eTrade 2004 Annual Report Download - page 57

Table of Contents
Index to Financial Statements
Attempts to acquire control of the Company 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 the Company 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
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a super-majority voting requirement to effect business combinations or certain amendments to our certificate of incorporation and
bylaws;
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limits on the persons who may call special meetings of shareholders;
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the prohibition of shareholder action by written consent; and
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advance notice requirements for nominations to the Board of Directors or for proposing matters that can be acted on by shareholders at
shareholder meetings.
For quantitative and qualitative disclosures about market risk, we have evaluated such risks for our brokerage and banking 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.”
CORPORATE OPERATIONS
Interest Rate Risk
At December 31, 2004, we had variable-rate loans outstanding of approximately $39.8 million and $17.2 million at December 31, 2003.
The monthly interest payments on these term loans are subject to interest rate risk. If market interest rates were to have increased immediately
and uniformly by 100 basis points at December 31, 2004 and 2003, the interest payments would have increased by an immaterial amount.
Equity Security Price Risk
We currently hold an investment in SBI which is a Japanese yen denominated publicly traded equity security with a carrying value of
$78.6 million and a gross unrealized gain of $66.3 million as of December 31, 2004. As the security’s market price and the value of the yen
fluctuate, we are exposed to risk of a loss of some or all of the unrealized gains. We also hold another publicly-traded equity security with a
carrying value of $11.3 million and a gross unrealized gain of $5.6 million as of December 31, 2004.
BROKERAGE OPERATIONS
Our brokerage operations are exposed to market risk related to changes in interest rates, foreign currency exchange rates and equity
security price risk.
Equity Security Price Risk
At December 31, 2004 and 2003, we held equity security inventories in both listed and OTC securities on both a long and short basis of
$25.8 million long, $16.7 million short and $11.6 million long and $5.0 million short, respectively, as part of our market-
making, specialist and
professional trading operations. A hypothetical 10% increase or decrease in the equities market would not have a material impact on the
Company’s results of operations because the absolute value of either long or short inventory is not material and changes in value of short
inventory would partially offset changes in value in long inventory.
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