eTrade 2006 Annual Report Download - page 8

sales traders and direct market access to exchanges. Our institutional segment also includes our balance sheet
management and market making functions.
We consider multiple factors, including the competitiveness of our pricing compared to similar products and
services in the market, the overall profitability of our businesses and client relationships when pricing our various
products and services. We manage the overall profitability of our business using various financial metrics,
including revenue growth, enterprise net interest spread, enterprise interest-earning assets, operating margin and
compensation and benefits as a percentage of revenue. The overall profitability of our business is also based on
the management of our expenses related to our various products and services. The same or similar products and
services may be offered to both segments, utilizing the same infrastructure or in some circumstances, a single
infrastructure may be used to support multiple products and services offered to our customers. As such, we do
not separately disclose the costs associated with products and services sold or our general and administrative
costs. All operating expenses incurred are integral to the operation of the business and are considered when
evaluating the profitability of our business.
INTERNATIONAL OPERATIONS
We are focused on our objective of creating an integrated global financial services company. To achieve that
goal, we continue to invest in and grow our international operations. We offer services in international markets
directly through our website at www.etrade.com as well as through additional branded retail brokerage websites
in Canada, Denmark, Finland, France, Germany, Hong Kong, Iceland, Italy, Sweden, the United Arab Emirates
and the United Kingdom. During 2006, we re-engineered our technology platform to operate internationally and
to be scalable across the international landscape. We believe this platform will allow us to expand to additional
international locations with little to no increase in infrastructure costs. In addition, we are focused on emerging
markets such as India, where we own a significant percentage of IL&FS Investsmart (“Investsmart”), China,
where we currently have a business office and offer an education-only website and the United Arab Emirates,
where we have recently established a branch of our United Kingdom operations.
We also have minority equity investments in companies that license the E*TRADE brand and operate
websites in Australia, Japan and Korea. Our reported performance metrics do not include operating and financial
information from these licensees. Our total net U.S. revenues, which we determine based on the geographic
location of the legal entity in which the revenue was earned, were $2.2 billion, $1.5 billion and $1.3 billion for
the years ended December 31, 2006, 2005 and 2004, respectively. Our total net non-U.S. revenues were
$0.3 billion for the year ended December 31, 2006, and $0.2 billion for both the years ended December 31, 2005
and 2004. No individual country other than the United States accounted for more than 10% of revenues in any of
these years.
REGULATION
Our business is subject to regulation by U.S. Federal and state regulatory agencies and securities exchanges
and by various non-U.S. governmental agencies or regulatory bodies, securities exchanges and central banks,
each of which has been charged with the protection of the financial markets and the protection of the interests of
those participating in those markets. These regulatory agencies in the United States include, among others, the
Securities and Exchange Commission (“SEC”), the NASD, Inc. (“NASD”), the NYSE, the NASDAQ, the FDIC,
the Federal Reserve, the Municipal Securities Rulemaking Board and the Office of Thrift Supervision (“OTS”).
Additional legislation, regulations and rulemaking may directly affect our manner of operation and profitability.
Our broker-dealers are registered with the SEC and are subject to regulation by the SEC and by self-regulatory
organizations, such as the NYSE, the NASDAQ, NASD and the securities exchanges of which each is a member.
Our banking entities are subject to regulation, supervision and examination by the OTS, the Federal Reserve and
also, in the case of the Bank, the FDIC. Such regulation covers all aspects of the banking business, including
lending practices, safeguarding deposits, capital structure, transactions with affiliates and conduct and
qualifications of personnel.
We make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K,
and amendments to those reports, available free of charge at our website as soon as reasonably practicable after
they have been filed with the SEC. Our website address is www.etrade.com.
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