UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): March 30, 2009
JPMORGAN CHASE & CO.
(Exact name of registrant as specified in its charter)
| Delaware | 1-5805 | 13-2624428 | ||
| (State or Other Jurisdiction of | (Commission File Number) | (IRS Employer | ||
| Incorporation) | Identification No.) | |||
| 270 Park Avenue, New York, NY | 10017 | |||
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code: (212) 270-6000
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions (see General Instruction
A.2. below):
| o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 8.01 — Other Events
On May 30, 2008, BSC Merger Corporation, a wholly-owned subsidiary of JPMorgan Chase & Co.
(“JPMorgan Chase” or the “Firm”) merged with The Bear Stearns Companies Inc. (“Bear Stearns”)
pursuant to the Agreement and Plan of Merger, dated as of March 16, 2008, as amended March 24,
2008, and Bear Stearns became a wholly-owned subsidiary of JPMorgan Chase (the “merger”). As a
result of the merger, each outstanding share of Bear Stearns common stock was converted into the
right to receive 0.21753 shares of JPMorgan Chase common stock. The merger was accounted for using
the purchase method of accounting under U.S. generally accepted accounting principles.
Unaudited pro forma combined financial information for the years ended December 31, 2008, and 2007
presenting the results of operations of the Firm as they may have appeared if the merger had been
completed on January 1, 2007, is set forth in this Form 8-K.
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Item 9.01 Financial Statements and Exhibits
| (d) | Exhibits |
Exhibit Number
|
Description of Exhibit | |
99.1
|
Unaudited pro forma combined financial information for the years ended December 31, 2008 and 2007 |
3
SIGNATURE
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.
| JPMORGAN CHASE & CO. |
||||||
| (Registrant) |
||||||
| By: | /s/ Louis Rauchenberger | |||||
| Louis Rauchenberger | ||||||
| Managing Director and Controller | ||||||
| [Principal Accounting Officer] | ||||||
Dated: March 30, 2009
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EXHIBIT INDEX
Exhibit Number
|
Description of Exhibit | |
99.1
|
Unaudited pro forma combined financial information for the years ended December 31, 2008 and 2007 |
5
Exhibit 99.1
JPMORGAN CHASE & CO./THE BEAR STEARNS COMPANIES INC.
Unaudited Pro Forma Combined Financial Information
for the years ended December 31, 2008 and 2007
Unaudited Pro Forma Combined Financial Information
for the years ended December 31, 2008 and 2007
The following unaudited pro forma combined statements of income and explanatory notes present how
the combined results of operations of JPMorgan Chase & Co. (“JPMorgan Chase”) and The Bear Stearns
Companies Inc. (“Bear Stearns”) may have appeared if the merger of BSC Merger Corporation, a wholly
owned subsidiary of JPMorgan Chase into Bear Stearns pursuant to the Agreement and Plan of Merger,
dated as of March 16, 2008, as amended March 24, 2008, had been completed on January 1, 2007. The
results of operations presented for JPMorgan Chase are for the year ended December 31, 2008 (which
includes seven months of the combined Firm’s results and five months of heritage JPMorgan Chase
results), and for the year ended December 31, 2007. The Bear Stearns results of operations for the
five months ended May 30, 2008, and for the year ended December 31, 2007, are presented on an
adjusted basis, which include pro forma adjustments, reflecting valuation and accounting conformity
adjustments (as described in Note 2 of this Form 8-K). The unaudited pro forma combined statements
of income show the impact of the merger on JPMorgan Chase’s and Bear Stearns’ combined results of
operations under the purchase method of accounting with JPMorgan Chase treated as the acquirer.
Under this method of accounting, JPMorgan Chase recorded the assets and liabilities of Bear Stearns
at their estimated fair values.
The merger was accomplished through a series of transactions that were reflected as step
acquisitions in accordance with SFAS 141. On April 8, 2008, pursuant to the share exchange
agreement, JPMorgan Chase acquired 95 million newly issued shares of Bear Stearns common stock (or
39.5% of Bear Stearns common stock after giving effect to the issuance) for 21 million shares of
JPMorgan Chase common stock. Further, between March 24, 2008, and May 12, 2008, JPMorgan Chase
acquired approximately 24 million shares of Bear Stearns common stock in the open market at an
average purchase price of $12.37 per share. The share exchange and cash purchase transactions
resulted in JPMorgan Chase owning approximately 49.4% of Bear Stearns common stock immediately
prior to consummation of the merger. Finally, on May 30, 2008, JPMorgan Chase completed the merger,
and as a result of the merger, each outstanding share of Bear Stearns common stock (other than
shares then held by JPMorgan Chase) was converted into the right to receive 0.21753 shares of
common stock of JPMorgan Chase. Also, on May 30, 2008, the shares of common stock that JPMorgan
Chase and Bear Stearns acquired from each other in the share exchange transaction were cancelled.
