eTrade 2002 Annual Report Download - page 69

Table of Contents
Index to Financial Statements
transaction, the Company invested approximately $8.0 million in exchange for a 42% ownership position in this joint venture. E*TRADE Japan
K.K. issued shares to the public in an initial public offering in September 2000. Following E*TRADE Japan K.K.’ s initial public offering, we
sold a portion of our investment recognizing a pre-tax gain of $77.5 million, reducing our ownership percentage from 42% to 32% in fiscal
2000. In fiscal 2001, E*TRADE Japan K.K. completed two additional acquisitions that resulted in a decrease of our ownership percentage to
30%. In March 2003, SOFTBANK announced the proposed merger of E*TRADE Japan K.K. with Softbank Finance, a subsidiary of
SOFTBANK. The merger has been approved by the Board of Directors of E*TRADE Japan K.K. and remains subject to the approval of the
E*TRADE Japan K.K. shareholders. Upon the closing of the merger, we will have a 19.9% investment in the newly merged entity. We do not
expect to record a gain or loss upon the closing of the merger. As part of our commitment to the joint venture, we are required to provide a
continuing level of systems support to E*TRADE Japan K.K. through June 2003; the cost of such support was $3.9 million in fiscal 2002, $4.4
million in fiscal 2001, $1.0 million in the three months ended December 31, 2000 and $2.5 million in fiscal 2000. The Company does not
expect development commitments under this arrangement to be material in future periods.
Other Liquidity Matters
In the ordinary course of its business, E*TRADE Securities engaged in certain stock loan transactions with MJK Clearing, Inc., (“MJK”),
involving the lending of Nasdaq-listed common stock of GenesisIntermedia, Inc. (“GENI”), and other securities from MJK to E*TRADE
Securities. Subsequently, E*TRADE Securities redelivered the GENI and/or other securities received from MJK to three other broker-dealers,
Wedbush Morgan Securities, Nomura Securities, Inc. and Fiserv Securities, Inc. On September 25, 2001, Nasdaq halted trading in the stock of
GENI, which had last traded at a price of $5.90 before the halt. As a result, MJK was unable to meet its collateral requirements on the GENI
and other securities with certain counterparties to those transactions. Subsequently, MJK was ordered to cease operations by the SEC. These
events have led to disputes between certain of the participants in the above described stock loan transactions. These actions seek various forms
of equitable relief and seek repayment of a total of approximately $60 million, plus interest, received by E*TRADE Securities in connection
with the GENI and other stock loan transactions. The Company is unable to predict the ultimate outcome of these disputes. The Company,
based on information available, does not believe that an estimable loss is probable. However, the ultimate resolution of these matters may be
material to the Company’ s operating results or cash flows for any particular period. The Company is confident that E*TRADE Securities has
sufficient capital in excess of regulatory requirements to cover any potential exposure arising from these matters. See Item 3. Legal and
Administrative Proceedings for further information regarding this case.
We currently anticipate that our available cash resources and credit will be sufficient to meet our presently anticipated working capital and
capital expenditure requirements for at least the next 12 months. We may need to raise additional funds in order to support more rapid
expansion, develop new or enhanced products and services, respond to competitive pressures, acquire complementary businesses or
technologies and/or take advantage of unanticipated opportunities.
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2003. EDGAR Online, Inc.