================================================================================
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 September 24, 1999
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)
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% 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)
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% 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 September 24, 1999, no voting stock was held by non-affiliates of the
Registrants.
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<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------
<TABLE>
<CAPTION>
MERRILL LYNCH PREFERRED CAPITAL TRUST III
BALANCE SHEETS (unaudited)
(dollars in thousands, except per security amounts)
- -----------------------------------------------------------------------------------------------------------------------
SEPTEMBER 24, 1999 DECEMBER 25, 1998
------------------ -----------------
<S> <C> <C>
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
========== ==========
</TABLE>
See Note to Financial Statements
2
<PAGE>
<TABLE>
<CAPTION>
MERRILL LYNCH PREFERRED CAPITAL TRUST III
STATEMENTS OF EARNINGS (unaudited)
(dollars in thousands)
- --------------------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED
------------------------------------------
SEPTEMBER 24, 1999 SEPTEMBER 25,1998
------------------- -----------------
<S> <C> <C>
EARNINGS
Income on partnership preferred securities $ 13,531 $ 13,531
========= =========
FOR THE NINE FOR THE PERIOD
MONTHS ENDED JANUARY 16, 1998
SEPTEMBER 24, 1999 TO SEPTEMBER 25, 1998
------------------ ---------------------
EARNINGS
Income on partnership preferred securities $ 40,593 $ 38,196
========= =========
</TABLE>
See Note to Financial Statements
3
<PAGE>
<TABLE>
<CAPTION>
MERRILL LYNCH PREFERRED CAPITAL TRUST III
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited)
(dollars in thousands)
- -------------------------------------------------------------------------------------------------------
FOR THE NINE FOR THE PERIOD
MONTHS ENDED JANUARY 16, 1998
SEPTEMBER 24, 1999 TO SEPTEMBER 25, 1998
------------------ ---------------------
<S> <C> <C>
PREFERRED SECURITIES
Balance, beginning of period $ 750,000 $ -
Issuance of preferred securities - 750,000
---------- ----------
Balance, end of period 750,000 750,000
---------- ----------
COMMON SECURITIES
Balance, beginning of period 23,196 -
Issuance of common securities - 23,196
---------- ----------
Balance, end of period 23,196 23,196
---------- ----------
UNDISTRIBUTED EARNINGS
Balance, beginning of period - -
Earnings 40,593 38,196
Distributions (27,062) (24,665)
Distributions payable (13,531) (13,531)
---------- ----------
Balance, end of period - -
---------- ----------
Total Stockholders' Equity $ 773,196 $ 773,196
========== ==========
</TABLE>
See Note to Financial Statements
4
<PAGE>
<TABLE>
<CAPTION>
MERRILL LYNCH PREFERRED CAPITAL TRUST III
STATEMENTS OF CASH FLOWS (unaudited)
(dollars in thousands)
- ----------------------------------------------------------------------------------------------------------------------
FOR THE NINE FOR THE PERIOD
MONTHS ENDED JANUARY 16, 1998
SEPTEMBER 24, 1999 TO SEPTEMBER 25, 1998
------------------ ---------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings $ 40,593 $ 38,196
Increase in income receivable - (13,531)
--------- ---------
Cash provided by operating activities 40,593 24,665
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of partnership preferred securities - (773,196)
--------- ---------
Cash used for investing activities - (773,196)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions (40,593) (24,665)
Proceeds from issuance of preferred securities - 750,000
Proceeds from issuance of common securities - 23,196
--------- ---------
Cash (used for) provided by financing activities (40,593) 748,531
--------- ---------
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 24, 1999 and September 25, 1998.
</TABLE>
See Note to Financial Statements
5
<PAGE>
MERRILL LYNCH PREFERRED CAPITAL TRUST III
NOTE TO FINANCIAL STATEMENTS (unaudited)
SEPTEMBER 24, 1999
- -------------------------------------------------------------------------------
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 25, 1998. The December 25, 1998 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
<PAGE>
<TABLE>
<CAPTION>
MERRILL LYNCH PREFERRED FUNDING III, L.P.
