<PAGE> 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)
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<S> <C> <C>
PENNSYLVANIA 1-7410 25-1233834
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
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<S> <C> <C>
ONE MELLON BANK CENTER
500 GRANT STREET
PITTSBURGH, PENNSYLVANIA 15258
(Address of principal executive offices) (Zip code)
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Registrant's telephone number, including area code - (412) 234-5000
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Item 5. Other Events
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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.
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<CAPTION>
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
- - --------------------------------- ----------- ----------- ---------- -- -- -- -- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
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<TABLE>
<CAPTION>
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
- - --------------------------------- ----------- ----------- ---------- -- -- -- -- ---------- -------- --------
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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
---- -- ---- -- -- -- --- --- --- ---
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<TABLE>
<CAPTION>
Original
Activity by Mellon Estimated
and/or TBC (in millions) Expenses
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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
====
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Item 7. Financial Statements and Exhibits
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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.
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<CAPTION>
Exhibit
Number Description
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99.1 Mellon Bank Corporation and Subsidiaries and The Boston Company, Inc. and Subsidiaries
Pro Forma Condensed Income Statement (unaudited).
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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
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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.
<PAGE> 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
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<CAPTION>
Page
----
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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
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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.
<PAGE> 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)
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<CAPTION>
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
-------- ------------ -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
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)
</TABLE>
See accompanying notes to the pro forma condensed income statement
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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.
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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.
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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:
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<CAPTION>
MBC as Pro
(dollar amounts in millions, share amounts in thousands) reported Forma
-------- -----
<S> <C> <C>
Net income $ 361 $ 489
Preferred stock dividends 63 64(m)
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298 425
Series D preferred stock dividends 4 4
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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
======= =======
</TABLE>
(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.
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