eTrade 2002 Annual Report Download - page 165

Table of Contents
Index to Financial Statements
Writedown of E*TRADE Bank AG
In December 2002, the Company entered into negotiations with an unrelated company to purchase 100% of the Company’ s shares in
E*TRADE Bank AG (Germany). As a result of these negotiations, which indicated that the carrying value of Germany was in excess of its fair
market value, the Company recognized an impairment charge of $12.2million to reduce the carrying value of the Company’ s investment to its
fair value. Results from our German subsidiary have been consolidated with those of the Company through December31, 2002. Effective
December 31, 2002, the Company reclassified its investment in E*TRADE Bank AG to other assets where it is currently reflected as an
investment held-for-sale pending an expected sale in the first quarter of fiscal 2003 or shortly thereafter. The Company expects to maintain a
presence in Germany through the creation of a branch office supported by its operations in the United Kingdom.
Subsequent Recovery Related to Sale of E*TRADE @ Net Bourse S.A.
In December 2002, a payment of $3.5 million was received from escrow related to the sale of the Company’ s ownership interest in E*TRADE
@ Net Bourse S.A. in November 2000 (see Note 3).
Resolution of Obligation Upon the Liquidation of E*TRADE South Africa
In conjunction with the closure of the Company’ s subsidiary in South Africa, notes payable held by E*TRADE South Africa were forgiven and
as a result, the Company recognized a benefit of $3.6 million.
22. EXECUTIVE AGREEMENT AND LOAN SETTLEMENT
Effective January 23, 2003, the Former CEO resigned from the Company. A termination payment of $4.0million required under his
employment agreement, which is discussed below, will be expensed in the first quarter of fiscal 2003 and paid in increments during fiscal 2003.
Concurrent with his resignation in fiscal 2003, the Company will reverse $3.7 million of compensation expense accrued in fiscal 2002 for the
unvested portion of the Former CEO’ s restricted common stock, held by a subsidiary trust of the Company.
In May 2002, the Company had executed a new employment agreement (the “Employment Agreement”) with its Former CEO, which included
concessions resulting in a benefit to executive agreement and loan settlement in fiscal 2002. The Employment Agreement was effective May
2002 through his subsequent departure from the Company on January 23, 2003. The Employment Agreement included significant concessions
by the Former CEO. Under this Employment Agreement, the Former CEO’ s base salary was reduced to zero. In addition, under the
Employment Agreement, the Former CEO became contractually entitled to a bonus payment to be determined and paid based on the
Company’ s meeting performance objectives. The Company met its fiscal 2002 performance objectives and a bonus of $4.0 million for the
Former CEO was accrued in fiscal 2002 and paid in January 2003. Concessions, reflected as a nonrecurring reduction in the Company’ s
operating expenses for fiscal 2002 included:
• The Former CEO waived his right to receive vested benefits in the SERP program totaling $16.1million, that were previously deposited
into a trust on his behalf on January 1, 2001 and 2002; these amounts had been previously recorded as part of general and administrative
expense in fiscal 2001. Of this amount, $14.0million was retained by the Company and recorded as a nonrecurring benefit in executive
agreement and loan settlement in the Company’ s consolidated statements of operations and $2.1million was paid out as a one-time bonus
to eligible non-executive employees of the Company.
• The Former CEO waived his right to have the Company reimburse him for taxes due on his restricted stock grants. The accrued liability
for unpaid estimated taxes of $9.5 million for unvested shares as of March31, 2002 was reversed and credited to executive agreement
and loan settlement.
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