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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.
Part III
Item 10. Directors and Executive Officers of the Registrant. The information relating to directors and nominees of Morgan Stanley is set forth under the caption “Item 1—Election of Directors” in Morgan Stanley’s proxy statement for its 2003 annual meeting of shareholders (“Morgan Stanley’s Proxy Statement”) and is incorporated by reference herein. Information relating to the executive officers of Morgan Stanley is set forth in this report under the caption “Executive Officers of Morgan Stanley.”
Item 11. Executive Compensation. The information relating to executive compensation is set forth under the captions “Summary compensation table,” “Option grants in last fiscal year,” “Aggregated option exercises in last fiscal year and fiscal year-end option values,” “Pension plans” and “Director compensation” in Morgan Stanley’s Proxy Statement and such information is incorporated by reference herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Equity Compensation Plan Information.
The following table provides information about stock options outstanding and shares available for future awards under all of Morgan Stanley’s equity compensation plans. The information is as of November 30, 2002 and includes equity awards granted to employees subsequent to fiscal year-end but as part of year-end compensation for fiscal 2002. Morgan Stanley has not made any grants outside of its equity compensation plans.
|
(a) |
(b) |
(c) | ||||
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Plan Category |
Number of securities to be issued upon exercise of outstanding options, warrants and rights(1) |
Weighted-average exercise price of outstanding options, warrants and rights(1) |
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))(3) | |||
|
Equity compensation plans approved by security holders |
163,663,043(2) |
$40.1061(2) |
185,960,074(4) | |||
|
Equity compensation plans not approved by security holders |
0 |
— |
13,265,006(5) | |||
|
Total(6) |
163,663,043 |
$40.1061 |
199,225,080 |
| (1) | This column contains information regarding employee stock options only; there are no warrants or stock appreciation rights outstanding. |
| (2) | Includes stock options to purchase 30,259,062 shares of common stock at a weighted-average exercise price of $9.63 that were assumed as a result of the merger of Dean Witter, Discover & Co. and Morgan Stanley Group Inc. effected on May 31, 1997. |
| (3) | This column does not include 6,298,104 shares available under the DPSP/START Plan, Morgan Stanley’s 401(k) retirement plan, in accordance with SEC rules. |
| (4) | Includes the following: |
| • | 80,969,034 shares available under the 1995 Equity Incentive Compensation Plan, Morgan Stanley’s principal plan for making equity awards to employees. Awards under this plan may consist of stock awards, stock units that are settled by the delivery of shares of common stock, stock options, stock appreciation rights and other forms of equity-based or equity-related awards approved by the Compensation Committee of Morgan Stanley’s Board of Directors. To date, awards under this plan have consisted principally of stock units and stock options. |
| • | 46,761,527 shares available under the Employee Stock Purchase Plan. Pursuant to this plan, which is qualified under Section 423 of the Internal Revenue Code, eligible employees may purchase shares of common stock at a discount to market price through regular payroll deduction. |
| • | 33,318,309 shares available under the Employees’ Equity Accumulation Plan. Awards under this plan may consist of stock options, stock appreciation rights, restricted stock, restricted stock units to be settled by the delivery of shares of common stock (or the value thereof), other awards that are valued by reference to or otherwise based on the fair market value of common stock, and other equity-based or equity-related awards approved by the Compensation Committee. |
119
| • | 17,461,128 shares available under the 1994 Omnibus Equity Plan. Awards under this plan may consist of stock options, stock appreciation rights, restricted stock, recognition shares (including unrestricted stock awards), performance units, payment rights and tax benefit rights. |
| • | 6,312,588 shares available under the Tax Deferred Equity Participation Plan. Awards under this plan consist of restricted stock units which are settled by the delivery of shares of common stock. |
| • | 908,032 shares available under the Directors’ Equity Capital Accumulation Plan. This plan provides for periodic awards of stock options and shares of common stock to non-employee directors and also provides non-employee directors the ability to defer the fees they earn from services as a director in the form of stock options (annual full board retainer fee only) or stock units (all annual retainer and meeting fees). |
| • | 229,456 shares available under the Omnibus Equity Incentive Compensation Plan. This plan, the predecessor of the 1994 Omnibus Equity Plan, is scheduled to expire in February 2003. |
| (5) | 199,739 shares available under the Branch Manager Compensation Plan and 13,065,267 shares available under the Financial Advisor Productivity Compensation Plan. Morgan Stanley currently does not grant awards under these plans. The material features of these plans are described below as required by SEC rules. |
| (6) | Morgan Stanley’s Board of Directors has authorized the repurchase of common stock, including an ongoing authorization to repurchase shares, subject to market conditions and other factors, in connection with awards granted under equity-based compensation plans to avoid dilution to the public. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” in Part II, Item 7. |
The material features of certain of Morgan Stanley’s equity compensation plans that have not been approved by security holders under SEC rules are described below. These descriptions do not purport to be complete and are qualified in their entirety by reference to the plan documents. All plans through which awards may currently be granted are included as exhibits to this report.
