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 30, 2009
[ ] 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
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 have submitted electronically and
posted on its corporate web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (&232.405)
during the preceding 12 months (or for such shorter period that the registrants
were required to submit and post such files). Yes [ ] No [ ]
Indicate by check mark whether the Registrants are large accelerated filers,
accelerated filers, non-accelerated filers, or smaller reporting companies.
See definition of "accelerated filer", "large accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
(Check one)
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer[X]
Smaller reporting company [ ]
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 November 13, 2009, no voting stock of the Registrants was held by
non-affiliates of the Registrants.
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 a reduced disclosure
format.
================================================================================
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 30, 2009 December 26, 2008
------------------ -----------------
ASSETS
Investment in affiliate partnership preferred securities $ 773,196 $ 773,196
Interest receivable from affiliates - 13,531
---------- ----------
Total Assets $ 773,196 $ 786,727
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Distribution payable $ - $ 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 Liabilities and Stockholders' Equity $ 773,196 $ 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 30, 2009 September 26, 2008
------------------ ------------------
EARNINGS
Interest on affiliate partnership preferred securities $ 13,531 $ 13,531
========= =========
FOR THE NINE MONTHS ENDED
-----------------------------------
September 30, 2009 September 26, 2008
------------------ ------------------
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 30, 2009 September 26, 2008
------------------ ------------------
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 (40,593) (27,062)
Distributions payable - (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 30, 2009 September 26, 2008
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings $ 40,593 $ 40,593
Change in interest receivable from affiliates - (13,531)
-------- ----------
Cash provided by operating activities 40,593 27,062
-------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions (40,593) (27,062)
-------- ----------
Cash used for financing activities (40,593) (27,062)
-------- ----------
NET CHANGE IN CASH - -
CASH, BEGINNING OF PERIOD - -
-------- ----------
CASH, END OF PERIOD $ - $ -
======== ==========
SUPPLEMENTAL DISCLOSURE OF NON CASH TRANSACTIONS:
Distributions accrued at September 30, 2009 and September 26, 2008 were $0 and
$13,531, respectively.
See Note to Condensed Financial Statements
5
MERRILL LYNCH PREFERRED CAPITAL TRUST III
NOTE TO CONDENSED FINANCIAL STATEMENTS (unaudited)
September 30, 2009
- -------------------------------------------------------------------------------
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 26, 2008.
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 January 1, 2009, ML&Co. was acquired by Bank of America Corporation ("Bank of
America") with ML&Co. continuing as a wholly-owned subsidiary of Bank of
America.
BASIS OF PRESENTATION
Effective January 1, 2009, the Trust adopted calendar quarter-end and year-end
reporting periods to coincide with those of ML&Co. and Bank of America.
Earnings for the intervening period between the Trust's previous fiscal
year-end (December 26, 2008) and beginning of the current year
(January 1, 2009) were not material. During this period, the Trust received cash
of $13.5 million from an affiliate and paid $13.5 million in distributions.
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 26, 2008. The interim condensed
financial statements for the three- and nine- month periods are unaudited;
however, all adjustments necessary for a fair presentation 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. 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 30, 2009 December 26, 2008
------------------ -----------------
ASSETS
Investments:
Affiliate debentures $ 900,547 $ 900,547
U.S. Government and agencies 9,099 9,101
---------- ----------
Total investments 909,646 909,648
Interest receivable from affiliates - 15,760
---------- ----------
Total Assets $ 909,646 $ 925,408
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Distribution Payable $ - $ 15,760
--------- ----------
PARTNERS' CAPITAL
Partners' capital:
Limited partnership interest 773,196 773,196
General partnership interest 136,450 136,452
---------- ----------
Total Partners' Capital 909,646 909,648
---------- ----------
Total Liabilities and Partners' Capital $ 909,646 $ 925,408
========== ==========
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 30, 2009 September 26, 2008
-------------- --------------
EARNINGS
Interest income:
Affiliate debentures $ 15,760 $ 15,760
U.S. Government and agencies 5 43
---------- ----------