BALANCE SHEETS (unaudited)
(dollars in thousands)
- -----------------------------------------------------------------------------------------------------------------
SEPTEMBER 24, 1999 DECEMBER 25, 1998
------------------ -----------------
<S> <C> <C>
ASSETS
Cash $ - $ 421
Investments:
Affiliate debentures $ 900,547 900,547
U.S. Treasury bills 9,272 9,110
---------- ----------
Total investments 909,819 909,657
Interest receivable 15,760 15,760
---------- ----------
Total Assets $ 925,579 $ 925,838
========== ==========
LIABILITY AND PARTNERS' CAPITAL
Distributions payable $ 15,760 $ 15,760
---------- ----------
Partners' capital:
Limited partnership interest 773,196 773,196
General partnership interest 136,623 136,882
---------- ----------
Total partners' capital 909,819 910,078
---------- ----------
Total Liability and Partners' Capital $ 925,579 $ 925,838
========== ==========
</TABLE>
See Note to Financial Statements
7
<PAGE>
<TABLE>
<CAPTION>
MERRILL LYNCH PREFERRED FUNDING III, L.P.
STATEMENTS OF EARNINGS (unaudited)
(dollars in thousands)
- -------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED
-----------------------------------------
SEPTEMBER 24, 1999 SEPTEMBER 25, 1998
------------------ ------------------
<S> <C> <C>
EARNINGS
Interest income:
Affiliate debentures $ 15,760 $ 15,760
U.S. Treasury bills 110 121
---------- ----------
Earnings $ 15,870 $ 15,881
========== ==========
FOR THE NINE FOR THE PERIOD
MONTHS ENDED JANUARY 16, 1998
SEPTEMBER 24, 1999 TO SEPTEMBER 25, 1998
------------------ ---------------------
EARNINGS
Interest income:
Affiliate debentures $ 47,279 $ 44,487
U.S. Treasury bills 315 322
---------- ----------
Earnings $ 47,594 $ 44,809
========== ==========
</TABLE>
See Note to Financial Statements
8
<PAGE>
<TABLE>
<CAPTION>
MERRILL LYNCH PREFERRED FUNDING III, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (unaudited)
(dollars in thousands)
- --------------------------------------------------------------------------------------------------
FOR THE NINE FOR THE PERIOD
MONTHS ENDED JANUARY 16, 1998
SEPTEMBER 24, 1999 TO SEPTEMBER 25,1999
------------------ --------------------
<S> <C> <C>
LIMITED PARTNER'S CAPITAL
Balance, beginning of period $ 773,196 $ -
Issuance of preferred securities - 773,196
Net income allocated to limited partner 40,593 38,196
Distributions (27,062) (24,665)
Distributions payable (13,531) (13,531)
---------- ----------
Balance, end of period 773,196 773,196
---------- ----------
GENERAL PARTNER'S CAPITAL
Balance, beginning of period 136,882 -
Capital contribution - 136,447
Net income allocated to general partner 7,001 6,613
Distributions (5,031) (4,065)
Distributions payable (2,229) (2,229)
---------- ----------
Balance, end of period 136,623 136,766
---------- ----------
TOTAL PARTNERS' CAPITAL $ 909,819 $ 909,962
========== ==========
</TABLE>
See Note to Financial Statements
9
<PAGE>
<TABLE>
<CAPTION>
MERRILL LYNCH PREFERRED FUNDING III, L.P.
STATEMENTS OF CASH FLOWS (unaudited)
(dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------------
FOR THE NINE FOR THE PERIOD
MONTHS ENDED JANUARY 16, 1998
SEPTEMBER 24, 1999 TO SEPTEMBER 25, 1998
------------------ ---------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings $ 47,594 $ 44,809
Accretion of U.S. Treasury bills (315) (322)
Increase in interest receivable - (15,760)
--------- ---------
Cash provided by operating activities 47,279 28,727
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of affiliate debentures - (900,547)
Purchases of investment securities (9,096) (18,413)
Maturities of investment securities 9,250 9,320
--------- ---------
Cash provided by (used for) investing activities 154 (909,640)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to limited partner (40,593) (24,665)
Distributions to general partner (7,261) (4,065)
Proceeds from the issuances of preferred securities - 773,196
Capital contribution - general partner - 136,447
--------- ---------
Cash (used for) provided by financing activities (47,854) 880,913
--------- ---------
NET CHANGE IN CASH (421) -
CASH, BEGINNING OF PERIOD 421 -
--------- ---------
CASH, END OF PERIOD $ - $ -
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:
Distributions of $15,760 were accrued at September 24, 1999 and
September 25, 1998
</TABLE>
See Note to Financial Statements
10
<PAGE>
MERRILL LYNCH PREFERRED FUNDING III, L.P.
