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): January 25, 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)
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 January 25, 2000, for Merrill Lynch & Co., Inc. ("Merrill
Lynch") for the three months and the year ended December 31, 1999. The results
of operations set forth therein for such periods are unaudited. All adjustments,
consisting only of normal recurring accruals and a 1998 provision for costs
related to staff reductions, 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 December 31, 1999 were approximately $425 million, $12.4
billion, $53.5 billion, $2.7 billion, and $33.20, respectively.
On January 25, 2000, Merrill Lynch reported record quarterly net earnings of
$764 million, up $405 million from the 1998 fourth quarter. Earnings per common
share were $2.03 basic and $1.80 diluted, compared with $.97 basic and $.86
diluted in the 1998 fourth quarter.
Earnings for 1999 were a record $2.6 billion, up 69% from the $1.5 billion
reported in 1998, which excludes 1998's $288 million after-tax special
provision. Basic and diluted earnings per common share were $7.00 and $6.17,
respectively, compared with $4.24 and $3.71 for 1998, excluding the special
provision.
Annualized return on average common equity was approximately 23.8% for the 1999
fourth quarter, compared with 14.8% in the 1998 fourth quarter and 20.2% in the
1999 third quarter. Return on average common equity was 23.5% for 1999.
On a cash basis, which excludes goodwill amortization, net earnings for the 1999
fourth quarter were $821 million. On the same basis, diluted earnings per common
share were $1.93 and annualized return on average common equity was
approximately 24.4%. For the full year, net earnings on a cash basis were $2.8
billion, or $6.71 per diluted common share. Return on equity was approximately
24.4% on a comparable basis.
Net revenues reached a new quarterly high of $5.9 billion, achieving records in
most categories, including commissions, investment banking, asset management and
portfolio service fees, and net interest.
Commissions revenues were up 22% from the 1998 fourth quarter to $1.7 billion,
primarily due to increased volume in global listed securities on non-U.S.
exchanges, mutual funds sales, and over-the-counter securities transactions.
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Principal transactions revenues increased $583 million from the 1998 fourth
quarter, when global market conditions negatively impacted debt trading
revenues. Equity trading revenues benefited from increased trading volume in
both U.S. and non-U.S. equities, as global market conditions improved,
particularly in Europe and Japan. Debt trading revenues were up sharply across
all regions, benefiting from improved global markets compared to the 1998 fourth
quarter.
Investment banking revenues rose 37% from the 1998 fourth quarter to $1.1
billion, as a result of record underwriting revenues and strategic services
fees. Both equity and debt underwriting revenues were up significantly compared
with the year ago period, benefiting from improved market share and more
favorable market conditions. Strategic services revenues increased from both the
1998 fourth quarter and 1999 third quarter as a result of higher levels of
merger and acquisition activity, particularly in Europe.
Asset management and portfolio service fees increased 24% from the 1998 fourth
quarter to a record $1.3 billion. Asset management fees were up 24% from fourth
quarter 1998, as assets under management grew 8% during the quarter to $557
billion at the end of 1999. Higher portfolio service fees resulted from an
increase in fee-based assets during the year, including those related to Merrill
Lynch Consults (Registered Trademark) and Unlimited Advantage (Service Mark).
Other revenues were up 16% year-over-year to $296 million, reflecting higher
investment gains.
Net interest profit was $644 million, up sharply from the 1998 fourth quarter,
primarily as a result of changes in asset composition, higher margin lending,
higher dividends and efficiencies in financing activities.
Non-interest expenses, excluding compensation costs, were 30.4% of net revenues
for the full year, down from 33.2% in 1998 (excluding the special provision).
Compensation and benefits, the largest expense category, rose $698 million from
the 1998 fourth quarter, or 31%, to $2.9 billion as increased profitability led
to significantly higher incentive compensation. Increased headcount and employee
benefit costs also contributed to the increase. Compensation and benefits as a
percentage of net revenues was 49.5% for the 1999 fourth quarter and 51.0% for
the full year, compared with 54.3% for the 1998 fourth quarter and 52.4% for
1998.
Communications and technology expense was $541 million, up 24% from the 1998
fourth quarter, as a result of higher technology-related depreciation and
increased communication maintenance costs, partially due to the new online
initiatives. Occupancy and related depreciation rose 14% to $252 million
principally due to higher rent expense resulting, in part, from increased
business activity.
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Advertising and market development expense increased $129 million, to $236
million, partially due to higher advertising costs related to the launch of a
new ad campaign in the fourth quarter. Expenses in this category were lower than
usual in the 1998 fourth quarter because of cost containment.
Brokerage, clearing, and exchange fees increased 6% to $184 million due in part
to volume-driven increases in exchange and clearing fees. Professional fees were
$163 million, up $70 million from the 1998 fourth quarter, due in part to higher
consulting and employment service fees.
Goodwill amortization was $57 million in the 1999 fourth quarter. Other expenses
were $386 million, up 55% from the 1998 fourth quarter, due in part to increased
expenses for office supplies and higher provisions related to various matters.
The effective tax rate was 29.8% in the 1999 fourth quarter, and the annual
effective tax rate was 31.0%.
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 months and the year ended December 31, 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: January 25, 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 7-8
for the three months and the year ended
December 31, 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)
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December 31, September 24, December 25, 4Q99 vs. 4Q99 vs.
