.5
billion, to supplement the funding of loan growth, which is primarily funded by
securitizations. This increase was partially offset by a decrease in cost of
funds from 6.38% to 5.84% for the three months ended September 30, 1995 and
1996, respectively.
Net interest margin on a managed basis was 7.00% for the three months ended
September 30, 1996, compared with 5.51% for the three months ended September 30,
1995. The increase is due to managed loan interest yield increasing from 12.69%
for the three months ended September 30, 1995 to 13.87% for
10
<PAGE>
NET INTEREST INCOME -- CONTINUED
the three months ended September 30, 1996, reflecting changes in the overall
pricing distribution of the credit card loan portfolio. In addition, cost of
funds decreased from 6.31% for the three months ended September 30, 1995 to
5.89% for the three months ended September 30, 1996.
The table provides an analysis of net interest income, average balance sheet
data, net interest margin and interest rate spread for the three month periods
ended September 30, 1996 and 1995.
<TABLE>
<CAPTION>
Three Months Ended September 30,
---------------------------------------------------------------------------------------
1996 1995
------------------------------------- -------------------------------------------
Average Average Average Average
Balance Rate Interest Balance Rate Interest
------------- ------- --------- ----------- ------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets
Cash equivalents $ 101,967 7.07% $ 1,817 $ 59,202 9.64% $ 1,438
Federal funds sold 143,050 5.43 1,959 153,943 5.91 2,293
Investments 2,963,192 6.55 48,553 2,307,608 6.76 38,968
Loans 3,783,819 9.28 87,829 3,372,780 8.54 72,008
------------ ----- -------- ------------ ----- ---------
Total earning assets 6,992,028 8.02% $140,158 5,893,533 7.79% $ 114,707
Other assets 1,118,319 866,025
------------ ------------
Total assets $ 8,110,347 $ 6,759,558
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities
Bank notes and other borrowings $ 3,640,018 6.00% $ 55,052 $ 2,669,317 6.43% $ 43,234
Interest-bearing deposits 1,416,847 5.81 20,763 1,985,475 6.53 32,692
Federal funds purchased 1,457,526 5.47 20,113 1,006,645 5.96 15,115
------------ ----- -------- ------------ ----- ---------
Total interest-bearing
liabilities 6,514,391 5.84% $ 95,928 5,661,437 6.38% $ 91,041
Other liabilities 501,933 357,179
------------ ------------
Total liabilities 7,016,324 6,018,616
Stockholders' equity 1,094,023 740,942
------------ ------------
Total liabilities and
stockholders' equity $ 8,110,347 $ 6,759,558
============ ===========
----- --------- ----- ---------
Net interest margin and net
interest income (a) 2.53% $ 44,230 1.61% $ 23,666
====== ========== ===== ==========
Interest rate spread (b) 2.18% 1.41%
====== ======
OFF-BALANCE-SHEET TRANSACTIONS
Average securitized credit card loans $15,358,096 15.00% $ 575,809 $10,726,378 13.99% $ 375,174
Securitized loans cost of funds 15,358,096 5.91 228,886 10,726,378 6.28 169,731
----- -------- ----- ---------
Securitized loans net interest
rate spread 9.09% $ 346,923 7.71% $ 205,443
====== ========= ====== =========
INCLUDING SECURITIZED
CREDIT CARD LOANS
Total earning assets $22,350,124 12.81% $ 715,967 $16,619,911 11.79% $ 489,881
Interest-bearing liabilities 21,872,487 5.89 324,814 16,387,815 6.31 260,772
----- -------- ----- ---------
Net interest margin and net interest
income (a) 7.00% $ 391,153 5.51% $ 229,109
====== ========= ====== ==========
Interest rate spread (b) 6.92% 5.48%
====== ======
</TABLE>
- ------------------------
(a) Net interest margin is computed by dividing net interest income by average
total earning assets.
(b) Interest rate spread is the average earning assets rate minus the average
interest-bearing liabilities rate.
