eTrade 2007 Annual Report Download - page 130

in e-commerce and Internet startup venture funds that have no ready market or liquidity at
December 31, 2007. 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.
During the year ended December 31, 2007, the Company generated a federal net operating loss of
approximately $2.4 billion. Of the $2.4 billion net operating loss, $970 million will be carried back to prior years,
generating expected federal tax refunds of $320 million. The remaining $1.4 billion net operating loss will be
carried forward and generally can be used to offset future taxable income. The Company has an additional
federal net operating loss carryforward of $54 million relating to pre-acquisition losses from acquired
subsidiaries which are subject to annual limitations in their use of $4.9 million per year in accordance with
Internal Revenue Code Section 382. No valuation allowance has been provided for the $1.5 billion in carry-
forwards of net operating losses. The carry-forwards expire through 2027. The extent to which the loss carry-
forwards can be used to offset future taxable income may be limited, depending upon the extent of ownership
changes within any three-year period. Accordingly, the extent to which the loss carry-forwards can be used to
offset future taxable income may be limited.
The Company has provided for $8 million of deferred income taxes on certain earnings and profits of
selected foreign subsidiaries that are expected to be distributed in 2008. The Company has not provided
$15.7 million of deferred income taxes on $44.8 of undistributed earnings and profits in its foreign subsidiaries at
December 31, 2007 since the Company intends to permanently reinvest such earnings.
The effective tax rates differed from the Federal statutory rates as follows:
Year Ended December 31,
2007 2006 2005
Federal statutory rate (35.0)% 35.0 % 35.0 %
State income taxes, net of Federal tax benefit (2.4) 1.3 2.3
Difference between statutory rate and foreign effective tax rate and
establishment of valuation allowance for foreign deferred tax assets 0.2 (0.2) (0.9)
Tax exempt income (1.0) (1.0) (1.2)
Impairment of goodwill 1.2 — —
Change in valuation allowance 2.3 (0.9) (0.3)
Other 0.9 (1.7) (0.9)
Effective tax rate (33.8)% 32.5 % 34.0 %
NOTE 18—SHAREHOLDERS’ EQUITY
Preferred Stock
The Company has 1.0 million shares authorized in preferred stock. None were issued and outstanding at
December 31, 2007 and 2006.
Issuance of Common Stock
In 2007, the Company issued $339.0 million or 38.0 million shares of common stock in conjunction with the
Citadel Investment. The 38.0 million shares of common stock were issued in increments: 14.8 million upon
initial closing in November 2007 and 23.2 million upon Hart-Scott-Rodino Antitrust Improvements Act approval
in December 2007. The Company expects to issue the remaining 46.7 million shares of common stock in the first
quarter of 2008 as the Company has received regulatory approvals.
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