Morgan Stanley 2009 Annual Report Download - page 199

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
the Company’s common shares exceeds 150% of the then-applicable conversion price (initially $25.25) for
twenty trading days within any period of thirty consecutive trading days beginning after October 13, 2009
(subject to certain ownership limits on MUFG and its affiliates). The remainder of the Series B Preferred Stock
will mandatorily convert on the same basis on or after October 13, 2010.
The Series B Preferred Stock pays a non-cumulative dividend, as and if declared by the Board of Directors of the
Company, in cash, at the rate of 10% per annum of the liquidation preference of $1,000 per share, except under
certain circumstances (as set forth in the securities purchase agreement for the sale of the Series B Preferred
Stock and the Series C Preferred Stock to MUFG). Subsequent to December 31, 2009, the Company declared a
quarterly dividend of $25.00 per share of Series B Preferred Stock that was paid on January 15, 2010 to preferred
shareholders of record on December 31, 2009.
The Series C Preferred Stock is redeemable by the Company, in whole or in part, on or after October 15, 2011 at
a redemption price of $1,100 per share. Dividends on the Series C Preferred Stock are payable, on a
non-cumulative basis, as and if declared by the Board of Directors of the Company, in cash, at the rate of
10% per annum of the liquidation preference of $1,000 per share. Subsequent to December 31, 2009, the
Company declared a quarterly dividend of $25.00 per share of Series C Preferred Stock that was paid on
January 15, 2010 to preferred shareholders of record on December 31, 2009.
The $9 billion in proceeds was allocated to the Series B Preferred Stock and the Series C Preferred Stock based
on their relative fair values at issuance (approximately $8.1 billion was allocated to the Series B Preferred Stock
and approximately $0.9 billion to the Series C Preferred Stock). Upon redemption by the Company, the excess of
the redemption value of $1,100 per share over the carrying value of the Series C Preferred Stock ($0.9 billion
allocated at inception or approximately $784 per share) will be charged to Retained earnings (i.e., treated in a
manner similar to the treatment of dividends paid). The amount charged to Retained earnings will be deducted
from the numerator in calculating basic and diluted earnings per share during the related reporting period in
which the Series C Preferred Stock is redeemed by the Company (See Note 14 for additional details).
Series D Preferred Stock and Warrant. On October 3, 2008, the Emergency Economic Stabilization Act of
2008 (initially introduced as TARP) was enacted. On October 14, 2008, the U.S. Treasury announced its
intention to inject capital into nine large U.S. financial institutions, including the Company, under the Capital
Purchase Program (“CPP”). The Company was part of the initial group of financial institutions participating in
the CPP, and on October 26, 2008 entered into a Securities Purchase Agreement—Standard Terms with the U.S.
Treasury pursuant to which, among other things, the Company sold to the U.S. Treasury for an aggregate
purchase price of $10 billion, 10 million shares of Series D Fixed Rate Cumulative Perpetual Preferred Stock, par
value $0.01 per share, of the Company (“Series D Preferred Stock”) and warrant to purchase 65,245,759 shares
of the Company’s common stock, par value $0.01 per share (the “Warrant”), of the Company.
The $10 billion in proceeds was allocated to the Series D Preferred Stock and the Warrant based on their relative
fair values at issuance (approximately $9 billion was allocated to the Series D Preferred Stock and approximately
$1 billion to the Warrant). The difference between the initial value allocated to the Series D Preferred Stock of
approximately $9 billion and the liquidation value of $10 billion was to be charged to Retained earnings over the
first five years of the contract as an adjustment to the dividend yield using the effective yield method. The
amount charged to Retained earnings was deducted from the numerator in calculating basic and diluted earnings
per share during the related reporting period (see Note 14).
In June 2009, the Company repurchased the 10,000,000 shares of the Series D Preferred Stock from the U.S.
Treasury, at the liquidation preference amount plus accrued and unpaid dividends, for an aggregate repurchase
price of $10,086 million.
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