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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):January 20, 1998
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Merrill Lynch & Co., Inc.
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(Exact Name of Registrant as Specified in Charter)
Delaware 1-7182 13-2740599
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(State or Other (Commission (I.R.S. Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
World Financial Center, North Tower, New York, New York 10281-1332
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (212) 449-1000
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(Former Name or Former Address, if Changed Since Last Report.)
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ITEM 5. OTHER EVENTS
Filed herewith is the Preliminary Unaudited Earnings Summary, as contained in
a press release dated January 20, 1998 for Merrill Lynch & Co., Inc. ("Merrill
Lynch") for the three months and the year ended December 26, 1997. The results
of operations set forth therein for such periods are unaudited. All
adjustments, consisting only of normal recurring accruals, that are, in the
opinion of management, necessary for a fair presentation of the results of
operations for the periods presented have been included. The nature of Merrill
Lynch's business is such that the results for any interim period are not
necessarily indicative of the results for a full year.
For the three months and the year ended December 26, 1997, Merrill Lynch
repurchased in the open market 0.1 million and 13.7 million shares of its common
stock, respectively.
Merrill Lynch reported on January 20, 1998 fourth quarter net earnings of $466
million, up 5% from last year's fourth quarter. Earnings per common share were
$1.37 basic and $1.17 diluted, compared with $1.32 basic and $1.14 diluted in
the 1996 fourth quarter and $1.46 basic and $1.25 diluted in the 1997 third
quarter. Excluding the effect of two special items that added 18 cents to
diluted earnings per share in the fourth quarter of 1996, diluted earnings rose
22%.
Net earnings for 1997 were a record $1.9 billion, up 18% from the $1.6 billion
reported in 1996. Earnings per common share were $5.63 basic and $4.83 diluted
in 1997, compared with $4.65 basic and $4.11 diluted in 1996. Record revenues
were attained in commissions, principal transactions, investment banking, and
asset management and portfolio service fees.
Annualized return on average common equity for the 1997 fourth quarter was
approximately 23.9%. For the year, ROE was approximately 26.8%, the same as for
1996.
4TH QUARTER REVENUES
Net revenues rose 14% from the 1996 fourth quarter to $3.9 billion. Quarterly
revenue records were achieved in investment banking and asset management and
portfolio service fees.
Commission revenues were $1.2 billion, up 27% from the 1996 fourth quarter due
to increases in global listed securities volume and strong domestic mutual fund
activity. Principal transactions revenues, affected by market declines in Asia
and other emerging markets, decreased 19% from a year ago to $603 million.
Trading revenues were lower in most fixed-income products, with losses incurred
in medium term notes and corporate bonds. Revenues also declined in interest
rate and currency swaps and in non-U.S. equities. These declines were partially
offset by increased revenues in equity derivatives, foreign exchange, and
commodities trading.
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Investment banking revenues increased 60% to $825 million, primarily as a result
of record underwriting revenue. Fees from equity issuances nearly doubled and
were sharply higher in convertibles and defined asset funds. Merrill Lynch's
share of lead-managed equity and equity-linked issues worldwide increased to
18.0% in the fourth quarter, compared to 12.7% for the second-ranked firm,
according to Securities Data Co., illustrating Merrill Lynch's strong
underwriting capabilities in difficult markets. Strategic services fees
continued to benefit from strong merger and acquisition activity, attributed in
part to consolidation across various industries.
Asset management and portfolio service fees were $751 million, up 25% from
the 1996 fourth quarter, as a result of continued growth in assets under
management and other fee-based products, such as Merrill Lynch Consults
(Registered Trademark), Mutual Fund Advisor (Service Mark), and Asset Power
(Registered Trademark).
Other revenues were $202 million, down 28% from last year's fourth quarter that
included a $155 million pre-tax gain from the partial sale of a minority
interest in Bloomberg L.P. Net interest profit decreased 6% to $257 million.
