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): October 12, 1999
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Merrill Lynch & Co., Inc.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 1-7182 13-2740599
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(State or Other (Commission (I.R.S. Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
World Financial Center, North Tower, New York, New York 10281-1332
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (212) 449-1000
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(Former Name or Former Address, if Changed Since Last Report)
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Item 5. Other Events
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Filed herewith is the Preliminary Unaudited Earnings Summary, as contained in a
press release dated October 12, 1999, for Merrill Lynch & Co., Inc. ("Merrill
Lynch") for the three- and nine-month periods ended September 24, 1999. The
results of operations set forth therein for such periods are unaudited. All
adjustments, consisting only of normal recurring accruals, that are, in the
opinion of management, necessary for a fair presentation of the results of
operations for the periods presented have been included. The nature of Merrill
Lynch's business is such that the results for any interim period are not
necessarily indicative of the results for a full year.
Preferred stockholders' equity, common stockholders' equity, long-term
borrowings, preferred securities issued by subsidiaries, and book value per
common share as of September 24, 1999 were approximately $425 million, $11.7
billion, $55.4 billion, $2.7 billion, and $31.47, respectively.
On October 12, 1999, Merrill Lynch reported quarterly earnings of $572 million,
its highest third quarter ever, up $447 million from the 1998 third quarter -
excluding the $288 million after-tax ($430 million pre-tax) special provision in
the year ago quarter for costs related to staff reductions. Basic and diluted
earnings per common share were $1.52 and $1.34, respectively, versus $0.32 and
$0.28 in the 1998 third quarter, excluding the special provision.
Annualized return on average common equity was approximately 20.2% for the
1999 third quarter, compared with 4.8% in the 1998 third quarter (excluding
the special provision) and 25.4% in the 1999 second quarter.
On a cash basis, which excludes goodwill amortization, net earnings for the 1999
third quarter were $629 million. On the same basis, diluted earnings per common
share were $1.48 and return on average common equity was approximately 21.3%.
Net earnings for the first nine months were a record $1.9 billion, 56% above the
corresponding 1998 period, excluding the special provision. On a comparable
basis, nine-month 1999 earnings per common share were $4.97 basic and $4.36
diluted, versus $3.27 basic and $2.85 diluted in the corresponding 1998 period.
Annualized return on average common equity was approximately 23.3%.
Cash basis net earnings for the first nine months of 1999 were $2.0 billion. On
the same basis, diluted earnings per common share were $4.77 and return on
average common equity was approximately 24.4%.
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Net revenues rose 37% from the 1998 third quarter to $5.3 billion as principal
transactions revenues and net interest were sharply higher and investment
banking revenues and asset management and portfolio service fees reached record
levels.
Commissions revenues were down 1% from the 1998 third quarter to $1.4 billion.
Principal transactions revenues were $1.1 billion, up $780 million from the 1998
third quarter, when global market conditions negatively impacted debt trading
revenues. Equity trading revenues increased from the 1998 third quarter as
higher revenues from equity derivatives and US equities more than offset a
decline in non-US equity trading activity. Principal transactions revenues were
virtually unchanged from the 1999 second quarter.
Investment banking revenues increased 33% from the 1998 third quarter to $948
million, led by higher underwriting revenues and record strategic services fees.
Both equity and debt underwriting revenues were up compared with the year ago
period, benefiting from improved market share and more favorable market
conditions. Strategic services revenues increased significantly from both the
1998 third quarter and 1999 second quarter due to higher levels of merger and
acquisition activity, particularly in Europe.
Asset management and portfolio service fees rose 13% from the 1998 third quarter
to a record $1.2 billion. Higher portfolio service fees resulted in part from an
increase in the number of fee-based accounts during the quarter, including those
related to Merrill Lynch Consults (Registered Trademark) and Unlimited Advantage
(Service Mark), Merrill Lynch's new fee-based financial service. Total assets in
fee-based accounts totaled $117 billion at quarter end. Asset management fees
were also up 9%, as assets under management grew 10% to $514 billion at the end
of the third quarter from $467 billion a year ago.
Other revenues declined 23% to $117 million, due in part to lower net realized
investment gains and the 1998 third quarter gain on the sale of a residential
real estate subsidiary.
