<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1 TO
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 29, 1995
------------------
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.
175,716,794 shares of Common Stock*
(as of the close of business on November 3, 1995)
* Does not include 4,375,113 unallocated reversion 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
SEPT. 29, SEPT. 30, INCREASE
(In Thousands, Except Per Share Amounts) 1995 1994 (DECREASE)
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Commissions ............................. $ 829,125 $ 673,551 23%
Interest and dividends .................. 3,003,864 2,438,760 23
Principal transactions .................. 663,139 653,691 1
Investment banking ...................... 353,760 245,489 44
Asset management and portfolio
service fees .......................... 484,056 431,374 12
Other ................................... 97,202 87,358 11
---------- ---------- ----
Total Revenues .......................... 5,431,146 4,530,223 20
Interest Expense ...................... 2,748,708 2,227,978 23
---------- ---------- ----
Net Revenues ............................ 2,682,438 2,302,245 17%
---------- ---------- ----
NON-INTEREST EXPENSES
Compensation and benefits ............... 1,392,445 1,179,031 18
Occupancy ............................... 113,461 106,366 7
Communications and equipment rental ..... 122,474 110,945 10
Depreciation and amortization ........... 92,707 83,301 11
Advertising and market development ...... 102,012 96,321 6
Professional fees ....................... 113,832 88,799 28
Brokerage, clearing, and exchange fees... 88,663 82,690 7
Other ................................... 171,367 165,270 4
---------- ---------- ----
Total Non-Interest Expenses ............. 2,196,961 1,912,723 15
---------- ---------- ----
EARNINGS BEFORE INCOME TAXES ............ 485,477 389,522 25
Income tax expense ...................... 185,121 157,943 17
---------- ---------- ----
NET EARNINGS ............................ $ 300,356 $ 231,579 30%
========== ========== ====
NET EARNINGS APPLICABLE TO COMMON
STOCKHOLDERS .......................... $ 288,585 $ 229,861 26%
========== ========== ====
EARNINGS PER COMMON SHARE:
Primary ............................... $ 1.47 $ 1.10 34%
========== ========== ====
Fully diluted ......................... $ 1.46 $ 1.10 33%
========== ========== ====
DIVIDEND PAID PER COMMON SHARE .......... $ .26 $ .23
========== ==========
AVERAGE SHARES USED IN COMPUTING EARNINGS
PER COMMON SHARE:
Primary ............................... 196,395 209,030
========== ==========
Fully diluted ......................... 197,157 209,030
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE>
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
-------------------------- PERCENT
SEPT. 29, SEPT. 30, INCREASE
(In Thousands, Except Per Share Amounts) 1995 1994 (DECREASE)
----------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Commissions ................................................. $ 2,279,432 $ 2,232,328 2%
Interest and dividends ...................................... 9,328,638 6,955,987 34
Principal transactions ...................................... 1,952,572 1,881,235 4
Investment banking .......................................... 937,603 1,011,890 (7)
Asset management and portfolio
service fees .............................................. 1,396,988 1,307,532 7
Other ....................................................... 324,784 360,362 (10)
----------- ----------- ----
Total Revenues .............................................. 16,220,017 13,749,334 18
Interest Expense .......................................... 8,567,902 6,217,542 38
----------- ----------- ----
Net Revenues ................................................ 7,652,115 7,531,792 2
----------- ----------- ----
NON-INTEREST EXPENSES
Compensation and benefits ................................... 3,971,088 3,825,998 4
Occupancy ................................................... 332,823 327,948 1
Communications and equipment rental ......................... 351,065 322,391 9
Depreciation and amortization ............................... 267,344 238,067 12
Advertising and market development .......................... 284,265 294,071 (3)
Professional fees ........................................... 318,110 270,101 18
Brokerage, clearing, and exchange fees....................... 266,396 256,645 4
Other ....................................................... 532,455 522,179 2
----------- ----------- ----
Total Non-Interest Expenses ................................. 6,323,546 6,057,400 4
----------- ----------- ----
EARNINGS BEFORE INCOME TAXES ................................ 1,328,569 1,474,392 (10)
Income tax expense .......................................... 518,142 619,245 (16)
----------- ----------- ----
NET EARNINGS ................................................ $ 810,427 $ 855,147 (5)%
=========== =========== ====
NET EARNINGS APPLICABLE TO COMMON
STOCKHOLDERS .............................................. $ 774,802 $ 850,553 (9)%
=========== =========== ====
EARNINGS PER COMMON SHARE:
Primary ................................................... $ 3.95 $ 3.98 (1)%
=========== =========== ====
Fully diluted ............................................. $ 3.90 $ 3.97 (2)%
=========== =========== ====
DIVIDENDS PAID PER COMMON SHARE ............................. $ .75 $ .66
=========== ===========
AVERAGE SHARES USED IN COMPUTING EARNINGS
PER COMMON SHARE:
Primary ................................................... 196,280 213,935
=========== ===========
Fully diluted ............................................. 198,755 214,050
=========== ===========
</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) SEPT. 29, DEC. 30,
ASSETS 1995 1994
- ------------------------------------------------------------- ------------ ------------
<S> <C> <C>
CASH AND CASH EQUIVALENTS.................................... $ 2,932,966 $ 2,311,743
------------ ------------
CASH AND SECURITIES SEGREGATED FOR REGULATORY PURPOSES
OR DEPOSITED WITH CLEARING ORGANIZATIONS................... 5,360,550 4,953,062
------------ ------------
MARKETABLE INVESTMENT SECURITIES............................. 2,321,681 2,325,453
------------ ------------
TRADING ASSETS, AT FAIR VALUE
Corporate debt and preferred stock........................... 18,254,829 14,818,157
Contractual agreements....................................... 11,463,086 9,519,105
U.S. Government and agencies................................. 8,992,533 8,196,584
Non-U.S. governments and agencies............................ 8,946,106 6,468,341
Equities and convertible debentures.......................... 9,875,225 6,263,492
Mortgages and mortgage-backed................................ 2,923,718 5,223,809
Municipals................................................... 996,174 1,291,688
Money markets................................................ 1,551,538 957,589
------------ ------------
Total........................................................ 63,003,209 52,738,765
------------ ------------
RESALE AGREEMENTS............................................ 45,501,860 44,459,036
------------ ------------
SECURITIES BORROWED.......................................... 23,619,471 20,993,302
------------ ------------
RECEIVABLES
Customers (net of allowance for doubtful accounts of
$47,754 in 1995 and $42,290 in 1994)....................... 14,941,065 14,030,466
Brokers and dealers.......................................... 10,999,592 6,486,879
Interest and other........................................... 4,005,927 4,360,693
------------ ------------
Total........................................................ 29,946,584 24,878,038
------------ ------------
INVESTMENTS OF INSURANCE SUBSIDIARIES........................ 5,709,734 5,719,345
LOANS, NOTES, AND MORTGAGES (NET OF ALLOWANCE FOR
LOAN LOSSES OF $181,806 IN 1995 AND $180,799 IN 1994)...... 2,672,601 1,586,718
OTHER INVESTMENTS............................................ 949,015 887,626
PROPERTY, LEASEHOLD IMPROVEMENTS, AND EQUIPMENT
(NET OF ACCUMULATED DEPRECIATION AND AMORTIZATION
OF $2,167,374 IN 1995 AND $1,867,476 IN 1994).............. 1,608,225 1,587,639
OTHER ASSETS................................................. 1,846,791 1,308,600
------------ ------------
TOTAL ASSETS................................................. $185,472,687 $163,749,327
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
(Dollars in Thousands, Except Per Share Amounts) SEPT. 29, DEC. 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
- ------------------------------------------------------------- ------------ ------------
<S> <C> <C>
LIABILITIES
REPURCHASE AGREEMENTS........................................ $ 54,274,118 $ 51,864,594
------------ ------------
COMMERCIAL PAPER AND OTHER SHORT-TERM BORROWINGS............. 31,762,286 26,439,645
------------ ------------
TRADING LIABILITIES, AT FAIR VALUE
U.S. Government and agencies................................. 10,169,694 15,989,928
Contractual agreements....................................... 11,550,244 8,381,946
Non-U.S. governments and agencies............................ 7,507,530 4,009,757
Equities and convertible debentures.......................... 6,197,449 3,990,146
Corporate debt and preferred stock........................... 1,772,335 2,564,192
