eTrade 2001 Annual Report Download - page 70

2000, losses resulted from our minority ownership in investments that are accounted for under the equity method, primarily
E*OFFERING.
Unrealized Loss on Venture Funds
Unrealized losses on venture fund were $34.7 million in fiscal 2001, $700,000 in fiscal 2000 and none in fiscal 1999. In fiscal 2001,
we recorded unrealized losses on our participation in the Softbank Capital Partners, L.P. Fund, E*TRADE eCommerce Fund I (“Fund
I”) and Arrow Path Fund II (formerly E*TRADE eCommerce Fund II). These changes represent market fluctuations on public
investments held by the funds and changes in the estimated value of their non-public investments. Fund I was formed in the first
quarter of fiscal 2000 and the Arrow Path Fund II was formed in the third quarter of fiscal 2000. In October, 2001, we amended our
agreement in Fund I, whereby we increased our capital commitment by $7.5 million and modified the order in which Fund I
distributions are to occur. The change provides for cash contributing partners to receive priority in distribution until they reach a 15%
annual rate of return on their initial investment. The securities contributing partners would then receive a 15% annual rate of return;
additional distributions, if any, would be allocated proportionately to all limited partners. Most of our contribution to Fund I was made
in the form of private securities and, with respect to this contribution, will be entitled to distributions behind the cash- contributing
partners of Fund I, which include certain of our executive officers and directors. Due to this change in allocation method, we recorded
an additional equity loss of $11.1 million.
Fair Value Adjustments of Financial Derivatives
In fiscal 2001, we recorded a loss of $3.1 million for the fair value adjustments of financial derivatives. In fiscal 2001, the amount
represents a $3.7 million loss on the valuation of warrants, partially offset by a $600,000 gain representing the ineffective portions of
fair value and cash flow hedges recorded by the Bank. We owned warrants to purchase shares of common stock of Wit through August
20, 2001. The adjustment to the fair value of these warrants is reflected in the fair value adjustments of financial derivatives. We
returned these warrants to Wit on August 20, 2001.
Other
Other non-operating income (expense) was $200,000 in fiscal 2001, $(1.8) million in fiscal 2000 and $(100,000) in fiscal 1999, which
is primarily comprised of foreign exchange gains (losses), recorded as a result of fluctuations in foreign exchange rates for assets and
liabilities held on our balance sheet that are denominated in non-functional currencies.
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Income Tax Expense (Benefit)
Income tax expense (benefit) represents the expense for federal and state income taxes at an effective tax rate of (12.9)% for fiscal
2001, 81.8% for fiscal 2000 and (37.5)% for fiscal 1999. The rate for fiscal 2001 reflects a decrease in the tax benefit for
non-deductible expenses such as certain compensation and the amortization of goodwill, differences between our statutory and foreign
effective tax rates and losses in certain foreign jurisdictions for which no benefit was recognized. The rate for fiscal 2000 reflects an
increase in non-deductible acquisition-related expenses combined with the amortization of goodwill and differences between our
statutory and foreign effective tax rate. These increases are primarily due to business acquisitions during fiscal 2000. The rate for
fiscal 1999 reflects the impact of non-deductible acquisition-related expenses and amortization of goodwill arising from acquisitions.
Minority Interest in Subsidiaries
2002. EDGAR Online, Inc.