eTrade 2001 Annual Report Download - page 67

Technology Development
Technology development decreased 38% from fiscal 2000 to fiscal 2001 and increased 79% from fiscal 1999 to fiscal 2000. Costs of
internally developed software are included in technology development until the specific project qualifies for capitalization treatment.
Once the project is completed, these capitalized costs are amortized to cost of services. Through fiscal 2001, we continued to invest in
the development of technology to enhance our existing product offerings, including enhancements to our web site and brokerage
systems, and development of CRM capabilities. The decrease in technology development in fiscal 2001 reflects our focused
investment on core projects, such as product offerings supporting our active trader customer base completed in fiscal 2001. Also,
during the third quarter of fiscal 2001, management reviewed our current technology development activities in conjunction with our
restructuring plans and business initiatives. As a result, work on less critical projects ceased during the last half of fiscal 2001 and the
use of outside contractors was reduced. The increase in technology development in fiscal 2000 over fiscal 1999 is due to enhancement
of our existing product offerings, including maintenance of our web site and expensing of our CRM technology development costs
during the preliminary project stage. With management’ s continuing focus on cost efficiencies in fiscal 2001, no significant increases
in technology development spending are planned in fiscal 2002. Management believes that the level of current technology
development spending is appropriate to support pending initiatives and to operate competitively.
General and Administrative
General and administrative expenses increased 13% from fiscal 2000 to fiscal 2001 and 104% from fiscal 1999 to fiscal 2000. The
increase in general and administrative expenses in fiscal 2001 is primarily due to the growth of our Banking segment, which includes
the operations of E*TRADE Access and E*TRADE Mortgage. Also, we implemented our Supplemental Executive Retirement Plan
(“SERP”) on January 1, 2001, which increased general and administrative expenses by $24.5 million in fiscal 2001. We expect to
continue to fund the SERP in future years. The increase in general and administrative expenses was partially offset by a reduction in
spending on corporate overhead expense and an increased focus on spending controls. In addition, the initial
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impact of our facility restructuring and other nonrecurring charges, effective August 29, 2001, has been reflected in fiscal 2001. The
significant increase in fiscal 2000 is a result of personnel additions and the development of administrative functions resulting from our
overall growth and increased business activities. Looking forward, we expect that general and administrative expenses will remain
relatively flat with fiscal 2001, with some increases related to our operations of Dempsey, offset by possible reductions from
integration of our past business acquisitions, and our ongoing efforts to re-engineer and reorganize our business to realize operating
efficiencies from these acquisitions.
Amortization of Goodwill and Other Intangibles
Amortization of goodwill and other intangibles was $43.1 million in fiscal 2001, $22.8 million in fiscal 2000 and $2.9 million in fiscal
1999. The significant increase in the amortization of goodwill and other intangibles is primarily related to the purchase acquisitions of
E*TRADE Access in May 2000, E*TRADE Germany in October 2000, E*TRADE Mortgage in February 2001, Web Street in June
2001, and several of our international affiliates. At December 31, 2001, unamortized goodwill and workforce intangibles are
$561.4million and unamortized other intangibles are $123 million, comprised primarily of intangibles related to Web Street and
Dempsey accounts upon acquisition. Other intangibles are amortized over 5 to 30 years. With the release of SFAS No. 142, Goodwill
and Other Intangible Assets , goodwill attributed to purchase acquisitions completed after June 30, 2001 is no longer amortized. As a
result, the goodwill recorded upon the purchase of Dempsey is not being amortized. Upon our adoption of SFAS No. 142 on January
1, 2002, we discontinued the amortization of goodwill subject to the new pronouncement. See “Recent Accounting Pronouncements.”
2002. EDGAR Online, Inc.