8-K: Current report filing
Published on January 23, 2002
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 23, 2002
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Merrill Lynch & Co., Inc.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 1-7182 13-2740599
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(State or Other (Commission (I.R.S. Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
4 World Financial Center, New York, New York 10080
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (212) 449-1000
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(Former Name or Former Address, if Changed Since Last Report.)
Item 5. Other Events
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Filed herewith is the Preliminary Unaudited Earnings Summary for the three
months and the year ended December 28, 2001 and supplemental quarterly
information for Merrill Lynch & Co., Inc. ("Merrill Lynch"), as contained in a
press release dated January 23, 2002. The results of operations set forth
therein for such periods are unaudited. All adjustments, consisting only of
normal recurring accruals that are, in the opinion of management, necessary for
a fair presentation of the results of operations for the periods presented, have
been included. The nature of Merrill Lynch's business is such that the results
for any interim period are not necessarily indicative of the results for a full
year.
Preferred stockholders' equity, common stockholders' equity, long-term
borrowings and preferred securities issued by subsidiaries as of December 28,
2001 were approximately $425 million, $19.6 billion, $76.7 billion, and $2.7
billion, respectively.
On January 23, Merrill Lynch reported net operating earnings of $2.4 billion for
2001, excluding the fourth quarter after-tax charge of $1.7 billion announced
earlier this month and September 11th-related expenses. Net operating earnings
per common share were $2.79 basic and $2.50 diluted. Including the charges, net
earnings were $573 million for 2001; earnings per common share were $0.64 basic
and $0.57 diluted.
Fourth quarter net earnings excluding the charge and including September
11th-related expenses of $0.03 per diluted share were $461 million, or $0.48 per
diluted share and $0.53 per basic share. With the charge included, fourth
quarter results were a loss of $1.3 billion, or $1.51 per share.
The full-year net operating earnings of $2.4 billion before the fourth-quarter
charge and September 11th-related expenses were 37% lower than 2000. Net
revenues were $21.9 billion, 18% lower than the full-year 2000. Excluding the
fourth-quarter charge and the September 11th-related expenses, the pre-tax
profit margin for the full year was 16.9%, and the return on average common
equity was approximately 11.7%.
Net operating earnings for the fourth quarter before the charge and September
11th-related expenses were $491 million, 44% lower than the 2000 fourth quarter,
on net revenues that were 24% lower, at $4.8 billion. Excluding the
fourth-quarter charge and the September 11th-related expenses, the pre-tax
profit margin for the quarter was 15.2%.
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BUSINESS SEGMENT REVIEW BEFORE THE FOURTH-QUARTER CHARGE AND
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SEPTEMBER 11TH-RELATED EXPENSES:
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GLOBAL MARKETS AND INVESTMENT BANKING (GMI)
GMI faced a challenging market environment throughout 2001. Equity origination
and trading activity declined, but now appear to be stabilizing. Global
completed merger and acquisition volumes decreased throughout the year.
Partially offsetting these factors were buoyant debt markets, as eleven interest
rate cuts by the Federal Reserve were a catalyst for significant origination and
trading activity during most of the year.
Merrill Lynch demonstrated leadership in investment banking throughout 2001,
ranking #1 in global equity and equity-linked origination and #2 in global
announced mergers and acquisitions, with increased full-year market shares of
14.4% and 27.4%, respectively. IFR named the company Equity House and
Equity-Linked House of the Year. Merrill Lynch also continued a leadership
position in global debt origination.
o Full-year pre-tax operating earnings were $2.5 billion, 37% lower than
2000, as net revenues declined 21% to $10.0 billion. GMI's full-year
pre-tax operating margin was 24.8%.
o Fourth quarter pre-tax operating earnings were $362 million, 56% below the
2000 fourth quarter, as net revenues declined 36% to $1.9 billion. GMI's
2001 fourth quarter operating pre-tax margin was 19.2%.
o GMI's fourth quarter net revenues fell 16% from the 2001 third quarter due
primarily to a decline in debt trading revenues from the particularly
strong third quarter, reduced investment banking fees, and private equity
write-downs. Debt trading revenues were adversely affected by yield curve
volatility and declines in the market value of selected credit positions.
In investment banking, merger and acquisition revenues were lower as the
volume of completed transactions continued to fall. These declines were
partially offset by an increase in equity principal transaction revenues,
which includes gains on investments held by a Merrill Lynch broker-dealer.
o Also contributing to lower fourth quarter revenues was continued business
disruption in the aftermath of September 11th. Most trading, investment
banking and research personnel were relocated back into the World Financial
Center during the quarter.
