10-Q 1 toprs1_3q02.txt TOPRS1_3Q02 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 27, 2002 MERRILL LYNCH PREFERRED CAPITAL TRUST I (Exact name of Registrant as specified in its certificate of trust) COMMISSION FILE NO.: 1-7182-01 Delaware 13-7102991 (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 ------------------- ----------------------------------------- 7-3/4% 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 I, L.P. (Exact name of Registrant as specified in its certificate of limited partnership) COMMISSION FILE NO.: 1-7182-02 Delaware 13-3917686 (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 ------------------- ----------------------------------------- 7-3/4% 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. ================================================================================ PART I - FINANCIAL INFORMATION ------------------------------ ITEM 1. FINANCIAL STATEMENTS --------------------

MERRILL LYNCH PREFERRED CAPITAL TRUST I BALANCE SHEETS (unaudited) (dollars in thousands, except per security amounts) ----------------------------------------------------------------------------------------------------------------------- ~~MARCH~~SEPTEMBER 3027, ~~2001~~2002 DECEMBER 2928, ~~2000~~2001 ------------------ ----------------- ASSETS Investment in partnership preferred securities $ 283,505 $ 283,505 Income receivable -5,493 5,493 ---------- ---------- Total Assets $ ~~283~~288,~~505~~998 $ 288,998 ========== ========== LIABILITY AND STOCKHOLDERS' EQUITY Distributions payable $ -5,493 $ 5,493 ---------- ---------- Stockholders' equity: Preferred securities (7 3/4% Trust Originated Preferred Securities; 11,000,000 authorized, issued, and outstanding; $25 liquidation amount per security) 275,000 275,000 Common securities (7 3/4% Trust Common Securities; 340,208 authorized, issued, and outstanding; $25 liquidation amount per security) 8,505 8,505 ---------- ---------- Total Stockholders' equity 283,505 283,505 ---------- ---------- Total Liability and Stockholders' Equity $ ~~283~~288,~~505~~998 $ 288,998 ========== ==========

See Note to Financial Statements 2

MERRILL LYNCH PREFERRED CAPITAL TRUST I STATEMENTS OF EARNINGS (unaudited) (dollars in thousands) ------------------------------------------------------------------------------------------------------------ FOR THE THREE MONTHS ENDED --------------------------------------- ~~MARCH~~SEPTEMBER 3027, ~~2001~~2002 ~~MARCH~~SEPTEMBER 3128, ~~2000~~2001 ------------------ ------------------ EARNINGS Income on partnership preferred securities $ 5,493 $ 5,493 ========= ========= FOR THE NINE MONTHS ENDED --------------------------------------- SEPTEMBER 27, 2002 SEPTEMBER 28, 2001 ------------------ ------------------ EARNINGS Income on partnership preferred securities $ 16,479 $ 16,479 ========= =========

See Note to Financial Statements 3

MERRILL LYNCH PREFERRED CAPITAL TRUST I STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited) (dollars in thousands) ------------------------------------------------------------------------------------------------- FOR THE ~~THREE~~NINE MONTHS ENDED --------------------------------------- ~~MARCH~~SEPTEMBER 3027, ~~2001~~2002 ~~MARCH~~SEPTEMBER 3128, ~~2000~~2001 ------------------ ------------------ PREFERRED SECURITIES Balance, beginning and end of period $ 275,000 $ 275,000 ---------- ---------- COMMON SECURITIES Balance, beginning and end of period 8,505 8,505 ---------- ---------- UNDISTRIBUTED EARNINGS Balance, beginning of period - - Earnings 516,~~493~~479 516,~~493~~479 Distributions (510,~~493~~986) (510,~~493~~986) Distributions payable -(5,493) -(5,493) ---------- ---------- Balance, end of period - - ---------- ---------- Total Stockholders' Equity $ 283,505 $ 283,505 ========== ==========

See Note to Financial Statements 4

MERRILL LYNCH PREFERRED CAPITAL TRUST I STATEMENTS OF CASH FLOWS (unaudited) (dollars in thousands) ------------------------------------------------------------------------------------------------------------------- FOR THE ~~THREE~~NINE MONTHS ENDED --------------------------------------- ~~MARCH~~SEPTEMBER 3027, ~~2001~~2002 ~~MARCH~~SEPTEMBER 3128, ~~2000~~2001 ------------------ ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Earnings $ 516,~~493~~479 $ 516,~~493~~479 ~~Decrease~~Increase in income receivable ~~5,493~~- - --------- --------- Cash provided by operating activities 1016,~~986~~479 516,~~493~~479 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions (1016,~~986~~479) (516,~~493~~479) --------- --------- Cash used for financing activities (1016,~~986~~479) (516,~~493~~479) --------- --------- NET CHANGE IN CASH - - CASH, BEGINNING OF PERIOD - - --------- --------- CASH, END OF PERIOD $ - $ - ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOWS: Preferred and common distributions of $5,328 and $165, respectively, were accrued at ~~December~~September 2927, ~~2000~~2002 and September 28, 2001.

