EX-99.2 5 dex992.htm UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIALS UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIALS
EXHIBIT 99.2
 
E*TRADE GROUP, INC.
 
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
 
          The following unaudited pro forma condensed combined financial statements give effect to the acquisition of Dempsey & Company, LLC (“Dempsey”) by E*TRADE Group, Inc. (“E*TRADE”). The unaudited pro forma condensed combined balance sheet at September 30, 2001, referred to in this Form 8-K/A as the pro forma balance sheet, and the unaudited pro forma condensed combined statements of operations for the fiscal year ended September 30, 2000, for the three months ended December 31, 2000, and for the nine months ended September 30, 2001, referred to in this Form 8-K/A as the pro forma statements of operations, and together with the pro forma balance sheet, the pro forma financial statements, are presented using the purchase method of accounting to give effect to the acquisition of Dempsey and reflect the combination of consolidated historical financial data of E*TRADE and Dempsey.
 
          The pro forma balance sheet is derived from the unaudited financial statements of E*TRADE contained in E*TRADE’s Form 10-Q for the quarter ended September 30, 2001 and the unaudited financial statements of Dempsey for the nine months ended September 30, 2001 and is presented as if the acquisition had occurred on September 30, 2001. The unaudited pro forma condensed combined statement of operations for the fiscal year ended September 30, 2000 has been derived from the audited financial statements of E*TRADE contained in E*TRADE’s Annual Report on Form 10-K, as amended, for the fiscal year ended September 30, 2000, the audited financial statements of Dempsey for the year ended December 31, 2000 and the unaudited financial statements of all other acquisitions made by E*TRADE and Dempsey subsequent to September 30, 2000 and December 31, 2000, respectively. The unaudited pro forma condensed combined statement of operations for the three months ended December 31, 2000 has been derived from the unaudited financial statements of E*TRADE contained in E*TRADE’s Form 10-QT for the quarter ended December 31, 2000, the unaudited financial statements of Dempsey for the three months ended December 31, 2000 and the unaudited financial statements of all other acquisitions made by E*TRADE and Dempsey subsequent to September 30, 2000 and December 31, 2000, respectively. The unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2001 has been derived from the unaudited financial statements of E*TRADE contained in E*TRADE’s Form 10-Q for the quarter ended September 30, 2001, the unaudited financial statements of Dempsey for the nine months ended September 30, 2001 and the unaudited financial statements of all other acquisitions made by E*TRADE and Dempsey subsequent to September 30, 2000 and December 31, 2000, respectively. For all statements of operations presented, the information is presented as if the acquisitions had occurred at the beginning of the periods presented. The results of operations of Dempsey for the three months ended December 31, 2000 (net revenues of $31.4 million and net income of $5.0 million) have been included in the pro forma statement of operations for the three months ended December 31, 2000 and the year ended September 30, 2000. Acquisitions, excluding Dempsey, made by E*TRADE and Dempsey since September 30, 2000 and December 31, 2000, respectively, reflected in these pro forma financial statements are the following:
 
Acquisition Date
  
Entity Acquired
  
Acquired By
October 2000
  
E*TRADE Germany AG
  
E*TRADE
October 2000

  
Private Accounts, Inc., renamed E*TRADE
     Advisory Services, Inc. on March 26, 2001
  
E*TRADE
February 2001


  
LoansDirect, Inc., merged into and renamed
     E*TRADE Mortgage Corporation on June
     15, 2001
  
E*TRADE
May 2001
  
Web Street, Inc.
  
E*TRADE
January 2001
  
GVR & Company
  
Dempsey
January 2001
  
Dempsey-Blair, LLC
  
Dempsey
January 2001
  
C&A Trading
  
Dempsey
January 2001
  
KMB Company
  
Dempsey

1
 
          The pro forma adjustments reflected in the pro forma financial statements represent the values and amounts based upon initial estimates of the fair value of Dempsey’s assets and liabilities. The pro forma financial statements are presented for illustrative purposes only and are not necessarily indicative of the financial position or operating results that would have been achieved had the acquisitions been completed as of the dates indicated or of the results that may be obtained in the future.
 
