eTrade 2004 Annual Report Download - page 82

Download and view the complete annual report

Please find page 82 of the 2004 eTrade annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 150

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150

Table of Contents
Index to Financial Statements
New Accounting Standards
SFAS No. 123R—Share-Based Payment
In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123 (Revised 2004), Share-Based Payment.
This statement supersedes APB Opinion No. 25, and its related implementation guidance. The statement establishes standards for the
accounting for transactions in which an entity exchanges its equity instruments for goods and services. This statement focuses primarily on
accounting for transactions in which an entity obtains employee services in share-based payment transactions. The most significant change
resulting from this statement is the requirement for public companies to expense employee share-based payments under fair value as originally
introduced in SFAS No. 123. This statement is effective for public companies as of the beginning of the first interim or annual reporting period
that begins after June 15, 2005. The Company will adopt this statement effective July 1, 2005. The Company will adopt this statement effective
July 1, 2005, and is currently evaluating the impact it will have on net income for the last half of 2005. Note 2 contains the pro forma effect on
net income had the Company adopted the provisions of SFAS No. 123, for each year presented.
EITF 03-01—The Meaning of Other-Than-Temporary Impairment and its Application to Certain Issues
In March 2004, the EITF amended and ratified previous consensus reached on EITF 03-01, The Meaning of Other-Than-Temporary
Impairment
. This amendment, which was originally effective for financial periods beginning after June 15, 2004, introduced qualitative and
quantitative guidance for determining whether securities are other-than-temporarily impaired. In September 2004, the FASB’s staff issued a
number of Financial Staff Positions (“FSP”) that focused primarily upon the application of EITF 03-01 to debt securities that are impaired
solely due to interest rates and/or sector spreads. Subsequently, the FASB suspended the effective date of the application of the majority of
EITF 03-01 for an unspecified period, pending additional review. In the interim, the Company continues to apply earlier authoritative
accounting guidance, primarily SFAS No. 115 and EITF 99-20, to the measurement and recognition of other-than-
temporary impairments of its
debt and equity securities.
SOP No. 03-3—Accounting for Certain Loans or Debt Securities Acquired in a Transfer
In December 2003, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued SOP
No. 03
-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer to address accounting for differences between the
contractual cash flows of certain loans and debt securities and the cash flows expected to be collected when loans or debt securities are
acquired in a transfer and those cash flow differences are attributable, at least in part, to credit quality. As such, SOP No. 03-3 applies to loans
and debt securities purchased or acquired in purchase business combinations and does not apply to originated loans. The application of SOP
No. 03
-3 limits the interest income, including accretion of purchase price discounts, that may be recognized for certain loans and debt
securities. Additionally, SOP No. 03-3 requires that the excess of contractual cash flows over cash flows expected to be collected
(nonaccretable difference) not be recognized as an adjustment of yield or valuation allowance, such as the allowance for credit losses.
Subsequent to the initial investment, increases in expected cash flows generally should be recognized prospectively through adjustment of the
yield on the loan or debt security over its remaining life. Decreases in expected cash flows should be recognized as impairment. SOP No. 03
-3
is effective for loans and debt securities acquired in fiscal years beginning after December 15, 2004, with early application encouraged. The
impact of this new pronouncement is not expected to be material to the Company’s financial condition, results of operations, or cash flows.
NOTE 3—DISCONTINUED OPERATIONS
On June 30, 2004, the Company’s banking segment completed the sale of substantially all of the assets and liabilities of E*TRADE
Access to Cardtronics, LP and Cardtronics, Inc., for $107.0 million cash. Although the Company believes that an ATM network is an important
distribution channel for its customers, it determined that
74