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 May 31, 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 June 30, 2003, there were 1,087,687,909 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 May 31, 2003
| Page | ||
| Part I—Financial Information |
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| Item 1. Financial Statements |
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| 1 | ||
| 2 | ||
| 3 | ||
| Condensed Consolidated Statements of Cash Flows (unaudited)—Six Months Ended May 31, 2003 and 2002 |
4 | |
| Notes to Condensed Consolidated Financial Statements (unaudited) |
5 | |
| 29 | ||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
30 | |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk |
61 | |
| 65 | ||
| Part II—Other Information |
||
| 66 | ||
| 68 | ||
| 68 | ||
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 its Certificate of Incorporation, Bylaws, 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
Item 1.
MORGAN STANLEY
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in millions, except share data)
| May 31, 2003 |
November 30, 2002 |
|||||||
| (unaudited) | ||||||||
| ASSETS |
||||||||
| Cash and cash equivalents |
$ | 28,058 | $ | 29,212 | ||||
| Cash and securities deposited with clearing organizations or segregated under federal and other regulations (including securities at fair value of $24,920 at May 31, 2003 and $27,721 at November 30, 2002) |
35,099 | 38,411 | ||||||
| Financial instruments owned (approximately $77 billion at May 31, 2003 and $71 billion at November 30, 2002 were pledged to various parties): |
||||||||
| U.S. government and agency securities |
25,297 | 32,474 | ||||||
| Other sovereign government obligations |
23,272 | 27,694 | ||||||
| Corporate and other debt |
73,693 | 55,254 | ||||||
| Corporate equities |
22,956 | 21,996 | ||||||
| Derivative contracts |
55,739 | 35,615 | ||||||
| Physical commodities |
496 | 355 | ||||||
| Securities purchased under agreements to resell |
71,374 | 76,910 | ||||||
| Securities received as collateral |
18,637 | 12,200 | ||||||
| Securities borrowed |
153,639 | 130,404 | ||||||
| Receivables: |
||||||||
| Consumer loans (net of allowances of $975 at May 31, 2003 and $928 at November 30, 2002) |
18,620 | 23,014 | ||||||
| Customers, net |
30,779 | 22,262 | ||||||
| Brokers, dealers and clearing organizations |
6,851 | 2,250 | ||||||
| Fees, interest and other |
5,234 | 4,892 | ||||||
| Office facilities, at cost (less accumulated depreciation and amortization of $2,370 at May 31, 2003 and $2,206 at November 30, 2002) |
2,337 | 2,270 | ||||||
| Aircraft under operating leases (less accumulated depreciation of $907 at May 31, 2003 and $769 at November 30, 2002) |
4,537 | 4,849 | ||||||
| Goodwill |
1,476 | 1,449 | ||||||
| Other assets |
8,787 | 7,988 | ||||||
| Total assets |
$ | 586,881 | $ | 529,499 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
| Commercial paper and other short-term borrowings |
$ | 40,482 | $ | 50,789 | ||||
| Deposits |
13,761 | 13,757 | ||||||
| Financial instruments sold, not yet purchased: |
||||||||
| U.S. government and agency securities |
14,449 | 13,235 | ||||||
| Other sovereign government obligations |
14,242 | 11,679 | ||||||
| Corporate and other debt |
11,313 | 12,240 | ||||||
| Corporate equities |
31,403 | 18,320 | ||||||
| Derivative contracts |
48,436 | 28,985 | ||||||
| Physical commodities |
3,368 | 1,833 | ||||||
| Securities sold under agreements to repurchase |
131,838 | 136,463 | ||||||
| Obligation to return securities received as collateral |
18,637 | 12,200 | ||||||
| Securities loaned |
55,388 | 43,229 | ||||||
| Payables: |
||||||||
| Customers |
92,369 | 88,229 | ||||||
| Brokers, dealers and clearing organizations |
5,186 | 4,610 | ||||||
| Interest and dividends |
2,951 | 3,363 | ||||||
| Other liabilities and accrued expenses |
12,226 | 12,245 | ||||||
| Long-term borrowings |
65,425 | 55,161 | ||||||
| 561,474 | 506,338 | |||||||
| Capital Units |
66 | 66 | ||||||
| Preferred Securities Subject to Mandatory Redemption |
2,710 | 1,210 | ||||||
| Commitments and contingencies |
||||||||
| Shareholders’ equity: |
||||||||
| Common stock ($0.01 par value, 3,500,000,000 shares authorized, 1,211,699,552 and 1,211,685,904 shares issued, 1,086,735,086 and 1,081,417,377 shares outstanding at May 31, 2003 and November 30, 2002, respectively) |
12 | 12 | ||||||
| Paid-in capital |
3,346 | 3,678 | ||||||
| Retained earnings |
26,251 | 25,250 | ||||||
| Employee stock trust |
2,870 | 3,003 | ||||||
| Accumulated other comprehensive income (loss) |
(271 | ) | (251 | ) | ||||
| Subtotal |
32,208 | 31,692 | ||||||
| Note receivable related to ESOP |
(8 | ) | (13 | ) | ||||
| Common stock held in treasury, at cost ($0.01 par value, 124,964,466 and 130,268,527 shares at May 31, 2003 and November 30, 2002, respectively) |
(6,699 | ) | (7,176 | ) | ||||
| Common stock issued to employee trust |
(2,870 | ) | (2,618 | ) | ||||
| Total shareholders’ equity |
22,631 | 21,885 | ||||||
| Total liabilities and shareholders’ equity |
$ | 586,881 | $ | 529,499 | ||||
See Notes to Condensed Consolidated Financial Statements.