          The pro forma financial statements should be read in conjunction with the accompanying notes and the historical financial statements of E*TRADE included in our Annual Report on Form 10-K, as amended, for the fiscal year ended September 30, 2000 and our subsequent quarterly reports on Form 10-Q.

2
 
E*TRADE GROUP, INC.
 
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(in thousands)
 
  
September 30, 2001
  
E*TRADE
  
Dempsey
  
Adjustments
    
Pro Forma
Combined
ASSETS
  
 
  
 
  
 
    
 
Cash and equivalents
  
$   1,760,175
  
$11,121
  
$  (20,000
)  B
    
$   1,751,296
Cash and investments required to be segregated under
     Federal or other regulations
  
289,233
  
—  
  
—  
    
289,233
Brokerage receivables—net
  
2,723,398
  
12,282
  
—  
    
2,735,680
Mortgage-backed securities
  
4,113,210
  
—  
  
—  
    
4,113,210
Loans receivable—net
  
6,301,880
  
—  
  
—  
    
6,301,880
Investments
  
1,268,499
  
10,025
  
—  
    
1,278,524
Property and equipment—net
  
332,906
  
589
  
—  
    
333,495
Goodwill and other intangibles
  
480,334
  
16,082
  
157,436
  B
    
653,852
Other assets
  
759,875
  
691
  
(477
)  B
    
760,089
  
  
  
    
                   Total assets
  
$18,029,510
  
$50,790
  
$136,959
    
$18,217,259
  
  
  
    
LIABILITIES & EQUITY
  
 
  
 
  
 
    
 
Liabilities:
  
 
  
 
  
 
    
 
          Brokerage payables
  
$   2,764,434
  
$   3,988
  
$         —  
    
$   2,768,422
          Banking deposits
  
8,027,993
  
—  
  
—  
    
8,027,993
          Borrowings by bank subsidiary
  
3,574,168
  
—  
  
—  
    
3,574,168
          Convertible subordinated notes
  
860,000
  
—  
  
—  
    
860,000
          Accounts payable, accrued, and other liabilities
  
1,254,016
  
23,277
  
3,927
  B
    
1,281,220
  
  
  
    
                   Total liabilities
  
16,480,611
  
27,265
  
3,927
    
16,511,803
  
  
  
    
Company obligated mandatorily redeemable preferred
     capital securities of subsidiary trusts holding junior
     subordinated debentures of ETFC
  
54,978
  
—  
  
—  
    
54,978
  
  
  
    
Shareowners’ equity:
  
 
  
 
  
 
    
 
          Preferred stock
  
—  
  
—  
  
—  
    
—  
          Shares exchangeable into common stock
  
25
  
—  
  
—  
    
25
          Common stock
  
3,271
  
—  
  
289
  B
    
3,560
          Additional paid-in capital
  
1,982,872
  
—  
  
157,955
  B
    
2,140,827
          Unearned ESOP shares
  
(780
)
  
—  
  
—  
    
(780
)
          Shareowners’ notes receivable
  
(31,571
)
  
(1,687
)  
  
—  
    
(33,258
)
          Deferred stock compensation
  
(31,087
)
  
—  
  
—  
    
(31,087
)
          Accumulated deficit
  
(268,690
)
  
—  
  
—  
    
(268,690
)
          Members’ capital
  
—  
  
25,212
  
(25,212
)  B
    
—  
          Accumulated other comprehensive loss
  
(160,119
)
  
—  
  
—  
    
(160,119
)
  
  
  
    
                   Total shareowners’ equity
  
1,493,921
  
23,525
  
133,032
    
1,650,478
  
  
  
    
                   Total liabilities and shareowners’ equity
  
$18,029,510
  
$50,790
  
$136,959
    
$18,217,259
  
  
  
    
 
See notes to unaudited pro forma condensed combined financial statements.

3
 
E*TRADE GROUP, INC.
 
