eTrade 2009 Annual Report Download - page 40

Other Operating Expenses
Other operating expenses increased 35% to $122.5 million for the year ended December 31, 2009 compared
to 2008. The increase for the year ended December 31, 2009, was primarily due to a $23.7 million gain on the
sale of our corporate aircraft related assets during the year ended December 31, 2008, which reduced other
operating expenses during that period and to higher real-estate owned expenses during the year ended
December 31, 2009. We expect our real-estate owned expenses to continue to increase in future periods.
Other Income (Expense)
Other income (expense) was an expense of $1.3 billion for the year ended December 31, 2009 compared to
an expense of $330.6 million for the year ended December 31, 2008, as shown in the following table (dollars in
millions):
Year Ended
December 31,
Variance
2009 vs. 2008
2009 2008 Amount %
Other income (expense):
Corporate interest income $ 0.9 $ 7.2 $ (6.3) (88)%
Corporate interest expense (282.7) (362.2) 79.5 (22)%
Losses on sales of investments, net (1.7) (4.2) 2.5 (59)%
Gains (losses) on early extinguishment of debt (1,018.9) 10.1 (1,029.0) *
Equity in income (loss) of investments and venture funds (8.6) 18.5 (27.1) *
Total other income (expense) $(1,311.0) $(330.6) $ (980.4) 297%
* Percentage not meaningful.
Total other expense of $1.3 billion for the year ended December 31, 2009 was largely due to the $968.3
million pre-tax non-cash loss on the early extinguishment of debt related to our Debt Exchange. The loss on the
Debt Exchange resulted from the de-recognition of the debt that was exchanged and the corresponding
recognition of the newly-issued non-interest-bearing convertible debentures at fair value. The loss consisted of
two main components: 1) the difference between the fair value of the newly-issued convertible debentures and
the face amount of the exchanged debt, which resulted in a $725.0 million premium on the new debt; and 2) the
realization of the $243.3 million discount on the debt that was exchanged. The fair value of the newly-issued
convertible debentures(1) was greater than the face amount of the debt that was exchanged primarily due to the
significant increase in our stock price from June 22, 2009, the date on which the conversion price was
established, to August 25, 2009, the date on which the Debt Exchange was consummated. The time delay was
due to the required shareholder approval prior to the consummation of the Debt Exchange, which occurred at a
special meeting on August 19, 2009. This component of the loss did not significantly impact our shareholders’
equity as it was substantially offset by a simultaneous increase in additional paid-in capital(2). The remaining
$243.3 million component of the loss represented an acceleration of the interest expense that otherwise would
have been recorded in future periods. Prior to the consummation of the Debt Exchange, this discount was being
accreted into interest expense over the life of the exchanged debt under the effective interest method.
Total other income (expense) also includes corporate interest expense resulting from our interest-bearing
corporate debt. Corporate interest expense decreased 22% to $282.7 million for the year ended December 31,
2009, primarily due to the reduction in interest-bearing debt in connection with our Debt Exchange. Based on our
remaining balance of interest-bearing debt subsequent to the Debt Exchange, we estimate that our annual
(1) For further details on the calculation of the fair value of the non-interest-bearing convertible debentures, see Note 5—Fair Value
Disclosures of Item 8. Financial Statements and Supplementary Data.
(2) For further details on the accounting for the Debt Exchange see, Note 1—Organization, Basis of Presentation and Summary of
Significant Accounting Policies of Item 8. Financial Statements and Supplementary Data.
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