<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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)
DECEMBER 23, 1994
U.S. TRUST CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
NEW YORK 0-8709 13-29227955
(STATE OR OTHER JURISDICTION (COMMISSION (I.R.S. EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
114 WEST 47TH STREET, NEW YORK, NEW YORK 10036
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(212) 852-1000
Page 1 of 13 pages.
Exhibit Index is on page 3
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<PAGE> 2
ITEM 5. OTHER EVENTS
On November 18, 1994, U.S. Trust Corporation ("UST") and The Chase
Manhattan Corporation ("Chase") entered into an Agreement and Plan of Merger
(the "Merger Agreement"), pursuant to which Chase will acquire UST's securities
processing business and related back office operations (including the assets and
certain liabilities related thereto) (collectively, the "Chase Acquired
Business") for $363.5 million in Chase common stock.
UST will effect the sale of the Chase Acquired Business in a two-step
transaction. First, UST will transfer to New USTC Holdings Corporation, a New
York corporation and a wholly owned subsidiary of UST (the "Company"), its asset
management, private banking, special fiduciary and corporate trust businesses
(collectively, the "Core Businesses"), and all the then-outstanding shares of
the Company will be distributed to the then current UST stockholders on the
basis of one share of Company common stock, par value $1.00 per share, for each
share of UST common stock (the "Distribution"). Immediately following the
Distribution, UST, then holding only the Chase Acquired Business, will be merged
with and into Chase.
The Distribution and the Merger are each subject to approval by UST's
shareholders, as well as receipt of certain regulatory approvals, including
approval by the Federal Reserve Board and state banking authorities and receipt
by UST of a favorable Internal Revenue Service ruling regarding the tax-free
nature of the transaction.
In connection with the Merger, UST has prepared unaudited condensed pro
forma statements of income for the year ended December 31, 1993 and the nine
month period ended September 30, 1994, an unaudited pro forma condensed
statement of condition as of September 30, 1994, and an unaudited pro forma
condensed statement of average balances for the nine month period ended
September 30, 1994 (collectively, the "Pro Forma Statements") to present the
estimated effects of the Merger, related restructuring transactions and the
effect of the Services Agreement (as defined in the Pro Forma Statements
attached hereto as Exhibit 1) as if such transactions had occurred for statement
of income purposes as of January 1, 1993 and for statement of condition purposes
as if such transactions occurred as of September 30, 1994. A copy of the Pro
Forma Statements is attached hereto as Exhibit 1 and is incorporated herein by
reference.
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.
U.S. TRUST CORPORATION
(Registrant)
/s/ RICHARD E. BRINKMANN
--------------------------------------
Richard E. Brinkmann
Senior Vice President and
Comptroller
Dated: December 23, 1994
<PAGE> 3
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ---------------------
<S> <C>
1 Pro Forma Statements
</TABLE>
<PAGE> 1
EXHIBIT 1
<PAGE> 2
PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed statements of income for the
year ended December 31, 1993 and the nine month period ended September 30, 1994,
unaudited pro forma condensed statements of condition as of September 30, 1994,
and unaudited pro forma condensed statement of average balances for the nine
month period ended September 30, 1994 (collectively, the "Pro Forma Statements")
were prepared to present the estimated effects of the disposition of the Chase
Acquired Business, related restructuring transactions and the effect of the
Services Agreement as if such transactions had occurred for statement of income
purposes as of January 1, 1993 and for statement of condition purposes as if
such transactions had occurred as of September 30, 1994.
The "Disposition Adjustments" column in each of the Pro Forma Statements
includes the following:
- the reduction in assets, liabilities and the elimination from
operations of the revenue and expenses related to the disposition of
the Chase Acquired Business, and,
- the reduction in Securities and Short-Term Investments and
Short-Term Borrowings arising from the Company's rebalancing of its
asset and liability structure.
