eTrade 2011 Annual Report Download - page 151

• At December 31, 2011, the Company had charitable contribution carry forwards of $24.2 million that
expire by 2015. A deferred tax asset of approximately $9.2 million was established with a
corresponding $9.2 million valuation allowance as it is more likely than not that these contributions
will expire unused.
The Company intends to permanently reinvest $16.8 million of undistributed earnings and profits in certain
foreign subsidiaries. As a result, the Company has not recorded $6.8 million of deferred income taxes on those
earnings at December 31, 2011.
Effective Tax Rate
The effective tax rate differed from the federal statutory rate as follows:
Year Ended December 31,
2011 2010 2009
Federal statutory rate 35.0% (35.0)% (35.0)%
State income taxes, net of federal tax benefit 9.1 81.0 (2.6)
Difference between statutory rate and foreign effective tax rate 0.3 47.3 0.1
Tax exempt income (0.3) (19.9) (0.1)
Disallowed interest expense 6.7 387.3 4.1
Disallowed Debt Exchange loss — — 4.7
Liquidation of a foreign subsidiary (33.3) — —
Change in valuation allowance (1.8) 236.5 (0.7)
Other (0.3) 109.1 0.2
Effective tax rate 15.4% 806.3% (29.3)%
Debt Exchange
For the year ended December 31, 2009, the effective tax rate on the Debt Exchange of 20% was below the
Company’s 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
thousands):
Year Ended December 31, 2009
Amount of Loss Tax Rate Tax Benefit
Deductible portion of the loss on the Debt Exchange $722,952 35% $253,033
Non-deductible portion of the loss on the Debt Exchange 245,302 — —
Prior period interest expense on the 2017 Notes not deductible as a result
of the Debt Exchange N/A N/A (57,687)
Total $968,254 20 % $195,346
Tax Ownership Change
During the third quarter of 2009, the Company exchanged $1.7 billion principal amount of interest-bearing
debt for an equal principal amount of non-interest-bearing convertible debentures. Subsequent to the Debt
Exchange, $592.3 million and $128.7 million debentures were converted into 57.2 million and 12.5 million
shares of common stock during the third and fourth quarters of 2009, respectively. As a result of these
conversions, the Company believes it experienced a tax ownership change during the third quarter of 2009.
As of the date of the ownership change, the Company had federal NOLs available to carry forward of
approximately $1.4 billion. Section 382 imposes restrictions on the use of a corporation’s NOLs, certain
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