-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, mNQiFdHLHsRUk8J+E4LgWh7/jik+VYhj/z8cVrJKgm5ExnAsIBlcx4lGYQF/Hn4o IMapWBNiRjD9aAyIBZEfiQ== 0000950128-94-000121.txt : 19940719 0000950128-94-000121.hdr.sgml : 19940719 ACCESSION NUMBER: 0000950128-94-000121 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940715 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19940715 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MELLON BANK CORP CENTRAL INDEX KEY: 0000064782 STANDARD INDUSTRIAL CLASSIFICATION: 6021 IRS NUMBER: 251233834 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07410 FILM NUMBER: 94539004 BUSINESS ADDRESS: STREET 1: ONE MELLON BANK CENTER STREET 2: 500 GRANT ST CITY: PITTSBURGH STATE: PA ZIP: 15258-0001 BUSINESS PHONE: 4122345000 FORMER COMPANY: FORMER CONFORMED NAME: MELLON NATIONAL CORP DATE OF NAME CHANGE: 19841014 8-K 1 MELLON 8-K 1 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 Date of Report (Date of earliest event reported) - July 15, 1994 MELLON BANK CORPORATION (Exact name of registrant as specified in charter) PENNSYLVANIA 1-7410 25-1233834 (State or other jurisdiction (Commission (I.R.S. Employer of incorporation) File Number) Identification No.)
ONE MELLON BANK CENTER 500 GRANT STREET PITTSBURGH, PENNSYLVANIA 15258 (Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code - (412) 234-5000 2 Item 5. Other Events - - ----------------------- Mellon Bank Corporation ("Mellon") completed its acquisition of The Boston Company ("TBC") in May 1993. On May 25, 1993, Mellon filed a Current Report on Form 8-K describing the completion of the TBC acquisition and, on June 30, 1993, filed a Form 8-K/A with financial statements and exhibits required under Item 7. In connection with that acquisition, Mellon recorded $175 million of merger expenses, or approximately $112 million after-tax, to reflect various expenses necessitated by the merger. This Form 8-K provides the originally estimated components used to record the merger expenses, the current revised estimate of the costs of each component, the actual costs incurred by quarter through March 31, 1994, and the periods in which the remaining expenditures are expected to occur. When Mellon was evaluating the potential acquisition of TBC, Mellon identified a number of duplicate systems, processes, locations and staff that would require integration. This was expected to result in significant cost savings, compared to the total of the respective companies' operating expenses, but would require certain expenditures to eliminate duplication and to achieve the benefit from system processing economies of scale. Integration plans were developed with high regard given to the customer service nature of the businesses being merged, the intolerance for error and the need for a controlled and orderly transition. This was required to preserve existing customer relationships and provide an uninterrupted level and quality of service during the customer-by-customer conversions to the combined systems. The incremental expenses necessary to accomplish this integration of systems, staffs and facilities included estimated expenditures for systems integration and severance over a two and one half year period. Expenditures on systems conversions were planned to be low in the initial months following the acquisition and increasing over the two and a half year period. Likewise, expenditures on severance were expected to generally follow the systems expenditures, as duplicative processes were integrated and the merged systems became operational. In connection with the acquisition, Mellon reevaluated the carrying value of certain assets in light of the strategic direction of the merged businesses. This resulted in adjustment to the merged entity's carrying values that would not have been required had the merger not occurred. The following table shows the original and current estimates of the components of the merger expenses and the remaining accruals at March 31, 1994. Adjustments to estimates for a $20 million reduction of severance expense and a $19 million increase to systems integration expense were necessary due to changed circumstances following the acquisition date, primarily due to larger-than-anticipated voluntary attrition at TBC. Approximately 54% of the $175 million has been incurred at March 31, 1994 to implement activities through the first ten months following acquisition. Current plans indicate approximately 85% or more will be incurred by year-end 1994 and the remaining 15% in 1995. - 1 - 3
