eTrade 2001 Annual Report Download - page 55

domestic capital gains, sufficient to realize the carryforward benefits of these losses. At December 31, 2001, potential tax benefits of
$69.4 million from these losses have been fully reserved.
Valuation of goodwill
Goodwill represents the excess of purchase price over the fair value of net assets acquired resulting from acquisitions made by us. We
have historically amortized goodwill using the straight-line method based on an estimated useful life of five to twenty years. In June
2001, the Financial Accounting Standards Board issued SFAS No. 142, Goodwill and Other Intangible Assets , effective for fiscal
years beginning after December 15, 2001. SFAS No. 142 provides that intangible assets with finite useful lives be amortized and that
goodwill and intangible assets with indefinite lives not be amortized, but rather be tested at least annually for impairment. We adopted
SFAS No. 142 effective January 1, 2002. Upon adoption of SFAS No. 142, we stopped the amortization of goodwill with an estimated
net carrying value of approximately $417.6 million at December31, 2001. Currently, we are evaluating goodwill under the SFAS No.
142’ s transitional impairment test and expect to record an impairment charge of approximately $300.0 million to $350.0 million,
primarily attributed to the goodwill from our international acquisitions. The evaluation is based on our forecast of operating results for
each of the reporting units which have recorded goodwill, as well as estimates of the fair values of the tangible and intangible assets of
these units. Transitional impairment loss will be recognized as the effect of a change in accounting principle in the first quarter of
fiscal year 2002.
Significant Related Party Transactions
In connection with the renegotiation of our employment contract with our Chairman of the Board and Chief Executive Officer and as
part of other contractual renegotiations undertaken by the Company, in August 2001 we cancelled a $15.0 million note receivable and
agreed to reimburse $15.2 million dollars in related taxes in return for the elimination of certain benefits contained in our Chief
Executive Officer’ s employment agreement. This action had the effect of eliminating the Company’ s contractual obligations to cancel
the note and reimburse related taxes in the event of a change of control of the Company. The total of $30.2million is reflected as
executive loan settlement in the consolidated statement of operations.
Other related party transactions are described in Note 11 to our Consolidated Financial Statements.
Transition Period
As noted above, on January 22, 2001, our fiscal year end was changed from September 30 to December 31. Results for the three
month transition period ended December 31, 2000 were filed in our transition report on Form 10-QT filed with the SEC on February
14, 2001. During the three month period ended December 31, 2000, we completed the following significant activities, which are
described in further detail in our transition report on Form 10-QT:
• We completed our acquisition of privately-held E*TRADE Advisory Services, a Minneapolis-based developer of online
separately managed accounts. We issued 618,057 shares of common stock valued at approximately $8.7 million in exchange for
all of the outstanding shares of E*TRADE Advisory Services in the three month period ended December 31, 2000. The
acquisition of E*TRADE Advisory Services did not materially affect the results of operations during this period.
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2002. EDGAR Online, Inc.