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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 March 27, 1998
Merrill Lynch Preferred Capital Trust II
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its certificate of trust)
Commission File No.: 1-7182-04
Delaware 13-7108354
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
8% 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 II, L.P.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its certificate
of limited partnership)
Commission File No.: 1-7182-03
Delaware 13-3926165
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
8% Partnership Preferred Securities New York Stock Exchange
(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 March 27, 1998, no voting stock was held by non-affiliates of the
Registrants.
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<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------
MERRILL LYNCH PREFERRED CAPITAL TRUST II
BALANCE SHEETS (UNAUDITED)
- --------------------------------------------------------------------------------
MARCH 27, 1998 DECEMBER 26, 1997
-------------- -----------------
ASSETS
Investment in partnership
preferred securities $309,278,400 $309,278,400
Income receivable 6,185,568 6,185,568
------------ ------------
Total Assets $315,463,968 $315,463,968
============ ============
LIABILITY AND STOCKHOLDERS' EQUITY
Distributions payable $ 6,185,568 $ 6,185,568
------------ ------------
Stockholders' equity:
Preferred securities (8% Trust
Originated Preferred Securities;
12,000,000 authorized, issued,
and outstanding; $25 liquidation
amount per security) 300,000,000 300,000,000
Common securities (8% Trust Common
Securities; 371,136 authorized,
issued, and outstanding;
$25 liquidation amount per security) 9,278,400 9,278,400
------------ ------------
Total stockholders' equity 309,278,400 309,278,400
------------ ------------
Total Liability and Stockholders' Equity $315,463,968 $315,463,968
============ ============
See Notes to Financial Statements
2
<PAGE>
MERRILL LYNCH PREFERRED CAPITAL TRUST II
STATEMENTS OF EARNINGS (UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE THREE FOR THE PERIOD
MONTHS ENDED FEBRUARY 6, 1997
MARCH 27, 1998 TO MARCH 28, 1997
---------------- -----------------
EARNINGS:
Income on partnership preferred
securities $ 6,185,568 $ 3,711,341
=========== ===========
See Notes to Financial Statements
3
<PAGE>
MERRILL LYNCH PREFERRED CAPITAL TRUST II
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE THREE FOR THE PERIOD
MONTHS ENDED FEBRUARY 6, 1997
MARCH 27, 1998 TO MARCH 28, 1997
-------------- -----------------
PREFERRED SECURITIES
Balance, beginning of period $ 300,000,000 $ --
Issuance of preferred securities -- 300,000,000
------------- -------------
Balance, end of period 300,000,000 300,000,000
------------- -------------
COMMON SECURITIES
Balance, beginning of period 9,278,400 --
Issuance of preferred securities -- 9,278,400
------------- -------------
Balance, end of period 9,278,400 9,278,400
------------- -------------
UNDISTRIBUTED EARNINGS
Balance, beginning of period -- --
Earnings 6,185,568 3,711,341
Distributions payable (6,185,568) (3,711,341)
------------- -------------
Balance, end of period -- --
------------- -------------
Total Stockholders' Equity $ 309,278,400 $ 309,278,400
============= =============
See Notes to Financial Statements
4
<PAGE>
MERRILL LYNCH PREFERRED CAPITAL TRUST II
STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE THREE FOR THE PERIOD
MONTHS ENDED FEBRUARY 6, 1997
MARCH 27, 1998 TO MARCH 28, 1997
-------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings $ 6,185,568 $ 3,711,341
Increase in income receivable -- (3,711,341)
------------- -------------
Cash provided by operating activities 6,185,568 --
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of partnership preferred
securities -- (309,278,400)
------------- -------------
Cash used for investing activities -- (309,278,400)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of
preferred securities -- 300,000,000
Proceeds from issuance of common
securities -- 9,278,400
Distributions (6,185,568) --
------------- -------------
Cash (used for) provided by
financing activities (6,185,568) 309,278,400
------------- -------------
NET CHANGE IN CASH -- --
CASH, BEGINNING OF PERIOD -- --
------------- -------------
CASH, END OF PERIOD $ -- $ --
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:
Preferred and common distributions of $6,000,000 and $185,568, respectively,
were accrued at March 27, 1998. Preferred and common distributions of $3,600,000
and $111,341, respectively, were accrued at March 28, 1997.
See Notes to Financial Statements
5
<PAGE>
MERRILL LYNCH PREFERRED CAPITAL TRUST II
NOTES TO FINANCIAL STATEMENTS
MARCH 27, 1998 (UNAUDITED)
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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 II (the "Trust") for the year ended
December 26, 1997. The December 26, 1997 balance sheet was derived from the
audited financial statements. The interim financial statements for the three-
month periods are unaudited; however, in the opinion of the management 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
<PAGE>
MERRILL LYNCH PREFERRED FUNDING II, L.P.