Municipals................................................... 100,523 165,906
------------ ------------
Total........................................................ 37,297,775 35,101,875
------------ ------------
CUSTOMERS.................................................... 10,527,590 11,608,891
INSURANCE.................................................... 5,443,687 5,689,513
BROKERS AND DEALERS.......................................... 14,973,504 4,637,957
OTHER LIABILITIES AND ACCRUED INTEREST....................... 8,959,967 7,725,924
LONG-TERM BORROWINGS......................................... 16,156,414 14,863,383
------------ ------------
TOTAL LIABILITIES............................................ 179,395,341 157,931,782
------------ ------------
STOCKHOLDERS' EQUITY
PREFERRED STOCKHOLDERS' EQUITY............................... 618,800 618,800
------------ ------------
COMMON STOCKHOLDERS' EQUITY
Common stock, par value $1.33 1/3 per share;
authorized: 500,000,000 shares;
issued: 1995 and 1994 - 236,330,162 shares................. 315,105 315,105
Paid-in capital.............................................. 1,216,025 1,196,093
Foreign currency translation adjustment...................... (29,596) 3,703
Net unrealized gains (losses) on investment securities
available-for-sale (net of applicable income tax
expense (benefit) of $3,284 in 1995 and ($30,924)
in 1994)................................................... 6,404 (56,957)
Retained earnings............................................ 6,246,482 5,605,616
------------ ------------
Subtotal................................................. 7,754,420 7,063,560
Less:
Treasury stock, at cost:
1995 - 56,453,746 shares;
1994 - 48,423,944 shares................................. 1,998,751 1,627,108
Unallocated ESOP reversion shares, at cost:
1995 - 4,375,113 shares;
1994 - 6,427,091 shares.................................. 68,908 101,227
Employee stock transactions................................ 228,215 136,480
------------ ------------
TOTAL COMMON STOCKHOLDERS' EQUITY............................ 5,458,546 5,198,745
------------ ------------
TOTAL STOCKHOLDERS' EQUITY................................... 6,077,346 5,817,545
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................... $185,472,687 $163,749,327
============ ============
BOOK VALUE PER COMMON SHARE.................................. $ 31.30 $ 28.87
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
--------------------------
(In Thousands) SEPT. 29, SEPT. 30,
1995 1994
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings................................................. $ 810,427 $ 855,147
Noncash items included in earnings:
Depreciation and amortization.............................. 267,344 238,067
Policyholder reserves...................................... 224,651 275,000
Other...................................................... 534,011 582,145
(Increase) decrease in operating assets:
Trading assets............................................. (9,275,063) (2,307,058)
Cash and securities segregated for regulatory purposes
or deposited with clearing organizations................. (407,488) (1,243,832)
Securities borrowed........................................ (2,626,169) (1,560,915)
Customers.................................................. (926,245) (47,985)
Maturities and sales of trading investment securities...... - 128,387
Purchases of trading investment securities................. - (125,079)
Other...................................................... (1,086,283) (1,611,000)
Increase (decrease) in operating liabilities:
Trading liabilities........................................ 1,339,791 14,304,785
Customers.................................................. (2,240,957) (3,050,557)
Insurance.................................................. (566,309) (1,673,863)
Other...................................................... 8,253,781 1,839,959
------------ ------------
CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES............. (5,698,509) 6,603,201
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from (payments for):
Maturities of available-for-sale securities................ 1,171,015 2,147,478
Sales of available-for-sale securities..................... 864,936 1,031,715
Purchases of available-for-sale securities................. (1,993,383) (1,771,271)
Maturities of held-to-maturity securities.................. 890,111 1,211,609
Purchases of held-to-maturity securities................... (767,122) (1,590,946)
Purchase of Smith New Court, net of cash acquired.......... (601,486) -
Other investments and other assets......................... (145,528) (235,280)
Property, leasehold improvements, and equipment............ (255,634) (287,758)
------------ ------------
CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES............. (837,091) 505,547
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments for):
Repurchase agreements, net of resale agreements............ 1,366,700 (9,083,444)
Commercial paper and other short-term borrowings........... 5,322,641 1,046,652
Issuance and resale of long-term borrowings................ 7,616,340 9,063,820
Settlement and repurchase of long-term borrowings.......... (6,369,126) (6,827,946)
Common stock transactions.................................. (610,172) (604,154)
Dividends.................................................. (169,560) (136,604)
------------ ------------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES............. 7,156,823 (6,541,676)
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS........................ 621,223 567,072
Cash and cash equivalents, beginning of year................. 2,311,743 1,783,408
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD..................... $ 2,932,966 $ 2,350,480
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Income taxes totaled $356,533 in 1995 and $1,051,784 in 1994.
Interest totaled $8,308,770 in 1995 and $6,138,752 in 1994.
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITY:
As part of the consideration for Smith New Court, the Corporation issued
approximately $115 million of unsecured floating rate notes due December 31,
2000 (the "Notes"). The Notes are redeemable at the option of the holders on any
quarterly interest payment date on or after December 31, 1996.
See Notes to Consolidated Financial Statements
6
<PAGE>
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 29, 1995
BASIS OF PRESENTATION
The consolidated financial statements, prepared in accordance with generally
accepted accounting principles, include the accounts of Merrill Lynch & Co.,
Inc. and all significant subsidiaries (collectively referred to as the
"Corporation"). All material intercompany balances and transactions have been
eliminated. The December 30, 1994 consolidated balance sheet was derived from
the audited financial statements. The interim consolidated financial statements
for the three- and nine-month periods ended September 29, 1995 are unaudited;
however, in the opinion of the management of the Corporation, all adjustments,
consisting only of normal recurring accruals, necessary for a fair statement of
the results of operations have been included.
These unaudited consolidated financial statements should be read in conjunction
with the audited consolidated financial statements included in the Corporation's
Annual Report on Form 10-K for the year ended December 30, 1994 ("1994 10-K").
The nature of the Corporation's business is such that the results of any interim
period are not necessarily indicative of results for a full year. Prior period
financial statements have been reclassified, where appropriate, to conform to
the 1995 presentation.
ACCOUNTING CHANGES
In the second quarter of 1995, the Corporation adopted Statement of Financial
Accounting Standards ("SFAS") No. 122, "Accounting for Mortgage Servicing
Rights". SFAS No. 122 amends SFAS No. 65, "Accounting for Certain Mortgage
Banking Activities", to require that a mortgage banking enterprise recognize
rights to service mortgage loans as separate assets for originated as well as
purchased mortgages. Additionally, SFAS No. 122 requires that a mortgage banking
enterprise assess its capitalized mortgage servicing rights for impairment based
on the fair value of those rights. The impact of this pronouncement on the
Corporation's financial statements as of September 29, 1995 was not material.
In the first quarter of 1995, the Corporation adopted SFAS No. 114, "Accounting
by Creditors for Impairment of a Loan", and SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures". SFAS
No. 114 establishes accounting standards for creditors to measure the impairment
of certain loans. SFAS No. 118 amends SFAS No. 114 to allow creditors to use
existing methods for recognizing interest income on an impaired loan, rather
than the method originally required by SFAS No. 114. The impact of these
pronouncements on the Corporation's financial statements as of September 29,
1995 was not material.
7
<PAGE>
INVESTMENTS
The Corporation's investments in debt and certain equity securities are
classified as 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 are carried at
amortized cost. Restricted equity investment securities are reported at the
lower of cost or net realizable value.