11
<PAGE>
OTHER OPERATING INCOME
Other operating income was $313.6 million for the three months ended September
30, 1996 compared with $225.7 million for the three months ended September 30,
1995. The three months ended September 30, 1996 included a $55.7 million
increase in securitization income, due to the 43.2% increase in average
securitized loans and a $23.9 million increase in other operating income
resulting primarily from increased payment processing volume.
OTHER OPERATING EXPENSES
Other operating expenses, excluding amortization of intangibles, increased
66.7% to $212.5 million for the three months ended September 30, 1996, versus
$127.5 million for the three months ended September 30, 1995. Postage,
shipping, stationery and supplies increased $15.5 million, data processing and
communications increased $10.9 million, and other expenses, excluding
Paymentech's one-time charge of $15.5 million, increased $18.0 million due to
increased marketing costs associated with loan solicitations and increased
accounts, transaction volumes and balances, resulting primarily from the 35.8%
increase in average managed loans. Salaries and employee benefits increased
$19.3 million primarily due to the increase in number of employees. Occupancy
and equipment expenses increased $5.8 million primarily due to facility
expansions.
INTANGIBLES
The Company's consolidated balance sheets include a customer base intangible
which represents the excess of allocable amounts paid over the stated amount of
the credit card loans acquired, primarily those acquired when the Company was
acquired by a management-led investor group in 1989. The customer base
intangible is amortized over the estimated periods to be benefited (generally
seven to eleven years) on a straight-line basis based on independent portfolio
valuation studies. The amortization of the customer base intangible is
primarily a tax deductible item for which the Company realizes a reduction in
federal tax payments. The examination division of the Internal Revenue Service
("IRS") has completed an examination for fiscal years 1990, 1991 and 1992 and
proposed to limit the Company's intangible tax deductions. The Company
disagreed with the proposal and is pursuing a resolution of the matter through
the IRS appeals process and may pursue it further through litigation, if
necessary. At the present time, if it impossible to predict the outcome
concerning the Company's amortization of its intangible; however, the Company
believes it has strong arguments in support of its position and expects that
this challenge will not have a material impact on the Company.
The balance sheet also includes purchased merchant portfolios and goodwill,
resulting primarily from acquisitions by Paymentech. Purchased merchant
portfolios and goodwill increased from $88.9 million at June 30, 1996 to $298.7
million at September 30, 1996, due primarily to the acquisition of GENSAR
Holdings, Inc. during the three months ended September 30, 1996.
ASSET QUALITY
The Company's delinquency and net credit loss rates at any time reflect, among
other factors, the quality of the credit card loans, the average seasoning of
the Company's accounts, the success of the Company's collection efforts and
general economic conditions.
As a result of a slower rate of growth, intense competition and the overall
softening in consumer credit, delinquency and net credit loss rates for the
Company trended higher during the quarter. Over the past year, new unseasoned
loans have become a smaller percentage of managed credit card loans, which has
contributed to the increase in managed delinquency and managed credit card loss
rates. In light of these conditions, the Company continued to tighten and
refine credit underwriting. The Company believes that delinquency and net
credit loss rates will trend consistent with industry levels. The managed
delinquency rate at September 30, 1996, was 5.03%, and the managed net credit
loss rate for the first quarter of fiscal year 1997 was 4.49%. The Company's
focus continues to be to optimize the profitability of each account within the
context of acceptable risk characteristics. The Company has
12
<PAGE>
ASSET QUALITY -- CONTINUED
developed a credit process through the experience of numerous marketing, credit
and risk management tests which provides the Company with a reliable basis for
predicting the asset quality of new accounts. The Company also believes that
its frequent and early contact with delinquent customers, as well as active
portfolio management, has a significant impact on predicting delinquency trends
and managing net credit losses.
