SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 8, 2004
MORGAN STANLEY
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
1-11758 36-3145972
(Commission File Number) (IRS Employer Identification No.)
1585 Broadway
New York, New York 10036
(Address of principal executive offices) (Zip Code)
(212) 761-4000
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of
the following provisions (see General Instruction A.2. below):
| | Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
| | Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
| | Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
| | Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 2.02. Results of Operations and Financial Condition.
As described in more detail under Item 4.02 hereof, Morgan Stanley (the
"Company") determined on October 8, 2004 to restate its previously filed
interim financial statements for the first, second and third quarters of the
2003 fiscal year. Certain information regarding the results of operations for
those quarters is disclosed in Item 4.02 hereof. The restatement reflects the
changes of the timing of the recognition of equity-based compensation expense
during the first three quarters of fiscal 2003. The Company's net income and
total compensation expense for the nine months ended August 31, 2003 and the
twelve months ended November 30, 2003 are not affected by the restatement. On
October 14, 2004, the Company issued the press release attached to this Form
8-K as Exhibit 99.1, referring to the restatement and describing certain
disclosures made in Item 4.02 hereof.
Item 4.02. Non-Reliance on Previously Issued Financial Statements or a
Related Audit Report or Completed Interim Review.
The Company has had discussions with the accounting staff (the "Staff")
of the Securities and Exchange Commission (the "SEC") with respect to the
timing of the recognition of expense related to equity compensation awards
during fiscal 2003 in connection with the Company's adoption, effective
December 1, 2002, of Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation." After the Company's
discussions with the Staff, and after the Company consulted with its
independent registered public accounting firm, the Company determined on
October 8, 2004 the need to restate its previously filed interim financial
statements for the first, second and third quarters of fiscal 2003. The
Company also reviewed this matter with its Audit Committee.
Prior to the Company's adoption of SFAS No. 123 in fiscal 2003, the
Company recorded compensation expense for equity-based awards in accordance
with Accounting Principles Board Opinion ("APB") 25, "Accounting for Stock
Issued to Employees." APB 25 states that equity-based awards should be
expensed based upon the period or periods during which an employee performs
services, and that the service period or periods should be inferred from the
award terms or from the past pattern of granting awards in the absence of a
stated service period. Based upon the terms of the Company's pre-fiscal 2003
equity-based awards, which did not state a service period, and the past
pattern of granting such awards, the Company determined that the appropriate
service period under APB 25 was the year of grant, and accordingly recognized
100% of the compensation expense for equity-based awards in such year. In
accordance with APB 28, "Interim Financial Reporting," the Company accrued the
estimated expense of the equity-based awards on a quarterly basis to reflect
the interim periods' portion of the annual costs.
The Company adopted SFAS No. 123 effective December 1, 2002. In the
absence of a defined service period, SFAS No. 123 presumptively defines the
service period (over which compensation costs should be recognized) as the
vesting period. In the third quarter of fiscal
2003, the Company revised its equity-based compensation program (including
extending the vesting period by an additional year for half of the awards), and
determined that under SFAS No. 123 the service period for fiscal 2003 awards
would be three and four years (depending upon the vesting provisions of the
awards). As specified under the terms of the Company's fiscal 2003 awards, the
service period included the year of grant and the subsequent vesting periods.
In the first and second quarters of fiscal 2003, the Company continued to
accrue compensation expense on the basis that equity-based awards would be
expensed in the year of grant. In the third quarter of fiscal 2003, the
Company determined that the expense recognized in the first and second
quarters of fiscal 2003 should have been recognized over the longer service
period. The Company reflected a cumulative adjustment to its compensation
accruals for the nine month period ended August 31, 2003 in the third quarter
of fiscal 2003. Subsequently, after discussions with the Staff, the Company
determined that with the adoption of SFAS No. 123, it should have begun to
amortize the expense related to equity-based awards over a longer service
period beginning in the first quarter of fiscal 2003.
The restatement reflects the changes of the timing of the recognition of
equity-based compensation expense during the first three quarters of fiscal
2003. The Company's net income and total compensation expense for the nine
months ended August 31, 2003 and the twelve months ended November 30, 2003 are
not affected by the restatement.
The following summarizes the restatement for the first, second and third
quarters of fiscal 2003 and the six month period ended May 31, 2003:
Previously
Three Months Ended February 28, 2003 Reported Adjustment Restated
------------------------------------ -------- ---------- --------
(dollars in millions, except per share and
percentage data)
Compensation and benefits expense $2,549 $ (185) $ 2,364
====== ======== ========
Net income $ 905 $ 125 $ 1,030
====== ======== ========
Diluted EPS $ 0.82 $ 0.12 $ 0.94
====== ======== ========
Annualized return on common equity 16.3% 2.2% 18.5%
====== ======== ========
Previously
Three Months Ended May 31, 2003 Reported Adjustment Restated
- ------------------------------- -------- ---------- --------
(dollars in millions, except per share and
percentage data)
Compensation and benefits expense $2,274 $ (162) $ 2,112
====== ======== ========
Net income $ 599 $ 109 $ 708
====== ======== ========
Diluted EPS $ 0.55 $ 0.10 $ 0.65
====== ======== ========
Annualized return on common equity 10.6% 1.9% 12.5%
====== ======== ========
2
Previously
Six Months Ended May 31, 2003 Reported Adjustment Restated
- ----------------------------- -------- ---------- --------
(dollars in millions, except per share and
percentage data)
Compensation and benefits expense $4,823 $ (347) $ 4,476
====== ======== ========
Net income $1,504 $ 234 $ 1,738
====== ======== ========
Diluted EPS $ 1.37 $ 0.21 $ 1.58
====== ======== ========
Annualized return on common equity 13.4% 2.0% 15.4%
====== ======== ========
Previously
Three Months Ended August 31, 2003 Reported Adjustment Restated
- ----------------------------------- -------- ---------- --------
(dollars in millions, except per share and
percentage data)
Compensation and benefits expense $1,940 $ 347 $ 2,287
====== ======== ========
Net income $1,269 $ (234) $ 1,035
====== ======== ========
Diluted EPS $ 1.15 $ (0.21) $ 0.94
====== ======== ========
Annualized return on common equity 22.0% (4.2)% 17.8%
====== ======== ========
The Company expects to file an amendment to its Form 10-K for the fiscal
year ended November 30, 2003 and to its Forms 10-Q for the quarters ended
February 29, 2004 and May 31, 2004 on Friday, October 15, 2004. The Company's
Form 10-Q for the quarter ended August 31, 2004, which will also be filed
Friday, will include restated financial statements for the third quarter of
fiscal 2003.
Item 9.01. Financial Statements and Exhibits.
(c) Exhibits:
Exhibit
Number Description
- ------ -----------
99.1 Press Release dated October 14, 2004
3
SIGNATURES
Pursuant to the requirements 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.
MORGAN STANLEY
By: /s/ David H. Sidwell
---------------------------------------
Name: David H. Sidwell
Title: Executive Vice President and
Chief Financial Officer
Date: October 14, 2004