(in millions, except per share amounts) 1999 1999 1998 3Q99 4Q98
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<S> <C> <C> <C> <C> <C>
NET REVENUES
Commissions $ 1,735 $ 1,440 $ 1,424 20.5 % 21.8 %
Principal transactions 794 1,059 211 (25.0) 276.3
Investment banking 1,125 948 824 18.7 36.5
Asset management and portfolio service fees 1,301 1,183 1,046 10.0 24.4
Other 296 117 256 153.0 15.6
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Subtotal 5,251 4,747 3,761 10.6 39.6
Interest and dividends 4,019 3,665 4,084 9.7 (1.6)
Interest expense 3,375 3,144 3,764 7.3 (10.3)
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Net interest profit 644 521 320 23.6 101.3
TOTAL NET REVENUES 5,895 5,268 4,081 11.9 44.4
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NON-INTEREST EXPENSES
Compensation and benefits 2,916 2,746 2,218 6.2 31.5
Communications and technology 541 481 438 12.5 23.5
Occupancy and related depreciation 252 230 222 9.6 13.5
Advertising and market development 236 190 107 24.2 120.6
Brokerage, clearing, and exchange fees 184 170 174 8.2 5.7
Professional fees 163 144 93 13.2 75.3
Goodwill amortization 57 57 61 - (6.6)
Other 386 359 249 7.5 55.0
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TOTAL NON-INTEREST EXPENSES 4,735 4,377 3,562 8.2 32.9
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EARNINGS BEFORE INCOME TAXES AND DIVIDENDS
ON PREFERRED SECURITIES ISSUED BY SUBSIDIARIES 1,160 891 519 30.2 123.5
Income tax expense 346 271 119 27.7 190.8
Dividends on preferred securities issued by subsidiaries 50 48 41 4.2 22.0
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NET EARNINGS $ 764 $ 572 $ 359 33.6 112.8
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Preferred stock dividends $ 9 $ 10 $ 10 (10.0) (10.0)
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NET EARNINGS APPLICABLE TO COMMON STOCKHOLDERS $ 755 $ 562 $ 349 34.3 116.3
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EARNINGS PER COMMON SHARE
Basic $ 2.03 $ 1.52 $ 0.97 33.6 109.3
Diluted 1.80 1.34 0.86 34.3 109.3
AVERAGE SHARES
Basic 372.0 370.3 359.9 0.5 3.4
Diluted 420.6 419.1 404.9 0.4 3.9
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CASH BASIS (1)
Net Earnings $ 821 $ 629 $ 420 30.5 95.5
Earnings per Common Share - Basic 2.18 1.67 1.14 30.5 91.2
Earnings per Common Share - Diluted 1.93 1.48 1.01 30.4 91.1
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(1) Cash basis excludes goodwill amortization.
Note: Certain prior period amounts have been restated to conform to the current period presentation.
</TABLE>
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<TABLE>
<CAPTION>
Exhibit 99(i)
MERRILL LYNCH & CO., INC.
PRELIMINARY UNAUDITED EARNINGS SUMMARY
For the Year Ended
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December 31, December 25, Percent
(in millions, except per share amounts) 1999 1998 Inc / (Dec)
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<S> <C> <C> <C>
NET REVENUES
Commissions $ 6,334 $ 5,799 9.2 %
Principal transactions 4,361 2,651 64.5
Investment banking 3,614 3,264 10.7
Asset management and portfolio service fees 4,753 4,202 13.1
Other 720 623 15.6
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Subtotal 19,782 16,539 19.6
Interest and dividends 15,097 18,035 (16.3)
Interest expense 13,010 17,027 (23.6)
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Net interest profit 2,087 1,008 107.0
TOTAL NET REVENUES 21,869 17,547 24.6
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NON-INTEREST EXPENSES
Compensation and benefits 11,153 9,199 21.2
Communications and technology 2,038 1,749 16.5
Occupancy and related depreciation 941 867 8.5
Advertising and market development 779 688 13.2
Brokerage, clearing, and exchange fees 678 683 (0.7)
Professional fees 567 552 2.7
Goodwill amortization 227 226 0.4
Provision for costs related to staff reductions - 430 N/M
Other 1,408 1,057 33.2
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TOTAL NON-INTEREST EXPENSES 17,791 15,451 15.1
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EARNINGS BEFORE INCOME TAXES AND DIVIDENDS
ON PREFERRED SECURITIES ISSUED BY SUBSIDIARIES 4,078 2,096 94.6
Income tax expense 1,265 713 77.4
Dividends on preferred securities issued by subsidiaries 195 124 57.3
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NET EARNINGS $ 2,618 $ 1,259 107.9
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Preferred stock dividends $ 38 $ 39 (2.6)
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NET EARNINGS APPLICABLE TO COMMON STOCKHOLDERS $ 2,580 $ 1,220 111.5
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EARNINGS PER COMMON SHARE
Basic $ 7.00 $ 3.43 104.1
Diluted 6.17 3.00 105.7
AVERAGE SHARES
Basic 368.7 355.6 3.7
Diluted 418.1 406.3 2.9
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CASH BASIS (1)
Net Earnings $ 2,845 $ 1,485 91.6
Earnings per Common Share - Basic 7.61 4.07 87.0
Earnings per Common Share - Diluted 6.71 3.56 88.5
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(1) Cash basis excludes goodwill amortization.
Note: Certain prior period amounts have been restated to conform to the current period presentation.
N/M Not meaningful.
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