10-Q 1 toprs3_2q02.txt TOPRS3_2Q02 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 June 28, 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 August 9, 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 III BALANCE SHEETS (unaudited) (dollars in thousands, except per security amounts) ----------------------------------------------------------------------------------------------------------------------- ~~MARCH~~JUNE 3028, ~~2001~~2002 DECEMBER 2928, ~~2000~~2001 -------------- ----------------- ASSETS Investment in partnership preferred securities $ 773,196 $ 773,196 Income receivable -13,531 13,531 ---------- ---------- Total Assets $ ~~773~~786,~~196~~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 $ ~~773~~786,~~196~~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 ----------------------------------- JUNE 28, 2002 JUNE 29, 2001 ------------- ~~MARCH~~------------- 30EARNINGS Income on partnership preferred securities $ 13,531 ~~2001~~$ ~~MARCH~~13,531 31========= ========= FOR THE SIX MONTHS ENDED ----------------------------------- JUNE 28, ~~2000~~2002 JUNE 29, 2001 -------------- -------------- EARNINGS Income on partnership preferred securities $ 1327,~~531~~062 $ 1327,~~531~~062 ========= =========

See Note to Financial Statements 3

MERRILL LYNCH PREFERRED CAPITAL TRUST III STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited) (dollars in thousands) ------------------------------------------------------------------------------------------------- FOR THE ~~THREE~~SIX MONTHS ENDED -----------------------------------~~----~~ ~~MARCH~~JUNE 3028, ~~2001~~2002 ~~MARCH~~JUNE 3129, ~~2000~~2001 -------------- -------------- PREFERRED SECURITIES Balance, beginning and end of period $ 750,000 $ 750,000 ---------- ---------- COMMON SECURITIES Balance, beginning and end of period 23,196 23,196 ---------- ---------- UNDISTRIBUTED EARNINGS Balance, beginning of period - - Earnings 27,062 27,062 Distributions (13,531) (13,531) Distributions payable (13,531) (13,531) ---------- ---------- Balance, end of period - - ---------- ---------- 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 ~~THREE~~SIX MONTHS ENDED -----------------------------------~~----~~ ~~MARCH~~JUNE 3028, ~~2001~~2002 ~~MARCH~~JUNE 3129, ~~2000~~2001 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Earnings $ 1327,~~531~~062 $ 1327,~~531~~062 ~~Decrease in income receivable 13,531~~ - --------- --------- Cash provided by operating activities 27,062 1327,~~531~~062 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions (27,062) (1327,~~531~~062) --------- --------- Cash used for financing activities (27,062) (1327,~~531~~062) --------- --------- 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 ~~December~~June 2928, ~~2000~~2002.

See Note to Financial Statements 5 MERRILL LYNCH PREFERRED CAPITAL TRUST III NOTE TO FINANCIAL STATEMENTS (unaudited) JUNE 28, 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 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 six-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) ---------------------------------------------------------------------------------------------------------------- ~~MARCH~~JUNE 3028, ~~2001~~2002 DECEMBER 2928, ~~2000~~2001 -------------- ----------------- ASSETS Cash $ 1- $ 1- ----------- ---------- Investments: Affiliate debentures 900,546 900,~~546~~547 U.S. Treasury bills 9,~~349~~152 9,~~207~~359 ---------- ---------- Total investments 909,~~895~~698 909,~~753~~906 Income receivable -15,761 15,~~760~~761 ---------- ---------- Total Assets $ ~~909~~925,~~896~~459 $ 925,~~514~~667 ========== ========== LIABILITY AND PARTNERS' CAPITAL Distributions payable $ -15,761 $ 15,~~760~~761 ---------- ---------- Partners' capital: Limited partnership interest 773,196 773,196 General partnership interest 136,~~700~~502 136,~~558~~710 ---------- ---------- Total partners' capital 909,~~896~~698 909,~~754~~906 ---------- ---------- Total Liability and Partners' Capital $ ~~909~~925,~~896~~459 $ 925,~~514~~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 ----------------------------------- JUNE 28, 2002 JUNE 29, 2001 ------------- ~~MARCH~~------------- 30EARNINGS Interest income: Affiliate debentures $ 15,760 ~~2001~~$ ~~MARCH~~15,759 31U.S. Treasury bills 42 103 ---------- ---------- Earnings $ 15,802 ~~2000~~$ 15,862 ========== ========== FOR THE SIX MONTHS ENDED ----------------------------------- JUNE 28, 2002 JUNE 29, 2001 ------------- ------------- EARNINGS Interest income: Affiliate debentures $ 1531,~~760~~520 $ 1531,~~760~~519 U.S. Treasury bills ~~141~~ 120 244 ---------- ---------- Earnings $ 1531,~~901~~640 $ 1531,~~880~~763 ========== ========== ----------

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 ~~THREE~~SIX MONTHS ENDED -----------------------------------~~----~~ ~~MARCH~~JUNE 3028, ~~2001~~2002 ~~MARCH~~JUNE 3129, ~~2000~~2001 -------------- --------------- LIMITED PARTNER'S CAPITAL Balance, beginning of period $ 773,196 $ 773,196 Net income allocated to limited partner 27,062 27,062 Distributions (13,531) (13,531) Distributions payable (13,531) (13,531) ---------- ---------- Balance, end of period 773,196 773,196 ---------- ---------- GENERAL PARTNER'S CAPITAL Balance, beginning of period 136,~~558~~710 136,~~532~~558 Net income allocated to general partner 4,577 4,701 Distributions (2,~~370~~556) (2,~~349~~509) Distributions payable (2,~~228~~229) (2,~~229~~230) ---------- ---------- Balance, end of period 136,~~700~~502 136,~~652~~520 ---------- ---------- TOTAL PARTNERS' CAPITAL $ 909,~~896~~698 $ 909,~~848~~716 ========== ==========

See Note to Financial Statements 9

MERRILL LYNCH PREFERRED FUNDING III, L.P. STATEMENTS OF CASH FLOWS (unaudited) (dollars in thousands) ------------------------------------------------------------------------------------------------------------------- FOR THE ~~THREE~~SIX MONTHS ENDED --------------------------------------- ~~MARCH~~JUNE 3028, ~~2001~~2002 ~~MARCH~~JUNE 3129, ~~2000~~2001 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Earnings $ 1531,~~901~~640 $ 1531,~~880~~763 Accretion of U.S. Treasury bills (~~141~~120) (~~120~~244) ~~Decrease~~Increase in income receivable ~~15,760~~ - (1) --------- --------- Cash provided by operating activities 31,520 1531,~~760~~518 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Purchases of investment securities (9,096) (9,096) Maturities of investment securities 9,424 9,378 --------- --------- Cash provided by financing activities 328 282 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions to limited partner (27,062) (1327,~~531~~062) Distributions to general partner (4,~~458~~785) (24,~~229~~739) --------- --------- Cash used for financing activities (31,~~520~~847) (1531,~~760~~801) --------- --------- NET CHANGE IN CASH - -(1) CASH, BEGINNING OF PERIOD - 1 - --------- --------- CASH, END OF PERIOD $ 1- $ - ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOWS: Distributions of $15,~~760~~761 were accrued at ~~December~~June 2928, ~~2000~~2002.

See Note to Financial Statements 10 MERRILL LYNCH PREFERRED FUNDING III, L.P. NOTE TO FINANCIAL STATEMENTS (unaudited) JUNE 28, 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 six-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. 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 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 9th day of August, 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. 14 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 15

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