-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Clk917NLi3E9N7L9MDcOXZTjFvj8u3B+HS4YvqM90qSHnyWK1bwHxZhkLnu9hIo/ zGRenKRwsY8mzaKMq+yPwA== 0000950130-97-002044.txt : 20030406 0000950130-97-002044.hdr.sgml : 20030406 19970430164306 ACCESSION NUMBER: 0000950130-97-002044 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970430 ITEM INFORMATION: Other events FILED AS OF DATE: 19970430 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY GROUP INC /DE/ CENTRAL INDEX KEY: 0000789625 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 132838811 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09085 FILM NUMBER: 97592051 BUSINESS ADDRESS: STREET 1: 1585 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10036 BUSINESS PHONE: 2127034000 8-K 1 FORM 8-K 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): April 30, 1997 MORGAN STANLEY GROUP INC. (Exact name of registrant as specified in its charter) DELAWARE 1-9085 13-2838811 (STATE OR OTHER (COMMISSION (I.R.S. EMPLOYER JURISDICTION OF FILE NUMBER) IDENTIFICATION INCORPORATION) NUMBER) 1585 Broadway, New York, New York 10036 (Address of principal executive offices including zip code) Registrant's telephone number, including area code: (212) 761-4000 Item 5. OTHER EVENTS. As previously disclosed in Morgan Stanley Group Inc.'s ("Morgan Stanley") Current Report on Form 8-K dated April 17, 1997, Morgan Stanley and Dean Witter, Discover & Co. ("DWD") announced a definitive agreement to merge ("the Merger"). The transaction is intended to be accounted for as a pooling of interests and the new company will be named Morgan Stanley, Dean Witter, Discover & Co. Under the terms of the merger agreement, each of Morgan Stanley's common shares will be exchanged for 1.65 of DWD's common shares. The Merger, which is expected to be completed in mid-1997, is subject to customary closing conditions, including certain regulatory approvals and the approval of the stockholders of both companies. Attached and incorporated by reference herein as Exhibits 99.1 and 99.2, respectively, are certain financial information for DWD and unaudited pro forma combined financial information for the combined entity giving effect to the Merger. Unaudited pro forma condensed combined statements of income for the three months ended February 28, 1997 and February 29, 1996 have previously been disclosed in Morgan Stanley's Current Report on Form 8-K dated April 17, 1997. Attached and incorporated herein by reference as Exhibit 15.1 is a copy of an acknowledgment letter of Deloitte & Touche LLP. Item 7(c). Financial Statements, Pro Forma Financial Statement and Exhibits. Exhibit No. Description - - ----------- ----------- 15.1 Acknowledgment Letter of Deloitte & Touche LLP. 99.1 The unaudited consolidated balance sheet of DWD as of March 31, 1997 and the unaudited consolidated statements of income and cash flows of DWD for the three months ended March 31, 1997 and 1996 (incorporated by reference from pages 1 to 8 of DWD's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1997 (File no. 1-11758)). 99.2 The Morgan Stanley, Dean Witter, Discover & Co. unaudited pro forma condensed combined statement of financial condition at February 28, 1997. SIGNATURE --------- 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 hereunto duly authorized. MORGAN STANLEY GROUP INC. Registrant Date: April 30, 1997 /s/ Philip N. Duff ------------------------------------- Philip N. Duff Chief Financial Officer Index to Exhibits Exhibit No. Description - - ----------- ----------- 15.1 Acknowledgment Letter of Deloitte & Touche LLP. 99.1 The unaudited consolidated balance sheet of DWD as of March 31, 1997 and the unaudited consolidated statements of income and cash flows of DWD for the three months ended March 31, 1997 and 1996 (incorporated by reference from pages 1 to 8 of DWD's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1997 (File no. 1-11758)). 99.2 The Morgan Stanley, Dean Witter, Discover & Co. unaudited pro forma condensed combined statement of financial condition at February 28, 1997. EX-15.1 2 ACKNOWLEDGEMENT LETTER EXHIBIT 15.1 To the Board of Directors and Shareholders of Dean Witter, Discover & Co.: We have made a review, in accordance with standards established by the American Institute of Certified Public Accountants, of the unaudited interim consolidated financial information of Dean Witter, Discover & Co. and subsidiaries as of March 31, 1997 and for the three-month periods ended March 31, 1997 and 1996, as indicated in our report dated April 30, 1997; because we did not perform an audit, we expressed no opinion on that information. We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, is being used in the following Registration Statements of Morgan Stanley Group Inc.: Filed on Form S-3: Registration Statement No. 333-18005 Registration Statement No. 333-01655 Registration Statement No. 33-58611 Registration Statement No. 33-51413 Filed on Form S-8: Registration Statement No. 333-08571 Registration Statement No. 33-13177 Registration Statement No. 33-37652 Registration Statement No. 33-18184 Registration Statement No. 33-42464 We are also aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act. DELOITTE & TOUCHE LLP New York, New York April 30, 1997 EX-99.1 3 UNAUDITED CONSOLIDATED BALANCE SHEET EXHIBIT 99.1 PART I. FINANCIAL INFORMATION DEAN WITTER, DISCOVER & CO. CONSOLIDATED STATEMENTS OF INCOME (IN MILLIONS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31, ------------------- 1997 1996 --------- --------- (UNAUDITED) Merchant and cardmember fees............................... $ 405.3 $ 320.5 Commissions................................................ 