Estimated total expenses Remaining accrual at -------------------------------------- Expenditures to date March 31, 1994 Original -------------------- expected to be estimate at Increase Current 1993 1994 Remaining expended in Activity by Mellon acquisition (decrease) estimate ------------ ---- Accrual at -------------------- and/or TBC (in millions) date to estimate at 3/31/94 2Q 3Q 4Q 1Q 3/31/94 1994 1995 - - --------------------------------- ----------- ----------- ---------- -- -- -- -- ---------- -------- -------- Incremental Expenses: Facilities Expense: Merge Mellon and TBC London offices into one location and discontinue use of one location; moving expenses in Mellon's Pittsburgh and TBC's Boston offices in conjunction with staff integration; and write-off of leasehold improvements carrying values in locations to be discontinued. $ 8 $ -- $ 8 $3 $-- $-- $-- $5 $2 $3 Severance, Incentive Retention Plan, Relocation and Travel: Expenses incident to staff reductions and movement in Boston and Pittsburgh and retention incentive plan included in the purchase agreement. Remaining expenditures relate to remaining severance through 1995 and payment of incentive retention due in November 1994, contractually created in the TBC purchase agreement. 32 (20) 12 -- 2 2 1 7 3 4
- 2 - 4
Estimated total expenses Remaining accrual at -------------------------------------- Expenditures to date March 31, 1994 Original -------------------- expected to be estimate at Increase Current 1993 1994 Remaining expended in Activity by Mellon acquisition (decrease) estimate ------------ ---- Accrual at -------------------- and/or TBC (in millions) date to estimate at 3/31/94 2Q 3Q 4Q 1Q 3/31/94 1994 1995 - - --------------------------------- ----------- ----------- ---------- -- -- -- -- ---------- -------- -------- Systems Integration: Expenses to integrate and merge duplicate TBC and Mellon systems. Remaining expenditures will be incurred upon the late 1994 move of the TBC datacenter to Pittsburgh, as well as the completion of the planned systems conversion activity, as originally scheduled through 1995. 48 19 67 -- 1 2 4 60 45 15 Professional and consulting: Professional fees for services provided by investment bankers, legal counsel and auditors incident to the purchase agreement, and consulting expense, including that related to the integration of the two companies' general ledger systems. 18 (2) 16 5 3 2 1 5 5 -- Other, including the $4 million write-off of software carrying value of an MBC system which was discarded in favor of using TBC's system for the merged company. 7 3 10 -- 1 1 4 4 4 -- ---- -- ---- --- -- -- - --- --- --- Subtotal $113 -- $113 $8 $7 $7 $10 $81 $59 $22 ---- -- ---- -- -- -- --- --- --- ---
- 3 - 5
Original Activity by Mellon Estimated and/or TBC (in millions) Expenses - - -------------------------------------- --------- Non-cash adjustments to balance sheet carrying values: Adjust TBC reserve for credit losses to reflect a combined reserve calculated consistent with Mellon's reserve methodology and record Mellon's share of losses on the United Kingdom loan portfolio using estimated sales prices for valuation purposes 52 Write down carrying value of Mellon and TBC real estate advisory companies that were to be merged 10 ---- Subtotal 62 ---- Total merger expenses $175 ====
Item 7. Financial Statements and Exhibits - - -------------------------------------------- Attached hereto, as Exhibit 99.1, is the unaudited pro forma condensed income statement of the Corporation and TBC for the full year of 1993 as if the Corporation's acquisition of TBC had been effective January 1, 1993.
Exhibit Number Description ------- ----------- 99.1 Mellon Bank Corporation and Subsidiaries and The Boston Company, Inc. and Subsidiaries Pro Forma Condensed Income Statement (unaudited).
- 4 - 6 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. MELLON BANK CORPORATION Date: July 15, 1994 By: STEVEN G. ELLIOTT -------------------------------- Steven G. Elliott Vice Chairman, Chief Financial Officer and Treasurer - 5 - 7 EXHIBIT INDEX Number Description Method of Filing 99.1 Unaudited pro forma condensed income Filed herewith statement of the Corporation and TBC for the full year of 1993 as if the Corporation's acquisition of TBC had been effective January 1, 1993. EX-99.1 2 MELLON 8-K 1 Exhibit 99.1 MELLON BANK CORPORATION AND SUBSIDIARIES AND THE BOSTON COMPANY, INC. AND SUBSIDIARIES PRO FORMA CONDENSED INCOME STATEMENT (UNAUDITED) TABLE OF CONTENTS
Page ---- Pro Forma Condensed Income Statement for the Year Ended December 31, 1993 1 Notes to Pro Forma Condensed Income Statement for the Year Ended December 31, 1993 2
NOTE: The following pro forma condensed income statement is intended for informational purposes and is not indicative of the future results of operations of Mellon Bank Corporation (the "Corporation") had the acquisition of The Boston Company, Inc. ("TBC") been completed on January 1, 1993. This transaction was recorded under the purchase method of accounting in accordance with Accounting Principles Board Opinion No. 16. The pro forma condensed income statement is presented as if the acquisition had been effective on January 1, 1993. The pro forma condensed income statement for the year ended December 31, 1993, combines TBC's results of operations for the period from January 1, 1993 through May 20, 1993 and the Corporation's historical results of operations for the year ended December 31, 1993, which include TBC's results of operations from May 21, 1993, to December 31, 1993. This pro forma condensed income statement should be read in conjunction with the Corporation's Annual Report on Form 10-K for the year ended December 31, 1993. 2 MELLON BANK CORPORATION AND SUBSIDIARIES AND THE BOSTON COMPANY, INC. AND SUBSIDIARIES PRO FORMA CONDENSED INCOME STATEMENT(a) YEAR ENDED DECEMBER 31, 1993 (UNAUDITED)
