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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 26, 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
(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 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 26, 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
MERRILL LYNCH PREFERRED CAPITAL TRUST III
BALANCE SHEETS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 26, 1999 DECEMBER 25, 1998
-------------- -----------------
ASSETS
<S> <C> <C>
Investment in partnership preferred securities $773,196,000 $773,196,000
Income receivable 13,530,930 13,530,930
------------ ------------
Total Assets $786,726,930 $786,726,930
============ ============
LIABILITY AND STOCKHOLDERS' EQUITY
Distributions payable $ 13,530,930 $ 13,530,930
------------ ------------
Stockholders' equity:
Preferred securities (7% Trust Originated
Preferred Securities; 30,000,000 authorized,
issued, and outstanding; $25 liquidation
amount per security) 750,000,000 750,000,000
Common securities (7% Trust Common Securities;
927,840 authorized, issued, and outstanding;
$25 liquidation amount per security) 23,196,000 23,196,000
------------ ------------
Total stockholders' equity 773,196,000 773,196,000
------------ ------------
Total Liability and Stockholders' Equity $786,726,930 $786,726,930
============ ============
</TABLE>
See Note to Financial Statements
2
<PAGE>
MERRILL LYNCH PREFERRED CAPITAL TRUST III
STATEMENTS OF EARNINGS (UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE THREE FOR THE PERIOD
MONTHS ENDED JANUARY 16, 1998
MARCH 26, 1999 TO MARCH 27, 1998
-------------- -----------------
EARNINGS
Income on partnership preferred securities $13,530,930 $11,134,031
=========== ===========
See Note to Financial Statements
3
<PAGE>
MERRILL LYNCH PREFERRED CAPITAL TRUST III
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE THREE FOR THE PERIOD
MONTHS ENDED JANUARY 16, 1998
MARCH 26, 1999 TO MARCH 27, 1998
-------------- -----------------
PREFERRED SECURITIES
Balance, beginning of period $ 750,000,000 $ --
Issuance of preferred securities -- 750,000,000
------------- -------------
Balance, end of period 750,000,000 750,000,000
------------- -------------
COMMON SECURITIES
Balance, beginning of period 23,196,000 --
Issuance of preferred securities -- 23,196,000
------------- -------------
Balance, end of period 23,196,000 23,196,000
------------- -------------
UNDISTRIBUTED EARNINGS
Balance, beginning of period -- --
Earnings 13,530,930 11,134,031
Distributions payable (13,530,930) (11,134,031)
------------- -------------
Balance, end of period -- --
------------- -------------
Total Stockholders' Equity $ 773,196,000 $ 773,196,000
============= =============
See Note to Financial Statements
4
<PAGE>
MERRILL LYNCH PREFERRED CAPITAL TRUST III
STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE THREE FOR THE PERIOD
MONTHS ENDED JANUARY 16, 1998
MARCH 26, 1999 TO MARCH 27, 1998
-------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings $ 13,530,930 $ 11,134,031
Increase in income receivable -- (11,134,031)
------------- -------------
Cash provided by operating activities 13,530,930 --
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of partnership preferred securities -- (773,196,000)
------------- -------------
Cash used for investing activities -- (773,196,000)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions (13,530,930) --
Proceeds from issuance of preferred securities -- 750,000,000
Proceeds from issuance of common securities -- 23,196,000
------------- -------------
Cash (used for) provided by financing activities (13,530,930) 773,196,000
------------- -------------
NET CHANGE IN CASH -- --
CASH, BEGINNING OF PERIOD -- --
------------- -------------
CASH, END OF PERIOD $ -- $ --
============= =============
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:
Preferred and common distributions of $13,125,000 and $405,930 and $10,800,000
and $334,031, respectively, were accrued at March 26, 1999 and March 27, 1998.
See Note to Financial Statements
5
<PAGE>
MERRILL LYNCH PREFERRED CAPITAL TRUST III
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 26, 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-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>
MERRILL LYNCH PREFERRED FUNDING III, L.P.
BALANCE SHEETS (UNAUDITED)
- --------------------------------------------------------------------------------
MARCH 26, 1999 DECEMBER 25, 1998
-------------- -----------------
ASSETS
Cash $ 2,560 $ 421,119
Investments:
Affiliate debentures 900,546,600 900,546,600
U.S. Treasury bills 9,212,044 9,110,566
------------ ------------
Total investments 909,758,644 909,657,166
Interest receivable 15,759,566 15,759,566
------------ ------------
Total Assets $925,520,770 $925,837,851
============ ============
LIABILITY AND PARTNERS' CAPITAL
Distributions payable $ 15,759,566 $ 15,759,566
------------ ------------
Partners' capital:
Limited partnership interest 773,196,000 773,196,000
General partnership interest 136,565,204 136,882,285
------------ ------------
Total partners' capital 909,761,204 910,078,285
------------ ------------
Total Liability and Partners' Capital $925,520,770 $925,837,851
============ ============
See Note to Financial Statements
7
<PAGE>
MERRILL LYNCH PREFERRED FUNDING III, L.P.
