UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 26, 2008
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NO.: 1-7182-06
MERRILL LYNCH PREFERRED CAPITAL TRUST III
(Exact name of Registrant as specified in its certificate of trust)
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
COMMISSION FILE NO.: 1-7182-05
MERRILL LYNCH PREFERRED FUNDING III, L.P.
(Exact name of Registrant as specified in its
certificate of limited partnership)
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
The Registrants meet the conditions set forth in General Instruction H 1 (a) and
(b) of Form 10-Q and are therefore filing this form with the reduced disclosure
format.
Indicate by check mark if the Registrants are well-known seasoned issuers, as
defined in Rule 405 of the Securities Act. Yes |_| No |X|
Indicate by check mark if the Registrants are not required to file reports
pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes |_| No |X|
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 |_|
Indicate by check mark whether the Registrants are large accelerated filers,
accelerated filers, or non-accelerated filers. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
(Check one)
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer[X]
Indicate by check mark whether the Registrants are shell companies (as defined
in Rule 12b-2 of the Exchange Act). Yes [] No [x]
As of the close of business on September 26, 2008, no voting stock of the
Registrants was held by non-affiliates of the Registrants.
As of November 7, 2008, no voting stock of the Registrants was held by
non-affiliates of the Registrants.
================================================================================
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS (Unaudited)
--------------------
MERRILL LYNCH PREFERRED CAPITAL TRUST III
CONDENSED BALANCE SHEETS (unaudited)
(dollars in thousands, except per security amounts)
- -------------------------------------------------------------------------------------------------------------------------
September 26, 2008 December 28, 2007
------------------ -----------------
ASSETS
Investment in affiliate partnership preferred securities $ 773,196 $ 773,196
Interest receivable from affiliate 13,531 13,531
---------- ----------
Total Assets $ 786,727 $ 786,727
========== ==========
Liabilities and Stockholders' Equity
Distribution payable $ 13,531 $ 13,531
---------- ----------
STOCKHOLDERS' EQUITY
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 $ 786,727 $ 786,727
========== ==========
See Note to Condensed Financial Statements
2
MERRILL LYNCH PREFERRED CAPITAL TRUST III
CONDENSED STATEMENTS OF EARNINGS (unaudited)
(dollars in thousands)
- ----------------------------------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED
-----------------------------------
September 26, 2008 September 28, 2007
------------------ ------------------
EARNINGS
Interest on affiliate partnership preferred securities $ 13,531 $13,531
========= =========
FOR THE NINE MONTHS ENDED
-----------------------------------
September 26, 2008 September 28, 2007
------------------ -------------------
EARNINGS
Interest on affiliate partnership preferred securities $ 40,593 $40,593
========== =============
See Note to Condensed Financial Statements
3
MERRILL LYNCH PREFERRED CAPITAL TRUST III
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited)
(dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------------------
FOR THE NINE MONTHS ENDED
-----------------------------------
September 26, 2008 September 28, 2007
------------------ ------------------
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 40,593 40,593
Distributions (27,062) (27,062)
Distributions payable (13,531) (13,531)
---------- ----------
Balance, end of period - -
---------- ----------
Total Stockholders' Equity $ 773,196 $ 773,196
========== ==========
See Note to Condensed Financial Statements
4
MERRILL LYNCH PREFERRED CAPITAL TRUST III
CONDENSED STATEMENTS OF CASH FLOWS (unaudited)
(dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------------
FOR THE NINE MONTHS ENDED
--------------------------------
September 26, 2008 September 28, 2007
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings $ 40,593 $ 40,593
Interest receivable from affiliate (13,531) (13,531)
-------- ---------
Cash provided by operating activities 27,062 27,062
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions (27,062) (27,062)
-------- ---------
Cash used for financing activities (27,062) (27,062)
-------- ---------
NET CHANGE IN CASH - -
CASH, BEGINNING OF PERIOD - -
-------- ---------
CASH, END OF PERIOD $ - $ -
======== =========
SUPPLEMENTAL DISCLOSURE OF NON CASH TRANSACTIONS:
Preferred and common distributions of $13,125 and $406 were accrued at
September 26, 2008 and September 28, 2007, respectively.
See Note to Condensed Financial Statements
5
MERRILL LYNCH PREFERRED CAPITAL TRUST III
NOTE TO CONDENSED FINANCIAL STATEMENTS (unaudited)
September 26, 2008
- -------------------------------------------------------------------------------
Summary of Significant Accounting Policies
For a complete discussion of significant accounting policies, refer to the
Audited Consolidated Financial Statements included in Merrill Lynch Preferred
Capital Trust III's (the "Trust") Annual Report on Form 10-K for the year ended
December 28, 2007.
The Trust is a statutory business trust formed under the Delaware business
Trust Act. Merrill Lynch & Co., Inc. (ML&Co.) is the sole owner of the Trust
common securities.