NOTE TO FINANCIAL STATEMENTS (unaudited)
SEPTEMBER 24, 1999
- --------------------------------------------------------------------------------
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 25, 1998. The December 25, 1998 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
<PAGE>
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.
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.
12
<PAGE>
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
27 Financial Data Schedules*
(b) Reports on Form 8-K
None
- -----------------
* 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.
13
<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 8th day of
November, 1999.
MERRILL LYNCH PREFERRED CAPITAL TRUST III*
By: /s/ JOHN C. STOMBER
---------------------------------------------
Name: John C. Stomber
Title: Regular Trustee
By: /s/ STANLEY SCHAEFER
---------------------------------------------
Name: Stanley Schaefer
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 Trustees, the
Property Trustee and the Delaware Trustee) together exercise all powers and
perform all functions with respect to the Trust.
14
<PAGE>
INDEX TO EXHIBITS
EXHIBITS
12 Computation of Ratios of Earnings to Combined Fixed Charges and
Preferred Securities Distributions
27 Financial Data Schedules
15
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 12
MERRILL LYNCH PREFERRED CAPITAL TRUST III
MERRILL LYNCH PREFERRED FUNDING III, L.P.
COMPUTATION OF RATIOS OF EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED SECURITIES DISTRIBUTIONS
(dollars in thousands)
FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS ENDED
SEPTEMBER 24, 1999 SEPTEMBER 25, 1998
------------------------------------- ---------------------------------------
MERRILL LYNCH MERRILL LYNCH MERRILL LYNCH MERRILL LYNCH
PREFERRED PREFERRED PREFERRED PREFERRED
CAPITAL TRUST III FUNDING III, L.P. CAPITAL TRUST III FUNDING III, L.P.
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Earnings $ 13,531 $ 15,870 $ 13,531 $ 15,881
======== ======== ======== ========
Fixed charges $ - $ - $ - $ -
Preferred securities distribution
requirements 13,125 13,531 13,125 13,531
-------- -------- -------- --------
Total combined fixed charges and
preferred securities distributions $ 13,125 $ 13,531 $ 13,125 $ 13,531
======== ======== ======== ========
Ratio of earnings to combined
fixed charges and preferred
securities distributions 1.03 1.17 1.03 1.17
FOR THE NINE MONTHS ENDED FOR THE PERIOD JANUANRY 16, 1998
SEPTEMBER 24, 1999 TO SEPTEMBER 25, 1998
-------------------------------------- --------------------------------------
MERRILL LYNCH MERRILL LYNCH MERRILL LYNCH MERRILL LYNCH
PREFERRED PREFERRED PREFERRED PREFERRED
CAPITAL TRUST III FUNDING III, L.P. CAPITAL TRUST III FUNDING III, L.P.
----------------- ----------------- ----------------- -----------------
Earnings $ 40,593 $ 47,594 $ 38,196 $ 44,809
======== ======== ======== ========
Fixed charges $ - $ - $ - $ -
Preferred securities distribution
requirements 39,375 40,593 37,050 38,196
-------- -------- -------- --------
Total combined fixed charges and
preferred securities distributions $ 39,375 $ 40,593 $ 37,050 $ 38,196
======== ======== ======== ========
Ratio of earnings to combined
fixed charges and preferred
securities distributions 1.03 1.17 1.03 1.17
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001051829
<NAME> MERRILL LYNCH PREFERRED CAPITAL TRUST III
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> DEC-26-1998
<PERIOD-END> SEP-24-1999
<CASH> 0
<SECURITIES> 773,196
<RECEIVABLES> 13,531
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 786,727
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 786,727
<CURRENT-LIABILITIES> 13,531
<BONDS> 0
0
750,000
<COMMON> 23,196
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 786,727
<SALES> 0
<TOTAL-REVENUES> 40,593
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 40,593
<INCOME-TAX> 0
<INCOME-CONTINUING> 40,593
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,593
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001051827
<NAME> MERRILL LYNCH PREFERRED FUNDING III, L.P.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> DEC-26-1998
<PERIOD-END> SEP-24-1999
<CASH> 0
<SECURITIES> 909,819
<RECEIVABLES> 15,760
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 925,579
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 925,579
<CURRENT-LIABILITIES> 15,760
<BONDS> 0
0
773,196
<COMMON> 136,623
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 925,579
<SALES> 0
<TOTAL-REVENUES> 47,594
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 47,594
<INCOME-TAX> 0
<INCOME-CONTINUING> 47,594
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47,594
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
