eTrade 2000 Annual Report Download - page 75

Foreign Currency Translation —Assets and liabilities of wholly and majority owned subsidiaries outside of the United States are
translated into U.S. dollars using the exchange rate in effect at each period end. Revenues and expenses are translated at the average
exchange rate during the period. The effects of foreign currency translation adjustments arising from differences in exchange rates
from period to period are deferred and included in other comprehensive income as the functional currency of our subsidiaries is their
local currency. Currency transaction gains or losses, derived on monetary assets and liabilities stated in a currency other than the
functional currency, are recognized in current operations and have not been significant to the Company’ s operating results in any
period.
Impairment of Long-Lived Assets —In the event that facts and circumstances indicate that the carrying value of a long-lived asset,
including associated intangibles, may be impaired, an evaluation of recoverability is performed by comparing the estimated future
undiscounted cash flows associated with the asset to the asset’ s carrying amount to determine if a write-down to market value or
discounted cash flow is required. No such write-downs were made for the years ended September 30, 2000, 1999 or 1998.
Financial Instruments With Off-Balance-Sheet Credit Risk —The Company uses interest rate swaps, caps, floors and futures in the
management of its interest-rate risk. The Company is generally exposed to rising interest rates because of the nature of the repricing of
rate-sensitive assets as compared with rate-sensitive liabilities. These instruments are used primarily to hedge specific assets and
liabilities. For interest rate swaps, the net interest
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received or paid is treated as an adjustment to the interest income or expense related to the hedged assets or obligations in the period in
which such amounts are due.
In order to be eligible for hedge accounting treatment, high correlation must be probable at the inception of the hedge transaction and
must be maintained throughout the hedge period. Premiums and fees associated with interest rate caps are amortized to interest income
or expense on a straight-line basis over the lives of the contracts. For instruments that are not designated or do not qualify as hedges,
realized and unrealized gains and losses are recognized in the statement of operations as gain or loss on trading securities in the period
during which they are incurred.
The Company uses forward foreign exchange contracts and purchases foreign currency option contracts that are designated to reduce
a portion of its exposure to foreign currency risk from operational exposures resulting from changes in foreign currency exchange
rates. Such exposures result from the portion of the Company’ s operations that are denominated in currencies other than the functional
currency of the legal entity. Hedging activity related to foreign currency risk has not resulted in a material impact to the Company’ s
operations to date.
Comprehensive Income— The Company’ s comprehensive income is comprised of net income, foreign currency cumulative translation
adjustments, and unrealized gains and losses on available-for-sale investments, net of related taxes. Comprehensive income is reflected
in the consolidated statements of shareowners’ equity.
Segment Information— In fiscal 1999, the Company adopted SFAS No. 131 , Disclosures about Segments of an Enterprise and
Related Information . Under SFAS No. 131, the Company is required to use the management approach to reporting its segments. The
management approach designates the internal organization that is used by management for making operating decisions and assessing
performance as the source of the Company’ s segments. The adoption of SFAS No. 131 had no impact on the Company’ s net income
(loss), balance sheet, or shareowners’ equity. The accounting policies of the segments are the same as those described elsewhere in
Note 2. (See Note 23, “Segment and Geographic Information”)
New Accounting Standards— In June 1998, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities . The new standard requires companies to record derivatives on the balance sheet as
assets or liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives will be reported in
the statement of operations or as a deferred item, depending on the use of the derivatives and whether they qualify for hedge
accounting. The key criterion for hedge accounting is that the derivative must be highly effective in achieving offsetting changes in fair
value or cash flows of the hedged items during the term of the hedge. The Company adopted SFAS No. 133, as amended, on October
1, 2000. The adoption of SFAS No. 133 will result in an $82,500 charge, net of tax, from a cumulative effect of a change in accounting
principle, and a $6.2 million decrease, net of tax, in shareowners’ equity in the Company’ s financial statements for the quarter ending
December 31, 2000.
In September 2000, the FASB issued SFAS No. 140 , Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities . SFAS No. 140 replaces SFAS No. 125 , Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities . It revises the standards for accounting for securitizations and other transfers of financial assets and
2002. EDGAR Online, Inc.