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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 1-10000
FIRST UNION CORPORATION
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-0898180
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
FIRST UNION CORPORATION
ONE FIRST UNION CENTER
CHARLOTTE, NORTH CAROLINA 28288-0013
(Address of principal executive offices)
(Zip Code)
(704) 374-6565
(Registrant's telephone number, including area code)
(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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
979,393,283 shares of Common Stock, par value $3.33 1/3 per share, were
outstanding as of July 31, 2001.
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First Union Corporation ("First Union") may from time to time make written
or oral forward-looking statements, including statements contained in First
Union's filings with the Securities and Exchange Commission (including this
Quarterly Report on Form 10-Q and the Exhibits hereto and thereto), in its
reports to stockholders and in other First Union communications, including
communications related to First Union's pending merger (the "Merger") with
Wachovia Corporation ("Wachovia"), which are made in good faith by First Union
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995.
These forward-looking statements include, among others, statements with
respect to First Union's, Wachovia's or, following the Merger, the combined
company's, beliefs, plans, objectives, goals, guidelines, expectations,
financial condition, results of operations, future performance and business of
First Union or the combined company, including without limitation, (i)
statements relating to the benefits of the Merger, including future financial
and operating results, cost savings, enhanced revenues, and the accretion to
reported earnings that may be realized from the Merger, (ii) statements
regarding certain of First Union's goals and expectations with respect to
earnings, earnings per share, revenue, expenses, and the growth rate in such
items, as well as other measures of economic performance, including statements
relating to estimates of credit quality trends, and (iii) statements preceded
by, followed by or that include the words "may", "could", "should", "would",
"believe", "anticipate", "estimate", "expect", "intend", "plan", "projects" or
similar expressions. These forward-looking statements involve certain risks and
uncertainties that are subject to change based on various factors (many of which
are beyond First Union's control). The following factors, among others, could
cause First Union's and/or the combined company's financial performance to
differ materially from that expressed in such forward-looking statements: (1)
the risk that the businesses of First Union and Wachovia will not be integrated
successfully or such integration may be more difficult, time-consuming or costly
than expected; (2) expected revenue synergies and cost savings from the Merger
may not be fully realized or realized within the expected time frame; (3)
revenues following the Merger may be lower than expected; (4) deposit attrition,
operating costs, customer loss and business disruption following the Merger,
including, without limitation, difficulties in maintaining relationships with
employees, may be greater than expected; (5) the ability to obtain governmental
approvals for the Merger on the proposed terms and schedule; (6) the strength of
the United States economy in general and the strength of the local economies in
which First Union conducts operations may be different than expected resulting
in, among other things, a deterioration in credit quality or a reduced demand
for credit, including the resultant effect on First Union's loan portfolio and
allowance for loan losses; (7) the effects of, and changes in, trade, monetary
and fiscal policies and laws, including interest rate policies of the Board of
Governors of the Federal Reserve System; (8) inflation, interest rate, market
and monetary fluctuations; (9) adverse conditions in the stock market, the
public debt market and other capital markets (including changes in interest rate
conditions) and the impact of such conditions on First Union's capital markets
and capital management activities, including, without limitation, First Union's
mergers and acquisition advisory business, equity and debt underwriting
activities, private equity investment activities, derivative securities
activities, investment and wealth management advisory businesses, and brokerage
activities; (10) the timely development of competitive new products and services
by First Union and the acceptance of these products and services by new and
existing customers; (11) the willingness of customers to accept third party
products marketed by First Union; (12) the willingness of customers to
substitute competitors' products and services for First Union's products and
services and vice versa; (13) the impact of changes in financial services' laws
and regulations (including laws concerning taxes, banking, securities and
insurance); (14) technological changes; (15) changes in consumer spending and
saving habits; (16) the effect of corporate restructurings, acquisitions and/or
dispositions, including, without limitation, the Merger, and the actual
restructuring and other charges related thereto, and the failure to achieve the
expected revenue growth and/or expense savings from such corporate
restructurings, acquisitions and/or dispositions; (17) the growth and
profitability of First Union's noninterest or fee income being less than
expected; (18) unanticipated regulatory or judicial proceedings; (19) the impact
of changes in accounting policies by the Securities and Exchange Commission;
(20) adverse changes in financial performance and/or condition of First Union's
borrowers which could impact repayment of such borrowers' outstanding loans; and
(21) First Union's success at managing the risks involved in the foregoing.
