Morgan Stanley 1999 Annual Report Download - page 68

99 AR |page 66 GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets are amortized on a straight-
line basis over periods from five to 40 years, generally not exceed-
ing 25 years, and are periodically evaluated for impairment. At
November 30, 1999 and 1998, goodwill and other intangible
assets of approximately $1.3 billion and $1.2 billion, respectively,
were included in the Company’s consolidated statements of finan-
cial condition as a component of other assets.
ACCOUNTING CHANGE
In the fourth quarter of fiscal 1998, the Company adopted
American Institute of Certified Public Accountants (“AICPA”)
Statement of Position (“SOP”) 98-5, “Reporting on the Costs of
Start-Up Activities” (“SOP 98-5”), 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. In accordance with SOP 98-5 and per an
announcement by the Financial Accounting Standards Board
(“FASB”) staff in September 1998, such costs are to be considered
start-up costs and expensed as incurred. Prior to the adoption of
SOP 98-5, the Company deferred such costs and amortized them
over the life of the fund. The Company recorded a charge to earn-
ings for the cumulative effect of the accounting change as of
December 1, 1997, of $117 million, net of taxes of $79 million.
The effect of adopting these provisions on the Company’s income
before the cumulative effect of the accounting change for fiscal
year 1998 was a decrease of $24 million, net of taxes. The effect
on basic and diluted earnings per share was $0.02. The pro forma
effect on net income for fiscal 1997 would not have been material.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, “Reporting
Comprehensive Income” and SFAS No. 131, “Disclosures about
Segments of an Enterprise and Related Information.” These state-
ments, which are effective for fiscal years beginning after
December 15, 1997, establish standards for the reporting and pres-
entation of comprehensive income and the disclosure requirements
related to segments. The Company adopted SFAS No. 130 and
SFAS No. 131 in fiscal 1999.
In February 1998, the FASB issued SFAS No. 132,
“Employers’ Disclosures about Pensions and Other Postretirement
Benefits,” which revises and standardizes pension and other
postretirement benefit plan disclosures that are to be included in
the employers’ financial statements. SFAS No. 132 does not
change the measurement or recognition rules for pensions and
other postretirement benefits. The Company adopted SFAS No.
132 in fiscal 1999.
In June 1998, the FASB issued SFAS No. 133,
“Accounting for Derivative Instruments and Hedging Activities,”
which establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. As issued, SFAS No.
133 was effective for fiscal years beginning after June 15, 1999.
In June 1999, the FASB issued SFAS No. 137, “Accounting for
Derivative Instruments and Hedging Activities — Deferral of the
Effective Date of FASB Statement No. 133.” SFAS No. 137 defers
the effective date of SFAS No. 133 for one year to fiscal years
beginning after June 15, 2000. The Company is in the process of
evaluating the impact of adopting SFAS No. 133.
In July 1998, the Emerging Issues Task Force (“EITF”)
reached a consensus on EITF Issue 97-14, “Accounting for
Deferred Compensation Arrangements Where Amounts Earned Are
Held in a Rabbi Trust and Invested” (“EITF 97-14”). Under EITF
97-14, assets of the rabbi trust are to be consolidated with those
of the employer, and the value of the employer’s stock held in the
rabbi trust should be classified in shareholders’ equity and gener-
ally accounted for in a manner similar to treasury stock. The
Company therefore has included its obligations under certain
deferred compensation plans in employee stock trust. Shares that
the Company has issued to the rabbi trusts are recorded in common
stock issued to employee trust. Both employee stock trust and com-
mon stock issued to employee trust are components of sharehold-
ers’ equity. The adoption of EITF 97-14 did not result in any
change to the Company’s consolidated statements of income, total
assets, total liabilities or total shareholders’ equity.
In March 1998, the AICPA issued SOP 98-1, “Accounting
for the Costs of Computer Software Developed or Obtained for
Internal Use.” The SOP is effective for financial statements for fis-
cal years beginning after December 15, 1998 and provides specif-