Delinquencies
The following table represents the delinquency trends of the Company's loans
as reported for financial purposes and for managed loans. An account is
contractually delinquent if the minimum payment is not received by the billing
date. It is the Company's policy to accrue interest and fee income on all
credit card accounts, except as specified below, until the account is charged
off. In certain situations where an account becomes delinquent and a legitimate
hardship exists, a loan may qualify to be placed on nonaccrual status, provided
that the account is closed and the credit card is returned. All hardship
situations result in either a charge off of the account or a re-establishment to
reliable paying status. The Company has stringent policies governing the
placement of accounts into hardship and the ultimate disposition of these
accounts.
<TABLE>
<CAPTION>
At September 30, 1996 At June 30, 1996
------------------------- --------------------------
Percent of Percent of
Loans Total Loans Loans Total Loans
----------- ----------- ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Managed Loans
- -------------
Loans outstanding $19,929,764 100.00% $18,727,825 100.00%
=========== ====== =========== ======
Loans delinquent
35 to 64 days $ 344,079 1.72% $ 272,496 1.46%
65 to 94 days 202,435 1.02 159,814 0.85
95 or more days 456,438 2.29 378,193 2.02
----------- ------ ----------- ------
Total $ 1,002,952 5.03% $ 810,503 4.33%
=========== ====== =========== ======
As Reported
- -----------
Loans outstanding $ 3,903,464 100.00% $ 3,564,434 100.00%
=========== ====== =========== ======
Loans delinquent
35 to 64 days $ 45,041 1.15% $ 37,221 1.04%
65 to 94 days 26,370 0.68 21,182 0.60
95 or more days 59,348 1.52 50,497 1.42
----------- ------ ----------- ------
Total $ 130,759 3.35% $ 108,900 3.06%
=========== ====== =========== ======
</TABLE>
Net Credit Losses
Net credit losses include the principal amount (excluding accrued
finance charges and fees) of losses resulting from Cardmembers unwilling or
unable to pay, as well as bankrupt and deceased accounts, less current period
recoveries. Loans are charged off prior to the end of the seventh billing cycle
after having become contractually past due unless a payment has been received
sufficient to bring the account into a different delinquency category or bring
the account current.
13
<PAGE>
Net Credit Losses -- continued
The following table presents the Company's net credit losses for the periods
indicated:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-----------------------------
1996 1995
----------- -----------
(Dollars in Thousands)
<S> <C> <C>
Managed Loans
- -------------
Average loans outstanding $19,141,915 $14,099,158
Net credit losses $ 214,861 $ 101,400
Net credit losses as a percentage
of average loans outstanding 4.49% 2.88%
As Reported
- -----------
Average loans outstanding $ 3,783,819 $ 3,372,780
Net credit losses $ 27,173 $ 19,231
Net credit losses as a percentage
of average loans outstanding 2.87% 2.28%
</TABLE>
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 loan portfolio. For the three months ended September 30, 1996, the
Company's provision for possible credit losses was $29.6 million, which included
charges of $2.5 million to increase the allowance for possible credit losses.
On an annualized basis, this provision was 3.13% of average loans outstanding.
This compared to a provision of $21.2 million for the three months ended
September 30, 1995, which on an annualized basis was 2.52% of average credit
card loans outstanding.
FIRST USA PAYMENTECH, INC.
Paymentech recorded a net loss of $3.3 million, or $0.10 per share, for the
quarter ended September 30, 1996. Paymentech's results of operations for the
quarter ended September 30, 1996, include a one-time, merger, integration and
impairment charge of $15.5 million, related to the acquisition of GENSAR
Holdings, Inc. This one-time charge reduced Paymentech's net income by $9.7
million, or $0.30 per share. Excluding the effects of the one-time charge,
Paymentech's net income increased 827.4% to $6.4 million, or $0.20 per share,
for the quarter ended September 30, 1996, compared with net income of $0.7
million, or $0.03 per share, for the quarter ended September 30, 1995. Net
revenue increased 66.4% to $39.6 million compared with $23.8 million for the
prior year period. During the September 1996 quarter, Paymentech processed
approximately $9.0 billion in sales volume in approximately 263.6 million total
transactions.
