eTrade 2004 Annual Report Download - page 110

Table of Contents
Index to Financial Statements
Deferred income taxes are recorded when revenues and expenses are recognized in different periods for financial statement and tax return
purposes. The temporary differences and tax carry-forwards that created deferred tax assets and deferred tax liabilities are as follows (in
thousands):
The Company maintains a valuation allowance of $52.7 million and $70.2 million at December 31, 2004 and 2003, respectively, against
certain of its deferred tax assets, as it is more likely than not that they will not be fully realized. The deferred tax assets for which a valuation
allowance has been established include certain state and foreign country net operating loss carry-forwards, foreign tax credit carry-forwards
and excess tax bases in certain illiquid investments. More specifically, at December 31, 2004, the Company had foreign country net operating
loss carry-
forwards of approximately $101 million for which a deferred tax asset of approximately $30 million was established. The foreign net
operating losses represent the foreign tax loss carry-forwards in numerous foreign countries, some of which are subject to expiration from
2005-2007. In most of these foreign countries, the Company has historical tax losses, and the Company continues to project to incur operating
losses in these countries. Accordingly, the Company has provided a valuation allowance of $30.1 million against such deferred tax asset at
December 31, 2004. In addition, at December 31, 2004, the Company had state net operating loss carry-forwards of $290 million, that expire
between 2012 and 2023, most of which are subject to apportionment when utilized. A deferred tax asset of approximately $17 million has been
established related to these state net operating loss carry-overs, and has provided a valuation allowance of $2 million against such deferred tax
asset at December 31, 2004. Further, the Company has a foreign tax credit carry-
over of approximately $6.5 million which is fully reserved due
to the Company’
s overall foreign loss position. Lastly, At December 31, 2004, the Company maintains a valuation allowance against the excess
tax basis in certain capital assets of approximately $11.0 million. The capital assets in question are certain investments in e-commerce and
internet startup venture funds that have no ready market or liquidity at December 31, 2004. The Company has concluded that the realization of
these excess tax benefits on these capital assets are uncertain and not in the control of the Company, as there is no ready market or liquidity in
these investments.
101
December 31,
2004 2003
Deferred tax assets:
Reserves and allowances
$
15,237
$
18,680
Net unrealized gain on equity investments and Bank assets held
-
for
-
sale
78,411
28,240
Net operating loss carry
-
forwards
68,939
74,713
Deferred compensation
9,235
9,881
Capitalized technology development
7,382
14,400
Tax credits
6,520
16,130
Restructuring reserve and related write
-
downs
66,116
74,948
Other
1,225
10,207
Total deferred tax assets
253,065
247,199
Deferred tax liabilities:
Internally developed software
(20,690
)
(14,076
)
Acquired intangibles
(36,552
)
(52,688
)
Basis differences in investments
(53,007
)
(10,713
)
Loan fees
(7,092
)
—
Depreciation and amortization
(28,753
)
6,089
Purchased software
(3,024
)
(3,024
)
Retained servicing rights
(6,298
)
(9,831
)
Other
(3,859
)
(8,256
)
Total deferred tax liabilities
(159,275
)
(92,499
)
Valuation allowance
(52,671
)
(70,156
)
Net deferred tax asset
$
41,119
$
84,544