305.6 300.7 Asset management and administration fees................... 311.6 274.9 Servicing fees............................................. 208.6 200.3 Principal transactions..................................... 118.0 118.9 Investment banking......................................... 79.5 64.7 Other...................................................... 28.6 24.8 --------- --------- Total non-interest revenues.............................. 1,457.2 1,304.8 --------- --------- Interest revenue........................................... 986.5 861.4 Interest expense........................................... 414.9 390.7 --------- --------- Net interest income...................................... 571.6 470.7 Provision for losses on receivables........................ 378.4 228.0 --------- --------- Net credit income........................................ 193.2 242.7 --------- --------- Net operating revenues................................... 1,650.4 1,547.5 --------- --------- Employee compensation and benefits......................... 616.3 570.3 Marketing and business development......................... 186.7 191.9 Information processing and communications.................. 192.5 182.1 Facilities and equipment................................... 64.0 61.2 Other...................................................... 136.4 141.6 --------- --------- Total non-interest expenses.............................. 1,195.9 1,147.1 --------- --------- Income before income taxes................................. 454.5 400.4 Income tax expense......................................... 178.2 154.6 --------- --------- Net income................................................. $ 276.3 $ 245.8 ========= ========= Earnings per common share (1).............................. Primary.................................................. $ 0.81 $ 0.71 ========= ========= Fully diluted............................................ $ 0.81 $ 0.70 ========= ========= Average common shares outstanding (1)...................... Primary.................................................. 339.4 348.3 ========= ========= Fully diluted............................................ 339.4 349.6 ========= =========
- - -------- (1) Prior period share and per share data have been restated to reflect the Company's two-for-one stock split. See notes to the consolidated financial statements. 1 DEAN WITTER, DISCOVER & CO. CONSOLIDATED BALANCE SHEETS (IN MILLIONS)
MARCH 31, DECEMBER 31, 1997 1996 ----------- ------------ (UNAUDITED) ASSETS Cash and cash equivalents............................. $ 1,184.9 $ 1,999.2 Cash and securities segregated under federal and other regulations.......................................... 2,151.3 2,044.5 Receivables Consumer loans (net of allowances of $818.8 in 1997 and $815.3 in 1996)................................. 21,147.6 22,372.9 Securities clients (net of allowances of $12.7 in 1997 and $15.3 in 1996)............................. 2,880.5 2,839.1 Other................................................ 828.2 804.5 Amounts due from asset securitizations................ 871.3 869.2 Securities borrowed................................... 4,731.4 3,866.3 Securities purchased under agreements to resell....... 3,896.9 3,563.6 Securities owned, at market value..................... 2,318.7 1,913.6 Deferred income taxes................................. 776.1 820.3 Office facilities, at cost (less accumulated depreciation and amortization of $466.1 in 1997 and $446.0 in 1996)................... 380.6 379.7 Other assets.......................................... 1,092.5 940.7 --------- --------- Total assets........................................ $42,260.0 $42,413.6 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Commercial paper..................................... $ 3,929.3 $ 4,736.8 Other short-term borrowings.......................... 451.5 1,128.2 Deposits............................................. 7,138.1 7,212.6 Payables Securities clients.................................. 3,175.2 3,433.3 Drafts.............................................. 404.7 616.1 Income taxes........................................ 256.2 156.8 Securities loaned.................................... 