SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 29, 1996
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COMMISSION FILE NUMBER 1-7182
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MERRILL LYNCH & CO., INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-2740599
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
WORLD FINANCIAL CENTER, NORTH TOWER,
NEW YORK, NEW YORK 10281-1332
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(Address of principal executive offices) (Zip Code)
(212) 449-1000
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Registrant's telephone number, including area code
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Former name, former address and former fiscal year, if changed since
last report.
- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
171,380,936 shares of Common Stock*
-----------
(as of the close of business on May 3, 1996)
* Does not include 2,895,319 unallocated reversion shares held in the Employee
Stock Ownership Plan that are not considered outstanding for accounting
purposes.
Part I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
--------------------
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED EARNINGS (UNAUDITED)
FOR THE THREE MONTHS ENDED
---------------------------------- PERCENT(1)
MARCH 29, MARCH 31, INCREASE
(In Millions, Except Per Share Amounts) 1996 1995 (DECREASE)
---------- ---------- ----------
REVENUES
Commissions............................................. $ 989 $ 685 44%
Interest and dividends.................................. 3,010 3,030 (1)
Principal transactions.................................. 982 675 46
Investment banking...................................... 378 249 52
Asset management and portfolio
service fees........................................... 538 448 20
Other.................................................. 122 117 4
------ ------ -------
Total Revenues.......................................... 6,019 5,204 16
Interest Expense...................................... 2,758 2,783 (1)
------ ------ -------
Net Revenues............................................ 3,261 2,421 35
------ ------ -------
NON-INTEREST EXPENSES
Compensation and benefits............................... 1,691 1,270 33
Communications and equipment rental..................... 131 111 17
Occupancy............................................... 116 110 5
Depreciation and amortization........................... 98 86 14
Professional fees....................................... 130 99 32
Advertising and market development...................... 114 86 33
Brokerage, clearing, and exchange fees.................. 106 84 27
Other................................................... 204 195 4
------ ------ --------
Total Non-Interest Expenses............................. 2,590 2,041 27
------ ------ --------
EARNINGS BEFORE INCOME TAXES............................ 671 380 77
Income tax expense...................................... 262 152 73
------ ------ --------
NET EARNINGS............................................ $ 409 $ 228 80%
====== ====== ========
NET EARNINGS APPLICABLE TO COMMON
STOCKHOLDERS........................................... $ 398 $ 215
====== ======
EARNINGS PER COMMON SHARE:
Primary............................................... $ 2.03 $ 1.08
====== ======
Fully diluted......................................... $ 2.03 $ 1.08
====== ======
DIVIDEND PAID PER COMMON SHARE.......................... $ .26 $ .23
====== ======
AVERAGE SHARES USED IN COMPUTING EARNINGS
PER COMMON SHARE:
Primary............................................... 196.2 199.2
====== ======
Fully diluted......................................... 196.2 199.2
====== ======
(1) Percentages are based on actual numbers before rounding.
See Notes to Consolidated Financial Statements
2
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in Millions, Except Per Share Amounts) MARCH 29, DEC. 29,
ASSETS 1996 1995
-------------------------------------------------------------- -------- --------
CASH AND CASH EQUIVALENTS..................................... $ 2,633 $ 3,091
-------- --------
CASH AND SECURITIES SEGREGATED FOR REGULATORY PURPOSES
OR DEPOSITED WITH CLEARING ORGANIZATIONS..................... 5,099 5,412
-------- --------
MARKETABLE INVESTMENT SECURITIES.............................. 2,307 2,365
-------- --------
TRADING ASSETS, AT FAIR VALUE
Corporate debt and preferred stock............................ 18,386 17,581
Contractual agreements........................................ 10,285 11,833
Equities and convertible debentures........................... 13,295 10,843
Non-U.S. governments and agencies............................. 6,820 6,744
U.S. Government and agencies.................................. 7,952 6,672
Mortgages, mortgage-backed, and asset-backed.................. 2,990 3,749
Money markets................................................. 1,465 1,680
Municipals.................................................... 876 1,001
-------- --------
Total......................................................... 62,069 60,103
-------- --------
RESALE AGREEMENTS............................................. 52,880 44,257
-------- --------
SECURITIES BORROWED........................................... 24,814 20,645
-------- --------
RECEIVABLES
Customers (net of allowance for doubtful accounts of
$41 in 1996 and $37 in 1995)................................. 14,988 14,783
Brokers and dealers........................................... 14,117 9,267
Interest and other............................................ 4,458 4,741
-------- --------
Total......................................................... 33,563 28,791
-------- --------
INVESTMENTS OF INSURANCE SUBSIDIARIES......................... 5,432 5,619
LOANS, NOTES, AND MORTGAGES (NET OF ALLOWANCE FOR
LOAN LOSSES OF $131 IN 1996 AND 1995)........................ 2,503 2,172
OTHER INVESTMENTS............................................. 987 961
PROPERTY, LEASEHOLD IMPROVEMENTS, AND EQUIPMENT
(NET OF ACCUMULATED DEPRECIATION AND AMORTIZATION
OF $2,253 IN 1996 AND $2,239 IN 1995)........................ 1,602 1,605
OTHER ASSETS.................................................. 1,995 1,836
-------- --------
TOTAL ASSETS.................................................. $195,884 $176,857
======== ========
See Notes to Consolidated Financial Statements
3
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in Millions, Except Per Share Amounts) MARCH 29, DEC. 29,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
-------------------------------------------------------------- -------- --------
LIABILITIES
REPURCHASE AGREEMENTS......................................... $ 61,657 $ 56,817
-------- --------
COMMERCIAL PAPER AND OTHER SHORT-TERM BORROWINGS.............. 30,669 29,546
-------- --------
TRADING LIABILITIES, AT FAIR VALUE
Contractual agreements........................................ 9,132 10,907
U.S. Government and agencies.................................. 12,443 9,089
Equities and convertible debentures........................... 7,834 6,642
Non-U.S. governments and agencies............................. 6,231 4,418
Corporate debt and preferred stock............................ 1,994 2,199
Municipals.................................................... 69 95
-------- --------
Total ...................................................... 37,703 33,350
-------- --------
CUSTOMERS..................................................... 10,599 11,391
INSURANCE..................................................... 5,232 5,391
BROKERS AND DEALERS........................................... 12,808 6,366
OTHER LIABILITIES AND ACCRUED INTEREST........................ 10,626 10,515
LONG-TERM BORROWINGS.......................................... 20,226 17,340
-------- --------
TOTAL LIABILITIES............................................. 189,520 170,716
-------- --------
STOCKHOLDERS' EQUITY
PREFERRED STOCKHOLDERS' EQUITY................................ 619 619
-------- --------
COMMON STOCKHOLDERS' EQUITY
Common stock, par value $1.33 1/3 per share;
authorized: 500,000,000 shares;
