SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 2002
MERRILL LYNCH PREFERRED CAPITAL TRUST III
(Exact name of Registrant as specified in its certificate of trust)
COMMISSION FILE NO.: 1-7182-06
Delaware 13-7139561
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4 World Financial Center
New York, New York 10080
(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% Trust Originated New York Stock Exchange
Preferred Securities ("TOPrS")
(and the related guarantee)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
MERRILL LYNCH PREFERRED FUNDING III, L.P.
(Exact name of Registrant as specified in its
certificate of limited partnership)
COMMISSION FILE NO.: 1-7182-05
Delaware 13-3982448
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4 World Financial Center
New York, New York 10080
(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% 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 November 7, 2002 no voting stock was held by non-affiliates of the
Registrants.
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PART I - FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
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MERRILL LYNCH PREFERRED CAPITAL TRUST III BALANCE SHEETS (unaudited) (dollars in
thousands, except per security amounts)
- -----------------------------------------------------------------------------------------------------------------------
SEPTEMBER 27, 2002 DECEMBER 28, 2001
------------------ -----------------
ASSETS
Investment in partnership preferred securities $ 773,196 $ 773,196
Income receivable 13,531 13,531
---------- ----------
Total Assets $ 786,727 $ 786,727
========== ==========
LIABILITY AND STOCKHOLDERS' EQUITY
Distributions payable $ 13,531 $ 13,531
---------- ----------
Stockholders' equity:
Preferred securities (7% Trust Originated Preferred Securities; 30,000,000
authorized, issued, and outstanding; $25 liquidation
amount per security) 750,000 750,000
Common securities (7% Trust Common Securities;
927,840 authorized, issued, and outstanding;
$25 liquidation amount per security) 23,196 23,196
---------- ----------
Total Stockholders' equity 773,196 773,196
---------- ----------
Total Liability and Stockholders' Equity $ 786,727 $ 786,727
========== ==========
See Note to Financial Statements
2
MERRILL LYNCH PREFERRED CAPITAL TRUST III
STATEMENTS OF EARNINGS (unaudited)
(dollars in thousands)
- ------------------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED
---------------------------------------
SEPTEMBER 27, 2002 SEPTEMBER 28, 2001
------------------ ------------------
EARNINGS
Income on partnership preferred securities $ 13,531 $ 13,531
========= =========
FOR THE NINE MONTHS ENDED
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SEPTEMBER 27, 2002 SEPTEMBER 28, 2001
------------------ ------------------
EARNINGS
Income on partnership preferred securities $ 40,593 $ 40,593
========= =========
See Note to Financial Statements
3
MERRILL LYNCH PREFERRED CAPITAL TRUST III
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited)
(dollars in thousands)
- -------------------------------------------------------------------------------------------------
FOR THE NINE MONTHS ENDED
---------------------------------------
SEPTEMBER 27, 2002 SEPTEMBER 28, 2001
------------------ ------------------
PREFERRED SECURITIES
Balance, beginning and end of period $ 750,000 $ 750,000
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COMMON SECURITIES
Balance, beginning and end of period 23,196 23,196
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UNDISTRIBUTED EARNINGS
Balance, beginning of period - -
Earnings 40,593 40,593
Distributions (27,062) (27,062)
Distributions payable (13,531) (13,531)
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Balance, end of period - -
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Total Stockholders' Equity $ 773,196 $ 773,196
========== ==========
See Note to Financial Statements
4
MERRILL LYNCH PREFERRED CAPITAL TRUST III
STATEMENTS OF CASH FLOWS (unaudited)
(dollars in thousands)
- -------------------------------------------------------------------------------------------------------------------
FOR THE NINE MONTHS ENDED
---------------------------------------
SEPTEMBER 27, 2002 SEPTEMBER 28, 2001
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings $ 40,593 $ 40,593
Increase in income receivable - -
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Cash provided by operating activities 40,593 40,593
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CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions (40,593) (40,593)
--------- ---------
Cash used for financing activities (40,593) (40,593)
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NET CHANGE IN CASH - -
CASH, BEGINNING OF PERIOD - -
--------- ---------
CASH, END OF PERIOD $ - $ -
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:
Preferred and common distributions of $13,125 and $406, respectively, were
accrued at September 27, 2002 and September 28, 2001.
