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 17, 2000
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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)
4 World Financial Center, New York, New York 10080
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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 for the three- and
nine-month periods ended September 29, 2000 and supplemental quarterly
information for Merrill Lynch & Co., Inc. ("Merrill Lynch"), as contained in a
press release dated October 17, 2000. 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 and preferred securities issued by subsidiaries as of September 29,
2000 were approximately $425 million, $16.7 billion, $66.6 billion, and $2.7
billion, respectively.
On October 17, Merrill Lynch reported third quarter net earnings of $885
million, its highest third quarter ever, up 53% from the $579 million earned in
the same quarter a year ago. Earnings per common share were $1.09 basic and
$0.94 diluted, compared with $0.75 basic and $0.67 diluted in the 1999 third
quarter.
The pre-tax profit margin for the quarter was 21.3%, up significantly from the
16.9% achieved in the 1999 third quarter. Annualized return on average common
equity was approximately 21.6%, compared with 20.2% in the third quarter a year
ago.
Merrill Lynch's net earnings for the first nine months of 2000 were a record
$2.9 billion, 53% higher than the corresponding 1999 period. The associated
pre-tax margin of 21.5% is the highest for the first nine months of any year
since 1993. Annualized return on average common equity was approximately 25.9%
for the nine-month period, up from 23.5% in the same period last year.
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BUSINESS SEGMENT REVIEW:
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CORPORATE AND INSTITUTIONAL CLIENT GROUP (CICG)
CICG achieved solid results in a seasonally slow business environment. The group
has concluded the combination with market-maker Herzog Heine Geduld, and is
already beginning to realize the anticipated synergies.
o Pre-tax earnings in the quarter were $839 million, up 35% from the
1999 third quarter, on net revenues of $2.8 billion, 13% greater than
the 1999 third quarter. CICG's pre-tax margin in the quarter expanded
to 30%, up five percentage points from 25% in the third quarter a year
ago.
o Year-to-date pre-tax earnings were a record $3.1 billion, up 55% from
the first nine months of 1999. Year-to-date net revenues grew 32% from
the comparable 1999 period, to $9.8 billion. CICG's year-to-date
pre-tax margin was 32%, up from 27% in the first nine months of 1999.
o Merrill Lynch retained its position as the leading underwriter of
total debt and equity securities in both the US and global markets,
with third-quarter market shares of 15.9% and 14.6%, respectively,
according to Thomson Financial Securities Data.
o Merrill Lynch posted a strong performance in equity origination,
ranking #2 in global equity and equity-linked deals in the quarter
with an 18.8% market share. Performance was strong in all regions,
underscoring the strength and global capabilities of Merrill Lynch's
equity markets franchise.
o Much progress was made on other priority CICG initiatives: Merrill
Lynch's expanding technology investment banking and research team
executed several benchmark transactions. The firm continues to
strengthen its private equity business and launched, with partners, a
$300 million venture capital fund to invest primarily in mobile
Internet ventures and technologies in Europe and North America.
Important steps were also taken in the development of Merrill Lynch's
Securities Services Division, already the largest clearer of US
equities.
PRIVATE CLIENT GROUP
Results in the quarter reflect significant activity and the progress the group
has made, which produced strong quarterly earnings gains.
o Pre-tax earnings in the quarter grew to $402 million, up 44% from the
third quarter of 1999 and up 37% from the second quarter of this year.
The pre-tax margin in the quarter increased to 14%, led by major
increases in our US business, up three percentage points from 11% in
the third quarter of 1999.
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o Third-quarter expenses were reduced by $247 million, or 9%, from the
preceding quarter, primarily as a result of lower volume-related
transaction costs, reduced advertising spending, staff reductions and
other actions taken to generate efficiencies. This overall decrease in
expenses is after recording $70 million of compensation and benefits
costs associated with the staff reductions.
o Earnings momentum has clearly improved as a result of the actions
taken during the third quarter. Year-to-date pre-tax profits were $1.2
billion, up 15% from last year.
o Assets in client accounts were $1.8 trillion, including $1.6 trillion
of assets in private client accounts, which were up 20% from the
year-ago period. Net new money flows into private client accounts
totaled $34 billion. Assets in asset-priced accounts continued to
grow, to $218 billion. US bank deposits totaled $38 billion at the end
of the third quarter.
o Outside the US, Merrill Lynch's private client business is delivering
year-over-year net revenue and asset growth that meet the company's
20% annual growth targets. Consistent with the firm's strategy in the
US, Merrill Lynch's international financial consultants are focusing
on providing advisory services to high net worth and ultra high net
worth clients. Merrill Lynch's joint venture with HSBC will complement
this strategy, by cost effectively serving the significant and growing
number of affluent investors online.
o Merrill Lynch continued to grow its worldwide financial consultant
force, which increased by approximately 500 during the quarter to
20,100.
MERRILL LYNCH INVESTMENT MANAGERS (MLIM)
Merrill Lynch Investment Managers'quarterly earnings continued their upward
trend.
o Pre-tax earnings were $143 million, up $59 million from the third
quarter of 1999 on net revenues of $604 million, up 18% from the 1999
third quarter. The pre-tax margin in the quarter expanded to 24%, up
more than seven percentage points from the third quarter of 1999.
o Year-to-date pre-tax earnings were $374 million, up 55% from the same
period a year ago. Year-to-date net revenues grew 18% from the
comparable period of 1999, to $1.8 billion. The year-to-date pre-tax
margin was 21%, up from 16% in the first nine months of 1999.
o Assets under management totaled $571 billion at quarter-end, including
$29 billion associated with the defined asset fund business, which was
transferred from the Private Client Group during the quarter.
