<PAGE>
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 JULY 1, 1994
-------------
COMMISSION FILE NUMBER 1-7182
-------------
MERRILL LYNCH & CO., INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-2740599
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 449-1000
- --------------------------------------------------------------------------------
Registrant's telephone number, including area code
- --------------------------------------------------------------------------------
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.
194,529,570 shares of Common Stock*
(as of the close of business on August 5, 1994)
* Does not include 7,255,040 unallocated shares held in the Employee Stock
Ownership Plan that are not considered outstanding for accounting purposes.
<PAGE>
Part I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. Financial Statements
--------------------
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
-------------------------- PERCENT
JULY 1, JUNE 25, INCREASE
(In Thousands, Except Per Share Amounts) 1994 1993 (DECREASE)
------------ ------------ ----------
<S> <C> <C> <C>
REVENUES
Commissions................................ $ 690,533 $ 670,777 3 %
Interest and dividends..................... 2,317,691 1,687,947 37
Principal transactions..................... 560,867 743,413 (25)
Investment banking......................... 322,006 413,846 (22)
Asset management and portfolio
service fees.............................. 431,930 381,726 13
Other...................................... 157,273 65,300 141
---------- ---------- -----
Total Revenues............................. 4,480,300 3,963,009 13
Interest Expense......................... 2,082,581 1,408,512 48
---------- ---------- -----
Net Revenues............................... 2,397,719 2,554,497 (6)
---------- ---------- -----
NON-INTEREST EXPENSES
Compensation and benefits.................. 1,216,450 1,279,302 (5)
Occupancy.................................. 108,574 116,461 (7)
Communications and equipment rental........ 107,922 94,120 15
Depreciation and amortization.............. 80,595 73,141 10
Advertising and market development......... 99,145 91,250 9
Professional fees.......................... 87,225 66,822 31
Brokerage, clearing, and exchange fees..... 87,465 71,286 23
Other...................................... 177,681 167,207 6
---------- ---------- -----
Total Non-Interest Expenses................ 1,965,057 1,959,589 -
---------- ---------- -----
EARNINGS BEFORE INCOME TAXES............... 432,662 594,908 (27)
Income tax expense......................... 180,853 249,861 (28)
---------- ---------- -----
NET EARNINGS............................... $ 251,809 $ 345,047 (27)%
========== ========== =====
NET EARNINGS APPLICABLE TO COMMON
STOCKHOLDERS.............................. $ 250,270 $ 343,769
========== ==========
EARNINGS PER COMMON SHARE:
Primary.................................. $ 1.18 $ 1.52
========== ==========
Fully diluted............................ $ 1.18 $ 1.51
========== ==========
Dividend Paid Per Common Share............. $ .23 $ .175
========== ==========
AVERAGE SHARES USED IN COMPUTING EARNINGS
PER COMMON SHARE:
Primary.................................. 212,489 225,612
========== ==========
Fully diluted............................ 212,489 226,922
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
1
<PAGE>
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
------------------------- PERCENT
JULY 1, JUNE 25, INCREASE
(In Thousands, Except Per Share Amounts) 1994 1993 (DECREASE)
----------- ------------ ----------
<S> <C> <C> <C>
REVENUES
Commissions................................ $1,558,777 $1,392,517 12 %
Interest and dividends..................... 4,517,227 3,290,402 37
Principal transactions..................... 1,227,544 1,504,853 (18)
Investment banking......................... 766,401 859,202 (11)
Asset management and portfolio
service fees.............................. 876,158 742,549 18
Other...................................... 273,004 132,470 106
---------- ---------- -----
Total Revenues............................. 9,219,111 7,921,993 16
Interest Expense......................... 3,989,564 2,755,380 45
---------- ---------- -----
Net Revenues............................... 5,229,547 5,166,613 1
---------- ---------- -----
NON-INTEREST EXPENSES
Compensation and benefits.................. 2,646,967 2,543,594 4
Occupancy.................................. 221,582 339,772 (35)
Communications and equipment rental........ 211,446 187,912 13
Depreciation and amortization.............. 154,766 143,039 8
Advertising and market development......... 197,750 172,303 15
Professional fees.......................... 181,302 127,024 43
Brokerage, clearing, and exchange fees..... 173,955 141,385 23
Other...................................... 356,909 326,355 9
---------- ---------- -----
Total Non-Interest Expenses................ 4,144,677 3,981,384 4
---------- ---------- -----
EARNINGS BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE...................... 1,084,870 1,185,229 (8)
Income tax expense......................... 461,302 497,796 (7)
---------- ---------- -----
EARNINGS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE............ 623,568 687,433 (9)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (NET OF
APPLICABLE INCOME TAXES OF $25,075)....... - (35,420) N/M
---------- ---------- -----
NET EARNINGS............................... $ 623,568 $ 652,013 (4)%
========== ========== =====
NET EARNINGS APPLICABLE TO COMMON
STOCKHOLDERS.............................. $ 620,693 $ 649,339
========== ==========
PRIMARY EARNINGS PER COMMON SHARE:
Earnings Before Cumulative Effect
of Change in Accounting Principle....... $ 2.87 $ 3.04
Cumulative Effect of Change in
Accounting Principle.................... - (.16)
---------- ----------
NET EARNINGS............................... $ 2.87 $ 2.88
========== ==========
FULLY DILUTED EARNINGS PER COMMON SHARE:
Earnings Before Cumulative Effect
of Change in Accounting Principle....... $ 2.87 $ 3.03
Cumulative Effect of Change in
Accounting Principle.................... - (.16)
---------- ----------
NET EARNINGS............................... $ 2.87 $ 2.87
========== ==========
DIVIDENDS PAID PER COMMON SHARE............ $ .43 $ .325
========== ==========
AVERAGE SHARES USED IN COMPUTING EARNINGS
PER COMMON SHARE:
Primary.................................. 216,561 225,762
========== ==========
Fully diluted............................ 216,561 226,418
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE>
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
(Dollars in Thousands, Except Per Share Amounts) JULY 1, DEC. 31,
ASSETS 1994 1993
- -------------------------------------------------------- ------------ ------------
<S> <C> <C>
CASH AND CASH EQUIVALENTS............................... $ 3,310,269 $ 1,783,408
------------ ------------
CASH AND SECURITIES SEGREGATED FOR REGULATORY PURPOSES
OR DEPOSITED WITH CLEARING ORGANIZATIONS............... 5,571,145 4,069,424
------------ ------------
MARKETABLE INVESTMENT SECURITIES........................ 2,089,302 1,749,254
------------ ------------
TRADING INVENTORIES, AT FAIR VALUE
Corporate debt, contractual agreements,
and preferred stock.................................... 28,478,182 16,764,084
Non-U.S. governments and agencies....................... 8,234,629 9,260,725
U.S. Government and agencies............................ 6,203,640 7,287,081
Equities and convertible debentures..................... 7,810,518 6,806,539
Mortgages and mortgage-backed........................... 5,800,325 6,486,464
Money markets........................................... 1,830,516 3,337,839
Municipals.............................................. 962,878 1,606,097
------------ ------------
Total................................................... 59,320,688 51,548,829
------------ ------------
RESALE AGREEMENTS....................................... 45,953,364 38,137,528
------------ ------------
SECURITIES BORROWED..................................... 20,215,603 19,001,061
------------ ------------
RECEIVABLES
Customers (net of allowance for doubtful accounts of
$46,350 in 1994 and $47,953 in 1993)................... 14,399,930 13,242,875
Brokers and dealers..................................... 7,168,993 7,292,332
Interest and other...................................... 4,227,808 2,758,768
------------ ------------
Total................................................... 25,796,731 23,293,975
------------ ------------
INVESTMENTS OF INSURANCE SUBSIDIARIES................... 6,372,764 7,841,444
LOANS, NOTES, AND MORTGAGES (NET OF ALLOWANCE FOR
LOAN LOSSES OF $205,556 IN 1994 AND $142,414 IN 1993).. 1,739,118 2,083,553
OTHER INVESTMENTS....................................... 825,191 873,806
PROPERTY, LEASEHOLD IMPROVEMENTS, AND EQUIPMENT
(NET OF ACCUMULATED DEPRECIATION AND AMORTIZATION
OF $1,764,730 IN 1994 AND $1,677,334 IN 1993).......... 1,571,758 1,506,964
OTHER ASSETS............................................ 1,240,603 1,021,116
------------ ------------
TOTAL ASSETS............................................ $174,006,536 $152,910,362
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
