eTrade 2006 Annual Report Download - page 129
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investments in e-commerce and Internet startup venture funds that have no ready market or liquidity at
December 31, 2006. 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
for these investments.
At December 31, 2006, the Company had federal net operating loss carry-forwards of approximately
$54 million for which no valuation allowance has been provided. These carry-forwards expire through 2020.
These federal net operating loss carry-forwards relate to pre-acquisition losses from acquired subsidiaries and,
accordingly, are generally subject to annual limitations in their use of $4.9 million per year in accordance with
Internal Revenue Code Section 382. Accordingly, the extent to which the loss carry-forwards can be used to
offset future taxable income may be limited.
The Company has not provided deferred income taxes on $44.7 million of undistributed earnings and profits
in its foreign subsidiaries at December 31, 2006. The Company intends to permanently reinvest such earnings.
The Company has not provided deferred income taxes of $15.7 million on such undistributed earnings and
profits.
The effective tax rates differed from the Federal statutory rates as follows:
Year Ended December 31,
2006 2005 2004
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes, net of Federal tax benefit 1.3 2.3 4.4
Difference between statutory rate and foreign effective tax rate and
establishment of valuation allowance for foreign deferred tax assets (0.2) (0.9) (0.7)
IRS tax settlement — — (2.8)
Excess tax basis upon sale of partnership interests — — (2.2)
Change in valuation allowance (0.9) (0.3) (0.5)
Other (2.7) (2.1) (1.0)
Effective tax rate 32.5% 34.0% 32.2%
The decrease to our 2006 tax rate was due principally to benefits recognized on state refund tax claims filed
in one of our jurisdictions as a result of recent favorable court decisions, a reversal of valuation allowance
recorded in prior years related to international operations and a continued decrease in our overall effective state
tax rate due to our changing geographic footprint.
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