On August 19, 1996, Paymentech purchased for approximately $170 million all of
the outstanding stock of GENSAR. GENSAR is one of the nation's largest
providers of third party credit and debit authorization services, processing
approximately 300 million transactions during the twelve months ended June 30,
1996. The acquisition also included a merchant processing portfolio which has
approximately $1 billion in annual sales volume. The acquisition was accounted
for as a purchase, and accordingly, its results were included in Paymentech's
results of operations from the effective date of the acquisition.
14
<PAGE>
FIRST USA PAYMENTECH, INC. -- CONTINUED
Paymentech funded the GENSAR purchase and subsequent payoff of GENSAR's debt
with proceeds from its initial public offering ($75 million), a loan from the
Company ($25 million) and non-interest-bearing notes payable to the previous
shareholders of GENSAR ($100 million) due October 18, 1996.
In March 1996, Paymentech completed initial public offerings of 7.3 million
shares of its common stock. At September 30, 1996, Paymentech had 31.7 million
shares outstanding of which the Company owned 24.4 million shares, or
approximately 77%. At September 30, 1996, the market value of the Company's
investment in Paymentech's common stock was approximately $992 million.
On November 8, 1996, Paymentech filed a Registration Statement on Form S-1 with
the Securities and Exchange Commission for a public offering of 6.8 million
shares of Paymentech Common Stock. The offering includes approximately 4 million
shares to be sold by the Company and approximately 2.8 million shares to be
issued and sold by Paymentech. Subsequent to this offering, First USA will own
approximately 59% of Paymentech common stock, assuming no exercise of
underwriters' over-allotment options, or 57%, if the underwriters' over-
allotment options are exercised in full.
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. First USA
Financial, Inc., a wholly owned subsidiary, 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. Under the Paymentech
credit facility, Paymentech loans to the Company cannot exceed $25 million. At
September 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. In October 1996, Paymentech refinanced
the $100 million note payable to the former shareholders of GENSAR through the
Paymentech credit facility, and subsequently increased the line of credit
available under the Paymentech credit facility to $200 million.
FUNDING AND LIQUIDITY
Traditional asset liquidity is provided by cash, cash equivalents and
investments. These items represented 41.7%, 43.2%, and 40.4% of the Company's
assets as of September 30, 1996, June 30, 1996, and September 30, 1995,
respectively.
The Company had securitized loans of $16.0 billion, $15.2 billion and $11.7
billion at September 30, 1996, June 30, 1996, and September 30, 1995,
respectively. During the three months ended September 30, 1996, the Company
completed securitizations of approximately $602.4 million. At September 30,
1996, securitized loans had a weighted average remaining life of 3.4 years and a
weighted average cost of funds of approximately 5.78%. The market for
securities backed by receivables is a reliable, efficient and cost-effective
source of funds, which the Company plans to continue to use as a source of
funding.
When securitized loans amortize, First USA Bank's funding requirements
increase accordingly. The Company plans to fund the amortization of
securitizations in the future through securitization of additional loans,
issuance of bank and deposit notes, acceptance of additional deposits and the
use of other bank liabilities.
The Company had $1.9 billion in bank notes outstanding at September 30, 1996
and June 30, 1996. At September 30, 1996, bank notes had average maturities of
1.8 years and an average cost of 5.95%. In addition, the Company had
approximately $1.2 billion and $1.0 billion of term federal funds purchased at
September 30, 1996 and June 30, 1996, respectively. The average maturities of
the term federal funds purchased were four months at September 30, 1996 with an
average cost of 5.69%.
15
<PAGE>
FUNDING AND LIQUIDITY -- CONTINUED
Interest-bearing deposits, which primarily represent brokered and directly
placed deposits, totaled $1.4 billion at September 30, 1996 and $1.5 billion at
June 30, 1996. At September 30, 1996, interest-bearing deposits had an average
cost of 5.77%. Interest-bearing deposits of less than $100,000 were issued by
Financial Services. The maturity distribution for interest-bearing deposits is
set forth in the following table.
