eTrade 2004 Annual Report Download - page 46

Table of Contents
Index to Financial Statements
As of December 31, 2004, we had approximately $238.0 million available under these authorized plans to purchase additional shares of
common stock or retire additional debt.
8.00% Senior Notes Due June 2011
In June 2004, we completed a private offering of an aggregate principal amount of $400 million in senior notes due June 2011 (the
“8.00% Notes”). The 8.00% Notes bear interest at 8.00%, payable semi-annually, and are non-
callable for four years and may then be called by
us at a premium, which declines over time. We entered into an interest rate swap agreement effective December 1, 2004 on $50 million of the
8.00% Notes. Under this swap agreement, we pay a variable rate of interest based on 3 month LIBOR plus 3.49%. The swap agreement is
treated as an effective fair value hedge pursuant to SFAS No. 133. The indenture governing the 8.00% Notes contains various covenants and
restrictions that limit how we may conduct our business. As a result of these covenants and restrictions we may be unable to raise additional
debt or equity financing to compete effectively or to take advantage of new business opportunities.
6.75% Convertible Subordinated Notes Due May 2008
In May 2001, we completed a private offering of an aggregate principal amount of $325 million of the 6.75% convertible subordinated
notes due May 2008 (the “6.75% Notes”). The 6.75% Notes were convertible, at the option of the holder, into a total of approximately 29.7
million shares of our common stock at a conversion price of $10.925 per share. The 6.75% Notes bore interest at 6.75%, payable semiannually,
were non-
callable for three years and were subsequently callable by us at a premium, which declined over time. In June 2004, we called $162.5
million of the 6.75% Notes and in July 2004 called the remaining $162.5 million. Of these notes, total principal of $81.3 million was converted
into 7.4 million shares of our common stock, with $1.3 million recorded in additional paid-in capital for its portion of the premium and
unamortized debt offering costs. The remaining principal of $243.7 million was redeemed for cash.
6.00% Convertible Subordinated Notes Due February 2007
In February and March 2000, we completed a private offering of an aggregate principal amount of $650 million of the 6.00% convertible
subordinated notes due February 2007 (the “6.00% Notes”).
The 6.00% Notes are convertible, at the option of the holder, into common stock at
a conversion price of $23.60 per share (7.8 million shares based on the $185.2 million principal amount of notes outstanding at December 31,
2004). The 6.00% Notes bear interest at 6.00%, 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 events. Through 2003, we retired $279.7 million of the 6.00% Notes. In July 2004, we called $185.2 million of the 6.00%
Notes for cash. We are not subject to any restrictive covenants in connection with the 6.00% Notes.
Other Sources of Liquidity
At December 31, 2004 we had financing facilities totaling $400.0 million to meet the needs of E*TRADE Clearing. These facilities, if
used, would be collateralized by customer securities. There were no amounts outstanding at December 31, 2004 and 2003 under these lines. At
December 31, 2004, we also had a total of $39.8 million of loans outstanding, collateralized by equipment owned by us, which we used to
finance fixed-assets purchases. In addition, we have numerous agreements with other broker-dealers to provide financing under our stock loan
program.
In our banking operations, we seek to maintain a stable funding source for future periods, in part, by attracting core deposit accounts that
tend to be relatively stable even in a changing interest rate environment. Typically, time deposit accounts, transactional accounts and accounts
that maintain a relatively high balance provide a relatively stable source of funding. In 2003, we began sweeping brokerage customer money
market
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