eTrade 2011 Annual Report Download - page 155

Under the 2005 Plan, the remaining unissued authorized shares of the 1996 Plan, up to 4.2 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
3.9 million shares. In May 2009 and 2010, an additional 3.0 million and 12.5 million shares, respectively, were
authorized for issuance under the 2005 Plan at the Company’s shareholders’ annual meetings in each of those
respective years. As of December 31, 2011, 13.0 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 $2.4 million, $8.4 million and $19.5 million in compensation expense for stock
options for the years ended December 31, 2011, 2010 and 2009, respectively. The Company recognized a tax
benefit of $1.1 million, $3.2 million and $7.2 million related to the stock options for the years ended
December 31, 2011, 2010 and 2009, 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,
2011 2010 2009
Expected volatility 61% 78% 90%
Expected term (years) 4.2 4.2 4.3
Risk-free interest rate 2% 2% 2%
Dividend yield — — —
The weighted-average fair values of options granted were $8.50, $8.81 and $6.24 for the years ended
December 31, 2011, 2010 and 2009, respectively. Intrinsic value of options exercised were $0.7 million and $0.3
million for the years ended December 31, 2011 and 2010, 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, 2010 2,989 $75.62 3.57 $3,483
Granted 541 $17.52
Exercised (41) $10.42
Canceled/forfeited (776) $62.32
Outstanding at December 31, 2011 2,713 $68.83 3.68 $ —
Vested and expected to vest at December 31, 2011 2,613 $70.80 3.57 $ —
Exercisable at December 31, 2011 1,905 $90.77 2.80 $ —
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