10-Q 1 d10q.htm FORM 10-Q Form 10-Q

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended February 28, 2003

 

OR

 

¨  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from              to             

 

Commission file number 1-11758

 

Morgan Stanley

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

  

36-3145972

(State of Incorporation)

  

(I.R.S. Employer Identification No.)

1585 Broadway

New York, NY

  

10036

(Address of Principal

Executive Offices)

  

(Zip Code)

 

Registrant’s telephone number, including area code: (212) 761-4000

 

Indicate by check mark whether the Registrant (1) has 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 Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x    No  ¨

 

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes  x    No  ¨

 

As of March 31, 2003, there were 1,087,291,293 shares of the Registrant’s Common Stock, par value $.01 per share, outstanding.

 

Table of Contents

MORGAN STANLEY

 

INDEX TO QUARTERLY REPORT ON FORM 10-Q

Quarter Ended February 28, 2003

 

    

Page

Part I—Financial Information

     

Item 1.    Financial Statements

     

Condensed Consolidated Statements of Financial Condition— February 28, 2003 (unaudited)
and November 30, 2002

  

1

Condensed Consolidated Statements of Income (unaudited)—Three Months Ended
February 28, 2003 and 2002

  

2

Condensed Consolidated Statements of Comprehensive Income (unaudited)—Three Months
Ended February 28, 2003 and 2002

  

3

Condensed Consolidated Statements of Cash Flows (unaudited)—Three Months Ended
February 28, 2003 and 2002

  

4

Notes to Condensed Consolidated Financial Statements (unaudited)

  

5

Independent Accountants’ Report

  

25

Item 2.     Management’s Discussion and Analysis of Financial Condition and
Results of Operations

  

26

Item 3.     Quantitative and Qualitative Disclosures About Market Risk

  

53

Item 4.     Controls and Procedures

  

57

Part II—Other Information

     

Item 1.     Legal Proceedings

  

58

Item 6.     Exhibits and Reports on Form 8-K

  

59

 

AVAILABLE INFORMATION

 

The Company files annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”). You may read and copy any document we file at the SEC’s public reference room at Room 1024, 450 Fifth Street, NW, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The SEC maintains a website that contains annual, quarterly and current reports, proxy statements and other information that issuers (including the Company) file electronically with the SEC. The SEC’s website is www.sec.gov. The Company’s website is www.morganstanley.com. The Company makes available free of charge through its internet site, via a link to the SEC’s website at www.sec.gov, its annual reports on Form 10-K; quarterly reports on Form 10-Q; current reports on Form 8-K; Forms 3, 4 and 5 filed on behalf of directors and executive officers; and any amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”) as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The Company makes available on www.morganstanley.com its most recent annual report on Form 10-K, its quarterly reports on Form 10-Q for the current fiscal year, its most recent proxy statement and its most recent summary annual report to shareholders, although in some cases these documents are not available on our site as soon as they are available on the SEC’s site. In addition, the Company posts on www.morganstanley.com charters for its Audit Committee, Compensation Committee and Nominating and Governance Committee as well as its Corporate Governance Policies and its Code of Ethics and Business Conduct for the Company’s employees, officers and directors. You will need to have on your computer the Adobe Acrobat Reader software to view these documents, which are in PDF format. If you do not have Adobe Acrobat, a link to Adobe’s Internet site, from which you can download the software, is provided. The information on the Company’s website is not incorporated by reference into this report.

 

i

Table of Contents

Item 1.

 

MORGAN STANLEY

 

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(dollars in millions, except share data)

 

    

February 28, 2003

       

November 30, 2002

  
    

(unaudited)

           

ASSETS

                    

Cash and cash equivalents

   

$

29,309

 

     

$

29,212

 

Cash and securities deposited with clearing organizations or segregated under federal and other regulations (including securities at fair value of $31,000 at February 28, 2003 and $27,721 at November 30, 2002)

   

 

40,707

 

     

 

38,411

 

Financial instruments owned (approximately $87 billion at February 28, 2003 and $71 billion at November 30, 2002 were pledged to various parties):

                    

U.S. government and agency securities

   

 

37,067

 

     

 

32,474

 

Other sovereign government obligations

   

 

27,815

 

     

 

27,694

 

Corporate and other debt

   

 

58,996

 

     

 

55,254

 

Corporate equities

   

 

22,220

 

     

 

21,996

 

Derivative contracts

   

 

50,235

 

     

 

35,615

 

Physical commodities

   

 

638

 

     

 

355

 

Securities purchased under agreements to resell

   

 

59,687

 

     

 

76,910

 

Securities received as collateral

   

 

13,194

 

     

 

12,200

 

Securities borrowed

   

 

140,566

 

     

 

130,404

 

Receivables:

                    

Consumer loans (net of allowances of $950 at February 28, 2003 and $928 at November 30, 2002)

   

 

21,150

 

     

 

23,014

 

Customers, net

   

 

30,039

 

     

 

22,262

 

Brokers, dealers and clearing organizations

   

 

6,456

 

     

 

2,250

 

Fees, interest and other

   

 

4,187

 

     

 

4,892

 

Office facilities, at cost (less accumulated depreciation and amortization of $2,295 at February 28, 2003 and $2,206 at November 30, 2002)

   

 

2,317

 

     

 

2,270

 

Aircraft under operating leases (less accumulated depreciation of $840 at February 28, 2003 and $769 at November 30, 2002)

   

 

4,815

 

     

 

4,849

 

Goodwill

   

 

1,460

 

     

 

1,449

 

Other assets

   

 

8,578

 

     

 

7,988

 

    
    

Total assets

   

$

559,436

 

     

$

529,499

 

    
    

