eTrade 2007 Annual Report Download - page 100

that are recognized or disclosed at fair value in the financial statements on a recurring basis, the effects of which
were not material to the financial condition, results of operations or cash flows. The Company elected to defer
adoption of this statement until January 1, 2009 for nonfinancial assets and nonfinancial liabilities that are not
recognized or disclosed at fair value in the financial statements on a recurring basis, for which, the Company
does not expect the adoption of this statement to have a material impact on the Company’s financial condition,
results of operations or cash flows in future periods.
SFAS No. 159—The Fair Value Option for Financial Assets and Financial Liabilities
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities. This Statement provides an option under which a company may irrevocably elect fair value
as the initial and subsequent measurement attribute for certain financial assets and financial liabilities. This fair
value option will be available on a contract-by-contract basis with changes in fair value recognized in earnings as
those changes occur. The Company adopted this statement on January 1, 2008. The Company elected the fair
value option for Federal National Mortgage Association (“FNMA”) and Federal Home Loan Mortgage
Corporation (“FHLMC”) preferred stock. The impact of this adoption was an after-tax decrease to opening
retained earnings as of January 1, 2008 of approximately $86.9 million.
FIN No. 48—Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement 109
In July 2006, the FASB issued FIN 48, which became effective for the Company on January 1, 2007. The
interpretation prescribes a recognition threshold and a measurement attribute for the financial statement
recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to
be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing
authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely of
being realized upon ultimate settlement. The Company’s reassessment of its tax positions in accordance with FIN
48 did not have a material impact on the results of operations, financial condition or liquidity. The impact of
adoption was a $14.9 million reduction to beginning retained earnings. For additional information regarding the
adoption of FIN 48, see Note 17—Income Taxes.
Staff Accounting Bulletin (“SAB”) No. 109—Written Loan Commitments Recorded at Fair Value Through
Earnings
In November 2007, the SEC issued Staff Accounting Bulletin No. 109, Written Loan Commitments
Recorded at Fair Value Through Earnings (“SAB No. 109”), which becomes effective for the Company
January 1, 2008. SAB No. 109 supersedes SAB No. 105, Application of Accounting Principles to Loan
Commitments (“SAB No. 105”), and states, consistent with the guidance in SFAS No. 156 and SFAS No. 159,
that the expected net future cash flows related to the associated servicing of the loan should be included in the
measurement of all written loan commitments that are accounted for at fair value through earnings. SAB No. 109
retains the view expressed in SAB No. 105 that internally developed intangible assets (such as customer
relationship intangible assets) should not be recorded as part of the fair value of a derivative loan commitment
and broadens its application to all written loan commitments that are accounted for at fair value through earnings.
The Company does not expect the adoption of SAB No. 109 to have a material impact on the Company’s
financial condition, results of operations or cash flows.
NOTE 2—BUSINESS COMBINATIONS
The Company did not complete any business combinations in 2007. During 2006 and 2005, the Company
completed several business combinations and asset acquisitions which were all accounted for under the purchase
method of accounting. The purchase prices have been allocated to the net assets acquired and the liabilities
assumed based on their estimated fair values at the date of acquisition. The results of operations of each are
included in the Company’s consolidated statement of income from the date of each acquisition.
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