Branch Manager Compensation Plan. All branch managers of MSDWI are eligible to receive awards under this plan, which also provides for “challenge bonuses” based on the branch manager’s achievement of challenge goals. 80% of a branch manager’s challenge bonus is paid in cash and the remaining 20% is paid in the form of a deferred stock award that generally vests approximately four years after the end of the fiscal year of award. Branch managers may also receive deferred stock awards upon satisfaction of other criteria.
Financial Advisor Productivity Compensation Plan. Financial advisors whose production exceeds gross revenue or other criteria for a fiscal year are eligible to receive awards under this plan. Awards are expressed as a percentage of gross revenue production for the relevant fiscal year and are paid in deferred stock that generally vests approximately four years after the end of the fiscal year of award. Financial advisors may also receive deferred stock awards upon satisfaction of other criteria.
* * *
Other information relating to security ownership of certain beneficial owners and management is set forth under the caption “Beneficial ownership of Company common stock” in Morgan Stanley’s Proxy Statement and such information is incorporated by reference herein.
Item 13. Certain Relationships and Related Transactions. The information regarding certain relationships and related transactions is set forth under the caption “Certain transactions” in Morgan Stanley’s Proxy Statement and such information is incorporated by reference herein.
Item 14. Controls and Procedures. Within 90 days of the filing of this report, an evaluation was carried out under the supervision and with the participation of Morgan Stanley’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the disclosure controls and procedures (as defined in Rules 13a-14 and 15d-14 of the Exchange Act). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective. No significant changes were made in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
120
Part IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Documents filed as part of this report.
| 1. | Financial Statements. The financial statements required to be filed hereunder are listed on page S-1. |
| 2. | Financial Statement Schedules. The financial statement schedules required to be filed hereunder are listed on page S-1. |
| 3. | Exhibits. An exhibit index has been filed as part of this report beginning on page E-1 and is incorporated herein by reference. |
(b) Reports on Form 8-K. A Current Report on Form 8-K, dated September 19, 2002, was filed with the SEC reporting Items 5 and 7 in connection with the announcement of Morgan Stanley’s third quarter financial results; a Current Report on Form 8-K, dated October 2, 2002, was furnished to the SEC pursuant to Item 9; and a Current Report on Form 8-K, dated October 17, 2002, was filed with the SEC reporting Item 5.
121
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 19, 2003.
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MORGAN STANLEY (REGISTRANT) | ||
|
By: |
/s/ PHILIP J. PURCELL | |
|
(Philip J. Purcell) Chairman of the Board and Chief Executive Officer | ||
Power of Attorney
We, the undersigned directors and executive officers of Morgan Stanley, hereby severally constitute Donald G. Kempf, Jr., Stephen S. Crawford and Ronald T. Carman, and each of them singly, our true and lawful attorneys with full power to them and each of them to sign for us, and in our names in the capacities indicated below, any and all amendments to the Annual Report on Form 10-K filed with the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys to any and all amendments to said Annual Report on Form 10-K.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 19th day of February, 2003.
