RULE 424(b)(3)
REGISTRATION NO. 33-45777
PROSPECTUS
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[LOGO]
27,587 SHARES
MERRILL LYNCH & CO., INC.
COMMON STOCK
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All of the shares of Common Stock offered hereby (the "Shares"), and an
additional 3,792,247 shares of Common Stock which have been registered pursuant
to the registration statement of which this Prospectus is a part and which may
in the future be offered pursuant to a prospectus amended to reflect such sale,
are or at the time they are sold will be held by a custodian to fund
distributions under certain employee stock bonus plans (the "Plans") of Merrill
Lynch & Co., Inc. (the "Company"). The Shares are being sold in connection with
obligations of the Company under the Plans. See "Use of Proceeds".
The Shares will be sold by means of ordinary broker's transactions or block
transactions (which may involve crosses) on the New York Stock Exchange or any
other exchange on which the Common Stock of the Company is listed from time to
time, in the over-the-counter market or in private sales, at market prices
prevailing at the time of such sales or at negotiated prices. The Shares will
be sold through Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"),
acting as exclusive sales agent for the Company. With respect to sales on an
exchange, in the over-the-counter market or in private transactions, the
Company will pay MLPF&S a negotiated commission not to exceed the usual and
customary brokerage commissions for such transactions. The Company has agreed
to indemnify MLPF&S against certain liabilities, including liabilities under
the Securities Act of 1933 or contribute to payments MLPF&S may be required to
make in respect thereof.
MLPF&S may be deemed to be an "underwriter" within the meaning of Section
2(11) of the Securities Act of 1933. In addition, any profits realized by
MLPF&S may be deemed to be underwriting commissions. The distribution of the
Shares by MLPF&S will conform to the requirements set forth in the applicable
sections of Schedule E to the By-Laws of the National Association of Securities
Dealers, Inc.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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MERRILL LYNCH & CO.
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THE DATE OF THIS PROSPECTUS IS AUGUST 2, 1995
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, (the "Exchange Act") and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy and information statements and
other information filed by the Company can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional
Offices of the Commission: Midwest Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511 and Northeast Regional Office, Seven
World Trade Center, New York, New York 10048. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. Reports, proxy and
information statements and other information concerning the Company may also be
inspected at the offices of the New York Stock Exchange, the American Stock
Exchange, the Chicago Stock Exchange and the Pacific Stock Exchange.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 30,
1994, Quarterly Report on Form 10-Q for the period ended March 31, 1995, and
Current Reports on Form 8-K dated January 12, 1995, January 23, 1995, February
8, 1995, February 9, 1995, March 3, 1995, March 9, 1995, April 18, 1995, May 2,
1995, May 23, 1995, July 18, 1995, July 21, 1995, August 1, 1995, and August 2,
1995 filed pursuant to Section 13 of the Exchange Act, are hereby incorporated
by reference into this Prospectus.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the
termination of the offering of the Shares shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM THIS
PROSPECTUS IS DELIVERED, ON WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY
(WITHOUT EXHIBITS OTHER THAN EXHIBITS SPECIFICALLY INCORPORATED BY REFERENCE)
OF ANY OR ALL DOCUMENTS INCORPORATED BY REFERENCE INTO THIS PROSPECTUS.
REQUESTS FOR SUCH COPIES SHOULD BE DIRECTED TO MR. GREGORY T. RUSSO, SECRETARY,
MERRILL LYNCH & CO., INC., 100 CHURCH STREET, 12TH FLOOR, NEW YORK, NEW YORK
10080-6512; TELEPHONE NUMBER (212) 602-8435.
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MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its subsidiaries
and affiliates, provides investment, financing, insurance, and related services
on a global basis. Its principal subsidiary, MLPF&S, one of the largest
securities firms in the world, is a leading broker in securities, options
contracts, and commodity and financial futures contracts; a leading dealer in
options and in corporate and municipal securities; a leading investment banking
firm that provides advice to, and raises capital for, its clients; and an
underwriter of selected insurance products. Other subsidiaries provide
financial services on a global basis similar to those of MLPF&S and are engaged
in such other activities as international banking, lending, and providing other
investment and financing services. Merrill Lynch International Incorporated,
through subsidiaries and affiliates, provides investment, financing, and
related services outside the United States and Canada. Merrill Lynch Government
Securities Inc. is a primary dealer in obligations issued or guaranteed by the
U.S. Government and by Federal agencies or instrumentalities. Merrill Lynch
Capital Services, Inc., Merrill Lynch Derivative Products, Inc., and Merrill
Lynch Capital Markets plc are the Company's primary derivative product dealers
and enter into interest rate and currency swaps and other derivative
transactions as intermediaries and as principals. Merrill Lynch Asset
Management, L.P., with its related affiliates, is one of the largest mutual
fund managers in the world and provides investment advisory services. The
Company's insurance underwriting operations consist of the underwriting of life
insurance and annuity products. Banking, trust, and mortgage lending operations
conducted through subsidiaries of the Company include issuing certificates of
deposit, offering money market deposit accounts, making secured loans, and
providing foreign exchange facilities and other related services.
