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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): July 14, 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
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Filed herewith is the Preliminary Unaudited Earnings Summary, as contained in a
press release dated July 14, 1998, for Merrill Lynch & Co., Inc. ("Merrill
Lynch") for the three- and six-month periods ended June 26, 1998. The results of
operations set forth therein for such periods are unaudited. All adjustments,
consisting only of normal recurring accruals, that are in the opinion of
management, necessary for a fair presentation of the results of operations for
the periods presented have been included. The nature of Merrill Lynch's business
is such that the results for any interim period are not necessarily indicative
of the results for a full year.
Preferred stockholders' equity, common stockholders' equity, long-term
borrowings, preferred securities issued by subsidiaries, and book value per
common share as of June 26, 1998 were approximately $0.4, $9.3, $52.1, and $1.8
billion, and $26.70, respectively.
Merrill Lynch & Co., Inc. on July 14, 1998 reported record quarterly net
earnings of $545 million, 13% above $481 million in the 1997 second quarter and
5% above the previous quarterly record of $518 million in the 1998 first
quarter. Cash earnings, which exclude the effect of goodwill amortization, were
$601 million in the 1998 second quarter, 21% above the 1997 second quarter.
These second quarter results include $75 million of pre-opening, after-tax costs
related to Merrill Lynch Japan Securities Co., the new private client business
in Japan.
Earnings per common share were $1.55 basic and $1.33 diluted, compared with
$1.43 basic and $1.25 diluted in the 1997 second quarter and $1.49 basic and
$1.30 diluted in the 1998 first quarter. On a cash basis, diluted earnings per
share were $1.47 in the 1998 second quarter, up 14% from $1.29 in the 1997
second quarter. The pre-opening costs for Merrill Lynch Japan Securities Co.
reduced diluted earnings by approximately 19 cents per share.
Annualized return on average common equity was approximately 24.0% for the 1998
second quarter, compared with 28.5% in the 1997 second quarter and 24.8% in the
1998 first quarter. Cash basis return on average common equity was approximately
25.8% for the 1998 second quarter.
For the 1998 first half, net earnings reached a record $1.1 billion, 12% above
the comparable 1997 period. Cash basis net earnings were $1.2 billion, up 20%
from the 1997 first half.
Net revenues rose 19% from the 1997 second quarter to a record $4.7 billion as
commissions, investment banking, and asset management and portfolio service fees
reached new highs.
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Commission revenues were $1.4 billion, up 29% from the 1997 second quarter due
to strong mutual fund activity and increases in listed securities volume
worldwide. Principal transactions revenues decreased 16% from a year ago to $972
million as revenues continued to be affected by volatility in the Asian markets,
especially in June. Revenues from most fixed income products, particularly those
from corporate and emerging market bonds, decreased from the 1997 second
quarter. As a partial offset, non-U.S. equities revenues more than doubled from
the 1997 second quarter, and interest rate and currency swaps revenues also
rose. Non-U.S. trading revenues accounted for 56% of total principal
transactions revenues.
Investment banking revenues were $869 million, up 39% from the 1997 second
quarter as a result of record underwriting revenues and significantly higher
strategic services fees. The increase in underwriting was primarily due to
higher fees from defined asset funds, convertibles, high yield debt, and equity
issuances. Strategic services revenues remained strong, benefiting from record
merger and acquisition activity, attributable in part to consolidations in
various industries.
Asset management and portfolio service fees rose 53% to $1.0 billion, due to
growth in assets under management, primarily from the acquisition of Mercury
Asset Management, and increases in other fee-based products, such as Merrill
Lynch Consults (Registered Trademark), Mutual Fund Advisor (Service Mark),
Asset Power (Registered Trademark), and Financial Advantage (Service Mark).
Other revenues increased 18% to $184 million in part due to gains from
investment activities. Net interest profit decreased 4% to $276 million.
Non-interest expenses increased 19% from the 1997 second quarter to $3.8
billion. Excluding the pre-opening costs related to Merrill Lynch Japan
Securities Co. and goodwill amortization from acquisitions, non-interest
expenses rose 16%. Compensation and benefits, the largest expense category, was
up 19% to $2.4 billion due to higher incentive and production-related
compensation and increased headcount. Compensation and benefits expense was
50.5% of net revenues in both the 1998 and 1997 second quarters.
Communications and technology expense was up 39% to $408 million because of
increased systems consulting costs, primarily associated with continued progress
on the Year 2000 and various private client initiatives, as well as higher
technology-related depreciation. Occupancy and related depreciation rose 19% to
$207 million due to global expansion, including a combined total of $21 million
associated with Merrill Lynch Japan Securities Co. and Mercury Asset Management.
Professional fees increased 16% to $151 million due in part to costs related to
various strategic initiatives. Advertising and market development expense was up
25% to $195 million due in part to increased business development and higher
global travel costs. Brokerage, clearing, and exchange fees rose 44% to $161
million as a result of $24 million in custody and clearing costs for Mercury
Asset Management and higher trading volume.
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Goodwill amortization, a non-cash expense, increased $40 million to $56 million
due to the Mercury Asset Management acquisition. Other expenses were down 17% to
$246 million, as a result of non-recurring loss provisions in the 1997 second
quarter totaling $75 million.
The 1998 second quarter effective tax rate was 37.0%, unchanged from a year ago.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
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(c) Exhibits
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(99) Additional Exhibits
(i) Preliminary Unaudited Earnings Summary for the three- and
six-month periods ended June 26, 1998.
