Bank of America 2008 Annual Report Download - page 132

Merrill Lynch Preliminary Purchase Price Allocation
(Dollars in billions, except per share amounts)
Purchase price
Merrill Lynch common shares exchanged (in millions) 1,600
Exchange ratio 0.8595
The Corporation’s common stock issued (in millions) 1,375
Purchase price per share of the Corporation’s common stock
(1)
$ 14.08
Total value of the Corporation’s common stock and cash exchanged for fractional shares $ 19.4
Merrill Lynch preferred stock
(2)
8.6
Fair value of outstanding employee stock awards 1.1
Total purchase price 29.1
Preliminary allocation of the purchase price
Merrill Lynch stockholders’ equity 19.9
Merrill Lynch goodwill and intangible assets (2.6)
Pre-tax adjustments to reflect acquired assets and liabilities at fair value:
Securities (0.9)
Loans (5.0)
Intangible assets
(3)
5.8
Other assets (3.6)
Other liabilities (1.2)
Long-term debt 15.5
Pre-tax total adjustments 10.6
Deferred income taxes (4.2)
After-tax total adjustments 6.4
Fair value of net assets acquired 23.7
Preliminary goodwill resulting from the Merrill Lynch merger (4) $ 5.4
(1) The value of the shares of common stock exchanged with Merrill Lynch shareholders was based upon the closing price of the Corporation’s common stock at December 31, 2008, the last traded day prior to the date of
acquisition.
(2) Represents Merrill Lynch’s preferred stock exchanged for Bank of America preferred stock having substantially identical terms and also includes $1.5 billion of convertible preferred stock.
(3) Consists of trade name of $1.3 billion and customer relationship and core deposit intangibles of $4.5 billion. The amortization life is 10 years for the customer relationship and core deposit intangibles which will be
primarily amortized on a straight-line basis.
(4) No goodwill is expected to be deductible for federal income tax purposes. The goodwill will be primarily allocated to Global Corporate and Investment Banking and Global Wealth and Investment Management.
Preliminary Condensed Statement of Net Assets Acquired
The following condensed statement of net assets acquired reflects the
preliminary value assigned to Merrill Lynch’s net assets as of the acquis-
ition date.
(Dollars in billions) January 1, 2009
Assets
Federal funds sold and securities purchased under
agreement to resell/securities borrowed $138.8
Trading account assets 87.9
Derivative assets 97.7
Investment securities 74.4
Loans and leases 52.7
Intangible assets 5.8
Other assets 194.3
Total assets $651.6
Liabilities
Deposits $ 98.1
Federal funds purchased and securities sold under
agreements to repurchase/securities loaned 111.6
Trading account liabilities 18.1
Derivative liabilities 72.0
Commercial paper and other short-term borrowings 37.9
Accrued expenses and other liabilities 100.8
Long-term debt 189.4
Total liabilities 627.9
Fair value of net assets acquired (1) $ 23.7
(1) The fair value of net assets acquired excludes preliminary goodwill resulting from the Merrill Lynch
merger of $5.4 billion.
The fair value of net assets acquired includes preliminary fair value
adjustments to certain receivables that were not considered impaired as
of the acquisition date. These fair value adjustments were determined
using incremental spread impacts for credit and liquidity risk which are
part of the rate used to discount contractual cash flows. However, the
Corporation believes that all contractual cash flows related to these
financial instruments will be collected. As such, these receivables were
not considered impaired at the acquisition date and were not subject to
the requirements of SOP 03-3. Receivables acquired that were not sub-
ject to the requirements of SOP 03-3 include non-impaired loans and
customer receivables with a preliminary fair value and gross contractual
amounts receivable of $150.7 billion and $156.1 billion at the time of
acquisition.
Contingencies
The fair value of net assets acquired includes certain contingent liabilities
that were recorded as of the acquisition date. Merrill Lynch has been
named as a defendant in various pending legal actions and proceedings
arising in connection with its activities as a global diversified financial
services institution. Some of these legal actions and proceedings include
claims for substantial compensatory and/or punitive damages or claims
for indeterminate amounts of damages. Merrill Lynch is also involved in
investigations and/or proceedings by governmental and self-regulatory
agencies. Due to the number of variables and assumptions involved in
assessing the possible outcome of these legal actions, sufficient
information does not exist to reasonably estimate the fair value of these
contingent liabilities. As such, these contingencies have been measured
in accordance with SFAS No. 5, “Accounting for Contingencies” (SFAS 5).
For further information, see Note 13 – Commitments and Contingencies
to the Consolidated Financial Statements.
130 Bank of America 2008