EX-99.4: RECONCILIATION OF NON-GAAP MEASURES
Published on November 14, 2007
| Merrill Lynch & Co., Inc. | Exhibit 99.4 | |
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 | For the Year Ended December 29, 2006 (1) | |||||||||||||||
| Excluding One-time | ||||||||||||||||
| Compensation | Impact of One-time | |||||||||||||||
| Expenses & Impact of | Compensation | Impact of | ||||||||||||||
| (in millions, except per share amounts) | BlackRock Merger | Expenses | BlackRock Merger | GAAP Basis | ||||||||||||
Net Revenues (a) |
$ | 32,424 | $ | | $ | 1,969 | $ | 34,393 | ||||||||
Non-Interest Expenses |
||||||||||||||||
Compensation and benefits (b) |
15,086 | 1,759 | 144 | 16,989 | ||||||||||||
Non-compensation expenses (c) |
7,077 | | 58 | 7,135 | ||||||||||||
Total Non-Interest Expenses |
22,163 | 1,759 | 202 | 24,124 | ||||||||||||
Earnings
From Continuing Operations Before Income Taxes (d) |
10,261 | (1,759 | ) | 1,767 | 10,269 | |||||||||||
Income Tax Expense (e) |
2,796 | (582 | ) | 662 | 2,876 | |||||||||||
Net Earnings From Continuing Operations |
$ | 7,465 | $ | (1,177 | ) | $ | 1,105 | $ | 7,393 | |||||||
Earnings
From Discontinued Operations Before Income Taxes |
$ | 157 | | | $ | 157 | ||||||||||
Income Tax Expense |
51 | | | 51 | ||||||||||||
Net Earnings From Discontinued Operations |
$ | 106 | $ | | $ | | $ | 106 | ||||||||
Net Earnings |
$ | 7,571 | $ | (1,177 | ) | $ | 1,105 | $ | 7,499 | |||||||
Preferred Stock Dividends |
$ | 188 | $ | | $ | | $ | 188 | ||||||||
Net Earnings Applicable to Common Stockholders |
$ | 7,383 | $ | (1,177 | ) | $ | 1,105 | $ | 7,311 | |||||||
Basic earnings per common share from continuing operations |
$ | 8.40 | $ | (1.37) | (2) | $ | 1.27 | (2) | $ | 8.30 | ||||||
Basic earnings per common share from discontinued operations |
0.12 | | | 0.12 | ||||||||||||
Basic earnings per common share |
$ | 8.52 | $ | (1.37 | ) | $ | 1.27 | $ | 8.42 | |||||||
Diluted earnings per common share from continuing operations |
$ | 7.57 | $ | (1.23 | ) | $ | 1.14 | $ | 7.48 | |||||||
Diluted earnings per common share from discontinued operations |
0.11 | | | 0.11 | ||||||||||||
Diluted earnings per share |
$ | 7.68 | $ | (1.23) | (2) | $ | 1.14 | (2) | $ | 7.59 | ||||||
Average Shares Used in Computing Earnings Per Common Share |
||||||||||||||||
Basic |
866.7 | 1.4 | | 868.1 | ||||||||||||
Diluted |
961.5 | 1.5 | | 963.0 | ||||||||||||
| Financial Ratios | For the Year Ended (1) | |||||||
| December 29, 2006 | ||||||||
| Excluding One-time | ||||||||
| Compensation | ||||||||
| Expenses & Impact of | ||||||||
| BlackRock Merger | GAAP Basis | |||||||
Ratio of compensation and benefits to net revenues (b)/(a) |
46.5 | % | 49.4 | % | ||||
Ratio of non-compensation expenses to net revenues (c)/(a) |
21.8 | % | 20.7 | % | ||||
Effective
Tax Rate from continuing operations (e)/(d) |
27.2 | % | 28.0 | % | ||||
Pre-tax Profit Margin from continuing operations (d)/(a) |
31.6 | % | 29.9 | % | ||||
Average Common Equity |
$ | 34,354 | $ | 34,354 | ||||
Impact of one-time compensation expenses and the BlackRock merger |
(130 | ) | | |||||
Average Common Equity |
34,224 | 34,354 | ||||||
Return on Average Common Equity |
21.6 | % | 21.3 | % | ||||
| (1) | For purposes of comparison with previously published results, data excluding the impact of the one-time compensation expenses and the BlackRock merger assumes the impact is limited to the first and third quarter of 2006, respectively. | |
| (2) | EPS calculated using weighted average shares for the year. |
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 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. Management
believes that while the results excluding
the one-time expenses 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 | For the Six Months Ended June 30, 2006 | |||||||||||
| Excluding the Impact of | First Quarter Impact of | |||||||||||
| One-time Compensation | One-time Compensation | |||||||||||
| (in millions, except per share amounts) | Expenses | Expenses | GAAP Basis | |||||||||
Net Revenues (a) |
$ | 16,016 | $ | | $ | 16,016 | ||||||
Non-Interest Expenses |
||||||||||||
Compensation and benefits (b) |
7,961 | 1,759 | 9,720 | |||||||||
Non-compensation expenses (c) |
3,419 | | 3,419 | |||||||||
Total Non-Interest Expenses |
11,380 | 1,759 | 13,139 | |||||||||
Earnings From Continuing Operations Before Income Taxes (d) |
4,636 | (1,759 | ) | 2,877 | ||||||||
Income Tax Expense (e) |
1,394 | (582 | ) | 812 | ||||||||
Net Earnings From Continuing Operations |
$ | 3,242 | $ | (1,177 | ) | $ | 2,065 | |||||
Earnings From Discontinued Operations Before Income Taxes |
$ | 65 | $ | | $ | 65 | ||||||
Income Tax Expense |
22 | | 22 | |||||||||