The "Other Adjustments" column in each of the Pro Forma Statements includes
the following:
- the balance sheet impact of the nonrecurring adjustments as set
forth in footnote (1) of the Notes To Pro Forma Condensed Financial
Statements, and,
- the ongoing impact on the Company's results of operations arising
from the nonrecurring adjustments and the Services Agreement.
All of the pro forma adjustments are based upon available information and
upon certain assumptions that the Company believes are appropriate and include
only "exit costs" as defined in Emerging Issues Task Force Issue 94-3 ("EITF
94-3") that are directly related to the transaction. The information is not
intended to be indicative of the Company's actual results had the transaction
occurred as of the dates indicated above nor do they purport to indicate results
which may be attained in the future.
The Pro Forma Statements and accompanying notes should be read in
conjunction with the historical financial statements and other financial
information relating to UST. For financial reporting purposes, the Company will
be a "successor registrant" to UST and, as a result, the historical financial
information set forth in the Pro Forma Statements is the historical financial
information of UST.
Capitalized terms used but not defined herein are defined in the Index of
Defined Terms set forth on Page 9 of these Pro Forma Statements.
1
<PAGE> 3
PRO FORMA CONDENSED STATEMENT OF CONDITION
SEPTEMBER 30, 1994
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMPANY
BEFORE
DISPOSITION OTHER OTHER COMPANY
HISTORICAL ADJUSTMENTS(a) ADJUSTMENTS ADJUSTMENTS PRO FORMA(l)
---------- -------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and Cash Equivalents... $ 439,819 $ (282,852) $ 156,967 $ (43,950)(b) $ 113,017
Securities and Short-Term
Investments............... 1,731,890 (997,945) 733,945 -- 733,945
Net Loans, After Allowance
for Credit Losses......... 1,555,191 (164,448) 1,390,743 -- 1,390,743
Other Assets................ 291,631 (74,927) 216,704 50,144 (c) 266,848
---------- -------------- ----------- ----------- ------------
Total Assets................ $4,018,531 $ (1,520,172) $ 2,498,359 $ 6,194 $2,504,553
========= =========== ========= ========= ==========
LIABILITIES
Deposits.................... $2,383,209 $ (681,250) $ 1,701,959 $ -- $1,701,959
Short-Term Borrowings....... 1,187,958 (824,966) 362,992 66,852 (d) 429,844
Accounts Payable and Accrued
Liabilities............... 145,153 (13,956) 131,197 53,291 (e) 184,488
Long Term Debt.............. 62,574 -- 62,574 (42,403)(f) 20,171
---------- -------------- ----------- ----------- ------------
Total Liabilities........... $3,778,894 $ (1,520,172) $ 2,258,722 $ 77,740 $2,336,462
---------- -------------- ----------- ----------- ------------
STOCKHOLDERS' EQUITY
Common Stock -- $1.00 Par
Value..................... $ 11,512 $ -- $ 11,512 $ (1,890)(g) $ 9,622
Capital Surplus............. 70,190 -- 70,190 (70,190)(h) 0
Retained Earnings........... 264,806 -- 264,806 (90,166)(i) 174,640
Treasury Stock at Cost...... (85,895) -- (85,895) 85,895 (j) 0
Loan to ESOP................ (16,171) -- (16,171) (16,171)
Unrealized Gain (Loss), Net
of Taxes, on Securities
Available for Sale........ (4,805) -- (4,805) 4,805 (k) 0
---------- -------------- ----------- ----------- ------------
Total Stockholders'
Equity.................... $ 239,637 $ -- $ 239,637 $ (71,546) $ 168,091
---------- -------------- ----------- ----------- ------------
Total Liabilities and
Stockholders' Equity...... $4,018,531 $ (1,520,172) $ 2,498,359 $ 6,194 $2,504,553
========= =========== ========= ========= ==========