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
 
  
Fiscal Year 2000
  
E*TRADE
As Reported
9/30/00
  
Dempsey
12/31/00
  
All Other
Dempsey
Acquisitions
  
All Other
E*TRADE
Acquisitions
  
Adjustments
  
Pro Forma
Combined
Revenues:
    
 
    
 
    
 
      
 
    
 
  
 
         Transaction revenues
    
$    739,078
    
$         —  
    
$      —  
      
$27,294
    
$(14,784
)  A
  
$    751,588
         Interest income
    
960,358
    
1,059
    
1,057
      
8,132
    
—  
  
970,606
         Global and institutional
    
166,061
    
—  
    
—  
      
—  
    
—  
  
166,061
         Other
    
107,686
    
152,607
    
68,991
      
23,438
    
 
  
352,722
    
    
    
      
    
  
                 Gross revenues
    
1,973,183
    
153,666
    
70,048
      
58,864
    
(14,784
)
  
2,240,977
         Interest expense
    
(600,862
)
    
—  
    
—  
      
(3,944
)
    
—  
  
(604,806
)
         Provision for loan losses
    
(4,003
)
    
—  
    
—  
      
—  
    
—  
  
(4,003
)
    
    
    
      
    
  
                 Net revenues
    
1,368,318
    
153,666
    
70,048
      
54,920
    
(14,784
)
  
1,632,168
    
    
    
      
    
  
Cost of services
    
515,571
    
62,590
    
28,932
      
27,608
    
—  
  
634,701
    
    
    
      
    
  
Operating expenses:
    
 
    
 
    
 
      
 
    
 
  
 
         Selling and marketing
    
521,532
    
37,916
    
15,812
      
17,940
    
(14,784
)  A
  
578,416
         Technology development
    
142,914
    
—  
    
—  
      
4,226
    
—  
  
147,140
         General and administrative
    
209,436
    
11,434
    
393
      
27,902
    
—  
  
249,165
         Amortization of goodwill and
             other intangibles
    
22,764
    
—  
    
—  
      
—  
    
14,882
  C
  
37,646
         Amortization of goodwill and
             other intangibles
    
—  
    
104
    
268
      
—  
    
1,654
  D
  
2,026
         Acquisition related expenses
    
36,427
    
—  
    
—  
      
—  
    
6,460
  F
  
42,887
    
    
    
      
    
  
                 Total operating expenses
    
933,073
    
49,454
    
16,473
      
50,068
    
8,212
  
1,057,280
    
    
    
      
    
  
                 Total cost of services and
                     operating expenses
    
1,448,644
    
112,044
    
45,405
      
77,676
    
8,212
  
1,691,981
    
    
    
      
    
  
Operating income (loss)
    
(80,326
)
    
41,622
    
24,643
      
(22,756
)
    
(22,996
)
  
(59,813
)
    
    
    
      
    
  
Non-operating income (expense):
    
 
    
 
    
 
      
 
    
 
  
 
         Corporate interest income
    
17,220
    
—  
    
—  
      
—  
    
—  
  
17,220
         Corporate interest expense
    
(29,535
)
    
(741
)
    
(81
)
      
—  
    
—  
  
(30,357
)
         Gain on investments
    
211,149
    
—  
    
—  
      
—  
    
—  
  
211,149
         Equity in losses of investments
    
(11,513
)
    
—  
    
—  
      
—  
    
—  
  
(11,513
)
         Unrealized loss on venture funds
    
(736
)
    
—  
    
—  
      
—  
    
—  
  
(736
)
         Other
    
(1,810
)
    
—  
    
—  
      
925
    
—  
  
(885
)
    
    
    
      
    
  
Total non-operating income (expense)
    
184,775
    
(741
)
    
(81
)
      
925
    
—  
  
184,878
    
    
    
      
    
  
Pre-tax income (loss)
    
104,449
    
40,881
    
24,562
      
(21,831
)
    
(22,996
)
  
125,065
Income tax expense (benefit)
    
85,478
    
—  
    
—  
      
(2
)
    
17,445
  E
  
102,921
Minority interest in subsidiary
    
(181
)
    
