eTrade 2012 Annual Report Download - page 163

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.
The Company believes the tax ownership change will extend the period of time it will take to fully utilize its
pre-ownership change NOLs, but will not limit the total amount of pre-ownership change federal NOLs it can
utilize. The Company’s updated estimate is that it will be subject to an overall annual limitation on the use of its
pre-ownership change NOLs of approximately $194 million. The Company’s overall pre-ownership change
federal NOLs, which were approximately $1,886.3 million, have a statutory carry forward period of 20 years (the
majority of which expire in 15 years). As a result, the Company believes it will be able to fully utilize these
NOLs in future periods.
The Company’s ability to utilize the pre-ownership change NOLs is dependent on its ability to generate
sufficient taxable income over the duration of the carry forward periods and will not be impacted by its ability or
inability to generate taxable income in an individual year.
NOTE 15—SHAREHOLDERS’ EQUITY
The activity in shareholders’ equity during the year ended December 31, 2012 is summarized in the
following table (dollars in thousands):
Common Stock /
Additional Paid-In
Capital
Accumulated Deficit /
Other Comprehensive
Loss Total
Beginning balance, December 31, 2011 $7,309,716 $(2,381,766) $4,927,950
Net loss — (112,583) (112,583)
Conversions of convertible debentures 355 — 355
Net change from available-for-sale securities — 68,642 68,642
Net change from cash flow hedging instruments — 5,612 5,612
Other(1) 12,047 2,447 14,494
Ending balance, December 31, 2012 $7,322,118 $(2,417,648) $4,904,470
(1) Other includes employee share-based compensation accounting and changes in accumulated other comprehensive loss from foreign
currency translation.
Accumulated Other Comprehensive Loss
The following tables present after-tax changes in each component of accumulated other comprehensive loss
for the years ended December 31, 2012, 2011 and 2010 (dollars in thousands):
Available-for-sale
Securities
Cash Flow Hedging
Instruments
Foreign Currency
Translation Total
Beginning balance, December 31, 2011 $ 68,330 $(457,953) $2,994 $(386,629)
Net change 68,642 5,612 2,447 76,701
Ending balance, December 31, 2012 $136,972 $(452,341) $5,441 $(309,928)
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