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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): July 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 July 13, 1999, for Merrill Lynch & Co., Inc. ("Merrill
Lynch") for the three- and six-month periods ended June 25, 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 June 25, 1999 were approximately $425 million, $11.0 billion,
$56.0 billion, $2.6 billion, and $29.85, respectively.
On July 13, 1999, Merrill Lynch reported record quarterly net earnings of $673
million, 22% above the 1998 second quarter and 11% above the previous record of
$609 million in the 1999 first quarter. Earnings per common share were $1.80
basic and $1.57 diluted, compared with $1.52 basic and $1.31 diluted in the 1998
second quarter and $1.65 basic and $1.44 diluted in the 1999 first quarter.
Annualized return on average common equity was approximately 25.4% for the 1999
second quarter, compared with 23.6% in the 1998 second quarter and 24.6% in the
1999 first quarter.
On a cash basis, which excludes goodwill amortization, diluted earnings per
common share were $1.71. Return on average common equity on this basis was
26.4%.
For the 1999 first half, net earnings reached a record $1.3 billion, 21% above
the corresponding 1998 period. Six-month 1999 earnings per common share were
$3.45 basic and $3.02 diluted, versus $2.96 basic and $2.57 diluted in the
corresponding 1998 period. Annualized return on average common equity was
approximately 25.0%.
Net revenues reached a new high of $5.4 billion, with records in most
categories, including commissions, investment banking, asset management and
portfolio service fees, and net interest.
Commissions revenues were $1.6 billion, up 9% from the 1998 second quarter,
primarily due to increases in global listed securities volume especially on non-
US exchanges.
Principal transactions revenues rose 8% from the 1998 second quarter to $1.1
billion, but were down 26% from the record 1999 first quarter. Debt trading
results benefited
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from improved market conditions particularly in Asia compared with the year ago
period, while equities and equity derivatives revenues were down, primarily
related to lower revenues from non-US trading activities.
Investment banking revenues were $908 million, up 1% from the 1998 second
quarter and 44% from the 1999 first quarter on the strength of strategic
services fees. Strategic services revenues increased significantly from both
the 1998 second quarter and 1999 first quarter, benefiting from higher levels of
merger and acquisition activity. Equity underwriting revenues were sharply
higher versus the 1998 second quarter and nearly double 1999 first quarter
levels. However, underwriting fees in most debt categories declined compared
with the year ago period as the anticipated rise in US interest rates led to an
industrywide slowdown in new issues.
Asset management and portfolio service fees rose 7% from the 1998 second quarter
to a record $1.2 billion, as a result of continued growth in fee-based products,
including Merrill Lynch Consults (Registered Trademark) and Financial Advantage
(Service Mark). Assets under management grew to $516 billion at the end of the
second quarter from $491 billion a year ago.
Other revenues increased 28% to $175 million, due in part to distributions from
partnerships.
Net interest profit was $542 million, up 91% from the 1998 second quarter,
primarily due to higher dividend revenues as well as a reduction in funding
costs.
Non-interest expenses were $4.4 billion in the 1999 second quarter, up 12% from
the comparable 1998 period and 3% from the first quarter of 1999. Higher
communications and technology spending contributed to the increases in both
periods.
Compensation and benefits, the largest expense category, increased 10% to $2.7
billion in the 1999 second quarter, due to higher incentive and production-
related compensation. Compensation and benefits expense as a percentage of net
revenues was 50.2% in the 1999 second quarter, below second quarter 1998 and
first quarter 1999 levels.
Communications and technology expense was $536 million, up 24% from the 1998
second quarter, principally as a result of increased systems consulting costs,
partly related to the Year 2000 initiative, and higher technology-related
depreciation. Occupancy and related depreciation rose 7% to $232 million due in
part to global expansion.
Advertising and market development expense was $201 million, up 1% from the 1998
second quarter as increased costs for advertising campaigns were partially
offset by a reduction in global travel and entertainment expenses. Brokerage,
clearing, and exchange fees rose 2% to $170 million due to higher global trading
volume.
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Professional fees and goodwill amortization were $143 million and $56 million,
respectively, both virtually unchanged from a year ago.
Other expenses were $342 million, compared with $254 million in the year ago
quarter. This increase was due in part to higher provisions related to various
business matters.
The effective tax rate was 30.0% in the 1999 second quarter, compared with 37.1%
in the corresponding 1998 period, benefiting from tax-advantaged financing and
higher tax-exempt and non-US income.
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
six-month periods ended June 25, 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: July 13, 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 7-8
the three- and six-month periods ended
June 25, 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)
--------------------------------------- --------------------------
June 25, March 26, June 26, 2Q99 vs. 2Q99 vs.
