Morgan Stanley 1999 Annual Report Download - page 27

In fiscal 1999, U.S. consumer demand and retail sales
continued to increase at a strong pace. The relatively favorable
interest rate environment that continued to exist in the U.S. for
much of the year enabled consumers to manage finances advanta-
geously while still allowing for steady growth in consumer credit. In
addition, the level of loan losses and personal bankruptcies con-
tinued to decline. The Company continued to invest in the growth
of its credit card business through the expansion of its
Discover/NOVUS®Network, as evidenced by a record number of
new merchant enrollments in fiscal 1999. The Company also
increased its marketing and solicitation activities with respect to
the Discover Card brand and the launch of the Morgan Stanley
Dean WitterSM Card in the United Kingdom.
FISCAL 1999 AND FISCAL 1998 RESULTS FOR THE COMPANY
The Company achieved record net income of $4,791 million in fis-
cal 1999, a 46% increase from fiscal 1998. Fiscal 1998’s net
income included a net gain of $345 million from the sale of the
Company’s Global Custody business, its interest in the operations
of SPS Transaction Services, Inc. (“SPS”) and certain BRAVO®Card
receivables (“BRAVO”) (see “Results of Operations — Business
Acquisition and Dispositions” herein). Fiscal 1998’s net income
also included a $117 million charge resulting from the cumulative
effect of an accounting change. This charge represents the effect
of an accounting change adopted in the fourth quarter of fiscal
1998 (effective December 1, 1997) with respect to the accounting
for offering costs paid by investment advisors of closed-end funds,
where such costs are not specifically reimbursed through separate
advisory contracts (see Note 2 to the consolidated financial state-
ments). Excluding the net gain from the sale of the businesses
noted above and the charge resulting from the cumulative effect of
an accounting change, fiscal 1999’s net income increased 57%. In
fiscal 1998, net income was $3,276 million, an increase of 27%
from fiscal 1997. Excluding the net gain from the sale of the busi-
nesses noted above and the charge resulting from the cumulative
effect of an accounting change, fiscal 1998 net income was
$3,048 million, an increase of 18%.
The Company’s income tax rate was 38.0%, 37.0% and
39.5% in fiscal 1999, 1998 and 1997, respectively. The increase
in fiscal 1999 reflects an increase in provisions for certain tax mat-
ters, partially offset by reduced state and local taxes resulting from
the resolution of certain audit issues. The decrease in fiscal 1998
primarily reflects lower tax rates applicable to non-U.S. earnings.
Basic earnings per common share increased 55% to
$4.33 in fiscal 1999 and 28% to $2.80 in fiscal 1998. Excluding
the net gain from the sale of the businesses noted above and the
impact of the cumulative effect of an accounting change, fiscal
1999’s basic earnings per common share increased 67%, and fis-
cal 1998’s basic earnings per common share increased 19%.
Diluted earnings per common share increased 54% to $4.10 in fis-
cal 1999 and 28% to $2.67 in fiscal 1998. Excluding the net gain
from the sale of the businesses noted above and the impact of the
cumulative effect of an accounting change, fiscal 1999’s diluted
earnings per common share increased 65%, and fiscal 1998’s
diluted earnings per common share increased 19%.
The Company’s return on average shareholders’ equity was
33%, 25% and 22% in fiscal 1999, fiscal 1998 and fiscal 1997,
respectively. Excluding the net gain from the sale of the businesses
noted above and the impact of the cumulative effect of an account-
ing change, fiscal 1998’s return on average shareholders’ equity
was 23%.
BUSINESS ACQUISITION AND DISPOSITIONS
During the second quarter of fiscal 1999, the Company completed
its acquisition of AB Asesores, the largest independent financial ser-
vices firm in Spain. AB Asesores has leading positions in personal
investment, asset management, institutional research and broker-
age, and investment banking. Through its approximately 300 finan-
cial advisors, it offers its individual investors proprietary mutual
funds and other financial products. This acquisition reflects the
Company’s strategic initiative to build its international Securities
and Asset Management businesses to serve the needs of individual
investors. The Company’s fiscal 1999 results include the operations
of AB Asesores since March 25, 1999, the date of acquisition.
In fiscal 1998, the Company entered into several transac-
tions reflecting its strategic decision to focus on growing its core
Asset Management and Credit Services businesses.
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