The principal executive office of the Company is located at World Financial
Center, North Tower, 250 Vesey Street, New York, New York 10281; its telephone
number is (212) 449-1000.
USE OF PROCEEDS
The Shares that are offered pursuant to this Prospectus are held by Chemical
Bank, as custodian for distribution under the Plans. The Plans provide that
certain key employees of the Company or its subsidiaries may from time to time,
and, in some cases, upon the performance of specified objectives, receive
compensation in the form of Common Stock and/or cash payments. The custodial
agreements provide that the custodian will make such distributions as directed
by the Company. Proceeds from the sale of the Shares that may be offered hereby
will be used by the custodian either to satisfy the Company's obligations to
pay cash under the Plans or to reimburse the Company for cash payments made by
the Company on behalf of the custodian pursuant to the Plans. Any proceeds from
the sale of the Shares that are not paid to employees will be returned to the
Company as provided in the custodial agreements, and used for general corporate
purposes.
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PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock of the Company is listed on the New York Stock Exchange and
certain other United States and foreign stock exchanges. The following table
sets forth for the periods indicated the dividends paid and the high and low
sales prices per share of Common Stock on the New York Stock Exchange--
Composite Tape as reported by the National Quotation Bureau, Inc. Prices have
been restated for the two for one common stock split, effected in the form of a
100 percent stock dividend, in the fourth quarter of 1993.
HIGH LOW DIVIDENDS PAID
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1990 First Quarter............................. 13 5/8 10 3/8 .125
Second Quarter .............................. 12 13/16 10 1/4 .125
Third Quarter................................ 13 8 3/4 .125
Fourth Quarter............................... 11 5/16 8 1/16 .125
1991 First Quarter............................. 18 9 9/16 .125
Second Quarter............................... 21 1/16 17 5/16 .125
Third Quarter................................ 25 1/8 19 3/16 .125
Fourth Quarter............................... 30 7/16 22 1/16 .125
1992 First Quarter............................. 33 3/8 26 3/4 .125
Second Quarter............................... 27 15/16 22 3/16 .15
Third Quarter................................ 26 7/8 24 .15
Fourth Quarter............................... 31 3/8 23 1/8 .15
1993 First Quarter ............................ 37 1/16 28 .15
Second Quarter............................... 40 15/16 33 5/8 .175
Third Quarter................................ 50 7/8 39 9/16 .175
Fourth Quarter............................... 51 3/16 41 3/4 .20
1994 First Quarter............................. 45 5/8 36 1/2 .20
Second Quarter............................... 40 1/2 34 1/4 .23
Third Quarter................................ 40 7/8 34 1/4 .23
Fourth Quarter............................... 41 1/8 32 1/4 .23
1995 First Quarter............................. 45 34 5/8 .23
Second Quarter............................... 53 1/4 42 5/8 .26
Third Quarter (through August 1, 1995)....... 58 1/4 51 7/8
On August 1, 1995, the last sale price per share of the Common Stock on the
New York Stock Exchange--Composite Tape was $55 1/2.
The Company and its predecessor have paid regular cash dividends since 1960.
Future dividends will depend on the earnings and financial condition of the
Company.
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SUMMARY FINANCIAL INFORMATION
The following summary of consolidated financial information was derived
from, and is qualified in its entirety by reference to, the financial
statements, condensed financial statements, and other information and data
contained in the Company's Annual Report on Form 10-K for the year ended
December 30, 1994, Quarterly Report on Form 10-Q for the period ended March
31, 1995 (the "Quarterly Report") and Current Reports on Form 8-K dated July
18, 1995 and August 2, 1995 (the "Current Reports"). The Current Reports,
which include preliminary unaudited financial information for the period ended
June 30, 1995, will be superseded in their entirety by the Company's Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 1995. See
"Incorporation of Certain Documents by Reference." The condensed consolidated
financial statements contained in the Quarterly Report and the financial
information contained in the Current Reports are unaudited; however, in the
opinion of management of the Company, all adjustments (consisting only of
normal recurring accruals) necessary for a fair statement of the results of
operations have been included. The year-end results include 52 weeks for 1990,
1991, 1992 and 1994 and 53 weeks for 1993.