—  
    
—  
      
1,030
    
—  
  
849
    
    
    
      
    
  
Net income (loss)
    
$      19,152
    
$   40,881
    
$24,562
      
$(22,859
)
    
$(40,441
)
  
$      21,295
    
    
    
      
    
  
Net income (loss) per share:
    
 
    
 
    
 
      
 
    
 
  
 
         Basic
    
$           0.06
    
 
    
 
      
 
    
 
  
$           0.06
    
                        
         Diluted
    
$           0.06
    
 
    
 
      
 
    
 
  
$           0.06
    
                        
Shares used in the computation of per
    share data:
    
 
    
 
    
 
      
 
    
 
  
 
         Basic
    
301,926
    
28,929
    
—  
      
12,416
    
—  
  
343,271
         Diluted
    
319,336
    
28,929
    
—  
      
12,416
    
—  
  
360,681
 
See notes to unaudited pro forma condensed combined financial statements.

4
 
E*TRADE GROUP, INC.
 
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
 
  
Three Months Ended December 31, 2000
  
E*TRADE
As Reported
12/31/00
  
Dempsey
12/31/00
  
All Other
Dempsey
Acquisitions
  
All Other
E*TRADE
Acquisitions
  
Adjustments
  
Pro
Forma
Combined
Revenues:
    
 
      
 
      
 
      
 
      
 
      
 
 
    Transaction revenues
    
$153,405
      
$      —  
      
$    —  
      
$   4,750
      
$   (5,477
)  A
      
$152,678
 
    Interest income
    
337,890
      
228
      
142
      
2,895
      
—  
      
341,155
 
    Global and institutional
    
37,454
      
—  
      
—  
      
—  
      
—  
      
37,454
 
    Other
    
40,283
      
31,041
      
9,338
      
7,059
      
—  
      
87,721
 
    
      
      
      
      
      
 
       Gross revenues
    
569,032
      
31,269
      
9,480
      
14,704
      
(5,477
)
      
619,008
 
    Interest expense
    
(233,619
)
      
—  
      
—  
      
(1,565
)
      
—  
      
(235,184
)
 
    Provision for loan losses
    
(1,647
)
      
—  
      
—  
      
—  
      
—  
      
(1,647
)
 
    
      
      
      
      
      
 
       Net revenues
    
333,766
      
31,269
      
9,480
      
13,139
      
(5,477
)
      
382,177
 
    
      
      
      
      
      
 
Cost of services
    
133,260
      
10,579
      
5,070
      
5,840
      
—  
      
154,749
 
    
      
      
      
      
      
 
Operating expenses:
    
 
      
 
      
 
      
 
      
 
      
 
 
    Selling and marketing
    
97,940
      
13,376
      
2,561
      
2,555
      
(5,477
)  A
      
110,955
 
    Technology development
    
29,161
      
—  
      
—  
      
1,594
      
—  
      
30,755
 
    General and administrative
    
57,901
      
1,951
      
96
      
6,728
      
—  
      
66,676
 
    Amortization of goodwill and other intangibles
    
7,811
      
—  
      
—  
      
—  
      
2,548
  C
      
10,359
 
    Amortization of goodwill and other intangibles
    
—  
      
95
      
67
      
—  
      
344
  D
      
506
 
    Acquisition related expenses
    
784
      
—  
      
—  
      
—  
      
940
  F
      
1,724
 
    
      
      
      
      
      
 
       Total operating expenses
    
193,597
      
15,422
      
2,724
      
10,877
      
(1,645
)
      
220,975
 
    
      
      
      
      
      
 
       Total cost of services and operating expenses
    
326,857
      
26,001
      
7,794
      
16,717
      
(1,645
)
      
375,724
 
    
      
      
      
      
      
 
Operating income (loss)
    
6,909
      
5,268
      
1,686
      
(3,578
)
      
(3,832
)
      
6,453
 
    
      
      
      
      
      
 
Non-operating income (expense):
    
 
      
 
      
 
      
 
      
 
      
 
 
