eTrade 2003 Annual Report Download - page 72

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Table of Contents
Index to Financial Statements
goodwill estimate. The Company also increased goodwill by $4.7 million, including a $4.2 million accrual, net of tax adjustments, related to
the relocation of the E*TRADE Consumer Finance facility. The $4.2 million accrual represents the tax-
effected present value of the contractual
lease payments for the current facility, less any projected sublease income. Finally, the Company increased goodwill by $0.3 million to reflect
various accounting and legal expenses associated with the acquisition. The following table summarizes the amount recorded as goodwill (in
thousands):
Using the purchase accounting method, the purchase price was allocated to the assets acquired and liabilities assumed in the E*TRADE
Consumer Finance acquisition based on the estimated fair value on the purchase date.
E*TRADE Professional
Goodwill
Goodwill at December 31, 2002
$
33,991
DRAFCO acquisition payment
(10,500
)
Purchase price adjustments
4,745
Professional fees
330
Goodwill at December 31, 2003
$
28,566
In June 2002, the Company’s Brokerage Segment acquired Tradescape Securities, LLC, together with Tradescape Technologies, LLC, a
provider of high-speed direct access trading software, technology and network services and Momentum Securities, LLC (renamed “E*TRADE
Professional Trading, LLC”), a brokerage firm for professional traders (collectively, “E*TRADE Professional”). In total, the Company
originally paid an aggregate of $96.2 million for these companies, composed of approximately 11.8 million shares of the Company’s common
stock valued at $83.1 million, $8.2 million for the fair value of operating lease liabilities assumed by the Company and other charges of
approximately $4.9 million. During the first half of 2003, the Company adjusted its purchase price allocation which resulted in an increase in
the amount of goodwill of $11.9 million related to certain additional liabilities, including $7.0 million in resolved claims (see previous
was required in order to determine the amount, as well as, the finalization of the valuation of certain intangibles resulting in an additional
increase in goodwill of $3.1 million. Further, in 2003, the Company incurred approximately $5.5 million of non-capitalizable rebranding costs,
which are included in acquisition-related costs. In addition, the Company agreed to pay contingent stock consideration of up to $180 million if
E*TRADE Professional Trading’
s operating results exceeded certain targets and revenue goals for the remainder of 2002 and 2003. The targets
and revenue goals were not met and no additional shares will be issued.
Pro Forma Results
The following pro forma information assumes that the acquisitions, which took place in 2002 and 2001, all occurred at the beginning of
2001 and includes the effect of amortization of goodwill in 2001 and intangibles acquired from January 1, 2001 (in thousands, except per share
amounts):
61
Year Ended December 31,
2002
2001
Net revenues
$
1,406,026
$
1,548,771
Income (loss) before cumulative effect of accounting change
$
100,003
$
(221,468
)
Net loss
$
(193,666
)
$
(221,468
)
Basic income (loss) per share before cumulative effect of accounting change
$
0.28
$
(0.58
)
Diluted income (loss) per share before cumulative effect of accounting change
$
0.27
$
(0.58
)
Basic and diluted loss per share
$
(0.53
)
$
(0.58
)