issued: 1996 and 1995 - 236,330,162 shares................. 315 315
Paid-in capital............................................... 1,322 1,237
Foreign currency translation adjustment....................... (21) 11
Net unrealized gains on investment securities
available-for-sale (net of applicable income tax
expense of $2 in 1996 and $13 in 1995)..................... 4 25
Retained earnings............................................. 6,845 6,492
-------- --------
Subtotal................................................. 8,465 8,080
Less:
Treasury stock, at cost:
1996 - 60,394,639 shares;
1995 - 60,929,278 shares............................ 2,224 2,241
Unallocated ESOP reversion shares, at cost:
1996 - 2,895,319 shares;
1995 - 4,012,519 shares............................. 46 63
Employee stock transactions................................ 450 254
-------- --------
TOTAL COMMON STOCKHOLDERS' EQUITY............................. 5,745 5,522
-------- --------
TOTAL STOCKHOLDERS' EQUITY.................................... 6,364 6,141
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................... $195,884 $176,857
======== ========
BOOK VALUE PER COMMON SHARE................................... $ 33.38 $ 32.41
======== ========
See Notes to Consolidated Financial Statements
4
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
--------------------------
(In Millions) MARCH 29, MARCH 31,
1996 1995
-------- ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.......................................................... $ 409 $ 228
Noncash items included in earnings:
Depreciation and amortization...................................... 98 86
Policyholder reserves.............................................. 70 77
Other.............................................................. 201 231
(Increase) decrease in operating assets:
Trading assets..................................................... (1,951) (4,838)
Cash and securities segregated for regulatory purposes
or deposited with clearing organizations.......................... 313 (604)
Securities borrowed................................................ (4,169) (4,206)
Customers.......................................................... (212) 899
Other.............................................................. (5,033) (2,490)
Increase (decrease) in operating liabilities:
Trading liabilities................................................ 4,353 2,707
Customers.......................................................... (792) (623)
Insurance.......................................................... (175) (171)
Other.............................................................. 6,559 2,084
------ ------
CASH USED FOR OPERATING ACTIVITIES.................................... (329) (6,620)
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from (payments for):
Maturities of available-for-sale securities........................ 710 287
Sales of available-for-sale securities............................. 558 432
Purchases of available-for-sale securities......................... (1,151) (680)
Maturities of held-to-maturity securities.......................... 187 224
Purchases of held-to-maturity securities........................... (62) (345)
Other investments and other assets................................. (376) (128)
Property, leasehold improvements, and equipment.................... (95) (91)
------ ------
CASH USED FOR INVESTING ACTIVITIES.................................... (229) (301)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments for):
Repurchase agreements, net of resale agreements.................... (3,783) 4,615
Commercial paper and other short-term borrowings................... 1,123 4,047
Issuance and resale of long-term borrowings........................ 4,572 2,094
Settlement and repurchase of long-term borrowings.................. (1,558) (2,719)
Common stock transactions.......................................... (198) (412)
Dividends.......................................................... (56) (54)
------ ------
CASH PROVIDED BY FINANCING ACTIVITIES................................. 100 7,571
------ ------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS...................... (458) 650
Cash and cash equivalents, beginning of year.......................... 3,091 2,312
------ ------
CASH AND CASH EQUIVALENTS, END OF PERIOD.............................. $2,633 $2,962
====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Income taxes totaled $25 in 1996 and $0 in 1995.
Interest totaled $2,656 in 1996 and $2,594 in 1995.
See Notes to Consolidated Financial Statements
5
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 29, 1996
(DOLLARS IN MILLIONS)
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Merrill Lynch &
Co., Inc. and subsidiaries (collectively referred to as the "Corporation"). All
material intercompany balances have been eliminated. The December 29, 1995
consolidated balance sheet was derived from the audited financial statements.
The interim consolidated financial statements for the three-month periods are
unaudited; however, in the opinion of the management of the Corporation, all
adjustments, consisting only of normal recurring accruals, necessary for a fair
statement of the results of operations have been included.
These unaudited financial statements should be read in conjunction with the
audited financial statements included in the Corporation's Annual Report on Form
10-K for the year ended December 29, 1995 ("1995 10-K"). The nature of the
Corporation's business is such that the results of any interim period are not
necessarily indicative of results for a full year. Prior period financial
statements have been reclassified, where appropriate, to conform to the 1996
presentation.
COMMERCIAL PAPER AND OTHER SHORT-TERM BORROWINGS
Commercial paper and other short-term borrowings at March 29, 1996 and December
29, 1995 are presented below:
March 29, Dec. 29,
1996 1995
-------- --------
Commercial paper $17,222 $16,969
Demand and time deposits 8,141 8,182
Securities loaned 3,768 2,857
Bank loans and other 1,538 1,538
------- -------
Total $30,669 $29,546
======= =======
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Corporation enters into various derivative contracts to meet clients' needs
and to manage its own market risks. Derivative contracts often involve future
commitments to exchange interest payment streams or currencies (such as interest
rate and currency swaps or foreign exchange forwards) or to purchase or sell
other financial instruments at specified terms on a specified date. Options, for
example, can be purchased or written on a wide range of financial instruments
such as securities, currencies, futures, and various market indices.
6
The contractual or notional amounts of derivatives provide only a measure of
involvement in these types of transactions and represent neither the amounts
subject to the various types of market risk, nor the future cash requirements
under these instruments. The contractual or notional amounts of derivatives used
for trading purposes by type of risk follow:
(In billions)
- -------------
Interest Rate Currency Equity Price Commodity Price
March 29, 1996 Risk(1)(2) Risk (3) Risk Risk
- -------------- ---------------- -------------- ------------ ----------------
Swap agreements $ 964 $ 109 $ 16 $ 3
Futures contracts 175 1 7 2
Options purchased 56 34 30 3
Options written 80 34 31 2
Forward contracts 36 130 - 22
December 29, 1995
- -----------------
Swap agreements $ 851 $ 106 $ 7 $ 3
Futures contracts 215 1 2 2
Options purchased 45 24 38 5
Options written 64 24 41 6
Forward contracts 33 118 - 25
(1) Certain derivatives subject to interest rate risk are also exposed to
credit risk of the underlying financial instrument, such as total return
swaps and similar instruments.
(2) Forward contracts subject to interest rate risk principally represent "To
Be Announced" mortgage pools which bear interest rate as well as principal
prepayment risk.
(3) Included in the currency risk category are certain contracts which are also
subject to interest rate risk.
