Morgan Stanley 2009 Annual Report Download - page 226

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Under the terms of the definitive agreement, Invesco will purchase substantially all of Retail Asset Management,
operating under both the Morgan Stanley and Van Kampen brands, in a stock and cash transaction. The Company
will receive a 9.4% minority interest in Invesco. The transaction, which has been approved by the Boards of
Directors of both companies, is expected to close in mid-2010, subject to customary regulatory, client and fund
shareholder approvals. Total assets of Retail Asset Management included in the Company’s consolidated
statement of financial condition as of December 31, 2009 approximated $743 million. The results of Retail Asset
Management are included in discontinued operations for all periods presented.
MSCI. On July 31, 2007, the Company announced that it would sell a minority interest in its subsidiary,
MSCI in an IPO. In November 2007, MSCI completed its IPO of 16.1 million shares and received net proceeds
of approximately $265 million, net of underwriting discounts, commissions and offering expenses. As the IPO
was part of a broader corporate reorganization, contemplated by the Company at the IPO date, the increase in the
carrying amount of the Company’s investment in MSCI was recorded in Paid-in capital in the Company’s
consolidated statement of financial condition and the Company’s consolidated statement of changes in total
equity at November 30, 2007.
In fiscal 2008, the Company sold approximately 53 million of its MSCI shares in two secondary offerings for net
proceeds of approximately $1,560 million. During the second quarter of 2009, the Company sold all of its
remaining 28 million shares in MSCI in a secondary offering for net proceeds of approximately $573 million.
The results of MSCI prior to the divestiture are included in discontinued operations for all periods presented. The
results of MSCI were formerly included in the Institutional Securities business segment.
Crescent. Discontinued operations in 2009, fiscal 2008 and the one month ended December 31, 2008 include
operating results and gains (losses) related to the disposition of Crescent, a former real estate subsidiary of the
Company. The Company completed the disposition of Crescent in the fourth quarter of 2009, whereby the
Company transferred its ownership interest in Crescent to Crescent’s primary creditor in exchange for full release
of liability on the related loans. The results of Crescent were formerly included in the Asset Management
business segment. The Company did not consolidate Crescent prior to May 2008.
DFS. On June 30, 2007, the Company completed the Discover Spin-off. The Company distributed all of the
outstanding shares of DFS common stock, par value $0.01 per share, to the Company’s stockholders of record as
of June 18, 2007. The results of DFS are included within discontinued operations for all periods through the date
of the Discover Spin-off.
The net assets that were distributed to shareholders on the date of the Discover Spin-off were $5,558 million,
which was recorded as a reduction to the Company’s retained earnings.
The results of discontinued operations include interest expense that was allocated based upon borrowings that
were specifically attributable to DFS’ operations through intercompany transactions existing prior to the
Discover Spin-off. For fiscal 2007, the amount of interest expense reclassified to discontinued operations was
approximately $159 million.
During the fourth quarter of fiscal 2008, DFS announced the settlement of its lawsuit with Visa and MasterCard.
At the time of the spin-off of DFS, the Company and DFS negotiated an agreement that entitled the Company to
receive approximately $1.3 billion pre-tax in connection with this settlement; however, DFS contends that the
Company is in breach of the agreement. The Company has filed a lawsuit to enforce this agreement and this
revenue has not yet been included in the Company’s results of operations. The results for discontinued operations
in fiscal 2008 included costs related to the legal settlement between DFS, Visa and MasterCard. See Note 27 for
further information regarding settlement with DFS.
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