4TH QUARTER EXPENSES
Non-interest expenses increased 16% from the 1996 fourth quarter to $3.1
billion. The largest expense category, compensation and benefits, was up 18% to
$2.0 billion due to higher incentive and production-related compensation and
increased headcount. Compensation and benefits expense was 50.7% of net
revenues in the 1997 fourth quarter, compared with 49.1% in the corresponding
1996 fourth quarter.
Communications and equipment rental and depreciation and amortization expenses
rose 8% in the aggregate to $284 million. Higher business volume and ongoing
investments in technology contributed to the increase. Occupancy costs
decreased 25% to $122 million as a result of a non-recurring 1996 fourth quarter
pre-tax charge of $40 million.
Professional fees increased 29% to $206 million because of higher systems and
management consulting costs related to various technology projects and other
strategic market studies. Advertising and market development expense was up 2%
to $153 million due in part to increased business development and related travel
costs. Brokerage, clearing, and exchange fees rose 34% to $138 million as a
result of higher global securities trading volume. Other expenses were up 31%
to $274 million, with increases in provisions for various business activities
and office and postage costs.
The 1997 fourth quarter effective tax rate was 34.3%, compared with 34.1% a year
ago.
Preferred stockholders' equity, common stockholders' equity, long-term
borrowings, preferred securities issued by subsidiaries, and book value per
common share as of December 26, 1997 were approximately $0.4 billion, $7.9
billion, $43.1 billion, $0.6 billion, and $23.63, respectively.
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EFFECT OF MERCURY ACQUISITION
The acquisition of Mercury Asset Management was recorded at year-end 1997. The
effect on the statement of earnings was not material. Goodwill of approximately
$4.8 billion was recorded and will be amortized over 30 years as a non-cash
expense. Going forward, cash earnings and cash return on equity will be the
most relevant measures of financial performance because they best illustrate
Merrill Lynch's operating performance and ability to support growth.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) EXHIBITS
(99) Additional Exhibits
(i) Preliminary Unaudited Earnings Summary for the three
months and the year ended December 26, 1997.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
MERRILL LYNCH & CO., INC.
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(Registrant)
By: /s/ Joseph T. Willett
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Joseph T. Willett
Senior Vice President
Chief Financial Officer
Date: January 20, 1998
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE
(99) Additional Exhibits
(i) Preliminary Unaudited Earnings
Summary for the three months and
the year ended December 26, 1997 7-8
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<TABLE>
<CAPTION>
Exhibit 99(i)
MERRILL LYNCH & CO., INC.
PRELIMINARY UNAUDITED EARNINGS SUMMARY
For Three Months Ended Percent Inc/(Dec)
December 26, September 26, December 27, 4Q97 vs. 4Q97 vs.
