Bank of America 2008 Annual Report Download - page 134

MBNA
On January 1, 2006, the Corporation acquired all of the outstanding
shares of MBNA Corporation (MBNA) and as a result, 1,260 million
shares of MBNA common stock were exchanged for 631 million shares of
the Corporation’s common stock. MBNA shareholders also received cash
of $5.2 billion. MBNA’s results of operations were included in the Corpo-
ration’s results beginning January 1, 2006.
Unaudited Pro Forma Condensed Combined
Financial Information
If the Merrill Lynch and Countrywide mergers had been completed on
January 1, 2008 and 2007, total revenue, net of interest expense would
have been $58.5 billion and $83.9 billion for 2008 and 2007, and net
income (loss) from continuing operations would have been $(30.3) billion
and $4.4 billion. These results include the impact of amortizing certain
purchase accounting adjustments such as intangible assets as well as
fair value adjustments to loans, securities and issued debt. Pro forma
results of operations also include the impact of conforming certain
acquiree accounting policies to the Corporation’s policies. The pro forma
financial information does not indicate the impact of possible business
model changes nor does it consider any potential impacts of current
market conditions or revenues, expense efficiencies, asset dispositions,
share repurchases, or other factors.
Merger and Restructuring Charges
Merger and restructuring charges are recorded in the Consolidated State-
ment of Income and include incremental costs to integrate the operations
of the Corporation, Countrywide, LaSalle, U.S. Trust Corporation and
MBNA. These charges represent costs associated with these one-time
activities and do not represent ongoing costs of the fully integrated com-
bined organization. The following table presents severance and employee-
related charges, systems integrations and related charges, and other
merger-related charges.
(Dollars in millions) 2008
(1)
2007
(2)
2006
Severance and employee-related charges $138 $106 $ 85
Systems integrations and related charges 640 240 552
Other 157 64 168
Total merger and restructuring
charges $935 $410 $805
(1) Included for 2008 are merger-related charges of $623 million, $205 million and $107 million related to
the LaSalle, Countrywide and U.S. Trust Corporation mergers, respectively.
(2) Included for 2007 are merger-related charges of $233 million, $109 million and $68 million related to
the MBNA, U.S. Trust Corporation and LaSalle mergers, respectively.
Merger-related Exit Cost and Restructuring
Reserves
The following table presents the changes in exit cost and restructuring
reserves for 2008 and 2007.
Exit Cost
Reserves
(1)
Restructuring
Reserves
(2)
(Dollars in millions) 2008 2007 2008 2007
Balance, January 1 $ 377 $ 125 $ 108 $67
Exit costs and restructuring charges:
Countrywide 588 – 71 –
LaSalle 31 339 25 47
U.S. Trust Corporation (3) 52 40 38
MBNA (6) – (3) 17
Cash payments (464) (139) (155) (61)
Balance, December 31 $ 523 $ 377 $86 $108
(1) Exit cost reserves were established in purchase accounting resulting in an increase in goodwill.
(2) Restructuring reserves were established by a charge to merger and restructuring charges.
As of December 31, 2007, there were $377 million of exit cost
reserves related to the MBNA, U.S. Trust Corporation, and LaSalle merg-
ers, including $187 million for severance, relocation and other employee-
related costs and $190 million for contract terminations. During 2008,
the net amount of $610 million was added to the exit cost reserves,
primarily related to the Countrywide acquisition, including $536 million for
severance, relocation and other employee-related costs, and $74 million
for contract terminations. The $31 million exit costs and restructuring
charges for 2008 was net of $56 million in exit cost reserve adjustments
related to the LaSalle acquisition primarily due to lower than expected
lease terminations with the offset being recorded as a reduction to good-
will. Cash payments of $464 million during 2008 consisted of $376 mil-
lion in severance, relocation and other employee-related costs and $88
million for contract terminations. As of December 31, 2008, exit cost
reserves of $523 million included $383 million for Countrywide, $135
million for LaSalle and $5 million for U.S. Trust Corporation. As of
December 31, 2008, there were no exit cost reserves related to the
MBNA acquisition.
As of December 31, 2007, there were $108 million of restructuring
reserves related to the MBNA, U.S. Trust Corporation and LaSalle merg-
ers, including $104 million related to severance and other employee-
related costs and $4 million related to contract terminations. During
2008, $133 million was added to the restructuring reserves related to
severance and other employee-related costs primarily associated with the
Countrywide acquisition. Cash payments of $155 million during 2008
consisted of $153 million in severance and other employee-related costs
and $2 million in contract terminations. As of December 31, 2008,
restructuring reserves of $86 million included $37 million for Country-
wide, $30 million for LaSalle and $19 million for U.S. Trust Corporation.
As of December 31, 2008, there were no restructuring reserves related to
the MBNA acquisition.
Payments under exit cost and restructuring reserves associated with
the MBNA acquisition were substantially completed in 2007 while pay-
ments associated with the U.S. Trust Corporation, LaSalle and Country-
wide acquisitions will continue into 2009.
132 Bank of America 2008