1
EXHIBIT (99)
FIRST UNION AND WACHOVIA
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 of the proposed merger of
First Union Corporation and Wachovia Corporation on the companies' historical
financial positions and results of operations under the purchase accounting
method. Under this method of accounting, the assets and liabilities of the
company not surviving the merger are, as of the effective date of the merger,
recorded at their respective fair values and added to those of the surviving
corporation. The unaudited pro forma condensed combined financial information
combines the historical financial information of First Union and Wachovia as of
and for the three months ended March 31, 2001, and for the year ended December
31, 2000. The unaudited pro forma condensed combined balance sheet as of March
31, 2001, assumes the merger was consummated on that date. The unaudited pro
forma condensed combined statements of income give effect to the merger as if
the merger had been consummated at the beginning of each period presented.
The proposed merger, which was announced on April 16, 2001, provides for the
exchange of two shares of First Union common stock for each outstanding share of
Wachovia common stock. The unaudited pro forma condensed combined financial
information is based on, and derived from, and should be read in conjunction
with the historical consolidated financial statements and the related notes of
both First Union and Wachovia.
The unaudited pro forma condensed combined financial information is presented
for illustrative purposes only and is not necessarily indicative of the
operating results that would have occurred or financial position if the merger
had been consummated during the periods or as of the date for which the pro
forma data are presented, nor is it necessarily indicative of future operating
results or financial position of the combined company.
More information related to the proposed merger can be found in First Union's
Current Report on Form 8-K dated April 16, 2001, which is incorporated herein by
reference.
2
PRO FORMA COMBINED CONDENSED BALANCE SHEET
FIRST UNION AND WACHOVIA
MARCH 31, 2001
(UNAUDITED)
- --------------------------------------------------------------------------------
The following unaudited pro forma combined condensed balance sheet combines the
consolidated historical balance sheets of First Union and Wachovia assuming the
companies had been combined as of March 31, 2001, on a purchase accounting
basis.
March 31, 2001
-------------------------------------------------------------
First Pro Forma Pro Forma
(In millions) Union Wachovia Adjustments Combined
- ----------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks (NOTE 4) $ 7,857 3,015 (1,578) 9,294
Interest-bearing bank balances 2,971 238 - 3,209
Federal funds sold and securities
purchased under resale agreements 11,866 592 - 12,458
- ----------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 22,694 3,845 (1,578) 24,961
- ----------------------------------------------------------------------------------------------------------------------
Trading account assets 20,431 884 - 21,315
Securities (NOTE 4) 51,528 9,050 33 60,611
Loans, net of unearned income 122,853 56,703 - 179,556
Allowance for loan losses (1,759) (851) - (2,610)
- ----------------------------------------------------------------------------------------------------------------------
Loans, net 121,094 55,852 - 176,946
- ----------------------------------------------------------------------------------------------------------------------
Premises and equipment (NOTE 4) 4,968 957 (102) 5,823
Due from customers on acceptances 894 79 - 973
Goodwill and other intangible assets (NOTES 3 AND 4) 3,690 1,506 7,637 12,833
Other assets (NOTE 4) 27,650 3,433 (75) 31,008
- ----------------------------------------------------------------------------------------------------------------------
Total assets $ 252,949 75,606 5,915 334,470
======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing deposits (NOTE 4) 28,582 8,884 (285) 37,181
Interest-bearing deposits (NOTE 4) 112,213 36,733 (1,215) 147,731
- ----------------------------------------------------------------------------------------------------------------------
Total deposits 140,795 45,617 (1,500) 184,912
Short-term borrowings 39,719 9,490 - 49,209
Bank acceptances outstanding 902 79 - 981
Trading account liabilities 8,130 428 - 8,558
Other liabilities (NOTE 4) 11,230 2,415 1,023 14,668
Long-term debt 36,092 10,712 - 46,804
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 236,868 68,741 (477) 305,132
- ----------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock (NOTES 2 AND 4) - - 50 50
Common stock (NOTES 2 AND 4) 3,271 1,052 350 4,673
Paid-in capital (NOTE 4) 6,307 1,142 10,787 18,236
Retained earnings (NOTE 4) 6,281 4,596 (4,720) 6,157
Accumulated other comprehensive
income, net (NOTE 4) 222 75 (75) 222
- ----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 16,081 6,865 6,392 29,338
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 252,949 75,606 5,915 334,470
======================================================================================================================
See accompanying notes to pro forma financial information.
