eTrade 2000 Annual Report Download - page 89

Net deferred tax asset (liability) $ 20,518 $ (13,147 )
The Company recorded a valuation allowance of $10.5 million and $1.6 million for the deferred tax assets at September 30, 2000 and
1999, respectively, as full realization of net operating loss carry forwards is not expected in certain foreign countries.
The effective tax rates differed from the federal statutory rates as follows:
Years Ended September 30,
2000 1999 1998
Federal statutory rate 35.0 % (35.0 )% 35.0 %
State income taxes, net of federal tax benefit 5.8 (5.9 ) 4.7
Income of Subchapter S corporation — — 19.4
Nondeductible acquisition costs 12.6 3.3 7.2
Tax-exempt interest (0.3 ) (1.7 ) (38.1 )
Difference between statutory rate and foreign effective tax rate 10.3 (44.2 ) (10.0 )
Amortization of goodwill 7.4 0.7 6.6
Change in valuation allowance 8.5 — —
VERSUS—tax benefit of losses and timing differences not recognized — 44.4 42.6
Other 2.5 0.9 (1.2 )
Effective tax rate 81.8 % (37.5 )% 66.2 %
The Company has not provided deferred income taxes on approximately $25.1 million of undistributed earnings in its foreign
subsidiaries at September 30, 2000 as it is the Company’ s intention to permanently reinvest such earnings.
At September 30, 2000, the Company had net operating loss carryforwards of approximately $136.9 million for federal income tax
purposes. These carryforwards expire through 2019. The extent to which the loss carryforwards can be used to offset future taxable
income may be limited, depending on the extent of ownership changes within any three-year period.
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15. MANDATORILY REDEEMABLE PREFERRED SECURITIES
On April 30, 1996, TIR issued 3,000,000, 8% cumulative redeemable preference shares, $1 par, which were redeemable at par value
from time to time or, if not previously redeemed, on April 30, 2001. These shares were redeemed upon the closing of the TIR
acquisition on August 31, 1999. Dividend payments on the 8% cumulative preference shares are included within retained earnings
(deficit) and are deducted from net income or added to net loss when computing income (loss) applicable to common stock.
In June 1997, ETFC formed Telebanc Capital Trust I (“TCT I”), which in turn sold, at par, 10,000 shares of trust preferred securities,
Series A, liquidation amount of $1,000, for a total of $10.0 million. TCT I is a business trust formed for the purpose of issuing capital
securities and investing the proceeds in junior subordinated debentures issued by ETFC. The trust preferred securities mature in 2027
and have an annual dividend rate of 11.0%, or $1.1 million, payable semi-annually. The net proceeds were used for general corporate
purposes, including to fund the Bank operations and the creation and expansion of its financial service and product operations.
In May 1999, ETFC purchased $1.0 million face amount of TCT I trust preferred securities on the open market at a price of 112.5%.
ETFC deemed these repurchased securities to be retired and, therefore, wrote off the resulting premium and a proportionate share of
the discount on TCT I securities against additional paid-in-capital.
In July 1998, ETFC formed Telebanc Capital Trust II (“TCT II”), a business trust formed solely for the purpose of issuing capital
securities. TCT II sold, at par, 1,100,000 shares of Beneficial Unsecured Securities, Series A, (the “BLUS SM ”), with a liquidation
amount of $25, for a total of $27.5 million and invested the net proceeds in ETFC’ s 9.0% Junior Subordinated Deferrable Interest
Debentures, Series A. The BLUS SM , mature in 2028 and have an annual dividend rate of 9.0%, payable quarterly, beginning in
September 1998. The net proceeds were used for ETFC’ s general corporate purposes, which include funding ETFC’ s continued
growth and augmenting working capital.
In June and July 1999, ETFC purchased a total of $4.1 million face amount of TCT II trust preferred securities on the open market at
2002. EDGAR Online, Inc.