From April 8, 2008, through May 30, 2008, JPMorgan Chase accounted for the investment in Bear
Stearns under the equity method of accounting in accordance with APB 18. During this period,
JPMorgan Chase recorded reductions to its investment in Bear Stearns representing its share of Bear
Stearns’ net losses, which was recorded in other income. Commencing May 31, 2008, Bear Stearns was
reflected in JPMorgan Chase’s consolidated results of operations. As a result of step acquisition
accounting, the purchase price was allocated to the Bear Stearns assets acquired and liabilities
assumed using their fair values as of April 8, 2008, and May 30, 2008, respectively.
The unaudited pro forma combined statements of income were derived from and should be read in
conjunction with the historical consolidated financial statements and the related notes of both
JPMorgan Chase and Bear Stearns that are included in JPMorgan Chase’s Annual Report on Form 10-K
for the year ended December 31, 2008, and JPMorgan Chase’s
Current Report on Form 8-K dated April 16, 2008.
On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual Bank
(“Washington Mutual”), from the Federal Deposit Insurance Corporation. For purposes of these
unaudited pro forma combined statements of income, the results of operations of Washington Mutual
are included in the amounts reported for the year ended December 31, 2008, from the date of that
transaction. For additional information on the Washington Mutual transaction, see JPMorgan Chase’s
Annual Report on Form 10-K for the year ended December 31, 2008.
The unaudited pro forma combined statements of income are presented for illustrative purposes only
and do not indicate the financial results of the combined company had the companies actually been
combined at the beginning of the periods presented, nor are they indicative of the results of
operations in future periods. Bear Stearns was a broker-dealer, and many of the assets and
liabilities on its consolidated balance sheet were financial assets carried at fair value, or were
short-term in nature. For those assets and liabilities that are short-term in nature, their
carrying value approximates fair value. For purposes of these unaudited pro forma combined
statements of income, no valuation adjustments were applied to Bear Stearns’ assets and liabilities
that were carried at fair value or that were short-term in nature for Bear Stearns’ year ended
December 31, 2007, except for adjustments to reflect JPMorgan Chase’s credit spreads on trading
liabilities and long-term debt. The adjustments included in these unaudited pro forma combined
statements of income may be revised in the future. Under accounting principles generally accepted
in the United States of America (“U.S. GAAP”), the allocation of the purchase price may be modified
up to one year after the closing date, as more information is obtained about the fair value of
assets acquired and liabilities assumed. These unaudited pro forma combined statements of income
represent management’s current estimate of the combined results of operations based on available
financial information of JPMorgan Chase and Bear Stearns as of December 31, 2008. The final
purchase accounting adjustments may be materially different from the unaudited pro forma
adjustments presented in this document.
JPMORGAN CHASE & CO./THE BEAR STEARNS COMPANIES INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
For the Year Ended December 31, 2008
In millions (except per share data)
In millions (except per share data)
| JPMorgan Chase | Bear Stearns as adjusted |
|||||||||||
| Year ended | Five months ended | Pro forma | ||||||||||
| December 31, 2008 | May 30, 2008 | combined | ||||||||||
Revenue |
||||||||||||
Investment banking fees |
$ | 5,526 | $ | 49 | $ | 5,575 | ||||||
Principal transactions |
(10,699 | ) | (9,330 | )(A)(B) | (20,029 | ) | ||||||
Lending & deposit-related fees |
5,088 | — | 5,088 | |||||||||
Asset management, administration and commissions |
13,943 | 569 | 14,512 | |||||||||
Securities gains (losses) |
1,560 | — | 1,560 | |||||||||
Mortgage fees and related income |
3,467 | (283 | )(C) | 3,184 | ||||||||
Credit card income |
7,419 | — | 7,419 | |||||||||
Other income |
2,169 | 462 | (D) | 2,631 | ||||||||
Noninterest revenue |
28,473 | (8,533 | ) | 19,940 | ||||||||
Interest income |
73,018 | 2,905 | 75,923 | |||||||||
Interest expense |
34,239 | 2,640 | (E) | 36,879 | ||||||||
Net interest income |
38,779 | 265 | 39,044 | |||||||||
Total net revenue |
67,252 | (8,268 | ) | 58,984 | ||||||||
Provision for credit losses |