The table that follows provides the activity for the net unrealized gains
(losses) recorded in stockholders' equity for available-for-sale investments:
<TABLE>
<CAPTION>
Sept. 29, Dec. 30,
(In thousands) 1995 1994
- -------------- -------- ---------
<S> <C> <C>
Net unrealized gains (losses) on investment
securities available-for-sale $261,618 $(410,068)
Adjustments for policyholder liabilities (95,832) 214,537
Adjustments for deferred policy acquisition costs (68,217) 73,802
Deferred income tax (expense) benefit (34,208) 43,417
-------- ---------
Net activity 63,361 (78,312)
Net unrealized (losses) gains on investment
securities classified as available-for-sale,
beginning of year (56,957) 21,355
-------- ---------
Net unrealized gains (losses) on investment
securities classified as available-for-sale,
end of period $ 6,404 $ (56,957)
======== =========
</TABLE>
The Corporation's insurance subsidiaries are required to adjust deferred
acquisition costs and certain policyholder liabilities associated with
investments classified as available-for-sale. These investments primarily
support in-force, universal life-type contracts under SFAS No. 97, "Accounting
and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and
for Realized Gains and Losses from the Sale of Investments". These adjustments
are recorded in stockholders' equity and assume that the unrealized gain or loss
on available-for-sale securities was realized.
In the 1995 third quarter, gross realized gains and losses related to available-
for-sale investment securities were $9.7 million and $9.3 million, respectively,
compared to $14.0 million and $6.6 million, respectively, in the 1994 third
quarter. For the nine-month period ended September 29, 1995, gross realized
gains and losses related to available-for-sale investment securities were $21.6
million and $19.8 million, respectively, compared to $20.0 million and $14.3
million, respectively, for the nine-month period ended September 30, 1994. The
cost basis of each investment sold is specifically identified for purposes of
computing realized gains and losses. Net unrealized gains from trading
investment securities included in the 1995 three- and nine-month Statements of
Consolidated Earnings were $31 thousand and $54 thousand, respectively, compared
to gains of $2.4 million and losses of $9.1 million, respectively, for the 1994
three- and nine-month periods.
8
<PAGE>
INTEREST AND DIVIDEND EXPENSE
Interest expense includes payments in lieu of dividends of $2.4 million and
$4.8 million for the third quarters of 1995 and 1994, respectively. For the
nine-month periods ended September 29, 1995 and September 30, 1994, payments in
lieu of dividends were $8.6 million and $19.5 million, respectively.
COMMERCIAL PAPER AND OTHER SHORT-TERM BORROWINGS
Commercial paper and other short-term borrowings at September 29, 1995 and
December 30, 1994 follow:
<TABLE>
<CAPTION>
Sept. 29, Dec. 30,
(In millions) 1995 1994
- ------------- -------- -------
<S> <C> <C>
Commercial paper $16,048 $14,759
Demand and time deposits 8,814 7,578
Securities loaned 4,453 2,180
Bank loans and other 2,447 1,923
------- -------
Total $31,762 $26,440
======= =======
</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 equity and commodity price risk, and to meet
trading and financing needs. Derivative contracts often involve commitments to
swap future interest payment streams, to purchase or sell financial instruments
or commodities at specified terms on a specified date, or to exchange
currencies. In addition, the Corporation purchases and writes options on a wide
range of financial instruments such as securities, currencies, futures, and
various market indices.
9
<PAGE>
The contractual or notional amounts of derivative financial instruments provide
only a measure of involvement in these types of transactions and do not
represent the amounts subject to the various risks set forth below. The
contractual or notional amounts of these instruments used for trading purposes
by type of risk follow:
<TABLE>
<CAPTION>
(In billions)
- ------------- Interest Rate Currency Equity Price Commodity Price
Sept. 29, 1995 Risk (a) Risk (a) Risk Risk
- -------------- ------------- -------- ------------ ---------------
<S> <C> <C> <C> <C>
Swap agreements $786 $ 98 $ 5 $ 4
Futures contracts $215 $ 1 $ 5 $ 4
Options held $ 50 $ 28 $33 $ 4
Options written $ 85 $ 29 $33 $ 7
Forward contracts $ 38 $131 $ - $33
December 30, 1994
- -----------------
Swap agreements $653 $ 73 $ 2 $ 2
Futures contracts $172 $ - $ 2 $ 2
Options held $ 75 $ 22 $22 $12
Options written $ 74 $ 22 $21 $ 7
Forward contracts $ 29 $103 $ - $ 7
</TABLE>
(a) A number of the Corporation's foreign currency contracts are subject to both
interest rate and currency risk.
The contractual or notional amounts of derivative financial instruments used
for purposes other than trading follow:
<TABLE>
<CAPTION>
(In billions) Sept. 29, December 30,
- ------------- 1995 1994
--------- ------------
<S> <C> <C>
Interest rate swap contracts $32 $22
Foreign exchange contracts $ 2 $ 3
Equity options held $ 1 $ 1
</TABLE>
Most of the above transactions are entered into with the Corporation's swaps and
foreign exchange dealer subsidiaries which intermediate interest rate and
currency risk with third parties in the normal course of their trading
activities.
In the normal course of business, the Corporation obtains letters of credit to
satisfy various collateral requirements in lieu of the Corporation depositing
securities or cash. At September 29, 1995, letters of credit aggregating $1,702
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 September 29, 1995 would not have a
material effect on the consolidated financial condition of the Corporation.
10
<PAGE>
REGULATORY REQUIREMENTS
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a registered
broker-dealer and a subsidiary of the Corporation, is subject to Net Capital
Rule 15c3-1 under the Securities Exchange Act of 1934. Under the alternative
method permitted by this rule, the minimum required net capital, as defined,
shall not be less than 2% of aggregate debit items arising from customer
transactions. At September 29, 1995, MLPF&S's regulatory net capital of $1,278
million was 9% of aggregate debit items, and its regulatory net capital in
excess of the minimum required was $989 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 under 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 September 29, 1995,
MLGSI's liquid capital of $720 million was 253% of its total market and credit
risk, and liquid capital in excess of the minimum required was $379 million.
Merrill Lynch International Limited ("MLIL"), a United Kingdom registered
broker-dealer and a subsidiary of the Corporation, is subject to capital
requirements of the Securities and Futures Authority ("SFA"). Regulatory
capital, as defined, must exceed the total financial resources requirement of
the SFA. At September 29, 1995, MLIL's regulatory capital was $1,328 million and
exceeded the minimum requirement by $313 million.
LITIGATION MATTER
On January 12, 1995, an action was commenced in the United States Bankruptcy
Court for the Central District of California by Orange County, California
("Orange County") and The Orange County Investment Pools (the "Pools"), both of
which filed bankruptcy petitions in that Court on December 6, 1994, against the
Corporation and certain of its subsidiaries in connection with the Corporation's
business activities with Orange County. In addition, other actions have been
brought against the Corporation and/or certain of its officers, directors, and
employees and certain of its subsidiaries in Federal and state courts in
California, New York, and Illinois. Some of these actions are class actions and
stockholder derivative actions brought by persons alleging harm to themselves or
to the Corporation arising out of the Corporation's dealings with Orange County
and the Pools, or from the purchase of debt instruments issued by Orange County
that were underwritten by MLPF&S. See "Commitments and Contingencies" in the
notes to the audited consolidated financial statements contained in the 1994
10-K as well as "Legal Proceedings" in the Corporation's 1994 10-K and 1995
quarterly reports on Form 10-Q.
SMITH NEW COURT PLC
During the 1995 third quarter, Merrill Lynch Investments PLC, a wholly-owned
subsidiary of the Corporation, acquired substantially all of the outstanding
shares of Smith New Court PLC ("Smith New Court"), a U.K.-based global
securities firm, for approximately $800 million. As a result of the acquisition,
the
11
<PAGE>
Corporation recorded approximately $550 million of goodwill, which is being
amortized on a straight-line basis over 15 years. The Corporation's third
quarter 1995 results include those of Smith New Court since mid-August 1995, as
well as approximately $4 million of goodwill amortization and approximately $7
million of integration costs related to the acquisition.
12
<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 September 29, 1995, and the
related condensed statements of consolidated earnings for the three- and nine-
month periods ended September 29, 1995 and September 30, 1994 and consolidated
cash flows for the nine-month periods ended September 29, 1995 and September 30,
1994. 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 30, 1994, 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 27, 1995, 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 30, 1994 is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
/s/ Deloitte & Touche LLP
New York, New York
November 10, 1995
13
<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.
