================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
-----------------------------------------------
For the quarterly period ended June 26, 1998
Merrill Lynch Preferred Capital Trust IV
(Exact name of Registrant as specified in its certificate of trust)
Commission File No.: 1-7182-08
Delaware 13-7139562
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
World Financial Center
North Tower
New York, New York 10281
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (212) 449-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
7.12% Trust Originated Preferred New York Stock Exchange
Securities ("TOPrS") (and the
related guarantee)
Securities registered pursuant to Section 12(g) of the Act: None
Merrill Lynch Preferred Funding IV, L.P.
(Exact name of Registrant as specified in
its certificate of limited partnership)
Commission File No.: 1-7182-07
Delaware 13-3982446
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
World Financial Center
North Tower
New York, New York 10281
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (212) 449-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
7.12% Partnership Preferred New York Stock Exchange
Securities (and the related
guarantee)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrants (1) have 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
Registrants were required to file such reports), and (2) have been subject to
such requirements for the past 90 days. Yes |X| No |_|
As of June 26, 1998, no voting stock was held by non-affiliates of the
Registrants.
================================================================================
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MERRILL LYNCH PREFERRED CAPITAL TRUST IV
BALANCE SHEET (UNAUDITED)
- --------------------------------------------------------------------------------
JUNE 26, 1998
-------------
ASSET
Investment in partnership preferred securities $ 412,372,000
=============
STOCKHOLDERS' EQUITY
Preferred securities (7.12% Trust Originated Preferred Securities;
16,000,000 authorized, issued, and outstanding;
$25 liquidation amount per security) $ 400,000,000
Common securities (7.12% Trust Common Securities;
494,880 authorized, issued, and outstanding;
$25 liquidation amount per security) 12,372,000
-------------
Total stockholders' equity $ 412,372,000
=============
See Notes to Financial Statements
2
MERRILL LYNCH PREFERRED CAPITAL TRUST IV
STATEMENT OF EARNINGS (UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE PERIOD
JUNE 19, 1998
TO JUNE 26, 1998
----------------
EARNINGS:
Income on partnership preferred securities $ --
=========
See Notes to Financial Statements
3
MERRILL LYNCH PREFERRED CAPITAL TRUST IV
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE PERIOD
JUNE 19, 1998
TO JUNE 26, 1998
----------------
PREFERRED SECURITIES
Balance, beginning of period $ --
Issuance of preferred securities 400,000,000
-------------
Balance, end of period 400,000,000
-------------
COMMON SECURITIES
Balance, beginning of period --
Issuance of common securities 12,372,000
-------------
Balance, end of period 12,372,000
-------------
Total Stockholders' Equity $ 412,372,000
=============
See Notes to Financial Statements
4
MERRILL LYNCH PREFERRED CAPITAL TRUST IV
STATEMENT OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE PERIOD
JUNE 19, 1998
TO JUNE 26, 1998
----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of partnership preferred securities (412,372,000)
----------------
Cash used for investing activities (412,372,000)
----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred securities 400,000,000
Proceeds from issuance of common securities 12,372,000
----------------
Cash provided by financing activities 412,372,000
----------------
NET CHANGE IN CASH --
CASH, BEGINNING OF PERIOD --
----------------
CASH, END OF PERIOD $ --
================
See Notes to Financial Statements
5
MERRILL LYNCH PREFERRED CAPITAL TRUST IV
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 26, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND PURPOSE
Merrill Lynch Preferred Capital Trust IV (the "Trust") is a statutory business
trust formed on December 19, 1997 under the laws of the State of Delaware for
the exclusive purposes of (i) issuing the Trust Originated Preferred Securities
(the "Trust Preferred Securities") and the Trust Common Securities (together
with the Trust Preferred Securities, the "Trust Securities") representing
undivided beneficial ownership interests in the assets of the Trust, (ii)
purchasing Partnership Preferred Securities (the "Partnership Preferred
Securities") representing the limited partnership interests of Merrill Lynch
Preferred Funding IV, L.P. (the "Partnership") with the proceeds from the sale
of the Trust Securities, and (iii) engaging in only those other activities
necessary or incidental thereto. The Trust has a perpetual existence, subject to
certain termination events as provided in the Declaration of Trust under which
it was formed.
