Morgan Stanley 1999 Annual Report Download - page 67

page 65 |99 AR
effect to reclassifications, the net increase in total assets and total
liabilities was $10,256 million and $2,089 million, respectively.
INVESTMENT BANKING
Underwriting revenues and fees for mergers and acquisitions and
advisory assignments are recorded when services for the transaction
are substantially completed. Transaction-related expenses are
deferred and later expensed to match revenue recognition.
OFFICE FACILITIES
Office facilities are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization of buildings and lease-
hold improvements are provided principally by the straight-line
method, while depreciation and amortization of furniture, fixtures
and equipment are provided by both straight-line and accelerated
methods. Property and equipment are depreciated over the estimat-
ed useful lives of the related assets, while leasehold improvements
are amortized over the lesser of the economic useful life of the asset
or, where applicable, the remaining term of the lease.
INCOME TAXES
Income tax expense is provided for using the asset and liability
method, under which deferred tax assets and liabilities are deter-
mined based upon the temporary differences between the financial
statement and income tax bases of assets and liabilities, using cur-
rently enacted tax rates.
EARNINGS PER SHARE
The calculations of earnings per common share are based on the
weighted average number of common shares and share equivalents
outstanding and give effect to preferred stock dividend requirements.
As of December 1, 1997, the Company adopted SFAS No.
128, “Earnings per Share” (“SFAS No. 128”). SFAS No. 128
replaced the previous earnings per share (“EPS”) categories of pri-
mary and fully diluted with “basic EPS,” which reflects no dilution
from common stock equivalents, and “diluted EPS,” which reflects
dilution from common stock equivalents and other dilutive securi-
ties based on the average price per share of the Company’s com-
mon stock during the period. The EPS amounts of prior periods
have been restated in accordance with SFAS No. 128. The adop-
tion of SFAS No. 128 has not had a material effect on the
Company’s EPS calculations.
CARDMEMBER REWARDS
Cardmember rewards, primarily the Cashback Bonus®award, pur-
suant to which the Company annually pays Discover Cardmembers,
and Private Issue®Cardmembers electing this feature, a percentage
of their purchase amounts ranging up to 1%, are based upon a
cardmember’s level of annual purchases. The liability for card-
member rewards expense, included in other liabilities and accrued
expenses, is accrued at the time that qualified cardmember trans-
actions occur and is calculated on an individual cardmember basis.
STOCK-BASED COMPENSATION
SFAS No. 123, “Accounting for Stock-Based Compensation”
encourages, but does not require, companies to record compensa-
tion cost for stock-based employee compensation plans at fair
value. The Company has elected to continue to account for its
stock-based compensation plans using the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees” (“APB No. 25”).
Under the provisions of APB No. 25, compensation cost for stock
options is measured as the excess, if any, of the quoted market
price of the Company’s common stock at the date of grant over the
amount an employee must pay to acquire the stock.
TRANSLATION OF FOREIGN CURRENCIES
Assets and liabilities of operations having non-U.S. dollar function-
al currencies are translated at year-end rates of exchange, and the
income statements are translated at weighted average rates of
exchange for the year. In accordance with SFAS No. 52, “Foreign
Currency Translation,” gains or losses resulting from translating
foreign currency financial statements, net of hedge gains or losses
and related tax effects, are reflected in cumulative translation
adjustments, a separate component of shareholders’ equity. Gains
or losses resulting from foreign currency transactions are included
in net income.