PRO FORMA REGULATORY CAPITAL
RATIOS
As a Percentage of Risk-Adjusted
Period End Total Assets:
Tier 1 Capital......................................................................... 11.80%
Total Capital.......................................................................... 12.88%
Tier 1 Leverage............................................................................. 6.48%
</TABLE>
2
<PAGE> 4
PRO FORMA CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
REVERSAL
OF BACK COMPANY
OFFICE & BEFORE
DISPOSITION CORPORATE OTHER OTHER COMPANY
HISTORICAL ADJUSTMENTS(m) STAFF(n) ADJUSTMENTS ADJUSTMENTS PRO FORMA(1)
---------- -------------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income....... $ 116,242 $ (53,399) $ -- $ 62,843 $ -- $ 62,843
Provision for Credit
Losses.................. 4,000 -- -- 4,000 -- 4,000
---------- -------------- --------- ----------- ----------- ------------
Net Interest Income
After Provision for
Credit Losses........... 112,242 (53,399) -- 58,843 -- 58,843
Fees...................... 264,075 (92,938) -- 171,137 -- 171,137
Other Income.............. 11,888 (5,053) -- 6,835 (2,800)(o) 4,035
---------- -------------- --------- ----------- ----------- ------------
Total Revenue............. $ 388,205 $ (151,390) $ -- $ 236,815 $ (2,800) $ 234,015
---------- -------------- --------- ----------- ----------- ------------
Operating Expenses
Salaries and Employee
Benefits................ $ 189,153 $ (61,855) $ 19,125 $ 146,423 $ (36,604)(p) $ 109,819
Net Occupancy............. 40,035 (9,360) 4,143 34,818 (6,066)(p) 28,752
Other..................... 86,332 (38,915) 23,003 70,420 (11,610)(p) 58,810
---------- -------------- --------- ----------- ----------- ------------
Total Operating
Expenses................ $ 315,520 $ (110,130) $ 46,271 $ 251,661 $ (54,280) $ 197,381
---------- -------------- --------- ----------- ----------- ------------
Income Before Income Tax
Expense................. $ 72,685 $ (41,260) $ (46,271) $ (14,846) $ 51,480 $ 36,634
Income Tax Expense(q)..... 30,418 (18,567) (20,822) (8,971) 23,166 14,195
---------- -------------- --------- ----------- ----------- ------------
Net Income................ $ 42,267 $ (22,693) $ (25,449) $ (5,875) $ 28,314 $ 22,439
========= ========== ======== ======== ======== ==========
Net Income Per
Share:(r)............... $ 4.26 $ 2.22
========= ==========
Average Shares
Outstanding:............ 9,968,033 10,253,000
========= ==========
</TABLE>
3
<PAGE> 5
PRO FORMA CONDENSED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1994
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
REVERSAL
OF BACK COMPANY
OFFICE & BEFORE COMPANY
DISPOSITION CORPORATE OTHER OTHER PRO
HISTORICAL ADJUSTMENTS(m) STAFF(n) ADJUSTMENTS ADJUSTMENTS FORMA(1)
---------- -------------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income........ $ 82,391 $ (32,579) $ -- $ 49,812 $ -- $ 49,812
Provision for Credit
Losses................... 1,500 -- -- 1,500 -- 1,500
---------- -------------- --------- ----------- ----------- ----------
Net Interest Income
After Provision for
Credit Losses............ 80,891 (32,579) -- 48,312 -- 48,312
Fees....................... 219,965 (76,931) -- 143,034 -- 143,034
Other Income............... 9,720 (4,406) -- 5,314 (1,394)(o) 3,920
---------- -------------- --------- ----------- ----------- ----------
Total Revenue.............. $ 310,576 $ (113,916) $ -- $ 196,660 $ (1,394) $ 195,266
---------- -------------- --------- ----------- ----------- ----------
Operating Expenses
Salaries and Employee
Benefits................. $ 153,080 $ (50,439) $ 14,646 $ 117,287 $ (27,568)(p) $ 89,719
