eTrade 2001 Annual Report Download - page 119

useful lives, generally four years. Amortization expense was $28.5 million in fiscal 2001, $5.7 million in the three months ended
December 31, 2000, $7.8 million in fiscal 2000, and $7.1 million in fiscal 1999.
Stock-Based Compensation— The Company accounts for associate stock-based compensation using the intrinsic value method of
accounting prescribed in Accounting Principles Board Opinion (“APB”) No. 25, Accounting for Stock Issued to Employees . The
Company provides pro forma disclosures of net income (loss) and income (loss) per share as required under Statement of Financial
Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation .
Changes in Accounting Principle— In April 1998, the American Institute of Certified Public Accountants issued SOP 98-5, Reporting
on the Cost of Start-up Activities . The statement requires that the cost of start-up activities be expensed as incurred rather than
capitalized, with initial application reported as the cumulative effect of a change in accounting principle, as described in APB No. 20 ,
Accounting Changes. ETFC implemented SOP98-5 in fiscal 1999 and, as a result, recognized a loss of $469,000, net of tax, of
previously capitalized start-up costs, as a cumulative effect of a change in accounting principle. These costs related primarily to the
establishment of TeleBanc Insurance Services.
Effective October 1, 2000, the Company adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as
amended, which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. The adoption of SFAS No. 133 resulted in an $82,500 charge, net of tax,
reported as a cumulative effect of a change in accounting principle, and a $6.2 million decrease, net of tax, in shareowner’ s equity in
the Company’ s financial statements for the three months ended December 31, 2000.
Earnings Per Share— Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average common shares
outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock.
Cash and Equivalents— For purposes of reporting cash flows, the Company considers all highly liquid investments with original
maturities of three months or less that are not required to be segregated under Federal
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or other regulations to be cash equivalents. Cash and equivalents are composed of interest-bearing and no-interest-bearing deposits,
certificates of deposit, commercial paper, funds due from banks and Federal funds.
Cash and Investments Required to be Segregated Under Federal or Other Regulations— Cash and investments required to be
segregated under Federal or other regulations consist primarily of government-backed securities purchased under agreements to resell
(“Resale Agreements”). Resale Agreements are accounted for as collateralized financing transactions and are recorded at their
contractual amounts, which approximate fair value. The Company obtains possession of collateral with a market value equal to or in
excess of the principal amount loaned and accrued under resale agreements. Collateral is valued by the Company with additional
collateral obtained or refunded when necessary. At December 31, 2001, the Company had resale agreements of $633.7million
maintained in a special reserve bank account for the benefit of customers under Rule 15c 3-3 of the SEC. Included in cash and
investments required to be segregated under Federal or other regulations is $75,000 at December 31, 2001 and $2.5 million at
September 30, 2000, which the Company is required to maintain in an overnight balance in its account with the Federal Reserve Bank
of Richmond.
Loans held for sale —Mortgages acquired by the Bank and loans originated by E*TRADE Mortgage which are intended for sale in the
secondary market are carried at the lower of cost or estimated fair value in the aggregate. The market value of such mortgages is
determined by obtaining market quotes for loans with similar characteristics. Net unrealized losses, if any are recognized through a
2002. EDGAR Online, Inc.