1
MORGAN STANLEY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions, except share and per share data)
| Three Months Ended May 31, |
Six Months Ended May 31, | ||||||||||||
| 2003 |
2002 |
2003 |
2002 | ||||||||||
| (unaudited) | (unaudited) | ||||||||||||
| Revenues: |
|||||||||||||
| Investment banking |
$ | 536 | $ | 663 | $ | 1,125 | $ | 1,337 | |||||
| Principal transactions: |
|||||||||||||
| Trading |
1,583 | 696 | 3,139 | 1,829 | |||||||||
| Investments |
59 | (16 | ) | 37 | 16 | ||||||||
| Commissions |
709 | 900 | 1,379 | 1,677 | |||||||||
| Fees: |
|||||||||||||
| Asset management, distribution and administration |
885 | 1,054 | 1,788 | 2,070 | |||||||||
| Merchant and cardmember |
339 | 347 | 702 | 689 | |||||||||
| Servicing |
503 | 506 | 1,070 | 1,046 | |||||||||
| Interest and dividends |
3,692 | 3,877 | 7,481 | 7,713 | |||||||||
| Other |
112 | 129 | 199 | 325 | |||||||||
| Total revenues |
8,418 | 8,156 | 16,920 | 16,702 | |||||||||
| Interest expense |
3,060 | 2,844 | 5,748 | 5,780 | |||||||||
| Provision for consumer loan losses |
309 | 340 | 645 | 685 | |||||||||
| Net revenues |
5,049 | 4,972 | 10,527 | 10,237 | |||||||||
| Non-interest expenses: |
|||||||||||||
| Compensation and benefits |
2,272 | 2,236 | 4,820 | 4,725 | |||||||||
| Occupancy and equipment |
195 | 208 | 391 | 406 | |||||||||
| Brokerage, clearing and exchange fees |
202 | 176 | 393 | 355 | |||||||||
| Information processing and communications |
316 | 337 | 632 | 659 | |||||||||
| Marketing and business development |
257 | 259 | 526 | 513 | |||||||||
| Professional services |
259 | 250 | 484 | 475 | |||||||||
| Other |
633 | 259 | 940 | 510 | |||||||||
| Total non-interest expenses |
4,134 | 3,725 | 8,186 | 7,643 | |||||||||
| Income before income taxes and dividends on preferred securities subject to mandatory redemption |
915 | 1,247 | 2,341 | 2,594 | |||||||||
| Provision for income taxes |
276 | 428 | 775 | 905 | |||||||||
| Dividends on preferred securities subject to mandatory redemption |
40 | 22 | 62 | 44 | |||||||||
| Net income |
$ | 599 | $ | 797 | $ | 1,504 | $ | 1,645 | |||||
| Earnings per common share: |
|||||||||||||
| Basic |
$ | 0.56 | $ | 0.73 | $ | 1.40 | $ | 1.52 | |||||
| Diluted |
$ | 0.55 | $ | 0.72 | $ | 1.37 | $ | 1.48 | |||||
| Average common shares outstanding: |
|||||||||||||
| Basic |
1,077,386,468 | 1,084,993,202 | 1,077,413,715 | 1,084,223,242 | |||||||||
| Diluted |
1,097,478,351 | 1,113,949,482 | 1,097,824,226 | 1,113,925,043 | |||||||||
See Notes to Condensed Consolidated Financial Statements.
2
MORGAN STANLEY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in millions)