eTrade 2002 Annual Report Download - page 46

Table of Contents
Index to Financial Statements
our hedging strategies and the nature and timing of forecasted transactions. We base our assumptions and judgments on the best information
available to us at the time of the preparation of our financial statements. If our hedging strategies were to become ineffective or if our
assumptions as to the nature and timing of forecasted transactions were to be inaccurate we would no longer be able to apply hedge accounting
and our reported results would be significantly affected. More information concerning our derivatives is contained in Item 7A. Quantitative and
Qualitative Disclosures about Market Risk and in Note 28 to Consolidated Financial Statements.
Estimate of accrued restructuring costs
On August 29, 2001, we announced a restructuring plan aimed at streamlining operations and enhancing profitability by consolidating facilities
in the United States and Europe. The restructuring resulted in a pre-tax charge of $202.8 million in fiscal 2001, with additional charges of $11.4
million expensed in fiscal 2002. Total non-cash charges through fiscal 2002, principally the write-off of assets, total approximately $100.0
million, while the remainder represents cash obligations. As of December 31, 2002, our estimated remaining future cash obligations related to
the consolidation of our facilities are $69.1 million. This includes rental payments due for certain facilities no longer to be used by the
Company totaling $97.5 million, offset by our best estimate of the future sublease income we expect to receive of $28.3 million.
In calculating our initial restructuring accrual and the subsequent adjustments made through December 31, 2002, certain estimates were made
including time to vacate facilities, potential future sublease terms, broker commissions and operating costs. In developing our estimates we
obtained information from leasing agents to calculate anticipated sublease income. Fluctuating market conditions will continue to affect our
ability to sublease facilities on terms consistent with our estimates.
Of the total $11.4 million fiscal 2002 increase in the 2001 original restructuring charges, $7.3 million was related to facility consolidation. This
increase relates to changes in management’ s estimates based on current economic conditions. The overall net increase in the restructuring
reserve reflects lower than estimated sublease rental income combined with longer than estimated periods to sublet vacated facilities. The
increase also reflects the Company’ s negotiations in fiscal 2002 with a lessor on a contractual lease obligation that may require a possible one
time $30.0 million payment by the Company in fiscal 2003 to facilitate the lessor’ s sale of the property. In exchange, the Company expects to
receive full release from its future lease obligations. The net increase in the facility consolidation reserve is partially offset by the decision to
retain usage of certain facilities, resulting in the elimination of the reserve originally estimated for these facilities.
Valuation of goodwill
Goodwill represents the excess of purchase price over the fair value of net assets acquired from acquisitions. In June 2001, the Financial
Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible
Assets . SFAS No. 142 provides that intangible assets with finite useful lives be amortized and that goodwill and intangible assets with
indefinite lives not be amortized, but rather be tested at least annually for impairment. Adjustments to the carrying value of goodwill and other
intangible assets are made whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. We
adopted SFAS No. 142 effective January 1, 2002. Based on our evaluation of goodwill under the SFAS No. 142’ s transitional impairment test,
we recorded an impairment charge of $293.7 million in fiscal 2002, primarily attributed to the goodwill from our international acquisitions.
This loss was recognized as the effect of a change in accounting principle in the first quarter of fiscal 2002. The evaluation was based on our
forecast of operating results for each of the reporting units, as well as estimates of the fair values of the tangible and intangible assets of these
units. In November 2002, the Company performed, with the assistance of an independent third party other than its Independent Auditors, its
annual impairment test of goodwill. The test indicated that no additional impairment charge was necessary. The Company’ s recorded goodwill
at December 31, 2002 is $385.1 million, which will continue to be evaluated for impairment at least annually.
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2003. EDGAR Online, Inc.