eTrade 2002 Annual Report Download - page 112

Table of Contents
Index to Financial Statements
eligible for hedge accounting treatment, a high correlation had to be probable at the inception of the hedge transaction and was to be maintained
throughout the hedge period. For interest rate swaps, the net interest received or paid was treated as an adjustment to the interest income or
expense related to the hedged assets or obligations in the period in which such amounts were due. Premiums and fees associated with interest
rate caps were amortized to interest income or expense on a straight-line basis over the lives of the contracts. For instruments that were not
designated or did not qualify as hedges, realized and unrealized gains and losses were recognized in the statements of operations as gain on
sales of loans held-for-sale and other securities, net in the consolidated statements of operations. See Notes 28 and 29.
Comprehensive Income —The Company’ s comprehensive income is comprised of net income, foreign currency cumulative translation
adjustments, unrealized gains and losses on available-for-sale mortgage-backed and investment securities and the effective portion of the
unrealized gains and losses on financial derivatives in cash flow hedge relationships, net of reclassification adjustments and related taxes.
Comprehensive income is reported in the consolidated statements of shareholders’ equity.
New Accounting Standards —In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities ,
which addresses accounting for restructuring and similar costs. SFASNo. 146 supersedes previous accounting guidance, principally EITF Issue
No. 94-3. SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is
incurred. Under Issue 94-3, a liability for an exit cost was recognized at the date of the Company’ s commitment to an exit plan rather than when
the liability is incurred. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. Accordingly,
SFAS No. 146 may affect the timing of recognizing future restructuring costs as well as the amounts initially recognized. The Company will
follow the provisions of SFAS No. 146 for any restructuring activities which may be initiated after December 31, 2002.
In September 2002, the EITF reached a consensus on Issue 02-15, Determining Whether Certain Conversions of Convertible Debt to Equity
Securities Are within the Scope of FASB Statement No. 84, Induced Conversions of Convertible Debt . SFAS No. 84 applies to all conversions
that occur pursuant to revised conversion privileges that are exercisable only for a limited period of time and result in the issuance of all of the
equity securities issuable pursuant to the original conversion terms of the debt offering, regardless of the party that initiates the offer or whether
the offer relates to all debt holders. The consensus should be applied prospectively to all applicable inducements that close after September 12,
2002. The Company adopted EITF02-15 effective September 12, 2002. Since September 12, 2002, no convertible debt was retired through a
conversion to equity.
In October 2002, the FASB issued SFAS No. 147, Acquisitions of Certain Financial Institutions , which addresses the financial accounting and
reporting for the acquisition of all or part of a financial institution. The statement removes acquisitions of financial institutions from the scope
of FASB Statement No. 72, Accounting for Certain Acquisitions of Banking or Thrift Institutions, and FASB Interpretation No. 9, Applying
APB Opinions No. 16 and 17 When a Savings and Loan Association or Similar Institution Is Acquired in a Business Combination Accounted
for by the Purchase Method . This statement also amends SFAS No. 144, to include long-term customer relationship intangible assets such as
depositor-and-borrower relationship assets. Accordingly, SFAS No. 147 may affect the accounting for future acquisitions of all or part of a
financial institution. The Company adopted the provisions of SFAS No. 147 on October 1, 2002 and its adoption did not have a material impact
on the Company’ s financial condition or results of operations.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure , which provides
alternative transition methods for a voluntary change to the fair value based method of accounting for stock-based employee compensation and
prevents the use of the prospective transition method for companies who do not adopt the expensing method for stock compensation in fiscal
2003. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and
quarterly financial statements of the method of accounting for stock-based employee
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2003. EDGAR Online, Inc.