4,854.9 3,932.1 Securities sold under agreements to repurchase....... 3,979.2 3,566.6 Securities sold but not yet purchased, at market value............................................... 1,696.2 1,274.1 Other liabilities and accrued expenses............... 3,224.5 3,048.4 Long-term borrowings................................. 7,689.9 8,144.2 --------- --------- Total liabilities................................... 36,799.7 37,249.2 --------- --------- Shareholders' Equity Preferred stock ($0.01 par value, 10.0 shares authorized, none issued)............................ -- -- Common stock ($0.01 par value, 500.0 shares authorized, 342.0 shares issued, 324.8 and 319.7 shares outstanding at March 31, 1997 and December 31, 1996)........................................... 3.4 3.4 Paid-in capital...................................... 2,713.4 2,702.5 Retained earnings.................................... 3,203.6 2,972.7 --------- --------- 5,920.4 5,678.6 --------- --------- Common stock held in treasury, at cost ($.01 par value, 17.2 and 22.3 shares at March 31, 1997 and December 31, 1996).................................. (451.7) (598.3) Stock compensation plans............................. 79.0 141.8 Employee stock benefit trust......................... (77.7) (46.3) Unearned stock compensation.......................... (9.7) (11.4) --------- --------- Total shareholders' equity.......................... 5,460.3 5,164.4 --------- --------- Total liabilities and shareholders' equity.......... $42,260.0 $42,413.6 ========= =========
See notes to the consolidated financial statements. 2 DEAN WITTER, DISCOVER & CO. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN MILLIONS)
THREE MONTHS ENDED MARCH 31, -------------------- 1997 1996 --------- --------- (UNAUDITED) Cash flows provided by (used in) operating activities Net income............................................. $ 276.3 $ 245.8 Adjustments to reconcile net income to net cash flows from operating activities Depreciation and amortization......................... 22.6 19.6 Provision for losses on receivables................... 378.4 228.0 Deferred income taxes................................. 44.2 (5.9) Decrease (increase) in operating assets Cash and securities segregated under federal and other regulations.......................................... (106.8) (76.9) Receivables Securities clients................................... (44.4) 2.4 Other................................................ (23.7) (24.0) Securities borrowed................................... (865.1) (368.8) Amounts due from asset securitizations................ (2.1) (124.2) Matched securities purchased under agreements to resell, net.......................................... 2.8 (95.7) Securities owned and securities sold but not yet purchased, at market value, net...................... 17.0 (3.6) Other assets.......................................... (144.4) (8.2) Increase (decrease) in operating liabilities Payables Securities clients................................... (258.1) (384.2) Drafts............................................... (211.4) (88.8) Income taxes......................................... 99.4 150.4 Securities loaned..................................... 922.8 432.7 Other liabilities and accrued expenses................ 253.2 192.9 --------- --------- Cash provided by operating activities................. 360.7 91.5 --------- --------- Cash flows provided by (used in) investing activities Net principal received (disbursed) on consumer loans... 849.7 (273.3) Purchases of consumer loans............................ -- (5.1) Sales of consumer loans................................ -- 2,767.6 Other.................................................. (30.6) (37.3) --------- --------- Cash provided by investing activities................. 819.1 2,451.9 --------- --------- Cash flows provided by (used in) financing activities Repayments of commercial paper, net.................... (859.1) (2,936.5) Net decrease in other short-term borrowings............ (676.7) (1,151.7) Deposits, net.......................................... (74.5) (187.2) Proceeds from issuance (repayments) of long-term borrowings, net....................................... (418.1) 1,263.7 Securities sold under agreements to repurchase, net.... 76.3 96.9 Dividends paid......................................... (34.6) (26.9) Proceeds from issuance of common stock................. 19.7 15.7 Purchase of treasury stock............................. (27.1) (150.6) --------- --------- Cash used in financing activities..................... (1,994.1) (3,076.6) --------- --------- Decrease in cash and cash equivalents.................... (814.3) (533.2) Cash and cash equivalents, beginning of period........... 1,999.2 1,464.5 --------- --------- Cash and cash equivalents, end of period................. $ 1,184.9 $ 931.3 ========= =========