TBC as Pro Forma MBC as Pro Forma (dollar amounts in Reported Adjustments Reported Adjustments millions, except per 1/1/93 - Prior to TBC as 1/1/93 - and Pro Forma share amounts) 5/20/93 Closing Date Adjusted 12/31/93 Financing Combined -------- ------------ -------- -------- ----------- --------- Interest revenue - - ---------------- Loans and loan fees $115(b) $ -- $115 $1,587 $ -- $1,702 Money market investments 28(b) -- 28 116 (12)(e) 132 Trading account securities -- -- -- 15 -- 15 Securities 30(b) -- 30 243 -- 273 ---- ---- ---- ------ ----- ------ Total interest revenue 173 -- 173 1,961 (12) 2,122 Interest expense - - ---------------- Deposits 55 -- 55 454 -- 509 Federal funds purchased, repurchase agreements, U.S. Treasury tax and loan demand notes and other purchased funds 44 -- 44 79 (3)(f) 120 Notes and debentures -- -- -- 121 4 (g) 125 ---- ---- ---- ------ ----- ------ Total interest expense 99 -- 99 654 1 754 ---- ---- ---- ------ ----- ------ Net interest revenue 74 -- 74 1,307 (13) 1,368 Provision for credit losses 3 -- 3 125 -- 128 ---- ---- ---- ------ ----- ------ Net interest revenue after provision for credit losses 71 -- 71 1,182 (13) 1,240 Noninterest revenue - - ------------------- Fee revenue 158 (5)(d) 153 1,189 -- 1,342 Gains on sale of securities 1 (1)(c) -- 87 -- 87 ---- ---- ---- ------ ----- ------ Total noninterest revenue 159 (6) 153 1,276 -- 1,429 Operating expense - - ----------------- Staff expense 112 (3)(d) 109 745 -- 854 Net occupancy expense 14 -- 14 168 -- 182 Equipment expense 26(b) (1)(d) 25 113 -- 138 Amortization of goodwill, intangibles and issue costs -- -- -- 122 14 (h) 136 Merger expenses -- -- -- 175 (175)(i) -- Other expense 29(b) (13)(d) 16 535 -- 551 ---- ---- ---- ------ ----- ------ Total operating expense 181 (17) 164 1,858 (161) 1,861 ---- ---- ---- ------ ----- ------ Income before income taxes 49 11 60 600 148 808 Provision for income taxes 28 (1)(d) 27 239 53 (i)(j) 319 ---- ---- ---- ------ ----- ------ Net income $ 21 $ 12 $ 33 $ 361 $ 95 $ 489 ==== ==== ==== ====== ===== ====== Earnings per share(l): - - ------------------ Primary $ 4.63 $ 6.48(l) Fully diluted 4.63 6.48(l) Average number of common shares and equivalents (in thousands): Primary 65,179 66,475(k) Fully diluted 65,270 66,566(k)
See accompanying notes to the pro forma condensed income statement - 1 - 3 NOTES TO PRO FORMA CONDENSED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1993 (a) The pro forma condensed income statement for the year ended December 31, 1993 combines the historical results of operations of the Corporation and TBC as if the transaction had been completed and the related financing been completed on January 1, 1993. The pro forma income statement uses historical revenue, expense, and interest rates to the extent possible; however, certain estimates and assumptions were necessary. Purchase accounting adjustments assumed in this pro forma income statement may change as additional information becomes available. The pro forma adjustments include the effects of removing the financial results of nine subsidiaries of TBC that were conveyed to Shearson via dividend prior to the closing date of the transaction. The pro forma condensed income statement is intended for informational purposes and is not indicative of the future results of operations of the combined company or of the results of operations that would have been obtained had the transactions actually taken place on January 1, 1993. (b) Certain amounts in TBC's income statement have been reclassified to conform with the presentation used by the Corporation. (c) To eliminate non-temporary valuation adjustments recorded by TBC on investment securities that Shearson purchased from TBC prior to the closing date. (d) To eliminate revenues and expenses recorded on nine subsidiaries of TBC that were conveyed via dividend to Shearson prior to the closing date of the transaction. (e) To eliminate the estimated interest revenue earned on the net proceeds of the debt and equity issuances that were invested in money market investments following these issuances in the first quarter of 1993. Under its capital financing plan, the Corporation issued common stock on January 25, 1993 for $229 million, net of $6 million of transaction costs; $193 million of Series K preferred stock, net of $6 million of transaction costs; and the debt issuances