    Corporate interest income
    
7,061
      
—  
      
—  
      
—  
      
—  
      
7,061
 
    Corporate interest expense
    
(11,211
)
      
(285
)
      
(64
)
      
—  
      
—  
      
(11,560
)
 
    Gain on investments
    
3,582
      
—  
      
—  
      
—  
      
—  
      
3,582
 
    Equity in losses of investments
    
(61
)
      
—  
      
—  
      
—  
      
—  
      
(61
)
 
    Unrealized loss on venture funds
    
(6,158
)
      
—  
      
—  
      
—  
      
—  
      
(6,158
)
 
    Fair value adjustments of financial derivatives
    
4,668
      
—  
      
—  
      
—  
      
—  
      
4,668
 
    Other
    
(1,561
)
      
—  
      
—  
      
—  
      
—  
      
(1,561
)
 
    
      
      
      
      
      
 
Total non-operating expense
    
(3,680
)
      
(285
)
      
(64
)
      
—  
      
—  
      
(4,029
)
 
    
      
      
      
      
      
 
Pre-tax income (loss)
    
3,229
      
4,983
      
1,622
      
(3,578
)
      
(3,832
)
      
2,424
 
Income tax expense
    
1,905
      
—  
      
—  
      
4
      
1,211
  E
      
3,120
 
Minority interest in subsidiary
    
(112
)
      
—  
      
—  
      
—  
      
—  
      
(112
)
 
    
      
      
      
      
      
 
Income (loss) before cumulative effect of change in
    accounting principle, net of tax
    
1,436
      
4,983
      
1,622
      
(3,582
)
      
(5,043
)
      
(584
)
 
Cumulative effect of change in accounting principle,
    net of tax
    
(83
)
      
—  
      
—  
      
—  
      
—  
      
(83
)
 
    
      
      
      
      
      
 
Net income (loss)
    
$    1,353
      
$   4,983
      
$1,622
      
$   (3,582
)
      
$   (5,043
)
      
$       (667
)
 
    
      
      
      
      
      
 
Income (loss) per share before cumulative effect of
    change in accounting principle:
    
 
      
 
      
 
      
 
      
 
      
 
 
    Basic
    
$       0.00
      
 
      
 
      
 
      
 
      
$       (0.00
)
 
    
                                  
 
    Diluted
    
$       0.00
      
 
      
 
      
 
      
 
      
$       (0.00
)
 
    
                                  
 
Net income (loss) per share:
    
 
      
 
      
 
      
 
      
 
      
 
 
    Basic
    
$       0.00
      
 
      
 
      
 
      
 
      
$       (0.00
)
 
    
                                  
 
    Diluted
    
$       0.00
      
 
      
 
      
 
      
 
      
$       (0.00
)
 
    
                                  
 
Shares used in the computation of per share data:
    
 
      
 
      
 
      
 
      
 
      
 
 
    Basic
    
311,413
      
28,929
      
—  
      
12,057
      
—  
      
352,399
 
    Diluted
    
321,430
 
      
28,929
      
—  
      
12,057
      
(10,117
)  G
      
352,399
 
 
See notes to unaudited pro forma condensed combined financial statements.

5
 
E*TRADE GROUP, INC.
 
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
 
  
Nine Months Ended September 30, 2001
  
E*TRADE
As Reported
9/30/01
  
Dempsey
9/30/01
  
All Other
Dempsey
Acquisitions
  
All Other
E*TRADE
Acquisitions
  
Adjustments
 
Pro
Forma
Combined
Revenues:
    
 
      
 
             
 
      
 
   
 
    Transaction revenues
    
$    316,753
      
$      —  
      
$    —  
      
$   7,002
      
$(17,589
)  A
   
$306,166
    Interest income
    
900,891
      
810
      
22
      
1,918
      
—  
   
903,641
    Global and institutional
    
111,704
      
—  
      
—  
      
—  
      
—  
   
111,704
    Other
    
218,144
      
67,768
      
3,930
      
3,529
      
—  
   
293,371
    
      
      
      
      