(in millions, except per share amounts) 1999 1999 1998 1Q99 2Q98
----------- ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
NET REVENUES
Commissions $ 1,592 $ 1,567 $ 1,463 1.6% 8.8%
Principal transactions 1,064 1,444 989 (26.3) 7.6
Investment banking 908 633 898 43.5 1.1
Asset management and portfolio service fees 1,159 1,110 1,084 4.4 6.8
Other 175 132 137 32.3 28.1
----------- ------------ ------------
Subtotal 4,898 4,886 4,571 0.3 7.2
Interest and dividends 4,018 3,965 5,010 1.3 (19.8)
Interest expense 3,476 3,585 4,726 (3.0) (26.4)
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Net interest profit 542 380 284 42.6 90.9
TOTAL NET REVENUES 5,440 5,266 4,855 3.3 12.0
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NON-INTEREST EXPENSES
Compensation and benefits 2,729 2,762 2,473 (1.2) 10.4
Communications and technology 536 480 431 11.8 24.3
Occupancy and related depreciation 232 227 217 2.4 7.0
Advertising and market development 201 152 200 32.1 0.5
Brokerage, clearing, and exchange fees 170 154 167 10.6 2.0
Professional fees 143 117 143 22.2 0.5
Goodwill amortization 56 57 55 (1.3) 1.0
Other 342 321 254 6.5 34.5
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TOTAL NON-INTEREST EXPENSES 4,409 4,270 3,940 3.3 11.9
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Earnings Before Income Taxes and Dividends
on Preferred Securities Issued by Subsidiaries 1,031 996 915 3.4 12.6
Income tax expense 310 338 339 (8.6) (8.8)
Dividends on preferred securities issued by subsidiaries 48 49 27 (1.7) 82.0
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NET EARNINGS $ 673 $ 609 $ 549 10.5 22.5
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Preferred stock dividends $ 9 $ 10 $ 9 - -
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NET EARNINGS APPLICABLE TO COMMON STOCKHOLDERS $ 664 $ 599 $ 540 10.7 22.9
=========== ============ ============
EARNINGS PER COMMON SHARE
Basic $1.80 $1.65 $1.52 9.1 18.4
Diluted 1.57 1.44 1.31 9.0 19.8
AVERAGE SHARES
Basic 368.3 364.0 355.3 1.2 3.7
Diluted 421.3 415.7 411.4 1.3 2.4
(1) Percentages are based on actual numbers before rounding.
</TABLE>
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<TABLE>
<CAPTION>
Exhibit 99(i)
MERRILL LYNCH & CO., INC.
PRELIMINARY UNAUDITED EARNINGS SUMMARY
For the Six Months Ended
June 25, June 26, Percent
(in millions, except per share amounts) 1999 1998 Inc / (Dec)(1)
---------------- ---------------- ---------------
<S> <C> <C> <C>
NET REVENUES
Commissions $ 3,159 $ 2,926 8.0%
Principal transactions 2,509 2,160 16.1
Investment banking 1,540 1,729 (10.9)
Asset management and portfolio service fees 2,268 2,114 7.3
Other 308 217 42.1
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Subtotal 9,784 9,146 7.0
Interest and dividends 7,983 9,824 (18.7)
Interest expense 7,061 9,352 (24.5)
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Net interest profit 922 472 95.3
TOTAL NET REVENUES 10,706 9,618 11.3
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NON-INTEREST EXPENSES
Compensation and benefits 5,490 4,971 10.4
Communications and technology 1,016 823 23.4
Occupancy and related depreciation 459 418 9.7
Advertising and market development 353 377 (6.3)
Brokerage, clearing, and exchange fees 324 323 0.5
Professional fees 261 295 (11.5)
Goodwill amortization 113 111 1.9
Other 663 517 28.3
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TOTAL NON-INTEREST EXPENSES 8,679 7,835 10.8
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EARNINGS BEFORE INCOME TAXES AND DIVIDENDS
ON PREFERRED SECURITIES ISSUED BY SUBSIDIARIES 2,027 1,783 13.7
Income tax expense 648 670 (3.2)
Dividends on preferred securities issued by subsidiaries 97 50 95.2
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NET EARNINGS $ 1,282 $ 1,063 20.5
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Preferred stock dividends $ 19 $ 19 -
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NET EARNINGS APPLICABLE TO COMMON STOCKHOLDERS $ 1,263 $ 1,044 20.9
================ =============
EARNINGS PER COMMON SHARE
Basic $3.45 $2.96 16.6
Diluted 3.02 2.57 17.5
AVERAGE SHARES
Basic 366.2 352.4 3.9
Diluted 418.5 405.8 3.1
(1) Percentages are based on actual numbers before rounding.
</TABLE>
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