Morgan Stanley 2010 Annual Report Download - page 140

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Consolidated Statements of Cash Flows.
For purposes of the consolidated statements of cash flows, cash and cash equivalents consist of Cash and due
from banks and Interest bearing deposits with banks, which are highly liquid investments with original maturities
of three months or less and readily convertible to known amounts of cash, and are held for investment purposes.
The Company’s significant non-cash activities in 2010 included assets acquired of approximately $0.5 billion
and assumed liabilities of approximately $0.2 billion in connection with business acquisitions and approximately
$0.6 billion of equity securities received in connection with the sale of Retail Asset Management, which were
subsequently sold (see Note 1). The Company’s significant non-cash activities in 2009 included assets acquired
of $11.0 billion and assumed liabilities, in connection with business acquisitions, of $3.2 billion. Fiscal 2008
included assumed liabilities of $77 million. During 2009, the Company consolidated certain real estate funds
sponsored by the Company increasing assets by $600 million, liabilities of $18 million and Noncontrolling
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 1). During fiscal 2008, the Company
consolidated Crescent assets and liabilities of approximately $4,681 million and $3,881 million, respectively.
Repurchase and Securities Lending Transactions.
Securities borrowed or purchased under agreements to resell and securities loaned or sold under agreements to
repurchase are treated as collateralized financings. Securities purchased under agreements to resell (“reverse
repurchase agreements”) and Securities sold under agreements to repurchase (“repurchase agreements”) are
carried on the consolidated statements of financial condition at the amounts at which the securities will
be subsequently sold or repurchased, plus accrued interest, except for certain repurchase agreements for which
the Company has elected the fair value option (see Note 4). Where appropriate, transactions with the same
counterparty are reported on a net basis. Securities borrowed and securities loaned are recorded at the amount of
cash collateral advanced or received.
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 7).
Such transfers of financial assets are generally accounted for as sales when the Company has relinquished control
over the transferred assets and does not consolidate the transferee. 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 (generally at fair
value) and the sum of the proceeds and the fair value of the retained interests 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.
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