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Signature |
Title | |
|
/s/ PHILIP J. PURCELL (Philip J. Purcell) |
Chairman of the Board and Chief Executive Officer | |
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/s/ ROBERT G. SCOTT (Robert G. Scott) |
President, Chief Operating Officer and Director | |
|
/s/ STEPHEN S. CRAWFORD (Stephen S. Crawford) |
Executive Vice President and
Chief Financial Officer | |
|
/s/ JOANNE PACE (Joanne Pace) |
Controller (Principal Accounting Officer) | |
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/s/ ROBERT P. BAUMAN (Robert P. Bauman) |
Director | |
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/s/ EDWARD A. BRENNAN (Edward A. Brennan) |
Director | |
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/s/ JOHN E. JACOB (John E. Jacob) |
Director |
122
|
Signature |
Title | |
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/S/ C. ROBERT KIDDER (C. Robert Kidder) |
Director | |
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/S/ CHARLES F. KNIGHT (Charles F. Knight) |
Director | |
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/S/ JOHN W. MADIGAN (John W. Madigan) |
Director | |
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/S/ MILES L. MARSH (Miles L. Marsh) |
Director | |
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/S/ MICHAEL A. MILES (Michael A. Miles) |
Director | |
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/S/ LAURA D’ANDREA TYSON (Laura D’Andrea Tyson) |
Director |
123
I, Philip J. Purcell, certify that:
| 1. | I have reviewed this annual report on Form 10-K of Morgan Stanley; |
| 2. | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; |
| 4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: |
| a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; |
| b) | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and |
| c) | presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
| 5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
| a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
| 6. | The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
Date: February 19, 2003
/s/ PHILIP J. PURCELL
Philip J. Purcell
Chairman of the Board and Chief Executive Officer
124
Certification
I, Stephen S. Crawford, certify that:
| 1. | I have reviewed this annual report on Form 10-K of Morgan Stanley; |
| 2. | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; |
| 4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: |
| a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; |
| b) | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and |
| c) | presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
| 5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
| a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
| 6. | The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
Date: February 19, 2003
/s/ STEPHEN S. CRAWFORD
Stephen S. Crawford
Executive Vice President and Chief Financial Officer
125
MORGAN STANLEY
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
ITEMS (15)(a)(1) AND (15)(a)(2)
|
Financial Statements |
Page | |
|
Independent Auditors’ Report |
73 | |
|
Consolidated Statements of Financial Condition at November 30, 2002 and November 30, 2001 |
74 | |
|
Consolidated Statements of Income for Fiscal 2002, 2001 and 2000 |
76 | |
|
Consolidated Statements of Comprehensive Income for Fiscal 2002, 2001 and 2000 |
77 | |
|
Consolidated Statements of Cash Flows for Fiscal 2002, 2001 and 2000 |
78 | |
|
Consolidated Statements of Changes in Shareholders’ Equity for Fiscal 2002, 2001 and 2000 |
79 | |
|
Notes to Consolidated Financial Statements |
80 | |
|
Financial Statement Schedules |
||
|