The Company conducts its business in highly volatile markets. Consequently,
the Company's results can be affected by many factors, including general
market conditions, the liquidity of secondary markets, the level and
volatility of interest rates and currency values, the valuation of securities
positions, competitive conditions, and the size, number, and timing of
transactions. In periods of unfavorable market activity, profitability can be
adversely affected because certain expenses remain relatively fixed. As a
result, net earnings and revenues can vary significantly from period to
period. Thus, interim results may not necessarily be representative of the
full year results of operations.
YEAR ENDED LAST FRIDAY IN DECEMBER SIX MONTHS ENDED
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JULY 1, JUNE 30,
1990 1991 1992 1993 1994 1994 1995
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INCOME STATEMENT
INFORMATION
(In thousands, except
ratios)
Revenues................ $11,147,229 $12,352,812 $ 13,412,668 $ 16,588,177 $ 18,233,091 $ 9,219,111 $ 10,788,871
Net revenues(1)......... $ 5,783,329 $ 7,246,468 $ 8,577,401 $ 10,558,230 $ 9,624,521 $ 5,229,547 $ 4,969,677
Earnings before income
taxes and cumulative
effect of changes in
accounting
principles(2).......... $ 282,328 $ 1,017,418 $ 1,621,389 $ 2,424,808 $ 1,729,604 $ 1,084,870 $ 843,092
Cumulative effect of
changes in accounting
principles (net of
applicable income
taxes)(2).............. -- -- $ (58,580) $ (35,420) -- -- --
Net earnings(2)......... $ 191,856 $ 696,117 $ 893,825 $ 1,358,939 $ 1,016,761 $ 623,568 $ 510,071
Ratio of earnings to
fixed charges(3)....... 1.1 1.2 1.3 1.4 1.2 1.3 1.1
BALANCE SHEET
INFORMATION(4)(5)
(In thousands)
Total assets............ $68,129,527 $86,259,343 $107,024,173 $152,910,362 $163,749,327 $174,006,536 $174,852,533
Long-term borrowings.... $ 6,341,559 $ 7,964,424 $ 10,871,100 $ 13,468,900 $ 14,863,383 $ 15,289,293 $ 15,703,594
Stockholders' equity.... $ 3,225,430 $ 3,818,088 $ 4,569,104 $ 5,485,913 $ 5,817,545 $ 5,628,394 $ 5,883,238
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(1) Net revenues are revenues net of interest expense.
(2) Net earnings for 1992 were reduced by $58,580,000 to reflect the adoption
of Statement of Financial Accounting Standards ("SFAS") No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions", and
SFAS No. 109, "Accounting for Income Taxes". Net earnings for 1993 were
reduced by $35,420,000 to reflect the adoption of SFAS No. 112, "Employers'
Accounting for Postemployment Benefits".
(3) For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consists of earnings from continuing operations before income
taxes and fixed charges. "Fixed charges" consists of interest costs,
amortization of debt expense, preferred stock dividend requirements of
majority-owned subsidiaries, and that portion of rentals estimated to be
representative of the interest factor.
(4) In 1994, the Company adopted Financial Accounting Standards Board ("FASB")
Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts",
and FASB Interpretation No. 41, "Offsetting of Amounts Related to Certain
Repurchase and Reverse Repurchase Agreements", which increased assets and
liabilities at December 30, 1994 by approximately $8,500,000,000.
(5) To finance its diverse activities, the Company and certain of its
subsidiaries borrow substantial amounts of short-term funds on a regular
basis. Although the amount of short-term borrowings significantly varies
with the level of general business activity, on June 30, 1995,
$753,051,000 of bank loans and $14,975,863,000 of commercial paper were
outstanding. In addition, certain of the Company's subsidiaries lend
securities and enter into repurchase agreements to obtain financing. At
June 30, 1995, cash deposits for securities loaned and securities sold
under agreements to repurchase amounted to $3,614,152,000 and
$52,491,110,000, respectively. From July 1, 1995 to July 28, 1995, long-
term borrowings, net of new issuances and resales, decreased by
approximately $296,194,000.
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FISCAL YEAR 1994
Financial markets, strong from 1991 through the first six weeks of 1994,
changed significantly after inflationary fears prompted the Federal Reserve to
increase short-term interest rates in February 1994. As the U.S. economy
continued to expand, the Federal Reserve acted to further curb inflation and to
moderate growth by increasing short-term interest rates five additional times
during the year. The combination of rising interest rates, a falling U.S.
dollar, unsettled global stock, bond, and currency markets, reduced foreign
investment in U.S. financial markets, and overall investor caution contributed
to lower earnings for most U.S. securities firms. These conditions affected the
Company's 1994 fourth quarter and full year results. Net earnings for the 1994
fourth quarter were $161.6 million, down 30% from the 1994 third quarter and
down 53% from the 1993 fourth quarter.
