Note 8. Stockholders' Equity and Earnings Per Share
Preferred Equity
ML & Co. is authorized to issue 25,000,000 shares of undesignated preferred stock, $1.00 par value per share. All shares of currently outstanding preferred stock constitute one and the same class that have equal rank and priority over common stockholders as to dividends and in the event of liquidation.

9% CUMULATIVE PREFERRED STOCK, SERIES A
ML & Co. has issued 17,000,000 Depositary Shares, each representing a one-four-hundredth interest in a share of 9% Cumulative Preferred Stock, Series A, liquidation preference value of $10,000 per share ("9% Preferred Stock"). The 9% Preferred Stock is a single series consisting of 42,500 shares with an aggregate liquidation preference of $425 million, all of which was outstanding at year-end 2000, 1999, and 1998.

Dividends on the 9% Preferred Stock are cumulative from the date of original issue and are payable quarterly when declared by the authority of the Board of Directors. The 9% Preferred Stock is perpetual and redeemable on or after December 30, 2004 at the option of ML & Co., in whole or in part, at a redemption price equal to $10,000 per share, plus accrued and unpaid dividends (whether or not declared) to the date fixed for redemption.

Common Stock
In 2000, the Board of Directors declared a two-for-one common stock split effected in the form of a 100% stock dividend. The par value of the common stock remained at $1.33 1/3 per share. Accordingly, a transfer from Paid-in capital to Common stock and Exchangeable shares of $680 million was made to preserve the par value of the post-split shares. All share and per share data have been restated for the effect of the split. Dividends paid on common stock were $0.61, $0.53, and $0.46 per share in 2000, 1999, and 1998, respectively.

In 2000, as specified in the merger agreement with Herzog, 2,449,090 shares of ML & Co. common stock were cancelled and retired upon consummation of the merger (see Note 2). In addition, ML & Co. issued 203,483 shares of common stock to certain employees in connection with employee incentive plans, thereby increasing issued shares to 962,533,498.

In 1999, ML & Co. issued 350,394 shares of common stock to certain employees in connection with employee incentive plans, thereby increasing issued shares to 964,779,105.

The following table summarizes the activity in outstanding common stock for 2000, 1999, and 1998:

1. Net of reacquisitions from employees of 1,139,116, 1,037,982 and 1,431,574 in 2000, 1999, and 1998, respectively.
2. See Note 11 for a description of employee incentive plans.

Shares Exchangeable into Common Stock
In 1998, Merrill Lynch & Co., Canada Ltd. issued 9,662,448 Exchangeable Shares in connection with Merrill Lynch's merger with Midland (see Note 2). Holders of Exchangeable Shares have dividend, voting, and other rights equivalent to those of ML & Co. common stockholders. Exchangeable Shares may be exchanged at any time, at the option of the holder, on a one-for-one basis for ML & Co. common stock. Merrill Lynch may redeem all outstanding Exchangeable Shares for ML & Co. common stock after January 31, 2011, or earlier under certain circumstances.

During 2000 and 1999, 3,364,320 and 992,832 Exchangeable Shares, respectively, were converted to ML & Co. common stock. At year-end 2000, 4,654,378 Exchangeable Shares were outstanding, compared with 8,018,698 at year-end 1999.

Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss represents cumulative gains and losses on items that are not reflected in earnings. The balances at December 29, 2000 and December 31, 1999 are as follows:

Stockholder Rights Plan
In 1997, the Board of Directors approved and adopted the amended and restated Stockholder Rights Plan. The amended and restated Stockholder Rights Plan provides for the distribution of preferred purchase rights ("Rights") to common stockholders. The Rights separate from the common stock 10 days following the earlier of: (a) an announcement of an acquisition by a person or group ("acquiring party") of 15% or more of the outstanding common shares of ML & Co., or (b) the commencement of a tender or exchange offer for 15% or more of the common shares outstanding. One Right is attached to each outstanding share of common stock and will attach to all subsequently issued shares. Each Right entitles the holder to purchase 1/100 of a share (a "Unit") of Series A Junior Preferred Stock, par value $1.00 per share, at an exercise price of $300 per Unit at any time after the distribution of the Rights. The Units are nonredeemable and have voting privileges and certain preferential dividend rights. The exercise price and the number of Units issuable are subject to adjustment to prevent dilution.

If, after the Rights have been distributed, either the acquiring party holds 15% or more of ML & Co.'s outstanding shares or ML & Co. is a party to a business combination or other specifically defined transaction, each Right (other than those held by the acquiring party) will entitle the holder to receive, upon exercise, a Unit of preferred stock or shares of common stock of the surviving company with a value equal to two times the exercise price of the Right. The Rights expire in 2007, and are redeemable at the option of a majority of the directors of ML & Co. at $.01 per Right at any time until the 10th day following an announcement of the acquisition of 15% or more of ML & Co.'s common stock.

Earnings Per Share
Basic earnings per share ("EPS") is calculated by dividing earnings available to common stockholders by the weighted-average number of common shares outstanding. Diluted EPS is similar to basic EPS, but adjusts for the effect of the potential issuance of common shares. The following table presents the computations of basic and diluted EPS:

1. Includes shares exchangeable into common stock.
   
2. See Note 11 for a description of these instruments and issuances subsequent to December 29, 2000.
3. At year-end 2000, 1999, and 1998, there were 1,456, 3,150, and 972 instruments, respectively, that were considered antidilutive and thus were not included in the above calculations.

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