eTrade 2002 Annual Report Download - page 134

Table of Contents
Index to Financial Statements
Company’ s ownership to 30%. In May 2002, the Company purchased 31,250 of newly issued shares in E*TRADE Japan K.K. in exchange for
3.4 million shares of the Company’ s common stock in a private transaction, valued based on the fair market value of the Company’ s common
stock on that day at $30.7 million. Following the transaction, the Company’ s ownership in E*TRADE Japan K.K. increased to 36%. 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, the Company will have a 19.9% investment in the newly merged entity. The Company does
not expect to record a gain or loss upon the closing of the merger.
As part of its commitment to the joint venture, the Company is 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’ s carrying values for its investment in E*TRADE Japan K.K. were
$57.9 million at December 31, 2002 and $16.9 million at December 31, 2001.
eAdvisor — In September 2000, the Company entered into a joint venture with Ernst & Young LLP (“E&Y”) to form Enlight Holdings LLC
(“Enlight Holdings”), which in turn owns eAdvisor, to develop an online personalized financial advice and planning tool for individuals. As
part of this transaction, the Company initially invested $7.6 million, and has advanced an additional $11.8 million to fund the development
costs of the joint venture. As of December 31, 2001, the Company owned 49% of Enlight Holdings and E&Y owned the remaining portion.
During fiscal 2001, the Company determined that, based on projected cash flows, its investment in eAdvisor was impaired. The Company
recognized a $10.0 million pre-tax impairment loss on its investment in fiscal 2001, reducing its carrying value to $7.4 million at December 31,
2001. The Company continues to fund the development of the product. In addition, eAdvisor has licensed the product to E*TRADE under the
name of E*TRADE Financial Advisor and offers the service on its website.
In February 2002, the Company determined that as a result of additional contributions and changes in the number of board of director seats, the
Company has the ability to control the operations of Enlight Holdings. Therefore, the Company has consolidated the financial position and
results of operations of Enlight Holdings into the Company’ s consolidated financial statements. The amount of equity in gains (losses) of
investments for fiscal 2002 represents that amount of income prior to the Company’ s consolidation of Enlight Holdings.
KAP Group — In June 1997, the Company invested $2.0 million in the KAP Group, Inc., LLC (“KAP Group”), by means of a promissory note
in the principal amount of $1.8 million and through a purchase of a warrant for $0.2 million. The note was subsequently used to exercise the
warrant and purchase shares in the KAP Group. KAP Group has invested substantially all of its assets in two other entities, which were formed
for the purpose of engaging in electronic options trading. The Company holds a 33% ownership of KAP Group. KAP Group investors include a
member of the Company’ s Board of Directors. The Company recorded losses to the extent of its investments of $2.0 million in fiscal 2000.
Beginning in 2002, the Company has received distributions from KAP Group in proportion to its ownership of shares. During fiscal 2002, the
Company received cash distributions totaling $7.7 million and interest payment of $0.5 million and has recorded its equity in the earnings of
KAP Group to the extent they exceed losses previously recorded.
E*OFFERING Corp/SoundView Technology Group, Inc. —At September 30, 2000, E*TRADE owned a 23.6% investment in E*OFFERING
Corp., a full service, Internet-based investment bank (“E*OFFERING”). On October 16, 2000, Wit SoundView Group, Inc. (“Wit”), formerly
known as SoundView Technology Group, Inc., completed the acquisition of E*OFFERING. Under the terms of the E*OFFERING acquisition
agreement, the Company received approximately 5.3 million shares of Wit common stock and warrants, which were immediately exercisable to
purchase Wit common stock of approximately 535,000 shares for $5.99 per share expiring in February 2001 and 1.8 million shares for $0.60
per share expiring in January 2005, as well as the right to name one representative to Wit’ s Board of Directors. The warrants to purchase
approximately 535,000
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2003. EDGAR Online, Inc.