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1、Global Accounting & Reporting ConvergenceGlobal Accounting & Reporting ConvergenceICGN ConferenceAmsterdam, 10 July 2003Trevor S. HarrisManaging DirectorMorgan Stanley does and seeks to do business with companies covered in its research reports. Investors should consider this report as only
2、a single factor in making their investment decision.Please see analyst certification and other important disclosures starting on page 21. OutlineWhat is an analyst/investor looking for?Is a single set of accounting standards necessary and/or sufficient?Some thoughts for key playersWhat is an Analyst
3、/Investor Looking for?Objective: To assess past performance of an entity and its managers so as to forecast future performance in order to judge fundamental value relative to price Ideal outcome from reports:Accounting measures that reflect economic reality (Relevant and Reliable)Measures and disclo
4、sures that indicate sensitivity to judgements and facilitate a forecast including an assessment of sustainability of profit.Data that minimize a need for “management guidance”What Do We Get Now?Multiple accounting systems: differences are often nuances based on personal/political stances of standard
5、 settersInconsistency in application and presentation: across companies and time even within accounting systemsAudit reports that rarely say anything usefulPro formas and/or US GAAP reconciliations for US-Cross-Listed companies that most analysts ignore except for use of added disclosuresManagement
6、reports that give little new informationHow do Current Reporting Systems Fare?All Current Systems Fail!Some Common Areas of Failure: Basic financial statements Off balance sheet items Complexity and completeness versus understandabilityAuditors, Directors and Managers Focus on Rules not InformationT
7、he P&L: Identifying Drivers of Key CostsCurrent Categories Make Forecasting ToughDisclosures Needed to Demonstrate Sustainable Productivity GainsCOGSLabor CostsPurchased MaterialsEquipment (depr).OtherTOTALOperating ExpensesCOGSR&DR&DSellingAdminOtherOtherTOTALSellingLabor CostsEquipment
8、 (depr)OtherTOTALF2001F2000F1999F2001F2000F1999F2001F2000F1999Labor CostsPurchased R&DEquipment (depr)F2001F2000F1999TOTALPurchased AdvertisingSalaries & WagesPension CostsOPEB CostsDefined ContributionStock based CompensationSocial SecurityTOTALLabor CostsSource: Morgan Stanley Equity Resea
9、rchTypical Items Kept Off-Balance SheetExecutory contractsLeases (operating)Revenue/return guaranteesPurchase commitmentsWarrantiesLitigation and related contingenciesEnvironmental and asset retirement obligationsEmployee stock options and equivalent warrantsUnrecorded pension and related obligation
10、s Unconsolidated special purpose entities securitized assetsUnrecognized federal commitmentsLines of creditModel - based fair valuationsThe Changing Business Environment in ImagingOlivettiOceLexmarkSonyHewlett-PackardAdobeDankaSharpRicohCanonFuji PhotoPolaroidKonicaSanyoImationPitneyBowesTektronixIn
11、telIKONCasioLanierSamsungXeroxKodakAgfaSharpKodakRicohCanonFuji PhotoAgfaPolaroidKonicaXeroxSource: Morgan Stanley Research estimates; From the report “Global Imaging: Coming Into Focus” 11/13/19998Sales Financing: Xerox (From 1998 Research Report)Residual Value Risk0.0%1.0%2.0%3.0%4.0%5.0%6.0%19941
12、99519961997199819992000% Impact on Operating Earnings4.4%8.0%3.4%13.5%5.6%15.2%2.0%20.4%4.4%73.7%(7.4%)0.0%5.0%10.0%15.0%20.0%199519961997199819992000Impact from Assuming 2% Residual ValueImpact of Incremental Change in Residual Value %Source: Morgan Stanley Research estimates; Company ReportsSome U
13、nrecognized Commitments The BasicsPeriod ICompanyInvestment to getproduct/AssetCashspentRevenues = 0Free Cash Flow = ?8?Periods 2CompanyCustomerFrom Period 1Revenue(Cash)Expenseas usedRevenues = ?8?Expenses = ?8?Free Cash Flow = ?8?Profit = ?Investment to getproduct/AssetSome Unrecognized Commitment
14、s The Game(Cash)Period ICompanyDistributor/OutsourcerSellsassetLong-Term Revenue GuaranteeGetscashBorrows cash securedby revenue guaranteeBankRevenues = ?8?Free Cash Flow = ?8?Periods 2CompanyDistributor/OutsourcerCustomerPayment forGuaranteeFeeor ProductRevenueProduct orserviceRevenues = ?8?Expense
15、s = ?8?8?Free Cash Flow = ?8?Profit = ?Revenue (cash)Some Unrecognized Commitments:Qwest 2001 Source: Morgan Stanley Research, Company reportsNotes: Cost of equipment is estimated by use of a 2,5% standard margin on such through sales.E = Morgan Stanley Research Estimates20002002E2003E2004E2005E+Q1Q
16、22H TotalQ1Q22H TotalERevenue fromEquipment Sale134.4168.6NM6583NMNMNMNMNMEffective Date of SaleMarchJuneMarchJuneEstimated cost ofequipment sold(131)(164.4)NM(63.4)(80.9)NMNMNMNMNMProfit Equip. Sale3.44.2NM1.62.1NM NMNMNMNMEst. Pmts by Qwest foruse of equipment-(75.3)(55.2)(65.3)(130.7)(282.2)(285.
