eTrade 2007 Annual Report Download - page 90

E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1—ORGANIZATION, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Organization—E*TRADE Financial Corporation (together with its subsidiaries, “E*TRADE” or the
“Company”) is a global financial services company offering a wide range of financial solutions to consumers
under the brand “E*TRADE Financial.” The Company offers trading, investing, banking and lending products
and services to its retail and institutional customers.
Basis of Presentation—The consolidated financial statements include the accounts of the Company and its
majority-owned subsidiaries. Entities in which the Company holds at least a 20% ownership or in which there are
other indicators of significant influence are generally accounted for by the equity method. Entities in which the
Company holds less than 20% ownership and does not have the ability to exercise significant influence are
generally carried at cost. Intercompany accounts and transactions are eliminated in consolidation. The Company
evaluates investments including joint ventures, low income housing tax credit partnerships and other limited
partnerships to determine if the Company is required to consolidate the entities under the guidance of FASB
Interpretation No. 46 revised, Consolidation of Variable Interest Entities-an interpretation of ARB No. 51
(“FIN 46R”).
Certain prior period items in these consolidated financial statements have been reclassified to conform to the
current period presentation. As discussed in Note 3—Discontinued Operations, the operations of certain
businesses have been accounted for as discontinued operations in accordance with the SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets. Accordingly, results of operations from prior periods have
been reclassified to discontinued operations. Unless noted, discussions herein pertain to the Company’s
continuing operations.
The Company reports corporate interest income and expense separately from operating interest income and
expense. The Company believes reporting these two items separately provides a clearer picture of the financial
performance of the Company’s operations than would a presentation that combined these two items. Operating
interest income and expense is generated from the operations of the Company and is a broad indicator of the
Company’s success in its banking, lending and balance sheet management businesses. Corporate debt, which is
the primary source of the corporate interest expense has been issued primarily in connection with the Citadel
Investment and acquisitions, such as Harrisdirect and BrownCo.
Similarly, the Company reports gain (loss) on sales of investments, net separately from gain (loss) on loans
and securities, net. The Company believes reporting these two items separately provides a clearer picture of the
financial performance of its operations than would a presentation that combined these two items. Gain (loss) on
loans and securities, net are the result of activities in the Company’s operations, namely its lending and balance
sheet management businesses, including impairment on our available-for sale mortgage-backed and investment
securities portfolio. Gain (loss) on sales of investments, net relates to historical equity investments of the
Company at the corporate level and are not related to the ongoing business of the Company’s operating
subsidiaries.
New Income Statement Reporting Format—During the year ended December 31, 2007, the Company
re-defined the line item “Service charges and fees” by reclassifying certain fee-like revenue items formerly
reported in “Other revenue” into the “Service charges and fees” line item, now called “Fees and service charges.”
The fee-like revenue streams moved include payment for order flow, foreign exchange margin revenue, 12b-1
fees after rebates, fixed income product revenues and management fee revenue.
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