Net Occupancy.............. 29,445 (7,519) 3,071 24,997 (3,601)(p) 21,396
Other...................... 65,097 (27,861) 16,072 53,308 (5,512)(p) 47,796
---------- -------------- --------- ----------- ----------- ----------
Total Operating Expenses... $ 247,622 $ (85,819) $ 33,789 $ 195,592 $ (36,681) $ 158,911
---------- -------------- --------- ----------- ----------- ----------
Income Before Income Tax
Expense.................. 62,954 (28,097) (33,789) 1,068 35,287 36,355
Income Tax Expense(q)...... 26,441 (12,644) (15,205) (1,408) 15,879 14,471
---------- -------------- --------- ----------- ----------- ----------
Net Income................. $ 36,513 $ (15,453) $ (18,584) $ 2,476 $ 19,408 $ 21,884
========= ========== ======== ======== ======== ==========
Net Income Per Share:(r)... $ 3.69 $ 2.15
========= ==========
Average Shares
Outstanding.............. 9,964,307 10,284,000
========= ==========
</TABLE>
4
<PAGE> 6
PRO FORMA CONDENSED STATEMENT OF AVERAGE BALANCES
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1994
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
DISPOSITION ADJUSTMENTS
----------------------------
CHASE ASSET-
ACQUIRED LIABILITY OTHER COMPANY
HISTORICAL BUSINESS REBALANCING ADJUSTMENTS(2) PRO FORMA
---------- ----------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and Cash Equivalents.......... $ 344,565 $ (152,994) $ -- $(43,950) $ 147,621
Securities and Short-Term
Investments...................... 1,978,198 (826,813) (425,000) -- 726,385
Net Loans, After Allowance for
Credit Losses.................... 1,260,793 1,260,793
Other Assets....................... 452,058 (172,658)(1) -- 50,144 329,544
---------- ----------- ----------- ----------- ----------
Total Assets....................... $4,035,614 $(1,152,465) $ (425,000) $ 6,194 $2,464,343
========= ========== ========= =========== =========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Deposits........................... $2,985,188 $(1,117,465) $ -- $ -- $1,867,723
Short-Term Borrowings.............. 591,500 -- (425,000) 66,852 233,352
Accounts Payable and Accrued
Liabilities...................... 168,846 (35,000) -- 53,291 187,137
Long-Term Debt..................... 62,861 -- -- (42,403) 20,458
Stockholders' Equity............... 227,219 -- -- (71,546) 155,673
---------- ----------- ----------- ----------- ----------
Total Liabilities and Stockholders'
Equity........................... $4,035,614 $(1,152,465) $ (425,000) $ 6,194 $2,464,343
========= ========== ========= =========== =========
</TABLE>
- ---------------
(1) For the purposes of determining the Pro Forma Condensed Statement of Average
Balances, Chase Acquired Business average overdrafts are included in Other
Assets.
(2) For the purposes of determining the Pro Forma Condensed Statement of Average
Balances, all Other Adjustments are assumed to have occurred as of January
1, 1994.
5
<PAGE> 7
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(a) Disposition Adjustments (Pro Forma Condensed Statement of
Condition) -- The Disposition Adjustments presented in the Pro Forma Condensed
Statement of Condition reflect both the disposition of the Chase Acquired
Business and the rebalancing of the Company's overall asset and liability
structure as a result of the Merger and related restructuring. The Pro Forma
Condensed Statement of Average Balances presents the Company's daily average
balance sheet for the nine month period ended September 30, 1994 adjusted for
the Merger, including the rebalancing of the Company's asset and liability
structure and the Other Adjustments.
