Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

November 7, 2007

Documents

 

Exhibit 99.1
 
Merrill Lynch & Co., Inc.
 
Reconciliation of Non-GAAP Measures
 
During the third quarter of 2006, Merrill Lynch completed the merger of its Merrill Lynch Investment Managers business with BlackRock, Inc. Merrill Lynch recognized a gain associated with this merger along with other non-recurring expenses, collectively “Impact of BlackRock Merger”.
 
Management believes that while the results excluding the impact of the BlackRock merger are considered non-GAAP measures, they depict the operating performance of the company more clearly and enable more appropriate period-to-period comparisons.
 
Unaudited Earnings Summary
 
                         
(In millions, except per share amounts)            
 
   
For the Three Months Ended September 29, 2006
    Excluding Impact of
 		  Impact of
 		   
    BlackRock Merger   BlackRock Merger   GAAP Basis
 
Net Revenues(a)
  $ 7,864     $ 1,969     $ 9,833  
Non-Interest Expenses
                       
Compensation and benefits(b)
    3,798       144       3,942  
Non-compensation expenses(c)
    1,743       58       1,801  
                         
Total Non-Interest Expenses
    5,541       202       5,743  
                         
Earnings from continuing operations before income taxes(d)
    2,323       1,767       4,090  
Income tax expense(e)
    409       662       1,071  
                         
Net earnings from continuing operations
  $ 1,914     $ 1,105     $ 3,019  
                         
Earnings from discontinued operations before income taxes
  $ 38     $ -     $ 38  
Income tax expense
    12       -       12  
                         
Net earnings from discontinued operations
  $ 26     $ -     $ 26  
                         
Net Earnings
  $ 1,940     $ 1,105     $ 3,045  
                         
Preferred Stock Dividends
  $ 50     $ -     $ 50  
                         
Net Earnings Applicable to Common Stockholders
  $ 1,890     $ 1,105     $ 2,995  
                         
Basic earnings per common share from continuing operations
  $ 2.18     $ 1.29     $ 3.47  
Basic earnings per common share from discontinued operations
    0.03       -       0.03  
                         
Basic earnings per common share
  $ 2.21     $ 1.29     $ 3.50  
                         
Diluted earnings per common share from continuing operations
  $ 1.97     $ 1.17     $ 3.14  
Diluted earnings per common share from discontinued operations
    0.03       -       0.03  
                         
Diluted earnings per common share
  $ 2.00     $ 1.17     $ 3.17  
                         
Average Shares Used in Computing Earnings Per Common Share
                       
Basic
    855.8       -       855.8  
Diluted
    945.3       -       945.3  
 
 


133

 

Financial Ratios
 
                 
    For the Three Months Ended
    September 29, 2006
    Excluding Impact of
 		   
    BlackRock Merger   GAAP Basis
 
Ratio of compensation and benefits to net revenues(b)/(a)
    48.3 %     40.1 %
Ratio of non-compensation and benefits to net revenues(c)/(a)
    22.2 %     18.3 %
Effective tax rate(e)/(d)
    17.6 %     26.2 %
Pre-tax profit margin(d)/(a)
    29.5 %     41.6 %
Average common equity
  $ 33,862     $ 33,862  
Impact of the BlackRock merger
    (276 )     -  
                 
Average common equity
    33,586       33,862  
Annualized return on average common equity from continuing operations
    22.2 %     35.1 %
Annualized Return on Average Common Equity
    22.5 %     35.4 %


134

 

Merrill Lynch & Co., Inc.
 
Reconciliation of Non-GAAP Measures
 
Merrill Lynch adopted Statement of Financial Accounting Standards No. 123 (as revised in 2004) for stock-based employee compensation during the first quarter of 2006. Additionally, as a result of a comprehensive review of the retirement provisions in its stock-based compensation plans, Merrill Lynch also modified the retirement eligibility requirements of existing stock awards in order to facilitate transition to more stringent retirement eligibility requirements for future stock awards. These modifications and the adoption of the new accounting standard required Merrill Lynch to accelerate the recognition of compensation expenses for affected stock awards, resulting in the “one-time compensation expenses.” These changes represent timing differences and are not economic in substance.
 