Net earnings for 1994 were $1,016.8 million, down 25% from record 1993
earnings of $1,358.9 million. Net earnings for 1993 included a $35.4 million
cumulative effect charge (net of $25.1 million of applicable income tax
benefits) related to the adoption of Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits". Earnings
for 1993 before the cumulative effect of the change in accounting principle
were $1,394.4 million. Earnings per common share in 1994 were $4.75 primary and
$4.74 fully diluted, compared with $5.98 primary and $5.95 fully diluted ($6.14
primary and $6.11 fully diluted before the accounting change) in 1993. As
previously reported, 1993 results included a non-recurring pretax lease charge
totaling $103.0 million ($59.7 million after income taxes) related to the
Company's decision not to occupy certain space at the World Financial Center
Headquarters ("Headquarters") facility. This space was sublet in 1994.
Total revenues were $18,233 million, up 10% from 1993. Net revenues (revenues
after interest expense) totaled $9,625 million in 1994, down 9% from 1993.
Commission revenues were $2,871 million, virtually unchanged from $2,894
million in 1993. Higher commission revenues from mutual funds and commodity
transactions were offset by lower revenues from money market instruments,
particularly medium-term notes, and listed securities transactions. Sales of
mutual funds, particularly front-end funds, declined as investors were less
active due to uncertain markets and rising interest rates. For the first time
since 1974, both stock and bond funds fell in value industrywide, on average,
in the same year. Distribution fees from deferred charge funds benefited from
strong mutual fund sales in prior periods, while redemption fees increased as
investors repositioned their portfolios primarily from fixed-income funds to
stock and money market funds. Commissions on listed securities transactions
decreased due to a decline in the relative amount of business by retail clients
versus institutional clients. Other commission revenues declined principally as
a result of lower commissions from money market instruments, partially offset
by higher revenues from commodity transactions.
Interest and dividend revenues increased 35% to $9,578 million from $7,099
million in 1993. Interest expense, which includes dividend expense, rose 43% to
$8,609 million from $6,030 million in 1993. Net interest and dividend profit
decreased 9% to $969 million as a significant increase in short-term interest
rates, year over year, led to a substantial flattening of the yield curve. The
change in the yield curve, the relationship between interest rates and
maturities, resulted from short-term interest rates rising faster than long-
term interest rates in 1994. As a result, interest spreads declined, while
financing and hedging costs increased from 1993.
Principal transactions revenues fell 20% to $2,335 million from the 1993
record $2,920 million due to rising interest rates, a declining U.S. dollar,
and volatile world financial markets. Revenues from taxable fixed-income
securities, equities and equity derivatives, and foreign exchange and
commodities decreased, while interest rate and currency swaps, and municipal
securities revenues increased. Taxable fixed-income revenues declined 52% to
$462 million as higher interest rates, wider credit spreads, and uncertainty in
emerging markets led to reduced demand and lower inventory values. Equities and
equity derivatives trading revenues decreased 28% to $627 million, reflecting
lower trading results in virtually all categories, including a loss in
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convertible securities. Foreign exchange and commodities revenues, in the
aggregate, declined 31% to $109 million. Weakness in the U.S. dollar versus
other major currencies depressed foreign exchange trading, while commodities
trading revenues benefited from increased volume. Interest rate and currency
swaps revenues advanced 24% to $749 million reflecting higher revenues from
U.S. dollar-denominated swap trading activities, particularly those related to
structured financing transactions. Municipal securities trading revenues
increased 20% to $388 million due to strong retail investor demand for tax-
exempt investments.
Investment banking revenues were $1,239 million, down 32% from $1,831 million
in 1993 due primarily to the effects of rising interest rates and reduced
demand. Underwriting revenues declined in almost all categories, with
significant decreases in equities, corporate bonds and preferred stock, and
convertible securities. Strategic services revenues, which include fees for
debt restructuring, merger and acquisition activity, and other advisory
services, benefited from increased merger and acquisition advisory assignments
in various industries.
Asset management and portfolio services fees rose 12% from $1,558 million in
1993 to a record $1,739 million. Asset management fees advanced due primarily to
an increase in stock funds under management. Portfolio service fees advanced due
to the continued growth in the number of Asset Power(Registered Trademark)
accounts, a product with fees and transaction limits based on asset levels, and
increased revenues from the ML Consults(Registered Trademark) product.
Other revenues were $471 million, up 65% from $285 million in 1993. The
increase in other revenues was attributable to net realized investment gains
related to merchant banking activities of $81 million, compared with unrealized
losses of $133 million in 1993.
Non-interest expenses were $7,895 million, down 3% from $8,133 million in the
year-ago period. Excluding the 1993 non-recurring lease charge totaling $103.0
million, non-interest expenses declined 2%.
