eTrade 2006 Annual Report Download - page 51

Corporate Debt
Corporate debt decreased to $1.8 billion at December 31, 2006 compared to $2.0 billion at
December 31, 2005. The Company called the remaining $185.2 million principal amount of its 6.00% convertible
subordinated notes due February 2007 (“6.00% Notes”) during the year ended December 31, 2006.
LIQUIDITY AND CAPITAL RESOURCES
Our liquidity and capital resources enable us to fund our operating activities, finance acquisitions and grow
our assets. Cash flows are derived from capital market activities and our operations in the retail and institutional
segments. The segment cash flows provide capital to fund growth in our regulated subsidiaries. The Company’s
cash and equivalents balance increased to $1.2 billion for the year ended December 31, 2006.
Changes in Cash and Equivalents
In 2006, cash and equivalents at E*TRADE Financial Corporation, on a standalone holding company basis,
increased $46.0 million to $139.5 million due primarily to a decrease in net cash used in investing activities of
$2.2 billion offset by a decrease in cash provided by financing activities of $2.2 billion. The following significant
activities and events impacting cash occurred during the year ended December 31, 2006:
• The acquisition of RAA for $15.3 million; and
• Repurchases of shares of common stock outstanding of $122.6 million.
During the year ended 2006, the Company called the remaining $185.2 million principal amount of its
6.00% convertible subordinated notes due February 2007 (“6.00% Notes”). In April 2006, the Company
completed the partial redemption that was originally announced in March 2006 and called the remaining
$92.6 million principal amount of its 6.00% Notes. The table below shows the timing and impact of these calls
(dollars and shares in millions):
Debt Redeemed
Common Stock
Shares Issued Cash Paid
First call in March 2006
March redemptions $ 36.3 1.5 $—
April redemptions 56.3 2.4 0.9
Second call in April 2006(1) 92.6 3.9 0.9
Total redemptions $185.2 7.8 $ 1.8
(1) All redemptions occurred in April.
Our current senior debt ratings are Ba2 (positive outlook) by Moody’s Investor Service, BB- (stable) by
Standard & Poor’s and BB (high) by Dominion Bond Rating Service (“DBRS”). The Company’s long-term
deposit ratings are Baa3 by Moody’s Investor Service, BB+ (stable) by Standard & Poor’s and BBB (low) by
DBRS. A significant change in these ratings may impact the rate and availability of future borrowings.
Liquidity Available from Subsidiaries
Liquidity available to the Company from its subsidiaries, other than Converging Arrows, Inc. (“Converging
Arrows”), is limited by regulatory requirements. Converging Arrows is a subsidiary of the parent company. At
December 31, 2006, Converging Arrows had $107.1 million of cash and investment securities available as a
source of liquidity for the parent company. Converging Arrows is not restricted in its dealings with the parent
company and may transfer funds to the parent company without regulatory approval. In addition to Converging
Arrows, brokerage and banking subsidiaries may provide liquidity to the parent; however, they are restricted by
regulatory guidelines.
The Bank is prohibited by regulations from lending to the parent company. At December 31, 2006, the Bank
had approximately $149.1 million of capital available for dividend declaration without regulatory approval while
still maintaining “well capitalized” status. The Bank is also required by OTS regulations to maintain tangible
capital of at least 1.50% of tangible assets. The Bank satisfied this requirement at December 31, 2006 and 2005.
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