See notes to the consolidated financial statements. 3 DEAN WITTER, DISCOVER & CO. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. INTRODUCTION AND BASIS OF PRESENTATION The consolidated financial statements include the accounts of Dean Witter, Discover & Co. and subsidiaries (the "Company"). The Company is a financial services organization that provides a broad range of credit and investment products, with a primary focus on individual customers. Through its wholly- owned subsidiary NOVUS Credit Services Inc. ("NCSI"), the Company conducts its credit services business, including the operation of the NOVUS(R) Network, a proprietary network of merchant and cash access locations, and the issuance of proprietary general purpose credit cards. The Company's securities business is conducted primarily through its wholly-owned subsidiaries Dean Witter Reynolds Inc. ("DWR") and Dean Witter InterCapital Inc. The interim consolidated financial statements as of March 31, 1997, and for the three months ended March 31, 1997 and 1996 are unaudited; however, in the opinion of management, all adjustments, consisting only of normal recurring accruals necessary for fair presentation, have been reflected. All material intercompany balances and transactions have been eliminated. The preparation of the consolidated financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts in the financial statements. Actual results could differ from these estimates. The consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 1996 incorporated by reference in the Company's 1996 Annual Report on Form 10-K filed by the Company under the Securities Exchange Act of 1934. The results of operations for interim periods are not necessarily indicative of results for the entire year. Certain reclassifications have been made to prior period amounts to conform to the current presentation. The calculations of earnings per common share were based on the weighted average number of common shares outstanding during the three month periods ended March 31, 1997 and 1996 adjusted for the dilutive effects of stock options and unissued stock awards under deferred compensation plans. Effective December 26, 1996, the Company declared a two-for-one stock split, which was effected in the form of a dividend, distributable on January 14, 1997. All prior period per share, share outstanding and shareholders' equity data has been restated to reflect this split. 2. RECENT EVENTS On February 5, 1997, the Company and Morgan Stanley Group Inc. ("Morgan Stanley") announced a definitive agreement to merge. Under the terms of the merger agreement unanimously approved by the Boards of Directors of both companies, each of Morgan Stanley's common shares will be exchanged for 1.65 common shares of the Company. Morgan Stanley preferred shares outstanding at the date of the merger will be exchanged for preferred shares of the Company having substantially identical terms. The transaction, which is expected to be completed in mid-1997, is intended to be a tax free exchange and accounted for as a pooling of interests and is subject to customary closing conditions, including certain regulatory approvals and the approval of shareholders of both companies. The Company has formally rescinded its remaining stock repurchase authorizations. The Company and Morgan Stanley are holding shareholders' meetings on May 28, 1997, at which time the shareholders of each company will vote on the merger. 4 DEAN WITTER, DISCOVER & CO. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 3. RECENT ACCOUNTING PRONOUNCEMENTS As of January 1, 1997, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which is effective for transfers of financial assets made after December 31, 1996, except for certain financial assets for which the effective date has been delayed for one year. SFAS No. 125 provides financial reporting standards for the derecognition and recognition of financial assets, including the distinction between transfers of financial assets which should be recorded as sales and those which should be recorded as secured borrowings. The adoption of SFAS No. 125 had no material effect on the Company's financial position or results of operations. The Financial Accounting Standards Board has issued SFAS No. 128, "Earnings per Share" ("EPS"), effective for periods ending after December 15, 1997, with restatement required for all prior periods. SFAS No. 128 replaces the current EPS categories of primary and fully diluted with "basic", which reflects no dilution from common stock equivalents, and "diluted", which reflects dilution from common stock equivalents based on the average price per share of the Company's common stock during the period. For the three months ended March 31, 1997, basic EPS would have been $0.86, while diluted EPS would have been $0.81. For the three months ended March 31, 1996, basic EPS would have been $0.73, while diluted EPS would have been $0.71. 4. CONSUMER LOANS Consumer loans, classified as to type, were as follows (in millions).
