eTrade 2011 Annual Report Download - page 44

Section 382 imposes an annual limitation on the amount of post-ownership change taxable income a
corporation may offset with pre-ownership change NOLs. In general, the annual limitation is determined by
multiplying the value of the corporation’s stock immediately before the ownership change (subject to certain
adjustments) by the applicable long-term tax-exempt rate. Any unused portion of the annual limitation is
available for use in future years until such NOLs are scheduled to expire (in general, NOLs may be carried
forward 20 years). In addition, the limitation may, under certain circumstances, be increased or decreased by
built-in gains or losses, respectively, which may be present with respect to assets held at the time of the
ownership change that are recognized in the five-year period (one-year for loans) after the ownership change.
The use of NOLs arising after the date of an ownership change would not be affected unless a corporation
experienced an additional ownership change in a future period.
We believe the tax ownership change will extend the period of time it will take to fully utilize our
pre-ownership change NOLs, but will not limit the total amount of pre-ownership change NOLs we can utilize.
Our updated estimate is that we will be subject to an overall annual limitation on the use of our pre-ownership
change NOLs of approximately $194 million. The overall pre-ownership change NOLs, which were
approximately $1.4 billion, have a statutory carry forward period of 20 years (the majority of which expire in 16
years). As a result, we believe we will be able to fully utilize these NOLs in future periods.
Our ability to utilize the pre-ownership change NOLs is dependent on our ability to generate sufficient
taxable income over the duration of the carry forward periods and will not be impacted by our ability or inability
to generate taxable income in an individual year.
2010 Compared to 2009
We incurred a net loss of $28.5 million, or $(0.13) per diluted share, on total revenue of $2.1 billion for the
year ended December 31, 2010. Commissions, fees and service charges, principal transactions and other revenue
decreased 17% to $723.1 million for the year ended December 31, 2010 compared to 2009, which was driven by
a decrease in commissions.
Provision for loan losses declined 48% to $779.4 million for the year ended December 31, 2010 compared
to 2009, driven by improving credit trends and loan portfolio run-off. Total operating expense decreased 8% to
$1.1 billion for the year ended December 31, 2010 compared to 2009. This decrease was driven primarily by
decreases in majority of the operating expense categories, offset by a planned increase in advertising and market
development expense.
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