17、5)(272.8)(169.2)Estimated Revenues Required to Break Even(3.4)(4.2)75.353.663.3130.7282.2285.5272.8169.22001Operating Leases: Off-Balance-Sheet CommitmentsCapacity - The Phantom Fleets: The Number of Aircraft and Percent Carried Off the Balance Sheet, 1997Source: Morgan Stanley Equity Research see A
18、pples to Apples Global Airlines 1998.Current Pension Dilemma: Declining Asset Values and Discount Rates for S&P 500Note: Net pension assets = total reported fair value of plan assets less the projected benefit obligation for US and Non-US pension plans. Discount rate=average for US plans only wh
19、en separately disclosed. E = Morgan Stanley Research Estimates; updated numbers from: Yawn or Yell? What To Do About Pensions, March 3, 2003.$292$225$6$(223)$(298)$(253)$(356)(380)(280)(180)(80)20120220F1999F2000F2001F2002EF2003EF2003EF2003E(10%) return8% return8% returnActual to 5/31 - 7.3%($ Billi
20、ons)5.50%6.00%6.50%7.00%7.50%8.00%Actual FundingNo FundingDiscount RateReported vs. Estimated Deficit at 31 December 2002 for FTSE 100Source: Company data, Morgan Stanley Research Estimates, “UK Pensions: Is It Just a Storm in a Teacup?” January 17, 2003 ? (0.2) Bn?(68) Bn(75.0)(65.0)(55.0)(45.0)(35
21、.0)(25.0)(15.0)(5.0)5.0At FY year end20023.64.14.65.15.66.16.6Current Pension Dilemma: Declining Asset Values and Discount Rates for FTSE 100Pension Valuations Reported 31 March 2003:British TelecomNote: For the MFR Valuation a 9% discount rate is used for active members, the discount rate for retir
22、ees is 10% where payments are further than 12 years away or else the yield of an equivalent maturity gilt. Discounted liabilities are then adjusted further by a Market Value Adjustment which adjust the liability to take into account recent falls in the market value of the pension assets.Source: Comp
23、any DataDiscount Rate 5.4%Discount Rate 8.2%Discount Rate 9%Discount Rate 7.1%Funding Level 101%Funding level 92%(15)(10)(5)05101520253035TriennialFundingValuationMFRSSAP 24FRS 17? billionPresent Value of Scheme LiabilitiesMarket Value of Plan AssetsSurplus / (Deficit)(2.1)0.2(1.4)(9.0)Reported Tota
24、l Service Benefit Payments in Real TermsBritish Telecom?0.00?0.25?0.50?0.75?1.00?1.25?1.50?1.752003201320232033204320532063? billion pa?0.00?0.25?0.50?0.75?1.00?1.25?1.50?1.752003201320232033204320532063? billion paSource: Company DataCapital Expenditure/DepreciationS&P 500Source: Morgan Stanley
25、 Research, Company Reports What is the economic (sustainable) cost of capacity ?0.0x0.5x1.0x1.5x2.0x2.5x3.0x3.5x4.0x4.5xAutomobiles & ComponentsBroadcasting & Cable TVCapital GoodsComputers & PeripheralsGas & Electric UtilitiesMulti-Utilities & Unregulated PowerOil & GasPharm
26、aceuticalsSemiconductor Equipment & ProductsTelecommunication ServicesTransportationS&P 500200220012000Currency and Hedging Issues: Baxter International Comprehensive IncomeSource: Baxter International 10KComprehensive Income (Loss)200220012000Net income$778$612$740Cumulative effect of accou
27、nting change, net of tax of $5-8-Currency translation adjustments, net of tax expense (benefit) of ($223) in 2002, $58 in 2001 and $82 in 2000(203) 155 (297) Unrealized net gain (loss) on hedging activities, net of tax expense (benefit) of ($67) in 2002 and $45 in 2001(114) 74 -Unrealized net gain (
28、loss) on marketable equity securities, net of tax expense (benefit) of ($5) in 2002, ($14) in 2001 and $15 in 2000(8) (20) 22 Additional minimum pension liability, net of tax benefit of $287(517) -Other comprehensive income (loss)(842) 217 (275) Some Thoughts for Different GroupsStandard settersMana
29、gers/Board MembersAuditorsYES to convergence but focus on economics and predictive ability and favor consistency over idiosyncratic nuanceIf the CEO and non-Executive Board members cannot understand the company and its business prospects from the financials then there is a problem“Fair presentation”
30、 or “true and fair” should not mean compliance with narrow rules _ bring back the expertise to the professionRatings and DisclosuresMorgan Stanley does and seeks to do business with companies covered in its research reports. Investors should consider this report as only a single factor in making the