Compensation and benefits expense, which represented approximately 63% of
total non-interest expenses, declined 6% due principally to lower incentive and
production-related compensation. Compensation and benefits expense, as a
percentage of net revenues, was 51.5% in 1994, compared with 49.8% in 1993.
Occupancy costs declined 24% (7% excluding the 1993 non-recurring lease
charge) benefiting from continued relocation of support staff to lower-cost
facilities and reduced space requirements at the Headquarters facility. Other
facilities costs, which include communications and equipment rental, and
depreciation and amortization, were up 9% due to increased use of market data,
news, and statistical services and higher depreciation expense from the
acquisition of technology-related equipment.
Advertising and market development expenses were down 1% with discretionary
costs decreasing as business conditions became less favorable. Lower sales
promotion and a reduction in advertising campaigns were partially offset by
increased travel related to international business activities. Professional
fees increased 26% due primarily to the use of system and management
consultants to upgrade technology and processing capabilities in trading,
credit, and customer services, as well as higher legal fees. Brokerage,
clearing, and exchange fees increased 20% reflecting higher international
equity volume and expanded risk management activities related to volatile
global market conditions. Other expenses increased 1% from 1993, due to an
increase in office supplies and postage costs.
Income tax expense totaled $713 million in 1994, down 31% from $1,030 million
in 1993. The effective tax rate was 41.2% in 1994 versus 42.5% in 1993 as a
result of lower state income taxes.
The Company's Annual Report on Form 10-K for the year ended December 30, 1994
describes an action commenced against the Company by Orange County, California
(the "County") and the Orange County Investment Pools (the "Pools"). See
"Incorporation of Certain Documents by Reference." The County and
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the Pools seek relief in excess of $2 billion in connection with various
securities transactions between the County and/or the Pools and the Company and
its subsidiaries. Other actions have also been commenced against the Company
and its subsidiaries arising out of the Company's dealings with the County
Treasurer and the Pools.
The Company will vigorously contest these actions and believes it has
meritorious defenses. Although the ultimate outcome of these actions cannot be
ascertained at this time and the results of legal proceedings cannot be
predicted with certainty, it is the opinion of management that the resolution
of these actions will not have a material adverse effect on the consolidated
financial condition or results of operations of the Company for the year ended
December 30, 1994.
The Company has also received inquiries from various governmental entities
examining the underlying events and is cooperating with these inquiries.
CERTAIN BALANCE SHEET INFORMATION AS OF DECEMBER 30, 1994
On January 1, 1994, the Company adopted Financial Accounting Standards Board
Interpretation No. 39 ("Interpretation No. 39"), "Offsetting of Amounts Related
to Certain Contracts". Interpretation No. 39 affects the financial statement
presentation of balances related to swap, forward, and other similar exchange
or conditional type contracts, and unconditional type contracts. To offset
unconditional contracts, such as resale and repurchase agreements, net cash
settlement of the related receivable and payable balances is also required by
Interpretation No. 39, as modified by Interpretation No. 41, "Offsetting of
Amounts Related to Certain Repurchase and Reverse Repurchase Agreements". Prior
to the adoption of these Interpretations, the Company followed industry
practice in reporting balances related to certain types of contracts on a net
basis. Unrealized gains and losses for swap, forward, and other similar
contracts were reported net on the balance sheet by contract type, while
certain receivables and payables related to resale and repurchase agreements
were reported net by counterparty. The effect of these Interpretations
increased assets and liabilities at December 30, 1994 by approximately $8.5
billion.
The Company believes that its equity base is adequate relative to the level
and composition of its assets and the mix of its business.
In the normal course of business, the Company underwrites, trades, and holds
non-investment grade securities in connection with its market-making,
investment banking, and derivative structuring activities. These activities are
subject to risks related to the creditworthiness of the issuers and the
liquidity of the market for such securities, in addition to the usual risks
associated with investing in, extending credit, underwriting, and trading in
investment grade instruments.
At December 30, 1994, the fair value of long and short non-investment grade
trading inventories amounted to $3,309 million and $456 million, respectively,
and in the aggregate (i.e., the sum of long and short trading inventories)
represented 4.3% of aggregate consolidated trading inventories.
At December 30, 1994, the carrying value of extensions of credit provided to
corporations entering into leveraged transactions aggregated $257 million
(excluding unutilized revolving lines of credit and other lending commitments
of $50 million), consisting primarily of senior term and subordinated
financings to 35 medium-sized corporations. At December 30, 1994, the Company
had no bridge loans outstanding. Loans to highly leveraged corporations are
carried at unpaid principal balance less a reserve for estimated losses. The
allowance for loan losses is estimated based on a review of each loan, and
consideration of economic, market, and credit conditions. Direct equity
investments made in conjunction with the Company's investment and merchant
banking activities aggregated $289 million at December 30, 1994, representing
investments in 80 enterprises. Equity investments in privately-held
corporations for which sale is restricted by government or contractual
requirements are carried at the lower of cost or estimated net realizable
value. At December 30, 1994, the Company held interests in partnerships,
totaling $93 million (recorded on the cost basis), that invest
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in highly leveraged transactions and non-investment grade securities. Prior to
July 1, 1994, the Company had a co-investment arrangement to enter into direct
equity investments. At December 30, 1994, the Company also committed to invest
an additional $80 million in partnerships that invest in leveraged
transactions.
