eTrade 2004 Annual Report Download - page 74

Table of Contents
Index to Financial Statements
Basis of Presentation
The Company’s consolidated financial statements include the accounts of the Parent and its majority-owned subsidiaries. Intercompany
accounts and transactions are eliminated in consolidation. 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. Because the Company operates in the
financial services industry, it follows certain accounting guidance used by the brokerage and banking industries.
Certain prior period items in these consolidated financial statements have been reclassified to conform to the current period presentation.
As discussed in Note 3, the operations of E*TRADE Access, Inc. (“E*TRADE Access”), a subsidiary of the Bank, have been accounted for as
discontinued operations in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144,
Accounting for the Impairment or
Disposal of Long
-Lived Assets . Accordingly, prior period amounts have been reclassified to reflect E*TRADE Access as a discontinued
operation. Unless noted, discussions herein pertain to the Company’s continuing operations.
New Expense Reporting Format
On January 1, 2004, the Company began reporting its expenses within its consolidated statements of operations in a format more
consistent with common presentation in the financial services industry. Under this new format, expenses are presented in the consolidated
statements of operations under the following new captions:
•
Compensation and benefits —
includes employee salary, bonus, sales and trading commissions, temporary employee services and other
related benefit costs;
•
Occupancy and equipment —includes building and equipment rent and lease costs;
•
Communications —includes customer statements, confirmations, website content, data communications and internal communication
costs;
•
Professional services
—includes fees for legal, accounting, tax, public relations and other consulting services;
•
Commissions, clearance and floor brokerage —includes costs for exchange and clearing brokerage costs and third-
party research costs
provided to institutional customers;
•
Advertising and market development
—includes television, print, mailing and website advertising and promotion costs;
•
Servicing and other banking expenses —includes loan servicing costs and other banking related costs;
•
Depreciation and amortization
—includes depreciation on property and equipment; and
Previously these expenses were reported under the following captions:
•
Other —includes regulatory-related costs, insurance, employee travel expenses and other general corporate administration costs.
•
Cost of services —included employee salary, bonus, brokerage and banking costs for its customer transactions, customer
communications and overhead costs to provide service to customers;
•
Selling and marketing —included costs for advertising campaigns, independent research provided to institutional customers and fees
paid to outside market makers for orders received for execution;
•
Technology development —included costs for technology design and development; and
66
•
General and administrative —included compensation and benefits, overhead for executive and administrative personnel and other
corporate costs.