Morgan Stanley 1998 Annual Report Download - page 67

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EARNINGS PER SHARE
Earnings per share was calculated as follows (in millions, except for
per share data):
FISCAL fiscal fiscal
BASIC EPS: 1998 1997 1996
Income before cumulative effect
of accounting change $3,393 $2,586 $1,980
Cumulative effect of accounting
change (117) — —
Preferred stock dividend
requirements (55) (66) (66)
Net income available to common
shareholders $3,221 $2,520 $1,914
Weighted average common shares
outstanding 576 575 573
Basic EPS before cumulative
effect of accounting change $ 5.80 $ 4.38 $ 3.34
Cumulative effect of accounting
change $ (0.20) — —
Basic EPS $ 5.60 $ 4.38 $ 3.34
FISCAL fiscal fiscal
DILUTED EPS: 1998 1997 1996
Income before cumulative effect
of accounting change $3,393 $2,586 $1,980
Cumulative effect of accounting
change (117) — —
Preferred stock dividend
requirements (47) (61) (62)
Net income available to common
shareholders $3,229 $2,525 $1,918
Weighted average common shares
outstanding 576 575 573
Effect of dilutive securities:
Stock options 18 19 21
ESOP convertible preferred stock 12 12 13
Weighted average common shares
outstanding and common stock
equivalents 606 606 607
Diluted EPS before cumulative
effect of accounting change $ 5.52 $ 4.16 $ 3.16
Cumulative effect of accounting
change $ (0.19) — —
Diluted EPS $ 5.33 $ 4.16 $ 3.16
8TRADING ACTIVITIES
TRADING REVENUES
The Company’s trading activities include providing securities bro-
kerage, derivatives dealing and underwriting services to clients.
While trading activities are generated by client order flow, the
Company also takes proprietary positions based on expectations of
future market movements and conditions. The Company’s trading
strategies rely on the integrated management of its client-driven and
proprietary transactions, along with the hedging and financing of
these positions.
The Company manages its trading businesses by prod-
uct groupings and therefore has established distinct, worldwide
trading divisions having responsibility for equity, fixed income, for-
eign exchange and commodities products. Because of the inte-
grated nature of the markets for such products, each product area
trades cash instruments as well as related derivative products (i.e.,
options, swaps, futures, forwards and other contracts with respect
to such underlying instruments or commodities). Revenues related
to principal trading are summarized below by trading division:
FISCAL fiscal fiscal
(dollars in millions) 1998 1997 1996
Equities $2,056 $1,310 $1,181
Fixed Income 455 1,187 1,172
Foreign Exchange 587 500 169
Commodities 193 194 137
Total principal trading revenues $3,291 $3,191 $2,659
Interest revenue and expense are integral components of trading activ-
ities. In assessing the profitability of trading activities, the Company
views net interest and principal trading revenues in the aggregate.
The Company’s trading portfolios are managed with a
view toward the risk and profitability of the portfolios to the Company.
The nature of the equities, fixed income, foreign exchange and
commodities activities conducted by the Company, including the use
of derivative products in these businesses, and the market, credit
and concentration risk management policies and procedures cover-
ing these activities are discussed below.
9
*SEVENTY
-ONE *
MORGAN STANLEY DEAN WITTER *1998 ANNUAL REPORT