3
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FIRST UNION AND WACHOVIA
THREE MONTHS ENDED MARCH 31, 2001
(UNAUDITED)
- --------------------------------------------------------------------------------
The following unaudited pro forma combined condensed statement of income
combines the consolidated historical statements of income of First Union and
Wachovia assuming the companies had been combined as of January 1, 2001, on a
purchase accounting basis.
Three Months Ended March 31, 2001
------------------------------------------------------------------------
First Pro Forma Pro Forma
(In millions) Union Wachovia Adjustments Combined
- ------------------------------------------------------------------------------------------------------------------------------
Interest income $ 4,025 1,350 - 5,375
Interest expense 2,323 720 - 3,043
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income 1,702 630 - 2,332
Provision for loan losses 219 122 - 341
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for
loan losses 1,483 508 - 1,991
Securities transactions - portfolio (16) 9 - (7)
Fee and other income 1,590 492 - 2,082
Restructuring and merger-related charges 2 13 - 15
Noninterest expense (NOTES 5 AND 8) 2,207 619 187 3,013
- ------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 848 377 (187) 1,038
Income taxes (NOTES 5 AND 8) 264 135 (40) 359
- ------------------------------------------------------------------------------------------------------------------------------
Net income $ 584 242 (147) 679
==============================================================================================================================
PER COMMON SHARE DATA (NOTE 6)
Basic $ 0.60 1.17 - 0.48
Diluted $ 0.59 1.17 - 0.47
Average common shares outstanding (In thousands)
Basic 967,671 206,061 206,061 1,379,793
Diluted 975,847 207,569 207,569 1,390,985
See accompanying notes to pro forma financial information.
4
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FIRST UNION AND WACHOVIA
YEAR ENDED DECEMBER 31, 2000
(UNAUDITED)
- --------------------------------------------------------------------------------
The following unaudited pro forma combined condensed statement of income
combines the consolidated historical statements of income of First Union and
Wachovia assuming the companies had been combined as of January 1, 2000, on a
purchase accounting basis.
Year Ended December 31, 2000
------------------------------------------------------------------------
First Pro Forma Pro Forma
(In millions) Union Wachovia Adjustments Combined
- ----------------------------------------------------------------------------------------------------------------------------
Interest income $ 17,534 5,345 - 22,879
Interest expense 10,097 2,830 - 12,927
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income 7,437 2,515 - 9,952
Provision for loan losses 1,736 588 - 2,324
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for
loan losses 5,701 1,927 - 7,628
Securities transactions - portfolio (1,134) - - (1,134)
Fee and other income 7,846 1,931 - 9,777
Restructuring and merger-related charges 2,190 136 - 2,326
Noninterest expense (NOTES 5 AND 8) 9,520 2,447 749 12,716
- ----------------------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative
effect of a change in accounting principle 703 1,275 (749) 1,229
Income taxes (NOTES 5 AND 8) 565 443 (160) 848
- ----------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of a change in
accounting principle $ 138 832 (589) 381
============================================================================================================================
PER COMMON SHARE DATA (NOTE 6)
Income before change in accounting principle
Basic $ 0.12 4.10 - 0.26
Diluted $ 0.12 4.07 - 0.26
Average common shares outstanding (In thousands)
Basic 970,608 202,989 202,989 1,376,586
Diluted 974,172 204,450 204,450 1,383,072
- ----------------
See accompanying notes to pro forma financial information.
5
NOTES TO FIRST UNION AND WACHOVIA UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
FIRST UNION AND WACHOVIA
THREE MONTHS ENDED MARCH 31, 2001
YEAR ENDED DECEMBER 31, 2000
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) The merger will be accounted for using the purchase method of accounting,
and accordingly, the assets and liabilities of Wachovia will be recorded at
their respective fair values on the date the merger is completed. The shares of
First Union common stock issued to effect the merger will be recorded at $31.15
per share which is the average price of the shares over a four-day period
surrounding the date the merger was announced.
The pro forma financial information includes estimated adjustments to
record certain assets and liabilities of Wachovia at their respective fair
values. The pro forma adjustments included herein are subject to updates as
additional information becomes available and as additional analyses are
performed. Certain other assets and liabilities of Wachovia, principally loans
and borrowings, will also be subject to adjustment to their respective fair
values. Pending more detailed analyses, no pro forma adjustments are included
herein for these assets and liabilities.