The contractual or notional amounts of derivative financial instruments used for
financing and other non-trading purposes follow:
(In billions) March 29, December 29,
- ------------- 1996 1995
---------- ------------
Interest rate swap contracts(1) $28 $31
Foreign exchange contracts(1) $ 2 $ 3
Equity options purchased $ 1 $ 1
(1) Includes options embedded in swap contracts which hedge callable debt
totaling $1 billion notional.
Most of the above transactions are entered into with the Corporation's swap and
foreign exchange dealer subsidiaries, which intermediate interest rate and
currency risk with third parties in the normal course of their trading
activities.
In the normal course of business, the Corporation also enters into underwriting
commitments, when-issued transactions, and commitments to extend credit.
Settlement of these commitments as of March 29, 1996 would not have a material
effect on the consolidated financial condition of the Corporation.
7
REGULATORY REQUIREMENTS
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a registered
broker-dealer and a subsidiary of the Corporation, is subject to Net Capital
Rule 15c3-1 under the Securities Exchange Act of 1934. Under the alternative
method permitted by this rule, the minimum required net capital, as defined,
shall not be less than 2% of aggregate debit items arising from customer
transactions. At March 29, 1996, MLPF&S's regulatory net capital of $1,809 was
13% of aggregate debit items, and its regulatory net capital in excess of the
minimum required was $1,525.
Merrill Lynch Government Securities Inc. ("MLGSI"), a primary dealer in U.S.
Government securities and a subsidiary of the Corporation, is subject to the
capital adequacy requirements of the Government Securities Act of 1986. This
rule requires dealers to maintain liquid capital in excess of market and credit
risk, as defined, by 20% (a 1.2-to-1 capital-to-risk standard). At March 29,
1996, MLGSI's liquid capital of $797 was 217% of its total market and credit
risk, and liquid capital in excess of the minimum required was $356.
Merrill Lynch International ("MLI"), a United Kingdom registered broker-dealer
and a subsidiary of the Corporation, is subject to capital requirements of the
Securities and Futures Authority ("SFA") of the United Kingdom. Financial
resources, as defined, must exceed the total financial resources requirement of
the SFA. At March 29, 1996, MLI's financial resources were $1,330 and exceeded
the minimum requirement by $512.
INTEREST AND DIVIDEND EXPENSE
Interest expense includes payments in lieu of dividends of $1.6 and $2.4 for the
first quarters of 1996 and 1995, respectively.
LITIGATION MATTER
On January 12, 1995, an action was commenced in the United States Bankruptcy
Court for the Central District of California by Orange County, California (the
"County") and the Orange County Investment Pools (the "Pools"), both of which
filed bankruptcy petitions in that Court on December 6, 1994, against the
Corporation and certain of its subsidiaries in connection with the Corporation's
business activities with the Orange County Treasurer-Tax Collector. In addition,
other actions have been brought against the Corporation and/or certain of its
officers, directors, and employees and certain of its subsidiaries in federal
and state courts in California, Illinois, and New York. These include class
actions and stockholder derivative actions brought by persons alleging harm to
themselves or to the Corporation arising out of the Corporation's dealings with
the Orange County Treasurer-Tax Collector, or from the purchase of debt
instruments issued by the County that were underwritten by the Corporation's
subsidiary, MLPF&S. See "Commitments and Contingencies" in the notes to the
audited consolidated financial statements contained in the 1995 10-K as well as
"Legal Proceedings" in the 1995 10-K and this Quarterly Report on Form 10-Q.
8
INDEPENDENT ACCOUNTANTS' REPORT
- -------------------------------
To the Board of Directors and Stockholders of
Merrill Lynch & Co., Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of
Merrill Lynch & Co., Inc. and subsidiaries as of March 29, 1996, and the related
condensed statements of consolidated earnings and consolidated cash flows for
the three-month periods ended March 29, 1996 and March 31, 1995. These financial
statements are the responsibility of the management of Merrill Lynch & Co., Inc.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Merrill Lynch & Co., Inc. and
subsidiaries as of December 29, 1995, and the related statements of consolidated
earnings, changes in consolidated stockholders' equity and consolidated cash
flows for the year then ended (not presented herein); and in our report dated
February 26, 1996, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 29, 1995 is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
/s/ Deloitte & Touche LLP
New York, New York
May 10, 1996
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Merrill Lynch & Co., Inc. and its subsidiaries (collectively referred to as the
"Corporation") conduct their businesses in global financial markets that are
influenced by a number of factors, including economic and market conditions,
political events, and investor sentiment. The reaction of issuers and investors
to a particular condition or event is unpredictable and can increase volatility
in the marketplace. While higher volatility increases risk, it may also increase
order flow, which drives many of the Corporation's businesses. Other global
market and economic conditions, including the liquidity of secondary markets,
the level and volatility of interest rates, currency exchange rates, and
security valuations, competitive conditions, and the size, number, and timing of
transactions may also affect earnings. As a result, revenues and net earnings
can vary significantly from year to year, and from quarter to quarter.
Global financial markets were generally strong during 1995, led by a stable U.S.
economy, declining interest rates, and heightened investor activity. Market
expectations for additional declines in interest rates continued through
February 1996, fueling further market advances, strong investor and issuer
activity, higher fee-based revenues, and improved trading profits industrywide.
In March 1996, inflationary fears were stirred by the release of U.S. economic
statistics indicating stronger than anticipated growth and the Federal Reserve's
decision to hold short-term interest rates at current levels. This led to
increases in long-term interest rates and greater market volatility.
U.S. equity markets, which posted significant gains in 1995, continued to
advance in the 1996 first quarter, as individual investors deposited record
amounts into mutual funds, boosting demand for new issuances and driving many
domestic stock indices to record levels. During the quarter, the Dow Jones
Industrial Average and the Nasdaq Composite Index reached record highs. In
addition, record average daily trading volumes were achieved on the New York
Stock Exchange and Nasdaq.
U.S. bond markets, which advanced strongly on steady declines in interest rates
throughout 1995, became more volatile in the first quarter of 1996. Long-term
interest rates remained low in the first two months of 1996, but rose markedly
in March 1996. The U.S. Treasury yield curve (the relationship between interest
rates and maturities), which flattened throughout 1995, steepened in March as
long-term interest rates increased more than short-term rates. Despite the
intra-quarter increase in interest rates, the overall level of interest rates
for the 1996 first quarter remained low relative to the year-ago period.
International equity markets rose an average of 3% during the quarter, as
measured by the Dow Jones World Stock Index, with mixed performances in
individual markets. Most Asian and European markets advanced, but Japanese and
U.K. stocks both ended the quarter virtually unchanged from 1995 year-end levels
in U.S. dollar terms. Interest rates in most global bond markets rose within the
quarter, after declining throughout 1995, but remained low relative to the 1995
first quarter.