On September 15, 2008, ML&Co. entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Bank of America Corporation ("Bank of America").
The Merger Agreement provides that, upon the terms and subject to the
conditions set forth in the Merger Agreement, a wholly owned subsidiary of Bank
of America will merge with and into ML&Co. with ML&Co. continuing as the
surviving corporation and as a wholly owned subsidiary of Bank of America. The
merger has been approved by the board of directors of each of ML&Co. and Bank
of America and is subject to shareholder votes at both companies.
The transaction is expected to close on December 31, 2008 or earlier subject to
shareholder approval, customary closing conditions and regulatory approvals.
ML&Co. is currently assessing the impact of the acquistion to the
Trust.
BASIS OF PRESENTATION
These unaudited condensed financial statements should be read in conjunction
with the audited financial statements included in the Annual Report on Form 10-K
of the Trust for the year ended December 28, 2007. The December 28, 2007
balance sheet information was derived from the audited financial statements.
The interim condensed financial statements for the three- and nine- 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 condensed financial statements have been included.
INVESTMENTS
The Trust's investment in Merrill Lynch Preferred Funding III, L.P. (the
"Partnership") Preferred Securities represents a limited partnership interest in
the Partnership and is recorded at cost. At quarter end, the fair value of the
investment approximates its carrying value. Income on the Partnership Preferred
Securities is accrued when earned.
6
MERRILL LYNCH PREFERRED FUNDING III, L.P.
CONDENSED BALANCE SHEETS (unaudited)
(dollars in thousands)
- -------------------------------------------------------------------------------------------------------------------------
September 26, 2008 December 28, 2007
------------------ -----------------
ASSETS
Investments:
Affiliate debentures $ 900,547 $ 900,547
U.S. Government and agencies 9,156 9,125
---------- ----------
Total investments 909,703 909,672
Interest receivable from affiliate 15,760 15,759
---------- ----------
Total Assets $ 925,463 $ 925,431
========== ==========
Liability and Partners' Capital
Distribution Payable $ 15,760 $ 15,760
PARTNERS' CAPITAL
Partners' capital:
Limited partnership interest 773,196 773,196
General partnership interest 136,507 136,475
---------- ----------
Total Partners' Capital 909,703 909,671
---------- ----------
Total Liability and Partners' Capital $ 925,463 $ 925,431
========== ==========
See Note to Condensed Financial Statements
7
MERRILL LYNCH PREFERRED FUNDING III, L.P.
CONDENSED STATEMENTS OF EARNINGS (unaudited)
(dollars in thousands)
- ----------------------------------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED
-----------------------------------
September 26, 2008 September 28, 2007
------------------ ------------------
EARNINGS
Interest income:
Affiliate debentures $ 15,760 $ 15,759
U.S. Government and agencies 43 114
---------- ----------
Earnings $ 15,803 $ 15,873
========== ==========
FOR THE NINE MONTHS ENDED
-----------------------------------
September 26, 2008 September 28, 2007
------------------ -------------------
EARNINGS
Interest income:
Affiliate debentures $ 47,279 $ 47,277
U.S. Government and agencies 174 345
---------- ----------
Earnings $ 47,453 $ 47,622
========== ==========
See Note to Condensed Financial Statements
8
MERRILL LYNCH PREFERRED FUNDING III, L.P.
CONDENSED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (unaudited)
(dollars in thousands)
- -----------------------------------------------------------------------------------------------------------------------------
FOR THE NINE MONTHS ENDED
-----------------------------------
September 26, 2008 September 28, 2007
------------------ ------------------
LIMITED PARTNER'S CAPITAL
Balance, beginning of period $ 773,196 $ 773,196
Net income allocated to limited partner 40,593 40,593
Distributions (27,062) (27,062)
Distributions payable (13,531) (13,531)
---------- -----------
Balance, end of period 773,196 773,196
---------- ----------
GENERAL PARTNER'S CAPITAL
Balance, beginning of period 136,475 136,492
Net income allocated to general partner 6,860 7,030
Distributions (4,599) (4,689)
Distributions payable (2,229) (2,229)
---------- ----------
Balance, end of period 136,507 136,604
---------- ----------
TOTAL PARTNERS' CAPITAL $ 909,703 $ 909,800
========== ==========
See Note to Condensed Financial Statements
9
MERRILL LYNCH PREFERRED FUNDING III, L.P.