Net interest profit was $521 million, up sharply from the 1998 third quarter,
primarily as a result of lower funding costs, changes in asset composition, and
a steepening yield curve.
Non-interest expenses, excluding compensation costs, were up 1% from the 1998
third quarter (excluding the special provision) and were down 3% from the 1999
second quarter.
Compensation and benefits, the largest expense category, rose $737 million from
the 1998 third quarter, or 37%, to $2.7 billion as increased profitability led
to significantly higher incentive compensation. Increased headcount also
contributed to the increase. Compensation and benefits as a percentage of net
revenues was 52.1% for the 1999
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third quarter and 51.6% for the 1999 nine months, in line with the ratios for
each of the last three years.
Communications and technology costs and occupancy and related depreciation
expense were $481 million and $230 million, respectively - both virtually
unchanged from a year ago.
Advertising and market development expense was $190 million, down 6% from the
1998 third quarter, principally due to reductions in sales promotion and global
travel and entertainment expenses. Brokerage, clearing, and exchange fees
decreased 9% to $170 million due in part to lower global trading volume.
Professional fees were $144 million, down 13% from the 1998 third quarter.
Goodwill amortization was $57 million in the 1999 third quarter. Other expenses
were $359 million, up 23% from a year ago, due in part to higher provisions
related to various business matters.
For the third quarter of 1999, the effective tax rate was 30.4%, comparable to
the 30.0% in the second quarter of 1999. The year-to-date effective tax rate was
31.5%.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
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(c) Exhibits
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(99) Additional Exhibits
(i) Preliminary Unaudited Earnings Summary for
the three- and nine-month periods ended
September 24, 1999.
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SIGNATURE
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.
MERRILL LYNCH & CO., INC.
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(Registrant)
By: /s/ E. Stanley O'Neal
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E. Stanley O'Neal
Executive Vice President and
Chief Financial Officer
Date: October 12, 1999
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EXHIBIT INDEX
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Exhibit No. Description Page
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(99) Additional Exhibits
(i) Preliminary Unaudited Earnings Summary for the 7-8
three- and nine-month periods ended
September 24, 1999.
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<TABLE>
<CAPTION>
Exhibit 99(i)
MERRILL LYNCH & CO., INC.
PRELIMINARY UNAUDITED EARNINGS SUMMARY
For the Three Months Ended Percent Inc/(Dec)(1)
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September 24, June 25, September 25, 3Q99 vs. 3Q99 vs.
(in millions, except per share amounts) 1999 1999 1998 2Q99 3Q98
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<S> <C> <C> <C> <C> <C>
NET REVENUES
Commissions $ 1,440 $ 1,592 $ 1,449 (9.6)% (0.7)%
Principal transactions 1,059 1,064 279 (0.5) 279.6
Investment banking 948 908 711 4.4 33.3
Asset management and portfolio service fees 1,183 1,159 1,043 2.1 13.5
Other 117 175 151 (33.4) (22.7)
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Subtotal 4,747 4,898 3,633 (3.1) 30.7
Interest and dividends 3,665 3,732 4,712 (1.8) (22.2)
Interest expense 3,144 3,190 4,496 (1.5) (30.1)
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Net interest profit 521 542 216 (3.8) 141.3
TOTAL NET REVENUES 5,268 5,440 3,849 (3.2) 36.9
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NON-INTEREST EXPENSES
Compensation and benefits 2,746 2,729 2,009 0.6 36.7
Communications and technology 481 536 487 (10.3) (1.3)
Occupancy and related depreciation 230 232 227 (0.9) 1.3
Advertising and market development 190 201 203 (5.6) (6.4)
Brokerage, clearing, and exchange fees 170 170 186 (0.3) (8.9)
Professional fees 144 143 165 - (12.9)
Goodwill amortization 57 56 55 2.1 3.6