10
U.S. underwriting volume, which was weak in the first quarter of 1995,
strengthened throughout the remainder of the year, and remained robust in the
1996 first quarter. Rising stock prices and relatively low interest rates
continued to create attractive market conditions for issuers, while demand for
new issues benefited from record inflows of cash into mutual funds during the
quarter.
Strategic services activities remained strong during the 1996 first quarter,
reflecting a continuation of the high level of merger and acquisition activity
experienced in 1995. Driven by globalization and other competitive and economic
factors, companies continued to seek strategic alliances to increase earnings
growth and expand into new markets or businesses.
The strong financial markets and improved economic conditions that characterized
1995 continued into the first quarter of 1996. Nevertheless, the financial
services industry is cyclical. As a result, the Corporation's businesses are
evaluated across market cycles for profitability and alignment with long-term
strategic objectives. The Corporation seeks to mitigate the effect of market
downturns by expanding its global presence, developing long-term client
relationships, closely monitoring costs and risks, and continuing to diversify
revenue sources.
FIRST QUARTER 1996 VERSUS FIRST QUARTER 1995
Net earnings for the 1996 first quarter were a record $409 million, up $181
million (80%) from the $228 million reported in last year's first quarter. First
quarter earnings per common share were $2.03 primary and fully diluted, compared
with $1.08 primary and fully diluted in the 1995 first quarter. After deducting
preferred stock dividends, net earnings applicable to common stockholders in the
1996 first quarter totaled $398 million, up $183 million (85%) from $215 million
in the prior year's quarter. Annualized return on average common stockholders'
equity was 28.2% in the 1996 first quarter versus 16.7% in the year-ago period.
The Corporation's pretax profit margin in the 1996 first quarter was 20.6%
versus 15.6% a year ago. The net profit margin increased to 12.6% in the 1996
first quarter, compared with 9.4% in the 1995 first quarter.
Total revenues increased 16% from the 1995 first quarter to $6.0 billion, with
record revenues in commissions, principal transactions, and asset management and
portfolio service fees. Net revenues (revenues after interest expense) increased
35% from the year-ago period to $3.3 billion.
Commissions revenues are summarized as follows:
Three Months Ended
-----------------------
(In millions) March 29, March 31, Percent
1996 1995 Increase
--------- --------- --------
Listed and over-the-counter $548 $365 50%
Mutual funds 299 187 60
Other 142 133 7
---- ----
Total $989 $685 44
==== ====
11
Commissions revenues from listed and over-the-counter securities rose to record
levels due to higher trading volumes on most major U.S. and international
exchanges and the Corporation's expanded global market presence. Mutual fund
commissions revenues were also a record due primarily to strong sales of both
domestic and offshore funds.
Significant components of interest and dividend revenues and interest expense
for the three-month periods ended March 29, 1996 and March 31, 1995 follow:
Three Months Ended
-------------------------
(In millions) March 29, March 31,
- ------------- 1996 1995
--------- ---------
Interest and
dividend revenues:
Trading assets $ 958 $ 940
Securities borrowed 676 686
Resale agreements 689 771
Margin lending 373 325
Other 314 308
------ ------
Subtotal 3,010 3,030
------ ------
Interest expense:
Borrowings 1,117 1,011
Repurchase agreements 847 956
Trading liabilities 552 575
Other 242 241
------ ------
Subtotal 2,758 2,783
------ ------
Net interest and
dividend profit $ 252 $ 247
====== ======
The Corporation hedges its long-term payment obligations with interest rate and
currency swaps. The effect of these hedges, which is included in the
"Borrowings" caption above, decreased interest expense by approximately $22
million for the 1996 first quarter and increased interest expense by
approximately $3 million for the 1995 first quarter.
Interest and dividend revenues and expenses are a function of the level and mix
of interest-earning assets and interest-bearing liabilities and the prevailing
level, term structure, and volatility of interest rates. Net interest and
dividend profit for the 1996 first quarter was up slightly from the 1995 first
quarter, as increases in net interest-earning assets were substantially offset
by the effect of lower interest rates.
Principal transactions revenues were up 46% from the 1995 first quarter to a
record $982 million, as higher investor activity and market volatility led to
increases in virtually all trading products.
Trading, hedging, and financing activities affect the recognition of both
principal transactions revenues and net interest and dividend profit. In
assessing the profitability of its trading activities, the Corporation views net
interest and principal transactions revenues in the aggregate. For financial
reporting purposes, however, realized and unrealized gains and losses on trading
positions, including hedges, are recorded in principal transactions revenues.
The net interest carry (i.e., the spread representing interest earned versus
financing costs) for trading positions,
including hedges, is recorded either as principal transactions revenues or net
interest profit, depending on the nature of the specific instruments. Changes in
the composition of trading inventories and hedge positions can cause the
recognition of revenues within these categories to fluctuate.
The following table provides information on aggregate trading profits, including
related net interest revenue (expense). Interest revenue and expense components
are based on financial reporting categories and management's assessment of the
cost to finance trading positions, after consideration of the underlying
liquidity of these positions.
Principal Net Interest Net
(In millions) Transactions Revenue Trading
- ------------- Revenues (Expense) Revenue
-------- --------- -------
1996 First Quarter
- ------------------
Equities and equity
derivatives $347 $(19) $ 328
Taxable fixed-income 265 53 318
Interest rate and
currency swaps 255 (10) 245
Municipals 75 1 76
Foreign exchange and
commodities 40 (4) 36
---- ---- ------
Total $982 $ 21 $1,003
==== ==== ======
1995 First Quarter
- ------------------
Equities and equity
derivatives $166 $(28) $ 138
Taxable fixed-income 164 81 245
Interest rate and
currency swaps 234 (18) 216
Municipals 90 (1) 89
Foreign exchange and
commodities 21 (3) 18
---- ---- ------
Total $675 $ 31 $ 706
==== ==== ======
Equities and equity derivatives trading revenues, in the aggregate, were $347
million, up 109% from the 1995 first quarter, as trading revenues from most
equity products increased, due primarily to higher trading volume and rising
stock prices. International equities trading revenues, in particular, benefited
from the addition of trading activity related to Smith New Court PLC ("Smith New
Court"), which was acquired in the third quarter of 1995.
Taxable fixed-income trading revenues increased to $265 million, up 62% from the
first quarter of 1995, primarily due to higher revenues from non-U.S.
governments and agencies, mortgage-backed securities, and high-yield bonds.