(Dollars in Thousands, Except Per Share Amounts) JULY 1, DEC. 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993
- ----------------------------------------------------------- ------------ ------------
<S> <C> <C>
LIABILITIES
REPURCHASE AGREEMENTS...................................... $ 60,081,702 $ 56,418,148
------------ ------------
COMMERCIAL PAPER AND OTHER SHORT-TERM BORROWINGS........... 23,081,706 23,214,329
------------ ------------
COMMITMENTS FOR SECURITIES SOLD BUT NOT YET PURCHASED, AT
FAIR VALUE
U.S. Government and agencies............................... 12,692,762 12,183,271
Equities and convertible debentures........................ 4,459,107 3,953,850
Corporate debt, contractual agreements,
and preferred stock....................................... 14,614,812 3,577,056
Non-U.S. governments and agencies.......................... 2,874,041 1,762,154
Municipals................................................. 164,669 184,041
------------ ------------
Total...................................................... 34,805,391 21,660,372
------------ ------------
CUSTOMERS.................................................. 13,166,159 13,571,379
INSURANCE.................................................. 6,077,311 7,405,673
BROKERS AND DEALERS........................................ 7,345,447 4,862,584
OTHER LIABILITIES AND ACCRUED INTEREST..................... 8,531,133 6,823,064
LONG-TERM BORROWINGS....................................... 15,289,293 13,468,900
------------ ------------
TOTAL LIABILITIES.......................................... 168,378,142 147,424,449
------------ ------------
STOCKHOLDERS' EQUITY
PREFERRED STOCKHOLDERS' EQUITY
Preferred stock, par value $1.00 per share
(Liquidation preference $100,000 per share);
authorized: 25,000,000 shares;
issued: 1994 and 1993 - 3,000 shares;
outstanding: 1994 and 1993 - 1,938 shares................ 193,800 193,800
------------ ------------
COMMON STOCKHOLDERS' EQUITY
Common stock, par value $1.33 1/3 per share;
authorized: 500,000,000 shares;
issued: 1994 and 1993 - 236,330,162 shares............... 315,105 315,105
Paid-in capital............................................ 1,209,817 1,156,367
Foreign currency translation adjustment.................... 2,728 (18,305)
Net unrealized (losses) gains on investment securities
available-for-sale (net of applicable income tax
(benefit) expense of $(18,366) in 1994 and
$12,493 in 1993)......................................... (34,330) 21,355
Retained earnings.......................................... 5,310,680 4,777,142
------------ ------------
Subtotal................................................ 6,804,000 6,251,664
Less:
Treasury stock, at cost:
1994 - 33,092,703 shares;
1993 - 23,408,139 shares............................... 1,070,374 695,788
Unallocated ESOP shares, at cost:
1994 - 7,255,040 shares;
1993 - 8,932,332 shares................................ 114,267 140,684
Employee stock transactions............................... 184,765 123,079
------------ ------------
TOTAL COMMON STOCKHOLDERS' EQUITY.......................... 5,434,594 5,292,113
------------ ------------
TOTAL STOCKHOLDERS' EQUITY................................. 5,628,394 5,485,913
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................. $174,006,536 $152,910,362
============ ============
BOOK VALUE PER COMMON SHARE................................ $ 27.95 $ 26.17
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
-------------------------
(In Thousands) JULY 1, JUNE 25,
1994 1993
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings............................................. $ 623,568 $ 652,013
Noncash items included in earnings:
Cumulative effect of change in accounting principle..... - 35,420
Depreciation and amortization........................... 154,766 143,039
Policyholder reserves................................... 194,175 285,885
Other................................................... 483,026 476,198
(Increase) decrease in operating assets:
Trading inventories..................................... (7,771,859) (9,441,687)
Cash and securities segregated for regulatory purposes
or deposited with clearing organizations............... (1,501,721) 242,012
Securities borrowed..................................... (1,214,542) (6,617,636)
Customers............................................... (1,193,585) (1,659,974)
Maturities and sales of trading investment securities... 20,129 -
Purchases of trading investment securities.............. (27,928) -
Other................................................... (967,046) (1,314,963)
Increase (decrease) in operating liabilities:
Commitments for securities sold but not yet purchased... 13,145,019 5,882,064
Customers............................................... (405,220) (306,424)
Insurance............................................... (1,348,699) (795,972)
Other................................................... 4,082,718 3,127,100
----------- -----------
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES......... 4,272,801 (9,292,925)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from (payments for):
Maturities of available-for-sale securities............. 1,509,357 -
Sales of available-for-sale securities.................. 866,020 -
Purchases of available-for-sale securities.............. (1,169,067) -
Maturities of held-to-maturity securities............... 1,005,146 -
Purchases of held-to-maturity securities................ (1,335,942) -
Maturities and sales of investments by insurance
subsidiaries........................................... - 1,618,331
Purchases of investments by insurance subsidiaries...... - (1,196,141)
Marketable investment securities........................ - (479,331)
Other investments and other assets...................... (263,895) (117,755)
Property, leasehold improvements, and equipment......... (219,560) (191,801)
----------- -----------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES......... 392,059 (366,697)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments for):
Repurchase agreements, net of resale agreements......... (4,152,282) 5,964,692
Commercial paper and other short-term borrowings........ (132,623) 2,638,611
Issuance and resale of long-term borrowings............. 6,715,316 4,223,349
Settlement and repurchase of long-term borrowings....... (5,012,226) (2,582,381)
Other common stock transactions......................... (466,154) (3,069)
Dividends............................................... (90,030) (70,835)
----------- -----------
CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES......... (3,137,999) 10,170,367
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS.................... 1,526,861 510,745
Cash and cash equivalents, beginning of year............. 1,783,408 1,251,572
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD................. $ 3,310,269 $ 1,762,317
=========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Income taxes totaled $812,676 in 1994 and $472,674 in 1993.
Interest totaled $3,851,008 in 1994 and $2,622,502 in 1993.
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
The decrease in unrealized gain on investment securities available-for-sale
totaled $55,685.
See Notes to Consolidated Financial Statements
5
<PAGE>
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JULY 1, 1994
BASIS OF PRESENTATION
The consolidated financial statements, prepared in accordance with generally
accepted accounting principles, include the accounts of Merrill Lynch & Co.,
Inc. and its subsidiaries (collectively referred to as the "Corporation"). All
material intercompany balances and transactions have been eliminated. The
December 31, 1993 consolidated balance sheet was derived from the audited
financial statements. The interim consolidated financial statements for the
three- and six-month periods are unaudited; however, in the opinion of the
management of the Corporation, all adjustments necessary for a fair statement of
the results of operations have been included. The adjustments consist of normal
recurring accruals and a non-recurring pretax lease charge of $103.0 million
($59.7 million after income taxes) previously reported in the 1993 first
quarter.
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 31, 1993. 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 restated (see Note on Accounting Changes) and reclassified, where
appropriate, to conform to the 1994 presentation.
ACCOUNTING CHANGES
On January 1, 1994, the Corporation adopted Financial Accounting Standards Board
Interpretation No. 39 ("Interpretation No. 39"), "Offsetting of Amounts Related
to Certain Contracts". Interpretation No. 39 affects the financial statement
presentation of balances related to swap, forward, and other similar exchange or
conditional type contracts, and unconditional type contracts. The Corporation
is generally required to report separately on the balance sheet unrealized gains
as assets, and unrealized losses as liabilities. For exchange or conditional
contracts, netting is permitted only when a legal right of setoff exists with
the same counterparty under a master netting arrangement. For unconditional
contracts, such as resale and repurchase agreements, net cash settlement of the
related receivable and payable balances is also required.