CONDENSED STATEMENTS OF CASH FLOWS (unaudited)
(dollars in thousands)
- ----------------------------------------------------------------------------------------------------------------------------
FOR THE NINE MONTHS ENDED
-----------------------------------
September 26, 2008 September 28, 2007
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings $ 47,453 $ 47,622
Accretion of U.S. Government and agencies (174) (345)
Interest receivable from affiliates (15,760) (15,759)
-------- ---------
Cash provided by operating activities 31,519 31,518
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment Securities (9,096) (9,094)
Maturities of Investment Securities 9,238 9,327
-------- ---------
Cash provided by investing activities 142 233
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to limited partner (27,062) (27,062)
Distributions to general partner (4,599) (4,689)
--------- ---------
Cash used for financing activities (31,661) (31,751)
--------- ---------
NET CHANGE IN CASH - -
CASH, BEGINNING OF PERIOD - -
--------- ---------
CASH, END OF PERIOD $ - $ -
========= =========
SUPPLEMENTAL DISCLOSURE OF NON CASH TRANSACTIONS:
Distributions of $15,760 and $15,759 were accrued at September 26, 2008 and
September 28, 2007, respectively.
See Note to Condensed Financial Statements
10
MERRILL LYNCH PREFERRED FUNDING III, L.P.
NOTE TO CONDENSED FINANCIAL STATEMENTS (unaudited)
September 26, 2008
- --------------------------------------------------------------------------------
Summary of Significant Accounting Policies
For a complete discussion of significant accounting policies, refer to the
Audited Consolidated Financial Statements included in Merrill Lynch Preferred
Funding III, L.P.'s (the "Partnership") Annual Report on Form 10-K for the
year ended December 28, 2007.
The Partnership is a statutory business trust formed under the Delaware business
Trust Act. Merrill Lynch & Co., Inc. (ML&Co.) is the sole general partner of
the Partnership.
On September 15, 2008, ML&Co. entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Bank of America Corporation ("Bank of America").
The Merger Agreement provides that, upon the terms and subject to the
conditions set forth in the Merger Agreement, a wholly owned subsidiary of Bank
of America will merge with and into ML&Co. with ML&Co. continuing as the
surviving corporation and as a wholly owned subsidiary of Bank of America. The
merger has been approved by the board of directors of each of ML&Co. and Bank
of America and is subject to shareholder votes at both companies.
The transaction is expected to close on December 31, 2008 or earlier subject to
shareholder approval, customary closing conditions and regulatory approvals.
ML&Co. is currently assessing the impact of the acquisition to the Partnership.
BASIS OF PRESENTATION
These unaudited condensed financial statements should be read in conjunction
with the audited financial statements included in the Annual Report on Form 10-K
of the Partnership for the year ended December 28, 2007. The December 28, 2007
balance sheet information was derived from the audited financial statements.
The interim condensed 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 condensed financial statements have been
included.
INVESTMENTS
The Partnership's investment in affiliate debentures, which is recorded at cost,
and its investment in U.S. Government and agencies, which are recorded at
accreted cost and which mature within one year, are classified as
available-for-sale, which both approximate fair value.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
No disclosure is required for this Item pursuant to General Instruction H of
Form 10-Q. There are no material changes in the amount of revenue and expense
items between the most recent fiscal year-to-date period presented and the
corresponding year-to-date period in the preceding fiscal year.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
No disclosure is required for this Item pursuant to General Instruction H of
Form 10-Q.
ITEM 4. CONTROLS AND PROCEDURES
The persons who function as the equivalent of the chief executive officer and
chief financial officer of the Trust and the Partnership have evaluated the
effectiveness of the Trust's and the Partnership's disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934) as of the end of the period covered by this Report. Based on that
evaluation, the persons who function as the equivalent of the chief executive
officer and chief financial officer of the Trust and the Partnership have
concluded that the Trust's and the Partnership's disclosure controls and
procedures were effective as of the end of the period covered by this Report.
In addition, no change in the Trust's and the Partnership's internal control
over financial reporting (as defined in Rule 13a-15(f) under the Securities
Exchange Act of 1934) occurred during the third fiscal quarter of 2008 that
has materially affected, or is reasonably likely to materially affect, the
Trust's or the Partnership's internal control over financial reporting.
12
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS
12 Computation of Ratios of Earnings to Combined Fixed Charges and
Preferred Securities Distributions.
31.1 Rule 13a - 14(a) Certification.
31.2 Rule 13a - 14(a) Certification.
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
13
SIGNATURES
Pursuant to the requirements 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.
MERRILL LYNCH PREFERRED CAPITAL TRUST III*
By: /s/ Marlene Debel
---------------------------------------------
Name: Marlene Debel
Title: Regular Trustee
MERRILL LYNCH PREFERRED FUNDING III, L.P.*
By: MERRILL LYNCH & CO., INC., as General Partner
By: /s/ GARY CARLIN
---------------------------------------------
Name: Gary Carlin
Title: Vice President, Controller and
Chief Accounting Officer,
Merrill Lynch & Co., Inc.
November 7, 2008
- ----------------
* 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 Trustees, 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.
31.1 Rule 13a - 14(a) Certification.
31.2 Rule 13a - 14(a) Certification.
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
15