eTrade 2006 Annual Report Download - page 14

establishment of new Bank subsidiaries and the commencement of new activities by Bank subsidiaries require
the prior approval of the OTS, and in some cases the FDIC, which may deny approval or limit the scope of our
planned activity. These regulations and conditions could place us at a competitive disadvantage in an
environment in which consolidation within the financial services industry is prevalent. Also, these regulations
and conditions could affect our ability to realize synergies from future acquisitions, could negatively affect us
following the acquisition and could also delay or prevent the development, introduction and marketing of new
products and services.
Risks Relating to Owning Our Stock
We have incurred losses in the past and we cannot assure you that we will be profitable
We have incurred losses in the past and we may do so in the future. While we reported net income for the
past four years, we reported a net loss of $186.4 million in 2002.
We are substantially restricted by the terms of our senior notes
In June 2004, we issued an aggregate principal amount of $400 million of senior notes due June 2011. In
September and November 2005, we issued an additional aggregate principal amount of $100 million of senior
notes due June 2011, $600 million of senior notes due September 2013 and $300 million of senior notes due
December 2015. The indentures governing these senior notes contain various covenants and restrictions that limit
our ability and certain of our subsidiaries’ ability to, among other things:
• incur additional indebtedness;
• create liens;
• pay dividends or make other distributions;
• repurchase or redeem capital stock;
• make investments or other restricted payments;
• enter into transactions with our stockholders or affiliates;
• sell assets or shares of capital stock of our subsidiaries;
• restrict dividend or other payments to us from our subsidiaries; and
• merge, consolidate or transfer substantially all of our assets.
As a result of the covenants and restrictions contained in the indentures, we are limited in how we conduct
our business and we may be unable to raise additional debt or equity financing to compete effectively or to take
advantage of new business opportunities. The terms of any future indebtedness could include more restrictive
covenants.
We cannot assure you that we will be able to remain in compliance with these covenants in the future and, if
we fail to do so, that we will be able to obtain waivers from the appropriate parties and/or amend the covenants.
Our corporate debt levels may limit our ability to obtain additional financing
At December 31, 2006, we had an outstanding balance of $1,401.6 million in senior notes, $440.6 million in
mandatory convertible notes and $37.9 million in term loans. Excluding the mandatory convertible notes, our
ratio of debt (our senior debt and term loans) to equity (expressed as a percentage) was 34% at
December 31, 2006.
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