BALANCE SHEETS (UNAUDITED)
- --------------------------------------------------------------------------------
MARCH 27, 1998 DECEMBER 26, 1997
--------------- -----------------
ASSETS
Cash $ 8,333 $ --
Investments:
Affiliate debentures 360,218,400 360,218,400
U.S. Treasury bills 3,855,890 3,815,078
------------ ------------
Total investments 364,074,290 364,033,478
Interest receivable 7,204,368 7,204,368
------------ ------------
Total Assets $371,286,991 $371,237,846
============ ============
LIABILITY AND PARTNERS' CAPITAL
Distributions payable $ 7,212,701 $ 7,204,368
------------ ------------
Partners' capital:
Limited partnership interest 309,278,400 309,278,400
General partnership interest 54,795,890 54,755,078
------------ ------------
Total partners' capital 364,074,290 364,033,478
------------ ------------
Total Liability and Partners' Capital $371,286,991 $371,237,846
============ ============
See Notes to Financial Statements
7
<PAGE>
MERRILL LYNCH PREFERRED FUNDING II, L.P.
STATEMENTS OF EARNINGS (UNAUDITED)
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FOR THE THREE FOR THE PERIOD
MONTHS ENDED FEBRUARY 6, 1997
MARCH 27, 1998 TO MARCH 28, 1997
-------------- -----------------
Interest income:
Affiliate debentures $ 7,204,368 $ 4,322,621
U.S. Treasury bills 49,145 24,917
----------- -----------
Earnings $ 7,253,513 $ 4,347,538
=========== ===========
See Notes to Financial Statements
8
<PAGE>
MERRILL LYNCH PREFERRED FUNDING II, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE THREE FOR THE PERIOD
MONTHS ENDED FEBRUARY 6, 1997
MARCH 27, 1998 TO MARCH 28, 1997
-------------- -----------------
LIMITED PARTNER'S CAPITAL
Balance, beginning of period $ 309,278,400 $ --
Issuance of preferred securities -- 309,278,400
Net income allocated to limited partner 6,185,568 3,711,341
Preferred distribution payable (6,185,568) (3,711,341)
------------- -------------
Balance, end of period 309,278,400 309,278,400
------------- -------------
GENERAL PARTNER'S CAPITAL
Balance, beginning of period 54,755,078 --
Capital contribution -- 54,579,000
Net income allocated to general partner 1,067,945 636,197
Distribution payable (1,027,133) (611,280)
------------- -------------
Balance, end of period 54,795,890 54,603,917
------------- -------------
TOTAL PARTNERS' CAPITAL $ 364,074,290 $ 363,882,317
============= =============
See Notes to Financial Statements
9
<PAGE>
MERRILL LYNCH PREFERRED FUNDING II, L.P.
STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE THREE FOR THE PERIOD
MONTHS ENDED FEBRUARY 6, 1997
MARCH 27, 1998 TO MARCH 28, 1997
-------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings $ 7,253,513 $ 4,347,538
Accretion of U.S. Treasury bills (49,145) (24,917)
Increase in interest receivable -- (4,322,621)
------------- -------------
Cash provided by operating activities 7,204,368 --
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of affiliate debentures -- (360,218,400)
Purchases of investment securities (3,829,287) (3,639,000)
Maturities of investment securtities 3,837,620 --
------------- -------------
Cash provided by (used for)
investing activities 8,333 (363,857,400)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance
of preferred securities -- 309,278,400
Capital contribution - general partner -- 54,579,000
Distributions to limited partner (6,185,568) --
Distributions to general partner (1,018,800) --
------------- -------------
Cash (used for) provided by
financing activities (7,204,368) 363,857,400
------------- -------------
NET CHANGE IN CASH 8,333 --
CASH, BEGINNING OF PERIOD -- --
------------- -------------
CASH, END OF PERIOD $ 8,333 $ --
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:
Distributions of $7,212,701 and $4,322,621 were accrued at March 27, 1998 and
March 28, 1997, respectively.
See Notes to Financial Statements
10
<PAGE>
MERRILL LYNCH PREFERRED FUNDING II, L.P.