Non-U.S. governments and agencies trading revenues advanced due to improved
results from trading of Japanese Government Bonds, as well as increased trading
volume in certain Latin American emerging markets as credit ratings improved and
investors sought higher returns. Mortgage-backed securities trading revenues
increased due primarily to improved liquidity and increased customer demand
compared with the year-ago period. Trading revenues from high-yield bonds were
up due to lower interest rates and improved credit ratings of certain issuers.
Interest rate and currency swap trading revenues increased 9% to $255 million
due to higher trading revenues from non-U.S. dollar-denominated
13
transactions, partially offset by decreases in revenues from U.S.
dollar-denominated transactions. Foreign exchange and commodities trading
revenues, in the aggregate, rose to $40 million, up 94% from the 1995 first
quarter, as foreign exchange trading revenues continued to benefit from the
strengthening of the U.S. dollar versus other major currencies. Municipal
securities trading revenues declined 17% to $75 million primarily due to
continued weak investor demand for tax-exempt investments.
A summary of the Corporation's investment banking revenues follows:
Three Months Ended
----------------------
(In millions) March 29, March 31, Percent
- ------------- 1996 1995 Increase/(Decrease)
--------- --------- -------------------
Underwriting revenues $294 $162 82%
Strategic services revenues 84 87 (3)
---- ----
Total $378 $249 52
==== ====
Underwriting revenues benefited from strong levels of debt and equity
underwriting industrywide, with higher fees from convertibles, corporate bonds
and preferred stock, equities, and high-yield securities. The Corporation
retained its position as top underwriter of total debt and equity securities in
the 1996 first quarter with market shares of 16.1% domestically and 11.9%
globally, according to Securities Data Co.
Strategic services revenues were down slightly from a year ago, but remained
comparable to record 1995 levels, benefiting from continued strong merger and
acquisition activity.
A summary of the Corporation's asset management and portfolio service fees is
presented below:
Three Months Ended
------------------------
(In millions) March 29, March 31, Percent
- ------------- 1996 1995 Increase
--------- --------- --------
Asset management fees $239 $200 19%
Portfolio service fees 140 107 31
Other fees 159 141 13
---- ----
Total $538 $448 20
==== ====
Asset management fees, which include fees earned on mutual funds sponsored by
the Corporation and third parties, increased due primarily to strong inflows of
client assets. Total assets in worldwide private client accounts were a record
$732 billion at quarter-end, compared with $603 billion at first quarter-end
1995. Assets under management by Merrill Lynch Asset Management were a record
$208 billion at quarter-end, compared with $170 billion a year ago.
Portfolio service fees also benefited from inflows of client assets. Increased
numbers of accounts and asset levels led to higher fee revenues for Merrill
Lynch Consults(Registered Trademark) and Mutual Fund Advisor(Service Mark),
which are personalized portfolio management services, and Asset Power(Registered
Trademark), an asset-based fee product. Other fee-based revenues were up due
primarily to increased revenues from mutual fund transfer agency and mortgage
servicing activities.
14
Other revenues were $122 million, up 4% from $117 million reported in the 1995
first quarter.
Non-interest expenses were $2.6 billion, up 27% from the 1995 first quarter. The
largest expense category, compensation and benefits expense, increased 33% from
the 1995 first quarter to $1.7 billion due to higher incentive and
production-related compensation as well as a 6% increase in the number of
full-time employees. Incentive compensation increased with improved
profitability, while production-related compensation was up due to heightened
activity and strong volumes in many businesses. Overall, headcount increased by
approximately 2,800 employees from the 1995 first quarter to approximately
46,400 at the end of the 1996 first quarter due primarily to the addition of
employees through business acquisitions, including Smith New Court, and
selective hirings. Compensation and benefits expense as a percentage of net
revenues was 51.8%, compared with 52.5% in the year-ago period.
Non-interest expenses, excluding compensation and benefits, increased 17% to
$899 million. Communications and equipment rental expense increased 17% from the
1995 first quarter to $131 million, due to higher levels of business activity
and increased use of market data services. Occupancy costs were up 5% to $116
million due to international growth, including the addition of Smith New Court
facilities. Depreciation and amortization expense rose 14% from the 1995 first
quarter to $98 million due primarily to purchases of technology-related
equipment over the past year.
Professional fees increased 32% to $130 million primarily as a result of higher
systems development costs related to upgrading technology and processing
capabilities. Advertising and market development expense rose 33% to $114
million. Increased international travel and higher advertising and client
promotion costs contributed to this advance. Brokerage, clearing, and exchange
fees were up 27% to $106 million, driven by higher trading volume, particularly
in international markets. Other expenses totaled $204 million, up 4% from the
1995 first quarter primarily due to goodwill amortization related to Smith New
Court.
Income tax expense was $262 million in the 1996 first quarter. The effective tax
rate in the 1996 first quarter was 39.0%, compared with 40.0% in the year-ago
period. The decrease in the effective tax rate was primarily attributable to
increases in dividends qualifying for the Federal dividends received deduction,
lower state taxes, and expanded international business activities.
LIQUIDITY AND LIABILITY MANAGEMENT
The primary objective of the Corporation's funding policies is to assure
liquidity at all times. There are three key elements to the Corporation's
liquidity strategy. The first element is to maintain alternative funding sources
such that all debt obligations maturing within one year, including commercial
paper, uncommitted bank loans, and the current portion of long-term debt, can be
funded when due without issuing new unsecured debt or liquidating any business
assets. The most significant alternative funding sources are the proceeds from
executing repurchase agreements and obtaining
15
secured bank loans, both principally employing unencumbered investment grade
marketable securities. Other alternative funding sources include liquidating
cash equivalents; securitizing additional home equity and other mortgage loan
assets; and drawing on committed, unsecured, revolving credit facilities
("Credit Facilities"), which at March 29, 1996 totaled $5.7 billion and have not
been drawn upon.
As an additional measure, the Corporation regularly reviews the level and mix of
its assets and liabilities to ascertain its ability to conduct core businesses
beyond one year without reliance on issuing new unsecured debt or drawing upon
Credit Facilities. The composition of the Corporation's asset mix provides a
great degree of flexibility in managing liquidity. The Corporation's liquidity
position is enhanced since a significant portion of the Corporation's assets
turn over frequently and are typically funded with liabilities whose cash flow
characteristics closely match those of the assets. At March 29, 1996,
approximately 97% of the Corporation's assets were considered readily marketable
by management.
