eTrade 2002 Annual Report Download - page 58

Table of Contents
Index to Financial Statements
Cost of Services and Operating Expenses
The following table sets forth the components of cost of services and operating expenses and percentage change information for fiscal 2002,
fiscal 2001 and fiscal 2000 (dollars in thousands):
Year Ended December31, Year Ended September30,
2000 2002 Versus 2001 2001 Versus 2000
2002 2001
Cost of services $ 567,224 $ 595,590 $ 515,571 (5)% 16%
Cost of services as a percentage of net revenues 43 % 47 % 38 %
Operating expenses:
Selling and marketing 203,613 253,422 521,532 (20)% (51)%
Technology development 55,712 88,717 142,914 (37)% (38)%
General and administrative 210,646 236,353 209,436 (11)% 13%
Amortization of goodwill and other intangibles 28,258 43,091 22,764 (34)% 89
Acquisition-related expenses 11,473 11,174 36,427 3 % (69)%
Facility restructuring and other exit charges 16,519 202,765 — (92)% —
Executive agreement and loan settlement (23,485 ) 30,210 — (178)% —
Total operating expenses $ 502,736 $ 865,732 $ 933,073 (42)% (7)%
Cost of Services
Cost of services includes compensation, benefits, facilities and other costs related to our customer service, system maintenance and technology
operation. Cost of services decreased 5% from fiscal 2001 to fiscal 2002 and increased 16% from fiscal 2000 to fiscal 2001. The decrease in
cost of services for fiscal 2002 was driven by the realization of a full year benefit of our restructuring efforts, including the consolidation of
facilities, the rearchitecture of system and networks and the consolidation of certain international operations, as well as improved call center
productivity and other operating efficiency gains. This improvement was offset by the impact of added costs associated with significant growth
at E*TRADE Mortgage, a full year of expenses for Dempsey and a partial year impact for E*TRADE Professional Trading. The increases in
cost of services in fiscal 2001 reflects a full year of additional expenses for the acquisition of E*TRADE Access and a partial year for the
acquisitions of E*TRADE Mortgage, Web Street, Inc. (“Web Street”) and Dempsey, as well as the impact of amortizing internally developed
software as a significant number of large projects completed in November 2000. Also impacting cost of services is increased activity in our
Banking segment where active customer accounts increased 70% from September 30, 2000 to December 31, 2001. Growth in our banking and
international subsidiaries combined with investment in our Wealth Management business segment resulted in an increase in cost of services in
fiscal 2001 as compared to fiscal 2000. Looking forward, we expect cost of services to remain relatively flat as a percentage of revenue until
market conditions become more favorable and lead to increased customer activity, at which point we hope to experience further improvement in
cost of services as a percentage of revenue.
Operating Expenses
Selling and marketing reflects expenditures for advertising placements, creative development and collateral materials resulting from a variety of
advertising campaigns directed at expanding brand and product identity, costs for E*TRADE Centers and Zones, growing the customer base
and increasing market share. Selling and marketing expenditures also include selling efforts in support of our Global and Institutional business
segment. Selling and marketing expenses decreased 20% from fiscal 2001 to fiscal 2002 and 51% from fiscal 2000 to fiscal 2001. Decreases in
selling and marketing from fiscal 2001 to fiscal 2002 are primarily due to the implementation of a strategy that focuses on higher-value
customers. This strategy allowed a reduction in advertising, online, direct mailing and promotion activities. Decreases in selling and marketing
expenditures
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2003. EDGAR Online, Inc.