The unaudited pro forma financial information includes the impact of
required deposit divestitures estimated to be $1.5 billion. We expect to realize
significant revenue enhancements and cost savings following the merger which
also are not reflected in this pro forma financial information. No assurance can
be given with respect to the ultimate level of such revenue enhancements or cost
savings.
The final allocation of the purchase price will be determined after the
merger is completed and after completion of thorough analyses to determine the
fair values of Wachovia's tangible and identifiable intangible assets and
liabilities as of the date the merger is completed. Any change in the fair value
of the net assets of Wachovia will change the amount of the purchase price
allocable to goodwill. Additionally, changes to Wachovia's stockholders' equity
including net income from April 1, 2001 through the date the merger is
completed, will also change the amount of goodwill recorded. In addition, the
final adjustments may be materially different from the unaudited pro forma
adjustments presented herein.
(2) The pro forma financial information for the merger is included only as of
and for the three months ended March 31, 2001, and for the year ended December
31, 2000. The pro forma adjustments in the pro forma financial statements
reflect an exchange ratio of 2 shares of First Union common stock for each of
the 210,335,000 shares of Wachovia common stock that were outstanding at March
31, 2001. The unaudited pro forma information presented in the pro forma
financial statements is not necessarily indicative of the results of operations
or the combined financial position that would have resulted had the merger been
completed at the beginning of the applicable periods presented, nor is it
necessarily indicative of the results of operations in future periods or the
future financial position of the combined company.
The pro forma financial information reflects the addition of
420,670,000 shares of First Union common stock with an aggregate par value of
$1.4 billion, an increase in paid-in capital of $11.9 billion for the excess of
the fair value of the shares over the par value, and goodwill and deposit base
premium of $7.3 billion and $1.8 billion, respectively. Included in the pro
forma financial information for the three months ended March 31, 2001, is the
assumption that shareholders holding 50% of Wachovia common stock, or
105,168,000 common shares, will elect to receive the one-time cash payment of
$0.48 per Wachovia share, or a total of $51 million, which will be paid to
Wachovia shareholders in connection with the merger. It is assumed that the
remaining 50% of Wachovia shareholders will elect to receive 210,335,000 shares
of First Union dividend equalization preferred stock (DEPs), which based on the
current quarterly Wachovia common stock dividend rate of $0.30 per share and the
quarterly First Union common stock dividend rate of $0.24 per share, would have
entitled the holders of the First Union dividend equalization preferred stock to
receive a dividend of $.06 per share, or a total of $13 million, for the three
months ended March 31, 2001. The assumption that one-half of Wachovia's
shareholders will elect to receive the $0.48 cash payment and one-half will
elect to receive DEPs was deemed to be the most reasonable and least speculative
assumption for purposes of this presentation because First Union and Wachovia do
not currently know which election Wachovia shareholders will make upon
completion of the merger. The estimated present value of the DEPs is $0.48 per
Wachovia share, or $50 million, and accordingly, is included in the pro forma
financial information.
We attributed a value of $0.24 per DEP by calculating the present value
of the difference between $0.30 per share and the regular quarterly dividend per
common share we estimate for the combined company. We based our estimate of the
combined company's regular quarterly common stock dividend on a cash basis
dividend payout ratio of slightly less than 33%. This results in dividends of
$0.06 per DEP for the first two quarters after the merger, $0.04 per DEP for the
next two quarters and $0.02 per DEP for the next three quarters. These estimated
dividends amount to $0.26 per DEP, and since the dividends are cumulative, the
full amount of the estimated difference has been included in the valuation. The
present value of the total estimated DEP dividend is $0.24 using a discount rate
of 13%. We selected the 13% discount rate based on the risk free rate adjusted
for our credit standing and the uncertainty associated with the combined
company's future dividends. We do not believe that the liquidation preference of
the DEPs or whether the DEPs will be listed on an exchange or quoted through an
interdealer quotation system materially affects their present value, and
therefore, we did not include these factors in our valuation. The combined
company's dividend policy is subject to change and, accordingly, the amount of
dividends actually paid may differ from the amounts we assumed for purposes of
our present value calculations.
Upon completion of the merger, Wachovia stock options will be exchanged
for stock options of the combined company with the number of options and option
price adjusted for the 2-for-1 exchange ratio. The vesting will continue in
accordance with the vesting schedule of the original Wachovia options. Vested
and unvested employee stock options issued by the combined company in exchange
for stock options held by employees of Wachovia are considered part of the
purchase price, and accordingly, the purchase price includes the fair value of
employee stock options of $227 million.
