eTrade 2001 Annual Report Download - page 124

31, 2002. Under the new rules, the criteria required for classifying an asset as held-for-sale have been significantly changed. Assets
held-for-sale are stated at the lower of their fair values or carrying amounts and depreciation is no longer recognized. In addition, the
expected future operating losses from discontinued operations will be displayed in discontinued operations in the period in which the
losses are incurred rather than as of the measurement date. More dispositions will qualify for discontinued operations treatment in the
income statement under the new rules. The Company is currently evaluating the impact of SFAS No. 144 to its consolidated financial
statements.
3. FACILITY RESTRUCTURING AND OTHER NONRECURRING CHARGES
On August 29, 2001, the Company announced a restructuring plan aimed at streamlining operations primarily by consolidating
facilities in the United States and Europe. This restructuring resulted in a pre-tax charge of $202.8 million ($148.0 million after tax) in
fiscal 2001.
Over the past three years, the Company has completed more than 16 acquisitions of companies with facilities in major metropolitan
centers in the United States and Europe. The restructuring was designed to consolidate some of these facilities to bring together key
decision-makers and streamline operations. The Company recorded a pre-tax restructuring charge of $131.8 million related to its
facilities consolidation in August 2001, representing the undiscounted value of ongoing lease commitments offset by anticipated third
party subleases. The charge also includes a pre-tax write-off of leasehold improvements and furniture and fixtures totaling
$38.6million. The charge does not include relocation costs that will be incurred over the next 12 months and expensed as incurred. The
cash outflow related to this action will be paid out over the length of committed lease terms of 7 to 11 years.
In calculating the charge related to the Company’ s facilities consolidation, certain estimates were used, including time to vacate
facilities, sublease terms upon the negotiation of future leases, broker commissions, tenant improvements and operating costs. In
developing the Company’ s estimates, the Company obtained information from third party leasing agents to calculate anticipated third
party sublease income. In calculating the undiscounted value of ongoing lease commitments for facilities expected to be vacated or
unused, the Company considered ongoing facility needs and the time required to vacate facilities and execute on the restructuring plan.
The Company’ s ability to vacate premises and sublease facilities ahead of or behind schedule or the negotiation of lease terms
resulting in higher or lower sublease income than estimated will affect the accrual and the related restructuring charge. Differences
between estimates of related broker commissions, tenant improvements and operating costs may increase or decrease the accrual upon
final negotiation. The Company recorded a $3.3million reduction in its initial facility consolidation charge of $131.8 million in the
fourth quarter of 2001 because the Company was able to utilize a larger portion of its furniture and fixtures than originally estimated.
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In connection with the Company’ s worldwide consolidation activities, certain software developed for specific locations and certain
other fixed assets will no longer be used. In addition, management reviewed the Company’ s current technology development activities
and has chosen to focus on projects it believes are generating the highest return in the short term. As such, work on less critical
projects has ceased. In total, the Company recorded a pre-tax restructuring charge of $52.5 million related to the write-off of
capitalized software and hardware related to the aforementioned technology projects and other fixed assets. In calculating the charge
related to its asset write-off, the Company calculated the amount of the write-offs as the net book value of assets less the amount of
estimated proceeds upon disposition for certain saleable assets. The $3.1 million increase to the Company’ s initial asset write-off
charge of $49.4 million reflects approximately $1.2 million related to a revision in the estimate of capacity requirements following the
consolidation of certain data center operations in the Alpharetta, Georgia facility. An additional increase in the restructuring accrual
resulted from the identification of additional excess equipment.
The restructuring accrual also included other pre-tax charges of $15.8 million for committed expenses, termination of consulting
agreements and cancellation penalties on various services, that will no longer be required in the facilities the Company is vacating. We
recorded an increase to our initial restructuring charge included in Other of $5.9million for severance payments made to associates
2002. EDGAR Online, Inc.