Prior to the adoption of Interpretation No. 39, the Corporation followed
industry practice in reporting balances related to certain types of contracts on
a net basis. Unrealized gains and losses for swap, forward, and other similar
contracts were reported net on the balance sheet by contract type, while certain
receivables and payables related to resale and repurchase agreements were
reported net by counterparty. At July 1, 1994, assets and liabilities increased
approximately $13.5 billion for the effect of Interpretation No. 39.
6
<PAGE>
The Corporation adopted Statement of Financial Accounting Standards ("SFAS")
No. 112, "Employers' Accounting for Postemployment Benefits", effective as of
the 1993 first quarter. The cumulative effect of this change in accounting
principle, reported in the 1993 Statement of Consolidated Earnings, resulted
in a charge (net of applicable income tax benefit) of $35.4 million. The 1993
year-to-date Statement of Consolidated Earnings has been restated to reflect
the impact of this pronouncement.
INVESTMENTS
On December 31, 1993, the Corporation adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". SFAS No. 115 requires
certain subsidiaries of the Corporation, principally insurance and banking, to
classify their investments in debt and qualifying equity securities into
three categories: "trading", "available-for-sale", or "held-to-maturity".
Investments that are classified as trading and available-for-sale are recorded
at fair value. Investments in debt securities classified as held-to-maturity
continue to be carried at amortized cost. Other investments, including
restricted equity securities, are excluded from the provisions of SFAS No. 115
and are classified as non-qualifying investments.
The Corporation has several broad categories of investments on its Consolidated
Balance Sheets, including investments of insurance subsidiaries, marketable
investment securities, and other investments. A reconciliation of the
Corporation's investment securities to those reported in the Consolidated
Balance Sheets is presented below:
<TABLE>
<CAPTION>
July 1, December 31,
(In thousands) 1994 1993
- ------------- ---------- ------------
<S> <C> <C>
Investments of insurance subsidiaries:
Available-for-sale $4,661,263 $6,088,443
Trading 161,625 164,620
Non-qualifying 1,549,876 1,588,381
---------- ----------
Total $6,372,764 $7,841,444
========== ==========
Marketable investment securities:
Available-for-sale $ 487,697 $ 471,862
Held-to-maturity 1,601,605 1,277,392
---------- ----------
Total $2,089,302 $1,749,254
========== ==========
Other investments:
Available-for-sale $ 78,089 $ 151,801
Held-to-maturity 1,742 16,635
Non-qualifying 745,360 705,370
---------- ----------
Total $ 825,191 $ 873,806
========== ==========
</TABLE>
For registrants subject to the information reporting requirements of the
Securities Exchange Act of 1934, there are additional requirements under SFAS
No. 115. The Corporation's insurance subsidiaries are required to adjust
deferred acquisition costs and certain policyholder
7
<PAGE>
liabilities associated with investments classified as available-for-sale. These
adjustments are recorded in stockholders' equity and assume that the unrealized
gain or loss on available-for-sale securities was realized.
The table that follows provides the components of the net unrealized (loss) gain
recorded in stockholders' equity for available-for-sale investments:
<TABLE>
<CAPTION>
July 1, December 31,
(In thousands) 1994 1993
- -------------- ---------- -------------
<S> <C> <C>
Net unrealized (losses) gains
on investment securities
available-for-sale $(298,387) $ 254,030
Adjustments for:
Policyholder liabilities 173,838 (205,495)
Deferred policy acquisition costs 38,005 (14,687)
Deferred income taxes 30,859 (12,493)
--------- ---------
Net activity for the period (55,685) 21,355
Net unrealized gains on investment
securities classified as
available-for-sale, beginning
of year 21,355 -
--------- ---------
Net unrealized (losses) gains
on investment securities
classified as available-for-sale,
end of period $ (34,330) $ 21,355
========= =========
</TABLE>
In the 1994 second quarter, gross realized gains and losses related to
available-for-sale investment securities were $0.9 million and $2.1 million,
respectively. For the six-month period ended July 1, 1994, gross realized gains
and losses related to available-for-sale investment securities were $6.3 million
and $7.7 million, respectively. The cost basis of each investment sold is
specifically identified for purposes of computing realized gains and losses.
Net unrealized losses from trading investment securities included in the 1994
three- and six-month Statements of Consolidated Earnings were $4.3 million and
$11.5 million, respectively.
INTEREST AND DIVIDEND EXPENSE
Interest expense includes payments in lieu of dividends of $7.2 million and
$5.8 million for the second quarters of 1994 and 1993, respectively. For the
six-month periods ended July 1, 1994 and June 25, 1993, payments in lieu of
dividends were $14.7 million and $9.3 million, respectively.
8
<PAGE>
COMMERCIAL PAPER AND OTHER SHORT-TERM BORROWINGS
Commercial paper and other short-term borrowings at July 1, 1994 and December
31, 1993 follow:
<TABLE>
<CAPTION>
July 1, December 31,
(In millions) 1994 1993
- ------------- ------- ------------
<S> <C> <C>
Commercial paper $13,933 $14,896
Demand and time deposits 6,365 5,946
Securities loaned 1,525 1,047
Bank loans and other 1,259 1,325
------- -------
Total $23,082 $23,214
======= =======
</TABLE>
COMMITMENTS
The Corporation enters into certain contractual agreements, referred to as
"derivatives" or off-balance-sheet financial instruments, involving futures,
forwards (including mortgage-backed securities requiring forward settlement),
options, and swap transactions, including swap options, caps, collars, and
floors. The Corporation uses derivatives in conjunction with on-balance-sheet
financial instruments to facilitate customer transactions, manage its own
interest rate, currency, and market risk, and to meet trading and financing
needs. Derivatives contracts often involve future commitments to swap interest
payment streams, to purchase or sell other financial instruments at specified
terms on a specified date, or to exchange currencies. In addition, the
Corporation writes options on a wide range of financial instruments such as
securities, currencies, futures, and various market indices.
The contractual or notional amounts of these instruments are set forth below:
<TABLE>
<CAPTION>
July 1, December 31,
(In billions) 1994 1993
- ------------- ------- ------------
<S> <C> <C>
Forward contracts $164 $154
Futures contracts 222 105
Swap agreements 749 560
Options written 102 72
</TABLE>
In the normal course of business, the Corporation obtains letters of credit to
satisfy various collateral requirements in lieu of the Corporation depositing
securities or cash. At July 1, 1994, letters of credit aggregating $1,442
million were used for this purpose.
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 July 1, 1994 would not have a material
effect on the consolidated financial condition of the Corporation.
9
<PAGE>
REGULATORY REQUIREMENTS
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a broker-dealer
and subsidiary of the Corporation, is subject to the Securities and Exchange
Commission's Net Capital Rule. Under the alternative method permitted by this
rule, the minimum required net capital, as defined, shall not be less than 2% of
aggregate debit balances arising from customer transactions. At July 1, 1994,
MLPF&S's regulatory net capital of $1,239 million was 10% of aggregate debit
balances, and its regulatory net capital in excess of the minimum required was
$998 million.
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 Rule required by 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 July 1,
1994, MLGSI's liquid capital of $1,004 million was 217% of its total market and
credit risk, and liquid capital in excess of the minimum required was $448
million.
Merrill Lynch International Limited ("MLIL") is a United Kingdom registered
broker-dealer and is subject to capital requirements of the Securities and
Futures Authority ("SFA"). Regulatory capital, as defined, must exceed the
financial resources requirement of the SFA. At July 1, 1994, MLIL's regulatory
capital was $1,386 million, and exceeded the minimum requirement by $367
million.
10
<PAGE>
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 July 1, 1994, and the related
condensed statements of consolidated earnings for the three- and six-month
periods ended July 1, 1994 and June 25, 1993 and consolidated cash flows for the
six-month periods ended July 1, 1994 and June 25, 1993. 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 31, 1993, 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 28, 1994, 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 31, 1993 is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
As discussed in the note to the condensed consolidated financial statements
entitled, "Accounting Changes", in 1993 the Corporation and its subsidiaries
changed their method of accounting for postemployment benefits to conform with
Statement of Financial Accounting Standards No. 112.
