eTrade 2009 Annual Report Download - page 158

Company does not have a specific policy for issuing shares upon stock option exercises and share unit
conversions; however, new shares are typically issued in connection with exercises and conversions. The
Company intends to continue to issue new shares for future exercises and conversions. A total of 85.4 million
shares had been authorized under the 1996 Plan. Under the 2005 Plan, the remaining unissued authorized shares
of the 1996 Plan, up to 42.0 million shares, were authorized for issuance. Additionally, any shares that had been
awarded but remained unissued under the 1996 Plan that were subsequently canceled, would be authorized for
issuance under the 2005 Plan, up to 39.0 million shares. In May 2009, an additional 30.0 million shares were
authorized for issuance under the 2005 Plan at the Company’s shareholders’ annual meeting. As of December 31,
2009, 21.9 million shares were available for grant under the 2005 Plan.
Employee Stock Option Plans
Options are generally exercisable ratably over a two- to four-year period from the date the option is granted
and most options expire within seven 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 value of the shares on the grant date.
The Company recognized $19.5 million, $26.6 million and $25.0 million in compensation expense from
continuing operations for stock options for the years ended December 31, 2009, 2008 and 2007, respectively. The
Company recognized a tax benefit of $7.2 million, $9.8 million and $8.1 million related to the stock options for
the years ended December 31, 2009, 2008 and 2007, respectively.
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 approximates the expected term. The dividend yield is zero as the Company has not, nor does it
currently plan to, issue dividends to its shareholders.
Year Ended December 31,
2009 2008 2007
Expected volatility 90% 50% 32%
Expected term (years) 4.3 4.6 4.5
Risk-free interest rate 2% 3% 5%
Dividend yield — — —
The weighted-average fair values of options granted were $0.62, $2.02 and $7.48 for the years ended
December 31, 2009, 2008 and 2007, respectively. Intrinsic value of options exercised were $0.1 million and
$50.6 million for the years ended December 31, 2008 and 2007, respectively. No stock options were exercised
for the year ended December 31, 2009.
A summary of options activity under the stock option plan is presented below:
Shares
(in thousands)
Weighted-
Average
Exercise Price
Weighted-
Average
Remaining
Contractual Life
Aggregate
Intrinsic Value
(in thousands)
Outstanding at December 31, 2008 28,626 $11.52 4.75 $ —
Granted 5,451 $ 0.95
Exercised — $ —
Canceled/forfeited (4,555) $14.25
Outstanding at December 31, 2009 29,522 $ 9.14 3.83 $3,932
Vested and expected to vest at December 31, 2009 28,826 $ 9.28 3.78 $3,539
Exercisable at December 31, 2009 20,608 $10.58 3.06 $ 290
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