eTrade 2003 Annual Report Download - page 84

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Table of Contents
Index to Financial Statements
Capitalized internally developed software costs were $41.8 million for 2003, $34.0 million for 2002 and $27.5 million for 2001.
Completed projects are carried at cost and are amortized on a straight-line basis over their estimated useful lives, generally four years.
Amortization expense for the capitalized amounts was $29.3 million for 2003, $30.1 million for 2002 and $28.5 million for 2001. Included in
software, is $11.9 million of internally developed software in the process of development for which amortization has not begun.
NOTE 9—GOODWILL AND OTHER INTANGIBLES, NET
On January 1, 2002, the Company adopted SFAS No. 142, which requires the amortization of all intangible assets with finite useful lives.
SFAS No. 142, however, prohibits the amortization of goodwill and intangible assets with indefinite lives and instead requires companies to
test these assets for impairment upon adoption of the standard and annually thereafter. In accordance with SFAS No. 142, the Company
stopped amortizing recorded goodwill, identified its reporting units based on its current segment reporting structure and allocated all recorded
goodwill, as well as other assets and liabilities, to the reporting units. The Company determined the fair value of its reporting units using
discounted cash flow models and relative market multiples for comparable businesses. The Company compared each reporting unit’s fair value
to its carrying value. This initial evaluation indicated that goodwill associated with its reporting units in its Global and Institutional and its
Wealth Management Segments were impaired. This impairment was primarily attributable to the change in the evaluation criteria for goodwill
from an undiscounted cash flow approach, which was previously used under the guidance in APB Opinion No. 17 “ Intangible Assets, ” to the
fair value approach required by SFAS No. 142. A non-cash charge totaling $293.7 million ($(0.82) per share) was recorded as a change in
accounting principle effective January 1, 2002 to write-off goodwill of $286.9 million related to the Company’s international retail Brokerage
business in the Global and Institutional Segment and $6.8 million in the Wealth Management Segment. In 2003, the Company revised its
Segments from four to two (Brokerage and Banking) and as a result, reallocated its reporting units under the new segment reporting structure.
In November 2003, the Company performed its annual impairment test. This resulted in no additional impairment required under SFAS No.
142.
The following table discloses the changes in the carrying value of goodwill and intangibles with indefinite lives that occurred in the
Brokerage and Banking Segments (in thousands):
71
Brokerage
Banking
Total
Balance at December 31, 2001
$
149,116
$
114,554
$
263,670
Additions from 2002 acquisitions
87,483
33,991
121,474
Balance at December 31, 2002
236,599
148,545
385,144
Additions from 2003 acquisitions
—
9,394
9,394
Write
-
offs related to the 2003 Restructuring Plan
(1,433
)
—
(
1,433
)
Adjustments to 2002 acquisitions
14,997
(5,606
)
9,391
Balance at December 31, 2003
$
250,163
$
152,333
$
402,496