First Union cautions that the foregoing list of important factors is not
exclusive. First Union does not undertake to update any forward-looking
statement, whether written or oral, that may be made from time to time by or on
behalf of First Union.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The following unaudited consolidated financial statements of First Union
within Item 1 include, in the opinion of management, all adjustments (consisting
only of normal recurring adjustments) necessary for fair presentation of such
consolidated financial statements for the periods indicated.
NOTE TO CONSOLIDATED FINANCIAL STATEMENT.
Note 1: Basic and Diluted Earnings Per Share
The reconciliation between basic and diluted earnings per share for the three
and six months ended June 30, 2001 and June 30, 2000 is presented below:
Three Six Months
Months Ended Ended
June 30, June 30,
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(Dollars in millions, except per share data) 2001 2000 2001 2000
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Net income (loss) $ 633 (2,199) 1,217 (1,359)
Less imputed interest on the Corporation's transactions
in its common stock (5) (6) (13) (10)
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Income (loss) available to common $ 628 (2,205) 1,204 (1,369)
stockholders
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Basic earnings per share $ 0.65 (2.27) 1.24 (1.41)
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Diluted earnings per share $ 0.64 (2.27) 1.23 (1.41)
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Average shares - basic (In thousands) 969,333 969,707 968,502 970,940
Share equivalents, unvested restricted stock and
incremental
shares from forward purchase contracts (In thousands) 8,852 n/a 8,476 n/a
Incremental shares from equity forward transactions (In
thousands) - n/a - n/a
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Average shares - diluted (In thousands) 978,185 969,707 976,978 970,940
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n/a - The result of including share amounts in determining diluted earnings per
share in periods for which there was a net loss would be antidilutive, and
therefore, the share amounts for the three and six months periods ended June 30,
2000, have been appropriately excluded.
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FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF INCOME
CONSOLIDATED STATEMENTS OF CASH FLOWS
The Consolidated Balance Sheets of First Union and subsidiaries at June 30,
2001, June 30, 2000, and December 31, 2000, respectively, set forth on page 55
of First Union's Second Quarter Financial Supplement for the six months ended
June 30, 2001 (the "Financial Supplement"), are incorporated herein by
reference.
The Consolidated Statements of Income (Loss) of First Union and
subsidiaries for the three and six months ended June 30, 2001 and 2000, set
forth on pages 56 and 57 of the Financial Supplement, are incorporated herein by
reference.
The Consolidated Statements of Cash Flows of First Union and subsidiaries
for the six months ended June 30, 2001 and 2000, set forth on page 58 of the
Financial Supplement, are incorporated herein by reference.
A copy of the Financial Supplement is being filed as Exhibit (19) to this
Report.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Management's Discussion and Analysis of Financial Condition and Results of
Operations appears on pages 2 through 58 of the Financial Supplement and is
incorporated herein by reference.
A copy of the Financial Supplement is being filed as Exhibit (19) to this
Report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Quantitative and Qualitative Disclosures About Market Risk appears on pages
16 through 18 and pages 46 through 48 of the Financial Supplement and is
incorporated herein by reference.
