eTrade 2011 Annual Report Download - page 48

$21.6 million of expense in the second quarter of 2009. There were no similar assessments made during the year
ended December 31, 2010.
Other Operating Expenses
Other operating expenses decreased 15% to $104.0 million for the year ended December 31, 2010 compared
to 2009. The decrease was driven primarily by a decline in bad debt expense, real-estate owned and legal
reserves compared to 2009.
Other Income (Expense)
Other income (expense) was an expense of $159.0 million and $1.3 billion for the years ended
December 31, 2010 and 2009, respectively, as shown in the following table (dollars in millions):
Variance
Year Ended December 31, 2010 vs. 2009
2010 2009 Amount Variance
Corporate interest income $ 6.2 $ 0.9 $ 5.3 620%
Corporate interest expense (167.1) (282.7) 115.6 (41)%
Gains (losses) on sales of investments, net 2.7 (1.7) 4.4 *
Losses on early extinguishment of debt — (1,018.9) 1,018.9 *
Equity in loss of investments and venture funds (0.8) (8.6) 7.8 (91)%
Total other income (expense) $(159.0) $(1,311.0) $1,152.0 (88)%
* Percentage not meaningful.
Total other income (expense) for the year ended December 31, 2010 primarily consisted of corporate interest
expense resulting from our interest-bearing corporate debt. Corporate interest expense decreased 41% to $167.1
million for the year ended December 31, 2010 compared to 2009. This was due to the reduction in interest-bearing debt
in connection with our Debt Exchange in 2009. The losses on early extinguishment of debt of $1.0 billion for the year
ended December 31, 2009 were related primarily to the Debt Exchange. The loss on the Debt Exchange resulted from
de-recognition of the debt that was exchanged and the corresponding recognition of the newly-issued non-interest-
bearing convertible debentures at fair value. Corporate interest income increased to $6.2 million for the year ended
December 31, 2010 when compared to 2009 due to a benefit of $6.0 million in connection with a legal settlement.
Income Tax Expense (Benefit)
Income tax expense was $25.3 million for the year ended December 31, 2010 compared to a benefit of
$537.7 million in 2009. Our effective tax rate was 806.3% for the year ended December 31, 2010 compared to
(29.3)% in 2009. The effective tax rate for the year ended December 31, 2010 was higher than in 2009 for two
reasons: 1) our pre-tax loss included items not deductible for tax purposes, predominantly about one-third of the
interest expense on the 2017 Notes; and 2) our reported pre-tax loss is relatively close to breakeven for the year
ended December 31, 2010. As a result, our income subject to taxation was higher, resulting in an unusually high
effective tax rate for the year ended December 31, 2010.
Valuation Allowance
During the year ended December 31, 2010, we did not maintain a valuation allowance against federal
deferred tax assets as we believed that it was more likely than not that all of these assets will be realized. Our
evaluation focused on identifying significant, objective evidence that we would be able to realize our deferred tax
assets in the future. Our analysis of the need for a valuation allowance recognized that we were in a cumulative
book loss position as of the three-year period ended December 31, 2010, which is considered significant and
objective evidence that we may not be able to realize some portion of our deferred tax assets in the future.
However, we believed we were able to rely on our forecasts of future taxable income and overcome the
uncertainty created by the cumulative loss position.
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