/s/ Deloitte & Touche
New York, New York
August 12, 1994
11
<PAGE>
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 create volatility in
the marketplace. While higher volatility can increase 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 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.
Strong financial markets, evident throughout 1993 and continuing into the first
six weeks of 1994, weakened during the remainder of the 1994 first-half
primarily as a result of higher interest rates, unsettled currency markets, and
investor caution. The broad market decline was initially triggered by an
increase in short-term interest rates in February 1994. Persistent inflation
concerns prompted the Federal Reserve to raise interest rates throughout the
first-half of 1994. Rising U.S. and European interest rates, coupled with a weak
U.S. dollar and unsettled international financial markets, have reduced
institutional and retail investor activity industrywide.
Underwriting volume in the 1994 second quarter declined industrywide to the
lowest level since the 1991 third quarter. Higher interest rates curtailed debt
issuance, particularly refinancings. Equity issuances were down as investors
became more selective. The flow of new money into equity mutual funds in the
1994 second quarter decreased industrywide, as investors opted for alternative,
lower risk investments, such as short-term U.S. Treasury securities. As yields
increased, many portfolio managers expanded their cash and cash equivalent
holdings, further reducing demand for equities. Strategic services revenues
continued to benefit from merger and acquisitions activity in healthcare,
financial services, and telecommunication industries.
Trading results, particularly in interest-sensitive products, were generally
lower industrywide. Foreign exchange trading was negatively affected by
uncertainty in world currency markets. Revenues from municipal securities
increased due to more attractive tax-exempt yields, while revenues from swaps
and other derivatives remained at relatively strong levels.
Retail market activity was down in the 1994 second quarter. The New York Stock
Exchange ("NYSE") average daily trading volume was 273 million shares in the
1994 second quarter, 12% below the volume in the 1994 first quarter and 6% above
the volume in the 1993 second quarter. The industrywide decline in trading
volume in the 1994 second quarter reduced commission levels in listed securities
transactions. Fee-based revenues decreased as a result of lower portfolio values
and reduced inflows of client assets.
12
<PAGE>
The Dow Jones Industrial Average ("DJIA") daily closing index for the 1994
second quarter averaged 3,645, 6% below the 1994 first quarter average closing
index and 5% above the 1993 second quarter average close. In the bond market,
the price of the 30-year U.S. Treasury bond continued to decline, with the yield
climbing to 7.61% at the end of the 1994 second quarter, compared with 7.26% at
the end of the 1994 first quarter and 6.70% at the end of the 1993 second
quarter.
The Corporation's 1994 second quarter results were down from record second
quarter levels of a year ago. Despite difficult markets, the Corporation's
results benefited from a broad revenue base, effective risk management, and
controlled expense levels.
Financial markets continued to weaken in July 1994 leading to lower volumes in
many business areas. These market conditions negatively affected net revenues.
Average net revenues for the first five weeks of the 1994 third quarter were
approximately 14% below the average weekly net revenues for the 1994 second
quarter.
Second Quarter 1994 Versus Second Quarter 1993 and Six Months 1994
- ------------------------------------------------------------------
Versus Six Months 1993
- ----------------------
The discussion that follows emphasizes the comparison between the second
quarters of 1994 and 1993, with additional information on the six-month periods
presented where appropriate.
Net earnings for the 1994 second quarter were $251.8 million, down $93.2 million
(27%) from the $345.0 million reported in last year's second quarter. Second
quarter earnings per common share were $1.18 primary and fully diluted, compared
with $1.52 primary and $1.51 fully diluted in the 1993 second quarter. After
deducting preferred stock dividends, net earnings applicable to common
stockholders in the 1994 second quarter totaled $250.3 million, down 27% from
the $343.8 million in the prior year's quarter.
The Corporation's pretax profit margin in the 1994 second quarter was 18.0%
versus 23.3% in the year-ago period. The net profit margin decreased to 10.5%
in the 1994 second quarter compared with 13.5% in the 1993 second quarter.
Total revenues increased 13% from the 1993 second quarter to $4,480 million,
while net revenues (revenues after interest expense) declined 6% from the year-
ago period to $2,398 million. Non-interest expenses totaled $1,965 million in
the 1994 second quarter, virtually unchanged from the year-earlier period.
For the first six months of 1994, net earnings were $623.6 million, down 4%
($28.4 million) from the $652.0 million reported in last year's record first-
half. Net earnings for the 1993 period included a $35.4 million cumulative
effect charge (net of $25.1 million of applicable income tax benefits) related
to the adoption of Statement of Financial Accounting Standards ("SFAS") No. 112,
"Employers' Accounting for Postemployment Benefits". Earnings before the
cumulative effect of the change in accounting principle decreased 9% from the
$687.4 million reported in the 1993 first-half. Earnings per common share for
the first six months of 1994 were $2.87 primary and fully diluted versus $2.88
primary and $2.87 fully diluted ($3.04 primary and $3.03 fully diluted,
excluding the 1993 cumulative effect adjustment) in the prior year's period.
The Corporation's weighted
13
<PAGE>
average common shares decreased during the first six months of 1994 as 13.3
million shares of common stock were repurchased compared with 4.6 million shares
in the corresponding 1993 period. Net earnings applicable to common stockholders
were $620.7 million, down $28.6 million from the $649.3 million ($684.8 million
before the 1993 cumulative effect adjustment) reported in the 1993 first-half.
The Corporation's year-to-date pretax profit margin was 20.7% compared with
22.9% in the corresponding 1993 period. The net profit margin decreased to
11.9% from 12.6% (13.3% before the 1993 cumulative effect adjustment) in the
1993 six-month period. Net revenues increased 1% in the 1994 first-half to
$5,230 million. Total revenues increased 16% to $9,219 million, while non-
interest expenses rose 4% from the 1993 six-month period to $4,145 million.
As previously reported, 1993 six month results included a non-recurring pretax
lease charge totaling $103.0 million ($59.7 million after income taxes) related
to the Corporation's decision not to occupy certain office space at its World
Financial Center Headquarters ("Headquarters") facility. An agreement to sublet
this space was entered into in the 1993 fourth quarter.
Commission revenues increased 3% from the 1993 second quarter to $691 million.
Mutual fund commissions rose 10% from the year-ago quarter to $207 million,
benefiting from increased distribution fees and redemption fees earned on mutual
funds sold in prior periods. Sales of third party mutual funds decreased from a
year ago as transactions in such funds declined, particularly in the 1994 second
quarter. Commissions from listed securities decreased 2% to $327 million due to
a change in the mix of transactions between institutional and retail clients.
Other commission revenues advanced 5% to $157 million as higher revenues from
commodity transactions were partially offset by lower commissions from money
market instruments.
Interest and dividend revenues rose 37% over the year-ago quarter to $2,318
million due to increases in interest rates, higher levels of fixed-income
inventories and investment securities, and increases in collateralized lending
activities. Interest expense, which includes dividend expense, rose 48% to
$2,083 million as a result of higher interest rates and increased levels of
interest-bearing liabilities primarily related to the Corporation's funding and
hedging activities. Net interest profit declined 16% to $235 million due
primarily to a significant increase in short-term interest rates, quarter over
quarter, and a general flattening of the yield curve - the difference between
short-term and long-term interest rates. The one-year U.S. Treasury bill rate,
for example, increased from 3.50% at June 25, 1993 to 5.49% at July 1, 1994,
while the 30-year U.S. Treasury bond rate increased from 6.70% to 7.61% during
the same period. As a result, interest spreads declined, while financing and
hedging costs increased from the 1993 second quarter.