   
       Gross revenues
    
1,547,492
      
68,578
      
3,952
      
12,449
      
(17,589
)
   
1,614,882
    Interest expense
    
(614,473
)
      
—  
      
—  
      
(372
)
      
—  
   
(614,845
)
    Provision for loan losses
    
(3,099
)
      
—  
      
—  
      
—  
      
—  
   
(3,099
)
    
      
      
      
      
   
       Net revenues
    
929,920
      
68,578
      
3,952
      
12,077
      
(17,589
)
   
996,938
    
      
      
      
      
   
Cost of services
    
433,412
      
36,244
      
2,555
      
9,176
      
—  
   
481,387
    
      
      
      
      
   
Operating expenses:
    
 
      
 
             
 
      
 
   
 
    Selling and marketing
    
199,365
      
24,948
      
746
      
1,269
      
(17,589
)  A
   
208,739
    Technology development
    
66,583
      
—  
      
—  
      
3,129
      
—  
   
69,712
    General and administrative
    
177,398
      
9,290
      
10
      
8,312
      
—  
   
195,010
    Amortization of goodwill and other intangibles
    
28,442
      
—  
      
—  
      
—  
      
5,450
  C
   
33,892
    Amortization of goodwill and other intangibles
    
—  
      
816
      
22
      
—  
      
681
  D
   
1,519
    Acquisition related expenses
    
5,904
      
2,549
      
—  
      
—  
      
1,200
    F
   
9,653
    Facility restructuring and other nonrecurring
        charges
    
227,249
      
—  
      
—  
      
—  
      
—  
   
227,249
    
      
      
      
      
   
       Total operating expenses
    
704,941
      
37,603
      
778
      
12,710
      
(10,258
)
   
745,774
    
      
      
      
      
   
       Total cost of services and operating expenses
    
1,138,353
      
73,847
      
3,333
      
21,886
      
(10,258
)
   
1,227,161
    
      
      
      
      
   
Operating income (loss)
    
(208,433
)
      
(5,269
)
      
619
      
(9,809
)
      
(7,331
)
   
(230,223
)
    
      
      
      
      
   
Non-operating income (expense):
    
 
      
 
             
 
      
 
   
 
    Corporate interest income
    
17,755
      
—  
      
—  
      
—  
      
—  
   
17,755
    Corporate interest expense
    
(39,284
)
      
(552
)
      
—  
      
—  
      
—  
   
(39,836
)
    Loss on investments
    
(48,038
)
      
—  
      
—  
      
—  
      
—  
   
(48,038
)
    Equity in losses of investments
    
(6,231
)
      
—  
      
—  
      
—  
      
—  
   
(6,231
)
    Unrealized loss on venture funds
    
(34,075
)
      
—  
      
—  
      
—  
      
—  
   
(34,075
)
    Fair value adjustments of financial derivatives
    
(4,703
)
      
—  
      
—  
      
—  
      
—  
   
(4,703
)
    Other
    
(830
)
      
—  
      
—  
      
—  
      
—  
   
(830
)
    
      
      
      
      
   
Total non-operating expense
    
(115,406
)
      
(552
)
      
—  
      
—  
      
—  
   
(115,958
)
    
      
      
      
      
   
Pre-tax income (loss)
    
(323,839
)
      
(5,821
)
      
619
      
(9,809
)
      
(7,331
)
   
(346,181
)
Income tax benefit
    
(45,368
)
      
—  
      
—  
      
—  
      
(6,004
)  E
   
(51,372
)
Minority interest in subsidiary
    
(16
)
      
—  
      
—  
      
—  
      
—  
   
(16
)
    
      
      
      
      
   
Income (loss) before extraordinary gain on early
    extinguishment of debt, net of tax
    
(278,455
)
      
(5,821
)
      
619
      
(9,809
)
      
(1,327
)
   
(294,793
)
Extraordinary gain on early extinguishment of debt,
    net of tax
    
15,320
      
—  
      
—  
      
—  
      
—  
   
15,320
    
      
      
      
      
   
Net income (loss)
    