Net Earnings From Discontinued Operations |
$ | 43 | $ | | $ | 43 | ||||||
Net Earnings |
$ | 3,285 | $ | (1,177 | ) | $ | 2,108 | |||||
Preferred Stock Dividends |
$ | 88 | $ | | $ | 88 | ||||||
Net Earnings Applicable to Common Stockholders |
$ | 3,197 | $ | (1,177 | ) | $ | 2,020 | |||||
Basic earnings per common share from continuing operations |
$ | 3.58 | $ | (1.35 | ) | $ | 2.23 | |||||
Basic earnings per common share from discontinued operations |
0.05 | | 0.05 | |||||||||
Basic earnings per common share |
$ | 3.63 | $ | (1.35 | ) | $ | 2.28 | |||||
Diluted earnings per common share from continuing operations |
$ | 3.24 | $ | (1.21 | ) | $ | 2.03 | |||||
Diluted earnings per common share from discontinued operations |
0.04 | | 0.04 | |||||||||
Diluted earnings per common share |
$ | 3.28 | $ | (1.21 | ) | $ | 2.07 | |||||
Average Shares Used in Computing Earnings Per Common Share |
||||||||||||
Basic |
881.7 | 2.9 | 884.6 | |||||||||
Diluted |
974.4 | 2.8 | 977.2 | |||||||||
| Financial Ratios | For the Six Months Ended | |||||||
| June 30, 2006 | ||||||||
| Excluding the | ||||||||
| Impact of One-time | ||||||||
| Compensation | ||||||||
| Expenses | GAAP Basis | |||||||
Ratio of compensation and benefits to net revenues (b)/(a) |
49.7 | % | 60.7 | % | ||||
Ratio of non-compensation expenses to net revenues (c)/(a) |
21.3 | % | 21.3 | % | ||||
Effective Tax Rate from continuing operations (e)/(d) |
30.1 | % | 28.2 | % | ||||
Pre-tax Profit Margin from continuing operations (d)/(a) |
28.9 | % | 18.0 | % | ||||
Average Common Equity |
$ | 33,831 | $ | 33,831 | ||||
Average impact of one-time compensation expenses |
(145 | ) | | |||||
Average Common Equity |
33,686 | 33,831 | ||||||
Annualized Return on Average Common Equity |
19.0 | % | 11.9 | % | ||||
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 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. Management believes that while the results
excluding
the one-time expenses 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 | For the Three Months Ended March 31, 2006 | |||||||||||
| First Quarter | ||||||||||||
| Excluding the Impact of | Impact of One-time | |||||||||||
| One-time Compensation | Compensation | |||||||||||
| (in millions, except per share amounts) | Expenses | Expenses | GAAP Basis | |||||||||
Net revenues (a) |
$ | 7,907 | $ | | $ | 7,907 | ||||||
Non-interest expenses |
||||||||||||
Compensation and benefits (b) |
3,986 | 1,759 | 5,745 | |||||||||
Non-compensation expenses (c) |
1,601 | | 1,601 | |||||||||
Total non-interest expenses |
5,587 | 1,759 | 7,346 | |||||||||
Earnings from continuing operations before income taxes (d) |
2,320 | (1,759 | ) | 561 | ||||||||
Income tax expense (e) |
696 | (582 | ) | 114 | ||||||||
Net earnings from continuing operations |
$ | 1,624 | $ | (1,177 | ) | $ | 447 | |||||
Earnings from discontinued operations before income taxes |
$ | 32 | $ | | $ | 32 | ||||||
Income tax expense |
4 | | 4 | |||||||||
Net earnings from discontinued operations |
$ | 28 | $ | | $ | 28 | ||||||
Net earnings |
$ | 1,652 | $ | (1,177 | ) | $ | 475 | |||||
Preferred stock dividends |
$ | 43 | $ | | $ | 43 | ||||||
Net earnings applicable to common stockholders |
$ | 1,609 | $ | (1,177 | ) | $ | 432 | |||||
Basic earnings per common share from continuing operations |
$ | 1.80 | $ | (1.34 | ) | $ | 0.46 | |||||
Basic earnings per common share from discontinued operations |
0.03 | | 0.03 | |||||||||
Basic earnings per common share |
$ | 1.83 | $ | (1.34 | ) | $ | 0.49 | |||||
Diluted earnings per common share from continuing operations |
$ | 1.62 | $ | (1.21 | ) | $ | 0.41 | |||||
Diluted earnings per common share from discontinued operations |
0.03 | | 0.03 | |||||||||
Diluted earnings per common share |
$ | 1.65 | $ | (1.21 | ) | $ | 0.44 | |||||
Average shares used in computing earnings per common share |
||||||||||||
Basic |
878.0 | 5.7 | 883.7 | |||||||||
Diluted |
975.4 | 5.7 | 981.1 | |||||||||
| Financial Ratios | For the Three Months Ended | |||||||
| March 31, 2006 | ||||||||
| Excluding the | ||||||||
| Impact of One-time | ||||||||
| Compensation | ||||||||
| Expenses | GAAP Basis | |||||||
Ratio of compensation and benefits to net revenues (b)/(a) |
50.4 | % | 72.7 | % | ||||
Ratio of non-compensation and benefits to net revenues (c)/(a) |
20.2 | % | 20.2 | % | ||||
Effective tax rate from continuing operations (e)/(d) |
30.0 | % | 20.3 | % | ||||
Pre-tax profit margin from continuing operations (d)/(a) |
29.3 | % | 7.1 | % | ||||
Average common equity |
$ | 33,800 | $ | 33,800 | ||||
Impact of the BlackRock merger |
(145 | ) | | |||||
Average common equity |
33,655 | 33,800 | ||||||
Annualized return on average common equity |
19.1 | % | 5.1 | % | ||||