Financial markets, which were particularly weak during the last half of
1994, improved during 1995 as a result of a steadying U.S. economy, declining
interest rates, and heightened investor activity. Inflationary fears eased
throughout 1995 as key U.S. economic statistics indicated that the economy was
stabilizing with slow to moderate growth, and the Federal Reserve decreased
interest rates in July following seven rate increases since February 1994.
Investors reacted favorably to these events and were more active in stock and
bond markets during 1995, particularly in the second and third quarters.
Retail investor activity increased as long-term interest rates generally
declined in the 1995 second and third quarters and domestic equity markets
advanced to record levels. As a result, commission revenues and asset management
and portfolio service fees increased industrywide. Sales of mutual funds
benefited from strong U.S. equity markets and a shift from foreign to domestic
stock funds. Heightened investor activity and appreciated asset values also
contributed to increased fee-based revenues during the period.
The Dow Jones Industrial Average ("DJIA") daily closing index for the 1995
third quarter averaged 4,688, 23% above the 1994 third quarter average closing
index and 7% above the 1995 second quarter average close. The DJIA reached a
record high close of 4,802 during the 1995 third quarter and closed at 4,789 at
quarter-end, up 25% from the 1994 third quarter close. The New York Stock
Exchange ("NYSE") average daily trading volume was a record 341 million shares
in the 1995 third quarter, 24% above the average volume in the 1994 third
quarter. The Nasdaq composite index also showed significant gains, particularly
in the technology sector, advancing 37% from the third quarter of 1994 and 12%
from the 1995 second quarter, to close at 1,044. The Nasdaq average daily
trading volume was a record 443 million shares in the 1995 third quarter, 58%
above the average volume in the 1994 third quarter.
In the bond markets, the yield on the 30-year U.S. Treasury bond rose to
almost 7% during the 1995 third quarter before closing at 6.50% at the end of
the quarter. The 1995 third quarter close was down from 6.62% at the end of the
1995 second quarter and 7.82% from the end of the 1994 third quarter.
14
<PAGE>
Domestic underwriting volume was up industrywide in the 1995 third quarter to
$212.7 billion, with issuances of stocks and bonds increasing 9% from the 1995
second quarter and 45% from the 1994 third quarter, according to Securities Data
Co. Investment banking revenues, particularly underwritings, benefited from
increased issuer activity in the 1995 third quarter attributable to robust
domestic equity markets and heightened investor demand. New stock offerings
reached their highest levels since the first quarter of 1994, benefiting from
the rise in stock prices throughout 1995. Issuances of investment-grade debt
increased, particularly in the U.S. government agency sector, due to favorable
bond yields coupled with a continued flattening of the yield curve. Asset-backed
securities issuances continued at a record pace, primarily due to expansion of
the credit card segment. Issuances of mortgage-backed securities, which tend to
be longer term and more volatile than asset-backed securities, improved somewhat
from the beginning of 1995, but remained weak when compared to a year ago.
Underwriting activity in municipal securities remained weak in 1995 as
discussions on possible tax law changes reduced investor demand for tax-exempt
investments.
Strategic services revenues continued to improve in the 1995 third quarter due
to record merger and acquisition volume, with increased activity in various
industries, including banking, media and entertainment, utilities, and
healthcare.
Although trading volumes were higher in the 1995 third quarter as compared to
the 1994 third quarter, trading results were mixed. Trading results in equity
securities improved industrywide from the 1994 third quarter, due to strong
gains and higher volumes across most major stock market indices. Convertible
securities benefited from low interest rates, rising stock prices, and increased
demand. Foreign exchange trading revenues improved as the U.S. dollar recovered
against the Japanese yen and German mark, while trading revenues from municipal
securities were weak due to low interest rates and reduced investor demand.
The Corporation's 1995 third quarter net earnings were up 30% from third quarter
levels of a year ago, and up 6% from the 1995 second quarter. These improved
results were attributable to favorable market conditions and the Corporation's
diversified global revenue base, appropriate risk management activities, and
continued efforts to control fixed expenses and discretionary costs.
THIRD QUARTER 1995 VERSUS THIRD QUARTER 1994
The discussion that follows emphasizes the comparison between the third quarters
of 1995 and 1994 and presents additional information on the comparison between
the respective nine-month periods, when relevant.
Net earnings for the 1995 third quarter were $300.4 million, up $68.8 million
(30%) from the $231.6 million reported in last year's third quarter. Third
quarter earnings per common share were $1.47 primary and $1.46 fully diluted,
compared with $1.10 primary and fully diluted in the 1994 third quarter. After
deducting preferred stock dividends, net earnings applicable to common
stockholders in the 1995 third quarter totaled $288.6 million, up $58.7 million
(26%) from $229.9 million in the prior year's quarter. The Corporation's
weighted average shares outstanding declined from the 1994 third quarter due
primarily to share repurchases. The Corporation repurchased 27.1
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<PAGE>
million shares of its common stock since the end of the 1994 third quarter,
including 1.7 million shares in the 1995 third quarter.
For the first nine months of 1995, net earnings were $810.4 million, down $44.7
million (5%) from the $855.1 million reported in the prior year period. Earnings
per common share were $3.95 primary and $3.90 fully diluted, compared to $3.98
primary and $3.97 fully diluted in the comparable 1994 period. After deducting
preferred stock dividends, net earnings applicable to common stockholders in
the first three quarters of 1995 totaled $774.8 million, down $75.8 million
(9%) from $850.6 million in the comparable 1994 period.
During the 1995 third quarter, Merrill Lynch Investments PLC, a wholly-owned
subsidiary of the Corporation, acquired substantially all of the outstanding
shares of Smith New Court PLC ("Smith New Court"), a U.K.-based global
securities firm, for approximately $800 million. As a result of the acquisition,
the Corporation recorded approximately $550 million of goodwill, which is being
amortized on a straight-line basis over 15 years. The Corporation's third
quarter 1995 results include those of Smith New Court since mid-August 1995, as
well as approximately $4 million of goodwill amortization and approximately
$7 million of integration costs related to the acquisition.
The Corporation's pretax profit margin in the 1995 third quarter was 18.1%
versus 16.9% in the year-ago period. The net profit margin increased to 11.2% in
the 1995 third quarter, compared with 10.1% in the 1994 third quarter. Total
revenues increased 20% from the 1994 third quarter to $5,431 million, with
increases in all operating revenue categories. Revenues after interest expense
(net revenues) increased 17% from the year-ago period to $2,682 million. Non-
interest expenses totaled $2,197 million in the 1995 third quarter, up 15% from
the year-earlier period as increased profitability and business activity led to
higher levels of compensation and benefits expense.
Commission revenues were $829 million, up 23% from the 1994 third quarter.
Commissions from listed securities increased 28% to $404 million as a result of
higher volumes. Mutual fund commissions were up 16% from the year-ago period to
$252 million. Mutual fund sales increased, particularly in offshore, fixed
income, and equity funds, as investors were more active due to improved
performance in both the stock and bond markets. Revenues from mutual fund sales
for the 1995 nine-month period, however, were down 7% from the comparable 1994
period to $656 million, as most stock and bond mutual funds declined in value
after the strong 1994 first quarter, affecting volume through the first quarter
of 1995.
Other commission revenues increased 22% from the 1994 third quarter to $173
million due primarily to increased commissions from over-the-counter securities,
options, and insurance products, partially offset by lower commissions from
commodities transactions.
Net interest and dividend profit rose 21% from the 1994 third quarter to $255
million as a result of higher levels of interest-earning assets relative to
interest-bearing liabilities. Interest and dividend revenues advanced 23% over
the year-ago period to $3,004 million due primarily to growth in collateralized
lending activities, partially offset by declining interest rates. Interest
expense, which includes dividend expense, rose 23% from the 1994 third quarter
to $2,749 million as a result of increased levels of
16
<PAGE>
interest-bearing liabilities primarily related to the Corporation's funding
activities, partially offset by a decrease in interest rates.
