eTrade 2009 Annual Report Download - page 153

• At December 31, 2009, the Company had gross state net operating loss carryforwards of $2.2 billion
that expire between 2010 and 2029, most of which are subject to reduction for apportionment when
utilized. A deferred tax asset of approximately $83.0 million has been established related to these state
net operating loss carryforwards with a valuation allowance of $71.7 million against such deferred tax
asset at December 31, 2009.
• At December 31, 2009, the Company had charitable contribution carryforwards of $11.1 million that
expire between 2012 and 2014. A deferred tax asset of approximately $4.2 million was established with
a corresponding $4.2 million valuation allowance as it is more likely than not that these contributions
will expire unused.
The Company has not provided $8.0 million of deferred income taxes on $22.0 of undistributed earnings
and profits in its foreign subsidiaries at December 31, 2009 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,
2009 2008 2007
Federal statutory rate (35.0)% (35.0)% (35.0)%
State income taxes, net of federal tax benefit (2.6) (3.5) (2.3)
Difference between statutory rate and foreign effective tax rate and
establishment of valuation allowance for foreign deferred tax assets 0.1 0.5 0.2
Tax exempt income (0.1) (0.8) (1.1)
Disallowed Interest Expense 4.1 1.9 0.1
Disallowed Debt Exchange Loss 4.7 — —
Impairment of goodwill — — 1.2
Change in valuation allowance (0.7) 2.4 2.3
Other 0.2 (2.2) 0.9
Effective tax rate (29.3)% (36.7)% (33.7)%
Debt Exchange
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 12
1
⁄ 2 % 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 its interest-
bearing debt for an equal principal amount of non-interest-bearing convertible debentures. Subsequent to the
Debt Exchange, $592.3 million and $720.9 million debentures were converted into 572.2 million and
696.6 million shares of common stock during the third and fourth quarters of 2009, respectively. As a result of
these conversions, the Company believed it experienced a tax ownership change during the third quarter of 2009.
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