Morgan Stanley 2009 Annual Report Download - page 74

for the relevant OTC derivative products. For certain OTC derivative products, the Company, along with other
market participants, contributes derivative pricing information to aggregation services that synthesize the data
and make it accessible to subscribers. This information is then used to evaluate the fair value of these OTC
derivative products. For more information regarding the Company’s risk management practices, see
“Quantitative and Qualitative Disclosures about Market Risk—Risk Management” in Part II, Item 7A, herein.
Goodwill and Intangible Assets.
Goodwill. The Company tests goodwill for impairment on an annual basis and on an interim basis when certain
events or circumstances exist. The Company tests for impairment at the reporting unit level, which is generally
one level below its business segments. Goodwill no longer retains its association with a particular acquisition
once it has been assigned to a reporting unit. As such, all of the activities of a reporting unit, whether acquired or
organically grown, are available to support the value of the goodwill. Goodwill impairment is determined by
comparing the estimated fair value of a reporting unit with its respective book value. If the estimated fair value
exceeds the book value, goodwill at the reporting unit level is not deemed to be impaired. If the estimated fair
value is below book value, however, further analysis is required to determine the amount of the impairment. The
estimated fair values of the reporting units are derived based on valuation techniques the Company believes
market participants would use for each of the reporting units. The estimated fair values are generally determined
utilizing methodologies that incorporate price-to-book, price-to-earnings and assets under management multiples
of certain comparable companies.
The Company completed its annual goodwill impairment testing as of June 1, 2009 and 2008, which did not
result in any goodwill impairment. During the quarter ended September 30, 2009, the Company changed the date
of its annual goodwill impairment testing to July 1 as a result of the Company’s change in its fiscal year-end
from November 30 to December 31 of each year. The change to the annual goodwill impairment testing date was
to move the impairment testing outside of the Company’s normal second quarter-end reporting process to a date
in the third quarter, consistent with the testing date prior to the change in the fiscal year-end. The Company
believes that the resulting change in accounting principle related to the annual testing date will not delay,
accelerate or avoid an impairment charge. Goodwill impairment tests performed as of July 1, 2009 concluded
that no impairment charges were required as of that date. The Company determined that the change in accounting
principle related to the annual testing date is preferable under the circumstances and did not result in adjustments
to the Company’s consolidated financial statements when applied retrospectively.
Intangible Assets. Amortizable intangible assets are amortized over their estimated useful lives and reviewed
for impairment on an interim basis when certain events or circumstances exist. For amortizable intangible assets,
an impairment exists when the carrying amount of the intangible asset exceeds its fair value. An impairment loss
will be recognized only if the carrying amount of the intangible asset is not recoverable and exceeds its fair
value. The carrying amount of the intangible asset is not recoverable if it exceeds the sum of the expected
undiscounted cash flows.
Indefinite-lived intangible assets are not amortized but are reviewed annually (or more frequently when certain
events or circumstances exist) for impairment. For indefinite-lived intangible assets, an impairment exists when
the carrying amount exceeds its fair value.
See Note 4 to the consolidated financial statements for intangible asset impairments recorded during 2009.
For both goodwill and intangible assets, to the extent an impairment loss is recognized, the loss establishes the
new cost basis of the asset. Subsequent reversal of impairment losses is not permitted. For amortizable intangible
assets, the new cost basis is amortized over the remaining useful life of that asset.
See Note 7 to the consolidated financial statements for further information on goodwill and intangible assets. In
addition, see Note 3 to the consolidated financial statements for information on the goodwill and intangible assets
acquired on May 31, 2009 in connection with the consummation of the MSSB transaction and the goodwill and
intangible assets acquired on July 31, 2009 in connection with the contribution of the managed futures business.
70