eTrade 2008 Annual Report Download - page 42

Operating Expense
Operating expense increased 19% to $1.6 billion for 2007 compared to 2006. The increase in expense
excluding interest was driven primarily by increases in clearing and servicing, advertising and market
development, impairment of goodwill and other expense.
Compensation and Benefits
Compensation and benefits increased 1% to $434.8 million for the year ended December 31, 2007 compared
to 2006. The slight increase resulted primarily from increased benefit costs offset slightly by lower incentive
based compensation in the current year.
Clearing and Servicing
Clearing and servicing expense increased 11% to $270.2 million for the year ended December 31, 2007
compared to 2006. This increase is due primarily to higher loan balances during the period, which resulted in
higher servicing costs, and increased trading activity, which resulted in higher clearing expenses.
Advertising and Market Development
Advertising and market development expense increased 31% to $138.7 million for the year ended
December 31, 2007 compared to 2006. This planned increase is a result of expanded efforts to promote our
products and services to retail investors.
Impairment of Goodwill
Impairment of goodwill was $101.2 million for the year ended December 31, 2007. This impairment
represents the entire amount of goodwill associated with our balance sheet management business, which had a
significant decline in fair value during the fourth quarter of 2007.
Facility Restructuring and Other Exit Activities
Facility restructuring and other exit activities expense was $27.2 million for the year ended December 31,
2007. The majority of this expense was incurred during the fourth quarter of 2007 and was driven primarily by
the shut down of the international portion of our institutional brokerage business.
Other
Other expense increased 51% to $195.4 million for the year ended December 31, 2007 compared to 2006.
The increase for the year ended December 31, 2007 is due primarily to higher expense for certain legal and
regulatory matters and higher FDIC premiums.
Other Income (Expense)
Other income (expense) increased 71% to $123.1 million for 2007 compared to 2006. Total other income
(expense) for the year ended December 31, 2007 consisted primarily of corporate interest expense which
increased 13% to $172.5 million, compared to 2006. The interest expense was partially offset by the sale of our
investments in E*TRADE Australia and E*TRADE Korea, which resulted in $37.0 million in gain on sales of
investments, net. During 2006, we sold shares of our investments in Softbank Investment Corporation and
International Securities Exchange Holdings, Inc. resulting in gains of $71.7 million.
Income Tax Expense (Benefit)
The income tax benefit from continuing operations was $732.9 million for the year ended December 31,
2007 compared to an income tax expense of $305.4 million for the same period in 2006. Our effective tax rate for
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