Significant components of interest and dividend revenues and interest expense
for the three- and nine-month periods ended September 29, 1995 and September
30, 1994 follow:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------- -----------------------
(In millions) Sept. 29, Sept. 30, Sept. 29, Sept. 30,
- ------------- 1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest and
dividend revenues:
Trading assets $ 867 $ 881 $2,877 $2,620
Resale agreements 613 494 2,154 1,205
Securities borrowed 846 532 2,359 1,635
Margin lending 359 268 1,017 721
Other 319 264 922 775
------ ------ ------ ------
Total 3,004 2,439 9,329 6,956
------ ------ ------ ------
Interest expense:
Borrowings 1,162 827 3,299 2,429
Repurchase agreements 833 658 2,804 1,675
Trading liabilities 492 547 1,692 1,505
Other 262 196 773 609
------ ------ ------ ------
Total 2,749 2,228 8,568 6,218
------ ------ ------ ------
Net interest and
dividend profit $ 255 $ 211 $ 761 $ 738
====== ====== ====== ======
</TABLE>
Included in the "Borrowings" caption above is interest related to hedges on the
Corporation's long-term borrowings. As part of the Corporation's asset,
liability, and liquidity management strategies, substantially all U.S. dollar
and foreign currency denominated fixed-rate, long-term borrowings are swapped
into floating interest rate liabilities. These liability hedges are in the form
of interest rate and currency swap agreements. Interest obligations on variable-
rate debt may also be modified through swap agreements that change the
underlying interest rate basis or reset frequency. Contractual agreements used
to modify payment obligations, principally related to long-term borrowings,
decreased interest expense by approximately $13 million and $32 million for the
1995 three- and nine-month periods, respectively, and approximately $40 million
and $156 million for the 1994 three- and nine-month periods, respectively.
Principal transactions revenues increased 1% from the 1994 third quarter to $663
million. Taxable fixed-income trading revenues totaled $145 million, down 16%
from a year ago. Non-U.S. governments and agencies securities benefited from
higher trading activity, particularly in Australian government instruments.
Trading revenues from money market products benefited from increased variable
and floating rate note activity in European markets. High-yield debt trading
revenues increased due to higher revenues from bank loan trading as a result of
improvements in credit ratings of certain issuers. Trading revenues from
corporate bonds and preferred stock advanced due primarily to higher demand for
fixed-rate preferred issues. Taxable fixed-income principal transactions
revenues were negatively affected by a loss in mortgage-backed securities due to
reduced market liquidity for non-generic products. Nevertheless, trading results
from mortgage-backed products, which include net interest revenues, were
positive. Trading revenues in U.S.
17
<PAGE>
Government and agencies securities were down from a year ago as lower interest
rates in the current quarter reduced volatility. Taxable fixed-income trading
revenues were up 2% to $439 million for the first nine months of 1995 compared
to the year-ago period, as higher revenues from corporate bonds and preferred
stock, non-U.S. governments and agencies, and high-yield debt were
substantially offset by declines in mortgage-backed products and U.S.
Government and agencies securities.
Interest rate and currency swap revenues decreased 22% from the 1994 third
quarter to $160 million. Trading revenues from U.S. dollar denominated
transactions were down due to reduced volume and lower margins. Interest rate
and currency swap revenues were up 6% to $589 million for the first nine months
of 1995, primarily due to increased trading activity in non-U.S. dollar
denominated transactions compared to the year-ago period.
Equities and equity derivatives trading revenues increased 64% from the 1994
third quarter to $256 million. International equities trading revenues
increased due to improved market conditions in the U.K. as well as Smith New
Court activity. Over-the-counter equities trading revenues benefited from
increased Nasdaq volume, primarily driven by technology stocks. Trading
revenues from convertible securities increased as a result of higher trading
volumes. Trading revenues in equity derivatives were down due to less favorable
market conditions.
Municipal securities revenues declined 29% from last year's third quarter to
$69 million as discussions of possible tax law changes weakened retail investor
demand for tax-exempt investments.
Foreign exchange and commodities trading revenues increased 41% from the 1994
third quarter to $33 million. Increases in foreign exchange trading revenues,
which resulted from higher customer volume caused by the strengthening of the
U.S. dollar versus the Japanese yen and the German mark, were partially offset
by a decrease in commodities trading activity.
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 "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.
18
<PAGE>
The table that follows provides information on aggregate trading profits,
including net interest for the three and nine months ended September 29, 1995
and September 30, 1994. Principal transactions revenues are based on financial
reporting categories. Interest revenue and expense components are based on
financial 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
Transactions Revenue Trading
(In millions) Revenues (Expense) Revenue
- ------------- ------------------- ------------------ -----------------
Three Months 1995 1994 1995 1994 1995 1994
- ------------ ------ ------ ----- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Taxable fixed-income $ 145 $ 171 $ 56 $ 60 $ 201 $ 231
Interest rate and currency
swaps 160 205 (22) (11) 138 194
Equity and equity
derivatives 256 156 (12) (31) 244 125
Municipals 69 98 1 1 70 99
Foreign exchange and
commodities 33 24 (5) 1 28 25
------ ------ ----- ----- ------ ------
Total $ 663 $ 654 $ 18 $ 20 $ 681 $ 674
====== ====== ===== ===== ====== ======
Nine Months
- -----------
Taxable fixed-income $ 439 $ 429 $ 218 $ 274 $ 657 $ 703
Interest rate and currency
swaps 589 557 (51) 5 538 562
Equity and equity
derivatives 649 546 (55) (84) 594 462
Municipals 210 275 (1) 5 209 280
Foreign exchange and
commodities 66 74 (16) 1 50 75
------ ------ ----- ----- ------ ------
Total $1,953 $1,881 $ 95 $ 201 $2,048 $2,082
====== ====== ===== ===== ====== ======
</TABLE>
Investment banking revenues were $354 million, up 44% from the 1994 third
quarter. Underwriting revenues for the 1995 third quarter were $263 million, up
42% from the 1994 third quarter as higher revenues from equities, high-yield
debt, and corporate bond and preferred stock issuances were partially offset by
declines in convertible securities and private placement issuances.
The Corporation remained the top underwriter of debt and equity securities, in
the aggregate, with a 1995 third quarter market share of 16.5% domestically and
13.9% worldwide, and a nine-month market share of 15.7% domestically and 12.5%
worldwide, according to Securities Data Co.
Strategic services revenues rose 52% from the 1994 third quarter to $91
million, benefiting from increased merger and acquisition advisory assignments
primarily in the healthcare, media, and manufacturing sectors.
Investment banking revenues were $938 million for the 1995 nine-month period,
down 7% from the comparable 1994 period, as domestic and global industrywide
underwriting volumes were down 6% and 8%, respectively, compared to volumes in
the first nine months of 1994. Underwriting revenues were lower, particularly
in equities, private placements, high-yield securities, and mortgage-backed
products. Strategic services revenues, strong throughout
19
<PAGE>
1995, advanced 36% over the year-ago period due to increased merger and
acquisition activity.
Asset management and portfolio service fees rose 12% from the 1994 third
quarter to a record $484 million, due to increases in asset management, mutual
fund transfer agency, and mortgage servicing fees.
Asset management fees increased 10% from the 1994 third quarter to $220 million
due primarily to growth in money market and stock funds. Assets under
management by Merrill Lynch Asset Management, L.P. ("MLAM") rose 13% to $189
billion at quarter-end, compared with $167 billion at the close of the 1994
third quarter, reflecting both inflows of client assets and higher portfolio
values.
Mutual fund transfer agency fees rose 24% from the 1994 third quarter to $35
million due to increases in both the number of accounts and the average annual
fees generated per account. Mortgage servicing fees rose 82% to $14 million.
Other revenues were $97 million, up 11% from $87 million reported in the 1994
third quarter due to small net investment gains in the 1995 third quarter.
Other revenues were down 10% to $325 million for the first nine months,
compared with $360 million for the first nine months of 1994. The first nine
months of 1995 included $10 million of net realized investment gains, compared
with $53 million of net realized investment gains in the first nine months of
1994.
Non-interest expenses were $2,197 million, up 15% from the 1994 third quarter.
