<PAGE>
===============================================================================
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 27, 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:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE 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 (Zip Code)
offices)
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 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 June 27, 1997, no voting stock was held by non-affiliates of the
Registrants.
===============================================================================
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------
MERRILL LYNCH PREFERRED CAPITAL TRUST I
BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
JUNE 27, DECEMBER 27,
1997 1996
-------------- --------------
ASSETS
<S> <C> <C>
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
============= =============
</TABLE>
See Note to Financial Statements
2
<PAGE>
MERRILL LYNCH PREFERRED CAPITAL TRUST I
STATEMENT OF EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 27, 1997 JUNE 27, 1997
------------- -------------
EARNINGS:
<S> <C> <C>
Income on partnership preferred securities $ 5,492,913 $ 11,108,284
============ ============
</TABLE>
See Note to Financial Statements
3
<PAGE>
MERRILL LYNCH PREFERRED CAPITAL TRUST I
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
- ---------------------------------------------------------------------
FOR THE SIX
MONTHS ENDED
JUNE 27, 1997
--------------
PREFERRED SECURITIES
Balance at December 27, 1996 $ 275,000,000
--------------
Balance at June 27, 1997 275,000,000
--------------
COMMON SECURITIES
Balance at December 27, 1996 8,505,200
--------------
Balance at June 27, 1997 8,505,200
--------------
UNDISTRIBUTED EARNINGS
Balance at December 27, 1996 -
Distribution paid in excess of amount accrued
at December 27, 1996 (122,458)
Distributions (5,492,913)
Earnings 11,108,284
Distributions payable (5,492,913)
--------------
Balance at June 27, 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 SIX
MONTHS ENDED
JUNE 27, 1997
-------------
EARNINGS $11,108,284
CASH FLOWS FROM OPERATING ACTIVITIES:
Increase in income receivable (4,821,557)
-----------
Cash provided by operating activities 6,286,727
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions (6,286,727)
-----------
Cash used in financing activities (6,286,727)
-----------
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 June 27, 1997.
See Note to Financial Statements
5
<PAGE>
MERRILL LYNCH PREFERRED CAPITAL TRUST I
NOTE TO FINANCIAL STATEMENTS
JUNE 27, 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 six-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)
- -------------------------------------------------------------------------------
JUNE 27, DECEMBER 27,
1997 1996
-------------- --------------
ASSETS
Cash $ - $ 8,805
-------------- ---------------
Investments:
Affiliates 330,055,000 330,055,000
U.S. Treasury bills 3,581,048 3,476,024
-------------- ---------------
Total 333,636,048 333,531,024
Interest receivable 6,394,816 781,589
-------------- ---------------
Total Assets $ 340,030,864 $ 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 50,130,848 50,144,862
-------------- ---------------
Total partners' capital 333,636,048 333,650,062
-------------- --------------
Total Liability and Partners' Capital $ 340,030,864 $ 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 SIX
MONTHS ENDED MONTHS ENDED
JUNE 27, 1997 JUNE 27, 1997
------------- -------------
Interest income:
Affiliate debentures $ 6,394,816 $ 12,932,132
U.S. Treasury bills 48,109 96,219
------------ ------------
Earnings $ 6,442,925 $ 13,028,351
============ ============
See Note to Financial Statements
8
<PAGE>
MERRILL LYNCH PREFERRED FUNDING I, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
- -------------------------------------------------------------------------------
FOR THE SIX
MONTHS ENDED
JUNE 27, 1997
-------------
LIMITED PARTNER'S CAPITAL
Balance at December 27, 1996 $ 283,505,200
Net income allocated to limited partner 11,108,284
Distribution in excess of amount accrued
at December 27, 1996 (122,458)
Distributions (5,492,913)
Distribution payable (5,492,913)
-------------
Balance at June 27, 1997 283,505,200
-------------
GENERAL PARTNER'S CAPITAL
Balance at December 27, 1996 50,144,862
Net income allocated to general partner 1,920,067
Distributions (1,032,178)
Distribution payable (901,903)
-------------
Balance at June 27, 1997 50,130,848
-------------
TOTAL PARTNERS' CAPITAL $ 333,636,048
=============
See Note to Financial Statements
9
<PAGE>
MERRILL LYNCH PREFERRED FUNDING I, L.P.
STATEMENT OF CASH FLOWS
- ------------------------------------------------------------------------------
FOR THE SIX
MONTHS ENDED
JUNE 27, 1997
-------------
EARNINGS $ 13,028,351
CASH FLOWS FROM OPERATING ACTIVITIES:
Accretion of U.S. Treasury bills (96,219)
Increase in interest receivable (5,613,227)
------------
Cash provided by operating activities 7,318,905
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities (8,805)
------------
Cash used in investing activities (8,805)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distribution to limited partner (6,286,727)
Distribution to general partner (1,032,178)
------------
Cash used in financing activities (7,318,905)
------------
DECREASE 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 June 27, 1997.
See Note to Financial Statements
10
<PAGE>
MERRILL LYNCH PREFERRED FUNDING I, L.P.
NOTE TO FINANCIAL STATEMENTS
JUNE 27, 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 six-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, 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, 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)
13
<PAGE>
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)
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 August, 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
<PAGE>
EXHIBIT 12
<TABLE>
<CAPTION>
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
FOR THE THREE MONTHS ENDED JUNE 27, 1997
----------------------------------------------------
MERRILL LYNCH PREFERRED MERRILL LYNCH PREFERRED
CAPITAL TRUST I FUNDING I, L.P.
------------------------ -----------------------
<S> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 27, 1997
--------------------------------------------------------
MERRILL LYNCH PREFERRED MERRILL LYNCH PREFERRED
CAPITAL TRUST I FUNDING I, L.P.
-------------------------- -----------------------
<S> <C> <C>
Earnings $11,108,284 $13,028,351
=========== ===========
Fixed charges $ - $ -
Preferred securities distribution
requirements 10,656,250 10,985,826
----------- -----------
Total combined fixed charges and
preferred securities distributions $10,656,250 $10,985,826
=========== ===========
Ratio of earnings to combined
fixed charges and preferred
securities distributions 1.04 1.19
</TABLE>
<TABLE> <S> <C>
<PAGE>
<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> JUN-27-1997
<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> 11,108,284
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 11,108,284
<INCOME-TAX> 0
<INCOME-CONTINUING> 11,108,284
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,108,284
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<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> JUN-27-1997
<CASH> 0
<SECURITIES> 333,636,048
<RECEIVABLES> 6,394,816
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 340,030,864
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 340,030,864
<CURRENT-LIABILITIES> 6,394,816
<BONDS> 0
0
283,505,200
<COMMON> 50,130,848
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 340,030,864
<SALES> 0
<TOTAL-REVENUES> 13,028,351
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 13,028,351
<INCOME-TAX> 0
<INCOME-CONTINUING> 13,028,351
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,028,351
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