MARCH 31, DECEMBER 31, 1997 1996 --------- ------------ Credit card....................................... $20,803.1 $22,062.0 Real estate-secured and other consumer installment...................................... 1,234.1 1,203.8 --------- --------- Total............................................. 22,037.2 23,265.8 Less Unearned finance charges and unamortized loan discounts and fees............................. 70.8 77.6 Allowance for loan losses....................... 818.8 815.3 --------- --------- Consumer loans, net............................... $21,147.6 $22,372.9 ========= ========= Activity in the allowance for consumer loan losses was as follows (in millions). THREE MONTHS ENDED MARCH 31, ----------------------- 1997 1996 --------- ------------ Balance, beginning of period...................... $815.3 $721.8 Provision for loan losses......................... 375.4 225.0 Less deductions Charge-offs..................................... 418.3 249.8 Recoveries...................................... (40.4) (33.4) --------- --------- Net charge-offs............................... 377.9 216.4 --------- --------- Other(1).......................................... 6.0 (66.8) --------- --------- Balance, end of period............................ $818.8 $663.6 ========= =========
- - -------- (1) Primarily reflects net transfers related to asset securitizations. 5 DEAN WITTER, DISCOVER & CO. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Interest accrued on loans subsequently charged-off, recorded as a reduction of interest revenue, was $79.7 million and $41.5 million in the first quarters of 1997 and 1996. The Company received proceeds from asset securitizations of $2,619.9 million in the first quarter of 1996. The uncollected balances of consumer loans sold through securitizations were $13,258.6 million and $13,384.6 million at March 31, 1997 and December 31, 1996. The allowance for loan losses related to securitized loans, included in other liabilities and accrued expenses, was $443.3 million and $447.3 million at March 31, 1997 and December 31, 1996. 5. BORROWINGS Short-term borrowings Short-term borrowings consisted of the following (in millions).
MARCH 31, DECEMBER 31, 1997 1996 --------- ------------ Commercial paper......................................... $3,929.3 $4,736.8 Other Bank borrowings........................................ 451.5 410.3 Federal funds purchased................................ -- 458.8 Bank notes............................................. -- 259.1 -------- -------- Total.................................................... $4,380.8 $5,865.0 ======== ========
The weighted average interest rate on short-term borrowings, including the effects of interest rate contracts, was 5.61% and 5.55% at March 31, 1997 and December 31, 1996. Long-term borrowings Long-term borrowings, which consisted of senior long-term notes, net of unamortized discount, were as follows (in millions).
MARCH 31, DECEMBER 31, 1997 1996 --------- ------------ Floating rate notes...................................... $3,839.2 $4,257.1 Fixed rate notes......................................... 3,409.4 3,409.1 Foreign denominated...................................... 441.3 478.0 -------- -------- Total.................................................... $7,689.9 $8,144.2 ======== ========
The weighted average interest rate on long-term borrowings, including the effects of interest rate contracts, was 5.98% and 6.02% at March 31, 1997 and December 31, 1996. In April 1997, the Company renewed its $4.0 billion senior bank credit facility. The facility expires in April 1998 and contains certain extension provisions. The Company currently plans to renew or replace this facility prior to its expiration. This facility contains covenants that require the Company to maintain minimum net worth requirements and specified financial ratios. The Company believes that the covenant restrictions will not impair its ability to pay its current level of dividends. As of March 31, 1997, the Company had never borrowed from its senior bank credit facility. 6 DEAN WITTER, DISCOVER & CO. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED) 6. REGULATORY CAPITAL REQUIREMENTS Under regulatory net capital requirements adopted by the Federal Deposit Insurance Corporation ("FDIC") and other regulatory capital guidelines, FDIC- insured financial institutions must maintain (a) 3% to 5% of Tier 1 capital, as defined, to total assets ("leverage ratio") and (b) 8% combined Tier 1 and Tier 2 capital, as defined, to risk-weighted assets ("risk-weighted capital ratio"). At March 31, 1997, the leverage ratio and risk-weighted capital ratio of each of the Company's FDIC-insured financial institutions exceeded these and all other regulatory minimums. DWR, the Company's primary broker-dealer, is subject to the Uniform Net Capital Rule of the Securities and Exchange Commission ("SEC"). Under the alternative method permitted by this Rule, the required net capital, as defined, shall not be less than the greater