<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 25, 1999
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 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)
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% 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 June 25, 1999, no voting stock was held by non-affiliates of the
Registrants.
================================================================================
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
--------------------
<TABLE>
<CAPTION>
MERRILL LYNCH PREFERRED CAPITAL TRUST I
BALANCE SHEETS (UNAUDITED)
(dollars in thousands, except per security amounts)
- -----------------------------------------------------------------------------------
JUNE 25, 1999 DECEMBER 25, 1998
------------- -----------------
<S> <C> <C>
ASSETS
Investment in partnership preferred securities $ 283,505 $ 283,505
Income receivable 5,493 5,493
--------- ---------
Total Assets $ 288,998 $ 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 $ 288,998 $ 288,998
========= =========
</TABLE>
See Note to Financial Statements
2
<PAGE>
<TABLE>
<CAPTION>
MERRILL LYNCH PREFERRED CAPITAL TRUST I
STATEMENTS OF EARNINGS (UNAUDITED)
(dollars in thousands)
- -----------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED
--------------------------------
JUNE 25, 1999 JUNE 26, 1998
------------- -------------
<S> <C> <C>
EARNINGS
Income on partnership preferred securities $ 5,493 $ 5,493
========= =========
FOR THE SIX MONTHS ENDED
--------------------------------
JUNE 25, 1999 JUNE 26, 1998
------------- -------------
<S> <C> <C>
EARNINGS
Income on partnership preferred securities $ 10,986 $ 10,986
========= =========
</TABLE>
See Note to Financial Statements
3
<PAGE>
<TABLE>
<CAPTION>
MERRILL LYNCH PREFERRED CAPITAL TRUST I
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
(dollars in thousands)
- -----------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
----------------------------------
JUNE 25, 1999 JUNE 26, 1998
------------- -------------
<S> <C> <C>
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 10,986 10,986
Distributions (5,493) (5,493)
Distributions payable (5,493) (5,493)
--------- ---------
Balance, end of period - -
--------- ---------
Total Stockholders' Equity $ 283,505 $ 283,505
========= =========
</TABLE>
See Note to Financial Statements
4
<PAGE>
<TABLE>
<CAPTION>
MERRILL LYNCH PREFERRED CAPITAL TRUST I
STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
- -----------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
----------------------------------
JUNE 25, 1999 JUNE 26, 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings $ 10,986 $ 10,986
--------- ---------
Cash provided by operating activities 10,986 10,986
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions (10,986) (10,986)
--------- ---------
Cash used for financing activities (10,986) (10,986)
--------- ---------
NET CHANGE IN CASH - -
CASH, BEGINNING OF PERIOD - -
--------- ---------
CASH, END OF PERIOD $ - $ -
========= =========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:
Preferred and common distributions of $5,328 and $165, respectively, were
accrued at June 25, 1999 and June 26, 1998.
See Note to Financial Statements
5
<PAGE>
MERRILL LYNCH PREFERRED CAPITAL TRUST I
NOTE TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 25, 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 I (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-
and six-month periods are unaudited; however, in the opinion of the Regular
Trustee 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>
<TABLE>
<CAPTION>
MERRILL LYNCH PREFERRED FUNDING I, L.P.
BALANCE SHEETS (UNAUDITED)
(dollars in thousands)
- -----------------------------------------------------------------------------------
JUNE 25, 1999 DECEMBER 25, 1998
------------- -----------------
<S> <C> <C>
ASSETS
Cash $ 1 $ 380
Investments:
Affiliate debentures 330,055 330,055
U.S. Treasury bills 3,504 3,486
--------- ---------
Total investments 333,559 333,541
Interest receivable 6,395 6,395
--------- ---------
Total Assets $ 339,955 $ 340,316
========= =========
LIABILITY AND PARTNERS' CAPITAL
Distributions payable $ 6,395 $ 6,395
--------- ---------
Partners' capital:
Limited partnership interest 283,505 283,505
General partnership interest 50,055 50,416
--------- ---------
Total partners' capital 333,560 333,921
--------- ---------
Total Liability and Partners' Capital $ 339,955 $ 340,316
========= =========
</TABLE>
See Note to Financial Statements
7
<PAGE>
<TABLE>
<CAPTION>
MERRILL LYNCH PREFERRED FUNDING I, L.P.
STATEMENTS OF EARNINGS (UNAUDITED)
(dollars in thousands)
- -----------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED
----------------------------------
JUNE 25, 1999 JUNE 26, 1998
------------- -------------
<S> <C> <C>
EARNINGS
Interest income:
Affiliate debentures $ 6,395 $ 6,395
U.S. Treasury bills 40 55
--------- ---------
Earnings $ 6,435 $ 6,450
========= =========
FOR THE SIX MONTHS ENDED
----------------------------------
JUNE 25, 1999 JUNE 26, 1998
------------- -------------
EARNINGS
Interest income:
Affiliate debentures $ 12,790 $ 12,790
U.S. Treasury bills 78 102
--------- ---------
Earnings $ 12,868 $ 12,892
========= =========
</TABLE>
See Note to Financial Statements
8
<PAGE>
<TABLE>
<CAPTION>
MERRILL LYNCH PREFERRED FUNDING I, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (UNAUDITED)
(dollars in thousands)
- -----------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
----------------------------------
JUNE 25, 1999 JUNE 26, 1998
------------- -------------
<S> <C> <C>
LIMITED PARTNER'S CAPITAL
Balance, beginning of period $ 283,505 $ 283,505
Net income allocated to limited partner 10,986 10,986
Distributions (5,493) (5,493)
Distributions payable (5,493) (5,493)
--------- ---------
Balance, end of period 283,505 283,505
--------- ---------
GENERAL PARTNER'S CAPITAL
Balance, beginning of period 50,416 50,228
Net income allocated to general partner 1,882 1,906
Distributions (1,341) (915)
Distributions payable (902) (902)
--------- ---------
Balance, end of period 50,055 50,317
--------- ---------
TOTAL PARTNERS' CAPITAL $ 333,560 $ 333,822
========= =========
</TABLE>
See Note to Financial Statements
9
<PAGE>
<TABLE>
<CAPTION>
MERRILL LYNCH PREFERRED FUNDING I, L.P.
STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
- -----------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
----------------------------------
JUNE 25, 1999 JUNE 26, 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings $ 12,868 $ 12,892
Accretion of U.S. Treasury bills (78) (102)
--------- ---------
Cash provided by operating activities 12,790 12,790
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities (3,479) (3,655)
Maturities of investment securities 3,540 3,669
--------- ---------
Cash provided by investing activities 61 14
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to limited partner (10,986) (10,986)
Distributions to general partner (2,244) (1,818)
--------- ---------
Cash used for financing activities (13,230) (12,804)
--------- ---------
NET CHANGE IN CASH (379) -
CASH, BEGINNING OF PERIOD 380 -
--------- ---------
CASH, END OF PERIOD $ 1 $ -
========= =========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:
Distributions of $6,395 were accrued at June 25, 1999 and June 26, 1998.
See Note to Financial Statements
10
<PAGE>
MERRILL LYNCH PREFERRED FUNDING I, L.P.
NOTE TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 25, 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 Funding I, 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-
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
<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.
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.
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 9th day of August,
1999.
MERRILL LYNCH PREFERRED CAPITAL TRUST I*
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/ 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
<PAGE>
INDEX TO EXHIBITS
Exhibits
12 Computation of Ratios of Earnings to Combined Fixed Charges and
Preferred Securities Distributions
27 Financial Data Schedules
15
<PAGE>
<TABLE>
<CAPTION>
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
(dollars in thousands)
FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS ENDED
JUNE 25, 1999 JUNE 26, 1998
---------------------------------- ----------------------------------
MERRILL LYNCH MERRILL LYNCH MERRILL LYNCH MERRILL LYNCH
PREFERRED PREFERRED PREFERRED PREFERRED
CAPITAL TRUST I FUNDING I, L.P. CAPITAL TRUST I FUNDING I, L.P.
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
EARNINGS $ 5,493 $ 6,435 $ 5,493 $ 6,450
========= ========= ========= =========
FIXED CHARGES $ - $ - $ - $ -
PREFERRED SECURITIES
DISTRIBUTION REQUIREMENTS 5,328 5,493 5,328 5,493
--------- --------- --------- ---------
TOTAL COMBINED FIXED CHARGES AND
PREFERRED SECURITIES DISTRIBUTIONS $ 5,328 $ 5,493 $ 5,328 $ 5,493
========= ========= ========= =========
RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED
SECURITIES DISTRIBUTIONS 1.03 1.17 1.03 1.17
FOR THE SIX MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 25, 1999 JUNE 26, 1998
---------------------------------- ----------------------------------
MERRILL LYNCH MERRILL LYNCH MERRILL LYNCH MERRILL LYNCH
PREFERRED PREFERRED PREFERRED PREFERRED
CAPITAL TRUST I FUNDING I, L.P. CAPITAL TRUST I FUNDING I, L.P.
--------------- --------------- --------------- ---------------
EARNINGS $ 10,986 $ 12,868 $ 10,986 $ 12,892
========= ========= ========= =========
FIXED CHARGES $ - $ - $ - $ -
PREFERRED SECURITIES DISTRIBUTION
REQUIREMENTS 10,656 10,986 10,656 10,986
--------- --------- --------- ---------
TOTAL COMBINED FIXED CHARGES AND
PREFERRED SECURITIES DISTRIBUTIONS $ 10,656 $ 10,986 $ 10,656 $ 10,986
========= ========= ========= =========
RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED
SECURITIES DISTRIBUTIONS 1.03 1.17 1.03 1.17
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001027342
<NAME> MERRILL LYNCH PREFERRED CAPITAL TRUST I
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> DEC-26-1998
<PERIOD-END> JUN-25-1999
<CASH> 0
<SECURITIES> 283,505
<RECEIVABLES> 5,493
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 288,998
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 288,998
<CURRENT-LIABILITIES> 5,493
<BONDS> 0
0
275,000
<COMMON> 8,505
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 288,998
<SALES> 0
<TOTAL-REVENUES> 10,986
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 10,986
<INCOME-TAX> 0
<INCOME-CONTINUING> 10,986
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,986
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001027343
<NAME> MERRILL LYNCH PREFERRED FUNDING I, L.P.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> DEC-26-1998
<PERIOD-END> JUN-25-1999
<CASH> 1
<SECURITIES> 333,559
<RECEIVABLES> 6,395
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 339,955
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 339,955
<CURRENT-LIABILITIES> 6,395
<BONDS> 0
0
283,505
<COMMON> 50,055
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 339,955
<SALES> 0
<TOTAL-REVENUES> 12,868
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 12,868
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,868
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,868
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
