eTrade 2000 Annual Report Download - page 44

assessment of the risk in our loan portfolio, as well as the level of charge-offs as a portion of our allowance for loan losses. The
provision for loan losses increased 44% from fiscal 1999 to fiscal 2000 and 208% from fiscal 1998 to fiscal 1999. The increases in the
provision for loan losses in fiscal 2000 and 1999 primarily reflect the growth in our loan portfolio. As of September 30, 2000 and
1999, the total loan loss allowance was $10.9 million, or 0.26% of total loans outstanding, and $7.2 million, or 0.33% of total loans
outstanding, respectively. As of September 30, 2000, the unallocated loan loss allowance was $10.5 million, or 87% of total
non-performing assets of $12.1 million. At September 30, 1999, the unallocated loan loss allowance of $6.7 million totaled 79% of
total non-performing assets of $8.5 million.
Operating Expenses
The following table sets forth the components of cost of services and operating expenses and percentage change information for the
years ended September 30, 2000, 1999 and 1998 (dollars in thousands):
Percentage Change
Years Ended September 30,
2000 vs.
1999
1999 vs.
1998
2000 1999 1998
Cost of services $ 515,571 $ 302,342 $ 151,329 71 % 100 %
Cost of services as a percentage of net revenues 38 % 45 % 42 %
Operating expenses:
Selling and marketing 521,532 325,449 126,141 60 % 158 %
Technology development 142,914 79,935 36,203 79 % 121 %
General and administrative 209,436 102,826 51,346 104 % 100 %
Amortization of goodwill and other intangibles 22,764 2,915 2,480 681 % 18 %
Acquisition-related expenses 36,427 7,174 1,167 408 % 515 %
Total operating expenses $ 933,073 $ 518,299 $ 217,337 80 % 138 %
Cost of Services
Cost of services increased 71% from fiscal 1999 to fiscal 2000 and 100% from fiscal 1998 to fiscal 1999. Cost of services includes
expenses related to our brokerage clearing operations, customer service activities, Web site content costs, systems maintenance,
communication expenses and depreciation expense. The increases in cost of services in fiscal 2000 and 1999 reflect the overall
increase in customer transactions processed by our brokerage and banking subsidiaries, a related increase in customer service
inquiries, and operations and maintenance costs associated with our technology centers in Rancho Cordova, California and Alpharetta,
Georgia. Cost of services as a percentage of net revenues was 38%, 45% and 42% in fiscal 2000, 1999 and 1998, respectively. The
decrease in cost of services as a percentage of net revenues from fiscal 1999 to fiscal 2000 is primarily a result of leveraging our
business model and gaining improved efficiencies in fiscal 2 000. The increase in cost of services as a percentage of net revenues in
fiscal 1999 compared to fiscal 1998 is primarily related to the introduction of 24x7x366 live agent customer service, the build-out of
the technology operation infrastructure to support the growth of the global business, the added content to the Web site, and the
promotional and pricing programs introduced in fiscal 1999.
Selling and Marketing
Selling and marketing increased 60% from fiscal 1999 to fiscal 2000 and 158% from fiscal 1998 to fiscal 1999. The increases in
selling and marketing expenditures in fiscal 2000 and 1999 reflect expenditures for advertising placements, creative development and
collateral materials resulting from a variety of advertising campaigns directed at building brand name recognition, growing the
customer base and market share, and maintaining customer retention rates. Beginning in the fourth quarter of fiscal 1998, the Company
significantly expanded its marketing efforts including the launch of Destination E*TRADE , expanded national television advertising
and new strategic marketing alliances with key business partners, such as AOL and Yahoo! Selling and marketing expenditures in
fiscal 2000 also reflect expenditures that resulted from our sponsorship of Super Bowl XXXIV. Marketing efforts focusing on our
2002. EDGAR Online, Inc.