JP Morgan Chase 2009 Annual Report Download - page 157

JPMorgan Chase & Co./2009 Annual Report 155
Unaudited pro forma condensed combined financial information reflecting the Bear Stearns merger and Washington Mutual
transaction
The following unaudited pro forma condensed combined financial information presents the 2008 and 2007 results of operations of the Firm as
they may have appeared, if the Bear Stearns merger and the Washington Mutual transaction had been completed on January 1, 2008, and
January 1, 2007.
Year ended December 31,
(in millions, except per share data) 2008 2007
Total net revenue $ 68,149 $ 92,052
Income/(loss) before extraordinary gain (14,090) 17,733
Net income/(loss) (12,184) 17,733
Net income per common share data:
Basic earnings per share(a)
Income/(loss) before extraordinary gain $ (4.26) $ 5.02
Net income/(loss) (3.72) 5.02
Diluted earnings per share(a)(b)
Income/(loss) before extraordinary gain (4.26) 4.96
Net income/(loss) (3.72) 4.96
Average common shares issued and outstanding
Basic 3,510.5 3,429.6
Diluted 3,510.5 3,471.3
(a) Effective January 1, 2009, the Firm implemented FASB guidance for participating securities. Accordingly, prior-period amounts have been revised. For further discussion
of the guidance, see Note 25 on page 232 of this Annual Report.
(b) Common equivalent shares have been excluded from the pro forma computation of diluted loss per share for the year ended December 31, 2008, as the effect would be
antidilutive.
The unaudited pro forma combined financial information is pre-
sented for illustrative purposes only and does not indicate the
financial results of the combined company had the companies
actually been combined as of January 1, 2008, and as of January
1, 2007, nor is it indicative of the results of operations in future
periods. Included in the unaudited pro forma combined financial
information for the years ended December 31, 2008 and 2007,
were pro forma adjustments to reflect the results of operations of
Bear Stearns and Washington Mutual’s banking operations,
considering the purchase accounting, valuation and accounting
conformity adjustments related to each transaction. For the
Washington Mutual transaction, the amortization of purchase
accounting adjustments to report interest-earning assets acquired
and interest-bearing liabilities assumed at current interest rates is
reflected for the years ended December 31, 2008 and 2007.
Valuation adjustments and the adjustment to conform allowance
methodologies in the Washington Mutual transaction, and valua-
tion and accounting conformity adjustments related to the Bear
Stearns merger are reflected in the results for the years ended
December 31, 2008 and 2007.
Internal reorganization related to the Bear Stearns
merger
On June 30, 2008, JPMorgan Chase fully and unconditionally
guaranteed each series of outstanding preferred stock of Bear
Stearns, as well as all of Bear Stearns’ outstanding U.S. Securities
and Exchange Commission (“SEC”) registered U.S. debt securities
and obligations relating to trust preferred capital debt securities.
Subsequently, on July 15, 2008, JPMorgan Chase completed an
internal merger transaction, which resulted in each series of
outstanding preferred stock of Bear Stearns being automatically
exchanged into newly-issued shares of JPMorgan Chase preferred
stock having substantially identical terms. Depositary shares,
which formerly had represented a one-fourth interest in a share of
Bear Stearns preferred stock, continue to trade on the New York
Stock Exchange but following completion of this internal merger
transaction, represent a one-fourth interest in a share of JPMor-
gan Chase preferred stock. In addition, pursuant to internal
transactions in July 2008 and the first quarter 2009, JPMorgan
Chase assumed or guaranteed the remaining outstanding securi-
ties of Bear Stearns and its subsidiaries, in each case in accor-
dance with the indentures and other agreements governing those
securities.
Other business events
Purchase of remaining interest in J.P. Morgan Cazenove
On January 4, 2010, JPMorgan Chase purchased the remaining
interest in J.P. Morgan Cazenove, an investment banking busi-
ness partnership formed in 2005, which will result in an adjust-
ment to the Firm’s capital surplus.
Termination of Chase Paymentech Solutions joint
venture
The dissolution of Chase Paymentech Solutions joint venture, a
global payments and merchant acquiring joint venture between
JPMorgan Chase and First Data Corporation, was completed on
November 1, 2008. JPMorgan Chase retained approximately 51%
of the business, which it operates under the name Chase Pay-
mentech Solutions. The dissolution of the Chase Paymentech
Solutions joint venture was accounted for as a step acquisition in
accordance with U.S. GAAP for business combinations, and the
Firm recognized an after-tax gain of $627 million in the fourth
quarter of 2008 as a result of the dissolution. The gain represents
the amount by which the fair value of the net assets acquired
(predominantly intangible assets and goodwill) exceeded JPMor-
gan Chase’s carrying value in the net assets transferred to First