Earnings $ 15,765 $ 15,803
========== ==========
FOR THE NINE MONTHS ENDED
-----------------------------------
September 30, 2009 September 26, 2008
-------------- --------------
EARNINGS
Interest income:
Affiliate debentures $ 47,279 $ 47,279
U.S. Government and agencies 24 174
---------- ----------
Earnings $ 47,303 $ 47,453
========== ==========
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 30, 2009 September 26, 2008
------------------ ------------------
LIMITED PARTNER'S CAPITAL
Balance, beginning of period $ 773,196 $ 773,196
Net income allocated to limited partner 40,593 40,593
Distributions (40,593) (27,062)
Distributions payable - (13,531)
---------- -----------
Balance, end of period 773,196 773,196
---------- ----------
GENERAL PARTNER'S CAPITAL
Balance, beginning of period 136,452 136,475
Net income allocated to general partner 6,710 6,860
Distributions (6,712) (4,599)
Distributions payable - (2,229)
---------- ----------
Balance, end of period 136,450 136,507
---------- ----------
TOTAL PARTNERS' CAPITAL $ 909,646 $ 909,703
========== ==========
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 30, 2009 September 26, 2008
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings $ 47,303 $ 47,453
Accretion of interest on securities issued by
U.S. Government and agencies (24) (174)
Change in interest receivable from affiliates - (15,760)
-------- ---------
Cash provided by operating activities 47,279 31,519
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment securities (18,192) ( 9,096)
Maturities of investment securities 18,218 9,238
-------- ---------
Cash provided by investing activities 26 142
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to limited partner (40,593) (27,062)
Distributions to general partner (6,712) (4,599)
--------- ---------
Cash used for financing activities (47,305) (31,661)
--------- ---------
NET CHANGE IN CASH - -
CASH, BEGINNING OF PERIOD - -
--------- ---------
CASH, END OF PERIOD $ - $ -
========= =========
SUPPLEMENTAL DISCLOSURE OF NON CASH TRANSACTIONS:
Distributions accrued at September 30, 2009 and September 26, 2008 were $0 and
$15,760, respectively.
See Note to Condensed Financial Statements
10
MERRILL LYNCH PREFERRED FUNDING III, L.P.
NOTE TO CONDENSED FINANCIAL STATEMENTS (unaudited)
September 30, 2009
- --------------------------------------------------------------------------------
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 26, 2008.
The Partnership is a limited partnership formed under the Delaware Revised
Uniform Limited Partnership Act. Merrill Lynch & Co., Inc. ("ML&Co.") is the
sole general partner of the Partnership.
On January 1, 2009, ML&Co. was acquired by Bank of America Corporation ("Bank of
America") with ML&Co. continuing as a wholly-owned subsidiary of Bank of
America.
BASIS OF PRESENTATION
Effective January 1, 2009, the Partnership adopted calendar quarter-end and
year-end reporting periods to coincide with those of ML&Co. and Bank of America.
Earnings for the intervening period between the Partnership's previous
fiscal year-end (December 26, 2008) and beginning of the current year
(January 1, 2009) were not material. During this period, the Partnership
received cash of $15.8 million from an affiliate and paid $15.8 million in
distributions.
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 26, 2008. The interim condensed
financial statements for the three- and nine-month periods are unaudited;
however, all adjustments necessary for a fair presentation of the condensed
financial statements have been included.
INVESTMENTS
The Partnership's investment in affiliate debentures is recorded at cost. Its
investment in U.S. Government and agency securities is recorded at accreted cost
and matures within one year. At September 30, 2009, the estimated fair value of
the investment in affiliate debentures is approximately $574 million and the
fair value of the investment in U.S. Government and agency securities
approximates its carrying 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 calendar 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 quarter of 2009 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 1A. Risk Factors
There are no material changes from the risk factors set forth under Part I,
Item 1A. "Risk Factors" in the Trust's and the Partnership's 2008 Annual Report
on Form 10-K, other than the addition of the following risk factor included in
ML&Co.'s Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2009, which is incorporated by reference from Exhibit 99.1 to
this report.
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.
99.1 Excerpt of Merrill Lynch & Co., Inc. Quarterly Report on Form
10-Q for the period ended September 30, 2009.
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/ THOMAS W. PERRY
---------------------------------------------
Name: Thomas W. Perry
Title: Chief Accounting Officer and Controller
Merrill Lynch & Co., Inc.
November 13, 2009
- -----------------
* 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.
99.1* Excerpt of Merrill Lynch & Co., Inc. Quarterly Report on Form
10-Q for the period ended September 30, 2009.
- ---------------
*Filed herewith
15