<TABLE>
<CAPTION>
At September 30, 1996
-----------------------------
Amount Percent
---------- ---------
(Dollars in Thousands)
<S> <C> <C>
Equal to or more than $100,000
- ------------------------------
Less than three months $ 191,146 13.44%
Three to six months 255,852 17.98
Six to twelve months 499,258 35.09
More than twelve months 476,471 33.49
---------- ------
1,422,727 100.00
Less than $100,000
- ------------------
Less than three months 189 2.76
Three to six months 2,973 43.47
Six to twelve months 3,083 45.08
More than twelve months 594 8.69
---------- ------
6,839 100.00
Total
- -----
Less than three months 191,335 13.38
Three to six months 258,825 18.11
Six to twelve months 502,341 35.14
More than twelve months 477,065 33.37
---------- ------
$1,429,566 100.00%
========== ======
</TABLE>
In December 1995, First USA Financial, Inc. 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 First USA Financial,
Inc.'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 September 30, 1996,
borrowings under the credit facility were $32.0 million and the applicable rates
were 5.69% and 0.125%, respectively.
At September 30, 1996, the Company had interest rate swap agreements with
commercial banks having a total notional principal amount of $2.2 billion. 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 implemented a Dividend Reinvestment and Stock Purchase Plan (the
"DRIP Plan") in December 1995, pursuant to which participants may purchase
shares of the Company's common stock by automatically reinvesting quarterly cash
dividends or by making optional cash investments, and pursuant to which
participants may also sell or otherwise dispose of common stock acquired under
the DRIP Plan. As of September 30, 1996, approximately 388,000 shares of common
stock had been issued by the Company pursuant to the DRIP Plan, which generated
net proceeds of approximately $21.3 million. From the inception of the DRIP
Plan through September 30, 1996, in excess of 90% of such
16
<PAGE>
FUNDING AND LIQUIDITY -- CONTINUED
common stock purchases were made by financial intermediaries, who may have
resold such shares of common stock shortly before or after acquiring them
(including coverage of short positions). The Company has not extended to any
such purchasers any rights or privileges other than those to which they would
otherwise be entitled as participants or prospective participants in the DRIP
Plan, nor has the Company entered into any agreements with any such persons
regarding their purchases of such shares or any resales or distributions
thereof.
INVESTMENTS
The Company's investments, which totaled $3.2 billion and $2.9 billion at
September 30, 1996 and June 30, 1996, respectively, consist primarily of
variable rate U.S. government agency mortgage-backed securities which enhance
yield and provide a source of secondary liquidity through repurchase agreements
and are primarily classified as held-to-maturity. The average maturity based on
historical payment rates of the investment portfolio at September 30, 1996 was
approximately 6.5 years.
The following table presents maturities of the investment portfolio at
September 30, 1996 and reflects scheduled payments and expected prepayments
based on historical payment rates.
<TABLE>
<CAPTION>
Amount Percentage Yield
---------- ---------- -----
(Dollars in Thousands)
<S> <C> <C> <C>
Within 1 year $ 418,160 13.08% 6.56%
1 - 5 years 1,238,188 38.73 6.58
5 - 10 years 803,780 25.14 6.59
After 10 years 737,014 23.05 6.54
---------- ------ ----
Total carrying value $3,197,142 100.00% 6.57%
========== ====== ====
</TABLE>
CAPITAL ADEQUACY
The Company's stockholders' equity increased to $1,132.9 million at September
30, 1996, compared with $1,066.5 million at and June 30, 1996, primarily as a
result of retained earnings. The Company's tangible equity decreased to $777.5
million at September 30, 1996, from $907.6 million at June 30, 1996 due
primarily to the addition of intangible assets of approximately $210 million as
a result of Paymentech's acquisitions.
