eTrade 2001 Annual Report Download - page 155

Dividend yield — — — —
Expected volatility 74 % 87 % 85 % 105 %
Risk-free interest rate 5 % 6 % 6 % 6 %
Expected life of option
following vesting (inmonths)
32 18 17 12
Under SFAS No. 123, the fair value of stock-based awards to associates is calculated using option pricing models, even though such
models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which
significantly differ from the Company’ s stock option awards. These models also require subjective assumptions, including future stock
price volatility and expected time to exercise, which greatly affect the calculated values.
The Company’ s calculations are based on a multiple option valuation approach and forfeitures are recognized as they occur. The
valuations of the computed weighted average fair values of option grants under SFAS No. 123 were $4.14 for the fiscal year ended
December 31, 2001, $4.60 for three months ended December31, 2000, $12.78 for the fiscal year ended September 30, 2000 and $8.41
for the fiscal year ended September 30, 1999.
Employee Stock Ownership Plan
ETFC sponsored an Employee Stock Ownership Plan (“ESOP”). The ESOP previously borrowed from ETFC and used the proceeds to
acquire common stock. The ESOP shares initially were pledged as collateral for its debt to ETFC. As the debt was repaid, shares were
released from collateral and allocated to active employees, based on the proportion of debt service paid in the year. Accordingly, the
shares pledged as collateral were reported as unearned ESOP shares in the balance sheet. As shares were released from collateral, the
Company reports compensation expense equal to the current market price of the shares. During fiscal year 2001, the ESOP repaid all
amounts due ETFC and released all remaining unearned shares to ETFC’ s employees. The ESOP owned the Company’ s common
stock of approximately 538,000 shares as of December 31, 2001 and 688,791shares as of September30, 2000, with all of the shares
allocated as of December 31, 2001 and 614,722shares allocated as of September 30, 2000. The fair value of unearned shares held by
the ESOP was $3.6million as of September 30, 2000. Compensation expense was $1.0 million for the year ended December 31, 2001,
$75,000 for the three months ended December 31, 2000, $1.8 million for the fiscal year ended September30, 2000 and $3.3 million for
the fiscal year ended September 30, 1999. The Company has filed a request with the IRS to terminate the plan and expects the plan to
terminate during fiscal year 2002.
Deferred Stock Compensation
In April 2001, in connection with the issuance of 4.7 million shares of restricted common stock to an executive officer of the
Company, the Company recorded deferred stock compensation of $24.4 million, the fair market value of the shares on the date of
grant. This amount is being amortized to expense ratably over five years, the period in which restrictions are removed on the related
shares of restricted common stock.
Additionally, in fiscal 2001, in connection with the issuance of 1.4 million shares of restricted common stock to certain executive
officers, the Company recorded deferred stock compensation of $12.9 million (net of cancellations of $2.4million), the fair market
value of the shares on the date of grant. This amount is being amortized to expense ratably over the period in which restrictions are
removed on the related shares of restricted common stock, generally four years.
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2002. EDGAR Online, Inc.