During the third quarter of 2006, Merrill Lynch completed the merger of its Merrill Lynch Investment Managers business with BlackRock, Inc. Merrill Lynch recognized a gain associated with this merger along with other non-recurring expenses, collectively “Impact of BlackRock Merger”. Management believes that while the results excluding these one-time compensation expenses and the impact of the BlackRock merger are considered non-GAAP measures, they depict the operating performance of the company more clearly and enable more appropriate period-to-period comparisons.
 
Unaudited Earnings Summary
 
                                 
(In millions, except per share amounts)
 
   
For the Nine Months Ended September 29, 2006(1)
    Excluding One-time
 		  Impact of
 		       
    Compensation
 		  One-time
 		  Impact of
 		   
    Expenses & Impact of
 		  Compensation
 		  BlackRock
 		  GAAP
    BlackRock Merger   Expenses   Merger   Basis
 
Net revenues(a)
  $ 23,880     $ -     $ 1,969     $ 25,849  
Non-interest expenses
                               
Compensation and benefits(b)
    11,759       1,759       144       13,662  
Non-compensation expenses(c)
    5,162       -       58       5,220  
                                 
Total non-interest expenses
    16,921       1,759       202       18,882  
                                 
Earnings from continuing operations before income taxes(d)
    6,959       (1,759 )     1,767       6,967  
Income tax expense(e)
    1,803       (582 )     662       1,883  
                                 
Net earnings from continuing operations
  $ 5,156     $ (1,177 )   $ 1,105     $ 5,084  
                                 
Earnings from discontinued operations before income taxes
  $ 103     $ -     $ -     $ 103  
Income tax expense
    34       -       -       34  
                                 
Net earnings from discontinued operations
  $ 69     $ -     $ -     $ 69  
                                 
Net earnings
  $ 5,225     $ (1,177 )   $ 1,105     $ 5,153  
                                 
Preferred stock dividends
  $ 138     $ -     $ -     $ 138  
                                 
Net earnings applicable to common stockholders
  $ 5,087     $ (1,177 )   $ 1,105     $ 5,015  
                                 
Basic earnings per common share from continuing operations
  $ 5.75     $ (1.35 )   $ 1.25     $ 5.65  
Basic earnings per common share from discontinued operations
    0.08       -       -       0.08  
                                 
Basic earnings per common share
  $ 5.83     $ (1.35 )   $ 1.25     $ 5.73  
                                 
Diluted earnings per common share from continuing operations
  $ 5.20     $ (1.22 )   $ 1.14     $ 5.12  
Diluted earnings per common share from discontinued operations
    0.07       -       -       0.07  
                                 
Diluted earnings per common share
  $ 5.27     $ (1.22 )   $ 1.14     $ 5.19  
                                 
Average shares used in computing earnings per common share
                               
Basic
    873.1       1.9       -       875.0  
Diluted
    964.7       1.9       -       966.6  
 
 


135

 

Financial Ratios
 
                 
    For the Nine Months Ended(1)
    September 29, 2006
    Excluding One-time
 		   
    Compensation
 		   
    Expenses & Impact of
 		   
    BlackRock Merger   GAAP Basis
 
Ratio of compensation and benefits to net revenues(b)/(a)
    49.2 %     52.9 %
Ratio of non-compensation and benefits to net revenues(c)/(a)
    21.6 %     20.2 %
Effective Tax Rate(e)/(d)
    25.9 %     27.0 %
Pre-tax Profit Margin(d)/(a)
    29.1 %     27.0 %
 
 
Average Common Equity
  $ 33,887     $ 33,887  
Impact of one-time compensation expenses and the BlackRock merger
    (256 )     -  
                 
Average Common Equity
    33,631       33,887  
Annualized return on average common equity from continuing operations
    19.9 %     19.5 %
Annualized Return on Average Common Equity
    20.2 %     19.7 %
 
 


136

 

Segment Data (unaudited)
 