of (a) one million dollars, (b) 2% of aggregate debit balances arising from client transactions pursuant to SEC Rule 15c3-3, or (c) 4% of the funds required to be segregated pursuant to the Commodity Exchange Act. The New York Stock Exchange, Inc. may also require a member organization to reduce its business if its net capital is less than the greater of (a) 4% of aggregate debit balances or (b) 6% of the funds required to be segregated, and may prohibit a member organization from expanding its business and declaring cash dividends if its net capital is less than the greater of (a) 5% of aggregate debit balances or (b) 7% of the funds required to be segregated. At March 31, 1997, DWR's net capital was $640.3 million and net capital in excess of the minimum required was $521.2 million. DWR's net capital was 21.4% of aggregate debit balances and 21.5% of funds required to be segregated. 7. CONTINGENT LIABILITIES In the normal course of business, the Company has been named as a defendant in various lawsuits. Some of these lawsuits involve claims for substantial amounts. Although the ultimate outcome of these suits cannot be ascertained at this time, it is the opinion of management, after consultation with outside counsel, that the resolution of such suits will not have a material adverse effect on the consolidated financial condition of the Company, but may be material to the Company's operating results for any particular period, depending upon the level of the Company's income for such period. 7 INDEPENDENT ACCOUNTANTS' REPORT To the Directors and Shareholders of Dean Witter, Discover & Co.: We have reviewed the accompanying consolidated balance sheet of Dean Witter, Discover & Co. and subsidiaries as of March 31, 1997, and the related consolidated statements of income and cash flows for the three-month periods ended March 31, 1997 and 1996. These financial statements are the responsibility of the management of Dean Witter, Discover & Co. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Dean Witter, Discover & Co. and subsidiaries as of December 31, 1996 (presented herein), and the related consolidated statements of income, cash flows and changes in shareholders' equity for the year then ended (not presented herein); and in our report dated February 21, 1997, we expressed an unqualified opinion on those consolidated financial statements. Deloitte & Touche LLP New York, New York April 30, 1997 8 EX-99.2 4 UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT EXHIBIT 99.2 UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION - MORGAN STANLEY, DEAN WITTER, DISCOVER & CO. The following unaudited pro forma condensed combined statement of financial condition combines the historical consolidated statement of financial condition of Morgan Stanley Group Inc. ("Morgan Stanley") and the historical consolidated balance sheet of Dean Witter, Discover & Co. ("DWD") giving effect to the Merger as though it had been consummated on February 28, 1997 after giving effect to the pro forma adjustments described in the notes to the unaudited pro forma condensed combined statement of financial condition. This information should be read in conjunction with the audited consolidated financial statements and other financial information contained in Morgan Stanley's Annual Report on Form 10-K for the fiscal year ended November 30, 1996 and the unaudited consolidated interim financial statements contained in Morgan Stanley's Quarterly Report on Form 10-Q for the period ended February 28, 1997, including the notes thereto, and the audited consolidated financial statements and other financial information contained in DWD's Annual Report on Form 10-K for the year ended December 31, 1996 and the unaudited consolidated interim financial statements contained in DWD's Quarterly Report on Form 10-Q for the period ended March 31, 1997, including the notes thereto, and in each case incorporated by reference herein. This unaudited pro forma condensed combined statement of financial condition is not necessarily indicative of the financial position that might have been achieved had the Merger occurred at February 28, 1997 nor is it necessarily indicative of the financial position which may occur in the future. MORGAN STANLEY, DEAN WITTER, DISCOVER & CO. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
