================================================================================
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 26, 1997
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)
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:
Name of each exchange
Title of each class on which registered
- ------------------- -------------------
7-3/4% Trust Originated Preferred New York Stock Exchange
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)
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:
Name of each exchange
Title of each class on which registered
- ------------------- -------------------
7-3/4% 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 September 26, 1997, 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 I
BALANCE SHEET (UNAUDITED)
- --------------------------------------------------------------------------------
SEPTEMBER 26, 1997 DECEMBER 27, 1996
------------------ -----------------
ASSETS
Investment in partnership securities $283,505,200 $283,505,200
Income receivable 5,492,913 671,356
------------ ------------
Total Assets $288,998,113 $284,176,556
============ ============
LIABILITY AND STOCKHOLDERS' EQUITY
Distributions payable $ 5,492,913 $ 671,356
------------ ------------
Stockholders' equity:
Preferred securities (7 3/4% Trust
Originated Preferred Securities;
11,000,000 authorized, issued,
and outstanding; $25 liquidation
amount per security) 275,000,000 275,000,000
Common securities (7 3/4% Trust
Common Securities; 340,208
authorized, issued, and
outstanding; $25 liquidation
amount per security) 8,505,200 8,505,200
------------ ------------
Total stockholders' equity 283,505,200 283,505,200
------------ ------------
Total Liability and Stockholders' Equity $288,998,113 $284,176,556
============ ============
See Note to Financial Statements
2
<PAGE>
MERRILL LYNCH PREFERRED CAPITAL TRUST I
STATEMENT OF EARNINGS (UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 26, 1997 SEPTEMBER 26, 1997
------------------ ------------------
EARNINGS:
Income on partnership preferred securities $ 5,492,913 $ 16,601,197
------------ ------------
See Note to Financial Statements
3
<PAGE>
MERRILL LYNCH PREFERRED CAPITAL TRUST I
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE NINE
MONTHS ENDED
SEPTEMBER 26, 1997
------------------
PREFERRED SECURITIES
Balance at December 27, 1996 $ 275,000,000
-------------
Balance at September 26, 1997 275,000,000
-------------
COMMON SECURITIES
Balance at December 27, 1996 8,505,200
-------------
Balance at September 26, 1997 8,505,200
-------------
UNDISTRIBUTED EARNINGS
Balance at December 27, 1996 --
Distribution paid in excess of amount accrued
at December 27, 1996 (122,458)
Earnings 16,601,197
Distributions (10,985,826)
Distributions payable (5,492,913)
-------------
Balance at September 26, 1997 --
-------------
Total Stockholders' Equity $ 283,505,200
=============
See Note to Financial Statements
4
<PAGE>
MERRILL LYNCH PREFERRED CAPITAL TRUST I
STATEMENT OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE NINE
MONTHS ENDED
SEPTEMBER 26, 1997
------------------
EARNINGS $ 16,601,197
CASH FLOWS FROM OPERATING ACTIVITIES:
Increase in income receivable (4,821,557)
------------
Cash provided by operating activities 11,779,640
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions (11,779,640)
------------
Cash used in financing activities (11,779,640)
------------
NET CHANGE IN CASH --
CASH, BEGINNING OF PERIOD --
------------
CASH, END OF PERIOD $ --
============
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:
Preferred and common distributions of $5,328,125 and $164,788, respectively,
were accrued at September 26, 1997.
See Note to Financial Statements
5
<PAGE>
MERRILL LYNCH PREFERRED CAPITAL TRUST I
NOTE TO FINANCIAL STATEMENTS
SEPTEMBER 26, 1997 (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 Capital Trust I (the "Trust") for the year ended
December 27, 1996. The December 27, 1996 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 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.
The Trust was formed on November 20, 1996; accordingly, only 1997 results are
presented.
6
<PAGE>
MERRILL LYNCH PREFERRED FUNDING I, L.P.
