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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): April 13, 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 April 13, 1999, for Merrill Lynch & Co., Inc. ("Merrill
Lynch") for the three-month period ended March 26, 1999. The results of
operations set forth therein for such period 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 period 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 March 26, 1999 were approximately $425 million, $10.3
billion, $59.9 billion, $2.6 billion, and $28.05, respectively.
On April 13, 1999, Merrill Lynch & Co., Inc. reported record quarterly net
earnings of $609 million, up 18% and 70% from the $514 million and $359 million
reported in the 1998 first and fourth quarters, respectively. These results
also surpassed the previous quarterly record of $549 million set in the 1998
second quarter.
Earnings per common share were $1.65 basic and $1.44 diluted, compared with
$1.44 basic and $1.26 diluted in the 1998 first quarter and $0.97 basic and
$0.86 diluted in the 1998 fourth quarter.
Annualized return on average common equity was approximately 24.6%, compared
with 24.0% in the year ago quarter and 14.8% in the 1998 fourth quarter.
On a cash basis, which excludes goodwill amortization, diluted earnings per
common share were $1.58. Return on average common equity on this basis was
25.8%.
Net revenues were a record $5.3 billion, up 11% from the 1998 first quarter as
commissions, principal transactions, asset management and portfolio service
fees, and net interest all reached quarterly highs.
Commissions revenues were a record $1.6 billion, up 7% from the 1998 first
quarter, benefiting from increases in global listed and over-the-counter
securities transactions.
Principal transactions revenues rose 23% from the 1998 first quarter and over
$1.2 billion from the weak 1998 fourth quarter to a record $1.4 billion as both
debt and equity trading revenues set records in the quarter. Debt trading
revenues benefited from improved results in both liquidity and credit products
and were up across the board from the 1998 fourth quarter as credit spreads
tightened, emerging markets stabilized, and general market conditions improved.
Equities and equity derivatives trading revenues rose sharply from both the 1998
first and fourth quarters, primarily due to growth in global equity
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derivatives and consistent strength in secondary trading, particularly in the
U.S. and Europe. Non-U.S. debt and equity trading revenues represented 69% of
total principal transactions revenues.
Merrill Lynch remained the leading underwriter of total debt and equity
securities with U.S. and global market shares of 16.0% and 11.7%, respectively,
according to Securities Data Co. Industrywide equity issuance volume was down
from the 1998 first quarter, which contributed to a 24% decline in investment
banking revenues to $633 million for the 1999 first quarter. Revenues from
strategic service fees were down slightly from last year's first quarter.
Asset management and portfolio service fees reached a record $1.1 billion, up 8%
from the 1998 first quarter, due in part to significant growth in fee-based
products, including Merrill Lynch Consults (Registered Trademark) and Financial
Advantage (Service Mark). Assets under management rose 5% from the 1998 first
quarter to a record $515 billion because of higher asset values and net cash
inflows.
Other revenues increased 66% to $132 million due in part to higher net realized
investment gains and income from partnership investments.
Net interest profit was $380 million, up 102% from the 1998 first quarter,
primarily due to changes in asset composition and a reduction in funding costs.
In terms of its cost base, Merrill Lynch has achieved its objectives in
repositioning resources consistent with market opportunities and strategic
investment for future growth. Non-interest expenses were up 10% from the 1998
first quarter to $4.3 billion, as higher compensation and benefits expense and
increases in technology costs more than offset cost savings in professional fees
and advertising and market development. Non-interest expenses were up only 7%
excluding the impact of Merrill Lynch Japan Securities ("MLJS").
Compensation and benefits, the largest expense category, was up 11% from the
1998 first quarter to $2.8 billion, due to higher incentive and production-
related compensation and increased headcount. However, non-producer salary
expense was down slightly from the 1998 fourth quarter. Compensation and
benefits as a percentage of net revenues was 52.4% for the 1999 first quarter,
compared with 52.5% in the 1998 first quarter. The percentage of non-interest
expenses, excluding compensation and benefits costs and goodwill amortization,
to net revenues was 27.6% in the 1999 first quarter, the lowest in ten quarters.
Communications and technology expense was $480 million, up 22% from the 1998
first quarter because of increased systems consulting costs related in part to
the Year 2000 initiative and higher technology-related depreciation.
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Occupancy and related depreciation advanced 13% to $227 million due to continued
global expansion. MLJS accounted for a significant portion of the increase.
Advertising and market development expense was down 14% to $152 million as a
result of reductions in travel and entertainment and sales promotion costs.
Brokerage, clearing and exchange fees were $154 million, virtually unchanged
from a year ago. Professional fees decreased 23% to $117 million, primarily due
to reduced legal and consulting costs.
Goodwill amortization was $57 million. Other expenses increased 22% to $321
million due in part to higher loss provisions related to various business
matters.
The effective tax rate was 34.0% in the 1999 first quarter, in line with the
full-year 1998 rate.
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-month
period ended March 26, 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: April 13, 1999
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EXHIBIT INDEX
Exhibit No. Description Page
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(99) Additional Exhibits
(i) Preliminary Unaudited Earnings Summary for
the three-month period ended March 26, 1999. 7
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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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March 26, December 25, March 27, 1Q99 vs. 1Q99 vs.
(in millions, except per share amounts) 1999 1998 1998 4Q98 1Q98
--------- ----------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
REVENUES
Commissions $ 1,567 $ 1,424 $ 1,463 10.0 % 7.1 %
Interest and dividends 3,965 4,411 4,814 (10.1) (17.6)
Principal transactions 1,444 211 1,171 583.6 23.3
Investment banking 633 824 831 (23.3) (23.9)
Asset management and portfolio service fees 1,110 1,046 1,029 6.1 7.8
Other 132 256 80 (48.2) 65.9
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TOTAL REVENUES 8,851 8,172 9,388 8.3 (5.7)
Interest expense 3,585 4,091 4,626 (12.4) (22.5)
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NET REVENUES 5,266 4,081 4,762 29.0 10.6
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NON-INTEREST EXPENSES
Compensation and benefits 2,762 2,218 2,499 24.5 10.5
Communications and technology 480 438 392 9.5 22.5
Occupancy and related depreciation 227 222 201 2.1 12.5
Advertising and market development 152 107 177 42.2 (14.0)
Brokerage, clearing, and exchange fees 154 174 156 (11.6) (1.2)
Professional fees 117 93 152 26.8 (22.7)
Goodwill amortization 57 61 55 (6.2) 2.9
Other 321 249 263 29.0 22.3
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TOTAL NON-INTEREST EXPENSES 4,270 3,562 3,895 19.9 9.6
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EARNINGS BEFORE INCOME TAXES AND DIVIDENDS
ON PREFERRED SECURITIES ISSUED BY SUBSIDIARIES 996 519 867 91.9 14.8
Income tax expense 338 119 330 185.5 2.5
Dividends on preferred securities issued by subsidiaries 49 41 23 17.4 110.1
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NET EARNINGS $ 609 $ 359 $ 514 69.7 18.4
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Preferred stock dividends $ 10 $ 10 $ 10 - -
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NET EARNINGS APPLICABLE TO COMMON STOCKHOLDERS $ 599 $ 349 $ 504 71.6 18.8
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EARNINGS PER COMMON SHARE
Basic $1.65 $0.97 $1.44 70.1 14.6
Diluted 1.44 0.86 1.26 67.4 14.3
AVERAGE SHARES
Basic 364.0 359.9 349.5 1.2 4.2
Diluted 415.7 404.9 400.2 2.7 3.9
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(1) Percentages are based on actual numbers before rounding.
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