31、ir investment decision.Analyst CertificationThe following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and will not receive direct or indirect compensation in exchange for expressin
32、g specific recommendations or views in this report: Trevor Harris.Important US Regulatory Disclosures on Subject CompaniesThe information and opinions in this report were prepared by Morgan Stanley & Co. Incorporated and its affiliates (collectively, ;Morgan Stanley;).Within the last 12 months,
33、Morgan Stanley has received compensation for investment banking services from British Telecom.In the next 3 months, Morgan Stanley expects to receive or intends to seek compensation for investment banking services from Qwest Communications Intl, British Telecom, Baxter International.The research ana
34、lysts, strategists, or research associates principally responsible for the preparation of this research report have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment bank
35、ing revenues.Morgan Stanley & Co. Incorporated makes a market in the securities of British Telecom, Baxter International.Ratings and DisclosuresGlobal Stock Ratings Distribution (as of Jun 30, 2003) Coverage Universe Investment Banking Clients (IBC) Stock Rating % of % of Category Count Total Co
36、unt Total IBC % of Rating Category Overweight 543 30% 214 35% 39% Equal-weight 860 47% 288 48% 33% Underweight 410 23% 104 17% 25% Total 1,813 606 Data include common stock and ADRs currently assigned ratings. For disclosure purposes (in accordance with NASD and NYSE requirements), we note that Over
37、weight, our most positive stock rating, most closely corresponds to a buy recommendation; Equal-weight and Underweight most closely correspond to neutral and sell recommendations, respectively. However, Overweight, Equal-weight, and Underweight are not the equivalent of buy, neutral, and sell but re
38、present recommended relative weightings (see definitions below). An investors decision to buy or sell a stock should depend on individual circumstances (such as the investors existing holdings) and other considerations. Investment Banking Clients are companies from whom Morgan Stanley or an affiliat
39、e received investment banking compensation in the last 12 months. Analyst Stock RatingsOverweight (O or Over) - The stocks total return is expected to exceed the average total return of the analysts industry (or industry teams) coverage universe, on a risk-adjusted basis over the next 12-18 months.E
40、qual-weight (E or Equal) - The stocks total return is expected to be in line with the average total return of the analysts industry (or industry teams) coverage universe, on a risk-adjusted basis over the next 12-18 months.Underweight (U or Under) - The stocks total return is expected to be below th
41、e average total return of the analysts industry (or industry teams) coverage universe, on a risk-adjusted basis, over the next 12-18 months.More volatile (V) - We estimate that this stock has more than a 25% chance of a price move (up or down) of more than 25% in a month, based on a quantitative ass
42、essment of historical data, or in the analysts 6view, it is likely to become materially more volatile over the next 1-12 months compared with the past three years. Stocks with less than one year of trading history are automatically rated as more volatile (unless otherwise noted). We note that securi
43、ties that we do not currently consider ;more volatile; can still perform in that manner.Unless otherwise specified, the time frame for price targets included in this report is 12 to 18 months. Ratings prior to March 18, 2002: SB=Strong Buy; OP=Outperform; N=Neutral; UP=Underperform. For definitions, please go to .morganstanley4/companycharts.Analyst Industry ViewsAttractive (A) - The analyst expects the performance of his or her industry coverage universe to be attractive versus the relevant broad benchmark over the next 12-18 months.In-Line (I) - The analyst expects the