[In millions, except per share amounts] 1997 1997 1996 3Q97 4Q96
------------ ------------- ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Commissions $ 1,230 $ 1,244 $ 967 (1.1)% 27.2 %
Interest and Dividends 4,512 4,397 3,492 2.6 29.2
Principal Transactions 603 951 744 (36.6) (19.0)
Investment Banking 825 691 517 19.4 59.7
Asset Management and Portfolio Service Fees 751 722 601 4.1 25.1
Other 202 141 280 42.8 (28.2)
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Total Revenues 8,123 8,146 6,601 (0.3) 23.1
Interest Expense 4,255 4,153 3,219 2.5 32.2
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Net Revenues 3,868 3,993 3,382 (3.1) 14.4
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Non-Interest Expenses:
Compensation and Benefits 1,962 2,008 1,660 (2.3) 18.2
Communications and Equipment Rental 166 175 151 (5.2) 10.1
Occupancy 122 124 163 (1.4) (24.9)
Depreciation and Amortization 118 115 111 2.9 6.3
Professional Fees 206 211 160 (2.4) 29.0
Advertising and Market Development 153 145 150 5.5 1.6
Brokerage, Clearing, and Exchange Fees 138 137 103 0.3 34.1
Other 274 307 209 (10.7) 31.2
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Total Non-Interest Expenses 3,139 3,222 2,707 (2.6) 16.0
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Earnings Before Income Taxes and Dividends
on Preferred Securities Issued by Subsidiaries 729 771 675 (5.5) 7.9
Income Tax Expense 250 266 230 (5.8) 8.7
Dividends on Preferred Securities Issued
by Subsidiaries 13 12 - - N/M
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Net Earnings $ 466 $ 493 $ 445 (5.5) 4.7
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Preferred Stock Dividends $ 10 $ 9 $ 12 - (16.7)
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Net Earnings Applicable to Common
Stockholders $ 456 $ 484 $ 433 (5.6) 5.3
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Earnings per Common Share (A)(B):
Basic $1.37 $1.46 $1.32 (6.2) 3.8
Diluted $1.17 $1.25 $1.14 (6.4) 2.6
Average Shares (A):
Basic 333.9 331.0 328.8 0.9 1.5
Diluted 390.8 387.6 378.9 0.8 3.1
</TABLE>
(A) Share and per share amounts have been restated for the two-for-one common
stock split, effected in the form of a 100% stock dividend, paid on May 30,
1997.
(B) Effective December 1997, basic and diluted earnings per share replaced the
primary and fully diluted calculations in accordance with Statement of
Financial Accounting Standards No. 128.
Note: Percentages are based on actual numbers before rounding.
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Exhibit 99(i)
MERRILL LYNCH & CO., INC.
PRELIMINARY UNAUDITED EARNINGS SUMMARY
<TABLE>
<CAPTION>
For the Year Ended
[In millions, except per share amounts] December 26, December 27, Percent
1997 1996 Inc / (Dec)
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<S> <C> <C> <C>
Revenues:
Commissions $ 4,667 $ 3,786 23.3 %
Interest and Dividends 17,087 12,899 32.5
Principal Transactions 3,769 3,454 9.1
Investment Banking 2,749 1,945 41.3
Asset Management and Portfolio Service
Fees 2,789 2,261 23.3
Other 670 666 0.6
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Total Revenues 31,731 25,011 26.9
Interest Expense 16,062 11,895 35.0
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Net Revenues 15,669 13,116 19.5
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Non-Interest Expenses:
Compensation and Benefits 7,962 6,704 18.8
Communications and Equipment Rental 669 559 19.6
Occupancy 491 508 (3.5)
Depreciation and Amortization 446 411 8.5
Professional Fees 813 582 39.6
Advertising and Market Development 597 514 16.3
Brokerage, Clearing, and Exchange Fees 505 413 22.1
Other 1,136 859 32.3
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Total Non-Interest Expenses 12,619 10,550 19.6
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Earnings Before Income Taxes and Dividends
on Preferred Securities Issued by
Subsidiaries 3,050 2,566 18.9
Income Tax Expense 1,097 947 15.7
Dividends on Preferred Securities Issued
by Subsidiaries 47 - N/M
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Net Earnings $ 1,906 $ 1,619 17.8
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Preferred Stock Dividends $ 39 $ 47 (15.1)
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Net Earnings Applicable to Common
Stockholders $ 1,867 $ 1,572 18.7
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Earnings per Common Share (A)(B):
Basic $5.63 $4.65 21.1
Diluted $4.83 $4.11 17.5
Average Shares (A):
Basic 331.5 337.8 (1.9)
Diluted 386.7 382.3 1.2
</TABLE>
(A) Share and per share amounts have been restated for the two-for-one common
stock split, effected in the form of a 100% stock dividend, paid on May 30,
1997.
(B) Effective December 1997, basic and diluted earnings per share replaced the
primary and fully diluted calculations in accordance with Statement of
Financial Accounting Standards No. 128.
Note: Percentages are based on actual numbers before rounding.
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