20,979 | — | 20,979 | |||||||||
Noninterest expense |
||||||||||||
Compensation expense |
22,746 | 1,290 | 24,036 | |||||||||
Occupancy expense |
3,038 | 117 | (F) | 3,155 | ||||||||
Technology, communications and equipment expense |
4,315 | 196 | (F) | 4,511 | ||||||||
Professional & outside services |
6,053 | 350 | 6,403 | |||||||||
Marketing |
1,913 | 7 | 1,920 | |||||||||
Other expense |
3,740 | 1,397 | 5,137 | |||||||||
Amortization of intangibles |
1,263 | 2 | 1,265 | |||||||||
Merger costs |
432 | — | 432 | |||||||||
Total noninterest expense |
43,500 | 3,359 | 46,859 | |||||||||
Income (loss) from continuing operations before income tax
expense |
2,773 | (11,627 | ) | (8,854 | ) | |||||||
Income tax expense (benefit) |
(926 | ) | (2,012 | )(G) | (2,938 | ) | ||||||
Income (loss) from continuing operations |
$ | 3,699 | $ | (9,615 | ) | $ | (5,916 | ) | ||||
Income (loss) from continuing operations applicable to common
stock |
$ | 3,025 | $ | (9,625 | ) | $ | (6,600 | ) | ||||
Per common share information |
||||||||||||
Income (loss) from continuing operations: |
||||||||||||
Basic earnings per share |
$ | 0.86 | $ | (1.88 | ) | |||||||
Diluted earnings per share |
0.84 | (1.88 | ) | |||||||||
Average basic shares outstanding |
3,501 | 10 | (H) | 3,511 | ||||||||
Average diluted shares outstanding |
3,605 | 3,511 | (I) | |||||||||
2
JPMORGAN CHASE & CO./THE BEAR STEARNS COMPANIES INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
For the Year Ended December 31, 2007
In millions (except per share data)
In millions (except per share data)
| Bear Stearns | Pro forma | |||||||||||
| JPMorgan Chase | as adjusted | combined | ||||||||||
Revenue |
||||||||||||
Investment banking fees |
$ | 6,635 | $ | 959 | $ | 7,594 | ||||||
Principal transactions |
9,015 | 1,290 | 10,305 | |||||||||
Lending & deposit-related fees |
3,938 | — | 3,938 | |||||||||
Asset management, administration and commissions |
14,356 | 1,863 | 16,219 | |||||||||
Securities gains (losses) |
164 | — | 164 | |||||||||
Mortgage fees and related income |
2,118 | — | 2,118 | |||||||||
Credit card income |
6,911 | — | 6,911 | |||||||||
Other income |
1,829 | 20 | 1,849 | |||||||||
Noninterest revenue |
44,966 | 4,132 | 49,098 | |||||||||
Interest income |
71,387 | 12,557 | 83,944 | |||||||||
Interest expense |
44,981 | 11,141 | (E) | 56,122 | ||||||||
Net interest income |
26,406 | 1,416 | 27,822 | |||||||||
Total net revenue |
71,372 | 5,548 | 76,920 | |||||||||
Provision for credit losses |
6,864 | — | 6,864 | |||||||||
Noninterest expense |
||||||||||||
Compensation expense |
22,689 | 3,256 | 25,945 | |||||||||
Occupancy expense |
2,608 | 282 | (F) | 2,890 | ||||||||
Technology, communications and equipment expense |
3,779 | 440 | (F) | 4,219 | ||||||||
Professional & outside services |
5,140 | 746 | 5,886 | |||||||||
Marketing |
2,070 | 20 | 2,090 | |||||||||
Other expense |
3,814 | 812 | 4,626 | |||||||||
Amortization of intangibles |
1,394 | 6 | 1,400 | |||||||||
Merger costs |
209 | — | 209 | |||||||||
Total noninterest expense |
41,703 | 5,562 | 47,265 | |||||||||
Income from continuing operations before income tax expense |
22,805 | (14 | ) | 22,791 | ||||||||
Income tax expense (benefit) |
7,440 | (132 | ) | 7,308 | ||||||||
Income from continuing operations |
$ | 15,365 | $ | 118 | $ | 15,483 | ||||||
Income from continuing operations applicable to common stock |
$ | 15,365 | $ | 97 | $ | 15,462 | ||||||
Income from continuing operations: |
||||||||||||
Basic earnings per share |
$ | 4.51 | $ | 4.51 | ||||||||
Diluted earnings per share |
4.38 | 4.38 | ||||||||||
Average basic shares outstanding |
3,404 | 26 | (H) | 3,430 | ||||||||
Average diluted shares outstanding |
3,508 | 26 | (H) | 3,534 | ||||||||
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NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Note 1 — Basis of Pro Forma Presentation
The unaudited pro forma combined statements of income relating to the merger of JPMorgan Chase and
Bear Stearns is presented for JPMorgan Chase for the year ended December 31, 2008 (which includes
seven months of the combined Firm’s results and five months of heritage JPMorgan Chase results),
and for the year ended December 31, 2007, and for Bear Stearns for the five months ended May 30,
2008, and for the year ended December 31, 2007.
Included in the unaudited pro forma combined statements of income for the years ended December 31,
2008 and 2007, were pro forma adjustments to reflect the results of operations of Bear Stearns and
valuation and accounting conformity adjustments.