NOTES TO FINANCIAL STATEMENTS
MARCH 27, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
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 II, L.P. (the "Partnership") for the year ended
December 26, 1997. The December 26, 1997 balance sheet was derived from the
audited financial statements. The interim financial statements for the three-
month periods are unaudited; however, in the opinion of the management 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
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Merrill Lynch Preferred Capital Trust II (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 January 16, 1997, which was subsequently amended by an
amended and restated declaration of trust dated as of February 4, 1997. The
Trust exists for the exclusive purposes of (i) issuing trust securities,
consisting of 8% 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 8% Partnership Preferred Securities
(the "Partnership Preferred Securities") issued by Merrill Lynch Preferred
Funding II, 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 January 16, 1997, which was subsequently amended by an
amended and restated agreement of limited partnership dated February 6, 1997.
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
January 16, 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 January 16,
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 February 6, 1997, 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 ML & Co. 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.
12
<PAGE>
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 January 16, 1997, of the Trust
(incorporated by reference to Exhibit 4.1 to Registration
Statement on Form S-3 (No. 333-20137) (the "Registration
Statement"))
4.2 Amended and Restated Declaration of Trust, dated as of
February 4, 1997, of the Trust (incorporated by reference to
Exhibit 4.2 to the Trust's Quarterly Report on Form 10-Q for
the period ended March 28, 1997 (File No. 1-7182-04))
4.3 Certificate of Limited Partnership, dated as of January 16,
1997, of the Partnership (incorporated by reference to Exhibit
4.3 to the Registration Statement)
4.4 Amended and Restated Agreement of Limited Partnership, dated
as of February 6, 1997, of the Partnership (incorporated by
reference to Exhibit 4.4 to the Partnership's Quarterly Report
on Form 10-Q for the period ended March 28, 1997 (File No.
1-7182-03))
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)
13
<PAGE>
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 Dividends
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.
14
<PAGE>
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 May,
1998.
MERRILL LYNCH PREFERRED CAPITAL TRUST II*
By: /s/ THERESA LANG
--------------------------------------
Name: Theresa Lang
Title: Regular Trustee
By: /s/ STANLEY SCHAEFER
--------------------------------------
Name: Stanley Schaefer
Title: Regular Trustee
MERRILL LYNCH PREFERRED FUNDING II, 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.
15
MERRILL LYNCH PREFERRED CAPITAL TRUST II
MERRILL LYNCH PREFERRED FUNDING II, L.P.
COMPUTATION OF RATIOS OF EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED SECURITIES DISTRIBUTIONS
For the Three Months Ended March 27, 1998
-----------------------------------------------------
Merrill Lynch Preferred Merrill Lynch Preferred
Capital Trust II Funding II, L.P.
------------------------ ------------------------
Earnings $6,185,568 $7,253,513
========== ==========
Fixed charges $ - $ -
Preferred securities distribution
requirements 6,000,000 6,185,568
---------- ----------
Total combined fixed charges and
preferred securities distributions $6,000,000 $6,185,568
========== ==========
Ratio of earnings to combined
fixed charges and preferred
securities distributions 1.03 1.17
For the Period February 6, 1997
to March 28, 1997
-----------------------------------------------------
Merrill Lynch Preferred Merrill Lynch Preferred
Capital Trust II Funding II, L.P.
------------------------ ------------------------
Earnings $3,711,341 $4,347,538
========== ==========
Fixed charges $ - $ -
Preferred securities distribution
requirements 3,600,000 3,711,341
---------- ----------
Total combined fixed charges and
preferred securities distributions $3,600,000 $3,711,341
========== ==========
Ratio of earnings to combined
fixed charges and preferred
securities distributions 1.03 1.17
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001031003
<NAME> MERRILL LYNCH PREFERRED CAPITAL TRUST II
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-25-1998
<PERIOD-START> DEC-27-1997
<PERIOD-END> MAR-27-1998
<CASH> 0
<SECURITIES> 309,278,400
<RECEIVABLES> 6,185,568
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 315,463,968
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 315,463,968
<CURRENT-LIABILITIES> 6,185,568
<BONDS> 0
0
300,000,000
<COMMON> 9,278,400
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 315,463,968
<SALES> 0
<TOTAL-REVENUES> 6,185,568
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,185,568
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,185,568
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,185,568
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001031002
<NAME> MERRILL LYNCH PREFERRED FUNDING II, L.P.
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-25-1998
<PERIOD-START> DEC-27-1997
<PERIOD-END> MAR-27-1998
<CASH> 8,333
<SECURITIES> 364,074,290
<RECEIVABLES> 7,204,368
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 371,286,991
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 371,286,991
<CURRENT-LIABILITIES> 7,212,701
<BONDS> 0
0
309,278,400
<COMMON> 54,795,890
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 371,286,991
<SALES> 0
<TOTAL-REVENUES> 7,253,513
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,253,513
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,253,513
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,253,513
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