$    (263,135
)
      
$   (5,821
)
      
$    619
      
$   (9,809
)
      
$   (1,327
)
   
$(279,473
)
    
      
      
      
      
   
Loss per share before extraordinary gain on early
    extinguishment of debt:
    
 
      
 
             
 
      
 
   
 
    Basic
    
$          (0.86
)
      
 
             
 
      
 
   
$       (0.81
)
    
                               
    Diluted
    
$          (0.86
)
      
 
             
 
      
 
   
$       (0.81
)
    
                               
Net loss per share:
    
 
      
 
             
 
      
 
   
 
    Basic
    
$          (0.81
)
      
 
             
 
      
 
   
$       (0.77
)
    
                               
    Diluted
    
$          (0.81
)
      
 
             
 
      
 
   
$       (0.77
)
    
                               
Shares used in the computation of per share data:
    
 
      
 
             
 
      
 
   
 
    Basic
    
323,833
      
28,929
      
—  
      
12,408
      
—  
   
365,170
    Diluted
    
323,833
      
28,929
      
—  
      
12,408
      
—  
   
365,170
 
See notes to unaudited pro forma condensed combined financial statements.

6
 
E*TRADE GROUP, INC.
 
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
 
(A)
 
Elimination of inter-company transactions between Dempsey and E*TRADE Securities, Inc., a wholly owned subsidiary of E*TRADE.
 
(B)
 
The unaudited pro forma condensed combined financial statements reflect the recording of entries required under the purchase method of accounting. The acquisitions of all other E*TRADE acquisitions presented in this Form 8-K/A are presented pursuant to Accounting Principles Board (“APB”) Opinion Nos. 16 and 17 since they were completed prior to July 1, 2001. The acquisition of Dempsey is presented pursuant to Statement of Financial Accounting Standards (“SFAS”) Nos. 141 and 142, which supersede APB Nos. 16 and 17, since it was completed after June 30, 2001. Accordingly, the estimated goodwill associated with the Dempsey acquisition is not being amortized in the accompanying pro forma financial statements. On October 1, 2001, E*TRADE acquired Dempsey, an Illinois limited liability company, which is a privately-held specialist and market-making firm. Under the terms of the agreement, 1.098 shares of E*TRADE common stock were exchanged for outstanding membership interests of Dempsey at the closing date of the acquisition, resulting in the issuance of approximately 28.9 million shares of E*TRADE’s common stock.
 
          The total purchase price of the Dempsey acquisition is as follows (in thousands):
 
Common stock
  
$158,244
Cash
  
20,000
Transaction costs
  
3,927
  
          Total consideration
  
$182,171
  
 
 
          The preliminary purchase price allocation, which is subject to change based on E*TRADE’s final analysis, is as follows (in thousands):
 
 
     Preliminary Purchase Price Allocation:
 
Tangible assets
  
$   35,539
Goodwill
  
113,578
Specialist books
  
59,800
Internal use software
  
130
Exchange membership
  
210
Liabilities assumed
  
(27,086
)
  
          Total consideration
  
$182,171
  
 
(C)
 
To record amortization of goodwill and identifiable intangibles related to all other E*TRADE acquisitions.
 
(D)
 
To record amortization of identifiable intangibles related to Dempsey based on the fair value assigned under SFAS No. 141, principally specialist books, which is being amortized over a 30 year estimated useful life.
 
(E)
 
To record tax benefit not previously recorded for U.S. entities in a loss position and to record tax expense (benefit) on Dempsey’s income (loss), which had not been previously recorded. Dempsey had not previously recorded tax expense (benefit), since it was organized as a limited liability company and treated as a partnership for tax purposes.
 
(F)
 
To record certain compensation arrangements negotiated in connection with the Dempsey acquisition.
 
(G)
 
Because a net loss was reported for the three months ended December 31, 2000 on a pro forma combined basis, the calculation of diluted net loss per share does not include E*TRADE’s common stock equivalents, as they are anti-dilutive and would result in a reduction of the pro forma combined net loss per share.
 

7