Merrill Lynch & Co., Inc. (the "Company") has paid compensation to the
underwriters of the offering of the Trust Preferred Securities. The Company also
has agreed to pay all fees and expenses related to the organization and
operations of the Trust (including any taxes, duties, assessments or
governmental charges of whatever nature (other than withholding taxes) imposed
by the United States or any other domestic taxing authority upon the Trust) and
be responsible for all debts and other obligations of the Trust (other than with
respect to the Trust Securities). The Company has agreed to indemnify the
trustees and certain other persons.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements are presented in accordance with generally accepted
accounting principles, which require management to make estimates that affect
reported amounts and disclosure of contingencies in the financial statements.
Actual results could differ from those estimates.
INVESTMENT
The investment in Partnership Preferred Securities represents a limited
partnership interest in the Partnership and is recorded at cost. As of June 26,
1998, the carrying value of the investment approximates its fair value. Income
on the Partnership Preferred Securities is accrued when earned (see note 5).
INCOME TAXES
The Trust does not incur any income tax liabilities. Such liabilities are
incurred directly by the security holders.
6
MERRILL LYNCH PREFERRED CAPITAL TRUST IV
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 26, 1998
- --------------------------------------------------------------------------------
3. INVESTMENT IN PARTNERSHIP PREFERRED SECURITIES
The Trust holds 16,494,880 7.12% Partnership Preferred Securities, $25
liquidation preference per security. The interest payment dates and redemption
provisions of the Partnership Preferred Securities, which are redeemable on or
after June 30, 2008 at the option of the Partnership, correspond to the
distribution payment dates and redemption provisions of the Trust Preferred
Securities. Upon any redemption of the Partnership Preferred Securities, the
Trust Preferred Securities will be redeemed. The Company has guaranteed, on a
subordinated basis, the payment of distributions by the Partnership on the
Partnership Preferred Securities if, as, and when declared out of funds legally
available and payments upon liquidation of the Partnership or the redemption of
the Partnership Preferred Securities to the extent of funds legally available.
4. STOCKHOLDERS' EQUITY
TRUST PREFERRED SECURITIES
The Trust issued 16,000,000 7.12% Trust Preferred Securities, $25 liquidation
amount per security, in a public offering on June 19, 1998. The Trust Preferred
Securities are redeemable on or after June 30, 2008 at the option of the Trust,
in whole or in part, at a redemption price equal to $25 per security.
Distributions on the Trust Preferred Securities are cumulative from the date of
original issue and are payable quarterly if, as, and when the Trust has funds
available for payment. Holders of the Trust Preferred Securities have limited
voting rights and are not entitled to vote to appoint, remove or replace, or to
increase or decrease the number of, trustees, which voting rights are vested
exclusively in the holder of the Trust Common Securities. Under certain
circumstances, the Trust Preferred Securities have preferential rights to
payment relative to the Trust Common Securities. The Company has guaranteed, on
a subordinated basis, the payment in full of all distributions and other
payments on the Trust Preferred Securities to the extent that the Trust has
funds legally available. This guarantee and the partnership distribution
guarantee are subordinated to all other liabilities of the Company and rank pari
passu with the most senior preferred stock of the Company.
TRUST COMMON SECURITIES
The Trust issued 494,880 7.12% Trust Common Securities, $25 liquidation amount
per security, to the Company on June 19, 1998. The Trust Common Securities are
redeemable on or after June 30, 2008 at the option of the Trust, in whole or in
part, at a redemption price equal to $25 per security.
5. DISTRIBUTIONS
The first income distribution to the holders of Trust Securities and Partnership
Preferred Securities is not scheduled until September 30, 1998. As a result, the
Trust did not accrue income on its investment in Partnership Preferred
Securities, nor did it accrue distributions on the Trust Securities at June 26,
1998.
7
MERRILL LYNCH PREFERRED FUNDING IV, L.P.
