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 February 28, 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		10036
New York, NY		(Zip Code)
(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, 2005, there were 1,095,598,019 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 February 28, 2005


		Page
Part I—Financial Information

Item 1.	Financial Statements (unaudited)

	Condensed Consolidated Statements of Financial Condition—February 28, 2005 and November 30, 2004	1

	Condensed Consolidated Statements of Income—Three Months Ended February 28, 2005 and February 29, 2004	3

	Condensed Consolidated Statements of Comprehensive Income—Three Months Ended February 28, 2005 and February 29, 2004	4

	Condensed Consolidated Statements of Cash Flows—Three Months Ended February 28, 2005 and February 29, 2004	5

	Notes to Condensed Consolidated Financial Statements	6

	Report of Independent Registered Public Accounting Firm	32

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	64

Item 4.	Controls and Procedures	72

Part II—Other Information

Item 1.	Legal Proceedings	73

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	75

Item 4.	Submission of Matters to a Vote of Security Holders	75

Item 6.	Exhibits	76

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 the Company files with the SEC at the SEC’s public reference room at 450 Fifth Street, NW, 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 the Company” 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 report 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

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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 the Company” link to the heading “Inside the Company.” You can also access its Corporate Governance webpage directly at www.morganstanley.com/about/inside/governance. The Company posts the following on its Corporate Governance webpage:

•

Composite Certificate of Incorporation,

•

Bylaws,

•

Charters for its Audit Committee, Compensation Committee and Nominating and Governance Committee,

•

Corporate Governance Policies,

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Policy Regarding Shareholder 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 these documents, excluding exhibits, at no cost, by contacting Investor Relations at 1585 Broadway, New York, NY 10036 (212-761-4000).

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Item 1.

MORGAN STANLEY

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(dollars in millions, except share data)


	February 28, 2005		November 30, 2004
	(unaudited)
Assets
Cash and cash equivalents	$	34,068	$	32,811
Cash and securities deposited with clearing organizations or segregated under federal and other regulations (including securities at fair value of $27,566 at February 28, 2005 and $27,219 at November 30, 2004)		37,576		36,742
Financial instruments owned (approximately $109 billion and $91 billion were pledged to various parties at February 28, 2005 and November 30, 2004, respectively):
U.S. government and agency securities		38,556		26,201
Other sovereign government obligations		23,296		19,782
Corporate and other debt		88,599		80,306
Corporate equities		35,402		27,608
Derivative contracts		43,001		49,475
Physical commodities		1,354		1,224

Total financial instruments owned		230,208		204,596
Securities purchased under agreements to resell		143,462		123,041
Securities received as collateral		38,657		37,848
Securities borrowed		207,985		208,349
Receivables:
Consumer loans (net of allowances of $854 at February 28, 2005 and $943 at November 30, 2004)		18,785		20,226
Customers, net		58,606		45,561
Brokers, dealers and clearing organizations		10,052		12,707
Fees, interest and other		4,649		5,801
Office facilities, at cost (less accumulated depreciation of $2,856 at February 28, 2005 and $2,780 at November 30, 2004)		2,663		2,605
Aircraft under operating leases (less accumulated depreciation of $1,232 at February 28, 2005 and $1,174 at November 30, 2004)		3,755		3,926
Goodwill and intangible assets		2,563		2,199
Other assets		9,181		9,101

Total assets	$	802,210	$	745,513

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MORGAN STANLEY

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION—(Continued)

(dollars in millions, except share data)


	February 28, 2005			November 30, 2004
	(unaudited)
Liabilities and Shareholders’ Equity
Commercial paper and other short-term borrowings	$	30,792		$	36,303
Deposits		13,950			13,777
Financial instruments sold, not yet purchased:
U.S. government and agency securities		17,490			12,664
Other sovereign government obligations		20,134			14,787
Corporate and other debt		8,619			9,641
Corporate equities		32,978			27,332
Derivative contracts		37,389			43,540
Physical commodities		3,303			3,351

Total financial instruments sold, not yet purchased		119,913			111,315
Securities sold under agreements to repurchase		206,547			188,645
Obligation to return securities received as collateral		38,657			37,848
Securities loaned		121,158			97,146
Payables:
Customers		115,868			115,653
Brokers, dealers and clearing organizations		5,775			4,550
Interest and dividends		3,308			3,068
Other liabilities and accrued expenses		13,331			13,650
Long-term borrowings		104,350			95,286

		773,649			717,241

Capital Units		66			66

Commitments and contingencies
Shareholders’ equity:
Common stock, $0.01 par value;
Shares authorized: 3,500,000,000 at February 28, 2005 and November 30, 2004; Shares issued: 1,211,701,552 at February 28, 2005 and November 30, 2004; Shares outstanding: 1,103,263,369 at February 28, 2005 and 1,087,087,116 at November 30, 2004		12			12
Paid-in capital		1,800			2,088
Retained earnings		32,527			31,426
Employee stock trust		3,719			3,824
Accumulated other comprehensive income (loss)		(54	)		(56	)

Subtotal		38,004			37,294
Common stock held in treasury, at cost, $0.01 par value;
108,438,183 shares at February 28, 2005 and 124,614,436 shares at November 30, 2004.		(5,790	)		(6,614	)
Common stock issued to employee trust		(3,719	)		(2,474	)

Total shareholders’ equity		28,495			28,206

Total liabilities and shareholders’ equity	$	802,210		$	745,513

See Notes to Condensed Consolidated Financial Statements.

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MORGAN STANLEY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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


	Three Months Ended
	February 28, 2005			February 29, 2004
	(unaudited)
Revenues:
Investment banking	$	821		$	829
Principal transactions:
Trading		1,850			1,832
Investments		117			29
Commissions		824			868
Fees:
Asset management, distribution and administration		1,178			1,093
Merchant, cardmember and other		308			337
Servicing		526			572
Interest and dividends		5,843			3,782
Other		174			133

Total revenues		11,641			9,475
Interest expense		4,660			2,972
Provision for consumer loan losses		135			262

Net revenues		6,846			6,241

Non-interest expenses:
Compensation and benefits		2,861			2,712
Occupancy and equipment		333			200
Brokerage, clearing and exchange fees		260			224
Information processing and communications		342			320
Marketing and business development		259			254
Professional services		380			318
Other		573			300
September 11^th related insurance recoveries, net		(251	)		—

Total non-interest expenses		4,757			4,328

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		2,089			1,913
Losses from unconsolidated investees		73			93
Provision for income taxes		671			551
Dividends on preferred securities subject to mandatory redemption		—			45

Income from continuing operations before cumulative effect of accounting change, net		1,345			1,224
Discontinued operations:
Income from discontinued operations		13			3
Provision for income taxes		(5	)		(1	)

Income on discontinued operations		8			2
Cumulative effect of accounting change, net		49			—

Net income	$	1,402		$	1,226

Earnings per basic share:
Income from continuing operations before cumulative effect of accounting change	$	1.25		$	1.14
Income from discontinued operations		0.01			—
Cumulative effect of accounting change, net		0.05			—

Earnings per basic share	$	1.31		$	1.14

Earnings per diluted share:
Income from continuing operations before cumulative effect of accounting change	$	1.23		$	1.11
Income from discontinued operations		0.01			—
Cumulative effect of accounting change, net		0.05			—

Earnings per diluted share	$	1.29		$	1.11

Average common shares outstanding:
Basic		1,069,097,162			1,078,718,046

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