LIABILITIES AND SHAREHOLDERS’ EQUITY

                    

Commercial paper and other short-term borrowings

   

$

45,541

 

     

$

50,789

 

Deposits

   

 

14,127

 

     

 

13,757

 

Financial instruments sold, not yet purchased:

                    

U.S. government and agency securities

   

 

15,234

 

     

 

13,235

 

Other sovereign government obligations

   

 

13,402

 

     

 

11,679

 

Corporate and other debt

   

 

9,511

 

     

 

12,240

 

Corporate equities

   

 

17,753

 

     

 

18,320

 

Derivative contracts

   

 

42,604

 

     

 

28,985

 

Physical commodities

   

 

2,217

 

     

 

1,833

 

Securities sold under agreements to repurchase

   

 

134,211

 

     

 

136,463

 

Obligation to return securities received as collateral

   

 

13,194

 

     

 

12,200

 

Securities loaned

   

 

55,031

 

     

 

43,229

 

Payables:

                    

Customers

   

 

93,069

 

     

 

88,229

 

Brokers, dealers and clearing organizations

   

 

790

 

     

 

4,610

 

Interest and dividends

   

 

5,186

 

     

 

3,363

 

Other liabilities and accrued expenses

   

 

12,556

 

     

 

12,245

 

Long-term borrowings

   

 

60,469

 

     

 

55,161

 

    
    
    

 

534,895

 

     

 

506,338

 

    
    

Capital Units

   

 

66

 

     

 

66

 

    
    

Preferred Securities Subject to Mandatory Redemption

   

 

2,010

 

     

 

1,210

 

    
    

Commitments and contingencies

                    

Shareholders’ equity:

                    

Common stock ($0.01 par value, 3,500,000,000 shares authorized, 1,211,685,904 and 1,211,685,904 shares issued, 1,089,745,941 and 1,081,417,377 shares outstanding at February 28, 2003 and November 30, 2002, respectively)

   

 

12

 

     

 

12

 

Paid-in capital

   

 

3,440

 

     

 

3,678

 

Retained earnings

   

 

25,901

 

     

 

25,250

 

Employee stock trust

   

 

2,942

 

     

 

3,003

 

Accumulated other comprehensive income (loss)

   

 

(270)

    

 

(251)

    
    

Subtotal

   

 

32,025

 

     

 

31,692

 

Note receivable related to ESOP

   

 

(9)

    

 

(13)

Common stock held in treasury, at cost ($0.01 par value, 121,939,963 and 130,268,527 shares at February 28, 2003 and November 30, 2002, respectively)

   

 

(6,609)

    

 

(7,176)

Common stock issued to employee trust

   

 

(2,942)

    

 

(2,618)

    
    

Total shareholders’ equity

   

 

22,465

 

     

 

21,885

 

    
    

Total liabilities and shareholders’ equity

   

$

559,436

 

     

$

529,499

 

    
    

 

See Notes to Condensed Consolidated Financial Statements.

 

1

Table of Contents

MORGAN STANLEY

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(dollars in millions, except share and per share data)

 

    

Three Months

Ended February 28,

    

2003

     

2002

    

(unaudited)

Revenues:

                

Investment banking

   

$

589

 

   

$

674

Principal transactions:

                

Trading

   

 

1,556

 

   

 

1,132

Investments

   

 

(22

)

   

 

33

Commissions

   

 

670

 

   

 

777

Fees:

                

Asset management, distribution and administration

   

 

903

 

   

 

1,016

Merchant and cardmember

   

 

363

 

   

 

342

Servicing

   

 

567

 

   

 

540

Interest and dividends

   

 

3,789

 

   

 

3,836

Other

   

 

87

 

   

 

196

    
  

Total revenues

   

 

8,502

 

   

 

8,546

Interest expense

   

 

2,688

 

   

 

2,936

Provision for consumer loan losses

   

 

336

 

   

 

345

    
  

Net revenues

   

 

5,478

 

   

 

5,265

    
  

Non-interest expenses:

                

Compensation and benefits

   

 

2,548

 

   

 

2,489

Occupancy and equipment

   

 

196

 

   

 

198

Brokerage, clearing and exchange fees

   

 

191

 

   

 

179

Information processing and communications

   

 

316

 

   

 

322

Marketing and business development

   

 

269

 

   

 

254

Professional services

   

 

225

 

   

 

225

Other

   

 

307

 

   

 

251

    
  

Total non-interest expenses

   

 

4,052

 

   

 

3,918

    
  

Income before income taxes and dividends on preferred securities subject to mandatory redemption

   

 

1,426

 

   

 

1,347

Provision for income taxes

   

 

499

 

   

 

477

Dividends on preferred securities subject to mandatory redemption

   

 

22

 

   

 

22

    
  

Net income

   

$

905

 

   

$

848

    
  

Earnings per common share:

                

Basic

   

$

0.84

 

   

$

0.78

    
  

Diluted

   

$

0.82

 

   

$

0.76

    
  

Average common shares outstanding:

                

Basic

   

 

1,079,052,442

 

   

 

1,082,380,245

    
  

Diluted

   

 

1,099,724,140

 

   

 

1,112,959,092

    
  

 

See Notes to Condensed Consolidated Financial Statements.

 

2

Table of Contents

MORGAN STANLEY

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(dollars in millions)

 

    

Three Months

Ended
February 28,

  
    

2003

     

2002

  
    

(unaudited)

  

Net income

   

$

905

 

   

$

848

 

Other comprehensive income (loss), net of tax:

                  

Foreign currency translation adjustment

   

 

22

 

   

 

(8

)

Net change in cash flow hedges

   

 

(41

)

   

 

7

 

    
  

Comprehensive income