eTrade 2012 Annual Report Download - page 85

There is no goodwill assigned to reporting units within the balance sheet management segment. The following
table shows the amount of goodwill allocated to each of the reporting units and the fair value as a percentage of
book value for the reporting units in the trading and investing segment (dollars in millions):
December 31, 2012
Reporting Unit Goodwill
% of Fair Value to
Book Value
Retail Brokerage $1,791.8 190%
Market Making 142.4 115%
Total goodwill $1,934.2
We also evaluate the remaining useful lives on intangible assets each reporting period to determine whether
events and circumstances warrant a revision to the remaining period of amortization. Other intangible assets have
a weighted average remaining useful life of 13 years. We did not recognize impairment on our other intangible
assets in the periods presented.
Effects if Actual Results Differ
If our estimates of fair value for the reporting units change due to changes in our business or other factors,
we may determine that an impairment charge is necessary. Estimates of fair value are determined based on a
complex model using estimated future cash flows and company comparisons. If actual cash flows are less than
estimated future cash flows used in the annual assessment, then goodwill would have to be tested for impairment.
The estimated fair value of the market making reporting unit as a percentage of book value was
approximately 115%; therefore, if actual cash flows are less than our estimated cash flows, goodwill impairment
could occur in the market making reporting unit in the future. These cash flows will be monitored closely to
determine if a further evaluation of potential impairment is necessary so that impairment could be recognized in a
timely manner. In addition, following the review of order handling practices and pricing for order flow between
E*TRADE Securities LLC and GI Execution Services, LLC, our regulators may initiate investigations into our
historical practices which could subject us to monetary penalties and cease-and-desist orders, which could also
prompt claims by customers of E*TRADE Securities LLC. Any of these actions could materially and adversely
affect our market making and trade execution businesses, which could impact future cash flows and could result
in goodwill impairment.
Intangible assets are amortized over their estimated useful lives. If changes in the estimated underlying
revenue occur, impairment or a change in the remaining life may need to be recognized.
Estimates of Effective Tax Rates, Deferred Taxes and Valuation Allowance
Description
In preparing the consolidated financial statements, we calculate income tax expense (benefit) based on our
interpretation of the tax laws in the various jurisdictions where we conduct business. This requires us to estimate
current tax obligations and the realizability of uncertain tax positions and to assess temporary differences between
the financial statement carrying amounts and the tax basis of assets and liabilities. These differences result in
deferred tax assets and liabilities, the net amount of which we show as other assets or other liabilities on the
consolidated balance sheet. We must also assess the likelihood that each of the deferred tax assets will be realized.
To the extent we believe that realization is not more likely than not, we establish a valuation allowance. When we
establish a valuation allowance or increase this allowance in a reporting period, we generally record a corresponding
tax expense in the consolidated statement of income (loss). Conversely, to the extent circumstances indicate that a
valuation allowance is no longer necessary, that portion of the valuation allowance is reversed, which generally
reduces overall income tax expense. At December 31, 2012 we had net deferred tax assets of $1,416.2 million, net
of a valuation allowance (on state, foreign country and charitable contribution deferred tax assets) of $97.8 million.
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