eTrade 2007 Annual Report Download - page 151

Parent Company Guarantees
Guarantees are contingent commitments issued by the Company for the purpose of guaranteeing the
financial obligations of a subsidiary to a financial institution. The collective obligation of the corporation does
not change by the existence of corporate guarantees. Rather, the guarantees shift ultimate payment responsibility
of an existing financial obligation from a subsidiary to the parent company.
In support of the Company’s brokerage business, the Company has provided guarantees on the settlement of
its subsidiaries’ financial obligations with several financial institutions related to its securities lending activities.
Terms and conditions of the guarantees, although typically undefined in the guarantees themselves, are governed
by the conditions of the underlying obligation that the guarantee covers. Thus, the Company’s obligation to pay
under these guarantees coincides exactly with the terms and conditions of those underlying obligations. At
December 31, 2007, no claims had been filed with the Company for payment under any guarantees. These
guarantees are not collateralized.
In addition to guarantees issued on behalf of subsidiaries participating in securities lending programs, the
Company also issues guarantees for the settlement of foreign exchange transactions. If a subsidiary fails to
deliver currency on the settlement date of a foreign exchange arrangement, the beneficiary financial institution
may seek payment from the Company. Terms are undefined, and are governed by the terms of the underlying
financial obligation. At December 31, 2007, no claims had been made on the Company under these guarantees
and thus, no obligations had been recorded. These guarantees are not collateralized.
NOTE 27—SUBSEQUENT EVENTS
In January 2008, the Company issued an additional $150.0 million of springing lien notes in accordance with
the terms of the agreement with Citadel. This is the final issuance under this agreement and brings the total
springing lien notes to $1.9 billion. In connection with this issuance, the Company received $150.0 million in cash.
Additionally, the Company received all required regulatory approvals in order to issue the remaining 46.7 million
shares of common stock.
The Company entered into a definitive asset purchase agreement to sell substantially all of the assets of
RAA to PHH Investments, Ltd for approximately $25 million. This transaction is subject to normal closing
conditions and is expected to close in the second quarter of 2008.
NOTE 28—QUARTERLY DATA (UNAUDITED)
The information presented below reflects all adjustments, which, in the opinion of management, are of a
normal and recurring nature necessary to present fairly the results of operations for the periods presented (dollars
in thousands, except per share amounts):
2007 2006
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Total net revenue $644,998 $663,549 $321,232 $(2,007,946) $598,349 $611,358 $581,766 $628,848
Net income (loss) from continuing operations $169,410 $159,129 $ (58,448) $(1,711,845) $142,984 $156,692 $150,228 $176,910
Net income (loss) $169,410 $159,129 $ (58,448) $(1,711,845) $142,471 $156,484 $153,249 $176,655
Earnings (loss) per share from continuing
operations:
Basic $ 0.40 $ 0.38 $ (0.14) $ (3.98) $ 0.34 $ 0.37 $ 0.35 $ 0.42
Diluted $ 0.39 $ 0.37 $ (0.14) $ (3.98) $ 0.33 $ 0.36 $ 0.34 $ 0.40
Net earnings (loss) per share:
Basic $ 0.40 $ 0.38 $ (0.14) $ (3.98) $ 0.34 $ 0.37 $ 0.36 $ 0.42
Diluted $ 0.39 $ 0.37 $ (0.14) $ (3.98) $ 0.33 $ 0.36 $ 0.35 $ 0.40
The operating environment during 2007, particularly during the second half of the year, was extremely
challenging as the crisis in the residential real estate and credit markets adversely impacted our financial
performance. The decrease in net income for the fourth quarter ended December 31, 2007 was due principally to the
$2.2 billion loss on the sale of our asset-backed securities portfolio and $402.3 million in provision for loan losses.
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