During the nine month period ended September 30, 1994, the Chase Acquired
Business generated average non-interest bearing deposits of approximately $1,118
million. Investable Deposits, defined as total average non-interest bearing
deposits less average cash items in the process of collection and average
overdrafts, were approximately $827 million during the nine month period ended
September 30, 1994. The predictability of the Investable Deposits provided UST
with a long-term funding source. UST employed a substantial portion of the
Investable Deposits to finance its long-term financial assets, including
approximately $425 million of investment securities, principally U.S. Government
Agency Securities ("Agency Securities"), classified as held to maturity.
Following the execution of the Merger Agreement, the Investable Deposits ceased
to be a long-term source of financing available to UST. Accordingly, UST
disposed of a corresponding amount of financial assets, including the $425
million of long-term Agency Securities and approximately $390 million of U.S.
Government Treasury Notes. (See note (m)).
(b) Cash and Cash Equivalents -- The $44.0 million adjustment is comprised
of the reimbursement to Chase for certain post-retirement benefit obligations of
the Company related to employees of the Chase Acquired Business ($1,750,000),
the estimated payments of investment banking, legal, accounting, consulting and
printing professional fees ($12,000,000), the estimated amount of payments
necessary to cash-out holders of outstanding stock options ($38,700,000), and
the estimated amount of cash to be received from the exercise of certain
incentive stock options ($8,500,000).
(c) Other Assets -- The $50.1 million increase in Other Assets reflects (i)
certain tax benefits resulting from the Disposition Adjustments and the Other
Adjustments ($63,667,000, reduced by $4,125,000 related to the reversal of
deferred tax benefits previously recorded) and (ii) the write-off of the book
value of premises and equipment, computer software and other assets related to
the termination of various leases ($9,398,000). The Company anticipates
realizing the tax benefits in the periods in which such adjustments are reported
on the Company's tax returns.
(d) Short-Term Borrowings -- The $66.9 million increase in short-term
borrowings reflects the borrowings required to replace accrued interest and
long-term debt (see notes (e) and (f)), and to fund the loss of $23.0 million on
the sale of securities held to maturity (see note (a)).
(e) Accounts Payable and Accrued Liabilities -- The $53.3 million increase
in accounts payable and accrued liabilities includes the estimated severance and
incentive compensation plan termination costs ($19,000,000), the estimated
present value (discounted at 8%) of the cost of terminating leases at
discontinued locations ($8,202,000), the estimated cost of terminating computer
hardware leases, software licenses and contracts ($23,000,000), the estimated
cost of terminating certain incentive compensation plans ($4,500,000) and an
amount to record the reversal in accrued interest payable related to the
redemption and satisfaction and discharge of certain issues of long-term debt
($1,411,000). The estimated severance and incentive compensation plan
termination costs include the amount of cash severance payments and the impact
of curtailment gains, enhanced pension credits and cost of living adjustments
with respect to the Company's defined benefit pension and post-retirement
benefit plans.
(f) Long Term Debt -- The $42.4 million reduction in long-term debt
reflects the redemption of the USTNY 8 1/2% Capital Notes Due 2001 and the
satisfaction and discharge of the UST 8% Notes Due 1996. The cost of redeeming
and defeasing this long-term debt is insignificant to the Company's pro forma
results of operations.
6
<PAGE> 8
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(g) Common Stock -- The $1,890,000 decrease in the Company's common stock
reflects the retirement of treasury stock ($2,126,000) offset by the aggregate
par value amount of the shares to be issued pursuant to the exercise of an
estimated 236,000 incentive stock options at an estimated average exercise price
of $36.00 per share ($236,000).
(h) Capital Surplus -- The $70.2 million adjustment reflects the retirement
of treasury stock ($78,454,000) offset, in part, by the amount of cash proceeds
in excess of the par value received in connection with the expected exercise of
236,000 incentive stock options ($8,264,000).
(i) Retained Earnings -- The $90.2 million adjustment reflects the
after-tax impact of the nonrecurring adjustments presented in footnote (l)
($84,851,000) and the amount by which the book value of treasury stock retired
exceeds capital surplus ($5,315,000).
