eTrade 2000 Annual Report Download - page 46

Equity in income (losses) of investments was $(11.5) million, $(8.8) million and $0.5 million in fiscal 2000, 1999 and 1998,
respectively, which resulted from our minority ownership in investments that are accounted for under the equity method. These
investments primarily include E*TRADE Japan KK and E*OFFERING. We expect that these companies will continue to invest in the
development of their products and services and may incur operating losses which will result in future charges to reflect our
proportionate share of those losses. The initial public offering of E*TRADE Japan KK in September 2000 will not have a significant,
ongoing affect on our operations as we will continue to account for our remaining 32% interest in E*TRADE Japan KK under the
equity method. The acquisition of E*OFFERING by Wit Capital Group, Inc., renamed Wit Soundview Group, Inc., in October 2000 is
not expected to have a material effect on equity in income (losses) of investments.
In fiscal 2000, we recorded unrealized losses on our participation in the E*TRADE eCommerce Fund I and Fund II L.P., representing
market decreases on public investments held by the funds offset in part by increases in the estimated value of the non-public
investments. The funds were formed in the first quarter and third quarter of fiscal 2000, respectively.
Income Tax Expense (Benefit)
Income tax expense (benefit) represents the expense for federal and state income taxes at an effective tax rate of 81.8%, (37.5)% and
66.2% for fiscal 2000, 1999 and 1998, respectively. The rate for fiscal 2000 reflects an increase in non-deductible acquisition-related
expenses combined with the amortization of goodwill and differences between our statutory and foreign effective tax rate. These
increases are primarily due to business acquisitions during fiscal 2000. The rate for fiscal 1999 reflects the impact of non-deductible
acquisition-related expenses and amortization of goodwill arising from acquisitions.
Minority Interest in Subsidiaries
Minority interest in subsidiaries decreased 108% from fiscal 1999 to fiscal 2000 and increased 61% from fiscal 1998 to fiscal 1999.
Minority interest in subsidiaries results primarily from ETFC’ s interest payments to subsidiary trusts which have issued
Company-obligated mandatorily redeemable capital securities and which hold junior subordinated debentures of ETFC. Also included
in minority interest in subsidiaries for the second half of fiscal 2000 is the net loss attributed to minority interests in two of our
international affiliates.
Cumulative Effect of Change in Accounting Principle
The cumulative effect of change in accounting principle resulted from the implementation by ETFC of Statement of Position 98-5,
Reporting on the Cost of Start-Up Activities , which requires that the cost of start-up activities be expensed as incurred rather than
capitalized, with the initial application reported as the cumulative effect of a change in accounting principle.
Extraordinary Loss on Early Extinguishment of Subordinated Debt
In June 1999, ETFC redeemed all of its outstanding debt. ETFC wrote off both the related premium and the remaining discount as an
extraordinary loss on the early extinguishment of debt, totaling approximately $2.0 million, net of tax.
Variability of Results
We expect to experience fluctuations in future quarterly operating results that may be caused by many factors, including the following:
the timing of introductions or enhancements to online investing and banking services and products by us or our competitors; market
acceptance of online investing and banking services and products; the pace of development of the market for online commerce;
changes in trading volume in securities markets; trends in the securities and banking markets; domestic and international regulation of
the brokerage and banking industries; changes in interest rates; changes in pricing policies by us or our competitors; changes in
strategy; the success of or costs associated with acquisitions, joint ventures or other strategic relationships; changes in key personnel;
seasonal trends; the extent of international expansion; the mix of international and domestic revenues; changes in the level of operating
expenses to support projected gr owth; and general economic conditions.
Because of the foregoing factors, in addition to other factors that affect our operating results and financial position, investors should
not consider past financial performance or management’ s expectations a reliable indicator
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of future performance, and should not use historical trends to anticipate results or trends in future periods. In that regard, results of
operations and financial condition could be adversely affected by a number of factors in addition to those discussed above, including
overall economic conditions. Furthermore, our stock price is subject to volatility. Any of the factors discussed above could have an
2002. EDGAR Online, Inc.