The Company's insurance subsidiaries hold non-investment grade securities. As
a percentage of total insurance investments, non-investment grade securities
were 5.5% at December 30, 1994. Non-investment grade securities of insurance
subsidiaries were classified as available-for-sale and were carried at fair
value at December 30, 1994.
At December 30, 1994, the largest non-investment grade concentration
consisted of various issues of a South American sovereign totaling $235
million, of which $60 million represented on-balance-sheet hedges for off-
balance-sheet instruments. No one industry sector accounted for more than 21%
of total non-investment grade positions. At December 30, 1994, the Company held
an aggregate carrying value of $292 million in debt and equity securities of
issuers in various stages of bankruptcy proceedings. Approximately 71% of this
amount resulted from the Company's market-making activities in such securities.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1995
Financial markets, which were particularly weak during the last half of 1994,
improved during the first six months of 1995 as a result of a steadying U.S.
economy, declining interest rates, and heightened investor activity. Net
earnings were $227 million in the first quarter of 1995 and $283 million in the
second quarter, or $510 million for the 1995 first-half. Six-month 1995 net
earnings, however, were down 18% from the $624 million reported in the
comparable 1994 period, which included record first quarter net earnings of
$372 million. Total revenues for the first six months of 1995 were $10,789
million, up 17% over the 1994 first-half. Net revenues in the first six months
of 1995 were $4,970 million, down 5% from the comparable 1994 period due
primarily to lower investment banking and commission revenues. Non-interest
expenses were $4,127 million, virtually unchanged from the comparable 1994
period.
Commission revenues were $1,450 million for the first half of 1995, down 7%
from the 1994 first-half, primarily as a result of lower mutual fund revenues.
Mutual fund commissions were affected by lower volumes after the 1994 first
quarter as most stock and bond mutual funds declined in value. Sales of mutual
funds, however, increased during the 1995 second quarter as investors were more
active due to strong performances in both stock and bond markets.
Interest and dividend revenues were $6,325 million for the first half of
1995, up 40% from the comparable 1994 period. Interest expense, which includes
dividend expense, increased 46% from the first half of 1994 to $5,819 million.
Net interest profit declined 4% to $506 million primarily due to the continued
flattening of the yield curve (the relationship between interest rates and
maturities) since early 1994.
Principal transactions revenues increased 5% from the first half of 1994 to
$1,289 million. Taxable fixed-income trading revenues increased due, in part,
to higher revenues from corporate bonds and preferred stock, high-yield bonds,
and non-U.S. government and agencies securities. Trading results in mortgage-
backed products were negatively affected by reduced market liquidity after the
1994 first quarter and fluctuations in interest rates, leading to a moderate
loss. Net trading results from mortgage-backed products were positive, however,
when combined with related net interest income. Trading revenues in U.S.
Government and agencies securities were down from record 1994 levels due to the
negative effect of changing interest rates on net trading positions. Revenues
from interest rate and currency swaps increased due to slightly higher volumes
in non-U.S. dollar and U.S. dollar denominated transactions. Municipal
securities revenues were down from record 1994 levels as declining interest
rates and discussions on tax law changes decreased investor demand. Equities
and equity derivatives trading revenues were virtually unchanged, while foreign
exchange and commodities trading revenues decreased due primarily to lower
commodity trading volume.
9
Investment banking revenues were $584 million, down 24% from the first half
of 1994, as domestic and global industrywide underwriting volume declined 24%
and 22%, respectively, compared to volumes in the 1994 first-half. Although
down for the 1995 six-month period, second quarter 1995 industrywide domestic
underwriting volume increased 30% from the 1995 first quarter and 16% from the
1994 second quarter as a result of declining interest rates and stronger stock
and bond markets. Lower underwriting revenues were reported in equities and
high-yield securities, partially offset by higher revenues from corporate debt
and preferred stock issuances, particularly in the 1995 second quarter.
Strategic services revenues, which include merger and acquisition fees and
advisory fees, benefited from increased merger and acquisition advisory
assignments in various industries.
Asset management and portfolio service fees rose 4% from the 1994 first-half
to $913 million, principally as a result of increased fees earned from mutual
fund investor services and asset management activities. Other revenues
decreased 17% from the 1994 first-half to $228 million, due primarily to
realized investment gains in the 1994 period, compared with break-even results
on sales of investments in the 1995 six-month period.
