UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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Date of Report (Date of earliest event reported):
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April 3, 2006 |
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Merrill Lynch & Co., Inc.
(Exact Name of Registrant as Specified in its Charter)
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| Delaware
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1-7182
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13-2740599 |
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(State or Other
Jurisdiction of
Incorporation)
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(Commission
File Number)
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(I.R.S. Employer
Identification No.) |
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4 World Financial Center, New York, New York
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10080 |
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(Address of Principal Executive Offices)
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(Zip Code)
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Registrant’s telephone number, including area code:
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(212) 449-1000 |
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(Former Name or Former Address, if Changed Since Last Report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17
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TABLE OF CONTENTS
Item 1.01. Modification of a Material Definitive Agreement
Merrill Lynch has adopted the provisions of SFAS No. 123 (revised 2004), Share-Based Payment,
a revision of SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123R”) in the first
quarter of 2006. Previously, Merrill Lynch had recognized expense for stock based compensation
over the vesting period stipulated in the grant for all employees, including those who had
satisfied retirement eligibility criteria but were subject to a non-compete agreement that applied
from the date of retirement through each applicable vesting period. Under emerging guidance on
SFAS No. 123R since the filing of its 2005 Annual Report on Form 10-K, Merrill Lynch is now required to recognize the total expense for stock-based compensation awards
granted to retirement-eligible employees by the date of grant rather than over the applicable
non-compete period. Thus, the total expense for the stock-based
compensation awards for the 2005 performance year granted to
retirement-eligible employees in January 2006 is being recognized in the first quarter of 2006. In
addition, beginning with performance year 2006, for which Merrill
Lynch expects to grant stock awards in early 2007, Merrill Lynch will accrue the expense for future
awards granted to retirement eligible-employees over the award performance year instead of
recognizing the entire expense related to the grant on the grant date.
The adoption of SFAS No. 123R, combined with other business and competitive considerations,
prompted Merrill Lynch to undertake a comprehensive review of the company’s stock-based incentive
compensation awards, including vesting schedules and retirement eligibility requirements, examining
their impact to both the firm and its employees. Upon the completion of this review, the
Management Development and Compensation Committee of Merrill Lynch’s Board of Directors determined that to fulfill the objective of retaining high quality personnel, future stock
grants should contain more stringent provisions that include a combination of increased age and
length of service requirements for employees to be eligible to retire
from Merrill Lynch while their stock awards continue to vest, subject to continued compliance with the strict non-compete
provisions of those awards. To facilitate transition to the more stringent future requirements,
the terms of most outstanding stock awards previously granted to employees, including certain
executive officers, were modified, effective March 31, 2006, to permit employees to be immediately
eligible for retirement with respect to those earlier awards. While Merrill Lynch modified the
retirement-related provisions of the previous stock awards, the
vesting and non-compete provisions for those
awards remain in force.
Under SFAS No. 123R, this modification requires Merrill Lynch to record additional one-time
compensation expense in the first quarter of 2006 for the remaining unamortized amount of all
awards to employees who had not previously been retirement-eligible under the original provisions
of the awards.
When combined with the adoption of SFAS No. 123R, the policy modifications to previous awards will
result in a one-time, non-cash net charge in the first quarter of 2006 that is larger than the $350
million after-tax impact estimated at the time of Merrill Lynch’s 2005 Annual Report on Form 10-K.
The Form 10-K estimate did not include the impact of the modifications to previous awards. The
combined one-time non-cash net charge to compensation expense in the first quarter of 2006 will be
approximately $1.8 billion pre-tax, and $1.2 billion after-tax.
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It is important to note that the one-time non-cash compensation expenses in the first quarter of
2006 are solely timing differences and are not expected to result in any substantive change in the
ultimate cost of these stock-based compensation awards.
Compensation expenses for stock awards granted prior to 2006 to employees who had been
retirement-eligible prior to 2006 will continue to be recognized over the applicable vesting
periods, as will all future stock awards granted to employees not eligible for career retirement.
The net impact of the adoption of SFAS 123R and the modifications to existing awards is currently
not expected to be material to Merrill Lynch aside from the one-time charges in the first quarter
of 2006. Excluding the one-time charges in the first quarter of 2006, the increase in ongoing
compensation expenses during 2006 associated with the acceleration of the expense recognition for
stock awards to be granted to retirement-eligible employees in 2007 for the performance year 2006
is expected to be generally offset by the reduction in ongoing compensation expenses attributable
to the modifications to the 2006 and prior awards for previously non-retirement-eligible employees.
See Note 14 to the Consolidated Financial Statements in Merrill Lynch’s 2005 Annual Report on Form
10-K for further information on share-based compensation arrangements.
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