BALANCE SHEET (UNAUDITED)
- --------------------------------------------------------------------------------
SEPTEMBER 26, 1997 DECEMBER 27, 1996
------------------ -----------------
ASSETS
Cash $ -- $ 8,805
------------ ------------
Investments:
Affiliates 330,055,000 330,055,000
U.S. Treasury bills 3,629,157 3,476,024
------------ ------------
Total investments 333,684,157 333,531,024
Interest receivable 6,394,816 781,589
------------ ------------
Total Assets $340,078,973 $334,321,418
============ ============
LIABILITY AND PARTNERS' CAPITAL
Distributions payable $ 6,394,816 $ 671,356
------------ ------------
Partners' capital:
Limited partnership interest 283,505,200 283,505,200
General partnership interest 50,178,957 50,144,862
------------ ------------
Total partners' capital 333,684,157 333,650,062
------------ ------------
Total Liability and Partners' Capital $340,078,973 $334,321,418
============ ============
See Note to Financial Statements
7
<PAGE>
MERRILL LYNCH PREFERRED FUNDING I, L.P.
STATEMENT OF EARNINGS (UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 26, 1997 SEPTEMBER 26, 1997
------------------ ------------------
Interest income:
Affiliate debentures $ 6,394,816 $ 19,326,948
U.S. Treasury bills 48,109 144,328
------------ ------------
Earnings $ 6,442,925 $ 19,471,276
============ ============
See Note to Financial Statements
8
<PAGE>
MERRILL LYNCH PREFERRED FUNDING I, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE NINE
MONTHS ENDED
SEPTEMBER 26, 1997
------------------
LIMITED PARTNER'S CAPITAL
Balance at December 27, 1996 $ 283,505,200
Net income allocated to limited partner 16,601,197
Distribution in excess of amount accrued
at December 27, 1996 (122,458)
Distributions (10,985,826)
Distribution payable (5,492,913)
-------------
Balance at September 26, 1997 283,505,200
-------------
GENERAL PARTNER'S CAPITAL
Balance at December 27, 1996 50,144,862
Net income allocated to general partner 2,870,079
Distributions (1,934,081)
Distribution payable (901,903)
-------------
Balance at September 26, 1997 50,178,957
-------------
TOTAL PARTNERS' CAPITAL $ 333,684,157
=============
See Note to Financial Statements
9
<PAGE>
MERRILL LYNCH PREFERRED FUNDING I, L.P.
STATEMENT OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE NINE
MONTHS ENDED
SEPTEMBER 26, 1997
------------------
EARNINGS $ 19,471,276
CASH FLOWS FROM OPERATING ACTIVITIES:
Accretion of U.S. Treasury bills (144,328)
Increase in interest receivable (5,613,227)
------------
Cash provided by operating activities 13,713,721
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities (8,805)
------------
Cash used in investing activities (8,805)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to limited partner (11,779,640)
Distributions to general partner (1,934,081)
------------
Cash used in financing activities (13,713,721)
------------
NET CHANGE IN CASH (8,805)
CASH, BEGINNING OF PERIOD 8,805
------------
CASH, END OF PERIOD $ --
============
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:
Distributions of $6,394,816 were accrued at September 26, 1997.
See Note to Financial Statements
10
<PAGE>
MERRILL LYNCH PREFERRED FUNDING I, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 26, 1997 (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 I, L.P. (the "Partnership") for the year ended
December 27, 1996. The December 27, 1996 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 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. The Partnership was formed on November 20, 1996; accordingly, only the
1997 results are presented.
11
<PAGE>
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.
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 November 20, 1996, of the Trust
(incorporated by reference to Exhibit 4.1 to Registration Statement
on Form S-3 (No. 333-16603) (the "Registration Statement"))
4.2 Amended and Restated Declaration of Trust of the Trust, dated as of
December 11, 1996, of the Trust (incorporated by reference to
Exhibit 4.2 to the Trust's Annual Report on Form 10-K for the fiscal
year ended December 27, 1996 (File No. 1-7182-01))
4.3 Certificate of Limited Partnership, dated as of November 20, 1996,
of the Partnership (incorporated by reference to Exhibit 4.3 to the
Registration Statement)
4.4 Amended and Restated Agreement of Limited Partnership of the
Partnership, dated as of December 17, 1996, of the Partnership
(incorporated by reference to Exhibit 4.2 to the Partnership's
Annual Report on Form 10-K for the fiscal year ended December 27,
1996 (File No. 1-7182-02))
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 November,
1997.