Non-interest expenses were $4,127 million, virtually unchanged from the 1994
first-half. Compensation and benefits expense, which represented approximately
62% of non-interest expenses, decreased 3% from the 1994 first-half due
primarily to lower levels of variable incentive and production-related
compensation. Compensation and benefits expense as a percentage of net revenues
was 51.9% in the first half of 1995, compared with 50.6% in the year-ago
period.
Occupancy costs were virtually unchanged from the 1994 first-half. Other
facilities-related costs, which include communications and equipment rental
expense and depreciation and amortization expense, rose 10% primarily due to
increased usage of market information services, as well as higher depreciation
expense from the purchase of technology-related assets over the past year.
Advertising and market development expenses decreased 8% from the 1994 first-
half primarily due to lower travel and recognition program costs. Professional
fees increased 13% from the year ago period as higher legal fees were partially
offset by lower systems consulting fees. Brokerage, clearing, and exchange fees
increased 2% from the 1994 first-half as a result of higher volumes,
particularly in international markets. Other expenses increased 1% from the
1994 first-half and included a $26 million charge for the write-off of assets
related to a technology contract in the 1995 first quarter.
Income tax expense totaled $333 million for the first half of 1995. The
effective tax rate for the first six months of 1995 was 39.5%, compared with
42.5% in the year-ago period. The decrease in the effective tax rate was
attributable to lower state income taxes, higher tax-exempt interest, increased
deductions for dividends received, and expanded international business
activities.
On July 21, 1995, the Company and Smith New Court PLC ("Smith New Court"), a
U.K.-based global securities firm, announced the terms of a cash offer under
which the Company expects to acquire Smith New Court. In the proposed
transaction, a wholly-owned subsidiary of the Company has offered to acquire
all outstanding capital shares of Smith New Court for cash, with the aggregate
offer valued at approximately $842 million. The transaction is conditioned on,
among other things, the receipt of all required regulatory approvals and is
expected to be completed late in the third quarter or early in the fourth
quarter of 1995. The Company filed a Current Report on Form 8-K dated July 21,
1995 relating to the Smith New Court offer. See "Incorporation of Certain
Documents by Reference" in this Prospectus.
CERTAIN BALANCE SHEET INFORMATION AS OF JUNE 30, 1995
The Company believes that its equity base is adequate relative to the level
and composition of its assets and the mix of its business.
In the normal course of business, the Company underwrites, trades, and holds
non-investment grade securities in connection with its investment banking,
market-making, and derivative structuring activities. These activities are
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, underwriting, and trading in
investment grade instruments.
10
At June 30, 1995, the fair value of long and short non-investment grade
trading inventories amounted to $4,036 million and $455 million, respectively,
and in the aggregate (i.e. the sum of long and short trading inventories),
represented 4.8% of aggregate consolidated trading inventories.
At June 30, 1995, the carrying value of extensions of credit provided to
corporations entering into leveraged transactions aggregated $246 million
(excluding unutilized revolving lines of credit and other lending commitments
of $96 million), consisting primarily of senior term and subordinated
financings to 37 medium-sized corporations. At June 30, 1995, the Company had
no bridge loans outstanding. Loans to highly leveraged corporations are carried
at unpaid principal balances less a reserve for estimated losses. The allowance
for loan losses is estimated based on a review of each loan, and consideration
of economic, market, and credit conditions. Direct equity investments made in
conjunction with the Company's investment and merchant banking activities
aggregated $238 million at June 30, 1995, representing investments in 72
enterprises. 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. At June 30, 1995, the Company held
interests in partnerships, totaling $102 million (recorded on the cost basis),
that invest in highly leveraged transactions and non-investment grade
securities. At June 30, 1995, the Company also committed to invest an
additional $87 million in partnerships that invest in leveraged transactions.
The Company's insurance subsidiaries hold non-investment grade securities. As
a percentage of total insurance investments, non-investment grade securities
were 4.8% at June 30, 1995. Non-investment grade securities of insurance
subsidiaries are classified as available-for-sale and are carried at fair
value.
At June 30, 1995, the largest non-investment grade concentration consisted of
government and corporate obligations of a Latin American sovereign totaling
$267 million, of which $47 million represented on-balance-sheet hedges for off-
balance-sheet financial instruments. No one industry sector accounted for more
than 19% of total non-investment grade positions. At June 30, 1995, the Company
held an aggregate carrying value of $344 million in debt and equity securities
of issuers in various stages of bankruptcy proceedings or in default, of which
88% of this amount resulted from the Company's market-making activities in such
securities.