(j) Treasury Stock at Cost -- The adjustment of $85.9 million reflects the
retirement of treasury stock.
(k) Unrealized Gain (Loss), Net of Taxes, on Securities Available for
Sale -- The adjustment of $4.8 million reflects the reversal of unrealized
losses on securities available for sale that were realized upon the sale of such
securities.
(l) The Pro Forma Statements of Income exclude the following material
nonrecurring adjustments directly related to the transaction which are expected
to be incurred prior to the consummation of the Merger. The Merger is expected
to occur within the next twelve months.
<TABLE>
<CAPTION>
(MILLIONS)
----------
<S> <C>
Loss on sale of securities held to maturity............................... $ 23.0
Loss on sale of securities available for sale............................. 8.9
Severance, post-retirement benefits and related costs..................... 20.8
Professional fees......................................................... 12.0
Cost of terminating leases for premises................................... 12.0
Cost of terminating computer hardware leases, computer software licenses,
contracts and capitalized software...................................... 28.0
Cost of incentive compensation plans that are being terminated............ 5.1
Payout for stock options.................................................. 38.7
----------
148.5
Applicable tax benefit.................................................... 63.6
----------
Total..................................................................... $ 84.9
========
</TABLE>
In conjunction with the announcement of the Distribution and the Merger,
the Company disclosed that it may incur up to $110 million of restructuring
charges on an after-tax basis in connection with the Distribution and the
Merger. The difference between the $110 million and the charges described above
represents charges that presently do not meet the definition of "exit costs" as
defined by EITF 94-3 and the loss on the sale of securities as described below.
The pro forma adjustments for the loss on the sale of securities ($31.9
million loss before taxes, $16.8 million after taxes) are based upon the market
values of the securities on September 30, 1994. The $110 million of
restructuring charges include an estimated loss for the sale of securities based
upon market values as of the date that the Merger Agreement was announced
(November 18, 1994). The actual loss on the sale of securities, $44.2 million
before taxes, $23.3 million after taxes, was realized between November 21, 1994
and December 9, 1994.
(m) Disposition Adjustments (Pro Forma Condensed Statement of
Income) -- The Disposition Adjustments reflect the disposition of the Chase
Acquired Business pursuant to the Distribution and the Merger. The Disposition
Adjustments include the revenues and expenses of the Chase Acquired Business as
allocated in
7
<PAGE> 9
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (CONTINUED)
accordance with the allocation methodologies utilized by the Company's internal
management reporting system. The amount of net interest income is based upon the
average Investable Deposits multiplied by an appropriate interest rate. The
interest rate is based upon the rates earned on the Company's long and short
term securities. The rates were 5.44% for the nine month period ended September
30, 1994 and 5.39% for the year ended December 31, 1993.
While the average Investable Deposits for the nine month period were
approximately $827 million, the Investable Deposits are subject to seasonal
fluctuation. Historically, Investable Deposits are higher in the first and third
quarters than in the second and fourth quarters. The Average Investable Deposits
for the first and third quarters of 1994 were $1,119 million and $833 million,
respectively. The Investable Deposits for the second quarter of 1994 was $555
million. During 1993, Investable Deposits for the first and third quarters were
$1,096 million and $1,227 million, respectively, compared with $783 million and
$845 million, for the respective second and fourth quarters of 1993. As a result
of the Investable Deposits' seasonality, the Chase Acquired Business' relative
contribution of net interest income to UST is significantly greater during the
first and third quarters than in the second and fourth quarters. The disposition
of the Chase Acquired Business substantially eliminates the seasonal
fluctuations in the Company's net interest income.
Fees and Other Income represent amounts earned by the Chase Acquired
Business. In addition, fees earned by the Company's asset management business
from customers of the Chase Acquired Business are included in Fees and Other
Income, which fees are expected to be earned by Chase following the Distribution
and the Merger. Expenses reflect direct costs incurred and allocations of other
costs in accordance with the Company's internal management reporting system.