MERRILL LYNCH PREFERRED CAPITAL TRUST I
By: /s/ THERESA LANG
-------------------------------------
Name: Theresa Lang
Title: Regular Trustee (Principal Financial
Officer of the Trust)
By: /s/ STANLEY SCHAEFER
-------------------------------------
Name: Stanley Schaefer
Title: Regular Trustee
MERRILL LYNCH PREFERRED FUNDING I, L.P.
By: MERRILL LYNCH & CO., INC., as General
Partner
By: /s/ THERESA LANG
-------------------------------------
Name: Theresa Lang
Title: Senior Vice President and Treasurer
(Principal Financial Officer of the
Partnership)
15
EXHIBIT 12
MERRILL LYNCH PREFERRED CAPITAL TRUST I
MERRILL LYNCH PREFERRED FUNDING I, L.P.
COMPUTATION OF RATIOS OF EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED SECURITIES DISTRIBUTIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 26, 1997
------------------------------------------------
MERRILL LYNCH PREFERRED MERRILL LYNCH PREFERRED
CAPITAL TRUST I FUNDING I, L.P.
----------------------- -----------------------
Earnings $ 5,492,913 $ 6,442,925
=========== ===========
Fixed charges $ -- $ --
Preferred securities distribution
requirements 5,328,125 5,492,913
----------- -----------
Total combined fixed charges and
preferred securities distributions $ 5,328,125 $ 5,492,913
=========== ===========
Ratio of earnings to combined
fixed charges and preferred
securities distributions 1.03 1.17
FOR THE NINE MONTHS ENDED SEPTEMBER 26, 1997
------------------------------------------------
MERRILL LYNCH PREFERRED MERRILL LYNCH PREFERRED
CAPITAL TRUST I FUNDING I, L.P.
----------------------- -----------------------
Earnings $16,601,197 $19,471,276
=========== ===========
Fixed charges $ -- $ --
Preferred securities distribution
requirements 15,984,375 16,478,739
----------- -----------
Total combined fixed charges and
preferred securities distributions $15,984,375 $16,478,739
=========== ===========
Ratio of earnings to combined
fixed charges and preferred
securities distributions 1.04 1.18
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001027342
<NAME> MERRILL LYNCH PREFERRED CAPITAL TRUST I
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-26-1997
<PERIOD-START> DEC-28-1996
<PERIOD-END> SEP-26-1997
<CASH> 0
<SECURITIES> 283,505,200
<RECEIVABLES> 5,492,913
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 288,998,113
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 288,998,113
<CURRENT-LIABILITIES> 5,492,913
<BONDS> 0
0
275,000,000
<COMMON> 8,505,200
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 288,998,113
<SALES> 0
<TOTAL-REVENUES> 16,601,197
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 16,601,197
<INCOME-TAX> 0
<INCOME-CONTINUING> 16,601,197
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,601,197
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001027343
<NAME> MERRILL LYNCH PREFERRED FUNDING I, L.P.
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-26-1997
<PERIOD-START> DEC-28-1996
<PERIOD-END> SEP-26-1997
<CASH> 0
<SECURITIES> 333,684,157
<RECEIVABLES> 6,394,816
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 340,078,973
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 340,078,973
<CURRENT-LIABILITIES> 6,394,816
<BONDS> 0
0
283,505,200
<COMMON> 50,178,957
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 340,078,973
<SALES> 0
<TOTAL-REVENUES> 19,471,276
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 19,471,276
<INCOME-TAX> 0
<INCOME-CONTINUING> 19,471,276
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,471,276
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
