Charles Schwab 2008 Annual Report Download - page 84

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THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
- 70 -
Income tax expense from discontinued operations was $18 million in 2008 and related to the determination of the final
income tax gain on the sale of U.S. Trust. The net income tax expense from discontinued operations was $691 million in 2007
and included $763 million of income tax expense related to income from discontinued operations and the gain on sale of
U.S. Trust and a $72 million income tax benefit related to the excess of the tax basis of U.S. Trust stock over book basis. The
net income tax benefit from discontinued operations was $134 million in 2006 and included a $205 million income tax benefit
related to the excess of the tax basis of U.S. Trust stock over the book basis.
The temporary differences that created deferred tax assets and liabilities are detailed below:
December 31, 2008 2007
Deferred tax assets:
Employee compensation, severance, and benefits $ 97 $ 163
Facilities lease commitments 70 89
State and local taxes 30 39
Reserves and allowances 36 27
Unrealized loss on securities available for sale – net 357 12
Deferred income 3 7
Other 3 3
Total deferred tax assets 596 340
Deferred tax liabilities:
Capitalized internal-use software development costs (52) (53)
Depreciation and amortization (21) (15)
Deferred loan costs (21) (14)
Other - (4)
Total deferred tax liabilities (94) (86)
Deferred tax asset – net $ 502 $ 254
The Company determined that no valuation allowance against deferred tax assets at December 31, 2008 and 2007 was
necessary.
The effective income tax rate on income from continuing operations differs from the amount computed by applying the
federal statutory income tax rate as follows:
2008 2007 2006
Federal statutory income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit 4.4 5.3 4.6
Other (0.1) (0.7) -
Effective income tax rate 39.3% 39.6% 39.6%
The effective income tax rate including discontinued operations was 40.2% in 2008, 37.2% in 2007, and 26.9% in 2006. The
difference between the effective income tax rate on income from continuing operations and the effective income tax rate
including discontinued operations was primarily due to the $18 million income tax expense in 2008, and the $72 million and
$205 million income tax benefits in 2007 and 2006, respectively, discussed above.