As part of the Corporation's overall liquidity program, its insurance
subsidiaries regularly review the funding requirements of their contractual
obligations for in-force, fixed-rate life insurance and annuity contracts and
expected future acquisition and maintenance expenses for all contracts. The
Corporation's insurance subsidiaries primarily market variable life insurance
and variable annuity products. These products are not subject to the interest
rate, asset/liability matching, and credit risks attributable to fixed-rate
products, thereby reducing the risk profile and liquidity demands on the
insurance subsidiaries. At March 29, 1996, approximately 86% of invested assets
of insurance subsidiaries were considered liquid by management.
The second element of the Corporation's liquidity strategy is to concentrate
general purpose borrowings at the Merrill Lynch & Co., Inc. level, except where
tax regulations, time zone differences, or other business considerations make
this impractical. The benefits of this strategy are lower financing costs;
simplicity, control, and wider name recognition by creditors; and flexibility to
meet varying funding requirements within subsidiaries.
The third element is to expand and diversify the Corporation's funding
instruments and its investor and creditor base. The Corporation's funding
programs benefit from the ability to market its debt instruments through its own
sales force to a large, diversified customer base. The Corporation maintains
strict concentration standards for short-term lenders, which include limits for
any single investor. Commercial paper remains the Corporation's major source of
short-term general purpose funding. Commercial paper outstanding totaled $17.2
billion at March 29, 1996 and $17.0 billion at December 29, 1995, which
represented 9% and 10% of total assets at first quarter-end 1996 and year-end
1995, respectively.
16
At March 29, 1996, total long-term debt was $20.2 billion, compared with $17.3
billion at year-end 1995. At March 29, 1996, the Corporation's senior long-term
debt was rated by seven recognized credit rating agencies, as follows:
Rating Agency Rating
------------- ------
Duff & Phelps Credit Rating Co. AA-
Fitch Investors Service, L.P. AA
IBCA Ltd. AA-
Japan Bond Research Institute AA
Moody's Investors Service, Inc. A1
Standard & Poor's Ratings Group A+
Thomson BankWatch, Inc. AA
During the first three months of 1996, the Corporation issued $4.2 billion in
long-term debt. During the same period, maturities and repurchases were $1.3
billion. In addition, approximately $341 million of the Corporation's long-term
debt securities held by subsidiaries were sold and $305 million were purchased.
At March 29, 1996, $14.1 billion of term debt had maturity dates beyond one
year.
Approximately $39.2 billion of the Corporation's indebtedness at March 29, 1996
is considered senior indebtedness as defined under various indentures.
CAPITAL RESOURCES AND CAPITAL ADEQUACY
The Corporation remains one of the most highly capitalized institutions whose
business is primarily in the U.S. securities industry. The Corporation has an
equity base of $6.4 billion at March 29, 1996, including over $5.7 billion in
common equity, supplemented by $619 million in preferred stock.
The Corporation's leverage ratios are as follows:
Adjusted
Leverage Leverage
Ratio(1) Ratio(2)
-------- --------
Period-end
March 29, 1996 30.8x 18.6x
December 29, 1995 28.8x 18.2x
Average (3)
Three months ended
March 29, 1996 32.8x 20.0x
Year ended
December 29, 1995 32.7x 19.5x
(1) Ratio of total assets to total stockholders' equity.
(2) Ratio of total assets, less resale agreements and securities borrowed, to
total stockholders' equity.
(3) Computed using month-end balances.
17
The Corporation operates in many regulated businesses that require various
minimum levels of capital to conduct business. (See Regulatory Requirements Note
to the Consolidated Financial Statements-Unaudited.) The Corporation's
broker-dealer, banking, insurance, and Futures Commission Merchant activities
are subject to regulatory requirements that may restrict the free flow of funds
to affiliates. Regulatory approval is required for payment of dividends in
excess of certain established levels, making affiliated investments, and
entering into management and service agreements with affiliated companies.
The Corporation's overall capital needs are continually reviewed to ensure that
its capital base can support the estimated risks of its businesses as well as
the regulatory and legal capital requirements of subsidiaries. Based upon these
analyses, management believes that the Corporation's equity base is adequate.
ASSETS AND LIABILITIES
The Corporation manages its balance sheet and risk limits according to market
conditions and business needs, subject to profitability and control of risk.
Asset and liability levels are primarily determined by order flow and fluctuate
daily, sometimes significantly, depending upon volume and demand. The liquidity
and maturity characteristics of assets and liabilities are monitored
continually. The Corporation monitors and manages the change of its balance
sheet using average daily balances. Average daily balances are derived from the
Corporation's management information system, which summarizes balances on a
settlement date basis. Financial statement balances, as required under generally
accepted accounting principles, are recorded on a trade date basis. The
discussion that follows compares the changes in settlement date average daily
balances, not quarter-end balances.
For the first three months of 1996, average daily assets were $200 billion, up
1% versus $197 billion for the 1995 fourth quarter. Average daily liabilities
rose 1% to $194 billion from $191 billion for the 1995 fourth quarter.
The major components in the growth of average daily assets and liabilities
for the 1996 first quarter are summarized as follows:
Increase in
(In millions) Average Assets Percent Increase
- ------------- -------------- ----------------
Resale agreements and
securities borrowed $3,040 4%
Increase in
Average Liabilities Percent Increase
------------------- ----------------
Repurchase agreements and
securities loaned $1,104 1%
Long-term borrowings $1,668 9%
In managing its balance sheet, the Corporation strives to match-fund its
interest-earning assets with interest-bearing liabilities having similar
maturities and cash flow characteristics, such as repurchase and resale
agreements. In the 1996 first quarter, repurchase and securities loaned
18
transactions and resale and securities borrowed transactions rose as a result of
an increase in match-funded activity involving primarily U.S. Government and
agencies securities. In addition, resale and securities borrowed transactions
increased to facilitate security deliveries to customers.
The Corporation's assets, based on liquidity and maturity characteristics, are
funded through diversified sources which include repurchase agreements,
commercial paper and other short-term borrowings, long-term borrowings, and
equity. A portion of the 1996 first quarter increase in average assets was
funded through an increase in long-term borrowings, including medium-term notes.
NON-INVESTMENT GRADE HOLDINGS AND HIGHLY LEVERAGED TRANSACTIONS
In the normal course of business, the Corporation underwrites, trades, and holds
non-investment grade securities in connection with its investment banking,
market making, and derivative structuring activities. During the past three
years, the Corporation has increased its non-investment grade trading
inventories to satisfy client demand for higher-yielding investments, including
emerging market and other international securities.
Non-investment grade securities have been defined as debt and preferred equity
securities rated as BB+ or lower, or equivalent ratings by recognized credit
rating agencies, certain sovereign debt in emerging markets, amounts due under
various derivative contracts from non-investment grade counterparties, and other
instruments that, in the opinion of management, are non-investment grade. At
March 29, 1996, long and short non-investment grade inventories accounted for
6.6% of aggregate consolidated trading inventories, compared with 6.3% at
year-end 1995. Non-investment grade trading inventories are carried at fair
value.