The fair value of the combined company options that will be issued in
exchange for the Wachovia options was estimated using the Black-Scholes option
pricing model. Option pricing models require the use of highly subjective
assumptions, including expected stock price volatility, which when changed can
materially affect fair value estimates. Accordingly, the model does not
necessarily provide a reliable single measure of the fair value of employee
stock options. The more significant assumptions used in estimating the fair
value of the First Union stock options to be issued in exchange for Wachovia
stock options include a risk-free interest rate of 4.5 percent, a dividend yield
of 3.2 percent, weighted average expected life of 5.3 years, and volatility of
the combined company stock of 45 percent.
6
Additionally, the pro forma balance sheet adjustments include an
estimated $112 million restructuring accrual; payment of an estimated $78
million of merger-related charges; an estimated net adjustment of $144 million
to reflect the net assets of Wachovia at their respective fair values; and an
estimated $520 million to reflect the amounts allocated to liabilities assumed
in the purchase business combination. The liabilities assumed in the merger
consist principally of personnel related costs which include involuntary
termination benefits for employees severed in connection with the merger as well
as relocation costs for continuing employees, costs to cancel contracts that
will provide no future benefit to the combined company, and occupancy related
costs representing the present value of future lease payments or lease
cancellations penalties for space vacated in connection with the merger. The
$520 million includes only those costs associated with the company not surviving
the merger. These balance sheet adjustments are part of a total of $1.4 billion
of restructuring charges, merger-related charges and purchase accounting
adjustments as shown in Note 9 below. The rest of the $1.4 billion is estimated
merger-related charges not reflected in the pro forma financial statements since
they will be recorded in years 2002 through 2004.
The restructuring and merger-related adjustments are not included in
the pro forma statements of income since they will be recorded in the combined
results of operations after completion of the merger and are not indicative of
what the historical results of the combined company would have been had our
companies been actually combined during the periods presented.
(3) The computation of the purchase price, the allocation of the purchase price
to the net assets of Wachovia based on fair values estimated at March 31, 2001,
the basis for determining the amount of deposit base premium allocated to the
purchase price and the resulting amount of goodwill are presented below.
(In millions) March 31, 2001
- -----------------------------------------------------------------------------------------------------------------------------------
Purchase price
Wachovia common stock outstanding (In thousands) 210,335
Exchange ratio 2
----------
Total (In thousands) 420,670
Purchase price per Wachovia common share $ 31.15 $ 13,104
==========
Wachovia common shares electing to receive DEPs shares (In thousands) 105,168
Estimated present value per share $ 0.48 50
==========
Cash dividend 51
Fair value of outstanding employee stock options 227
- -----------------------------------------------------------------------------------------------------------------------------------
Total purchase price 13,432
Net assets acquired
Wachovia stockholders' equity $ 6,865
Wachovia goodwill and other intangible assets $ (1,506) (5,359)
========== -------------
Excess of purchase price over carrying value of net assets acquired 8,073
Estimated adjustments to reflect net assets acquired at fair value
Investment securities (33)
Premises and equipment $ 102
Other assets $ 75 177
=============
Estimated amounts allocated to liabilities assumed in the purchase business combination
Personnel related $ 289
Contract cancellations 93
Occupancy related 55
Other $ 83 520 697
============= ==========
Deferred income taxes
Estimated deposit base intangible $ 1,825
Investment securities - adjustment to fair value 33
Estimated purchase accounting adjustments (697)
----------
Total $ 1,161
Income tax rate 0.35 406
==========
Deduct
Estimated deposit base intangible
Wachovia deposits $ 45,617
Premium rate 0.04 (1,825)
- -----------------------------------------------------------------------------------------------------------------------------------
Goodwill $ 7,318
===================================================================================================================================
7
(4) The pro forma adjustments related to the pro forma balance sheet at March
31, 2001, are presented below.