PRIVATE CLIENT GROUP
The difficult 2001 market environment has reinforced the value of professional
investment advice and Merrill Lynch financial advisors have focused on
delivering the highest quality service to clients. Throughout the year, the
company continued to
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implement its multi-channeled private client service strategy, and has made
excellent progress in delivering service and efficiency improvements.
o Full-year pre-tax operating earnings were $1.2 billion, down 21% from 2000.
Full-year net revenues declined 15% to $10.1 billion due to lower
transaction volumes and reduced demand for mutual fund and equity products,
partially offset by an increase in net interest profit. The pre-tax
operating margin was 12.2%, compared with 13.1% in 2000. These results
include a solid performance in the United States, where pre-tax earnings
were down only 9% from 2000. Performance outside the United States
continued to be weak resulting in a full-year pre-tax loss.
o Fourth quarter pre-tax operating earnings were $384 million, 4% below the
fourth quarter of 2000 on net revenues that were 12% lower at $2.5 billion.
Fourth quarter net revenues include a gain on the sale of the Canadian
Private Client business and increased net interest profit, partially offset
by losses on investments. The fourth quarter pre-tax operating margin was
15.6%.
o Total assets in client accounts declined 13% from the 2000 fourth quarter
to $1.5 trillion, including $1.3 trillion of assets in Private Client
accounts. The decline is due primarily to market depreciation; however,
fourth quarter movements in Private Client assets also include transfers of
assets out of the firm as a result of business divestitures. These
divestitures include the sale of the Canadian Private Client business,
including approximately 275,000 accounts, and the transfer of approximately
800,000 accounts associated with the sale of the U.S. Employee Stock
Purchase Plan business announced in late 2000.
o Excluding the impact of the sale of certain businesses, global net new
money attracted into Private Client accounts during the fourth quarter was
$16 billion. On the same basis, a total of $62 billion of net new money was
attracted into Private Client accounts globally during the year.
MERRILL LYNCH INVESTMENT MANAGERS (MLIM)
MLIM's investment performance remained strong in 2001. However, financial
results were negatively affected by a market-driven decline in assets under
management for most of the year, combined with a fourth quarter increase in
litigation costs.
o Full-year pre-tax operating earnings were $307 million, 39% lower than
2000, on net revenues of $2.1 billion, 15% lower than last year. The
pre-tax operating margin was 14.7% compared with 20.4% in 2000.
o Fourth quarter pre-tax operating earnings were $48 million, 61% lower than
the fourth quarter of 2000. Net revenues were $489 million, a decline of
22% from the same period last year. The pre-tax operating margin was 9.8%.
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o Assets under management totaled $529 billion at year-end, including $4
billion of net inflows during the fourth quarter and $19 billion of net
inflows during the year.
FOURTH-QUARTER INCOME STATEMENT REVIEW:
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REVENUES
Net revenues were $4.8 billion, 24% lower than the 2000 fourth quarter.
Commission revenues were $1.2 billion, 23% below the 2000 fourth quarter. The
decrease was due primarily to a global decline in client transaction volumes,
particularly in equities and mutual funds. Over the past year, commission
revenues have also decreased as clients have opened asset-priced accounts,
paying fees in place of commissions.
Principal transaction revenues declined 53% from the fourth quarter of 2000, to
$586 million. The decrease is due to reductions in both debt and equity trading
revenues.
Underwriting revenues were $538 million, 20% lower than the 2000 fourth quarter
as a result of the continued decline in global origination activity. Strategic
advisory revenues decreased 52% from the fourth quarter of 2000, due to a
reduced volume of completed merger and acquisition transactions.
Asset management and portfolio service fees were $1.3 billion, down 13% from the
fourth quarter of 2000. This decrease reflects a market-driven decline in assets
under management and lower valuations of assets in asset-priced accounts. The
fees on these accounts are calculated based on asset valuations at the beginning
of each quarter.
Other revenues were $82 million, down $36 million from the fourth quarter of
2000. A gain on the sale of the Canadian Private Client business was offset by
losses on investments.
Net interest profit was $862 million, $89 million higher than the year-ago
quarter.