See Note to Financial Statements
5
MERRILL LYNCH PREFERRED CAPITAL TRUST III
NOTE TO FINANCIAL STATEMENTS (unaudited)
SEPTEMBER 27, 2002
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BASIS OF PRESENTATION
These unaudited financial statements should be read in conjunction with the
audited financial statements included in the Annual Report on Form 10-K of
Merrill Lynch Preferred Capital Trust III (the "Trust") for the year ended
December 28, 2001. The December 28, 2001 balance sheet was derived from the
audited financial statements. The interim financial statements for the three-
and nine-month periods are unaudited; however, in the opinion of the Regular
Trustees of the Trust, all adjustments, consisting only of normal recurring
accruals necessary for a fair statement of the results of operations, have been
included.
6
MERRILL LYNCH PREFERRED FUNDING III, L.P.
BALANCE SHEETS (unaudited)
(dollars in thousands)
- ----------------------------------------------------------------------------------------------------------------
SEPTEMBER 27, 2002 DECEMBER 28, 2001
------------------ -----------------
ASSETS
Cash $ - $ -
----------- ----------
Investments:
Affiliate debentures 900,546 900,547
U.S. Treasury bills 9,109 9,359
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Total investments 909,655 909,906
Income receivable 15,760 15,761
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Total Assets $ 925,415 $ 925,667
========== ==========
LIABILITY AND PARTNERS' CAPITAL
Distributions payable $ 15,760 $ 15,761
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Partners' capital:
Limited partnership interest 773,196 773,196
General partnership interest 136,459 136,710
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Total partners' capital 909,655 909,906
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Total Liability and Partners' Capital $ 925,415 $ 925,667
========== ==========
See Note to Financial Statements
7
MERRILL LYNCH PREFERRED FUNDING III, L.P.
STATEMENTS OF EARNINGS (unaudited)
(dollars in thousands)
- -----------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED
---------------------------------------
SEPTEMBER 27, 2002 SEPTEMBER 28, 2001
------------------ ------------------
EARNINGS
Interest income:
Affiliate debentures $ 15,760 $ 15,760
U.S. Treasury bills 41 95
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Earnings $ 15,801 $ 15,855
========== ==========
FOR THE NINE MONTHS ENDED
---------------------------------------
SEPTEMBER 27, 2002 SEPTEMBER 28, 2001
------------------ ------------------
EARNINGS
Interest income:
Affiliate debentures $ 47,279 $ 47,279
U.S. Treasury bills 161 339
---------- ----------
Earnings $ 47,440 $ 47,618
========== ==========
See Note to Financial Statements
8
MERRILL LYNCH PREFERRED FUNDING III, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (unaudited)
(dollars in thousands)
- ------------------------------------------------------------------------------------------------
FOR THE NINE MONTHS ENDED
---------------------------------------
SEPTEMBER 27, 2002 SEPTEMBER 28, 2001
------------------ ------------------
LIMITED PARTNER'S CAPITAL
Balance, beginning of period $ 773,196 $ 773,196
Net income allocated to limited partner 40,593 40,593
Distributions (27,062) (27,062)
Distributions payable (13,531) (13,531)
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Balance, end of period 773,196 773,196
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GENERAL PARTNER'S CAPITAL
Balance, beginning of period 136,710 136,558
Net income allocated to general partner 6,847 7,025
Distributions (4,869) (4,738)
Distributions payable (2,229) (2,229)
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Balance, end of period 136,459 136,616
---------- ----------
TOTAL PARTNERS' CAPITAL $ 909,655 $ 909,812
========== ==========
See Note to Financial Statements
9
MERRILL LYNCH PREFERRED FUNDING III, L.P.