Compensation and benefits expense increased 18% from the 1994 third quarter to
$1,392 million, due to higher production-related and incentive compensation as
well as additional salary and benefits expense. Production-related compensation
was up due to strong volumes in many businesses, while incentive compensation
increased with improved profitability. The increase in salary and benefits
expense is due primarily to the addition of approximately 1,500 Smith New Court
personnel. Overall, headcount increased by approximately 2,000 employees from
the 1994 third quarter to approximately 45,400 at the end of the 1995 third
quarter. Compensation and benefits expense as a percentage of net revenues was
51.9% as compared with 51.2% in the year-ago period.
Occupancy costs increased 7% from the 1994 third quarter to $113 million, due
to international growth and increases in rent related to additional Smith New
Court facilities. Communications and equipment rental expense was up 10% to
$122 million due to higher levels of business activity and increased use of
market information services as well as increases in equipment rentals primarily
related to Smith New Court. Depreciation and amortization expense rose 11% from
the 1994 third quarter to $93 million due to additional purchases of
technology-related equipment over the past year.
Advertising and market development expense increased 6% to $102 million as a
result of increased international travel and advertising and sales promotion
primarily related to the integration of Smith New Court. Professional fees
increased 28% to $114 million due to higher legal fees and system development
costs. Brokerage, clearing, and exchange fees were up 7% to $89 million as a
result of higher volumes. Other expenses totaled
20
<PAGE>
$171 million, up 4% from the 1994 third quarter due, in part, to goodwill
amortization related to Smith New Court.
Income tax expense was $185 million in the 1995 third quarter. The effective
tax rate in the 1995 third quarter was 38.1%, compared with 40.5% in the
year-ago period. The decrease in the effective tax rate was primarily
attributable to lower state income taxes, increases in tax-exempt interest and
deductions for dividends received, and expanded international business
activities.
The reasons underlying changes in expense categories for the first nine months
of 1995 are similar to those noted for the 1995 third quarter, unless otherwise
noted herein. Advertising and market development expense decreased 3% from the
comparable 1994 period as a result of reduced travel and recognition program
costs, partially offset by increases in certain advertising programs.
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, obtains committed, unsecured, revolving credit facilities
(the "Credit Facilities"), issues term debt, concentrates debt issuance through
Merrill Lynch & Co., Inc. (the "Parent"), and pursues expansion and
diversification of funding sources.
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 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 include liquidating
cash equivalents, securitizing additional home equity and other mortgage loan
assets, and drawing on Credit Facilities. At September 29, 1995, the Credit
Facilities totaled $5.5 billion and have not been drawn upon.
As an additional measure, the Corporation regularly reviews the level and mix
of its assets and liabilities to ascertain its ability to conduct core
businesses beyond one year without reliance on issuing new unsecured debt or
drawing upon Credit Facilities. The composition of the Corporation's asset mix
provides flexibility in managing liquidity, since most of the Corporation's
assets turn over frequently and are generally match-funded with a liability
whose cash flow characteristics closely match those of the asset. At September
29, 1995, approximately 3% of the Corporation's assets, principally certain
other investments, and fixed and other assets, were considered not readily
marketable by management. The Corporation monitors the liquidity of assets, the
quality of Credit Facilities, and the overall
21
<PAGE>
level of equity and 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, time differences, or other business considerations dictate
otherwise. The benefits of this strategy are: a) lower financing costs from the
reduced risks of a diversified asset and business base; b) simplicity, control,
and wider name recognition for banks, creditors, and rating agencies; and c)
flexibility to meet varying funding requirements within subsidiaries.
The third element is to expand and diversify the Corporation's funding
instruments and its investor and creditor base. The Corporation maintains
strict concentration standards for short-term lenders, which include limits for
any single investor. The Corporation's funding programs benefit from the
ability to market commercial paper through its own sales force to a large,
diversified customer base and the financial creativity of the Corporation's
capital markets and private client operations. Commercial paper remains the
Corporation's major source of short-term general purpose funding. Commercial
paper outstanding totaled $16.0 billion and $14.8 billion at September 29, 1995
and December 30, 1994, respectively, which represented 9% of total assets at
both third quarter-end 1995 and year-end 1994.
At September 29, 1995, total long-term debt was $16.2 billion compared with
$14.9 billion at year-end 1994. At September 29, 1995, the Corporation's senior
long-term debt was rated by seven recognized credit rating agencies, as
follows:
Rating Agency Rating
------------- ------
Duff & Phelps Credit Rating Co. AA-
Fitch Investors Service, Inc. AA
IBCA Ltd. AA-
Japan Bond Research Institute AA
Moody's Investors Service, Inc. A1
Standard & Poor's Ratings Group A+
Thomson BankWatch, Inc. AA
During the first nine months of 1995, the Corporation issued $6.8 billion in
long-term debt. During the same period, maturities and repurchases were $5.4
billion. In addition, approximately $817 million of the Corporation's
securities held by subsidiaries were sold and $982 million were purchased.
Expected maturities of long-term debt over the next 12 months are $5.7 billion
as of September 29, 1995.
Approximately $34.3 billion of the Corporation's indebtedness at September 29,
1995 is considered senior indebtedness as defined under various indentures.
As part of the Corporation's overall liquidity program, its insurance
subsidiaries regularly review the funding requirements of their contractual
obligations for in-force, fixed-rate life insurance and annuity contracts and
expected future acquisition and maintenance expenses for all contracts. The
22
<PAGE>
liquidity and duration of the fixed-rate asset and liability portfolios are
closely monitored.
During the past few years, the Corporation's insurance subsidiaries have
changed the mix of products offered to policyholders. Currently, variable life
insurance and variable annuity products are actively marketed. These products
do not subject the insurance subsidiaries to the interest rate, asset/liability
matching, and credit risks attributable to fixed-rate products, thereby
reducing the risk profile and liquidity demands on the insurance subsidiaries.
The insurance subsidiaries maintain predominantly high quality, liquid
investment portfolios to fund various business activities. At September 29,
1995, approximately 83% of invested assets of insurance subsidiaries were
considered liquid by management.
In the 1995 nine-month period, the Corporation's cash and cash equivalents
increased by approximately $621 million to $2,933 million. Cash of $7,157
million was provided from financing activities in the first nine months of
1995. During the same period, the Corporation used $5,699 million and $837
million for operating and investing activities, respectively.
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 $6.1 billion at September 29,
1995, including $5.5 billion in common equity, supplemented by $618.8 million
in preferred equity. The Corporation's average leverage ratio, computed as the
ratio of average month-end assets to average month-end stockholders' equity,
was 32.6x and 32.4x for the first nine months of 1995 and 1994, respectively.
The Corporation's leverage ratio at the end of the 1995 and 1994 third quarters
was 30.5x and 29.5x, respectively.
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 19.2x and 19.3x for the first nine months
of 1995 and 1994, respectively. The Corporation's adjusted leverage ratio at
the end of the 1995 and 1994 third quarters was 19.1x and 17.6x, respectively.
The Corporation operates in many regulated businesses that require various
minimum levels of capital to conduct business. (See Regulatory Requirements
Note to Consolidated Financial Statements - Unaudited.) The Corporation's
broker-dealer, insurance, and futures commission merchant activities are
subject to regulatory requirements which may restrict the free flow of funds to
affiliates. Regulatory approval is required for certain transactions, including
payment of dividends in excess of certain established levels, making affiliated
investments, and entering into management and service agreements with
affiliated companies.
The Corporation's overall capital needs are continually reviewed to ensure that
its capital base can support the estimated risks of its businesses as well as
the regulatory and legal capital requirements of subsidiaries. Based upon these
analyses, management believes that the Corporation's equity base is adequate.
23
<PAGE>
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 changes in its balance sheet
using point-in-time and average daily balances. Average daily balances are
derived from the Corporation's management information system which summarizes
balances on a settlement date basis. Financial statement balances, as required
under generally accepted accounting principles, are recorded on a trade date
basis. The discussion that follows compares the changes in settlement date
average daily balances, not financial statement balances. The increase in
average balance sheet levels during the first nine months of 1995 was
attributable to many factors, including increased trading and related hedging
and funding activities.
For the first nine months of 1995, average assets were $189 billion, up 5%
versus $180 billion for the 1994 fourth quarter. Average liabilities rose 5% to
$184 billion from $175 billion for the 1994 fourth quarter.
