eTrade 2005 Annual Report Download - page 184

Table of Contents
The following options to purchase shares of common stock have not been included in the computation of diluted income per share
because the options’ exercise price was greater than the average market price of the Company’s common stock for the following years
stated, therefore, the effect would be anti-dilutive (in thousands, except exercise price ranges):
YearEnded December31,
2005
2004
2003
Options excluded from computation of diluted income
pershare
7,209
10,665
14,860
Exercise price ranges:
High
$
58.19
$
58.19
$
58.19
Low
$
12.76
$
12.50
$
7.97
NOTE 21—EMPLOYEE SHARE-BASED PAYMENTS AND OTHER BENEFITS
Adoption of SFAS No.123(R)
As discussed in Note 1, effective July1, 2005, the Company early adopted SFAS No.123(R.) The adoption resulted in the recognition of
or changes to the recognition method of expense for the Company’s employee stock option plans, restricted stock awards and
employee stock purchase plan. The combined impact of the adoption in 2005 is as follows: $13.7 million in compensation expense for
stock options; $0.4 million compensation expense for the stock purchase plan; and a pre-tax credit of $2.8 million in cumulative effect of
accounting change for 2005. Results for prior periods have not been restated. Total compensation expense for stock-based
compensation also includes $4.2 million for restricted stock awards, which were previously expensed by the Company under APB
No.25, prior to the adoption of SFAS No.123(R).
Employee Stock Option Plans
In 2005, the Company adopted and the shareholders approved the 2005 Stock Incentive Plan (the “2005 Plan”) to replace the 1996
Stock Incentive Plan (the “1996 Plan”) which provides for the grant of nonqualified or incentive stock options to officers, directors, key
employees and consultants for the purchase of newly issued shares of the Company’s common stock at a price determined by the
Board of Directors (the “Board”) at the date the option is granted. Options are generally exercisable ratably over a four-year period
from the date the option is granted and expire within ten years from the date of grant. Certain options provide for accelerated vesting
upon a change in control. Exercise prices are generally equal to the fair market value of the shares on the grant date. A total of
85.4million shares have been authorized under the 2005 Plan since inception and 36.6million shares were available for grant at
December31, 2005.
The fair value of each option award is estimated on the date of grant using a Black-Scholes-Merton option pricing model based on the
assumptions noted in the table below. Expected volatility is based on a combination of historical volatility of the Company’s stock and
implied volatility of publicly traded options on the Company’s stock. The expected term represents the period of time that options
granted are expected to be outstanding. The expected term is estimated using employees’ actual historical behavior and projected
future behavior based on expected exercise patterns. The risk-free interest rate is based on the U.S. Treasury zero-coupon bond where
the remaining term equals the expected term. Dividend yield is zero as the Company has not, nor does it currently plan to, issue
dividends to its shareholders.
YearEndedDecember31,
2005
2004
2003

2006. EDGAR Online, Inc.