eTrade 2002 Annual Report Download - page 84

Table of Contents
Index to Financial Statements
• limits on the persons who may call special meetings of shareholders;
• the prohibition of shareholder action by written consent; and
• advance notice requirements for nominations to the Board of Directors or for proposing matters that can be acted on by shareholders at
shareholder meetings.
Attempts to acquire control of E*TRADE may also be delayed or prevented by our stockholder rights plan, which is designed to enhance the
ability of our Board of Directors to protect shareholders against unsolicited attempts to acquire control of E*TRADE that do not offer an
adequate price to all shareholders or are otherwise not in the best interests of the company and our shareholders. In addition, certain provisions
of our stock incentive plans, management retention and employment agreements (including severance payments and stock option acceleration),
and Delaware law may also discourage, delay or prevent someone from acquiring or merging with us.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
For quantitative and qualitative disclosures about market risk, we have evaluated such risks for our Domestic Retail Brokerage, Banking,
Global and Institutional, and Wealth Management and Other segments separately. The following discussion about our market risk disclosure
includes forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements as a result of
certain factors, including, but not limited to, those set forth in the section entitled “Risk Factors.”
DOMESTIC RETAIL BROKERAGE, GLOBAL AND INSTITUTIONAL AND WEALTH MANAGEMENT AND OTHER
Our Domestic Retail Brokerage, Global and Institutional, and Wealth Management and Other operations are exposed to market risk related to
changes in interest rates, foreign currency exchange rates and equity security price risk. However, we do not believe any such exposures are
material. To reduce certain risks, we use derivative financial instruments, none of which are held for speculative or trading purposes.
Interest Rate Sensitivity
As of December 31, 2002, we had variable rate term loans of approximately $23.7 million outstanding. The monthly interest payments on these
term loans are subject to interest rate risk. If market interest rates were to increase immediately and uniformly by one percent at December 31,
2002, the interest payments would increase by an immaterial amount. The Company had a $50 million cash secured line of credit under an
agreement with a bank that expired in October 2002. The Company did not renew the line of credit.
Foreign Currency Exchange Risk
A portion of our operations consists of brokerage and investment services outside of the United States. As a result, our results of operations
could be adversely affected by factors such as changes in foreign currency exchange rates or economic conditions in the foreign markets in
which we provide our services. We are primarily exposed to changes in exchange rates on the Japanese yen, the British pound, the Canadian
dollar and the Euro. When the U.S. dollar strengthens against these currencies, the U.S. dollar value of non-U.S. dollar-based revenues
decreases. When the U.S. dollar weakens against these currencies, the U.S. dollar value of non-U.S. dollar-based revenues increases.
Correspondingly, the U.S. dollar value of non-U.S. dollar-based costs increases when the U.S. dollar weakens and decreases when the U.S.
dollar strengthens. We are a net payer of British pounds and, as such, benefit from a stronger dollar, and are adversely affected by a weaker
dollar relative to the British pound. However, we are a net receiver of currencies other than British pounds, and as such, benefit from a weaker
dollar, and are harmed by a stronger dollar relative to these currencies. Accordingly, changes in exchange rates may adversely affect our
consolidated sales and operating margins as expressed in U.S. dollars.
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2003. EDGAR Online, Inc.