This excerpt taken from the PNC 8-K filed Dec 2, 2008.
Note 3 Merger and Integration Costs:
In connection with the merger, the plan to integrate PNC and National Citys operations is still being developed. Over the next several months, the specific details of these plans will continue to be refined. PNC and National City are currently in the process of assessing the two companies personnel, benefit plans, premises, equipment, computer systems, supply chain methodologies and service contracts to determine where they may take advantage of redundancies or where it will be beneficial or necessary to convert to one system. Certain decisions arising from these assessments may involve involuntary termination of National Citys employees, vacating National Citys leased premises, changing information systems, canceling
contracts between National City and certain service providers and selling or otherwise disposing of certain premises, furniture and equipment owned by National City. Additionally, as part of our formulation of the integration plan, certain actions regarding existing PNC information systems, premises, equipment, benefit plans, supply chain methodologies, supplier contracts and involuntary termination of personnel may be taken. PNC also expects to incur merger-related expenses including system conversion costs, employee retention agreements, communications to customers and others. To the extent there are costs associated with these actions, the costs will be recorded based on the nature and timing of these integration actions. We expect that such decisions will be completed after the merger.
The estimated pretax costs associated with employee displacement, lease terminations and disposal of premises, furniture and equipment has been estimated at $0.5 billion and will be recorded as purchase accounting adjustments, which have the effect of increasing the amount of the purchase price allocable to goodwill. The pro forma condensed combined balance sheet does not include the preliminary estimate of these costs since the costs are not indicative of what the historical results of PNC would have been had PNC and National City actually been combined during the periods presented. See Note 6 footnote H for additional purchase accounting adjustments included in the pro forma condensed combined balance sheet.
The estimated merger-related integration costs total $0.5 billion. These costs include an estimated $228 million for branch and operational conversions, $63 million for personnel changes, $48 million for technology and $44 million for facilities. We also expect to record a conforming credit allowance adjustment reflecting PNCs estimate, subject to the outcome of additional loan portfolio reviews and changes in economic conditions, of additional incurred loss reserves required at closing on the National City performing loan portfolio. This adjustment will take into account differences between PNCs and National Citys reserve process and underlying model estimates and assumptions. These differences include (a) PNCs loss given default factors based on collateral types with defined recovery values compared with National Citys based on borrower enterprise values, (b) PNCs lower (more adverse) risk ratings for National City borrowers in industries demonstrating more stress in the current economic environment, and (c) PNCs lower (more adverse) risk ratings for common credit exposures. The credit adjustment and certain integration costs will be provided for or expensed as incurred in PNCs fourth quarter 2008 results of operations. The remaining integration costs will be expensed in the combined company results of operations in 2009 and 2010. Accordingly, these charges are not included in the pro forma condensed combined income statement.