The Corporation provides financing and advisory services to, and invests in,
companies entering into leveraged transactions, which may include leveraged
buyouts, recapitalizations, and mergers and acquisitions. The Corporation
provides extensions of credit to leveraged companies in the form of senior and
subordinated debt, as well as bridge financing on a select and limited basis. In
addition, the Corporation syndicates loans for non-investment grade
counterparties or in connection with highly leveraged transactions. In
connection with these syndications, the Corporation may retain a residual
portion of these loans.
The Corporation holds direct equity investments in leveraged companies and
interests in partnerships that invest in leveraged transactions. The Corporation
has also committed to participate in limited partnerships that invest in
leveraged transactions. Future commitments to participate in limited
partnerships and other direct equity investments will be determined on a select
and limited basis.
Investment in non-investment grade securities and involvement in highly
leveraged transactions subject the Corporation to additional risks related to
the creditworthiness of the issuers and the liquidity of the market for such
securities. The Corporation recognizes such risks and, whenever possible,
employs strategies to mitigate exposures.
19
The specific components and overall level of non-investment grade and highly
leveraged positions may vary significantly from period to period as a result of
inventory turnover, investment sales, and asset redeployment. The Corporation
continually monitors credit risk by individual issuer and industry
concentration.
In certain instances, the Corporation engages in hedging strategies to reduce
its exposure associated with owning a non-investment grade position by selling
short the related equity security or by entering into an offsetting derivative
contract. The Corporation also uses certain non-investment grade trading
inventories, principally non-U.S. governments and agencies securities, to hedge
the exposure arising from structured derivative transactions. Collateral,
consisting principally of U.S. Government securities, may be obtained to reduce
credit risk related to these transactions.
The Corporation's insurance subsidiaries hold non-investment grade securities.
As a percentage of total insurance investments, non-investment grade securities
were 4.7%, compared with 4.2% at year-end 1995. Non-investment grade securities
of insurance subsidiaries are classified as available-for-sale and are carried
at fair value.
A summary of the Corporation's highly leveraged transactions and non-investment
grade holdings follows:
MARCH 29, DECEMBER 29,
(In millions) 1996 1995
- -------------------------------------------------------------------------------
Trading assets $6,026 $5,489
Trading liabilities 529 353
Insurance subsidiaries' investments 257 234
Loans (net of allowance for
loan losses) (1) 517 489
Bridge loans (2) 90 -
Equity investments (3) 189 211
Partnership interests 82 91
- ------------------------------------------------------------------------------
Additional commitments to invest in
partnerships $ 83 $ 79
Unutilized revolving lines of
credit and other lending
commitments 75 127
- ------------------------------------------------------------------------------
(1) Represented outstanding loans to 34 and 30 medium-sized companies at March
29, 1996 and December 29, 1995, respectively.
(2) Subsequent to March 29, 1996, the Corporation entered into a bridge loan
commitment for $100 million to a non-investment grade counterparty. The
Corporation intends to syndicate the commitment and may retain a residual
portion of the loan.
(3) Invested in 62 enterprises at both March 29, 1996 and December 29, 1995.
At March 29, 1996, the largest non-investment grade concentration consisted of
various issues of a South American sovereign totaling $764 million, which
primarily represented on-balance-sheet hedges for off-balance-sheet
20
instruments. No one industry sector accounted for more than 31% of total non-
investment grade positions. Included in the preceding table are debt and equity
securities of issuers in various stages of bankruptcy proceedings or in default.
At March 29, 1996, the carrying value of these securities totaled $169, of which
80% resulted from the Corporation's market making activities in such securities.
21
STATISTICAL DATA
Selected statistical data for the last five quarters is presented below for
informational purposes:
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. 1ST QTR.
1995 1995 1995 1995 1996
-------- -------- -------- -------- ------
PRIVATE CLIENT ACCOUNTS
(IN BILLIONS):
Assets in Worldwide
Private Client Accounts $ 603 $ 643 $ 675 $ 703 $ 732
Assets in U.S. Private
Client Accounts $ 571 $ 608 $ 639 $ 665 $ 692
Assets under Professional
Management:
Money Markets $ 71 $ 76 $ 80 $ 82 $ 89
Equities 38 42 44 47 51
Fixed Income 37 38 39 41 41
Private Portfolio 20 20 22 22 23
Insurance 4 4 4 4 4
-------- -------- -------- -------- --------
Subtotal 170 180 189 196 208
ML Consults 15 16 17 17 18
Mutual Fund Advisor and
Asset Power 4 4 5 6 7
-------- -------- -------- -------- --------
TOTAL $ 189 $ 200 $ 211 $ 219 $ 233
======== ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------
UNDERWRITING
(DOLLARS IN BILLIONS)(A):
Global Debt and Equity:
Volume $ 29 $ 33 $ 41 $ 45 $ 44
Market Share 12.8% 12.2% 14.4% 15.3% 11.9%
U.S. Debt and Equity:
Volume $ 26 $ 28 $ 34 $ 40 $ 38
Market Share 18.1% 15.3% 17.5% 20.6% 16.1%
- -----------------------------------------------------------------------------------------------------------------------
FULL-TIME EMPLOYEES:
U.S. 38,550 38,200 38,900 39,250 39,400
International 5,050 5,100 6,500 6,750 7,000
-------- -------- -------- -------- --------
TOTAL 43,600 43,300 45,400 46,000 46,400
======== ======== ======== ======== ========
Financial Consultants and
Account Executives Worldwide 13,500 13,600 13,700 13,800 13,700
Support Personnel to
Producer ratio (B) 1.44 1.41 1.38 1.43 1.46
INCOME STATEMENT:
Net Earnings (in millions) $ 228 $ 283 $ 300 $ 303 $ 409
Annualized Return on Average
Common Stockholders' Equity 16.7% 21.0% 21.5% 21.1% 28.2%
Earnings per Common Share:
Primary $ 1.08 $ 1.40 $ 1.47 $ 1.49 $ 2.03
Fully Diluted $ 1.08 $ 1.39 $ 1.46 $ 1.49 $ 2.03
BALANCE SHEET (IN MILLIONS):
Total Assets $176,733 $174,853 $185,473 $176,857 $195,884
Total Stockholders' Equity $ 5,704 $ 5,883 $ 6,077 $ 6,141 $ 6,364
SHARE INFORMATION (IN THOUSANDS):
Weighted Average Shares
Outstanding:
Primary 199,178 193,267 196,395 195,148 196,225
Fully Diluted 199,178 195,159 197,157 195,148 196,225
Common Shares Outstanding (C) 176,521 175,460 175,501 171,388 173,040
Shares Repurchased 9,309 3,571 1,689 5,443 4,543
- -----------------------------------------------------------------------------------------------------------------------
(A) Full credit to book manager. All market share data are derived from
Securities Data Co.