(n) Back Office and Corporate Staff -- The $46.3 million and $33.8 million
of back office and corporate staff charges for the year ended December 31, 1993,
and nine month period ended September 30, 1994, respectively, are derived from
the Company's internal management accounting system and represent the amounts
allocated to the Chase Acquired Business for services provided. Back office
support costs include securities processing and custody, check clearance and
computer services processing and support and corporate staff cost allocations
include financial, personnel, legal and general services support functions. Such
back office support costs have been added to the expenses of the Company Before
Other Adjustments because such costs were not eliminated in connection with the
disposition of the Chase Acquired Business. The estimated downsizing of the
corporate staff and the impact of the Services Agreement are reflected in the
Other Adjustments.
(o) Other Income -- Reflects the elimination of certain revenues generated
from computer processing activities conducted for third parties which will no
longer be provided following the Distribution and the Merger.
(p) Salaries and Employee Benefits, Net Occupancy and Other
Expenses -- Reflects the reduction of personnel, net occupancy costs and other
expenses, as indicated, resulting from the Distribution and the Merger, the
downsizing of the Company's corporate staff and the Services Agreement.
(q) Income Taxes -- Income taxes reflected in the Pro Forma Statements of
Income are recorded at the appropriate statutory tax rates, adjusted for certain
nondeductible items.
(r) Net Income Per Share -- Net income per share on a pro forma basis
reflects the after-tax impact of the Distribution and the Merger and related
adjustments and has been calculated using the average shares outstanding as
presented for the year ended December 31, 1993 and the nine month period ended
September 30, 1994 in the Company's historical statements of income, adjusted
for the effect of the assumed exercise of incentive stock options, the estimated
pay-out of holders of outstanding incentive and nonqualified stock options and
certain stock-based plans. The primary and fully diluted net income per share
amounts are the same.
8
<PAGE> 10
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Index to Defined Terms
"CHASE" means The Chase Manhattan Corporation, a Delaware corporation.
"CHASE ACQUIRED BUSINESS" means the Processing Business and Related Back Office,
including the assets and certain liabilities related thereto.
"COMPANY" means New USTC Holdings Corporation.
"DISTRIBUTION" means the pro rata distribution to UST's stockholders of shares
of common stock, par value $1.00 per share, of the Company.
"MERGER" means the merger of UST, holding at the time of the merger only the
Chase Acquired Business, with and into Chase.
"MERGER AGREEMENT" means the Agreement and Plan of Merger, dated as of November
18, 1994, between UST and Chase.
"NEW USTC HOLDINGS CORPORATION" means New USTC Holdings Corporation, a New York
corporation and a wholly owned subsidiary of UST.
"PROCESSING BUSINESS" means the businesses, assets and certain liabilities
related to (i) the unit investment trust business of USTNY and its affiliates,
which includes, among other things, acting as trustee for "unit investment
trusts" (as such term is defined in the Investment Company Act of 1940, as
amended), maintaining custody of securities and investments for unit trusts and
providing other processing support to unit trusts, (ii) the mutual funds
services business of UST and its subsidiaries, which includes, among other
things, providing domestic and global custody, transfer agency and other
administrative services to registered investment companies and (iii) the
institutional asset services business of USTNY and its affiliates, which
includes, among other things, master trust and custody services, securities
lending services, rabbi trust services and certain money management services.
"RELATED BACK OFFICE" means the business, assets and certain liabilities related
to USTNY's Computer Services Division and Securities Services and Trust
Operations Division.
"SERVICES AGREEMENT" means the services agreement between Chase and the Company
under which a subsidiary of Chase will agree to furnish securities processing,
data processing and other services to the Company and its subsidiaries.
"UST" means U.S. Trust Corporation, a New York corporation.
"USTNY" means United States Trust Company of New York, a New York bank and trust
company and a wholly owned subsidiary of UST.
9
