eTrade 2004 Annual Report Download - page 84

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Table of Contents
Index to Financial Statements
NOTE 4—BUSINESS COMBINATIONS
During the past three years, the Company completed several business combinations and asset acquisitions which were all accounted for
under the purchase method of accounting. The results of operations of each are included in the Company’s consolidated statements of
operations from the date of each acquisition.
Active Accounts
Acquisition
Segment
Purchase
Consideration
Goodwill at
December 31, 2004
2004
Active Accounts
Brokerage
$ 17.0 million
—
2003
ETCF Asset Funding Corporation
Banking
$ 59.7 million
$ 18.9 million
Trading Relationships
Brokerage
$ 11.7 million
$ 4.5 million
2002
E*TRADE Consumer Finance
Banking
$ 1.9 billion
$ 26.7 million
Engelman
Brokerage
$ 7.5 million
(1)
—
E*TRADE Professional
Brokerage
$ 96.2 million
$ 88.6 million
(1)
Includes 1.3 million shares of common stock, $0.5 million of cash and $0.5 million of acquisitions costs.
In October 2004, the Company acquired certain active accounts from a brokerage company. The Company paid $17.0 million in cash and
recorded an intangible asset of $17.0 million which will be amortized over 10 years.
ETCF Asset Funding Corporation
In October 2003, the Company completed the acquisition of all of the issued and outstanding capital stock of ETCF Asset Funding
Corporation, formerly Deutsche Recreational Asset Funding Corporation. This acquisition included the purchase of residual cash flow interests
related to certain marine and Recreational Vehicle (“RV”) loan securitizations. The transaction was completed in connection with the
E*TRADE Consumer Finance acquisition in December 2002 (see caption titled E*TRADE Consumer Finance). The Company paid
$59.7 million for ETCF Asset Funding Corporation, including $10.5 million prepaid by the Company in December 2002. This acquisition
completes the final transaction contemplated under the E*TRADE Consumer Finance acquisition.
Purchase of Trading Relationships
In June 2003, the Company entered into an agreement with Tanzman, Rock and Kaban, LLC (“TRK”) whereby the Company agreed to
purchase the remaining rights of TRK in the net trading profits of E*TRADE Professional Trading, LLC and TRK agreed to waive and release
the Company from all claims arising out of certain actions and arrangements that occurred on or prior to the date of the Company’
s purchase of
E*TRADE Professional Trading, LLC in June 2002. The agreement called for the Company to make payments totaling $11.7 million,
comprised of cash and common stock, over a 3-year period: $7.0 million for the release of pre-acquisition claims which the Company recorded
as goodwill, $1.4 million for the return of capital that represented the remaining minority interest of TRK and $3.4 million for the purchase of
TRK’s rights in the net trading profits of the business, non-compete clauses and other agreements. Additionally, the Company entered into
employment agreements with Tanzman, Rock and Kaban, individually, wherein they further agreed not to compete for a period of the greater
of 22 months or the term of their employment with the Company. The June 2003 agreement consummated the Company’s “step”
acquisition of
the proprietary trading business previously between Momentum Securities, LLC and TRK. In accordance with the “step” acquisition, the
Company finalized the purchase price valuation recording $12.5 million in intangible assets, which includes the carrying value of the
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