See Note to Financial Statements 5 MERRILL LYNCH PREFERRED CAPITAL TRUST I 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 Capital Trust I (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 I, L.P. BALANCE SHEETS (unaudited) (dollars in thousands) ---------------------------------------------------------------------------------------------------------------- ~~MARCH~~SEPTEMBER 3027, ~~2001~~2002 DECEMBER 2928, ~~2000~~2001 ------------------ ----------------- ASSETS Cash $ 1 $ -1 Investments: Affiliate debentures 330,055 330,055 U.S. Treasury bills 3,~~576~~484 3,~~523~~580 ---------- ---------- Total investments 333,~~631~~539 333,~~578~~635 Income receivable -6,395 6,395 ---------- ---------- Total Assets $ ~~333~~339,~~632~~935 $ ~~339~~340,~~973~~031 ========== ========== LIABILITY AND PARTNERS' CAPITAL Distributions payable $ -6,395 $ 6,395 ---------- ---------- Partners' capital: Limited partnership interest 283,505 283,505 General partnership interest 50,~~127~~035 50,~~073~~131 ---------- ---------- Total partners' capital 333,~~632~~540 333,~~578~~636 ---------- ---------- Total Liability and Partners' Capital $ ~~333~~339,~~632~~935 $ ~~339~~340,~~973~~031 ========== ==========

See Note to Financial Statements 7

MERRILL LYNCH PREFERRED FUNDING I, L.P. STATEMENTS OF EARNINGS (unaudited) (dollars in thousands) ----------------------------------------------------------------------------------------------- FOR THE THREE MONTHS ENDED --------------------------------------- ~~MARCH~~SEPTEMBER 3027, ~~2001~~2002 ~~MARCH~~SEPTEMBER 3128, ~~2000~~2001 ------------------ ------------------ EARNINGS Interest income: Affiliate debentures $ 6,395 $ 6,395 U.S. Treasury bills 5416 4637 ---------- ---------- Earnings $ 6,~~449~~411 $ 6,~~441~~432 ========== ========== FOR THE NINE MONTHS ENDED --------------------------------------- SEPTEMBER 27, 2002 SEPTEMBER 28, 2001 ------------------ ------------------ EARNINGS Interest income: Affiliate debentures $ 19,184 $ 19,184 U.S. Treasury bills 62 130 ---------- ---------- Earnings $ 19,246 $ 19,314 ========== ==========

See Note to Financial Statements 8

MERRILL LYNCH PREFERRED FUNDING I, L.P. STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (unaudited) (dollars in thousands) ------------------------------------------------------------------------------------------------ FOR THE ~~THREE~~NINE MONTHS ENDED --------------------------------------- ~~MARCH~~SEPTEMBER 3027, ~~2001~~2002 ~~MARCH~~SEPTEMBER 3128, ~~2000~~2001 ------------------ ------------------ LIMITED PARTNER'S CAPITAL Balance, beginning of period $ 283,505 $ 283,505 Net income allocated to limited partner 516,~~493~~479 516,~~493~~479 Distributions (10,986) (10,986) Distributions payable (5,493) (5,493) ---------- ---------- Balance, end of period 283,505 283,505 ---------- ---------- GENERAL PARTNER'S CAPITAL Balance, beginning of period 50,~~073~~131 50,~~063~~073 Net income allocated to general partner ~~956~~2,767 ~~948~~2,835 Distributions (1,961) (1,911) Distributions payable (902) (902) ---------- ---------- Balance, end of period 50,~~127~~035 50,~~109~~095 ---------- ---------- TOTAL PARTNERS' CAPITAL $ 333,~~632~~540 $ 333,~~614~~600 ========== ==========

See Note to Financial Statements 9

MERRILL LYNCH PREFERRED FUNDING I, L.P. STATEMENTS OF CASH FLOWS (unaudited) (dollars in thousands) ------------------------------------------------------------------------------------------------------------------- FOR THE ~~THREE~~NINE MONTHS ENDED --------------------------------------- ~~MARCH~~SEPTEMBER 3027, ~~2001~~2002 ~~MARCH~~SEPTEMBER 3128, ~~2000~~2001 ------------------ ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Earnings $ 619,~~449~~246 $ 619,~~441~~314 Accretion of U.S. Treasury bills (5462) (46130) ~~Decrease~~Increase in ~~income~~interest receivable ~~6,395~~- - --------- --------- Cash provided by operating activities 1219,~~790~~184 19,184 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of investment securities (6,~~395~~959) (3,479) Maturities of investment securities 7,117 3,587 --------- --------- Cash provided by investing activities 158 108 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions to limited partner (1016,~~986~~479) (516,~~493~~478) Distributions to general partner (12,~~803~~863) (~~902~~2,813) --------- --------- Cash used for financing activities (1219,~~789~~342) (619,~~395~~291) --------- --------- NET CHANGE IN CASH 1 - 1 CASH, BEGINNING OF PERIOD - 1 - --------- --------- CASH, END OF PERIOD $ 1 $ 1 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOWS: Distributions of $6,395 were accrued at ~~December~~September 2927, ~~2000~~2002 and September 28, 2001.

See Note to Financial Statements 10 MERRILL LYNCH PREFERRED FUNDING I, 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 I, 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 I (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 November 20, 1996, which was subsequently amended by an amended and restated declaration of trust dated as of December 11, 1996. The Trust exists for the exclusive purposes of (i) issuing trust securities, consisting of 7-3/4% 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 7-3/4% Partnership Preferred Securities (the "Partnership Preferred Securities") issued by Merrill Lynch Preferred Funding I, 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 November 20, 1996, which was subsequently amended by an amended and restated agreement of limited partnership dated December 17, 1996. 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 November 20, 1996, 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 November 20, 1996, 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 December 17, 1996, 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. 12 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 13 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 I* By: /s/ JOHN C. STOMBER --------------------------------------------- Name: John C. Stomber Title: Regular Trustee MERRILL LYNCH PREFERRED FUNDING I, 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. 14 Certification ------------- I, John C. Stomber, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Merrill Lynch Preferred Capital Trust I and Merrill Lynch Preferred Funding I, 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 I By: /s/ JOHN C. STOMBER --------------------------------------------- Name: John C. Stomber * Title: Regular Trustee MERRILL LYNCH PREFERRED FUNDING I, 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. 15 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 16

Filing Compare · MERRILL LYNCH PREFERRED FUNDING I LP