STATEMENTS OF CASH FLOWS (unaudited)
(dollars in thousands)
- -------------------------------------------------------------------------------------------------------------------
FOR THE NINE MONTHS ENDED
---------------------------------------
SEPTEMBER 27, 2002 SEPTEMBER 28, 2001
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings $ 47,440 $ 47,618
Accretion of U.S. Treasury bills (161) (339)
Increase in income receivable - -
--------- ---------
Cash provided by operating activities 47,279 47,279
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities (18,192) (9,096)
Maturities of investment securities 18,604 9,378
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Cash provided by investing activities 412 282
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CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to limited partner (40,593) (40,593)
Distributions to general partner (7,098) (6,969)
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Cash used for financing activities (47,691) (47,562)
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NET CHANGE IN CASH - (1)
CASH, BEGINNING OF PERIOD - 1
--------- ---------
CASH, END OF PERIOD $ - $ -
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:
Distributions of $15,760 were accrued at September 27, 2002 and September 28, 2001.
See Note to Financial Statements
10
MERRILL LYNCH PREFERRED FUNDING III, L.P.
NOTE TO FINANCIAL STATEMENTS (unaudited)
SEPTEMBER 27, 2002
- --------------------------------------------------------------------------------
BASIS OF PRESENTATION
These unaudited financial statements should be read in conjunction with the
audited financial statements included in the Annual Report on Form 10-K of
Merrill Lynch Preferred Funding III, L.P. (the "Partnership") for the year ended
December 28, 2001. The December 28, 2001 balance sheet was derived from the
audited financial statements. The interim financial statements for the three-
and nine-month periods are unaudited; however, in the opinion of the General
Partner of the Partnership, all adjustments, consisting only of normal recurring
accruals necessary for a fair statement of the results of operations, have been
included.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Merrill Lynch Preferred Capital Trust III (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 January 12, 1998. The Trust exists for
the exclusive purposes of (i) issuing trust securities, consisting of 7% 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% Partnership Preferred Securities (the "Partnership
Preferred Securities") issued by Merrill Lynch Preferred Funding III, 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 January 16, 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.
12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
On January 16, 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.
ITEM 4. CONTROLS AND PROCEDURES
Based on his evaluation as of a date within 90 days of the filing of this Form
10-Q, the officer who functions as the equivalent of the Chief Executive Officer
and Chief Financial Officer of the Trust and the Partnership has concluded that
the Trust's and the Partnership's disclosure controls and procedures (as defined
in Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934) are
effective. There have been no significant changes in internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
13
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
12 Computation of Ratios of Earnings to Combined Fixed Charges and
Preferred Securities Distributions
99 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
None
14
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 November,
2002.
MERRILL LYNCH PREFERRED CAPITAL TRUST III*
By: /s/ JOHN C. STOMBER
---------------------------------------------
Name: John C. Stomber
Title: Regular Trustee
MERRILL LYNCH PREFERRED FUNDING III, L.P.*
By: MERRILL LYNCH & CO., INC., as General Partner
By: /s/ JOHN C. STOMBER
---------------------------------------------
Name: John C. Stomber
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
Registrants. The Trustees of the Trust (which include the Regular Trustee, the
Property Trustee and the Delaware Trustee) together exercise all powers and
perform all functions with respect to the Trust.
15
Certification
-------------
I, John C. Stomber, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Merrill Lynch Preferred
Capital Trust III and Merrill Lynch Preferred Funding III, L.P.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers* and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
MERRILL LYNCH PREFERRED CAPITAL TRUST III
By: /s/ JOHN C. STOMBER
--------------------------------------------
Name: John C. Stomber *
Title: Regular Trustee
MERRILL LYNCH PREFERRED FUNDING III, L.P.
By: MERRILL LYNCH & CO., INC., as General Partner
By: /s/ JOHN C. STOMBER
--------------------------------------------
Name: John C. Stomber *
Title: Senior Vice President and Treasurer
Dated: November 7, 2002
_______________
* John C. Stomber functions as the equivalent of the Chief Executive Officer and
Chief Financial Officer of each of the Trust and the Partnership for purposes of
Section 302 of the Sarbanes-Oxley Act of 2002.
16
INDEX TO EXHIBITS
EXHIBITS
12 Computation of Ratios of Earnings to Combined Fixed Charges and
Preferred Securities Distributions
99 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
17