BALANCE SHEET (UNAUDITED)
- --------------------------------------------------------------------------------
JUNE 26, 1998
-------------
ASSETS
Investments:
Affiliate debentures $ 480,292,000
U.S. Treasury bills 4,852,000
-------------
Total investments 485,144,000
Interest receivable 1,044,902
-------------
Total assets $ 486,188,902
=============
PARTNERS' CAPITAL
Limited partnership interest $ 413,269,138
General partnership interest 72,919,764
-------------
Total partners' capital $ 486,188,902
=============
See Notes to Financial Statements
8
MERRILL LYNCH PREFERRED FUNDING IV, L.P.
STATEMENT OF EARNINGS (UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE PERIOD
JUNE 19, 1998
TO JUNE 26, 1998
----------------
EARNINGS
Interest income on affiliate debentures $ 1,044,902
===========
See Notes to Financial Statements
9
MERRILL LYNCH PREFERRED FUNDING IV, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE PERIOD
JUNE 19, 1998
TO JUNE 26, 1998
----------------
LIMITED PARTNER'S CAPITAL
Issuance of preferred securities $ 412,372,000
Net income allocated to limited partner 897,138
-------------
Balance, end of period 413,269,138
-------------
GENERAL PARTNER'S CAPITAL
Capital contribution 72,772,000
Net income allocated to general partner 147,764
-------------
Balance, end of period 72,919,764
-------------
TOTAL PARTNERS' CAPITAL $ 486,188,902
=============
See Notes to Financial Statements
10
MERRILL LYNCH PREFERRED FUNDING IV, L.P.
STATEMENT OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE PERIOD
JUNE 19, 1998
TO JUNE 26, 1998
----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings $ 1,044,902
Increase in interest receivable (1,044,902)
--------------
Cash provided by operating activities --
--------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of affiliate debentures (480,292,000)
Purchase of investment securities (4,852,000)
--------------
Cash used for investing activities (485,144,000)
--------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of preferred securities 412,372,000
Capital contribution - general partner 72,772,000
--------------
Cash provided by financing activities 485,144,000
--------------
NET CHANGE IN CASH --
CASH, BEGINNING OF PERIOD --
--------------
CASH, END OF PERIOD $ --
==============
See Notes to Financial Statements
11
MERRILL LYNCH PREFERRED FUNDING IV, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 26, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND PURPOSE
Merrill Lynch Preferred Funding IV, L.P. (the "Partnership") is a limited
partnership that was formed under the Delaware Revised Uniform Limited
Partnership Act on December 19, 1997 for the exclusive purposes of purchasing
certain eligible debt instruments of Merrill Lynch & Co., Inc. (the "Company")
and wholly-owned subsidiaries of the Company (the "Affiliate Investment
Instruments") with the proceeds from the sale of Partnership Preferred
Securities (the "Partnership Preferred Securities") to Merrill Lynch Preferred
Capital Trust IV (the "Trust") and a capital contribution from the Company in
exchange for the general partnership interest in the Partnership.
The Company serves as the sole general partner of the Partnership. The Company,
in its capacity as General Partner of the Partnership, has agreed to pay all
fees and expenses related to the organization and operations of the Partnership
(including any taxes, duties, assessments or government charges of whatever
nature (other than withholding taxes) imposed by the United States or any other
domestic taxing authority upon the Partnership) and be responsible for all debts
and other obligations of the Partnership (other than with respect to the
Partnership Preferred Securities). The General Partner has agreed to indemnify
certain officers and agents of the Partnership.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements are presented in accordance with generally accepted
accounting principles, which require management to make estimates that affect
reported amounts and disclosure of contingencies in the financial statements.
Actual results could differ from those estimates.
INVESTMENTS
The Partnership's investment in affiliate debentures is recorded at cost, and
its investment in U.S. Treasury bills are classified as available-for-sale and
recorded at accreted cost. As of June 26, 1998, the carrying values of these
investments approximate their fair values.
INCOME TAXES
The Partnership does not incur any income tax liabilities. Such liabilities are
incurred directly by the partners.
12
MERRILL LYNCH PREFERRED FUNDING IV, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 26, 1998
- --------------------------------------------------------------------------------
3. INVESTMENT IN AFFILIATE DEBENTURES
The Partnership holds debentures of the Company and a wholly-owned subsidiary of
the Company. The debentures have a term of approximately 20 years and bear
interest at 7.12% per annum. The interest payment dates and redemption
provisions of the debentures, which are redeemable at the option of the Company
and its subsidiary on or after June 30, 2008, correspond to the distribution
payment dates and redemption provisions of the Partnership Preferred Securities.
