Bank of America 2004 Annual Report Download - page 111

Merger and Restructuring Charges
Merger and Restructuring Charges are recorded in the Consolidated
Statement of Income, and include incremental costs to integrate
Bank of America’s and FleetBoston’s operations. These charges rep-
resent costs associated with merger activities and do not represent
on-going costs of the fully integrated combined organization. Systems
integrations and related charges, and other, as shown in the table
below, are expensed as incurred.
In addition, Merger and Restructuring Charges include costs
related to an infrastructure initiative undertaken in the third quarter
of 2004 to simplify the Corporation’s business model. In 2004, man-
agement engaged in a thorough review of major business units and
supporting functions to ensure the Corporation is operating in a cost
efficient manner. As a result of this review and additional opportuni-
ties the Corporation has identified to operate more efficiently through
the Merger, the Corporation announced that it will reduce its work-
force by approximately 2.5 percent, or 4,500 positions resulting in
total severance costs of $149 million. Included in Merger and
Restructuring Charges are $102 million incurred for this initiative. An
additional $47 million of severance liabilities were recorded related
to this initiative for legacy FleetBoston associates resulting in an
increase in Goodwill. See analysis of exit costs and restructuring
reserves below. The Corporation expects to incur additional sever-
ance costs related to this initiative of less than $5 million in 2005.
(Dollars in millions) 2004
Severance and employee-related charges:
Merger-related $ 138
Infrastructure initiative 102
Systems integrations and related charges 249
Other 129
Total merger and restructuring charges $ 618
Exit Costs and Restructuring Reserves
On April 1, 2004, $680 million of liabilities for FleetBoston’s exit and
termination costs as a result of the Merger were recorded as pur-
chase accounting adjustments resulting in an increase in Goodwill.
Included in the $680 million were $507 million for severance, relo-
cation and other employee-related costs, $168 million for contract
terminations, and $5 million for other charges. As previously men-
tioned, during 2004, $47 million of additional liabilities was recorded
related to severance costs for legacy FleetBoston associates in
connection with the infrastructure initiative. In addition, during 2004,
reductions in the exit costs reserve were recorded, due to revised
estimates of $50 million for contract terminations and $19 million for
severance costs. During 2004, cash payments of $276 million have
been charged against this liability including $244 million of sever-
ance, relocation and other employee-related costs, and $32 million of
contract terminations.
Restructuring charges through December 31, 2004 include the
establishment of a reserve for legacy Bank of America associate sev-
erance and other employee-related charges of $240 million. Of this
amount, $102 million was related to the infrastructure initiative.
During 2004, cash payments of $74 million have been charged
against this reserve.
Payments under these reserves are expected to be substantially
completed by the end of 2005.
Exit Costs and Restructuring Reserves
Exit Costs Restructuring
(Dollars in millions) Reserves(1) Reserves(2)
Balance, January 1, 2004 $– $–
FleetBoston exit costs 658 –
Restructuring charges – 138
Infrastructure initiative – 102
Cash payments (276) (74)
Balance, December 31, 2004 $ 382 $ 166
(1) Exit costs reserves were established in purchase accounting resulting in an increase in
Goodwill.
(2) Restructuring reserves were established by a charge to income.
Unaudited Pro Forma Condensed Combined Financial Information
The following unaudited pro forma condensed combined financial
information presents the results of operations of the Corporation had
the Merger taken place at the beginning of each period.
(Dollars in millions, except per common share information) 2004 2003
Net interest income $ 30,584 $28,208
Noninterest income 21,615 21,877
Provision for credit losses 2,769 3,864
Gains on sales of debt securities 2,172 1,069
Merger and restructuring charges 618 –
Other noninterest expense 28,522 27,319
Income before income taxes 22,462 19,971
Net income 14,903 13,298
Per common share information
Earnings $ 3.67 $ 3.21
Diluted earnings 3.61 3.17
Average common shares issued and
outstanding (in thousands) 4,054,322 4,138,139
Average diluted common shares issued
and outstanding (in thousands) 4,124,671 4,201,053
National Processing, Inc.
On October 15, 2004, the Corporation acquired all outstanding
shares of National Processing, Inc. (NPC) for $1.4 billion in cash.
NPC is a merchant acquirer of card transactions. As a part of the pre-
liminary purchase price allocation, the Corporation allocated $482
million to other intangible assets and $625 million to Goodwill.
110 BANK OF AMERICA 2004