First USA Bank's stockholder's equity increased from $860.6 million at June
30, 1996 to $921.6 million at September 30, 1996, primarily as a result of
retained earnings, partially offset by dividends paid to the Company. First USA
Bank is subject to the capital adequacy guidelines adopted by the Federal
Deposit Insurance Corporation. At September 30, 1996, First USA Bank's risk-
based total capital ratio was 24.55%, its tier 1 capital ratio was 19.92%, and
its leverage ratio was 11.68%. At September 30, 1996, First USA Bank met the
requirements of a "well capitalized" institution.
INCOME TAXES
The Company's consolidated provision for income taxes includes state and
federal income tax components. The Company's effective income tax rate was
36.3% for the three months ended September 30, 1996, compared with 36.9% for the
three months ended September 30, 1995.
17
<PAGE>
CAPITAL EXPENDITURES
The Company spent $77.1 million and $28.0 million for capital expenditures for
fiscal 1996 and the three months ended September 30, 1996, respectively.
Capital expenditures are made generally to accommodate growth in loans and
payment processing volume, provide for increased operating efficiencies and
support future growth in the commercial card market. In addition, the Company
has incurred capital expenditures related to facility expansions and additions.
SELECTED RATIOS
The following table presents certain financial ratios for the Company and
First USA Bank for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------
1996 1995
------ ------
<S> <C> <C>
First USA, Inc.
Return on assets (a) 3.53% 3.25%
Return on stockholders' equity (a) 26.14 29.64
Average stockholders' equity to average assets 13.49 10.96
First USA Bank
Return on assets 4.15% 3.76%
Return on stockholder's equity 35.88 40.59
Average stockholder's equity to average assets 11.56 9.27
Net interest margin 2.43 1.58
Net interest margin (managed) 7.00 5.51
</TABLE>
(a) Excludes the Paymentech one-time merger, integration and impairment charge
of $15.5 million primarily related to the acquisition of GENSAR. This
one-time charge reduced the Company's net income by $7.4 million or $0.11
per share.
18
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
First USA Bank and Richard Vague were named defendants in a class action
lawsuit filed on December 19, 1995 in the United States District Court for the
Northern District of California. In this action, plaintiff contends that she and
all others similarly situated are entitled to damages and injunctive relief for
alleged violations of the Trust in Lending Act and the California Business and
Professions Code and for alleged breach of contract, fraud and deceit and
negligent misrepresentation. Plaintiff claims that a solicitation by First USA
Bank inviting the plaintiff to apply for a credit card account did not disclose
that the introductory rate was variable and subject to change, and that contrary
to the terms of the cardmember agreement, First USA Bank increased the rate on
plaintiff's acccount prior to the end of the introductory period. First USA Bank
moved to change the venue of the lawsuit to Delaware, dismiss Richard Vague in
his personal capacity and dismiss the Truth in Lending Act claim. Such motions
were denied. Plaintiff's motion for an injunction was also denied. Discovery on
the merits has begun in the lawsuit. While it is impossible to predict the
outcome of such lawsuit, First USA Bank believes that such lawsuit will not have
a material adverse effect on the consolidated financial position of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
INDEX OF EXHIBITS
-----------------
a. Exhibits
The following exhibits are incorporated by reference or filed herewith:
Exhibit Number Description
- -------------- ----------------------------------------
3.1 Restated Certificate of Incorporation
of the Company, filed as Exhibit 3.1.1
to the Company's Annual Report on Form
10-K for the Company's Fiscal Year
Ended June 30, 1992 and incorporated by
reference herein.
3.1.1 Certificate of Correction of the
Restated Certificate of Incorporation
of the Company, filed as Exhibit 3.1.1
to the Company's Quarterly Report on
Form 10-Q for the Fiscal Quarter ended
September 30, 1993 and incorporated by
reference herein.
3.1.2 Certificate of Amendment to the
Restated Certificate of Incorporation
of the Company, filed as Exhibit 3.1.2
to the Company's Quarterly Report on
Form 10-Q for the Fiscal Quarter ended
September 30, 1993 and incorporated by
reference herein.