14
<PAGE>
The significant components of interest and dividend revenues and interest
expense for the quarter and year-to-date periods follow:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ -----------------
(In millions) July 1, June 25, July 1, June 25,
- ------------- 1994 1993 1994 1993
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Interest and
dividend revenues:
Trading inventories $ 823 $ 585 $1,624 $1,125
Resale agreements 398 279 711 584
Securities borrowed 553 342 1,103 609
Margin lending 237 193 452 374
Other 307 289 627 598
------ ------ ------ ------
Total 2,318 1,688 4,517 3,290
------ ------ ------ ------
Interest expense:
Borrowings 791 576 1,602 1,090
Repurchase agreements 573 309 1,016 638
Commitments for securities
sold but not yet purchased 512 297 958 556
Other 207 227 413 471
------ ------ ------ ------
Total 2,083 1,409 3,989 2,755
------ ------ ------ ------
Net interest and
dividend profit $ 235 $ 279 $ 528 $ 535
====== ====== ====== ======
</TABLE>
Principal transactions revenues declined 25% from the year-ago period to $561
million due to the negative effects of rising U.S. interest rates and volatility
in world currency markets. Fixed-income and foreign exchange trading revenues,
in the aggregate, decreased 17% to $461 million, reflecting the effects of
weakened market conditions and lower volume. Lower revenues were reported in
corporate bonds and preferred stock, foreign exchange trading, non-U.S.
government and agency securities, and mortgage-backed products. Partially
offsetting these declines were higher revenues from municipal securities and
swaps and derivatives. Swaps and derivatives revenues, which represented 37% of
total principal transactions revenues in the 1994 second quarter and first-half,
benefited from market growth primarily in non-dollar swaps. Municipal securities
revenues advanced 57% to $129 million due to strong investor demand for tax-
exempt investments.
Equity and commodity trading revenues, in the aggregate, decreased 47% to $100
million in the 1994 second quarter due principally to lower trading revenues and
a loss in convertible securities.
For the first six months of 1994, fixed-income and foreign exchange trading
revenues, in the aggregate, decreased 21% to $904 million. Lower revenues from
corporate bonds and preferred stock, non-U.S. government and agency securities,
foreign exchange activities, and money market instruments were partially offset
by higher revenues from swaps and derivatives, and U.S. Government and agency
securities.
15
<PAGE>
Equity and commodity trading revenues, in the aggregate, decreased 8% from the
1993 first half to $324 million. Contributing to this decline in trading
revenues was a loss from convertible securities which was partially offset by
higher revenues from commodities trading and foreign equities.
Trading, hedging, and financing activities affect the recognition of both
principal transactions revenues and net interest and dividend profit. In
assessing the profitability of financial instruments, the Corporation views net
interest and principal transactions components 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 on financial instruments) for trading positions, including
hedges, is recorded either as principal transactions revenues or net interest
profit, depending on the nature of the specific position. Interest income or
expense on a U.S. Treasury security, for example, is reflected in net interest,
while any realized or unrealized gain or loss is included in principal
transactions. Financial instruments requiring forward settlement, such as
mortgage-backed "to be announced" mortgage pools, have interest components built
into their market value; any change in the market value, however, is recorded in
principal transactions revenues. Changes in the composition of trading
inventories and hedge positions can cause the recognition of revenues within
these categories to fluctuate. Consequently, net interest and principal
transactions revenue components should be evaluated collectively.
The table that follows provides information on aggregate trading profits,
including net interest for the three- and six-months ended July 1, 1994 and June
25, 1993, respectively. Principal transactions revenues are derived from the
external reporting categories. Interest revenue and expense components are
based on external reporting categories and management's assessment of the cost
to finance trading positions, which considers the underlying liquidity of these
positions.
<TABLE>
<CAPTION>
Principal Net Interest Net
(In millions) Transactions Revenue Trading
- ------------- Revenues (Expense) Revenue
-------------- ------------- --------------
Three Months 1994 1993 1994 1993 1994 1993
- ------------
<S> <C> <C> <C> <C> <C> <C>
Fixed-income and foreign
exchange $ 256 $ 385 $ 98 $ 100 $ 354 $ 485
Swaps and derivatives (1) 205 170 (29) 15 176 185
------ ------ ----- ----- ------ ------
Sub-total 461 555 69 115 530 670
Equities and commodities 100 188 - (3) 100 185
------ ------ ----- ----- ------ ------
Total $ 561 $ 743 $ 69 $ 112 $ 630 $ 855
====== ====== ===== ===== ====== ======
Six Months
- ----------
Fixed-income and foreign
exchange $ 451 $ 801 $ 218 $ 209 $ 669 $1,010
Swaps and derivatives (1) 453 350 (39) 31 414 381
------ ------ ----- ----- ------ ------
Sub-total 904 1,151 179 240 1,083 1,391
Equities and commodities 324 354 2 (6) 326 348
------ ------ ----- ----- ------ ------
Total $1,228 $1,505 $ 181 $ 234 $1,409 $1,739
====== ====== ===== ===== ====== ======
</TABLE>
(1) Swaps and derivatives revenues include transactions recorded by the
Corporation's primary derivative subsidiaries.
16
<PAGE>
Investment banking revenues were $322 million, down 22% from the second quarter
of 1993. Underwriting activity slowed as industrywide volume in the 1994 second
quarter fell to the lowest level in nearly three years. Higher interest rates
decreased debt issuance, particularly refinancings, while equity issuances were
affected by reduced demand and changes in investment strategies by portfolio
managers. As a result, underwriting revenues were down 31% to $254 million.
Lower underwriting revenues were reported in corporate debt and preferred stock,
convertible securities, and municipal bonds, partially offset by higher revenues
from asset-backed securities.
Despite the industrywide decline in volume during the 1994 second quarter, the
Corporation remained the top underwriter of debt and equity securities with a
market share of 17.2% domestically and 14.2% worldwide, according to Securities
Data Co. For the year-to-date period, the Corporation's market share of debt
and equity securities was 16.8% domestically and 13.5% worldwide.
Strategic services revenues rose 54% to $68 million, benefiting from increased
merger and acquisition advisory assignments in healthcare and financial services
industries.
Asset management and portfolio service fees advanced 13% from the 1993 second
quarter to $432 million. Fees earned from asset management activities, the
Merrill Lynch Consults (Registered Trademark) ("ML Consults") portfolio
management service, and other fee-based services contributed to the advance.
Asset management fees increased 19% to $195 million due primarily to growth in
stock and bond funds. Assets under management by Merrill Lynch Asset Management
("MLAM") rose 9% to $161 billion at quarter-end, compared with $148 billion at
the close of the 1993 second quarter. The increase was primarily attributable to
stock and bond funds which grew by 23% from the end of the 1993 second quarter
to $74 billion at the comparable 1994 quarter-end.
Assets under management by MLAM decreased 2% in the 1994 second quarter from
$164 billion at the end of the 1994 first quarter. Inflows of client assets
were offset by declining portfolio values during the 1994 second quarter.
Asset levels in money market and bond funds were down in the 1994 second
quarter, while assets invested in stock funds increased during the same period.
Revenues from ML Consults advanced 5% from the 1993 second quarter to $78
million as the number of accounts increased 2% to 85,600 at quarter-end. Asset
levels for ML Consults were $15.4 billion, down 2% from the 1993 second quarter
and 5% from the 1994 first quarter. Other fee-based revenues rose 11% to $159
million on the strength of higher transfer agency and Asset Power (Registered
Trademark) fees.
Other revenues increased 141% to $157 million, principally due to $52 million of
net realized investment gains in the current period, compared to $51 million of
net investment losses in the corresponding 1993 quarter.
Non-interest expenses were $1,965 million, virtually unchanged from the 1993
second quarter. Compensation and benefits expense decreased
17
<PAGE>
5% from the 1993 second quarter to $1,216 million as lower incentive and
production-related compensation was partially offset by increases in base
salaries. Incentive compensation decreased with lower profitability, while
production-related compensation was down due to volume declines in certain
businesses. The advance in base salaries is primarily due to a 7% increase in
personnel from last year's second quarter. The increase in personnel was
attributable to heightened business activity during the period. Compensation and
benefits expense as a percentage of net revenues was 50.7% compared with 50.1%
in the year-ago period.