Schedule I—Condensed Financial Information of Morgan Stanley (Parent Company Only) at November 30, 2002 and November 30, 2001 and for each of the Three Fiscal Years in the Period Ended November 30, 2002 |
S-2—S-5 |
S-1
SCHEDULE I
MORGAN STANLEY
(Parent Company Only)
Condensed Statements of Financial Condition
(dollars in millions, except share data)
|
November 30, 2002 |
November 30, 2001 |
|||||||
|
Assets: |
||||||||
|
Cash and cash equivalents |
$ |
14,589 |
|
$ |
13,375 |
| ||
|
Financial instruments owned |
|
3,059 |
|
|
1,760 |
| ||
|
Advances to subsidiaries |
|
100,578 |
|
|
78,927 |
| ||
|
Investment in subsidiaries, at equity |
|
23,562 |
|
|
22,133 |
| ||
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Other assets |
|
2,618 |
|
|
2,621 |
| ||
|
|
|
|
|
|
| |||
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Total assets |
$ |
144,406 |
|
$ |
118,816 |
| ||
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|
|
|
|
|
| |||
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Liabilities and Shareholders’ Equity: |
||||||||
|
Short-term borrowings |
$ |
38,287 |
|
$ |
28,013 |
| ||
|
Financial instruments sold, not yet purchased |
|
134 |
|
|
93 |
| ||
|
Payables to subsidiaries |
|
29,733 |
|
|
21,250 |
| ||
|
Other liabilities and accrued expenses |
|
1,067 |
|
|
990 |
| ||
|
Long-term borrowings |
|
53,300 |
|
|
47,754 |
| ||
|
|
|
|
|
|
| |||
|
|
122,521 |
|
|
98,100 |
| |||
|
|
|
|
|
|
| |||
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Commitments and contingencies |
||||||||
|
Shareholders’ equity: |
||||||||
|
Preferred stock |
|
— |
|
|
345 |
| ||
|
Common stock ($0.01 par value; 3,500,000,000 shares authorized, 1,211,685,904 and 1,211,685,904 shares issued, 1,081,417,377 and 1,093,006,744 shares outstanding at November 30, 2002 and November 30, 2001, respectively) |
|
12 |
|
|
12 |
| ||
|
Paid-in capital |
|
3,678 |
|
|
3,745 |
| ||
|
Retained earnings |
|
25,250 |
|
|
23,270 |
| ||
|
Employee stock trust |
|
3,003 |
|
|
3,086 |
| ||
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Accumulated other comprehensive income (loss) |
|
(251 |
) |
|
(262 |
) | ||
|
|
|
|
|
|
| |||
|
Subtotal |
|
31,692 |
|
|
30,196 |
| ||
|
Note receivable related to ESOP |
|
(13 |
) |
|
(31 |
) | ||
|
Common stock held in treasury, at cost ($0.01 par value, 130,268,527 and 118,679,160 shares at November 30, 2002 and November 30, 2001, respectively) |
|
(7,176 |
) |
|
(6,935 |
) | ||
|
Common stock issued to employee trust |
|
(2,618 |
) |
|
(2,514 |
) | ||
|
|
|
|
|
|
| |||
|
Total shareholders’ equity |
|
21,885 |
|
|
20,716 |
| ||
|
|
|
|
|
|
| |||
|
Total liabilities and shareholders’ equity |
$ |
144,406 |
|
$ |
118,816 |
| ||
|
|
|
|
|
|
| |||
See Notes to Condensed Financial Statements.
S-2
SCHEDULE I
MORGAN STANLEY
(Parent Company Only)
Condensed Statements of Income and Comprehensive Income
(dollars in millions)
|
Fiscal 2002 |
Fiscal 2001 |
Fiscal 2000 |
||||||||||
|
Revenues: |
||||||||||||
|
Interest and dividends |
$ |
2,646 |
|
$ |
4,175 |
|
$ |
4,076 |
| |||
|
Principal transactions |
|
(4 |
) |
|
(50 |
) |
|
48 |
| |||
|
Fiduciary fees |
|
— |
|
|
— |
|
|
2 |
| |||
|
Other |
|
(9 |
) |
|
3 |
|
|
4 |
| |||
|
|
|
|
|
|
|
|
|
| ||||
|
Total revenues |
|
2,633 |
|
|
4,128 |
|
|
4,130 |
| |||
|
|
|
|
|
|
|
|
|
| ||||
|
Expenses: |
||||||||||||
|
Interest expense |
|
2,624 |
|
|
4,289 |
|
|
4,123 |
| |||
|
Non-interest expenses |
|
8 |
|
|
34 |
|
|
3 |
| |||
|
|
|
|
|
|
|
|
|
| ||||
|
Total expenses |
|
2,632 |
|
|
4,323 |
|
|
4,126 |
| |||
|
|
|
|
|
|
|
|
|
| ||||
|
Income (loss) before income tax (benefit), cumulative effect of accounting change and equity in earnings of subsidiaries |
|
1 |
|
|
(195 |
) |
|
4 |
| |||
|
Income tax (benefit) |
|
— |
|
|
(84 |
) |
|
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