A copy of the Financial Supplement is being filed as Exhibit (19) to this
Report.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
In 1999, in connection with its stock repurchase program, First Union sold
17 million shares of its common stock to an investment banking firm. In
connection therewith, First Union agreed to repurchase the 17 million shares or
otherwise settle the contract, at First Union's option. In October 2000, First
Union repurchased 4 million of those shares leaving 13 million shares to be
repurchased as of June 30, 2001. The offer and sale of the shares of common
stock by First Union were exempt from registration under the Securities Act of
1933, as amended, pursuant to Section 4(2) thereof because such offer and sale
did not involve a public offering.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Annual Meeting of Stockholders of the Corporation held on July 31,
2001, the following proposals were submitted to a vote of the holders of the
Corporation's common stock voting as indicated:
1. Approval of the plan of merger contained in the Agreement and Plan of Merger,
dated as of April 15, 2001 (as amended and restated), between the Corporation
and Wachovia Corporation:
FOR AGAINST ABSTAIN BROKER NON-VOTES
729,826,077 24,918,177 8,222,278 94,946,291
2. Approval of a proposal to elect the following individuals as directors of the
Corporation:
FOR WITHHELD
Class III directors:
G. Alex Bernhardt, Sr. ............... 808,220,432 49,692,391
Joseph Neubauer ...................... 808,391,822 49,521,001
Ruth G. Shaw ......................... 808,074,360 49,838,463
Lanty L. Smith ....................... 807,928,486 49,984,337
Class I director:
Roddey Dowd, Sr. ..................... 807,742,524 50,170,299
3. Approval of a proposal to approve the Corporation's Senior Management
Incentive Plan:
FOR AGAINST ABSTAIN
747,592,003 91,460,079 18,860,741
4. Approval of a proposal to approve an amendment to the Corporation's 1998
Stock Incentive Plan:
FOR AGAINST ABSTAIN
717,195,827 121,059,065 19,657,931
5. Approval of a proposal to ratify the appointment of KPMG LLP as auditors for
the Corporation in 2001:
FOR AGAINST ABSTAIN
815,362,701 32,851,839 9,698,283
6. Disapproval of a stockholder proposal regarding political contributions:
FOR AGAINST ABSTAIN BROKER NON-VOTES
48,947,713 678,585,887 35,432,932 94,946,291
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
EXHIBIT NO. DESCRIPTION
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(2) Agreement and Plan of Merger, dated as of April 15, 2001, as
amended and restated, by and between First Union and Wachovia
(incorporated by reference to Exhibit 2.1 of First Union's
Registration Statement on Form S-4 (No. 333-59616), and to
Exhibit 2.1 of First Union's Current Report on Form 8-K dated
July 23, 2001).
(4)(a) Amendment, dated as of June 18, 2001, to First Union
Corporation Shareholder Protection Rights Agreement, dated as
of December 19, 2000, between First Union and First Union
National Bank.
(4)(b) Instruments defining the rights of security holders, including
indentures.*
(12) Computations of Consolidated Ratios of Earnings to Fixed
Charges.
(19) First Union's Second Quarter 2001 Financial Supplement.
(99) First Union and Wachovia - Unaudited Pro Forma Condensed
Combined Financial Information.
* First Union agrees to furnish to the Commission upon request, copies of the
instruments, including indentures, defining the rights of the holders of the
long-term debt of First Union and its consolidated subsidiaries.
(b) Reports on Form 8-K.
During the quarter ended June 30, 2001, Current Reports on Form 8-K, dated
April 16, 2001 (as amended on June 25, 2001), May 3, 2001, and May 15, 2001 (as
amended on June 25, 2001), were filed with the Commission by First Union. In
addition, Current Reports on Form 8-K, dated July 12, 2001, July 20, 2001, and
July 23, 2001, were filed with the Commission by First Union.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIRST UNION CORPORATION
Date: August 13, 2001
By: /s/ JAMES H. HATCH
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JAMES H. HATCH
SENIOR VICE PRESIDENT AND CORPORATE CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
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(2) Agreement and Plan of Merger, dated as of April 15, 2001, as
amended and restated, by and between First Union and Wachovia
(incorporated by reference to Exhibit 2.1 of First Union's
Registration Statement on Form S-4 (No. 333-59616), and to
Exhibit 2.1 of First Union's Current Report on Form 8-K dated
July 23, 2001).
(4)(a) Amendment, dated as of June 18, 2001, to First Union
Corporation Shareholder Protection Rights Agreement, dated as
of December 19, 2000, between First Union and First Union
National Bank.
(4)(b) Instruments defining the rights of security holders, including
indentures.*
(12) Computations of Consolidated Ratios of Earnings to Fixed
Charges.
(19) First Union's Second Quarter 2001 Financial Supplement.
(99) First Union and Wachovia - Unaudited Pro Forma Condensed
Combined Financial Information.
* First Union agrees to furnish to the Commission upon request, copies of the
instruments, including indentures, defining the rights of the holders of the
long-term debt of First Union and its consolidated subsidiaries.