3.2 By-Laws of the Company, filed as
Exhibit 3.2 to the Company's
Registration Statement on Form
S-1 (No. 33-45110) and incorporated by
reference herein.
4.1 Certificate of the Powers,
Designations, Preferences and Rights of
the 6 1/4% PRIDES, Mandatory
Convertible Preferred Stock, filed as
Exhibit 4.1 to the Company's Annual
Report on Form 10-K for the fiscal year
ended June 30, 1996 and incorporated by
reference herein.
4.2 Form of Global Bank Note, Floating
Rate, filed as Exhibit 4.3 to the
Company's Quarterly Report on Form 10-Q
for the Fiscal Quarter ended December
31, 1995 and incorporated by reference
herein.
4.3 Form of Global Bank Note, Fixed Rate,
filed as Exhibit 4.4 to the Company's
Quarterly Report on Form 10-Q for the
Fiscal Quarter ended December 31, 1995
and incorporated by reference herein.
4.4 Form of Global Deposit Note, Floating
Rate, filed as Exhibit 4.5 to the
Company's Quarterly Report on Form 10-Q
for the Fiscal Quarter ended December
31, 1995 and incorporated by reference
herein.
19
<PAGE>
4.5 Form of Global Deposit Note, Fixed
Rate, filed as Exhibit 4.6 to the
Company's Quarterly Report on Form 10-Q
for the Fiscal Quarter ended December
31, 1995 and incorporated by reference
herein.
10.11.4* Fourth Amendment to the 1991 Stock
Option Plan, effective October 16, 1996.
10.16.26 Series 1996-4 Supplement, dated as of
August 6, 1996 between First USA Bank
and The Bank of New York (Delaware), as
trustee, with respect to the First USA
Credit Card Master Trust, Floating Rate
Asset Backed Certificates, Series
1996-4, filed as Exhibit 99 to the
Company's Current Report on Form 8-K,
filed on August 21, 1996 and
incorporated by reference herein.
11* Computation of Net Income per Share.
27* Financial Data Schedule
- -------------------------
* Filed herewith.
b. Reports on Form 8-K filed during the quarter ended September 30, 1996:
Form 8-K filed August 21, 1996:
Item 5. Other Events - Securitization of credit card receivables
Item 7. Financial Information and Exhibits
20
<PAGE>
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 thereunto duly authorized.
Date: November 13, 1996
FIRST USA, INC.
By: /s/ Jack M. Antonini
-----------------------------------------------
Jack M. Antonini
Vice Chairman and Chief Financial Officer
(Principal Financial Officer and Duly Authorized
Officer)
21
<PAGE>
INDEX OF EXHIBITS
-----------------
Sequentially
Exhibit Number Description of Exhibit Numbered Page
- -------------- ---------------------- -------------
10.11.4 Fourth Amendment to the 1991 Stock
Option Plan, effective October 16,
1996.
11 Computation of Net Income Per Share.
27 Financial Data Schedule.
22
<PAGE>
EXHIBIT 10.11.4
FOURTH AMENDMENT TO THE
FIRST USA, INC.