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o MLIM products attracted $1.3 billion of net new money during the
quarter. MLIM's focus on delivering strong investment performance
worldwide is generating improved results and leading to a growing
confidence in MLIM products. Seventy-nine percent of all MLIM retail
products globally achieved year-to-date returns above median in their
respective categories, while 69% of all MLIM institutional products
globally achieved year-to-date returns greater than benchmark.
o As part of MLIM's focus on streamlining non-core activities, the group
has entered into a strategic alliance to outsource its US fund
accounting function.
INCOME STATEMENT REVIEW:
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REVENUES
Net revenues rose 15% from the 1999 third quarter to $6.1 billion, primarily due
to record asset management and portfolio service fees, and strong revenues from
commissions and net interest.
Commission revenues were $1.6 billion, an increase of 12% from the 1999 third
quarter, driven by increased trading of listed securities on exchanges outside
the US and higher mutual fund sales.
Principal transaction net revenues increased 3% from the third quarter of 1999
to $1.2 billion. Increased equity derivative revenues offset a small decline in
fixed income trading revenues.
Investment banking revenues were $858 million, a 10% decline from the strong
third quarter a year ago, primarily as a result of lower strategic advisory
service revenues associated with merger and acquisition activity.
Asset management and portfolio service fees rose 20% from the third quarter of
1999 to a record $1.4 billion. Assets in asset-priced accounts have increased
significantly over the past 12 months, particularly those related to Unlimited
Advantage(Service Mark) and Merrill Lynch Consults(Registered Trademark).
Other revenues reached a record $318 million as a result of gains from sales of
private equity investments.
Net interest profit was $775 million, up $251 million from the third quarter a
year ago. This increase was due to higher customer-lending balances and changes
in the asset/liability mix.
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EXPENSES
Compensation and benefits expenses rose 13% from the 1999 third quarter to $3.1
billion, as increased profitability led to higher incentive compensation, but
these expenses were down 10% from the 2000 second quarter. Compensation and
benefits expenses were 51.2% of net revenues for the third quarter of 2000,
compared with 52.0% in the 1999 third quarter. Compensation and benefits
expenses include $70 million associated with the staff reductions in the US
private client business.
Non-compensation expenses were virtually unchanged from the 1999 third quarter,
and declined to 27.5% of net revenues from 31.1%. Compared with the second
quarter, these expenses were down 12%. These decreases in the quarter were
across all segments and every expense line.
The reduction in expenses results from actions taken across the firm, including
the realignment and strengthening of the US private client business. Details on
changes in non-compensation expenses include:
o communications and technology expenses were $542 million, down 7% from
the second quarter of 2000, primarily due to lower systems consulting
costs, but up 11% from the third quarter of 1999.
o occupancy and related depreciation was $250 million, slightly lower
than the previous quarter and up 8% from the 1999 third quarter.
o advertising and market development expenses declined 22% from the
previous quarter to $205 million, due to lower spending on advertising
and promotional programs. The 7% increase from the 1999 third quarter
is a result of higher sales promotion and travel costs associated with
increased business activity.
o brokerage, clearing, and exchange fees were $206 million, a decrease
of 12% from the second quarter of 2000 due to lower transaction
volume, but an increase of 7% year-over-year, partially as a result of
increased transaction volume.
o professional fees were $147 million, down 13% from the 2000 second
quarter due to reduced legal and consulting fees and virtually
unchanged from a year ago.
o goodwill amortization was $52 million in the third quarter of 2000.
Other expenses were $290 million, 20% lower than the 2000 second
quarter and 19% lower than the 1999 third quarter, due to a decline in
provisions for various business matters.
Merrill Lynch's year-to-date effective tax rate was 30.8%, in line with prior
quarters.
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Merrill Lynch may make or publish forward-looking statements about management
expectations, strategic objectives, business prospects, anticipated financial
performance, and other similar matters. A variety of factors, many of which are
beyond Merrill Lynch's control, could cause actual results and experience to
differ materially from the expectations expressed in these statements. These
factors include, but are not limited to, financial market volatility, actions
and initiatives by current and potential competitors, the effect of current and
future legislation or regulation, and additional factors described in Merrill
Lynch's 1999 Annual Report on Form 10-K, which is available at the SEC's
website, www.sec.gov. Merrill Lynch undertakes no responsibility to update or
revise any forward-looking statements.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
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(c) Exhibits
(99) Additional Exhibits
(i) Preliminary Unaudited Earnings Summary for the three- and
nine-month periods ended September 29, 2000 and
supplemental information.
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SIGNATURE
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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, hereunto duly authorized.
MERRILL LYNCH & CO., INC.
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(Registrant)
By: /s/ Thomas H. Patrick
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Thomas H. Patrick
Executive Vice President and
Chief Financial Officer
Date: October 17, 2000
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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 three- and nine-month periods ended
September 29, 2000 and supplemental information. 11-16
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