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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/ E. Stanley O'Neal
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E. Stanley O'Neal
Executive Vice President
and
Chief Financial Officer
Date: July 14, 1998
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EXHIBIT INDEX
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<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
(99) Additional Exhibits
(i) Preliminary Unaudited Earnings Summary for the 7-8
three- and six-month periods ended June 26,
1998.
</TABLE>
6
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<TABLE>
<CAPTION>
MERRILL LYNCH & CO., INC. Exhibit 99(i)
PRELIMINARY UNAUDITED EARNINGS SUMMARY
For the Three Months Ended Percent Inc / (Dec)
June 26, March 27, June 27, 2Q98 vs. 2Q98 vs.
[In millions, except per share amounts] 1998 1998 1997 1Q98 2Q97
-------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Commissions $ 1,386 $ 1,377 $ 1,078 0.7 % 28.6 %
Interest and Dividends 4,948 4,742 4,330 4.3 14.3
Principal Transactions 972 1,152 1,151 (15.6) (15.6)
Investment Banking 869 801 625 8.5 39.0
Asset Management and Portfolio Service Fees 1,022 970 670 5.3 52.5
Other 184 124 157 48.9 17.6
------- ------- ------
Total Revenues 9,381 9,166 8,011 2.3 17.1
Interest Expense 4,672 4,564 4,044 2.4 15.5
------- ------- ------
Net Revenues 4,709 4,602 3,967 2.3 18.7
------- ------- ------
Non-Interest Expenses (A):
Compensation and Benefits 2,378 2,375 2,004 0.1 18.7
Communications and Technology 408 365 294 12.0 38.6
Occupancy and Related Depreciation 207 192 174 7.8 19.1
Professional Fees 151 165 131 (8.6) 15.5
Advertising and Market Development 195 172 156 13.0 25.1
Brokerage, Clearing, and Exchange Fees 161 150 112 7.7 44.4
Goodwill Amortization 56 55 16 0.5 N/M
Other 246 254 296 (3.1) (16.8)
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Total Non-Interest Expenses 3,802 3,728 3,183 2.0 19.5
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Earnings Before Income Taxes and Dividends
on Preferred Securities Issued by Subsidiaries 907 874 784 3.8 15.6
Income Tax Expense 336 332 290 1.0 15.7
Dividends on Preferred Securities Issued
by Subsidiaries 26 24 13 13.4 106.3
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Net Earnings $ 545 $ 518 $ 481 5.1 13.1
======= ======= ======
Preferred Stock Dividends $ 10 $ 9 $ 9 -- --
------- ------- ------
Net Earnings Applicable to Common
Stockholders $ 535 $ 509 $ 472 5.2 13.4
======= ======= ======
Earnings per Common Share:
Basic $ 1.55 $ 1.49 $ 1.43 4.0 8.4
Diluted $ 1.33 $ 1.30 $ 1.25 2.3 6.4
Average Shares:
Basic 346.3 340.6 329.9 1.7 5.0
Diluted 402.0 390.9 378.9 2.8 6.1
</TABLE>
(A) Certain prior period non-interest expenses have been reclassified to
conform to the current period presentation.
Note: Percentages are based on actual numbers before rounding.
7
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<TABLE>
<CAPTION>
MERRILL LYNCH & CO., INC. Exhibit 99(i)
PRELIMINARY UNAUDITED EARNINGS SUMMARY
For the Six Months Ended
June 26, June 27, Percent
[In millions, except per share amounts] 1998 1997 Inc/(Dec)
-------- -------- ---------
<S> <C> <C> <C>
Revenues:
Commissions $ 2,763 $ 2,193 26.0 %
Interest and Dividends 9,690 8,178 18.5
Principal Transactions 2,123 2,215 (4.1)
Investment Banking 1,670 1,233 35.4
Asset Management and Portfolio Service Fees 1,993 1,316 51.4
Other 308 327 (5.9)
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Total Revenues 18,547 15,462 20.0
Interest Expense 9,236 7,654 20.7
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Net Revenues 9,311 7,808 19.3
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Non-Interest Expenses (A):
Compensation and Benefits 4,753 3,991 19.1
Communications and Technology 773 571 35.2
Occupancy and Related Depreciation 399 344 16.2
Professional Fees 316 265 19.5
Advertising and Market Development 367 300 22.4
Brokerage, Clearing, and Exchange Fees 311 230 35.5
Goodwill Amortization 111 31 N/M
Other 500 525 (4.8)
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Total Non-Interest Expenses 7,530 6,257 20.4
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Earnings Before Income Taxes and Dividends
on Preferred Securities Issued by Subsidiaries 1,781 1,551 14.8
Income Tax Expense 668 581 14.9
Dividends on Preferred Securities Issued
by Subsidiaries 50 23 119.5
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Net Earnings $ 1,063 $ 947 12.3
======= =======
Preferred Stock Dividends $ 19 $ 20 (4.7)
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Net Earnings Applicable to Common
Stockholders $ 1,044 $ 927 12.6
======= =======
Earnings per Common Share:
Basic $ 3.04 $ 2.80 8.6
Diluted $ 2.63 $ 2.41 9.1
Average Shares:
Basic 343.4 330.5 3.9
Diluted 396.5 384.3 3.2
</TABLE>
(A) Certain prior period non-interest expenses have been reclassified to
conform to the current period presentation.
Note: Percentages are based on actual numbers before rounding.
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