There were no material intercompany transactions, between JPMorgan Chase and Bear Stearns, that
affected the unaudited pro forma combined statements of income. The pro forma financial information
does not reflect the elimination of hedge accounting results related to transactions between
JPMorgan Chase and Bear Stearns. Management believes this presentation is more reflective of the
pro forma results of the combined entity, as derivatives that qualified for hedge accounting in the
periods presented continued to qualify as hedges through the date the merger was completed, and
management subsequently replaced derivatives that were used for hedging purposes that became
intercompany with new third-party derivative contracts.
The merger was accounted for using the purchase method of accounting. As a result of step
acquisition accounting, the purchase price was allocated to the Bear Stearns assets acquired and
liabilities assumed using their fair values as of April 8, 2008, and May 30, 2008, respectively.
On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual Bank
(“Washington Mutual”), from the Federal Deposit Insurance Corporation. For purposes of these
unaudited pro forma combined statements of income, the results of operations of Washington Mutual
are included in the amounts reported for the year ended December 31, 2008, from the date of that
transaction. For additional information on the Washington Mutual transaction, see JPMorgan Chase’s
Annual Report on Form 10-K for the year ended December 31, 2008.
The unaudited pro forma combined statements of income are presented for illustrative purposes only
and do not indicate the financial results of the combined company had the companies actually been
combined at the beginning of the periods presented, nor are they indicative of the results of
operations in future periods. Bear Stearns was a broker-dealer, and many of the assets and
liabilities on its consolidated balance sheet were financial assets carried at fair value, or were
short-term in nature. For those assets and liabilities that are short-term in nature, their
carrying value approximates fair value. For purposes of these unaudited pro forma combined
statements of income, no valuation adjustments were applied to Bear Stearns’ assets and liabilities
that were carried at fair value or that were short-term in nature for Bear Stearns’ year ended
December 31, 2007, except for adjustments to reflect JPMorgan Chase’s credit spreads on trading
liabilities and long-term debt. The adjustments included in these unaudited pro forma combined
statements of income may be revised in the future. Under U.S. GAAP, the allocation of the purchase
price may be modified up to one year after the closing date, as more information is obtained about
the fair value of assets acquired and liabilities assumed. These unaudited pro forma combined
statements of income represent management’s current estimate of the combined results of operations
based on available financial information of JPMorgan Chase and Bear Stearns as of December 31,
2008. The final purchase accounting adjustments may be materially different from the unaudited pro
forma adjustments presented in this document.
Note 2 — Unaudited Pro Forma Adjustments
The pro forma adjustments included in the unaudited pro forma combined statements of income for
JPMorgan Chase and Bear Stearns for the years ended December 31, 2008, and 2007 are as follows:
| (A) | Includes an adjustment of $3.9 billion to decrease the fair value of certain Bear Stearns trading assets and trading liabilities to conform with JPMorgan Chase’s methodologies. | |
| (B) | Includes an adjustment of $334 million to increase the fair value of certain Bear Stearns nonderivative energy contracts. The increase in fair value largely relates to tolling agreements with agreed upon sales prices at the acquisition date and which have subsequently been sold. | |
| (C) | Adjustment of $283 million to decrease the fair value of Bear Stearns mortgage servicing rights to conform with JPMorgan Chase’s methodologies. | |
| (D) | Includes an adjustment of $450 million to eliminate JPMorgan Chase’s 49.4% ownership in Bear Stearns’ losses from April 8 to May 30, 2008. |
4
| (E) | Includes adjustments to increase pretax interest expense $20 million and $40 million for the years ended December 31, 2008, and 2007, respectively, to reflect the effect of adjusting Bear Stearns’ long-term debt to fair value. | |
| (F) | Includes adjustments to increase pretax occupancy expense $6 million and $12 million for the years ended December 31, 2008, and 2007, respectively, and to decrease pretax technology, communications and equipment expense $30 million and $60 million for the years ended December 31, 2008, and 2007, respectively, to reflect the effect of the fair value of Bear Stearns’ real estate and premises and equipment. | |
| (G) | Includes an adjustment of $1.1 billion to record the tax effect of the pro forma combined adjustments using a U.S. federal tax rate of 35%. | |
| (H) | Average shares were calculated using the historical weighted average shares outstanding of JPMorgan Chase and Bear Stearns for the year ended December 31, 2008, the five months ended May 30, 2008, and the year ended December 31, 2007, respectively, adjusted using the exchange ratio. Earnings per share data has been computed based on the combined historical income of JPMorgan Chase and Bear Stearns including the impact of the pro forma adjustments. | |
| (I) | Common equivalent shares have been excluded from the pro forma computation of diluted loss per share, as the effect would be antidilutive. |
5