STATEMENTS OF EARNINGS (UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE THREE FOR THE PERIOD
MONTHS ENDED JANUARY 16, 1998
MARCH 26, 1999 TO MARCH 27, 1998
-------------- -----------------
EARNINGS
Interest income:
Affiliate debentures $15,759,566 $12,967,871
U.S. Treasury bills 101,478 83,549
----------- -----------
Earnings $15,861,044 $13,051,420
=========== ===========
See Note to Financial Statements
8
<PAGE>
MERRILL LYNCH PREFERRED FUNDING III, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE THREE FOR THE PERIOD
MONTHS ENDED JANUARY 16, 1998
MARCH 26, 1999 TO MARCH 27, 1998
-------------- -----------------
LIMITED PARTNER'S CAPITAL
Balance, beginning of period $ 773,196,000 $ --
Issuance of preferred securities -- 773,196,000
Net income allocated to limited partner 13,530,930 11,134,031
Distribution payable (13,530,930) (11,134,031)
------------- -------------
Balance, end of period 773,196,000 773,196,000
------------- -------------
GENERAL PARTNER'S CAPITAL
Balance, beginning of period 136,882,285 --
Capital contribution -- 136,447,000
Net income allocated to general partner 2,330,114 1,917,389
Distributions (418,559) --
Distribution payable (2,228,636) (1,836,467)
------------- -------------
Balance, end of period 136,565,204 136,527,922
------------- -------------
TOTAL PARTNERS' CAPITAL $ 909,761,204 $ 909,723,922
============= =============
See Note to Financial Statements
9
<PAGE>
MERRILL LYNCH PREFERRED FUNDING III, L.P.
STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE THREE FOR THE PERIOD
MONTHS ENDED JANUARY 16, 1998
MARCH 26, 1999 TO MARCH 27, 1998
-------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings $ 15,861,044 $ 13,051,420
Accretion of U.S. Treasury bills (101,478) (83,549)
Increase in interest receivable -- (12,967,871)
------------- -------------
Cash provided by operating activities 15,759,566 --
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of affiliate debentures -- (900,546,600)
Purchases of investment securities -- (9,093,773)
------------- -------------
Cash used for investing activities -- (909,640,373)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to limited partner (13,530,930) --
Distributions to general partner (2,647,195) --
Proceeds from the issuance of preferred securities -- 773,196,000
Capital contribution - general partner -- 136,447,000
------------- -------------
Cash (used for) provided by financing activities (16,178,125) 909,643,000
------------- -------------
NET CHANGE IN CASH (418,559) 2,627
CASH, BEGINNING OF PERIOD 421,119 --
------------- -------------
CASH, END OF PERIOD $ 2,560 $ 2,627
============= =============
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:
Distributions of $15,759,566 and $12,970,468 were accrued at March 26, 1999 and
March 27, 1998, respectively.
See Note to Financial Statements
10
<PAGE>
MERRILL LYNCH PREFERRED FUNDING III, L.P.
NOTE TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 26, 1998
- --------------------------------------------------------------------------------
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-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 6th day of May,
1999.
MERRILL LYNCH PREFERRED CAPITAL TRUST III*
By: /s/ RAYMOND M. DISCO
---------------------------------------
Name: Raymond M. Disco
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
<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
FOR THE THREE MONTHS ENDED FOR THE PERIOD JANUARY 16, 1998
MARCH 26, 1999 TO MARCH 27, 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 $13,530,930 $15,861,044 $11,134,031 $13,051,420
=========== =========== =========== ===========
FIXED CHARGES $ -- $ -- $ -- $ --
PREFERRED SECURITIES DISTRIBUTION
REQUIREMENTS 13,125,000 13,530,930 10,800,000 11,134,031
----------- ----------- ----------- -----------
TOTAL COMBINED FIXED CHARGES AND
PREFERRED SECURITIES DISTRIBUTIONS $13,125,000 $13,530,930 $10,800,000 $11,134,031
=========== =========== =========== ===========
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
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> DEC-26-1998
<PERIOD-END> MAR-26-1999
<CASH> 0
<SECURITIES> 773,196,000
<RECEIVABLES> 13,530,930
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 786,726,930
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 786,726,930
<CURRENT-LIABILITIES> 13,530,930
<BONDS> 0
0
750,000,000
<COMMON> 23,196,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 786,726,930
<SALES> 0
<TOTAL-REVENUES> 13,530,930
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 13,530,930
<INCOME-TAX> 0
<INCOME-CONTINUING> 13,530,930
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,530,930
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001051827
<NAME> MERRILL LYNCH PREFERRED FUNDING III, L.P.
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> DEC-26-1998
<PERIOD-END> MAR-26-1999
<CASH> 2,560
<SECURITIES> 909,758,644
<RECEIVABLES> 15,759,566
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 925,520,770
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 925,520,770
<CURRENT-LIABILITIES> 15,759,566
<BONDS> 0
0
773,196,000
<COMMON> 136,565,204
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 925,520,770
<SALES> 0
<TOTAL-REVENUES> 15,861,044
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 15,861,044
<INCOME-TAX> 0
<INCOME-CONTINUING> 15,861,044
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,861,044
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
