Form 10-Q

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

UNITED STATES

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 August 31, 2005

¨	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 ¨

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

As of September 30, 2005, there were 1,077,921,972 shares of the Registrant’s Common Stock, par value $.01 per share, outstanding.

MORGAN STANLEY

INDEX TO QUARTERLY REPORT ON FORM 10-Q

Quarter Ended August 31, 2005


			Page
Part I—Financial Information
	Item 1.	Financial Statements (unaudited)
		Condensed Consolidated Statements of Financial Condition—August 31, 2005 and November 30, 2004	1
		Condensed Consolidated Statements of Income—Three and Nine Months Ended August 31, 2005 and 2004	3
		Condensed Consolidated Statements of Comprehensive Income—Three and Nine Months Ended August 31, 2005 and 2004	4
		Condensed Consolidated Statements of Cash Flows—Nine Months Ended August 31, 2005 and 2004	5
		Notes to Condensed Consolidated Financial Statements	6
		Report of Independent Registered Public Accounting Firm	35
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	73
	Item 4.	Controls and Procedures	80

Part II—Other Information
	Item 1.	Legal Proceedings	81
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	84
	Item 6.	Exhibits	85


		i

AVAILABLE INFORMATION

Morgan Stanley (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 the Company files with the SEC at the SEC’s public reference room at 100 F Street, NE, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for information on the public reference room. The SEC maintains an internet site that contains annual, quarterly and current reports, proxy and information statements and other information that issuers (including the Company) file electronically with the SEC. The SEC’s internet site is www.sec.gov.

The Company’s internet site is www.morganstanley.com. You can access the Company’s Investor Relations webpage through its internet site, www.morganstanley.com, by clicking on the “About Morgan Stanley” link to the heading “Investor Relations.” You can also access its Investor Relations webpage directly at www.morganstanley.com/about/ir. The Company makes available free of charge, on or through its Investor Relations webpage, its proxy statements, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The Company also makes available, through its Investor Relations webpage, via a link to the SEC’s internet site, statements of beneficial ownership of the Company’s equity securities filed by its directors, officers, 10% or greater shareholders and others under Section 16 of the Exchange Act.

The Company also has a Corporate Governance webpage. You can access the Company’s Corporate Governance webpage through its internet site, www.morganstanley.com, by clicking on the “About Morgan Stanley” link to the heading “Inside the Company.” You can also access its Corporate Governance webpage directly at www.morganstanley.com/about/inside/governance. Among other things, the Company posts the following on its Corporate Governance webpage:

•

Composite Certificate of Incorporation;

•

Bylaws;

•

Charters for its Audit Committee, Compensation, Management Development and Succession Committee and Nominating and Governance Committee;

•

Corporate Governance Policies;

•

Policy Regarding Communication with the Board of Directors;

•

Policy Regarding Director Candidates Recommended by Shareholders;

•

Policy Regarding Corporate Political Contributions;

•

Policy Regarding Shareholder Rights Plan; and

•

Code of Ethics and Business Conduct.

The information on the Company’s internet site is not incorporated by reference into this report. You can request a copy of the documents listed above, excluding exhibits, at no cost, by contacting Investor Relations at 1585 Broadway, New York, NY 10036 (212-761-4000).


		ii

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Item 1.

MORGAN STANLEY

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(dollars in millions, except share data)


	August 31, 2005		November 30, 2004
	(unaudited)
Assets
Cash and cash equivalents	$	27,681	$	32,811
Cash and securities deposited with clearing organizations or segregated under federal and other regulations (including securities at fair value of $33,568 at August 31, 2005 and $27,219 at November 30, 2004)		43,853		36,742
Financial instruments owned (approximately $87 billion at August 31, 2005 and $91 billion at November 30, 2004 were pledged to various parties):
U.S. government and agency securities		30,377		26,201
Other sovereign government obligations		21,391		19,782
Corporate and other debt		98,386		80,306
Corporate equities		43,336		27,608
Derivative contracts		49,413		49,475
Physical commodities		2,886		1,224

