eTrade 2008 Annual Report Download - page 38

resulted in a gain on sale of $22.3 million recorded in equity in income of investments and venture funds. During
2007, we sold our investments in E*TRADE Australia and E*TRADE Korea, which resulted in $37.0 million in
gain on sales of investments, net.
The gain on early extinguishment of debt is primarily due to a gain of $21.5 million recognized on the
exchange of our senior notes for shares of our common stock for the year ended December 31, 2008. The gain of
$21.5 million is offset by a loss of $10.8 million related to the early extinguishment of FHLB advances and a loss
of $0.6 million on the prepayment of debt related to the sale of the corporate aircraft.
Income Tax Benefit
The income tax benefit from continuing operations was $469.5 million and $732.9 million for the years ended
December 31, 2008 and 2007, respectively. Our effective tax rate for 2008 was (36.7)% compared to (33.7)% for
2007. For additional information, see Note 17—Income Taxes to the consolidated financial statements.
Our 2008 effective tax rate included a number of tax benefits and expenses which were incremental to the
amount of tax accrued based on the statutory tax rates in the jurisdictions in which we operate. The most
significant items are summarized in the following table (dollars in millions):
Year Ended
December 31, 2008
Tax Expense
Incremental tax benefits
Tax exempt income $10.2
FIN 48 settlements and reversals 14.0
Low income housing tax credits 2.4
Total tax benefits 26.6
Incremental tax expenses
Non-deductible officer’s compensation 1.6
Sweden valuation allowance 7.3
Removal of foreign earnings from permanently reinvested 1.8
Tax rate differential of international operations 7.9
Non-deductible portion of interest expense on springing lien notes 24.6
Total tax expense 43.2
Incremental tax expense $16.6
The Company expects the 2009 effective tax rate to increase when compared to the tax rates for 2008. More
specifically, we expect the 2009 effective tax rate to be based on a pro-forma effective tax rate of approximately
37-38% plus an additional fixed amount of income tax expense between $25 and $30 million.
During the year ended December 31, 2008 we did not provide for a valuation allowance against our federal
deferred tax assets. We are required to establish a valuation allowance for deferred tax assets and record a charge
to income if we determine, based on available evidence at the time the determination is made, that it is more
likely than not that some portion or all of the deferred tax assets will not be realized. If we did conclude that a
valuation allowance was required, the resulting loss would have a material adverse effect on our results of
operations, financial condition and our regulatory capital position at E*TRADE Bank. As of December 31, 2008,
we had net deferred tax assets of $1.0 billion.
We did not establish a valuation allowance against our federal deferred tax assets as of December 31, 2008
as we believe that it is 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. We
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