                 
(dollars in millions)        
 
    For the Three Months Ended   For the Nine Months Ended
    Sept. 29,
 		  Sept. 29,
    2006   2006
 
Global Markets & Investment Banking
               
Global Markets
               
FICC
  $ 2,081     $ 5,830  
Equity Markets
    1,519       4,969  
                 
Total Global Markets net revenues
    3,600       10,799  
Investment Banking(1)
               
Origination:
               
Debt
    366       1,195  
Equity
    193       745  
Strategic Advisory Services
    260       813  
                 
Total Investment Banking net revenues
    819       2,753  
                 
Total net revenues(a)
    4,419       13,552  
                 
Pre-tax earnings/(loss) from continuing operations
    1,472       3,153  
Impact of one-time compensation expenses
    -       1,369  
Pre-tax earnings/(loss) from continuing operations excluding one-time compensation expenses(b)
    1,472       4,522  
Pre-tax profit margin
    33.3 %     23.3 %
Pre-tax profit margin excluding one-time compensation expenses(b)/(a)
    33.3 %     33.4 %
 
 
Global Wealth Management
               
Global Private Client
               
Fee-based revenues
  $ 1,361     $ 4,057  
Transactional and origination revenues
    708       2,480  
Net interest profit and related hedges(2)
    508       1,545  
Other revenues
    76       207  
                 
Total Global Private Client net revenues
    2,653       8,289  
                 
Global Investment Management net revenues
    87       330  
                 
Total net revenues(a)
    2,740       8,619  
                 
Pre-tax earnings from continuing operations
    560       1,585  
Impact of one-time compensation expenses
    -       281  
                 
Pre-tax earnings from continuing operations excluding one- time compensation expenses(b)
    560       1,866  
Pre-tax profit margin
    20.4 %     18.4 %
Pre-tax profit margin excluding one-time compensation expenses(b)/(a)
    20.4 %     21.6 %
 
 
Merrill Lynch Investment Managers
               
Total net revenues(a)
  $ 700     $ 1,900  
Pre-tax earnings from continuing operations
    284       637  
Impact of one-time compensation expenses
    -       109  
                 
Pre-tax earnings from continuing operations excluding one- time compensation expenses(b)
    284       746  
Pre-tax profit margin
    40.6 %     33.5 %
Pre-tax profit margin excluding one-time compensation expenses(b)/(a)
    40.6 %     39.3 %
 
 
Corporate
               
Total net revenues
  $ 1,974     $ 1,778  
Impact of BlackRock merger
    1,969       1,969  
                 
Total net revenues excluding the BlackRock merger
    5       (191 )
Pre-tax earnings/(loss) from continuing operations
    1,774       1,592  
Impact of BlackRock merger
    (1,767 )     (1,767 )
                 
Pre-tax earnings/(loss) from continuing operations excluding the BlackRock merger
    7       (175 )
 
 


137

 

                 
(dollars in millions)        
 
    For the Three Months Ended   For the Nine Months Ended
    Sept. 29,
 		  Sept. 29,
    2006   2006
 
Total
               
Total net revenues
  $ 9,833     $ 25,849  
Impact of BlackRock merger
    1,969       1,969  
                 
Total net revenues excluding the BlackRock merger(a)
    7,864       23,880  
Pre-tax earnings/(loss) from continuing operations
    4,090       6,967  
Impact of BlackRock merger
    (1,767 )     (1,767 )
Impact of one-time compensation expenses
    -       1,759  
                 
Pre-tax earnings/(loss) from continuing operations excluding BlackRock merger and one-time compensation expenses(b)
    2,323       6,959  
Pre-tax profit margin
    41.6 %     27.0 %
Pre-tax profit margin excluding BlackRock merger and one-time compensation expenses(b)/(a)
    29.5 %     29.1 %
 
 
N/M = Not Meaningful
Note:  Certain prior period amounts have been reclassified to conform to the current period presentation.
(1) A portion of Origination revenue is recorded in Global Wealth Management.
(2) Includes interest component of non-qualifying derivatives which are included in Other Revenues.

138