Interest and redemption payments on the subsidiary debenture are guaranteed by
the Company on a subordinated basis.
4. PARTNERS' CAPITAL
The Partnership issued 16,494,880 7.12% Partnership Preferred Securities, $25
liquidation preference per security, to the Trust on June 19, 1998.
Distributions on the Partnership Preferred Securities are cumulative from the
date of original issue and are payable quarterly if, as, and when declared by
the general partner. The Partnership Preferred Securities are redeemable on or
after June 30, 2008 at the option of the Partnership, at a redemption price
equal to $25 per security. Except as provided in the Limited Partnership
Agreement and Partnership Preferred Securities Guarantee Agreement, and as
otherwise provided by law, the holders of the Partnership Preferred Securities
have no voting rights.
The Company has guaranteed the payment of distributions by the Partnership on
the Partnership Preferred Securities if, as, and when declared out of funds
legally available and payments upon liquidation of the Partnership or the
redemption of the Partnership Preferred Securities to the extent of funds
legally available. This guarantee is subordinated to all other liabilities of
the Company and ranks pari passu with the most senior preferred stock of the
Company.
5. DISTRIBUTION
The first distribution on Partnership Preferred Securities is not scheduled
until September 30, 1998. Accordingly, the Partnership did not accrue a
distribution on the Partnership Preferred Securities.
13
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Merrill Lynch Preferred Capital Trust IV (the "Trust") is a statutory
business trust formed under the Delaware Business Trust Act, as amended,
pursuant to a declaration of trust and the filing of a certificate of trust with
the Secretary of State on December 19, 1997, which was subsequently amended by
an amended and restated declaration of trust dated as of June 16, 1998. The
Trust exists for the exclusive purposes of (i) issuing trust securities,
consisting of 7.12% Trust Originated Preferred Securities (the "TOPrS") and
trust common securities (the "Trust Common Securities"), representing undivided
beneficial ownership interests in the assets of the Trust, (ii) investing the
gross proceeds of the trust securities in 7.12% Partnership Preferred Securities
(the "Partnership Preferred Securities") issued by Merrill Lynch Preferred
Funding IV, L.P. (the "Partnership"), and (iii) engaging in only those other
activities necessary or incidental thereto.
The Partnership is a limited partnership formed under the Delaware Revised
Uniform Limited Partnership Act, as amended, pursuant to an agreement of limited
partnership and the filing of a certificate of limited partnership with the
Secretary of State on December 19, 1997, which was subsequently amended by an
amended and restated agreement of limited partnership dated June 19, 1998.
Merrill Lynch & Co., Inc. (the "Company") is the sole general partner of the
Partnership. The Partnership is managed by the general partner and exists for
the exclusive purposes of (i) issuing its partnership interests, consisting of
the Company's general partner interest and the Partnership Preferred Securities,
(ii) investing the proceeds thereof in certain eligible securities of the
Company and wholly owned subsidiaries of the Company (the "Affiliate Investment
Instruments") and certain eligible debt securities, and (iii) engaging in only
those other activities necessary or incidental thereto.
The Registrants' activities are limited to issuing securities and
investing the proceeds as described above. Since the Trust was organized on
December 19, 1997, its activities, as specified in its declaration of trust,
have been limited to the issuance of the TOPrS and the Trust Common Securities,
the investing of the proceeds in the Partnership Preferred Securities, and the
payment of distributions on the TOPrS and the Trust Common Securities in
accordance with their terms. Since the Partnership was organized on December 19,
1997, its activities, as specified in its agreement of limited partnership, have
been limited to the issuance of the Partnership Preferred Securities, the
receipt of a capital contribution from the Company, as general partner, the
investment of the proceeds in Affiliate Investment Instruments and certain
eligible debt securities, and the payment of distributions on the Partnership
Preferred Securities.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
On June 19, 1998, the Trust invested the gross proceeds from the sale of
the Trust Common Securities and the TOPrS in the Partnership Preferred
Securities (the "Trust Assets"). The Partnership, in turn, invested the proceeds
from the sale of the Partnership Preferred Securities and a capital contribution
from the Company in certain Affiliate Investment Instruments and eligible
securities (the "Partnership Assets"). To the extent the Partnership has funds
available from the Partnership Assets, the general partner of the Partnership
may declare distributions to the Trust, as holder of the Partnership Preferred
Securities. The Trust's ability to pay distributions to the holders of the TOPrS
is dependent on its receipt of distributions on the Trust Assets from the
Partnership. Therefore, upon the receipt by the Partnership of payments from the
Partnership Assets and the distribution thereof to the Trust, the Trust will
pass through such payments to the holders of the TOPrS.
