eTrade 2012 Annual Report Download - page 150

on derivative instruments through credit support agreements, which reduce risk by permitting the netting of
transactions with the same counterparty upon occurrence of certain events.
The Company considered the impact of credit risk on the fair value measurement for derivative instruments,
particularly those in net liability positions to counterparties, to be mitigated by the enforcement of credit support
agreements, and the collateral requirements therein. The Company pledged approximately $446.9 million of its
mortgage-backed securities as collateral related to its derivative contracts in net liability positions to
counterparties as of December 31, 2012.
The Company’s credit risk analysis for derivative instruments also considered the credit loss exposure on
derivative instruments in net asset positions. During the year ended December 31, 2012, the consideration of
counterparty credit risk did not result in an adjustment to the valuation of the Company’s derivative instruments.
Impact on Liquidity
In the normal course of business, collateral requirements contained in the Company’s derivative instruments
are enforced by the Company and its counterparties. Upon enforcement of the collateral requirements, the
amount of collateral requested is typically based on the net fair value of all derivative instruments with the
counterparty; that is derivative assets net of derivative liabilities at the counterparty level. If the Company were
to be in violation of certain provisions of the derivative instruments, the counterparties to the derivative
instruments could request payment or collateralization on derivative instruments. The Company expects such
requests would be based on the fair value of derivative assets net of derivative liabilities at the counterparty level.
The fair value of derivative instruments in net liability positions at the counterparty level was $323.3 million as
of December 31, 2012. The fair value of the Company’s mortgage-backed and investment securities pledged as
collateral related to derivative contracts in net liability positions to counterparties, $446.9 million as of
December 31, 2012, exceeded derivative instruments in net liability positions at the counterparty level by $123.6
million.
NOTE 7—PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following assets at December 31, 2012 and 2011 (dollars in
thousands):
December 31, 2012 December 31, 2011
Gross
Amount
Accumulated
Depreciation
and
Amortization
Net
Amount
Gross
Amount
Accumulated
Depreciation
and
Amortization
Net
Amount
Software $511,484 $(353,696) $157,788 $461,691 $(296,529) $165,162
Leasehold improvements 105,462 (70,791) 34,671 102,133 (65,694) 36,439
Equipment 103,681 (65,353) 38,328 92,030 (54,252) 37,778
Buildings 71,927 (21,921) 50,006 71,927 (19,866) 52,061
Furniture and fixtures 23,211 (19,261) 3,950 23,534 (18,708) 4,826
Land 3,427 — 3,427 3,427 — 3,427
Total $819,192 $(531,022) $288,170 $754,742 $(455,049) $299,693
Depreciation and amortization expense related to property and equipment was $90.6 million, $89.6 million
and $87.9 million for the years ended December 31, 2012, 2011 and 2010, respectively.
Software includes capitalized internally developed software costs. These costs were $55.2 million, $54.8
million and $54.6 million for the years ended December 31, 2012, 2011 and 2010, respectively. Completed
projects are carried at cost and are amortized on a straight-line basis over their estimated useful lives of four
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