1991 STOCK OPTION PLAN
----------------------
WHEREAS, First USA, Inc. a Delaware corporation (the "Company"), has
heretofore maintained the First USA, Inc. 1991 Stock Option Plan (the "Plan")
for the benefit of certain employees; and
WHEREAS, the Company considers it advisable to amend the Plan to clarify
the original intent of the Plan with respect to the full vesting of options upon
the death or disability of an optionee; and
WHEREAS, pursuant to Section 7 of the Plan, the Board of Directors of the
Company approved this Amendment on October 16, 1996;
NOW, THEREFORE, the Company hereby amends the Plan by deleting Paragraph
(f) of Section 4 of the Plan in its entirety and inserting therefore the
following:
(f) Death, Disability or Retirement of Optionee. If an Optionee shall
-------------------------------------------
die while employed by the Company, or one of its direct or indirect
subsidiaries, or if the Optionee's employment shall terminate by reason of
disability, all Options theretofore granted to such Optionee shall fully
vest and be 100% exercisable and may, unless earlier terminated in
accordance with its terms, be exercised by the Optionee or by the
Optionee's estate or by a person who acquired the right to exercise such
Option by bequest or inheritance or otherwise by reason of the death or
disability of the Optionee, at any time within six (6) months (or such
longer period as may be determined by the Committee in its sole discretion)
after the date of death or disability of the Optionee. If Optionee
terminates employment with the Company or one of its subsidiaries, by
reason of Retirement (as defined below), then the Committee, in its
discretion, may determine whether or not the Option will vest in part or
whole, and any additional terms applicable to such vesting. "Retirement"
shall mean such circumstances determined as retirement in the sole
discretion of the Committee. If an Optionee shall die within three (3)
months after the termination of such Optionee's employment, other than for
cause (as determined by the Committee), all Options theretofore granted to
such Optionee (to the extent such Options were exercisable at the time of
death) may, unless earlier terminated in accordance with their terms, be
exercised by the Optionee's estate or by a person who acquired the right to
exercise such Option by bequest or inheritance or otherwise by reason of
the death of the Optionee, at any time within six (6) months (or
-1-
<PAGE>
such longer period as may be determined by the Committee in its sole
discretion) after the date of death of the Optionee.
IN WITNESS WHEREOF, the Company has adopted this amendment as of the
Effective Date.
FIRST USA, INC.
By: /s/ PHILIP E. TAKEN
--------------------------------------------
Title: Senior Vice President and General Counsel
-----------------------------------------
-2-
<PAGE>
EXHIBIT 11
FIRST USA, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
THREE MONTHS ENDED SEPTEMBER, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Primary
- -------
Net income $ 64,056 $ 54,895
=========== ===========
Weighted average common and common
equivalent shares outstanding
Average common shares outstanding 60,739,156 58,947,192
Common stock equivalents:
Stock options 2,231,186 2,635,976
Mandatory convertible preferred stock 4,791,475 4,791,475
----------- -----------
Weighted average common and common
equivalent shares 67,761,817 66,374,643
=========== ===========
Net income per share $ 0.95 $ 0.83
=========== ===========
Fully diluted
- -------------
Net income $ 64,056 $ 54,895
=========== ===========
Weighted average common and common
equivalent shares outstanding
Average common shares outstanding 60,739,156 58,947,192
Common stock equivalents:
Stock options 2,386,318 2,917,256
Mandatory convertible preferred stock 4,791,475 4,791,475
----------- -----------
Weighted average common and common
equivalent shares 67,916,949 66,655,923
=========== ===========
Net income per share assuming full dilution $ 0.94 $ 0.82
=========== ===========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE REGISTRANT'S QUARTERLY REPORT
ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 391,560
<SECURITIES> 3,197,142
<RECEIVABLES> 3,903,464
<ALLOWANCES> 76,617
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 191,073
<DEPRECIATION> 55,058
<TOTAL-ASSETS> 8,595,726
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 5,408,262
0
58
<COMMON> 609
<OTHER-SE> 1,132,248
<TOTAL-LIABILITY-AND-EQUITY> 8,595,726
<SALES> 0
<TOTAL-REVENUES> 453,722
<CGS> 0
<TOTAL-COSTS> 323,597
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 29,627
<INTEREST-EXPENSE> 0<F2>
<INCOME-PRETAX> 100,498
<INCOME-TAX> 36,442
<INCOME-CONTINUING> 64,056
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64,056
<EPS-PRIMARY> 0.95
<EPS-DILUTED> 0<F3>
<FN>
<F1> The consolidated balance sheet included in the Registrant's quarterly
report on Form 10-Q is unclassified.
<F2> Interest expense is considered an operating expense for the Registrant
as the Registrant's primary source of income is interest earned on credit card
loans.
<F3> EPS on a fully diluted basis is not presented.
</FN>
</TABLE>