March 31,
(In millions) 2001
- -------------------------------------------------------------------------------------------------------------------------
Cash
Assumed deposit divestiture $ (1,500)
Merger-related charges (78)
- -------------------------------------------------------------------------------------------------------------------------
Total cash adjustments (1,578)
Investment securities - adjustment to fair value 33
Premises and equipment - adjustment to fair value (102)
Goodwill and other intangible assets - adjustment
Goodwill 7,318
Wachovia goodwill and other intangible assets (1,506)
Deposit base intangible 1,825
- -------------------------------------------------------------------------------------------------------------------------
Goodwill and other intangible assets adjustment, net 7,637
- -------------------------------------------------------------------------------------------------------------------------
Other assets - adjustment to fair value (75)
- -------------------------------------------------------------------------------------------------------------------------
Total $ 5,915
=========================================================================================================================
Deposits
Noninterest-bearing - assumed divestiture of 19 percent of $1.5 billion (285)
Interest-bearing - assumed divestiture of 81 percent of $1.5 billion (1,215)
- -------------------------------------------------------------------------------------------------------------------------
Total deposit adjustment (1,500)
- -------------------------------------------------------------------------------------------------------------------------
Other liabilities
Personnel related 289
Occupancy related 55
Contract cancellations 93
Dividend payable 51
Restructuring accrual 112
Other 83
Current income taxes (benefits)
Restructuring accrual $ (112)
Merger-related charges (78)
----------
Total restructuring and merger-related charges adjustment $ (190)
Income tax rate 0.35 (66)
==========
Deferred income taxes
Purchase accounting adjustments (Note 3) 406
- -------------------------------------------------------------------------------------------------------------------------
Total other liabilities adjustment 1,023
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities adjustment (477)
- -------------------------------------------------------------------------------------------------------------------------
Stockholders' equity
Preferred stock adjustment 50
- -------------------------------------------------------------------------------------------------------------------------
Common stock adjustment
Shares of common stock to be issued (In thousands) 420,670
First Union par value $ 3.33 1,402
==========
Less Wachovia common stock (1,052)
- -------------------------------------------------------------------------------------------------------------------------
Common stock adjustment 350
- -------------------------------------------------------------------------------------------------------------------------
Paid-in capital adjustment
Purchase price - Wachovia common shares 13,104
Fair value of outstanding employee stock options 227
Wachovia retained earnings 4,596
Wachovia accumulated other comprehensive income 75
Wachovia stockholders' equity (6,865)
Common stock adjustment (350)
- -------------------------------------------------------------------------------------------------------------------------
Paid-in capital adjustment 10,787
- -------------------------------------------------------------------------------------------------------------------------
Retained earnings adjustment
Restructuring and merger-related charges adjustment, net of current income tax benefit (124)
Elimination of Wachovia retained earnings (4,596)
- -------------------------------------------------------------------------------------------------------------------------
Retained earnings adjustment (4,720)
- -------------------------------------------------------------------------------------------------------------------------
Elimination of Wachovia accumulated other comprehensive income (75)
- -------------------------------------------------------------------------------------------------------------------------
Stockholders' equity adjustment 6,392
- -------------------------------------------------------------------------------------------------------------------------
Total $ 5,915
=========================================================================================================================
8
(5) The following pro forma adjustments related to the unaudited pro forma
combined condensed statements of income reflect amortization on a seven-year
sum-of-the-years' digits method for the deposit base intangible and a 25-year
straight-line amortization method for goodwill.
Three
Months Year
Ended Ended
March 31, December 31,
(In millions) 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------------
Noninterest expense adjustments
Deposit base intangible amortization $ 114 456
Goodwill amortization 73 293
- -----------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense adjustment 187 749
- -----------------------------------------------------------------------------------------------------------------------------------
Reduction in income before income taxes and cumulative effect of a
change in accounting principle (187) (749)
- -----------------------------------------------------------------------------------------------------------------------------------
Income tax adjustment
Deposit base intangible amortization 114 456
Income tax rate 0.35 0.35
- -----------------------------------------------------------------------------------------------------------------------------------
Total income tax adjustment (40) (160)
- -----------------------------------------------------------------------------------------------------------------------------------
Reduction in income before cumulative effect of a change
in accounting principle $ (147) (589)
===================================================================================================================================
(6) The pro forma computation of basic and diluted earnings per share for the
three months ended March 31, 2001, and for the year ended December 31, 2000, is
presented below.