EXPENSES
Compensation and benefits expenses decreased 27% from the 2000 fourth quarter,
to $2.3 billion. Compensation and benefits expenses were 48.2% of net revenues
for the fourth quarter of 2001, compared to 50.4% in the year-ago quarter. The
full-year ratio was essentially unchanged from the 2000 level, at 51.5%.
Non-compensation operating expenses decreased 3% from the 2000 fourth quarter,
to $1.7 billion. Full-year non-compensation operating expenses were 6% below
2000 levels. Details of
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significant changes in non-compensation operating expenses from the fourth
quarter of 2000 follow:
o Communications and technology costs were $537 million, down 12%, due
primarily to reduced systems consulting costs;
o advertising and market development expenses were $128 million, down 43%
due primarily to reduced spending on travel, advertising and recognition
programs;
o brokerage, clearing, and exchange fees were $198 million, down $23 million;
o professional fees decreased 22%, to $137 million, due largely to reduced
spending on employment and consulting services; and
o other expenses increased 60%, to $429 million, primarily as a result of
litigation costs related to certain settlements during the fourth quarter.
Merrill Lynch's annual effective tax rate on operating earnings was unchanged
from 2000 at 30.4%, excluding September 11th-related expenses and the
fourth-quarter charge. Including the charges, Merrill Lynch's annual effective
tax rate was 44.2%, due primarily to non-deductible prior and current year
losses associated with the refocusing of the Japan Private Client business
included in the charge.
SEPTEMBER 11TH- RELATED EXPENSES
September 11th-related expenses of $43 million pre-tax ($30 million after-tax),
were recorded during the fourth quarter. These amounts are net of estimated
insurance recoveries. The majority of the September 11th-related gross expenses
pertain to the write-down of damaged assets, the repair and replacement of
assets, as well as transportation, moving and related costs for displaced
workers.
STAFFING
Merrill Lynch's full-time employees totaled 57,400 at the end of 2001. Private
Client Financial Advisor (FA) headcount totaled 16,400 at the end of the fourth
quarter, compared with 18,000 at the end of the 2001 third quarter. This
reduction in FAs occurred primarily outside the United States as a result of
re-sizing actions taken as part of the fourth quarter charge.
FOURTH-QUARTER CHARGE
A pre-tax charge of $2.2 billion ($1.7 billion after tax) was recorded during
the fourth quarter. This charge included the following components:
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o Workforce reductions of approximately 9,000 through a combination of
divestitures, voluntary separation and managed reductions. All of the
reductions associated with the fourth-quarter charge have been completed or
announced. Approximately half of the reductions are associated with
divestitures and discontinued businesses; the remainder result from
voluntary separation, or targeted actions in selected businesses.
Approximately $1.2 billion of the charge is associated with severance costs
related to workforce reductions, and other staff-related costs.
o Real estate initiatives, including the consolidation of Private Client
offices in the United States, Europe, Asia and Australia and the closure or
subletting of excess office space in the United States. Approximately $500
million of the charge is associated with real estate initiatives.
o Technology initiatives, including the write-down of certain technology
assets. Approximately $300 million of the charge is associated with
technology initiatives.
o Other business rationalization costs, which comprise $200 million of the
charge.
The charge is broken down by business segment as follows: Private Client $1,077
million; GMI $833 million; and MLIM $283 million.
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Merrill Lynch may make or publish forward-looking statements about management
expectations, strategic objectives, business prospects, anticipated financial
performance, and other similar matters. A variety of factors, many of which are
beyond Merrill Lynch's control, could cause actual results and experience to
differ materially from the expectations expressed in these statements.
These factors include, but are not limited to, financial market volatility,
actions and initiatives by current and potential competitors, the effect of
current and future legislation or regulation, and additional factors described
in Merrill Lynch's Annual Report on Form 10-K and subsequent reports on Form 8-K
and Form 10-Q, which are available at the SEC's website, www.sec.gov. Merrill
Lynch undertakes no responsibility to update or revise any forward-looking
statements.
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
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(c) Exhibits
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(99) Additional Exhibits
(i) Preliminary Unaudited Earnings Summaries for
the three months and the year ended December
28, 2001 and supplemental information.
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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.
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(Registrant)
By: /s/ Thomas H. Patrick
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Thomas H. Patrick
Executive Vice President and
Chief Financial Officer
Date: January 23, 2002
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EXHIBIT INDEX
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Exhibit No. Description Page
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(99) Additional Exhibits 11-18
(i) Preliminary Unaudited Earnings Summaries for
the three months and the year ended December
28, 2001 and supplemental information.
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