Morgan Stanley DWD Historical Historical Pro Forma Pro Forma (Dollars in Millions) February 28,1997 March 31, 1997 Adjustments (a) Combined ---------------- ---------------- ------------- ----------- Assets Cash and cash equivalents $4,488 $1,185 - $5,673 Cash and securities deposited with clearing organizations or segregated under federal and other regulations 1,490 2,151 - 3,641 Financial instruments owned: U.S. government and agency securities 15,219 899 - 16,118 Other sovereign government obligations 18,205 - - 18,205 Corporate and other debt 17,905 40 - 17,945 Corporate equities 14,242 1,380 - 15,622 Derivative contracts 12,818 - - 12,818 Physical commodities 287 - - 287 Securities purchased under agreements to resell 70,029 3,897 - 73,926 Securities borrowed 50,394 4,731 - 55,125 Receivables: Consumer loans (net of allowances of $819) - 21,148 - 21,148 Customers, net 10,368 2,881 - 13,249 Brokers, dealers and clearing organizations 1,995 - - 1,995 Fees, interest and other 2,524 828 - 3,352 Other assets 4,808 3,120 - 7,928 -------------- -------------- ------------ ---------- Total assets $224,772 $42,260 - $267,032 =============== =============== ============ ========== Liabilities and Stockholders' Equity Commercial paper and other short-term borrowings $22,241 $4,381 - $26,622 Deposits - 7,138 - 7,138 Financial instruments sold, not yet purchased: U.S. government and agency securities 13,991 1,624 - 15,615 Other sovereign government obligations 8,355 - - 8,355 Corporate and other debt 1,242 57 - 1,299 Corporate equities 8,762 15 - 8,777 Derivative contracts 11,006 - - 11,006 Physical commodities 36 - - 36 Securities sold under agreements to repurchase 95,919 3,979 - 99,898 Securities loaned 10,432 4,855 - 15,287 Payables: Customers 21,041 3,175 - 24,216 Brokers, dealers and clearing organizations 4,113 - - 4,113 Interest and dividends 1,244 148 - 1,392 Other liabilities and accrued expenses 2,425 3,738 - 6,163 Long-term borrowings 16,470 7,690 - 24,160 ---------------- ---------------- ------------- ----------- 217,277 36,800 - 254,077 ---------------- ---------------- ------------- ----------- Capital Units 999 - - 999 ---------------- ---------------- ------------- ----------- Commitments and contingencies Stockholders' equity: Preferred stock 1,027 - - 1,027 Common stock 164 3 ($161)(b) 6 Paid-in capital 892 2,713 161 (b) 3,766 Retained earnings 4,767 3,204 (264)(b) 7,707 Cumulative translation adjustments (14) - - (14) ---------------- ---------------- ------------- ----------- Subtotal 6,836 5,920 (264) 12,492 ---------------- ---------------- ------------- ----------- Less: Stock compensation related deductions 76 8 - 84 Common stock held in treasury, at cost 264 452 (264)(b) 452 ---------------- ---------------- ------------- ----------- Total stockholders' equity 6,496 5,460 0 11,956 ---------------- ---------------- ------------- ----------- Total liabilities and stockholders' equity $224,772 $42,260 $0 $267,032 =============== =============== ============ ==========
See Notes to the Unaudited Pro Forma Condensed Combined Statement of Financial Condition. NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION NOTE (a): BASIS OF PRESENTATION The unaudited pro forma condensed combined statement of financial condition combines the historical consolidated statement of financial condition of Morgan Stanley at February 28, 1997 with the historical consolidated balance sheet of DWD at March 31, 1997. Certain amounts reflected in the historical financial statement presentations of both companies have been reclassified to conform to the unaudited pro forma condensed combined presentation. The unaudited pro forma condensed combined statement of financial condition excludes (i) the effect of any potential changes in revenues or any operating synergies which may be achieved upon combining the resources of the companies (ii) investment banking, legal and miscellaneous transaction costs of the Merger, which will be reflected as an expense in the period the Merger is consummated, and (iii) costs associated with the integration and consolidation of the companies which are not presently estimable. Transactions between Morgan Stanley and DWD are not material in relation to the unaudited pro forma condensed combined statement of financial condition and therefore, intercompany balances have not been eliminated from the pro forma combined amounts. Morgan Stanley and DWD are in the process of reviewing their respective accounting policies and do not expect there to be any significant adjustments necessary in order to conform such policies. During 1996, Morgan Stanley acquired Miller Anderson & Sherrerd, LLP and Van Kampen American Capital, Inc., both accounted for as purchase transactions. In April 1997, Morgan Stanley announced the acquisition of the institutional global custody business of Barclays PLC. In January 1997, DWD acquired Lombard Brokerage, Inc. which was accounted for as a purchase transaction. No pro forma effect has been given to these transactions as the effect is not material. NOTE (b): PRO FORMA ADJUSTMENTS The pro forma adjustments to common stock, paid-in capital, and retained earnings at February 28, 1997 reflect (i) an exchange of 158.0 million shares of common stock, par value $1.00 per share of Morgan Stanley for 260.7 million shares (using the exchange ratio of 1.65) of common stock, par value $.01 per share of DWD and (ii) the cancellation and retirement of all shares of Morgan Stanley common stock held in treasury. The number of shares of DWD common stock to be issued at consummation of the Merger will be based upon the actual number of shares of Morgan Stanley common stock outstanding at that time. -----END PRIVACY-ENHANCED MESSAGE-----