Morgan Stanley 2009 Annual Report Download - page 131

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
acquisitions, of $3.2 billion in 2009. Fiscal 2008 and fiscal 2007 included assumed liabilities of $77 million and
$7,704 million, respectively. During 2009, the Company consolidated certain real estate funds sponsored by the
Company increasing assets by $600 million, liabilities of $18 million and Non-controlling interests of $582
million. In the fourth quarter of 2009, the Company disposed of Crescent, deconsolidating $2,766 million of
assets and $2,947 million of liabilities (see Note 23). During fiscal 2008, the Company consolidated Crescent
assets and liabilities of approximately $4,681 million and $3,881 million, respectively. In connection with the
Discover Spin-off, net assets of approximately $5,558 million were distributed to shareholders in fiscal 2007 (see
Note 23). At November 30, 2007, $8,086 million of securities were transferred from Securities available for sale
to Financial instruments owned.
Securitization Activities.
The Company engages in securitization activities related to commercial and residential mortgage loans, corporate
bonds and loans, U.S. agency collateralized mortgage obligations and other types of financial assets (see Note 6).
Generally, such transfers of financial assets are accounted for as sales when the Company has relinquished
control over the transferred assets. The gain or loss on sale of such financial assets depends, in part, on the
previous carrying amount of the assets involved in the transfer allocated between the assets sold and the retained
interests based upon their respective fair values at the date of sale. Transfers that are not accounted for as sales
are treated as secured financings (“failed sales”).
Premises, Equipment and Software Costs.
Premises and equipment consist of buildings, leasehold improvements, furniture, fixtures, computer and
communications equipment, power plants, tugs, barges, terminals, pipelines and software (externally purchased
and developed for internal use). Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided by the straight-line method over the estimated useful
life of the asset. Estimated useful lives are generally as follows: buildings—39 years; furniture and fixtures—7
years; computer and communications equipment—3 to 8 years; power plants—15 years; tugs and barges—15
years; and terminals and pipelines—3 to 25 years. Estimated useful lives for software costs are generally 3 to 5
years.
Leasehold improvements are amortized over the lesser of the estimated useful life of the asset or, where
applicable, the remaining term of the lease, but generally not exceeding: 25 years for building structural
improvements and 15 years for other improvements.
Premises, equipment and software costs are tested for impairment whenever events or changes in circumstances
suggest that an asset’s carrying value may not be fully recoverable in accordance with current accounting
guidance.
Income Taxes.
Income tax expense is provided for using the asset and liability method, under which deferred tax assets and
liabilities are determined based upon the temporary differences between the financial statement and income tax
bases of assets and liabilities using currently enacted tax rates.
Earnings per Common Share.
Basic earnings per common share (“EPS”) is computed by dividing income available to Morgan Stanley common
shareholders by the weighted average number of common shares outstanding for the period. Income available to
Morgan Stanley common shareholders represents net income applicable to Morgan Stanley reduced by preferred
stock dividends, amortization and the acceleration of discounts on preferred stock issued and allocations of
earnings to participating securities. Common shares outstanding include common stock and vested restricted
stock unit awards where recipients have satisfied either the explicit vesting terms or retirement eligibility
requirements. Diluted EPS reflects the assumed conversion of all dilutive securities.
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