14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Registrants know of no material legal proceedings involving the Trust,
the Partnership, or the assets of either of them.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Certificate of Trust, dated December 19, 1997, of the Trust
4.2 Form of Amended and Restated Declaration of Trust, dated as of
June 16, 1998, of the Trust (incorporated by reference to
Exhibit 4.2 to Registration Statement on Form S-3 (File No.
333-42859) (the "Registration Statement"))
4.3 Certificate of Limited Partnership, dated as of December 19,
1997, of the Partnership
4.4 Form of Amended and Restated Agreement of Limited Partnership
of the Partnership, dated June 19, 1998 (incorporated by
reference to Exhibit 4.4 to the Registration Statement)
4.5 Form of Trust Preferred Securities Guarantee Agreement between
the Company and The Chase Manhattan Bank, as guarantee trustee
(incorporated by reference to Exhibit 4.5 to the Registration
Statement)
4.6 Form of Partnership Preferred Securities Guarantee Agreement
between the Company and The Chase Manhattan Bank, as guarantee
trustee (incorporated by reference to Exhibit 4.6 to the
Registration Statement)
15
4.7 Form of Subordinated Debenture Indenture between the Company
and The Chase Manhattan Bank, as trustee (incorporated by
reference to Exhibit 4.7 to the Registration Statement)
4.8 Form of Affiliate Debenture Guarantee Agreement between the
Company and The Chase Manhattan Bank, as guarantee trustee
(incorporated by reference to Exhibit 4.8 to the Registration
Statement)
4.9 Form of Trust Preferred Security (included in Exhibit 4.2
above)
4.10 Form of Partnership Preferred Security (included in Exhibit
4.4 above)
4.11 Form of Subordinated Debenture (incorporated by reference to
Exhibit 4.11 to the Registration Statement)
12 Computation of Ratios of Earnings to Combined Fixed Charges
and Preferred Securities Distributions
27 Financial Data Schedules*
- ----------
*The Financial Data Schedules to be contained in Exhibit 27 are required
to be submitted only in the Registrants' electronic filing of this Form
10-Q by means of the EDGAR system.
(b) Reports on Form 8-K
None.
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrants have duly caused this report to be signed on their
behalf by the undersigned, thereunto duly authorized on the 7th day of August,
1998.
MERRILL LYNCH PREFERRED CAPITAL TRUST IV*
By: /s/ THERESA LANG
-----------------------------------
Name: Theresa Lang
Title: Regular Trustee
By: /s/ STANLEY SCHAEFER
-----------------------------------
Name: Stanley Schaefer
Title: Regular Trustee
MERRILL LYNCH PREFERRED FUNDING IV, L.P.*
By: MERRILL LYNCH & CO., INC., as General
Partner
By: /s/ THERESA LANG
-----------------------------------
Name: Theresa Lang
Title: Senior Vice President and Treasurer
- ----------
* There is no principal executive officer(s), principal financial officer,
controller, principal accounting officer or board of directors of the
Registrant. The Trustees of the Registrant (which include the Regular
Trustees, the Property Trustee and the Delaware Trustee) together exercise
all powers and perform all functions with respect to the Registrant.
17
INDEX TO EXHIBITS
Exhibits
4.1 Certificate of Trust, dated December 19, 1997, of the Trust.
4.3 Certificate of Limited Partnership, dated as of December 19, 1997, of the
Partnership.
12 Computation of Ratios of Earnings to Combined Fixed Charges and Preferred
Securities Distributions
27 Financial Data Schedules