Three
Months Year
Ended Ended
March 31, December 31,
(Dollars in millions, except per share data) 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of a change in accounting principle $ 679 381
Less:
Dividends on preferred stock (13) -
Imputed interest on First Union's transactions in its common stock (7) (21)
- -----------------------------------------------------------------------------------------------------------------------------------
Income available to common stockholders
before cumulative effect of a change in accounting principle $ 659 360
- -----------------------------------------------------------------------------------------------------------------------------------
Basic earnings per share $ 0.48 0.26
Diluted earnings per share $ 0.47 0.26
Average shares - basic (In thousands) 1,379,793 1,376,586
Average shares - diluted (In thousands) 1,390,985 1,383,072
- -----------------------------------------------------------------------------------------------------------------------------------
(7) On March 1, 2001, Wachovia completed the purchase of Republic Security
Financial Corporation, a bank holding company headquartered in West Palm Beach,
Florida. Republic Security had assets of $3.1 billion and deposits of $2.1
billion at December 31, 2000. The transaction was accounted for as a purchase
and resulted in intangible assets of approximately $260 million and the issuance
of 6.1 million shares of Wachovia common stock. The historical financial
information for Wachovia includes this acquisition as of and for the one month
ended March 31, 2001, and the pro forma financial information presented herein
is not adjusted for this acquisition on a pro forma basis.
On April 9, 2001, Wachovia announced an agreement to sell its credit
card portfolio, which will be recorded as a discontinued operation by Wachovia.
The portfolio includes 2.8 million customer accounts and managed balances of $8
billion. The transaction is expected to close in the second quarter of 2001,
subject to regulatory approval, and is expected to result in a pre-tax gain of
approximately $1.4 billion. This transaction is not included in the pro forma
financial information presented herein.
(8) The Financial Accounting Standards Board has issued a Proposed Statement of
Financial Accounting Standards addressing the accounting for business
combinations and acquired intangible assets. Under this proposed standard,
goodwill and certain other intangible assets would not be subject to
amortization, but rather would be subject to periodic testing for impairment.
Deposit base intangible would continue to be subject to amortization. The FASB
currently expects to issue a final standard in mid-July; however, there is no
assurance that they will issue the final standard in accordance with that
timetable or that the final standard will have the same provisions as currently
proposed.
9
(9) In connection with the merger, we have begun to further develop our plans,
which are currently very preliminary, to consolidate the operations of the two
companies. The specific details of these plans will be refined over the next
several months. We are currently in the process of assessing the two companies'
personnel, benefit plans, premises, equipment, computer systems and service
contracts to determine where we may take advantage of redundancies or where it
will be beneficial or necessary to convert to one system. Certain decisions
arising from these assessments may involve involuntary termination of former
Wachovia employees, vacating former Wachovia leased premises, canceling
contracts between the former Wachovia and certain service providers and selling
or otherwise disposing of certain premises, furniture and equipment owned by the
former Wachovia. The costs associated with such decisions will be recorded as
purchase accounting adjustments, which have the effect of increasing the amount
of the purchase price allocable to goodwill. It is expected that all such costs
will be identified and recorded within one year of completion of the merger and
all such actions required to effect these decisions would be taken within one
year after finalization of our plans.
In addition to decisions regarding former Wachovia employees and
activities, certain decisions may be made to involuntarily terminate former
First Union employees, vacate former First Union leased premises, cancel
contracts and sell or otherwise dispose of certain premises, furniture and
equipment owned by First Union. The costs of all such decisions would be
recorded as a restructuring charge in the results of operations of the combined
company in the period in which our plans are finalized and approved by the
appropriate level of management. We expect to record a restructuring charge upon
completion of the merger and additional restructuring charges may follow during
the merger integration period as plans are finalized.
In addition to the costs described above, we will incur merger-related
charges in the process of combining the operations of the two companies. These
merger-related charges include system conversion costs, employee retention
arrangements and costs of incremental communications to customers and others. It
is expected that these costs will be incurred over a three-year period after
completion of the merger.
The following is a summary of estimated purchase accounting
adjustments, restructuring charges and merger-related charges.
Purchase Merger-Related Charges
Accounting Restructuring ---------------------------------------------------------------
(In millions) Adjustments Charges 2001 2002 2003 2004 Total
- -----------------------------------------------------------------------------------------------------------------------------------
Personnel related $ 289 102 22 18 28 6 465
Premises and equipment 102 10 9 28 30 15 194
Contract cancellations 93 - - - - - 93
Other assets 75 - - - - - 75
Occupancy related 55 - 6 18 57 18 154
Conversion related - - 10 69 110 96 285
Communication related 1 - 20 11 17 - 49
Other 82 - 11 24 8 4 129
- -----------------------------------------------------------------------------------------------------------------------------------
Total $ 697 112 78 168 250 139 1,444
- -----------------------------------------------------------------------------------------------------------------------------------