eTrade 2010 Annual Report Download - page 47
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Debt Exchange
The effective tax rate on the Debt Exchange of 20% was below our statutory federal tax rate of 35%. This
was primarily due to certain components of the loss on the Debt Exchange not being deductible for tax purposes,
which are summarized in the following table (dollars in millions):
Year Ended December 31, 2009
Amount of Loss Tax Rate Tax Benefit
Deductible portion of the loss on the Debt Exchange $723.0 35% $253.0
Non-deductible portion of the loss on the Debt Exchange 245.3 — —
Prior period interest expense on the 12
1
⁄
2
% Notes not
deductible as a result of the Debt Exchange N/A N/A (57.7)
Total $968.3 20% $195.3
Valuation Allowance
During the year ended December 31, 2009, we did not provide for a valuation allowance against our 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 will be able to realize our deferred tax
assets in the future. Our analysis of the need for a valuation allowance recognizes that we were in a cumulative
book taxable loss position as of the three-year period ended December 31, 2009, which is considered significant
and objective evidence that we may not be able to realize some portion of our 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 our 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 and credit, liquidity and interest rate risk; loans previously originated or purchased from third parties;
and customer cash and deposits. 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 23—Segment and
Geographic Information in Item 8. Financial Statements and Supplementary Data beginning on page 160.
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