(B) Support personnel includes sales assistants.
(C) Does not include 5,307, 4,809, 4,375, 4,013, and 2,895 unallocated
reversion shares held in the Employee Stock Ownership Plan at period end
March 31, 1995, June 30, 1995, September 29, 1995, December 29, 1995, and
March 29, 1996, respectively, which are not considered outstanding for
accounting purposes.
22
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
Orange County Litigation. The following developments have
------------------------
occurred since the filing of the 1995 Form 10-K with respect to civil actions
filed against or on behalf of the Corporation arising out of the Corporation's
business activities with Orange County related to transactions entered into on
behalf of Orange County and the Pools. Capitalized terms used herein without
definition have meanings set forth in the 1995 Form 10-K.
In the Atascadero State Court Action, an amended complaint was
filed on April 10, 1996, adding two employees of the Corporation as defendants
and adding claims for common law conversion and violations of Sections 25400,
25401, 25500, and 25501 of the California Code and RICO.
In the Atascadero Federal Court Action, an amended complaint was
filed on March 22, 1996, adding two employees of the Corporation as defendants
and adding a claim for common law conversion.
On April 1, 1996, the Smith Federal Court Action was dismissed
without prejudice. The proposed settlements reached among plaintiffs and certain
of the defendants other than the Corporation and the employee of the Corporation
named as a defendant have been withdrawn.
GSLIC Litigation. The following development has occurred since
----------------
the filing of the 1995 10-K with respect to the GSLIC Litigation. On
May 2, 1996, the Haag/Levine Action against all defendants was dismissed with
prejudice.
For more detailed information regarding litigation matters
involving the Corporation and its subsidiaries, see "Item 3. - Legal
Proceedings" in the 1995 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
----------------------------------------------------
On April 16, 1996, the Corporation held its Annual Meeting of
Stockholders, at which 90.5% of the shares of Common Stock, par value $1.33 1/3
per share, outstanding and eligible to vote, either in person or by proxy, were
represented, constituting a quorum. At this Annual Meeting, the following
matters were voted upon: (i) the election of four directors to the Board of
Directors to hold office for a term of three years; (ii) a stockholder proposal
concerning cumulative voting in the election of directors; and (iii) a
stockholder proposal concerning declassification of the Corporation's Board of
Directors. Proxies for the Annual Meeting of Stockholders were solicited by the
Board of Directors pursuant to Regulation 14A of the Securities Exchange Act of
1934.
The stockholders elected all four nominees to three year terms
as members of the Board of Directors as set forth in the Corporation's Proxy
Statement. There was no solicitation in opposition to such nominees. The votes
cast for or withheld from
23
the election of directors were as follows: Jill K. Conway received 158,408,430
votes in favor and 2,555,953 votes were withheld; George B. Harvey received
158,939,713 votes in favor and 2,024,670 votes were withheld; David H. Komansky
received 158,838,230 votes in favor and 2,126,153 votes were withheld; and
William L. Weiss received 158,931,618 votes in favor and 2,032,765 votes were
withheld.
The stockholders did not approve the stockholder proposal
concerning cumulative voting in election of directors. The votes cast for and
against, as well as the number of abstentions and broker non-votes, for this
proposal were as follows: 31,623,319 votes in favor, 108,923,181 votes against,
2,668,691 shares abstained, and 17,749,192 shares represented broker non-votes.
The stockholders did not approve the stockholder proposal
concerning declassification of the Corporation's Board of Directors. The votes
cast for and against, as well as the number of abstentions and broker non-votes,
for this proposal were as follows: 45,488,137 votes in favor, 95,769,854 votes
against, 1,957,200 shares abstained, and 17,749,192 shares represented broker
non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
(4) Instruments defining the rights of security holders,
including indentures:
Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the
Corporation hereby undertakes to furnish to the Securities
and Exchange Commission (the "Commission"), upon request,
copies of the instruments defining the rights of holders
of long-term debt securities of the Corporation that
authorize an amount of securities constituting 10% or less
of the total assets of the Corporation and its
subsidiaries on a consolidated basis.
(10) Material Contracts
(i) Merrill Lynch & Co., Inc. Long-Term Incentive
Compensation Plan, as amended on April 16, 1996.
(ii) Merrill Lynch & Co., Inc. Equity Capital Accumulation
Plan, as amended on April 16, 1996.
(11) Statement re: computation of per share earnings.
(12) Statement re: computation of ratios.
(15) Letter re: unaudited interim financial information.
(27) Financial Data Schedule.
24
(b) Reports on Form 8-K
The following Current Reports on Form 8-K were filed by the Corporation
with the Commission during the quarterly period covered by this Report:
(i) Current Report dated January 17, 1996 for the purpose of
filing the form of Registrant's 6% Notes due January 15,
2001.
(ii) Current Report dated January 22, 1996 for the purpose of
filing the Preliminary Unaudited Earnings Summaries of the
Corporation for the three- and twelve-month periods ended
December 29, 1995.
(iii) Current Report dated February 7, 1996 for the purpose of
filing the form of Registrant's AMEX Hong Kong 30 Index
Equity Participation Notes due February 16, 1999.
(iv) Current Report dated February 29, 1996 for the purpose of
filing the form of Registrant's 6% Notes due March 1,
2001.
(v) Current Report dated March 1, 1996 for the purpose of
filing certain summary financial information of the
Corporation as of December 29, 1995.
(vi) Current Report dated March 12, 1996 for the purpose of
filing the audited financial statements of the Corporation
for its 1995 fiscal year.
(vii) Current Report dated March 18, 1996 for the purpose of
filing the form of Registrant's 7% Notes due March 15,
2006.
25
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.
-------------------------
(Registrant)
Date: May , 1996 By: /s/ Joseph T. Willett
--- -------------------------
Joseph T. Willett
Senior Vice President
Chief Financial Officer
INDEX TO EXHIBITS
Exhibits
(10) Material Contracts
(i) Merrill Lynch & Co., Inc. Long-Term Incentive Compensation Plan,
as amended on April 16, 1996.
(ii) Merrill Lynch & Co., Inc. Equity Capital Accumulation Plan, as
amended on April 16, 1996.
(11) Statement re: computation of per share earnings.
(12) Statement re: computation of ratios.
(15) Letter re: unaudited interim financial information.
(27) Financial Data Schedule.