Occupancy costs decreased 7% from the 1993 second quarter to $109 million,
benefiting from continued relocation of support staff to lower cost facilities
and reduced space requirements at the Headquarters facility. Communications and
equipment rental expenses increased 15% to $108 million due primarily to
increased usage of market data, news, and statistical services. Depreciation
and amortization expense rose 10% over the 1993 second quarter to $81 million
due to the acquisition of technology-related equipment.
Advertising and market development expenses increased 9% to $99 million as
increased travel related to international business activity was partially offset
by lower advertising costs. Professional fees increased 31% to $87 million.
Systems and management consultants continue to be used to upgrade technology and
processing capabilities in trading, credit, and customer systems. Brokerage,
clearing, and exchange fees advanced 23% to $87 million. Increased
clearinghouse fees related to risk management activities in volatile markets and
higher commodity trading volume contributed to this advance. Other expenses
increased 6% to $178 million due, in part, to increased loss provisions related
to customer activities.
Income tax expense totaled $181 million. The effective tax rate in the 1994
second quarter was 41.8%, compared to 42.0% in the year-ago period.
For the 1994 first-half, non-interest expenses rose 4% to $4,145 million (7%
excluding the non-recurring lease charge of $103.0 million). Trends in all
expense categories are similar to those of the second quarter comparisons unless
otherwise noted.
Compensation and benefits expense, which represented 64% of non-interest
expenses, rose 4% from the 1993 six-month period. An increase in the number of
full-time employees led to higher base wages and benefits expense.
Occupancy costs decreased 6% (35% including the $103.0 million non-recurring
lease charge). Other facilities-related costs, which include communications and
equipment rental expense and depreciation and amortization expense, increased
11%.
Brokerage, clearing, and exchange fees were up 23% from the prior-year period.
Advertising and market development expenses rose 15% from the 1993 six-month
period as a result of increased international business activity and higher
recognition program costs in the first quarter of 1994.
18
<PAGE>
Professional fees were up 43% from the year-ago period due, in part, to
increased systems consulting fees related to technology improvements. Other
expenses increased 9% due to increased provisions related to customer
receivables and higher client-related printing costs.
The effective tax rate for the 1994 six-month period was 42.5% versus 42.0% in
the comparable 1993 period.
LIQUIDITY AND LIABILITY MANAGEMENT
The primary objective of the Corporation's funding policies is to assure
liquidity at all times. To strengthen liquidity, the Corporation maintains a
strong capital base, issues term debt, obtains committed backup credit
facilities, concentrates debt issuance through Merrill Lynch & Co., Inc. (the
"Parent"), and pursues expansion and diversification of investors, funding
instruments, and creditors.
There are three key elements to the Corporation's liquidity strategy. The first
is to maintain alternative funding sources such that all debt obligations
maturing within one year, including commercial paper and the current portion of
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 ("repos") and
obtaining secured bank loans, both principally employing unencumbered
investment-grade marketable securities. The calculation of proceeds available
from repos and secured bank loans takes into account both a conservative
estimate of excess collateral required by secured lenders, and regulatory
restrictions on upstreaming cash from subsidiaries to the Parent. The ability to
execute this secured funding is demonstrated by the Corporation's routine use of
repo markets to finance inventory and by periodic tests of secured borrowing
procedures with banks. Other alternative funding sources could include
liquidating cash equivalents, securitizing additional home equity and PrimeFirst
(Registered Trademark) loans, and drawing upon committed unsecured credit
facilities.
As an additional measure, the Corporation regularly reviews its assets and
liabilities to ascertain its ability to conduct core businesses without reliance
on issuing new unsecured debt or drawing upon committed credit facilities for
terms beyond one year. The composition of the Corporation's asset mix provides
a great degree of flexibility in managing liquidity. The Corporation monitors
the liquidity of assets, the quality of committed credit facilities, and the
overall level of term debt in assessing financial strength and capital adequacy
at any point in time.
The second element of the Corporation's liquidity strategy is to concentrate all
general purpose borrowing at the Parent level, except where tax regulations or
time differences make this impractical. The benefits of this guideline are: a)
the lower financing costs that result from the reduced risks of a diversified
asset and business base; b) the simplicity, control, and wider name recognition
for banks, creditors, and rating agencies; and c) the flexibility to meet
variable funding requirements within subsidiaries.
19
<PAGE>
The third element is to expand and diversify funding sources and to maintain
strict concentration standards for short-term lenders. The Corporation's short-
and long-term funding programs benefit from the large, diversified customer base
and financial creativity of the Corporation's capital market and private client
operations. Commercial paper remains the Corporation's major source of short-
term general purpose funding. Commercial paper outstanding totaled $13.9
billion at July 1, 1994 and $14.9 billion at December 31, 1993, which
represented 8% and 10% of total assets at second quarter-end 1994 and year-end
1993, respectively. Through its own sales force, the Corporation markets its
commercial paper to thousands of investors and is able to maintain tight
concentration standards that include limits for any single investor. At July 1,
1994, total long-term debt was $15.3 billion compared with $13.5 billion at
year-end 1993. During the first six months of 1994, the Corporation issued $5.9
billion in long-term debt. During the same period, maturities and repurchases
were $3.5 billion. In addition, approximately $780 million of the Corporation's
securities held by subsidiaries were sold and $1.5 billion were purchased.
Approximately $30.3 billion of the Corporation's indebtedness at July 1, 1994 is
considered senior indebtedness as defined under various indentures.
In the 1994 six-month period, cash and cash equivalents increased approximately
$1,527 million to $3,310 million. Cash of $392 million and $4,273 million was
provided from investing activities and operating activities, respectively, in
the first six months of 1994. During the same period, the Corporation used
$3,138 million for financing activities.
CAPITAL RESOURCES AND CAPITAL ADEQUACY
The Corporation remains one of the most highly capitalized institutions in the
U.S. securities industry with an equity base of $5.6 billion at July 1, 1994,
including $5.4 billion in common equity, supplemented by $0.2 billion in
preferred stock. The Corporation's average leverage ratio, computed as the
ratio of average month-end assets to average month-end stockholders' equity, was
32.3x and 26.2x for the first six months of 1994 and 1993, respectively. The
Corporation's leverage ratio at the end of the 1994 second quarter was 30.9x.
The leverage ratio was affected by Financial Accounting Standards Board
Interpretation No. 39 ("Interpretation No. 39"), "Offsetting of Amounts Related
to Certain Contracts" (see Accounting Changes Note to the Consolidated Financial
Statements), which increased assets by approximately $13.5 billion at July 1,
1994.
To compute the Corporation's average adjusted leverage ratio, resale agreements
and securities borrowed transactions are subtracted from total assets. The
average adjusted leverage ratio was 19.4x and 16.0x for the first six months of
1994 and 1993, respectively. The Corporation's adjusted leverage ratio at the
end of the 1994 second quarter was 19.2x.
The Corporation's overall capital needs are continually reviewed to ensure that
its capital base can support the estimated needs of its businesses as well as
the regulatory and legal capital requirements of
20
<PAGE>
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
continuously. The Corporation monitors and manages the growth of its balance
sheet using point-in-time and average daily balances. Average daily balances
were 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. The reasons underlying
changes in average balances, however, are similar to changes in quarter-end
balances. The increase in average balance sheet levels during the 1994 first
six months was attributable to many factors, including the effect of
Interpretation No. 39, expanded match funding of repurchase and resale
agreements, and increased trading activity, particularly in the 1994 first
quarter.
For the first-half of 1994, average assets were $185 billion, up 14% versus the
$162 billion for the 1993 fourth quarter. Average liabilities rose 15% to $180
billion from $157 billion for the 1993 fourth quarter. Excluding the effect of
Interpretation No. 39, average assets and liabilities increased by approximately
$11 billion in the first six-months of 1994. Interpretation No. 39 primarily
affected balances related to contractual agreements and resale and repurchase
agreements.