The major components of the net growth of average assets and liabilities are
summarized in the table below:
<TABLE>
<CAPTION>
Increase in
(In millions) Average Assets Percent Increase
- ------------- --------------------- ----------------
<S> <C> <C>
Trading assets $ 5,665 10 %
Resale agreements $ 4,571 8 %
<CAPTION>
Increase(Decrease) in Percent Increase
Average Liabilities (Decrease)
--------------------- ----------------
<S> <C> <C>
Repurchase agreements $ 6,964 11 %
Trading liabilities $ 3,403 10 %
Securities loaned $(1,757) (29)%
</TABLE>
In managing its balance sheet, the Corporation strives to match-fund its
interest-earning assets with interest-bearing liabilities having similar
maturities. The Corporation generally match-funds its repurchase
agreements/resale agreements and its securities borrowed/securities loaned
business, for example, earning an interest spread on these transactions. In the
first nine months of 1995, inventory levels were higher due to increases in
trading activity. On-balance-sheet hedges, included in trading assets and
liabilities, were also up due, in part, to increased market activity during
1995. The Corporation uses hedges principally to reduce risk in connection with
its trading activities. Repurchase and resale agreements rose during the first
nine months of 1995 as a result of their increased use as funding sources for
the higher levels of trading assets and liabilities, respectively. Securities
loaned transactions were down primarily due to a decrease in their use to
fund trading assets. In addition, at September 29, 1995 and December 30,
1994 there were $3.1 billion and $1.1 billion, respectively, of securities
borrowed/loaned with the same counterparties that the Corporation did not
offset. In practice, the application of FASB
24
<PAGE>
Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts",
varies among financial institutions with some entities offsetting these
balances.
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 investment banking,
market-making, and derivative structuring activities. During the past four
years, the Corporation has increased its non-investment grade trading
inventories to satisfy client demand for higher-yielding investments, including
emerging markets and other international securities.
Non-investment grade securities have been defined as debt and preferred equity
securities rated as BB+ or lower, or equivalent ratings by recognized credit
rating agencies, certain sovereign debt in emerging markets, amounts due under
various derivative contracts from non-investment grade counterparties, and those
non-rated securities that, in the opinion of management, are non-investment
grade. At September 29, 1995, long and short non-investment grade trading
inventories accounted for 5.1% of aggregate consolidated trading inventories,
compared with 4.3% at year-end 1994. 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 and subordinated debt, as well as bridge
financing on a select and limited basis. In addition, the Corporation syndicates
loans for non-investment grade counterparties or counterparties engaged in
highly leveraged transactions. In connection with these syndications, the
Corporation may retain a residual portion of these loans. 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 considerations of economic, market, and credit conditions. At
September 29, 1995 and December 30, 1994, there were no bridge loans
outstanding.
The Corporation holds non-investment grade securities, direct equity investments
in leveraged companies, and interests in partnerships that invest in leveraged
transactions. 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. The Corporation has also committed to
participate in limited partnerships that invest in leveraged transactions.
Future commitments to participate in limited partnerships and other direct
equity investments will be determined on a select and limited basis.
The Corporation's involvement in non-investment grade securities and highly
leveraged transactions is subject to risks related to the creditworthiness of
the issuers of and the liquidity of the market for such securities, in addition
to the usual risks associated with investing in, financing,
25
<PAGE>
underwriting, and trading investment grade instruments. The Corporation
recognizes such risks and, whenever possible, employs strategies to mitigate
exposures.
The specific components and overall level of non-investment grade and highly
leveraged positions may vary significantly from period to period as a result of
inventory turnover, investment sales, and asset redeployment. The Corporation
continually monitors credit risk by individual issuer and industry
concentration.
In 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. The
Corporation also uses certain non-investment grade trading inventories,
principally non-U.S. governments and agencies securities, to hedge the exposure
arising from structured derivative transactions. Collateral, consisting
principally of U.S. Government securities, may be obtained to reduce credit risk
related to these transactions.
The Corporation's insurance subsidiaries hold non-investment grade securities to
support fixed-rate liabilities. As a percentage of total insurance investments,
non-investment grade securities were 3.7%, compared with 5.5% at year-end 1994.
Non-investment grade securities of insurance subsidiaries are classified as
available-for-sale and are carried at fair value.
A summary of the Corporation's non-investment grade holdings and highly
leveraged transactions is provided below:
<TABLE>
<CAPTION>
SEPTEMBER 29, DECEMBER 30,
(In millions) 1995 1994
- ------------------------------------------ ------------- ------------
<S> <C> <C>
Non-investment grade trading assets $4,725 $3,309
Non-investment grade trading liabilities 406 456
Non-investment grade investments
of insurance subsidiaries 212 314
Loans (net of allowance for
loan losses) (a) 327 257
Equity investments (b) 228 289
Partnership interests 109 93
- ------------------------------------------ ------------- ------------
Additional commitments to invest in
partnerships $ 81 $ 80
Unutilized revolving lines of
credit and other lending
commitments (c) 92 50
- ------------------------------------------ ------------- ------------
</TABLE>
(a) Represented outstanding loans to 36 and 35 medium-sized companies at
September 29, 1995 and December 30, 1994, respectively.
(b) Invested in 81 and 80 enterprises at September 29, 1995 and December 30,
1994, respectively.
(c) Subsequent to September 29, 1995, the Corporation entered into lending
commitments for $520 million to non-investment grade counterparties or
related to highly leveraged transactions, of which $28 million has been
drawn upon. The Corporation intends to syndicate these commitments, but may
retain a residual portion of the loans.
26
<PAGE>
At September 29, 1995, the largest non-investment grade concentration consisted
of government and corporate obligations of a South American sovereign totaling
$503 million, of which $456 million represented on-balance-sheet hedges for off-
balance-sheet instruments. No one industry sector accounted for more than 27% 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 September 29, 1995, the carrying value of these securities totaled
$310 million, of which 83% resulted from the Corporation's market-making
activities in such securities.
27
<PAGE>
STATISTICAL DATA
Selected statistical data for the last five quarters is presented below for
informational purposes:
<TABLE>
<CAPTION>
(Dollars in millions, 3rd Qtr. 4th Qtr. 1st Qtr. 2nd Qtr. 3rd Qtr.
except per share amounts) 1994 1994 1995 1995 1995
- ------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PRIVATE CLIENT ACCOUNTS (A):
Assets in Worldwide
Private Client Accounts $571,000 $568,000 $603,000 $643,000 $675,000
Assets in Domestic
Private Client Accounts $539,000 $537,000 $571,000 $608,000 $639,000
Assets under Professional
Management:
Money Markets $ 67,000 $ 67,000 $ 71,000 $ 76,000 $ 80,000
Equities 38,000 37,000 38,000 42,000 44,000
Fixed Income 38,000 36,000 37,000 38,000 39,000
Private Portfolio 19,000 20,000 20,000 20,000 22,000
Insurance 5,000 4,000 4,000 4,000 4,000
-------- -------- -------- -------- --------
Subtotal 167,000 164,000 170,000 180,000 189,000
ML Consults 15,400 14,400 14,900 15,700 16,500
-------- -------- -------- -------- --------
TOTAL $182,400 $178,400 $184,900 $195,700 $205,500
======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------
UNDERWRITING (B):
Global Debt and Equity:
Volume $ 30,200 $ 21,300 $ 27,800 $ 32,400 $ 41,600
Market Share 13.0% 10.0% 12.2% 11.8% 13.9%
U.S. Domestic Debt and Equity:
Volume $ 24,600 $ 18,000 $ 24,500 $ 27,200 $ 35,200
Market Share 16.7% 15.3% 16.9% 14.3% 16.5%
- ----------------------------------------------------------------------------------------------------
FULL-TIME EMPLOYEES:
U.S. Domestic 38,650 38,700 38,550 38,200 38,900
International 5,000 5,100 5,050 5,100 6,500
-------- -------- -------- -------- --------
TOTAL 43,650 43,800 43,600 43,300 45,400
======== ======== ======== ======== ========
Financial Consultants and
Account Executives Worldwide 13,300 13,400 13,500 13,600 13,700
Support Personnel to Producer
Ratio (C) 1.46 1.46 1.44 1.41 1.38
INCOME STATEMENT:
Net Earnings $ 231.6 $ 161.6 $ 227.3 $ 282.8 $ 300.4
Annualized Return on Average
Common Stockholders' Equity 16.9% 11.5% 16.7% 21.0% 21.5%
Earnings Per Common Share:
Primary $ 1.10 $ .76 $ 1.08 $ 1.40 $ 1.47
Fully Diluted $ 1.10 $ .75 $ 1.08 $ 1.39 $ 1.46
BALANCE SHEET:
Total Assets $168,395 $163,749 $176,733 $174,853 $185,473
Total Stockholders' Equity $ 5,705 $ 5,818 $ 5,704 $ 5,883 $ 6,077
SHARE INFORMATION (IN THOUSANDS):
Weighted Average Shares
Outstanding:
Primary 209,030 203,157 199,178 193,267 196,395
Fully Diluted 209,030 203,618 199,178 195,159 197,157
Common Shares Outstanding(D) 192,812 181,479 176,521 175,460 175,501
Shares Repurchased 4,058 12,512 9,309 3,571 1,689
- ----------------------------------------------------------------------------------------------------
</TABLE>
(A) Client accounts were redefined in 1994 to include certain institutional
private portfolio accounts.
