eTrade 2002 Annual Report Download - page 104

Table of Contents
Index to Financial Statements
Because the Company operates in the financial services industry, it follows certain accounting guidance used by the brokerage and banking
industries. A summary of those other significant accounting policies affecting the Company are contained in Note 2.
The preparation of the Company’ s consolidated financial statements in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial
statements and related notes for the periods presented. Actual results could differ from management’ s estimates. Material estimates for which a
change is reasonably possible in the near-term relate to the estimate of accrued restructuring costs, the determination of the allowance for loan
losses; the classification and valuation of certain investments, valuation and accounting for financial derivatives and the valuation of goodwill.
The Company’ s investments in venture funds reflect changes in the fair value of their portfolio investments including estimated values of
non-public companies, which may be subject to adjustments. The Bank also makes estimates as to the valuation of real estate and repossessed
assets acquired in connection with foreclosures and repossessions. In addition, the regulatory agencies that supervise the financial services
industry periodically review the Bank’ s allowance for loan losses. This review, which is an integral part of their examination process, may
result in additions or deductions to the allowance for loan losses based on judgments with regard to available information provided at the time
of their examinations.
In fiscal 2002, the Company changed its presentation of revenue. No changes to accounting policies or methods were made in connection with
this presentation change. Under the new presentation, net brokerage revenues consist of commissions, principal transactions, other
brokerage-related revenues, interest income and interest expense. Commissions include domestic and international transaction revenues.
Previously, international transaction revenues were included under the caption global and institutional. Principal transactions include revenues
from institutional activities, previously included in global and institutional, and from market-making activities, previously included in other
revenues. Other brokerage-related revenues include payments for order flow which were previously included in transaction revenues. This
change also results in separate breakout of income, expense and other income between brokerage and banking sources.
In April 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 145,
Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS No. 145 requires
that any gains or losses on extinguishment of debt that were classified as an extraordinary item in prior periods that are not unusual in nature
and infrequent in occurrence be reclassified. In the fourth quarter of fiscal 2002, the Company adopted SFAS No. 145, resulting in a
reclassification of previously reported extraordinary gain on early extinguishment of debt, net of tax, to gain on early extinguishment of debt in
non-operating income (expense) along with a reclassification of previously reported income tax expense (benefit).
Certain other prior period items in these consolidated financial statements have been reclassified to conform to the current period presentation.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Equivalents —For purposes of reporting cash flows, the Company considers all highly liquid investments with remaining maturities
of three months or less at the time of purchase that are not required to be segregated under Federal or other regulations to be cash equivalents.
Cash and equivalents are composed of interest-bearing and non-interest-bearing deposits, certificates of deposit, commercial paper, funds due
from banks and Federal funds. Included in cash and equivalents is $7.1 million at December 31, 2002 and $8.7 million at December 31, 2001,
as the Company is required to maintain an overnight cash balance in its account with the Federal Reserve Bank.
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
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2003. EDGAR Online, Inc.