Total financial instruments owned		245,789		204,596
Securities received as collateral		43,974		37,848
Collateralized agreements:
Securities purchased under agreements to resell		143,642		123,041
Securities borrowed		227,097		208,349
Receivables:
Consumer loans (net of allowances of $828 at August 31, 2005 and $943 at November 30, 2004)		21,042		20,226
Customers, net		52,626		45,561
Brokers, dealers and clearing organizations		3,876		12,707
Fees, interest and other		8,635		5,801
Office facilities, at cost (less accumulated depreciation of $3,061 at August 31, 2005 and $2,780 at November 30, 2004)		2,727		2,605
Aircraft under operating leases (held for sale at August 31, 2005; at cost less accumulated depreciation of $1,174 at November 30, 2004)		2,000		3,926
Goodwill and net intangible assets		2,531		2,199
Other assets		11,918		10,922

Total assets	$	837,391	$	747,334


		1

MORGAN STANLEY

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION—(Continued)

(dollars in millions, except share data)


	August 31, 2005			November 30, 2004
	(unaudited)
Liabilities and Shareholders’ Equity
Commercial paper and other short-term borrowings	$	37,829		$	36,303
Deposits		19,822			13,777
Financial instruments sold, not yet purchased:
U.S. government and agency securities		17,044			12,664
Other sovereign government obligations		28,624			14,787
Corporate and other debt		6,195			9,641
Corporate equities		33,107			27,332
Derivative contracts		48,395			43,540
Physical commodities		4,078			3,351

Total financial instruments sold, not yet purchased		137,443			111,315
Obligation to return securities received as collateral		43,974			37,848
Collateralized financings:
Securities sold under agreements to repurchase		192,374			181,598
Securities loaned		114,745			97,146
Other secured financings		20,092			7,047
Payables:
Customers		112,178			115,653
Brokers, dealers and clearing organizations		7,624			4,550
Interest and dividends		2,873			3,068
Other liabilities and accrued expenses		17,794			15,471
Long-term borrowings		102,351			95,286

		809,099			719,062

Capital Units		66			66

Commitments and contingencies
Shareholders’ equity:
Common stock, $0.01 par value;
Shares authorized: 3,500,000,000 at August 31, 2005 and November 30, 2004; Shares issued: 1,211,701,552 at August 31, 2005 and November 30, 2004; Shares outstanding: 1,082,727,000 at August 31, 2005 and 1,087,087,116 at November 30, 2004		12			12
Paid-in capital		2,215			2,088
Retained earnings		33,011			31,426
Employee stock trust		3,547			3,824
Accumulated other comprehensive loss		(125	)		(56	)
Common stock held in treasury, at cost, $0.01 par value;
128,974,552 shares at August 31, 2005 and 124,614,436 shares at November 30, 2004		(6,887	)		(6,614	)
Common stock issued to employee trust		(3,547	)		(2,474	)

Total shareholders’ equity		28,226			28,206

Total liabilities and shareholders’ equity	$	837,391		$	747,334

See Notes to Condensed Consolidated Financial Statements.


		2

MORGAN STANLEY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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


	Three Months Ended August 31,				Nine Months Ended August 31,
	2005		2004		2005			2004
	(unaudited)				(unaudited)
Revenues:
Investment banking	$	992	$	783	$	2,627		$	2,595
Principal transactions:
Trading		2,159		703		5,938			4,656
Investments		94		125		334			345
Commissions		804		733		2,452			2,447
Fees:
Asset management, distribution and administration		1,249		1,138		3,699			3,409
Merchant, cardmember and other		357		347		983			990
Servicing		398		444		1,315			1,460
Interest and dividends		6,998		5,408		18,876			12,851
Other		106		107		332			227

Total revenues		13,157		9,788		36,556			28,980
Interest expense		5,986		4,150		16,172			9,994
Provision for consumer loan losses		224		240		568			702

Net revenues		6,947		5,398		19,816			18,284

Non-interest expenses:
Compensation and benefits		3,165		2,340		8,641			7,963
Occupancy and equipment		239		227		803			632
Brokerage, clearing and exchange fees		267		231		803			692
Information processing and communications		349		326		1,040			963
Marketing and business development		276		277		831			791
Professional services		505		398		1,322			1,069
Other		404		326		1,396			1,046
September 11^th related insurance recoveries, net		—		—		(251	)		—

Total non-interest expenses		5,205		4,125		14,585			13,156

Income from continuing operations before losses from unconsolidated investees, income taxes, dividends on preferred securities subject to mandatory redemption and cumulative effect of accounting change, net		1,742		1,273		5,231			5,128
Losses from unconsolidated investees		105		77		245			251

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