discussed below in note (g). The income statement adjustment for 1993 was calculated using the Corporation's weighted average interest rates for money market investments for this period. (f) To reflect the decrease in interest expense that would have resulted had the net decrease in purchased funds, resulting primarily from the issuance of senior debt, occurred at the beginning of the period. The income statement adjustment for 1993 was calculated using the Corporation's weighted average interest rates for federal funds purchased for this period. (g) To reflect the increase in interest expense that would have resulted had the Corporation issued notes and debentures related to the capital financing plan at the beginning of the period. These include $200 million of 6-1/2% Senior Notes (issued January 1993), $150 million of 6-7/8% Subordinated Debentures (issued March 1993), and $200 million of Floating Rate Senior Notes (issued April 1993). Actual interest rates were used to calculate the income statement adjustment to interest expense for these notes and debentures. - 2 - 4 NOTES TO PRO FORMA CONDENSED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1993 (continued) (h) To reflect the amortization of the noncompete covenant and goodwill that would have been recorded had the transaction been effective January 1, 1993 based on the $457 million of goodwill and other intangibles recorded. The estimated lives used to calculate the straight-line amortization of the noncompete covenant and goodwill were 7 and 20 years, respectively. (i) To eliminate the $175 million of merger expenses resulting directly from this transaction, including the related $63 million tax benefit, recorded by the Corporation, as these expenses do not represent ongoing expenses of the Corporation. (j) The tax effects of all pro forma adjustments, except the merger expenses described in note (i) above, were calculated at a presumed statutory tax rate, which was the Corporation's average combined statutory rate for federal, state and local taxes. This average combined statutory rate was 40% for 1993. (k) The pro forma average number of shares outstanding for 1993 reflects the issuance to Shearson of 2.5 million shares of common stock and 4,312,500 shares issued in a public offering in January 1993. The number of shares used for the earnings per share calculation also reflects the dilutive effect of the warrants to purchase an additional 3 million shares of the Corporation's common stock issued to Shearson had they been issued on January 1, 1993, as further discussed in note (l). (l) Primary earnings per share is computed by dividing net income applicable to common shareholders (net income reduced by dividends on preferred stock) plus Series D dividends, if dilutive, by the total of the average number of common shares outstanding and any additional dilutive effect of the Series D preferred stock, stock options, warrants, common stock subscription rights and Series D preferred stock subscriptions (common stock equivalents) outstanding during the period. The dilutive effect of the common stock equivalents was computed using the average market price of the Corporation's common stock for the period. - 3 - 5 NOTES TO PRO FORMA CONDENSED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1993 (continued) (l) (continued) Fully diluted earnings per share is computed based on the total of the average number of common shares, common stock equivalents, and other dilutive items outstanding during the period. The dilutive effect of the warrants issued in connection with the transaction was computed using the average market price of the Corporation's common stock for the period. Earnings per share for the year ended December 31, 1993 are based on the following information:
MBC as Pro (dollar amounts in millions, share amounts in thousands) reported Forma -------- ----- Net income $ 361 $ 489 Preferred stock dividends 63 64(m) ------- ------- 298 425 Series D preferred stock dividends 4 4 ------- ------- Net income after adding back Series D preferred stock dividends (both primary and fully diluted) $ 302 $ 429 ======= ======= Average common and common equivalent shares outstanding (primary) 65,179 65,179 Pro forma common shares issued -- 1,296(k) ------- ------- Average common shares outstanding (primary) 65,179 66,475 ======= ======= Average common, common equivalent shares and other dilutive items outstanding (fully diluted) 65,270 65,270 Pro forma common shares issued -- 1,296(k) ------- ------- Average common shares outstanding (fully diluted) 65,270 66,566 ======= =======
(m) To reflect the dividends that would have been paid had the Series K preferred stock, issued January 25, 1993 under the capital financing plan, been issued at the beginning of 1993. The dividend rate used for this calculation was 8.20%, the actual rate on the Series K preferred stock. - 4 - -----END PRIVACY-ENHANCED MESSAGE-----