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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): October 13, 1998
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Merrill Lynch & Co., Inc.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 1-7182 13-2740599
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(State or Other (Commission (I.R.S. Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
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 October 13, 1998, for Merrill Lynch & Co., Inc. ("Merrill
Lynch") for the three- and nine-month periods ended September 25, 1998. The
results of operations set forth therein for such periods are unaudited. All
adjustments, consisting only of normal recurring accruals and a provision for
costs related to staff reductions, 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 September 25, 1998 were approximately $425 million, $9.4
billion, $55.1 billion, $1.8 billion, and $26.15, respectively.
On October 13, 1998, Merrill Lynch reported a third quarter net loss of
$164 million, which included an after-tax provision for costs related to staff
reductions of $288 million ($430 million pre-tax). These results compare with
profits of $502 million in the 1997 third quarter and $551 million in the 1998
second quarter. Excluding the staff reduction provision, Merrill Lynch recorded
third quarter net earnings of $124 million.
The net loss per common share was $.49 basic and diluted for the 1998 third
quarter. Excluding the staff reduction provision, earnings per common share were
$.32 basic and $.28 diluted. Those earnings, on a cash basis, which also exclude
the effect of goodwill amortization, were $.42 per share on a diluted basis for
the 1998 third quarter. Third quarter return on average common equity prior to
the staff reduction provision was approximately 5%.
The staff reduction program will include reductions in the workforce through
severance and attrition of approximately 3,400 personnel, or about 5% of
Merrill Lynch's global workforce of approximately 65,000. In addition,
full-time equivalent consultants, mainly involved in technology projects,
will be reduced by approximately 900. The staff reduction provision covers
primarily severance costs, as well as costs to terminate long-term contracts
and leases related to personnel reductions and business resizing.
Net revenues declined 7% from the 1997 third quarter to $3.8 billion.
Commissions revenues rose 9% from the 1997 third quarter to $1.4 billion due to
record fees from global listed securities and increased mutual fund activity.
Principal transactions revenues decreased 71% from the 1997 third quarter to
$279 million as a result of mark-to-market losses in fixed-income products
attributed to widening credit spreads, diminished liquidity and counterparty
losses in emerging markets. Trading revenues from interest rate and currency
swaps also decreased. Revenues for U.S. equities declined modestly from the 1997
third quarter, but were up from the 1998 second quarter. Revenues from non-U.S.
equities rose sharply from a year ago.
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Investment banking revenues were $711 million, down 2% from the 1997 third
quarter. Strategic services fees reached record levels as a result of increased
merger and acquisition activity from continued consolidation in many industries.
Underwriting revenues were affected by an industrywide slowdown late in the
quarter due to volatility in global financial markets, with declines in several
categories including high-yield and common equities.
Asset management and portfolio service fees were $995 million, up 36% from
the 1997 third quarter. Growth in assets under management, primarily driven
by the acquisition of Mercury Asset Management, and increases in fee-based
products, such as Merrill Lynch Consults (Registered Trademark), Financial
Advantage (Service Mark), Mutual Fund Advisor (Service Mark), and Asset Power
(Registered Trademark), led to the advance.
Other revenues increased 38% from the 1997 third quarter to $199 million. Net
interest profit decreased 14% to $216 million.
Non-interest expenses increased 21% from the 1997 third quarter to $4.1
billion. Excluding the staff reduction provision, $78 million of costs
related to the launch of Merrill Lynch Japan Securities Co., and goodwill
amortization, non-interest expenses rose 5%. Non-interest expenses, excluding
the staff reduction provision, decreased by 8% from the 1998 second quarter.
Compensation and benefits, the largest expense category, was down 4% to $2.0
billion. Lower incentive compensation from reduced profitability was partially
offset by higher Financial Consultant productivity and increased headcount
attributable in part to recent acquisitions. Compensation and benefits expense
was 52.2% of net revenues in the 1998 third quarter, compared with 50.7% in the
corresponding 1997 period.
Communications and technology expense was $487 million, up 49% from the 1997
third quarter because of increased systems consulting costs related to the Year
2000 and European Monetary Union initiatives, and higher technology-related
depreciation. Occupancy and related depreciation rose 21% to $227 million as a
result of global expansion.
Professional fees increased 25% to $165 million due in part to higher costs for
various strategic market studies and one-time integration costs for Midland
Walwyn. Advertising and market development expense was $203 million, up 37% from
the 1997 third quarter as a result of higher sales promotion and recognition
program costs and increased travel. Brokerage, clearing, and exchange fees rose
31% to $186 million, primarily due to $28 million in custody and clearing costs
for Mercury Asset Management.
Goodwill amortization, a non-cash expense, increased from $16 million in the
1997 third quarter to $55 million in the 1998 third quarter as a result of the
Mercury Asset Management acquisition. Other expenses were $292 million in the
1998 third quarter, down 2% from the comparable 1997 period.
The effective tax rate was 36.4%, compared with 34.8% in the 1997 third quarter.
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Net earnings for the first nine months were $915 million, compared with $1.5
billion for the 1997 nine months. Nine-month earnings before the staff reduction
provision were $1.2 billion, 18% below the comparable 1997 period. Year-to-date
diluted earnings per common share including and excluding the staff reduction
provision were $2.18 and $2.89, respectively, down from $3.64 in the comparable
1997 period.
Earnings before the staff reduction provision, on a cash basis, which also
exclude goodwill amortization, were $1.4 billion, versus $1.5 billion in the
1997 nine months. On the same basis, nine-month diluted earnings per share
were $3.30, compared with $3.76 in the corresponding 1997 period.