The major components in the growth of average assets and liabilities are
summarized in the table below:
<TABLE>
<CAPTION>
Increase in Percent
(In millions) Average Assets Increase
- ------------- -------------- --------
<S> <C> <C>
Resale agreements $10,271 23%
Trading inventories $10,056 18%
Securities borrowed $ 1,756 7%
<CAPTION>
Increase in Percent
Average Liabilities Increase
------------------- --------
<S> <C> <C>
Repurchase agreements $11,512 19%
Commitments for
securities sold
but not yet purchased $ 7,952 31%
Long-term borrowings $ 1,554 11%
Commercial paper and other
short-term borrowings $ 1,082 4%
</TABLE>
21
<PAGE>
In managing its balance sheet, the Corporation strives to match-fund its
interest-earning assets with interest-bearing liabilities having similar
maturities. For example, the Corporation match-funds its repurchase
agreements/resale agreements and its securities borrowed/securities loaned
business, earning an interest spread on these transactions. In the first six
months of 1994, repurchase and resale agreements increased due to the expansion
of match-funded transactions involving foreign and emerging market securities.
Securities borrowed and loaned levels also increased during the period.
Inventory levels rose during the 1994 first half as a result of the effect of
Interpretation No. 39 and increases in trading activity, particularly during the
1994 first quarter. On-balance-sheet hedges, included in trading inventories
and commitments for securities sold but not yet purchased, also increased due,
in part, to market volatility during the first half of 1994. The Corporation
uses hedges principally to reduce risk in connection with its trading
activities.
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.
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 market-making, investment
banking, and derivative structuring activities. As a result of the improved
liquidity and credit ratings of issuers in this market, the Corporation has
increased its non-investment grade trading inventories to satisfy customer
demand for higher-yielding investments.
For purposes of this discussion, non-investment grade securities have been
defined as debt and preferred equity securities rated by Standard and Poor's as
BB+ or lower and by Moody's as Ba1 or lower (or equivalent ratings for other
instruments and non-U.S. securities), certain sovereign debt issued in emerging
markets, amounts due under various derivative contracts from non-investment
grade counterparties as well as non-rated securities which, in the opinion of
management, are non-investment grade. At July 1, 1994, long and short non-
investment grade trading inventories accounted for 4.2% of aggregate
consolidated trading inventories, compared with 4.6% at year-end 1993. 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. Examples of leveraged
transactions may include leveraged buyouts, recapitalizations, and mergers and
acquisitions. The Corporation provides extensions of credit to leveraged
companies in the form of senior term and subordinated debt, as well as bridge
financing on a select and limited basis. Loans to highly leveraged companies
are carried at unpaid principal balances less a reserve for estimated losses.
The allowance for loan losses is estimated based on a review of each loan, and
consideration of economic, market, and credit conditions. At July 1, 1994 and
December 31, 1993, there were no bridge loans outstanding.
22
<PAGE>
The Corporation holds direct equity investments in leveraged companies,
interests in partnerships that invest in leveraged transactions, and non-
investment grade securities. Equity investments in privately-held companies for
which sale is restricted by government or contractual requirements are carried
at the lower of cost or estimated net realizable value. Prior to July 1, 1994,
the Corporation had a co-investment arrangement to enter into direct equity
investments. The Corporation also has committed to participate in limited
partnerships that invest in leveraged transactions. Future commitments to
participate in limited partnerships will be determined on a select and limited
basis.
The Corporation's involvement in highly leveraged transactions and non-
investment grade securities is subject to risks related to the creditworthiness
of the issuers and the liquidity of the market for such securities, in addition
to the usual risks associated with investing in, financing, underwriting, and
trading investment grade instruments. The Corporation recognizes such risks
and, when possible, develops strategies to mitigate its exposures.
The specific components and overall level of highly leveraged and non-investment
grade positions may vary significantly from period to period as a result of
inventory turnover, investment sales, and asset redeployment. The Corporation
continuously monitors credit risk by individual issuer and industry
concentration. In addition, valuation policies provide for recognition of
market liquidity, as well as the trading pattern of specific securities. In
certain instances, the Corporation will hedge the exposure associated with
owning a high-yield or non-investment grade position by selling short the
related equity security, and in other instances, the Corporation uses non-
investment grade inventories to reduce exposure related to structured derivative
transactions.
The Corporation uses certain non-investment grade trading inventories,
principally non-U.S. government and agency securities, to accommodate client
demand and 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.
At July 1, 1994, non-investment grade insurance investments declined to $431
million from $458 million as of December 31, 1993. As a percentage of total
insurance investments, non-investment grade investments were 6.8%, compared with
5.8% at year-end 1993. Non-investment grade securities of insurance
subsidiaries classified as trading or available-for-sale are carried at fair
value.
23
<PAGE>
A summary of the Corporation's highly leveraged transactions and non-investment
grade holdings is provided below:
<TABLE>
<CAPTION>
JULY 1, DECEMBER 31,
(In millions) 1994 1993
- ---------------------------------------------------------------------
<S> <C> <C>
Non-investment grade trading inventories $3,507 $3,129
Non-investment grade commitments for
securities sold but not yet purchased 474 214
Non-investment grade investments
of insurance subsidiaries 431 458
Loans (net of allowance for
loan losses) (A) 249 435
Equity investments (B) 288 276
Partnership interests 96 92
- ---------------------------------------------------------------------
Additional commitments to invest in
partnerships (C) $ 29 $ 19
Additional co-investment commitments 12 49
Unutilized revolving lines of
credit and other lending
commitments 54 49
- ---------------------------------------------------------------------
</TABLE>
(A) Represented outstanding loans to 36 and 42 medium-sized companies at
July 1, 1994 and at December 31, 1993, respectively.
(B) Invested in 80 and 82 enterprises at July 1, 1994 and at December 31, 1993,
respectively.
(C) The Corporation has announced its intention to invest up to $50 million in
a partnership over a 5 year period.
At July 1, 1994, the largest non-investment grade concentration consisted of
various issues of a Latin American sovereign totaling $375 million, of which $95
million represented on-balance sheet hedges for off-balance sheet instruments.
No one industry sector accounted for more than 19% of total non-investment grade
positions. Included in the table above are debt and equity securities of issuers
in various stages of bankruptcy proceedings or in default. At July 1, 1994, the
carrying value of these securities totaled $257 million, of which 63% resulted
from the Corporation's market-making activities.
RECENT ACCOUNTING DEVELOPMENTS
Accounting by Creditors for Impairment of a Loan
- ------------------------------------------------
In May 1993, the Financial Accounting Standards Board issued SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". SFAS No. 114, effective for
fiscal years beginning after December 15, 1994, establishes accounting standards
for creditors to measure the impairment of certain loans. A loan is impaired
when it is probable that a creditor will be unable to collect all amounts due
under the terms of the loan agreement. Impairment is measured based on the
present value of expected future cash flows discounted at the loan's effective
interest rate, or the observable market price, or the fair value of the
underlying collateral if the loan is collateral
24
<PAGE>
dependent. The Corporation has evaluated the impact of this statement on its
financial condition as of July 1, 1994 and has determined that the effect is not
material.
25
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
----------------------------------------------------
On April 19, 1994, the Corporation held its Annual Meeting of
Stockholders, at which 84.9% 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 five directors to the Board of
Directors to hold office for a term of three years; (ii) the approval of
performance goals governing, and eligibility requirements for, certain annual
bonuses and grants of restricted shares and units; and (iii) a stockholder
proposal concerning cumulative voting in the election 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 five 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 the election of directors were as follows: William O. Bourke
received 179,483,995 votes in favor and 1,099,023 votes were withheld; Stephen
L. Hammerman received 179,371,726 votes in favor and 1,211,292 votes were
withheld; Aulana L. Peters received 179,367,874 votes in favor and 1,215,144
votes were withheld; John J. Phelan, Jr. received 179,544,679 votes in favor and
1,038,339 votes were withheld; and Charles A. Sanders received 179,575,279 votes
in favor and 1,007,739 votes were withheld.
The stockholders approved the proposal for approval of performance goals
governing, and eligibility requirements for, certain annual bonuses and grants
of restricted shares and units. The votes cast for and against, as well as the
number of abstentions and broker non-votes for this proposal, were as follows:
121,076,688 votes in favor, 30,231,549 votes against, 1,948,293 shares abstained
and 27,326,490 shares represented broker non-votes.
