Morgan Stanley 2010 Annual Report Download - page 143

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Goodwill and Intangible Assets.
Goodwill and indefinite-lived intangible assets are not amortized and are reviewed annually (or more frequently
when certain events or circumstances exist) for impairment. Other intangible assets are amortized over their
estimated useful lives and reviewed for impairment.
Deferred Compensation Arrangements.
Rabbi Trust. The Company maintains trusts, commonly referred to as rabbi trusts (the “Rabbi Trusts”), in
connection with certain deferred compensation plans. Assets of Rabbi Trusts are consolidated, and the value of
the Company’s stock held in Rabbi Trusts is classified in Morgan Stanley Shareholders’ equity and generally
accounted for in a manner similar to treasury stock. The Company has included its obligations under certain
deferred compensation plans in Employee stock trust. Shares that the Company has issued to its Rabbi Trusts are
recorded in Common stock issued to employee trust. Both Employee stock trust and Common stock issued to the
employee trust are components of Morgan Stanley Shareholders’ equity. The Company recognizes the original
amount of deferred compensation (fair value of the deferred stock award at the date of grant—see Note 20) as the
basis for recognition in Employee stock trust and Common stock issued to employee trust. Changes in the fair
value of amounts owed to employees are not recognized as the Company’s deferred compensation plans do not
permit diversification and must be settled by the delivery of a fixed number of shares of the Company’s common
stock.
Deferred Compensation Plans. The Company also maintains various deferred compensation plans for the
benefit of certain employees that provide a return to the participating employees based upon the performance of
various referenced investments. The Company often invests directly, as a principal, in such referenced
investments related to its obligations to perform under the deferred compensation plans. Changes in value of such
investments made by the Company are recorded primarily in Principal transactions—Investments. Expenses
associated with the related deferred compensation plans are recorded in Compensation and benefits.
Securities Available for Sale.
During the quarter ended March 31, 2010, the Company established a portfolio of debt securities that are
classified as securities available for sale (“AFS”). During the quarter ended June 30, 2010, the Company
classified certain marketable equity securities received in connection with the Company’s sale of Retail Asset
Management as AFS securities (see Note 1) which were subsequently sold in the fourth quarter of 2010. AFS
securities are reported at fair value in the consolidated statements of financial condition with unrealized gains and
losses reported in Accumulated other comprehensive income (loss), net of tax. Interest and dividend income,
including amortization of premiums and accretion of discounts, is included in Interest income in the consolidated
statements of income. Realized gains and losses on AFS securities are reported in earnings (see Note 5). The
Company utilizes the “first-in, first-out” method as the basis for determining the cost of AFS securities.
Other-than-temporary impairment. AFS securities in unrealized loss positions resulting from the current fair
value of a security being less than amortized cost are analyzed as part of the Company’s ongoing assessment of
other-than-temporary impairment (“OTTI”).
For AFS debt securities, the Company incurs a loss in the consolidated statements of income for the OTTI if the
Company has the intent to sell the security or it is more likely than not the Company will be required to sell the
security before recovery of its amortized cost basis as of the reporting date. For those debt securities the
Company does not expect to sell or expect to be required to sell, the Company must evaluate whether it expects
to recover the entire amortized cost basis of the debt security. In the event of a credit loss, only the amount of
137