(B) Full credit to book manager. All market share data is derived from
Securities Data Co.
(C) Support personnel includes sales assistants.
(D) Does not include 6,816,714, 6,427,091, 5,306,924, 4,809,014 and 4,375,113
unallocated reversion shares held in the Employee Stock Ownership Plan at
period end September 30, 1994, December 30, 1994, March 31, 1995, June 30,
1995, and September 29, 1995, respectively, which are not considered
outstanding for accounting purposes.
28
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
-----------------
Since the filing of the Corporation's 1994 10-K and of the Corporation's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 (the "Second
Quarter 1995 10-Q"), the following events have taken place with respect to
several of the actions reported therein. Capitalized terms used herein without
definition have the meanings set forth in the 1994 10-K.
Orange County Litigation. The following developments have occurred since the
- -------------------------
filing of the Second Quarter 1995 10-Q with respect to the civil actions filed
against or on behalf of the Corporation arising out of the Corporation's
business activities with Orange County related to transactions entered into on
behalf of Orange County and the Pools.
In the Orange County Action that commenced on January 12, 1995, the Bankruptcy
Court dismissed the amended complaint filed by Orange County on June 6, 1995. On
October 25, 1995, Orange County filed a second amended complaint. John M.W.
Moorlach, Orange County's Treasurer-Tax Collector also is named as a plaintiff
in the second amended complaint.
In the Darling Action, which was dismissed on July 6, 1995 by the Superior Court
of the State of California, County of Orange, a notice of appeal was filed on
September 11, 1995.
On September 15, 1995, an action was commenced in the Superior Court of the
State of California, County of San Francisco, by twelve California public
entities (the "Atascadero Action"). Named as defendants are the Corporation,
certain subsidiaries of the Corporation and an employee of the Corporation. The
complaint alleges, among other things, that the defendants committed fraud,
deceit, negligence, negligent misrepresentation, breach of fiduciary duty, aided
and abetted a breach of fiduciary duty, and violated California Penal Code
Section 496 and the California Unfair Business Practice Act, in connection with
the Corporation's business activities with Orange County and the Pools.
Injunctive relief, recission, restitution and damages in excess of $50 million
are sought.
On September 28, 1995, a purported class action was commenced in the Superior
Court of the State of California, County of Orange, asserting claims brought
under Sections 25400, 25401, 25500, 25501 and 25504.1 of the California
Corporations Code that had been dismissed without prejudice on July 17, 1995 by
the United States District Court for the Central District of California in the
federal Smith Action. Damages in an unspecified amount are sought.
Pittleman Derivative Action. On November 3, 1995, a derivative action was
- ----------------------------
commenced in the Supreme Court of the State of New York, New York County, by
stockholder Sheldon Pittleman on behalf of Merrill Lynch & Co., Inc., naming as
defendants certain present and former directors of the Corporation. Damages in
an unspecified amount are sought on behalf of the Corporation. The complaint
alleges, among other things, claims for breach of fiduciary duty,
indemnification and corporate waste in connection with (a) certain of the
Corporation's municipal finance activities, including certain contractual
arrangements that led to (1) a civil settlement of
29
<PAGE>
approximately $12 million with the United States Attorney for the District of
Massachusetts, the Massachusetts Attorney General and the Securities and
Exchange Commission ("SEC") and (2) issuance by the SEC of an order censuring
the Corporation's subsidiary, MLPF&S, and an order directing MLPF&S to cease and
desist from committing or causing any violation or future violation of Rule G-17
of the Municipal Securities Rulemaking Board, to which MLPF&S consented without
admitting or denying any of the findings or allegations contained in the order
and (b) certain basket trading activities in Japan that led to administrative
sanctions by Japanese securities regulators consisting of a 48-hour suspension
of arbitrage trading by Merrill Lynch for its own account in Japan.
For more detailed information regarding litigation matters involving the
Corporation, see "Item 3. - Legal Proceedings" in the 1994 10-K.
ITEM 5. OTHER INFORMATION
-----------------
The 1996 Annual Meeting of Stockholders will be held at 10:00 a.m. on Tuesday,
April 16, 1996 at the Merrill Lynch & Co., Inc. Conference and Training Center,
800 Scudders Mill Road, Plainsboro, New Jersey. Any stockholder of record
entitled to vote generally for the election of directors may nominate one or
more persons for election as a director at such meeting only if proper written
notice of such stockholder's intent to make such nomination or nominations, in
accordance with the provisions of Merrill Lynch & Co., Inc.'s Certificate of
Incorporation, has been given to the Secretary of the Corporation, 100 Church
Street, 12th Floor, New York, New York 10080-6512, no earlier than February 1,
1996 and no later than February 26, 1996.
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 SEC, upon request, copies of the
instruments defining the rights of holders of long-term debt
securities of the Corporation that authorize an amount of securities
constituting 10% or less of the total assets of the Corporation and
its subsidiaries on a consolidated basis.
(10) Material Contracts
(i) Form of Merrill Lynch & Co., Inc. 1996 Deferred Compensation
Agreement for a Select Group of Eligible Employees, dated as of
August 14, 1995.*
(ii) Merrill Lynch & Co., Inc. Long-Term Incentive Compensation Plan,
as amended on October 23, 1995.*
-------------
*Previously filed with the registrant's Quarterly Report on Form 10-Q for
the quarter ended September 29, 1995.
30
<PAGE>
(11) Statement re: computation of per common share earnings.*
(12) Statement re: computation of ratios.*
(15) Letter re: unaudited interim financial information.*
(27) Financial Data Schedule.*
(b) Reports on Form 8-K
The following Current Reports on Form 8-K were filed by the Corporation
with the SEC during the quarterly period covered by this Report:
(i) Current Report dated July 18, 1995 for the purpose of filing the
Preliminary Unaudited Earnings Summary of the Corporation for the
three-month period ended June 30, 1995.
(ii) Current Report dated July 21, 1995 for the purpose of reporting on an
acquisition to be made by the Corporation.
(iii) Current Report dated August 1, 1995 for the purpose of filing the
form of Registrant's 6.7% Notes due August 1, 2000.
(iv) Current Report dated August 2, 1995 for the purpose of filing the
Preliminary Unaudited Consolidated Balance Sheet of the Corporation
as of June 30, 1995.
(v) Current Report dated September 19, 1995 for the purpose of filing the
form of Registrant's 6.64% Notes due September 19, 2002.
-----------
*Previously filed with the registrant's Quarterly Report on Form 10-Q for
the quarter ended September 29, 1995.
31
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, hereunto duly authorized.
MERRILL LYNCH & CO., INC.
-------------------------
(Registrant)
Date: November 22, 1995 By: /s/ Gregory T. Russo
---------------------
Gregory T. Russo
Secretary
32
