eTrade 2000 Annual Report Download - page 47

adverse effect on our stock price. In addition, our stock price could be adversely affected if our revenues or earnings in any quarter fail
to meet the investment community’ s expectations, or if there are broader, negative market trends. We do not undertake an obligation to
update our forward-looking statements or Risk factors to reflect future events or circumstances. See “Item 7. Risk factors—Risks
related to owning our stock.”
Liquidity and Capital Resources
Liquidity represents our ability to raise capital to fund operations, support asset growth, and meet obligations, including deposit
withdrawals, maturing liabilities, and other payment obligations, to maintain reserve requirements and to otherwise meet our ongoing
obligations. We have historically met our liquidity needs primarily through investing and financing activities, consisting principally of
equity and debt offerings, increases in core deposit accounts, other borrowings, and, sales of loans or securities. We believe that we
will be able to renew or replace our funding sources at then-existing market rates, which may be higher or lower than current rates.
Pursuant to applicable Office of Thrift Supervision (“OTS”) regulations, the Bank is required to maintain an average liquidity ratio of
4.0% of certain borrowings and its deposits, which it met during fiscal 2000, 1999 and 1998.
In July 1998, we entered into an agreement to issue and sell 62.6 million shares of our common stock to SOFTBANK Holdings, Inc.
for an aggregate purchase price of $400.0 million. This investment represents a minority interest ownership of approximately 20% of
our Company as of September 30, 2000.
In March 1999, our wholly-owned subsidiary, VERSUS, raised aggregate net proceeds of $30.7 million in an initial public offering in
Canada. These proceeds have been reflected in our consolidated financial statements.
In April 1999, our wholly-owned subsidiary, ETFC, raised aggregate net proceeds of $395.9 million in a public offering. These
proceeds have been reflected in our consolidated financial statements.
We have financing facilities totaling $400 million to meet the needs of E*TRADE Securities. These facilities, if used, would be
collateralized by customer securities. There were no borrowings outstanding under these lines on September 30, 2000. We also have a
short term line of credit for up to $50 million, collateralized by marketable securities owned by us, of which $22.2 million was
outstanding as of September 30, 2000. In addition, we have entered into numerous agreements with other broker-dealers to provide
financing under our stock loan program.
On February 7, 2000, we completed a Rule 144A offering of $500 million convertible subordinated notes due February 2007. On
March 17, 2000, the initial purchasers exercised an option to purchase an additional $150 million of notes. The notes are convertible,
at the option of the holder, into a total of 27,542,373 shares of our common stock at a conversion price of $23.60 per share. The notes
bear interest at 6%, payable semiannually, and are non-callable for three years and may then be called by us at a premium, which
declines over time. The holders have the right to require redemption at a premium in the event of a change in control or other defined
redemption event. We used $145.0 million of the $631.3 million in net proceeds to pay the outstanding balance on a $150 million line
of credit, which was subsequently dissolved in February 2000.
In our banking operations, we seek to maintain a stable funding source for future periods in part by attracting core deposit accounts,
which are accounts that tend to be relatively stable even in a changing interest rate environment. Typically, time deposit accounts and
accounts that maintain a relatively high balance provide a relatively stable source of funding. At September 30, 2000, our average
retail banking account balance was approximately $16,000, and our banking customers maintained an average of 1.84 accounts.
Savings and transactional deposits increased from $353.8 million in fiscal 1999 to $533.5 million in fiscal 2000, an increase of 51%.
Retail certificates of deposit increased from $1,742 million in fiscal 1999 to $4,097 million in fiscal 2000, an increase of 135%.
Callable certificates of deposit increased from $67.1 million in fiscal 1999 to $91.7 million in fiscal 2000, an increase of 37%.
We also rely on borrowed funds in our banking operations, such as FHLB advances and securities sold under agreements to
repurchase, to provide liquidity. Total banking-related borrowings increased 179% from $1,268 million in fiscal 1999 to $3,531
million in fiscal 2000. At September 30, 2000, ETFC had approximately $4.2 billion in additional borrowing capacity.
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In fiscal 1999, we paid off our $31.0 million face amount of subordinated debentures, recording an extraordinary loss on the early
extinguishment of debt of $2.0 million.
We currently anticipate that our available cash resources, credit facilities, and liquid portfolio of equity securities, along with the
convertible subordinated debt offering described above, will be sufficient to meet our presently anticipated working capital and capital
expenditure requirements for at least the next 12 months. However, we may need to raise additional funds in order to support more
2002. EDGAR Online, Inc.