eTrade 2006 Annual Report Download - page 36

Facility Restructuring and Other Exit Activities
Facility and restructuring costs were $28.5 million for 2006. During the year, we relocated certain functions
out of the state of California. This expense represents certain facility costs as a result of ceasing operations at
these locations in addition to severance charges for those employees to whom we communicated our plans and
who were terminated as part of this relocation during the year.
Other
Other expenses increased 127% to $136.0 million for 2006 compared to 2005. These increases were due
primarily to a 212% increase in fraud related losses to $31.2 million for 2006 and the favorable settlement of the
Nomura Securities, Inc. (“Nomura”) litigation, which reduced other expense by $35.0 million in 2005. The fraud
related losses were primarily identity theft situations which arose from computer viruses that attacked the
personal computers of our customers. We did not suffer from a breach of the security of our systems. We
reimbursed customers for their losses through our E*TRADE Complete Protection Guarantee. These fraud
schemes have impacted our industry as a whole. While we believe our systems remain safe and secure, we have
implemented technological and operational changes to deter unauthorized activity in our customer accounts.
Other Income (Expense)
Other income (expense) decreased to an expense of $72.0 million for 2006 compared to income of
$26.3 million for 2005, as shown in the following table (dollars in thousands):
Variance
Year Ended December 31, 2006 vs. 2005
2006 2005 Amount %
Other income (expense):
Corporate interest income $ 8,433 $ 11,043 $ (2,610) (24)%
Corporate interest expense (152,496) (73,956) (78,540) 106 %
Gain on sales and impairment of investments 70,796 83,144 (12,348) (15)%
Loss on early extinguishment of debt (1,179) — (1,179) *
Equity in income of investments and venture funds 2,451 6,103 (3,652) (60)%
Total other income (expense) $ (71,995) $ 26,334 $(98,329) *
* Percentage not meaningful.
Other expense for 2006 primarily consisted of corporate interest expense resulting from the funding of the
Harrisdirect and BrownCo acquisitions beginning in late 2005. Offsetting corporate interest expense was
$70.8 million in gain on sales and impairment of investments. During 2006, we sold shares of our investments in
SBI and International Securities Exchange Holdings, Inc. (“ISE”) resulting in gains of $71.7 million.
Income Tax Expense
Income tax expense from continuing operations increased 31% to $302.0 million for 2006 compared to
2005. The increase in income tax expense was principally related to the increase in pre-tax income over the
comparable periods. Our effective tax rate for 2006 was 32.5% compared to 34.0% for 2005. The decrease in the
2006 tax rate compared to the 2005 tax rate is primarily due to benefits recognized on state tax refunds filed in
one of our jurisdictions as a result of recent favorable court decisions, a reversal of valuation allowance recorded
in prior years related to international operations and a continued decrease in our overall effective state tax rate
due to our changing geographic footprint. For additional information, see Note 19—Income Taxes to the
consolidated financial statements.
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