11
DESCRIPTION OF COMMON STOCK
The authorized capital stock of the Company consists of 500,000,000 shares of
Common Stock, par value $1.33 1/3 per share, and 25,000,000 shares of Preferred
Stock, par value $1.00 per share, issuable in series ("Preferred Stock"). The
holders of shares of Common Stock are entitled to one vote for each share held
and each share of Common Stock is entitled to participate equally in dividends
out of funds legally available therefor, as and when declared by the Board of
Directors, and in the distribution of assets in the event of liquidation. The
shares of Common Stock have no preemptive or conversion rights, redemption
provisions or sinking fund provisions. The outstanding shares of Common Stock
are, and the shares offered hereby will be, duly and validly issued, fully paid
and nonassessable. The Company's Stockholder Rights Plan provides for the
distribution of preferred purchase rights ("Rights") to holders of Common Stock
upon an announcement of an acquisition of a specified percentage of the
acquisition of a specified percentage of the outstanding shares of Common
Stock. The Rights entitle the holder to purchase fractions of a share of Series
A Junior Preferred Stock, par value $1.00.
The Board of Directors of the Company has the authority, without approval of
the stockholders, to issue shares of Preferred Stock from time to time in one
or more series and to fix the number of shares and the rights, preferences,
privileges, qualifications, restrictions and limitations of each series. The
Preferred Stock ranks prior to the Common Stock and any other stock of the
Company that is expressly made junior to the Preferred Stock as to the payment
of dividends and distribution of assets upon dissolution, liquidation or winding
up of the Company. As of June 30, 1995, there were 3,000 shares of Preferred
Stock issued as Remarketed Preferred(Service Mark) ("RP(Registered Trademark)")
Stock, Series C (the "Remarketed Preferred Stock") of which 1,938 shares were
outstanding, and 42,500 shares of Preferred Stock issued as 9% Cumulative
Preferred Stock, Series A represented by 17,000,000 Depositary Shares. As of
June 30, 1995, MLPF&S held approximately 98,000 Depositary Shares in connection
with its market-making transactions in the Depositary Shares. The 9% Preferred
Stock and Remarketed Preferred Stock have dividend and liquidation preference
over the Common Stock and over the Series A Junior Preferred Stock issuable
pursuant to the Rights Agreement.
LEGAL OPINION
The validity of shares of Common Stock offered hereby will be passed upon by
Brown & Wood, New York, N.Y.
12
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included or incorporated by
reference in the Company's 1994 Annual Report on Form 10-K and incorporated by
reference in this Prospectus, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports incorporated by reference
herein. The information under the caption "Summary Financial Information" for
each of the five years in the period ended December 30, 1994 included in this
Prospectus and the Selected Financial Data under the captions "Operating
Results", "Financial Position" and "Common Share Data" for each of the five
years in the period ended December 30, 1994 included in the 1994 Annual Report
to Stockholders of the Company and incorporated by reference herein, has been
derived from consolidated financial statements audited by Deloitte & Touche
LLP, as set forth in their reports incorporated by reference herein. Such
consolidated financial statements and related financial statement schedules,
such Summary Financial Information and such Selected Financial Data appearing
or incorporated by reference in this Prospectus and the Registration Statement
of which this Prospectus is a part, have been included or incorporated herein
by reference in reliance upon such reports of Deloitte & Touche LLP given upon
their authority as experts in accounting and auditing.
With respect to unaudited interim financial information for the periods
included in any of the Quarterly Reports on Form 10-Q which may be incorporated
herein by reference, Deloitte & Touche LLP have applied limited procedures in
accordance with professional standards for a review of such information.
However, as stated in their report included in any such Quarterly Report on
Form 10-Q and incorporated by reference herein, they did not audit and they do
not express an opinion on such interim financial information. Accordingly, the
degree of reliance on their reports on such information should be restricted in
light of the limited nature of the review procedures applied. Deloitte & Touche
LLP are not subject to the liability provisions of Section 11 of the Act for
any such report on unaudited interim financial information because any such
report is not a "report" or a "part" of the registration statement prepared or
certified by an accountant within the meaning of Sections 7 and 11 of the Act.
13
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR BY THE AGENT. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
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TABLE OF CONTENTS
PAGE
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PROSPECTUS
Available Information...................................................... 2
Incorporation of Certain Documents by
Reference................................................................. 2
Merrill Lynch & Co., Inc. ................................................. 3
Use of Proceeds............................................................ 3
Price Range of Common Stock and
Dividends................................................................. 4
Summary Financial Information.............................................. 5
Description of Common Stock................................................ 12
Legal Opinion.............................................................. 12
Experts.................................................................... 13
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[LOGO]
MERRILL LYNCH & CO., INC.
27,587 SHARES
COMMON STOCK
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PROSPECTUS
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MERRILL LYNCH & CO.
AUGUST 2, 1995
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