Morgan Stanley 1999 Annual Report Download - page 64

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notes to consolidated financial statements
99 AR |page 62
1INTRODUCTION AND BASIS OF PRESENTATION
THE COMPANY
Morgan Stanley Dean Witter & Co. (the “Company”) is a pre-eminent
global financial services firm that maintains leading market posi-
tions in each of its three business segments — Securities, Asset
Management and Credit Services. Its Securities business includes
securities underwriting, distribution and trading; merger, acquisi-
tion, restructuring, real estate, project finance and other corporate
finance advisory activities; full-service and online brokerage ser-
vices; research services; the trading of foreign exchange and com-
modities, as well as derivatives on a broad range of asset categories,
rates and indices; securities lending; and private equity activities.
The Company’s Asset Management business provides global asset
management advice and services to investors through a variety of
product lines and brand names, including Morgan Stanley Dean
Witter Advisors, Van Kampen Investments, Morgan Stanley Dean
Witter Investment Management and Miller Anderson & Sherrerd.
The Company’s Credit Services business includes the issuance of
the Discover®Card and the Morgan Stanley Dean WitterSM Card; and
the operation of the Discover/NOVUS®Network, a proprietary net-
work of merchant and cash access locations.
The consolidated financial statements include the
accounts of the Company and its U.S. and international sub-
sidiaries, including Morgan Stanley & Co. Incorporated
(“MS&Co.”), Morgan Stanley & Co. International Limited (“MSIL”),
Morgan Stanley Dean Witter Japan Limited (“MSDWJL”), Dean
Witter Reynolds Inc. (“DWR”), Morgan Stanley Dean Witter
Advisors Inc. and NOVUS Credit Services Inc.
BASIS OF FINANCIAL INFORMATION
The consolidated financial statements give retroactive effect to the
May 1997 merger of Morgan Stanley Group Inc. (“Morgan
Stanley”) with and into Dean Witter, Discover & Co. (“Dean Witter
Discover”), which was accounted for as a pooling of interests. The
pooling of interests method of accounting requires the restatement
of all periods presented as if Dean Witter Discover and Morgan
Stanley had always been combined. The consolidated statement of
changes in shareholders’ equity reflects the accounts of the
Company as if the preferred and additional common stock issued in
connection with the merger had been issued during all of the peri-
ods presented.
Prior to the consummation of the merger, Dean Witter
Discover’s year ended on December 31 and Morgan Stanley’s fiscal
year ended on November 30. Subsequent to the merger, the
Company adopted a fiscal year-end of November 30. The
Company’s results for the 12 months ended November 30, 1999
(“fiscal 1999”), November 30, 1998 (“fiscal 1998”) and
November 30, 1997 (“fiscal 1997”) reflect the change in fiscal
year-end. Fiscal 1997 includes the results of Dean Witter Discover
that were restated to conform with the new fiscal year-end date.
The consolidated financial statements are prepared in
accordance with generally accepted accounting principles, which
require management to make estimates and assumptions regarding
certain trading inventory valuations, consumer loan loss levels, the
potential outcome of litigation and other matters that affect the
consolidated financial statements and related disclosures.
Management believes that the estimates utilized in the preparation
of the consolidated financial statements are prudent and reason-
able. Actual results could differ materially from these estimates.
Certain reclassifications have been made to prior-year
amounts to conform to the current presentation. All material inter-
company balances and transactions have been eliminated.
STOCK SPLIT
On December 20, 1999, the Company declared a two-for-one com-
mon stock split, effected in the form of a 100% stock dividend,
payable to shareholders of record on January 12, 2000 and distrib-
utable on January 26, 2000. All share, per share and shareholders’
equity data have been retroactively restated to reflect this split.
2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For purposes of these statements, cash and cash equivalents con-
sist of cash and highly liquid investments not held for resale with
maturities, when purchased, of three months or less.
In connection with the fiscal 1999 purchase of AB
Asesores, the Company issued 1.4 million shares of common stock
having a fair value on the date of acquisition of $64 million. In con-
nection with the fiscal 1997 purchase of Morgan Stanley Dean
Witter Online (formerly Discover Brokerage Direct, Inc.), the
Company issued 3.8 million shares of common stock having a fair
value on the date of acquisition of approximately $63 million.