The stockholders did not approve the stockholder proposal concerning
cumulative voting in elections 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: 48,429,477 votes in favor, 102,854,914 votes against, 1,972,137
shares abstained and 27,326,490 shares represented broker non-votes.
26
<PAGE>
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.
(11) Statement re computation of per share earnings.
(12) Statement re computation of ratios.
(15) Letter re unaudited interim financial information.
(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 April 18, 1994 for the purpose of filing the
Preliminary Unaudited Earnings Summary of the Corporation for the
three months ended April 1, 1994.
(ii) Current Report dated May 6, 1994 for the purpose of filing the
Preliminary Unaudited Consolidated Balance Sheet of the
Corporation as of April 1, 1994.
27
<PAGE>
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: August 12, 1994 By: /s/ Joseph T. Willett
---------------------------
Joseph T. Willett
Senior Vice President and
Chief Financial Officer
28
<PAGE>
INDEX TO EXHIBITS
Exhibits
(11) Statement re computation of per share earnings.
(12) Statement re computation of ratios.
(15) Letter re unaudited interim financial information.
<PAGE>
EXHIBIT 11
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
------------------------------------------
COMPUTATION OF PER COMMON SHARE EARNINGS
----------------------------------------
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended Ended
----------------------- ---------------------
July 1, June 25, July 1, June 25,
1994 1993 1994 1993
(A) (A) (A) (A)(B)
----------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Primary:
Earnings before cumulative effect of
change in accounting principle................ $251,809 $345,047 $623,568 $687,433
Cumulative effect of change
in accounting principle....................... - - - (35,420)
-------- -------- -------- --------
Net earnings..................................... 251,809 345,047 623,568 652,013
Remarketed Preferred stock dividends............. (1,539) (1,278) (2,875) (2,674)
-------- -------- -------- --------
Net earnings applicable to common stockholders... $250,270 $343,769 $620,693 $649,339
======== ======== ======== ========
Weighted average shares outstanding:
Common stock.................................. 198,224 209,776 200,499 209,224
Assuming issuance of shares relating to
employee incentive plans..................... 14,265 15,836 16,062 16,538
-------- -------- -------- --------
Total shares..................................... 212,489 225,612 216,561 225,762
======== ======== ======== ========
Per common share amounts:
Earnings before cumulative effect of
change in accounting principle............. $ 1.18 $ 1.52 $ 2.87 $ 3.04
Cumulative effect of change
in accounting principle.................... - - - (.16)
-------- -------- -------- --------
Net earnings..................................... $ 1.18 $ 1.52 $ 2.87 $ 2.88
======== ======== ======== ========
Fully diluted:
Earnings before cumulative effect of
change in accounting principle............. $251,809 $345,047 $623,568 $687,433
Cumulative effect of change
in accounting principle.................... - - - (35,420)
-------- -------- -------- --------
Net earnings..................................... 251,809 345,047 623,568 652,013
Remarketed Preferred stock dividends............. (1,539) (1,278) (2,875) (2,674)
-------- -------- -------- --------
Net earnings applicable to common stockholders... $250,270 $343,769 $620,693 $649,339
======== ======== ======== ========
Weighted average shares outstanding:
Common stock.................................. 198,224 209,776 200,499 209,224
Assuming issuance of shares relating to
employee incentive plans..................... 14,265 17,146 16,062 17,194
-------- -------- -------- --------
Total shares..................................... 212,489 226,922 216,561 226,418
======== ======== ======== ========
Per common share amounts:
Earnings before cumulative effect
of change in accounting principle.......... $ 1.18 $ 1.51 $ 2.87 $ 3.03
Cumulative effect of change
in accounting principle.................... - - - (.16)
-------- -------- -------- --------
Net earnings..................................... $ 1.18 $ 1.51 $ 2.87 $ 2.87
======== ======== ======== ========
</TABLE>
(A) In accordance with Accounting Principles Board Opinion No. 15, the modified
treasury stock method was used to calculate per common share earnings.
(B) 1993 results have been restated to reflect the adoption of Statement of
Financial Accounting Standards No. 112.
<PAGE>
EXHIBIT 12
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
------------------------------------------
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
-------------------------------------------------
(Dollars In Thousands)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended Ended
------------------------ ------------------------
July 1, June 25, July 1, June 25,
1994 1993 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Pretax earnings from continuing operations... $ 432,662 $ 594,908 $1,084,870 $1,185,229
Deduct equity in undistributed net earnings
of unconsolidated subsidiaries............. (9,400) (7,440) (12,448) (8,538)
---------- ---------- ---------- ----------
Total pretax earnings from continuing
operations................................. 423,262 587,468 1,072,422 1,176,691
---------- ---------- ---------- ----------
Add: Fixed Charges (A)
Interest............................. 2,075,400 1,402,722 3,974,827 2,746,069
Amortization of debt expense......... 771 990 1,568 2,136
---------- ---------- ---------- ----------
Total interest......................... 2,076,171 1,403,712 3,976,395 2,748,205
Interest factor in rents............... 32,242 33,784 65,806 70,717
---------- ---------- ---------- ----------
Total fixed charges.......................... 2,108,413 1,437,496 4,042,201 2,818,922
---------- ---------- ---------- ----------
Pretax earnings before fixed charges......... $2,531,675 $2,024,964 $5,114,623 $3,995,613
========== ========== ========== ==========
Ratio of earnings to fixed charges........... 1.20 1.41 1.27 1.42
========== ========== ========== ==========
</TABLE>
(A) There was no capitalized interest for the 1994 and 1993 periods.
<PAGE>
EXHIBIT 15
August 12, 1994
Merrill Lynch & Co., Inc.
World Financial Center
North Tower
New York, N.Y. 10281-1332
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim consolidated
financial information of Merrill Lynch & Co., Inc. and subsidiaries as of July
1, 1994 and for the three- and six-month periods ended July 1, 1994 and June 25,
1993 as indicated in our report dated August 12, 1994; because we did not
perform an audit, we expressed no opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended July 1, 1994, is
incorporated by reference in the following documents, as amended:
Filed on Form S-8:
Registration Statement No. 33-41942 (1986 Employee Stock Purchase Plan)
Registration Statement No. 33-17908 (Incentive Equity Purchase Plan)
Registration Statement No. 33-33336 (Long Term Incentive Compensation Plan)
Registration Statement No. 33-51831 (Long Term Incentive Compensation Plan)
Registration Statement No. 33-48846 (401(k) Savings and Investment Plan)
Registration Statement No. 33-51829 (401(k) Savings and Investment Plan)
Registration Statement No. 33-54154 (Non-Employee Directors' Equity Plan)
<PAGE>
Registration Statement No. 33-54572 (401(k) Savings and Investment Plan
(Puerto Rico))
Filed on Form S-3:
Debt Securities
Registration Statement No. 33-54218
Registration Statement No. 2-78338
Registration Statement No. 2-89519
Registration Statement No. 2-83477
Registration Statement No. 33-03602
Registration Statement No. 33-17965
Registration Statement No. 33-27512
Registration Statement No. 33-35456
Registration Statement No. 33-42041
Registration Statement No. 33-45327
Registration Statement No. 33-49947
Registration Statement No. 33-51489
Registration Statement No. 33-52647
Medium Term Notes
Registration Statement No. 2-96315
Registration Statement No. 33-03079
Registration Statement No. 33-05125
Registration Statement No. 33-09910
<PAGE>
Registration Statement No. 33-16165
Registration Statement No. 33-19820
Registration Statement No. 33-23605
Registration Statement No. 33-27549
Registration Statement No. 33-38879
Other Securities
Registration Statement No. 33-19975 (Remarketed Preferred Stock, Series C)
Registration Statement No. 33-33335 (Common Stock)
Registration Statement No. 33-45777 (Common Stock)
We are also aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
/s/ Deloitte & Touche
New York, New York
