EX-99.1 16 y46644exv99w1.htm EX-99.1: RECONCILIATION OF NON-GAAP MEASURES EX-99.1
 

Exhibit 99.1
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.
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  
 
                       
Revenues, net of interest expense
  $ 31,812     $     $ 1,969     $ 33,781  
 
                       
Non-interest expenses
                               
Compensation and benefits
    14,964       1,759       144       16,867  
Non-compensation expenses
    7,046             58       7,104  
 
                       
Total non-interest expenses
    22,010       1,759       202       23,971  
 
                       
Pre-tax earnings from continuing operations
    9,802       (1,759 )     1,767       9,810  
Income tax expense
    2,633       (582 )     662       2,713  
 
                       
Net earnings from continuing operations
  $ 7,169     $ (1,177 )   $ 1,105     $ 7,097  
 
                       
Pre-tax earnings from discontinued operations
  $ 616     $     $     $ 616  
Income tax expense
    214                   214  
 
                       
Net earnings from discontinued operations
  $ 402     $     $     $ 402  
 
                       
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
  $ 8.06     $ (1.37 )   $ 1.27     $ 7.96  
Basic earnings per common share from discontinued operations
    0.46                   0.46  
 
                       
Basic earnings per common share
  $ 8.52     $ (1.37 )   $ 1.27     $ 8.42  
 
                       
Diluted earnings per common share from continuing operations
  $ 7.26     $ (1.23 )   $ 1.14     $ 7.17  
Diluted earnings per common share from discontinued operations
    0.42                   0.42  
 
                       
Diluted earnings per common share
  $ 7.68     $ (1.23 )   $ 1.14     $ 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
    47.0 %     49.9 %
Ratio of non-compensation and benefits to net revenues
    22.1 %     21.0 %
Effective tax rate
    26.9 %     27.7 %
Pre-tax profit margin
    30.8 %     29.0 %
 
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  
Annualized return on average common equity from continuing operations
    20.4 %     20.1 %
Annualized 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.

 


 

Segment Data
                         
    For the Year Ended  
    Dec. 28,     Dec. 29,     Percent  
(dollars in millions)   2007     2006     Inc / (Dec)  
 
                 
Global Markets & Investment Banking
                       
Global Markets
                       
FICC
  $ (15,873 )   $ 7,552       N/M %
Equity Markets
    8,286       6,730       23  
 
                   
Total Global Markets net revenues
    (7,587 )     14,282       N/M  
Investment Banking (1)
                       
Origination:
                       
Debt
    1,550       1,704       (9 )
Equity
    1,629       1,220       34  
Strategic Advisory Services
    1,740       1,099       58  
 
                   
Total Investment Banking net revenues
    4,919       4,023       22  
 
                   
Total net revenues
    (2,668 )     18,305       N/M  
 
                   
Pre-tax earnings / (loss) from continuing operations
    (16,345 )     5,292       N/M  
Impact of one-time compensation expenses
          1,369       N/M  
 
                   
Pre-tax earnings / (loss) from continuing operations excluding one-time compensation expenses
    (16,345 )     6,661       N/M  
Pre-tax profit margin
    N/M       28.9 %        
Pre-tax profit margin excluding one-time compensation expenses
    N/M       36.4 %        
 
Global Wealth Management
                       
Global Private Client
                       
Fee-based revenues
  $ 6,278     $ 5,499       14  
Transactional and origination revenues
    3,887       3,397       14  
Net interest profit and related hedges(2)
    2,318       2,103       10  
Other revenues
    416       301       38  
 
                   
Total Global Private Client net revenues
    12,899       11,300       14  
 
                   
Global Investment Management net revenues
    1,122       541       107  
 
                   
Total net revenues
    14,021       11,841       18  
 
                   
Pre-tax earnings from continuing operations
    3,630       2,290       59  
Impact of one-time compensation expenses
          281       N/M  
 
                   
Pre-tax earnings from continuing operations excluding one- time compensation expenses
    3,630       2,571       41  
Pre-tax profit margin
    25.9 %     19.3 %        
Pre-tax profit margin excluding one-time compensation expenses
    25.9 %     21.7 %        
 
Merrill Lynch Investment Managers
                       
Total net revenues
  $     $ 1,900       N/M  
Pre-tax earnings from continuing operations
          637       N/M  
Impact of one-time compensation expenses
          109       N/M  
 
                   
Pre-tax earnings from continuing operations excluding one- time compensation expenses
          746       N/M  
Pre-tax profit margin
          33.5 %        
Pre-tax profit margin excluding one-time compensation expenses
          39.3 %        
 
Corporate
                       
Total net revenues
  $ (103 )   $ 1,735       N/M  
Impact of BlackRock merger
          1,969       N/M  
 
                   
Total net revenues excluding the BlackRock merger
    (103 )     (234 )     (56 )
Pre-tax earnings / (loss) from continuing operations
    (116 )     1,591       N/M  
Impact of BlackRock merger
          (1,767 )     N/M  
 
                   
Pre-tax earnings / (loss) from continuing operations excluding the BlackRock merger
    (116 )     (176 )     (34 )
 
Total
                       
Total net revenues
  $ 11,250     $ 33,781       (67 )
Impact of BlackRock merger
          1,969       N/M  
 
                   
Total net revenues excluding the BlackRock merger
    11,250       31,812       (65 )
Pre-tax earnings / (loss) from continuing operations
    (12,831 )     9,810       N/M  
Impact of BlackRock merger
          (1,767 )     N/M  
Impact of one-time compensation expenses
          1,759       N/M  
 
                   
Pre-tax earnings / (loss) from continuing operations excluding BlackRock merger and one-time compensation expenses
    (12,831 )     9,802       N/M  
Pre-tax profit margin
    N/M       29.0 %        
Pre-tax profit margin excluding BlackRock merger and one- time compensation expenses
    N/M       30.8 %        
 
 
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.