Provision for costs related to staff reductions - - 430 - N/M
Other 359 342 292 5.0 23.0
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TOTAL NON-INTEREST EXPENSES 4,377 4,409 4,054 (0.8) 7.9
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EARNINGS (LOSS) BEFORE INCOME TAXES AND DIVIDENDS
ON PREFERRED SECURITIES ISSUED BY SUBSIDIARIES 891 1,031 (205) (13.5) N/M
Income tax expense (benefit) 271 310 (75) (12.6) N/M
Dividends on preferred securities issued by subsidiaries 48 48 33 0.9 48.6
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NET EARNINGS (LOSS) $ 572 $ 673 $ (163) (15.0) N/M
======= ======= =======
Preferred stock dividends $ 10 $ 9 $ 10 - -
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NET EARNINGS (LOSS) APPLICABLE TO COMMON STOCKHOLDERS $ 562 $ 664 $ (173) (15.2) N/M
======= ======= =======
EARNINGS (LOSS) PER COMMON SHARE
Basic $ 1.52 $ 1.80 $ (0.48) (15.6) N/M
Diluted 1.34 1.57 (0.48) (14.6) N/M
AVERAGE SHARES
Basic 370.3 368.3 357.6 0.6 3.6
Diluted 419.1 421.3 357.6 (0.5) 17.2
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CASH BASIS (2)
Net Earnings (Loss) $ 629 $ 729 $ (108) (13.7) N/M
Earnings (Loss) per Common Share - Basic 1.67 1.95 (0.33) (14.4) N/M
Earnings (Loss) per Common Share - Diluted 1.48 1.71 (0.33) (13.5) N/M
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(1) Percentages are based on actual numbers before rounding.
(2) Cash basis excludes goodwill amortization.
Note: Certain prior period amounts have been restated to conform to the current period presentation.
N/M Not meaningful.
</TABLE>
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<TABLE>
<CAPTION> Exhibit 99(i)
MERRILL LYNCH & CO., INC.
PRELIMINARY UNAUDITED EARNINGS SUMMARY
For the Nine Months Ended
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September 24, September 25, Percent
(in millions, except per share amounts) 1999 1998 Inc / (Dec)(1)
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<S> <C> <C> <C>
NET REVENUES
Commissions $ 4,599 $ 4,375 5.1 %
Principal transactions 3,568 2,439 46.3
Investment banking 2,489 2,440 2.0
Asset management and portfolio service fees 3,452 3,156 9.3
Other 424 368 15.4
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Subtotal 14,532 12,778 13.7
Interest and dividends 11,077 13,951 (20.6)
Interest expense 9,635 13,263 (27.4)
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Net interest profit 1,442 688 109.7
TOTAL NET REVENUES 15,974 13,466 18.6
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NON-INTEREST EXPENSES
Compensation and benefits 8,237 6,980 18.0
Communications and technology 1,497 1,311 14.2
Occupancy and related depreciation 689 645 6.7
Advertising and market development 543 580 (6.3)
Brokerage, clearing, and exchange fees 494 509 (3.0)
Professional fees 404 459 (12.0)
Goodwill amortization 170 166 2.5
Provision for costs related to staff reductions - 430 N/M
Other 1,022 809 26.4
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TOTAL NON-INTEREST EXPENSES 13,056 11,889 9.8
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EARNINGS BEFORE INCOME TAXES AND DIVIDENDS
ON PREFERRED SECURITIES ISSUED BY SUBSIDIARIES 2,918 1,577 85.0
Income tax expense 918 595 54.4
Dividends on preferred securities issued by subsidiaries 146 82 76.7
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NET EARNINGS $ 1,854 $ 900 106.0
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Preferred stock dividends $ 29 $ 29 -
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NET EARNINGS APPLICABLE TO COMMON STOCKHOLDERS $ 1,825 $ 871 109.4
======= =======
EARNINGS PER COMMON SHARE
Basic $ 4.97 $ 2.46 102.0
Diluted 4.36 2.14 103.7
AVERAGE SHARES
Basic 367.6 354.1 3.8
Diluted 418.7 406.7 2.9
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CASH BASIS (2)
Net Earnings $ 2,024 $ 1,066 89.8
Earnings per Common Share - Basic 5.43 2.93 85.3
Earnings per Common Share - Diluted 4.77 2.55 87.1
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(1) Percentages are based on actual numbers before rounding.
(2) Cash basis excludes goodwill amortization.
Note: Certain prior period amounts have been restated to conform to the current period presentation.
N/M Not meaningful.
</TABLE>
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