All prior periods have been restated to reflect the Midland Walwyn acquisition
as required under pooling-of-interests accounting.
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
nine-month periods ended September 25, 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: October 13, 1998
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
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<S> <C> <C>
(99) Additional Exhibits
(i) Preliminary Unaudited Earnings Summary for the three- and 7-8
nine-month periods ended September 25, 1998.
</TABLE>
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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)(2)
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September 25, June 26,(1) September 26,(1) 3Q98 vs. 3Q98 vs.
[in millions, except per share amounts] 1998 1998 1997 2Q98 3Q97
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Revenues
Commissions $ 1,449 $ 1,463 $ 1,328 (1.0)% 9.2%
Interest and Dividends 5,079 5,010 4,447 1.4 14.2
Principal Transactions 279 989 964 (71.8) (71.1)
Investment Banking 711 898 724 (20.8) (1.8)
Asset Management and
Portfolio Service Fees 995 1,035 731 (3.9) 36.0
Other 199 186 144 6.8 38.4
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Total Revenues 8,712 9,581 8,338 (9.1) 4.5
Interest Expense 4,863 4,726 4,196 2.9 15.9
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Net Revenues 3,849 4,855 4,142 (20.7) (7.1)
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Non-Interest Expenses
Compensation and Benefits 2,010 2,470 2,101 (18.6) (4.3)
Communications and Technology 487 431 328 13.0 48.7
Occupancy and Related Depreciation 227 217 188 4.6 20.7
Professional Fees 165 143 131 15.3 25.3
Advertising and Market Development 203 200 148 1.6 36.7
Brokerage, Clearing, and
Exchange Fees 186 167 143 11.7 30.5
Goodwill Amortization 55 55 16 (0.5) N/M
Provision for Costs Related to
Staff Reductions 430 - - N/M N/M
Other 292 254 298 14.8 (2.0)
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Total Non-Interest Expenses 4,055 3,937 3,353 3.0 20.9
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Earnings (Loss) Before Income
Taxes and Dividends
on Preferred Securities Issued
by Subsidiaries (206) 918 789 (122.5) (126.2)
Income Tax Expense (Benefit) (75) 340 275 (122.1) (127.4)
Dividends on Preferred Securities
Issued by Subsidiaries 33 27 12 23.6 162.6
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Net Earnings (Loss) $ (164) $ 551 $ 502 (129.8) (132.6)
======= ======= =======
Preferred Stock Dividends $ 9 $ 10 $ 9 - -
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Net Earnings (Loss) Applicable
to Common Stockholders $ (173) $ 541 $ 493 (132.1) (135.2)
======= ======= =======
Earnings (Loss) per Common Share
Basic ($ 0.49) $ 1.52 $ 1.45 (132.2) (133.8)
Diluted ($ 0.49) $ 1.32 $ 1.24 (137.1) (139.5)
Average Shares
Basic 357.6 355.3 339.8 0.7 5.2
Diluted 357.6 411.4 396.9 (13.1) (9.9)
</TABLE>
(1) Amounts have been restated to reflect the Midland Walwyn acquisition as
required under pooling-of-interests accounting.
(2) Percentages are based on actual numbers before rounding.
N/M Not meaningful
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<TABLE>
<CAPTION>
MERRILL LYNCH & CO., INC. Exhibit 99(i)
PRELIMINARY UNAUDITED EARNINGS SUMMARY
For the Nine Months Ended
---------------------------------
September 25, September 26,(1) Percent(2)
[in millions, except per share amounts] 1998 1997 Inc / (Dec)
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<S> <C> <C> <C>
Revenues
Commissions $ 4,375 $ 3,691 18.5%
Interest and Dividends 14,903 12,734 17.0
Principal Transactions 2,439 3,211 (24.0)
Investment Banking 2,440 2,015 21.1
Asset Management and Portfolio Service Fees 3,013 2,063 46.0
Other 511 474 7.8
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Total Revenues 27,681 24,188 14.4
Interest Expense 14,215 11,942 19.0
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Net Revenues 13,466 12,246 10.0
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Non-Interest Expenses
Compensation and Benefits 6,956 6,281 10.7
Communications and Technology 1,311 920 42.4
Occupancy and Related Depreciation 645 548 17.7
Professional Fees 459 398 15.2
Advertising and Market Development 580 456 27.3
Brokerage, Clearing, and Exchange Fees 509 383 32.8
Goodwill Amortization 165 47 N/M
Provision for Costs Related to Staff Reductions 430 - N/M
Other 809 837 (3.4)
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Total Non-Interest Expenses 11,864 9,870 20.2
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Earnings Before Income Taxes and Dividends
on Preferred Securities Issued by Subsidiaries 1,602 2,376 (32.6)
Income Tax Expense 605 875 (30.8)
Dividends on Preferred Securities Issued by Subsidiaries 82 35 134.8
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Net Earnings $ 915 $ 1,466 (37.6)
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Preferred Stock Dividends $ 28 $ 29 (3.2)
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Net Earnings Applicable to Common Stockholders $ 887 $ 1,437 (38.3)
======= =======
Earnings per Common Share
Basic $ 2.50 $ 4.24 (41.0)
Diluted $ 2.18 $ 3.64 (40.1)
Average Shares
Basic 354.1 339.2 4.4
Diluted 406.7 394.4 3.1
</TABLE>
(1) Amounts have been restated to reflect the Midland Walwyn acquisition as
required under pooling-of-interests accounting.
(2) Percentages are based on actual numbers before rounding.
N/M Not meaningful
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