eTrade 2012 Annual Report Download - page 52

Total other income (expense) for the year ended December 31, 2011 primarily consisted of corporate
interest expense on interest-bearing corporate debt. Corporate interest expense increased 6% to $177.8 million
for the year ended December 31, 2011 compared to 2010. In addition to the stated interest on corporate debt, the
corporate interest expense line item included the benefit of discontinued fair value hedges on corporate debt,
which decreased $7.8 million for the year ended December 31, 2011 compared to 2010. Offsetting interest
expense for the year ended December 31, 2011 was a $3.1 million gain on early extinguishment of debt related to
the call of the 7
3
⁄ 8 % Notes in the second quarter of 2011. Offsetting corporate interest expense for the year ended
December 31, 2010 was a benefit of $6.0 million related to a legal settlement.
Income Tax Expense (Benefit)
Income tax expense was $28.6 million for the year ended December 31, 2011 compared to $25.3 million in
2010. The effective tax rate was 15.4% for the year ended December 31, 2011 compared to 806.3% in 2010.
During the third quarter of 2011, we recorded an income tax benefit of $61.7 million related to the taxable
liquidation of a European subsidiary. The subsidiary was liquidated for U.S. tax purposes in connection with our
international restructuring activities. This liquidation resulted in the taxable recognition of certain losses,
including historical acquisition premiums that we incurred internationally. This tax benefit resulted in a
corresponding increase to the deferred tax assets, which were $1,578.7 million as of December 31, 2011. For the
year ended December 31, 2010, our reported pre-tax loss was relatively close to breakeven, which resulted in an
unusually high effective tax rate.
Valuation Allowance
During the year ended December 31, 2011, 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 the 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, 2011, which is considered significant and
objective evidence that we may not be able to realize some portion of 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.
SEGMENT RESULTS REVIEW
We report operating results in two segments: 1) trading and investing; and 2) balance sheet management.
Trading and investing includes retail brokerage products and services; investor-focused banking products; market
making; and corporate services. Balance sheet management includes the management of asset allocation; loans
previously originated by the Company or purchased from third parties; customer cash and deposits; and credit,
liquidity and interest rate risk for the Company as described in the Risk Management section. Costs associated
with certain functions that are centrally-managed are separately reported in a corporate/other category. For more
information on our segments, see Note 20—Segment Information in Item 8. Financial Statements and
Supplementary Data.
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