eTrade 2002 Annual Report Download - page 166

Table of Contents
Index to Financial Statements
The total benefit to the Company for amounts previously paid on the Former CEO’ s behalf or for amounts due to be paid in fiscal 2002 and
waived under his revised employment agreement totaled $23.5 million and is reflected as a nonrecurring reduction in our operating expenses in
the consolidated statements of operations.
In connection with the renegotiation of the Company’ s previous employment contract with its Former CEO and as part of other contractual
renegotiations undertaken by the Company, in August 2001 the Company cancelled a note receivable of $15.0 million from the Former CEO
and agreed to reimburse $15.2 million in related taxes in return for the elimination of certain benefits contained in the Former CEO’ s prior
employment agreement. This action also had the effect of eliminating the Company’ s contractual obligation to cancel the note and reimburse
related taxes in the event of a change of control of the Company. The total of $30.2 million is reflected as executive loan settlement in the fiscal
2001 consolidated statement of operations.
23. CUMULATIVE EFFECT OF ACCOUNTING CHANGE, GOODWILL AND INTANGIBLE ASSETS
On January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets , which requires all intangible assets with
finite useful lives be amortized and that goodwill and intangible assets with indefinite lives not be amortized, but rather tested upon adoption
and at least annually for impairment. In accordance with SFAS No. 142, the Company ceased the amortization of its recorded goodwill as of
that date, identified its reporting units based on its current segment reporting structure and allocated all recorded goodwill, as well as other
assets and liabilities, to the reporting units. The Company determined the fair value of its reporting units utilizing discounted cash flow models
and relative market multiples for comparable businesses. The Company compared the fair value of each of its reporting units to its carrying
value. This evaluation indicated that goodwill associated with its reporting units in the Global and Institutional and its Wealth Management
segments were impaired. This impairment is primarily attributable to the change in the evaluation criteria for goodwill from an undiscounted
cash flow approach, which was previously utilized under the guidance in Accounting Principle Board Opinion No. 17 “ Intangible Assets ”, to
the fair value approach, which is stipulated in SFAS No. 142. A non-cash charge totaling $293.7 million ($(0.82) per share) was recorded as a
change in accounting principle effective January 1, 2002 to write-off goodwill of $286.9 million related to the Company’ s international retail
Brokerage business in the Global and Institutional segment and $6.8 million in the Wealth Management segment.
In November 2002, the Company performed, through the assistance of an independent third party, its annual impairment test. This resulted in
no additional impairment required under SFAS No. 142.
The changes in carrying value of the remaining goodwill and intangibles with indefinite lives following the January 1, 2002 impairment write
down, by segment, as of December 31, 2002 was (in thousands):
DomesticRetail Brokerage
and Other Banking Total
Balance as of January 1, 2002, after impairment write down $ 149,116 $ 114,554 $ 263,670
Goodwill arising from E*TRADE Professional Trading
acquisition (Note3)
87,483 — 87,483
Goodwill arising from Ganis acquisition (Note 3) — 33,991 33,991
Balance as of December 31, 2002 $ 236,599 $ 148,545 $ 385,144
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2003. EDGAR Online, Inc.