eTrade 2002 Annual Report Download - page 170

Table of Contents
Index to Financial Statements
Because the Company reported a net loss before cumulative effect of accounting changes for fiscal 2001, the calculation of diluted net loss per
share does not include common stock equivalents as they are anti-dilutive and would result in a reduction of net loss per share. If the Company
had reported net income for fiscal 2001, there would have been an additional amount of shares for options outstanding of 6.7 million shares for
the fiscal 2001. In addition there would have been an additional amount of shares for warrants outstanding of 198,000 for fiscal 2001. Excluded
from the calculation of diluted net income (loss) per share of common stock issuable under convertible subordinated notes are approximately
46.0 million for fiscal 2002, 42.6 million for fiscal 2001, 27.5million for the three months ended December 31, 2000 and 17.1 million for fiscal
2000. These shares have been excluded from the calculation as the effect of applying the treasury stock method on an as-if-converted basis
would be anti-dilutive in the calculation of diluted net income (loss) per share.
The following options to purchase shares of common stock have not been included in the computation of diluted income (loss) per share
because the options’ exercise price was greater than the average market price of the Company’ s common stock for the following years stated,
and therefore, the effect would be anti-dilutive (in thousands, except exercise price data):
YearEnded December31, ThreeMonths Ended
December 31, 2000 YearEnded September30, 2000
2001 2001
Options excluded from computation of diluted
income (loss) pershare
26,936 18,358 19,280 10,371
Exercise price ranges:
High $ 58.19 $ 58.19 $ 58.75 $ 58.75
Low $ 6.41 $ 8.20 $ 11.78 $ 22.72
25.REGULATORY REQUIREMENTS
Registered Broker-Dealers
On August 30, 2002, E*TRADE Securities, Incorporated was reorganized and renamed E*TRADE Securities LLC (“E*TRADE Securities”).
Also on September 3, 2002, E*TRADE Clearing LLC (“E*TRADE Clearing”) became the clearing firm for E*TRADE Securities. E*TRADE
Clearing (formerly E*TRADE Institutional Securities, Inc.) is a wholly-owned indirect subsidiary of the Company. In connection with the
above, all cash balances and security positions in customer accounts previously maintained by E*TRADE Securities and associated liabilities
were transferred to E*TRADE Clearing on September3, 2002, and E*TRADE Clearing began performing clearance and settlement services for
cash and margin accounts of customers of E*TRADE Securities.
The clearing arrangement involves a sharing of responsibilities pursuant to a written contract between E*TRADE Clearing, as clearing broker,
and E*TRADE Securities, as introducing broker. As introducing broker, E*TRADE Securities is responsible for contact with customers,
including opening customer accounts, responding to general customer inquiries and placing customer orders with E*TRADE Clearing. As
clearing broker, E*TRADE Clearing provides back office functions, including centralized cashiering, settlement of securities transactions with
clearing houses, preparing customer trade confirmations and statements, safeguarding funds and securities in customer accounts and extending
credit to margin customers and other services.
The Company’ s broker-dealer subsidiaries are subject to the Uniform Net Capital Rule (the “Rule”) under the Securities Exchange Act of 1934
administered by the Securities and Exchange Commission (“SEC”), the New York Stock Exchange (“NYSE”) and the National Association of
Securities Dealers (“NASD”), which requires the maintenance of minimum net capital. E*TRADE Securities and E*TRADE Clearing have
elected to use the alternative method permitted by the Rule, which requires that E*TRADE Securities and E*TRADE Clearing maintain
minimum net capital equal to the greater of $250,000 or two percent of aggregate debit balances arising from customer transactions, as defined.
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2003. EDGAR Online, Inc.